Taukobong bets big on Telkom’s fibre assets
• Focus is on areas where it has a clear competitive advantage
Telkom, which sells itself as a telecom infrastructure business, has now — somewhat ironically
— shed its masts and towers portfolio.
CEO Serame Taukobong told Business Day the state-affiliated group is willing to participate only in areas, like fibre, where it has a clear competitive advantage. That, together with constraints on capital expenditure, is the reason Telkom would rather not compete with the likes of IHS and Vodacom.
In March, Telkom announced it had sold its towers business, Swiftnet, for almost R7bn, with some of the proceeds likely to go towards paying debt.
“We are looking at ourselves as an infraco [infrastructure company]. The key thing for us is: where do we compete to win and to lead?” Taukobong said in an interview.
“If you look at our infrastructure assets ... Telkom has 170,000km of fibre in the ground. That puts us on a strong competitive footing.”
Telkom is the largest fibre network operator in SA, with these assets dwarfing those of local competitors such Metrofibre, Vox’s Frogfoot or Remgro’s Maziv (comprising Vumatel and Dark Fibre Africa).
Even continental players such as Liquid Intelligent Technologies and MTN’s Bayobab, with 110,000km and 114,000km, respectively, are still some way off.
However, towers are another matter. Swiftnet owns and operates about 3,900 masts and towers in SA, which generated a profit of R188m in the six months to September 2023.
Taukobong said 2,900 of these towers “are commercially or economically active”.
“Look at the tower ecosystem in SA — there are about 21,000 towers. That is what sits in IHS’s ecosystem, and other tower companies. Then there’s Vodacom that’s talked about potentially listing their [tower company] as well, which is about 15,000 towers. I think they’ll bring about 8,000 to the market,” he said.
COMPETING
In 2022, MTN completed the sale and leaseback of 5,700 towers in SA through a R6.2bn deal with IHS, Africa’s largest tower operator. UK-based Helios Tower had 379 sites in SA in the fourth quarter of 2023, while American Tower Company has about 2,600 sites.
With just under 3,000 commercially active towers in service, he said “we’re not going to be competing effectively in that space”.
“If you look at the towers that Telkom currently owns, in terms of order of priority, the biggest clients are MTN, Vodacom and then Telkom Mobile.”
Telkom Mobile uses just under 8,000 towers, which it leases or rents.
“So Telkom Mobile sits in more towers than we currently own. You can see that in terms of the tower ecosystem, this is not core and primary to the overall infrastructure company play,” Taukobong concluded.
JSE-listed Telkom sold the SwiftNet business to a consortium of equity investors led and managed by Actis, which has 70% of the purchaser’s shares. The balance is held by Royal Bafokeng Holdings.
The conclusion of the deal will see Telkom join rivals MTN and Cell C in selling their towers businesses, leaving Vodacom as the only domestic player that still owns such infrastructure.
While letting go of such assets is a trend in the sector, it is Telkom that has positioned itself as focusing on being an infrastructure player. Vodacom and MTN have differentiated themselves through financial services and geographic expansion, while Cell C continues to be SA’s largest provider of mobile virtual network operator services.
When Telkom tried to list Swiftnet in early 2022, the business was valued at about R13bn, based on a sum of the parts calculation by former CEO
Sipho Maseko.
Business Day understands that initial listing plans were abandoned because market conditions allowed for a return of less than R10bn.
However, the market has turned since the initial valuation, and Taukobong said he is confident the R7bn price is fair.
The group has plans to release billions of rand trapped in its sprawling structure. Besides masts and towers, it has properties, IT company Business Connexion and internet fibre operator Openserve.
TELKOM HAS 170,000KM OF FIBRE IN THE GROUND. THAT PUTS US ON A STRONG COMPETITIVE FOOTING
Serame Taukobong CEO of Telkom