Telkom to shift focus as it recovers from Sh10bn loss

Telkom Kenya has announced that it will be making shifts in its strategic focus this year as it attempts to get back on the track to profitability on the back of a Sh10 billion loss last year.

Speaking at a press briefing last week, Telkom Kenya CEO, Mickael Ghossein, said the company had encountered severe conditions in the last trading year that had affected its ability to generate profits.

“We are now focusing on providing quality services, innovating and providing value for money. Our grand plan is to move the market towards true broadband connectivity, offering speeds of up to 8 mega bits per second,” he said.

The announcement comes at a time when the local telephony industry is in a state of flux.

On the one hand, traditional forms of communication such as the fixed line are being challenged by newer technologies such as the GSM services, popularised by mobile players.

Mid-last decade, mobile services presented an attractive proposition for telecommunication companies as the revenues recorded per customer were high, and a large number of the population was still untapped.

But the entry of new players into the market and the ensuing competition has seen profit levels in the industry drop as consumers enjoy cheaper tariffs leading to lower revenues per user.

Last year, Telkom Kenya generated revenues of Sh11 billion but its net loss was Sh10 billion, France Telecom — Telkom Kenya’s parent company — said in its results released recently.

On the other hand, fixed services remain a key strategic focus for Telkom, and Mr Ghossein said his firm was now ready to invest in its flagship fixed line services as it still presented a valuable proposition for the firm.

But in spite of the company managing to increase the number of subscribers on its fixed line network since its 2007 purchase by France Telecom, Telkom Kenya has struggled to maintain the revenues it earns from each customer.

In 2006, when the incumbent national operator was seeking a fresh injection of cash from a prospective buyer, the company estimated its average revenue per user (ARPU) amount to be $43.

In its latest earnings release, France Telecom, which bought the firm in 2007, says the company is now getting $19 from its fixed line clients, reflecting the downward pressure high competition in the telephony market has inflicted on revenues.

In the mobile segment, which Telkom Kenya entered in earnest in 2008, the picture is even more bleak since the company makes $1.8 in ARPUs from its mobile customers.

Compared to available ARPUs from its competitors Safaricom and Zain, who earn $6 and $4 per customer respectively, the low amounts indicate that the extreme competition in the voice market is already starting to impact on local firms bottom lines.

Nonetheless, analysts believe that Telkom Kenya’s profile is set to rise exponentially as it starts to flex its massive investments in infrastructure to its benefit this year.

The company now commands most of the fibre optic connectivity in the country, being the main transport vehicle for vital connections like the East African Marine System (TEAMS), the National Fibre Optic Backbone Infrastructure (NOFBI) and in April, providing the sole link for the East African Marine System (EASSy) for the region.

“Regardless of what is happening in the market today, it is clear that fixed line is among the few technologies that can deliver true broadband speeds. It is on this premise that we are pushing on with fixed,” said Mr Ghossein.

Telkom hopes to resolve the recurring vandalism issues it has faced on its fixed line network with a Sh52 million investment in a home made solution that will offer its fixed line clients seamless connectivity.

Fixed wireless

If a customer’s fixed line is cut, the call will be automatically forwarded to either a fixed wireless (CDMA) line or to a Telkom mobile number, meaning that ideally customers never lose their connectivity.

“We have resolved the issue of downtime due to cuts with this solution. It will be a virtually free service as no one will pay any extra tariffs for the handover,” said Angela Ng’ang’a-Mumo, Telkom’s Head of Corporate communications.

Telkom fixed customers can provide up to four alternative lines to which calls can be forwarded if they are not answered within reasonable time.