Weeks after agreeing to pay R2.1bn to buy radio frequency spectrum in an auction, Telkom is pressing ahead with a court application to declare the process illegal.
Telkom, whose reinvention to become a modern telecom operator has propelled it past Cell C as SA’s third-largest mobile operator, has long been opposed to the allocation of the government-controlled airwaves on grounds that the process is in conflict with a clause in the country’s ICT policy that aims to break the stranglehold of MTN and Vodacom on the mobile phone market.
“To secure its ability to compete effectively in the mobile market, Telkom persists with its court application to ensure that the licensing of spectrum promotes effective competition in the mobile market,” Telkom said in a statement published on the JSE’s regulatory news service.
The company’s statement came two weeks after the Independent Communications Authority of SA (Icasa), the industry watchdog, announced the outcome of the first spectrum auction in more than a decade. Spending by MTN and Vodacom towered over the other applicants, accounting for nearly three-quarters of the R14.4bn raised.
The court challenge, scheduled to be heard in the middle of April, could knock off course one of SA’s biggest structural reforms. A delay of more than a decade in releasing the new spectrum pushed up the costs of telecommunications in SA because mobile operators had to repurpose frequency bands historically used for voice to meet surging demand for internet connectivity.
Switch-off delay
Another challenger to the Icasa process is e.tv, which broadcasts analogue signals on the sub-1GHz spectrum. The free-to-air broadcaster — owned by investment holding company Hosken Consolidated Investments and eMedia — and Telkom have argued that by auctioning off the band, Icasa is selling real estate that it does not own or control because the broadcasting digital migration process has yet to be completed.
Late on Monday, the communications & digital technologies minister, Khumbudzo Ntshavheni, was ordered by the high court in Pretoria not to complete the analogue television switch-off on March 31 as she planned. In a case brought by e.tv, the court has ordered her to delay analogue switch-off by three months to June 30.
Telkom said it was constrained in its ability to acquire the amount of spectrum that it needs to compete effectively. It has net debt of R12.6bn, which put its net borrowings to core profit, or ebitda, at 1.1 times at the end of September 2021.
Still, the company said it had enough room on its balance sheet to fund the purchase of the two chunks of the spectrum bands that give it access to the sub-1GHz for the first time.
The long range of the sub-1GHz reduces the need to build many towers and is crucial to providing better internet coverage in underserved and rural areas and better indoor coverage.
It has also bought 22MHz of 3,500MHz, which will enable it to advance 5G.
Debt levels
Telkom advised shareholders that payment of R1.1bn is expected to be made this financial year, affecting debt levels, capital expenditure and free cash flow.
At the end of September, Telkom reported interim finance charges were 25.2% lower at R541m, with the company repaying maturing debt of about R1.1bn in the previous financial year and a further R100m in its first half.
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