SOUTH AFRICA'S TELKOM PROFIT UP 35% ON VODACOM MOBILE GROWTH AND COST-CUTTING

Mergers, Acquisitions and Financial Results

Africa's biggest telecoms company, Telkom, reported a 35-percent jump in first-half headline earnings per share, thanks to a leaner wage bill and profit growth at its mobile phone business Vodacom.

South Africa's Telkom said in a statement on Monday headline earnings per share in the six months to the end of September increased to 775.9 rand cents from 574.9 cents in the year-ago period.

The state-controlled fixed-line phone carrier had forecast a 35-55 percent increase in first-half headline earnings per share -- the main measure of profit in South Africa, which strips out capital, non-trading and certain one-off items.

Telkom's 50-percent-owned mobile phone business, Vodacom, increased its customer base by 42 percent during the period to 19.1 million, and said it expected to maintain or increase market share.

"These seem like a good set of results, with Vodacom's performance slightly better than we were expecting," said one telecoms analyst in Johannesburg. "I'd like to see some more detail on their broadband strategy going forward."

Most analysts say Telkom is still well-priced at 11 times this year's earnings, given fat multiples for emerging-market cellular assets such as Vodacom. Its closest rival, mobile operator MTN, trades at 14 times this year's earnings.

But that could change if new Chief Executive Papi Molotsane and his team fail to tackle the challenge of fully fledged competition, which is slated to come next year in the form of the long-delayed second national fixed-line operator.

The company did not pay an interim dividend but said it bought back 12.1 million shares worth 1.5 billion rand.

Molotsane, briefing reporters for the first time since taking the job in August, said the company would retain its competitive edge by focusing on customers.

Telkom has faced stiff criticism from consumer groups, regulator ICASA and even the government over what are perceived as excessively high tariffs, which are deterring foreign investors and impeding the rollout of services to the poor.

Telkom noted it had cut tariffs, which would hit its core profit margin in the second half, pushing the full-year figure to below current levels of around 44 percent but above 40 percent.

Telkom said it would concentrate on boosting revenue from data services, which had helped offset declining voice tariffs and traffic in the first half, and said it would cut broadband prices to lure more customers.

"In terms of our rebalancing we will be bringing tariffs down," Chief Operating Officer Reuben September said.

As in previous periods, stellar growth at Vodacom was the key driver for Telkom and the mobile company said it expected to retain or improve its market share in South Africa and other markets, where it is already number one.

Britain's Vodafone said earlier this month it was in exclusive talks to increase its stake in Vodacom to 50 percent by buying out South African investment firm Venfin, and has been buying shares in Venfin on the market.

Telkom is a favourite to win bidding for a majority stake in Nigeria's state-controlled Nitel, but said it was still in talks with potential mobile partners to help it run Nitel's M-Tel cellular arm. Analysts tipped Kuwait's MTC, Egypt's Orascom and Etisalat as possibilities.

Reuters