Telkom Presentation to Parliament

22 October 2002

Telkom Presentation to

Parliament22 October 2002

2

Agenda

• Introduction - Mr. Chose Choeu• Performance Review - Ms Nombulelo

Moholi• Financial Highlights - Mr. Anthony Lewis• Legislation & Regulations Mr. Victor Moche• Concluding Remarks - Ms. Nombulelo Moholi

Question and Answer Session

3

Introduction

Telkom Chairman -

Ms Nomazizi Mtshotshisa

4

Executive management

Chian Khai Tan

Chief Executive Officer

Sizwe Nxasana

Chief Strategic Officer

Anthony Lewis

Chief Financial Officer

Pinky Moholi

Chief Sales & Marketing Officer

Reuben September

Chief Technical Officer

Chief Operating Officer

Shawn McKenzie

5

Telkom Foundation

Chief Executive Officer

Mrs Nkhetheleng Vokwana

Performance Review Performance Review

Nombulelo Moholi

7

Group operational structure

Wireless data

Mobile Vodacom

Swiftnet

Wireless

Segment Business line

Wireline

Directories

Fixed-line(Voice & Data)

Telkom

Telkom Directory Services

Legal entity

8

Six line roll-out targets

Target Actual Achieved

Lines (excl payphones) 2 690 000 2 673 552 Payphones 120 000 132 990 Under-serviced 1 676 000 1 787 968 Priority customers 20 246 25 577 Villages 3 204 2 699 Replacement lines 1 252 000 1 159 668

9

Ten service quality targetsTarget Actual Achieved

Faults per 1 000 lines: Business 370 288 Faults per 1 000 lines: Residential 390 547 % faults cleared within 48 hours: Business 86% 96% % faults cleared within 48 hours: Residential 78% 94% Service of public payphones

Coin telephones 90% 95% Card telephones 95% 98%

Business orders met within 28 days 90% 97% Business orders met within 90 days 98% 99.85% Residential orders met within 28 days 80% 95% Residential orders met within 120 days 98% 99.79%

10

Highlights in 2002

• Completed licence obligations on 7 May 2002• Substantially completed tariff rebalancing• Renegotiated interconnection agreements• Group operating cash flow grew by 10% to R8.7bn• Group revenues grew by 8% to R34.0bn• Group capex decreased by 7%• EPS grew by 17% to 338.9 cents

11

Achievements• World class network• Launch of Afrolinque (SAT-3/WASC/SAFE)• Vodacom acquired 51% interest in a company holding

a GSM licence in Democratic Republic of Congo• Vodacom acquired a licence in Mozambique and

established a new company with 98% shareholding• Switched hubbing and transit traffic growth of 70%• ISDN channels growth of 25% • Prepaid subscriber growth of 47% • Payphone unit growth of 10%• Launched ADSL in August 2002• Advanced preparations of IPO

Financial Highlights Financial Highlights

Anthony Lewis

13

Group revenue

Group revenue growth over past

three years is as a result of: Increased fixed-to-mobile

traffic revenues Increased data connectivity Increased mobile

subscribers and revenue

27,916

31,457

33,970

8%

18%

15%

2000 2001 2002

Group revenue (Rm)Group revenue growth

Group Revenue (Rm) at 31 March

31 March 2002 SA GAAP, auditedAfter inter-company eliminations

14

Segment contribution

Operating profit 31 March 2002

80%20%

Fixed-line Mobile

Revenues 31 March 2002

SA GAAP, auditedAfter inter-company eliminations

SA GAAP, auditedAfter inter-company eliminations

62%

38%

Fixed-line Mobile

15

Fixed-line segment (Rm)Revenue increase of 5%

27,898

26,512

2002

2001

Operating profit decrease of 9.5%

3,316

3,662

2002

2001

Capex (Rbn) decrease of 15% Total assets(Rbn)1 increase of 9%

1. Excluding investments, financial and tax assets

8.2

6,9

2002

2001

42,478

42,112

2002

2001

SA GAAP, audited, before inter-company eliminations

16

Fixed-line revenue

24,59726,512

27,898

2000 2001 2002Fixed-line revenue (Rm)Fixed-line revenue growth

Fixed-line revenue

SA GAAP, auditedBefore inter-company eliminations

7.8%

5.2%

17

Group income statement% change2001

(6)617580Investment income

151 7091 972PAT

7(742)(792)Taxation

1(3 041)(3 066)Finance charges

84 8755 250EBIT

5(4 987)(5 243)Depreciation and amortisation

69 86210 493EBITDA

831 45733 970Revenue

31 March (Rm)

(16)6857Minority interests

171 6411 915Net income for year

2002

Strategic ReviewLegislation &Regulations

Victor Moche

19

Key Legislation impacting Telkom

• Telecommunications Amendment Act of 2001

• Regulation of Interception of Communications and Provision of Communication related Information Bill

• Promotion of Access to Information Act

• SITA Amendment Bill

• Electronic and Communications Transactions Act

• Electronic Communications Security (Pty) Ltd Bill

20

Telecoms Amendment Act 2001

• Managed liberalisation• Facility-based competition• Licencing of new operators

A second network operator (SNO)An international “carrier of carriers” licence (Sentech)A multimedia licence (Sentech)Under serviced area licences (SMME)

• Edu-net Discount Rate

21

Competitive EnvironmentCompetitive Environment

Telkom Competitors

2005?2005? VANSVANS

SMME’sSMME’s

CellularCellular

SNOSNO

PTN’sPTN’s

SENTECHSENTECH

22

Regulations: Carrier Pre-Selection

• Carrier pre-selection to be phased in by no later than 31 December 2003?

• Assumed that most per operator and per subscriber set-up costs (including maintenance costs) and all system set-up costs are recovered.

• Costs may not be fully recovered.

• Significant additional CAPEX required

• Premature introduction will discourage infrastructure build-out

23

Interconnection with SMMEs

• Draft Regulations and corrections have been published

• Asymmetrical termination charges with a minimum differential of 30% in favour of USAL for national long distance services

• Symmetrical termination charges for telecoms services within licensed area

• Symmetrical termination charges to mobile cellular

operators

24

Regulation of Interception of Communications and Provision of Communications Related Information Bill

Synopsis of BillTo regulate authorised interception and monitoring of

communications for national security and law enforcement

and to prohibit telecommunications that cannot be

monitored.

Impact on Telkom Period and storage of information Costs and Cost Recovery Prescription of Tariffs & Technology Collection of Consumer Details

25

Promotion of Access to Information Act

Synopsis of the Act

To give effect to constitutional right of access to any

information held by the State and any other person that is

required for the exercise and protection of any rights.

Impact on TelkomCompile information manuals (as public & private)Appointment of information officersTelephone directory entries Information to the Human Rights Commission

26

SITA Amendment Bill

Synopsis of BillTo improve service delivery to the public and to promote the

efficiency of departments and organs of state through the use

of IT

Impact on Telkom SITA Exclusivity on authentication SITA Monopoly on Govt PTNs Cost effective and efficient service?

27

Electronic Communications and Transactions Act

• Synopsis of BillTo facilitate and regulate electronic communications and

transactions. To entrench the legitimacy, trust, security and

integrity of electronic communications and transactions whilst at

the same time safeguarding the interests of consumers against

commercial malpractice and exploitation

• Impact on Telkom Delayed provisioning of services – cooling off period Effects of the Interception and Monitoring Act – ID verification Increased administration of critical databases Cost of compliance with regulations – infrastructural and

procedural rules

28

Electronic Comms Security (Pty) Ltd

Synopsis of the ActTo ensure the protection and security of governmentelectronic communications.Impact on Telkom

Encroachment on PSTS domainLicensing and tariffs at variance with

Telecommunications ActEquity in other companies – industrial biasApplication of the Bill to private sector – critical

communications infrastructureVerification and approval of electronic communication

products and services by Comsec

29

Major Costs-Implication Legislation and Regulation• E-Rate• Free Calls• Number Portability• Carrier Pre-selection• Frequency Spectrum • Universal Service Fund Contribution• Rate Regime/Price Control• COA/CAM Compliance• USAL Interconnection• Regulation of Interception of Communications and

Provision of CRI – Storage & Hardware

ConclusionConcluding Remarks

Nombulelo Moholi

31

Strategic goals and objectives

• Our two primary strategic goals continue to focus overall priorities within the group Increase shareholder value Position the group for increased competition

• Key strategic objectives support long-term goals Expand integrated service offerings Grow and successfully compete in core markets Achieve greater customer satisfaction Improve corporate performance Continue to invest in employees

32

Positioned for the future

• Telkom is ready to operate in a more competitive environment We have a world-class network We are creating a competitive culture We have strong international partners We are constantly improving the customer experience

• We have what it takes to be the communications provider of choice

• We continue to reduce costs and achieve greater efficiencies to derive higher returns for shareholders

QuestionsQ & A

Markinor / SundayTimes Top Brand Survey

• 1998 Voted “Most Admired Company”

• 1999 – 2002 Voted“The second most admired Company”

• 2002 Voted“Most Loved South African Company”

35

3 Minute local call

1.37

1.06 1.04

0.87 0.87 0.87

0.750.71 0.69

0.65 0.64

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Is Telkom Out of Line?36

Residential connection

1,504

1,334 1,3151,269

1,118

1,042

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716 716 705

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Is Telkom Out of Line?37

Three-minute long distance call

7.29

6.58

5.345.15

4.914.69

4.304.13

3.90

3.49

2.68 2.68

1.961.71 1.62

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Satisfied Customer

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

FY 00 FY 01

Business

Corporate

Consumer

Top 3 Box Scores

% Satisfied

39

32 9393 031Provisions and deferred taxation

552 54855 014Equity and liabilities¹

79 73410 431Current liabilities

(5)24 96023 818Interest-bearing debt

1814 79717 398Capital and reserves

552 54855 014Total assets

(11)12 71611 325Current assets

1039 83243 689Non-current assets

Group balance sheet% change2001200231 March (Rm)

1. Minority interest included

Competition and the Public Good40

Governments have conflicting objectives from liberalisation which must be balanced

Create healthy competition

• Continued incumbent profitability

• Viable and sustainable Second Network Operator

Improve “public good”

• Expanded access• Reduced consumer prices with improved

service• Employment growth, transformation and new

business opportunity• Increased foreign investment• Provision of leading edge services

Regulatory Environment41

Critical Success Factors

• Sustainable profitable sector for incumbent and new operators

• Ensure SNO has opportunity to obtain critical mass

• Appropriate application of regulatory tools to create the right market structure

• Regulatory framework must be transparent and predictable

• Regulatory framework must have clear and consistent guidelines