SEC Info℠  
    Home      Search      My Interests      Help      Sign In      Please Sign In

Telkom SA Ltd – ‘20-F’ for 7/18/07

On:  Friday, 7/18/08, at 5:48pm ET   ·   As of:  7/21/08   ·   For:  7/18/07   ·   Accession #:  1205613-8-119   ·   File #:  1-31609

Previous ‘20-F’:  ‘20-F’ on / for 7/17/07   ·   Next & Latest:  ‘20-F/A’ on / for 10/23/08   ·   2 References:   

Find Words in Filings emoji
 		  in    Show  and   ↓Hints

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/21/08  Telkom SA Ltd                     20-F        7/18/07    2:16M                                    Ince Pty Ltd/FA

Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   5.09M 
 2: 20-F        Annual Report of a Foreign Private Issuer --         PDF   6.34M 
                          telkom20fcomb

20-F   —   Annual Report of a Foreign Private Issuer

This is an HTML Document rendered as filed.  [ Alternative Formats ]

  Page 1  
background image
As filed with the Securities and Exchange Commission on July 18, 2008
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring the shell company report
Commission file number: 001-31609
TELKOM SA LIMITED
(Exact name of Registrant as specified in its charter)
THE REPUBLIC OF SOUTH AFRICA
(Jurisdiction of incorporation or organization)
Telkom Towers North
152 Proes Street
Pretoria 0002
The Republic of South Africa
(27)(12)311-3566
(Address of principal executive offices)
Company Secretary: Sandi Linford (27)(12)311 7743; (27)(12)311 4777, Private Bag X881, Pretoria 0001
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
American Depositary Shares, each representing four (4)
New York Stock Exchange, Inc.
Ordinary Shares, par value R10 per share
Ordinary Shares, par value R10 per share
New York Stock Exchange, Inc.*
*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements
of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the
period covered by the annual report.
Ordinary Shares, par value R10 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
499,441,985
Class A Ordinary Share, par value R10 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Class B Ordinary Share, par value R10 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[x] Yes
[ ] No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[ ] Yes
[x] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[x] Yes
[ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included
in this filing:
U.S. GAAP [ ]
International Financing Standards as issued
Other [ ]
by the International Accounting Standards Board [x]
If “other” has been checked in response to this previous question indicate by check mark which financial statement
item the registrant has elected to follow.
[ ] Item 17
[ ] Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
[ ] Yes
[x] No
X
background image
Unless the context requires otherwise, references to “we”, “us”, “our” and the “Telkom Group” in
this annual report refer to Telkom SA Limited and its subsidiaries and its 50% interest in Vodacom,
and references to “Telkom” in this annual report refer only to Telkom SA Limited. References to
“Vodacom” in this annual report refer to Telkom’s 50% owned joint venture, Vodacom Group (Pty)
Limited, and its subsidiaries. We do not control Vodacom, the management of which requires
consensus agreement among its shareholders who are party to Vodacom’s joint venture agreement.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Many of the statements included in this annual report, as well as oral statements that may be
made by us or by officers, directors or employees acting on behalf of us, constitute or are based on
forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of
1995, specifically Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the
U.S. Securities Exchange Act of 1934, as amended. All statements, other than statements of historical
facts, including, among others, statements regarding our mobile and other strategies future financial
position and plans, objectives, capital expenditures, projected costs and anticipated cost
savings and financing plans, as well as projected levels of growth in the communications market, are
forward looking statements. Forward looking statements can generally be identified by the use of
terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”, “estimate”,
“anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases, although the absence of such
words does not necessarily mean that a statement is not forward looking.
These forward looking statements involve a number of known and unknown risks, uncertainties
and other factors that could cause our actual results and outcomes to be materially different from
historical results or from any future results expressed or implied by such forward looking statements.
Among the factors that could cause our actual results or outcomes to differ materially from our
expectations are those risks identified in Item 3. “Key Information – Risk Factors”, including, but not
limited to, any changes to our mobile strategy and Vodacom holdings and our ability to successfully
implement such strategy and organizational changes thereto, increased competition in the South
African fixed-line, mobile and data communications markets; our ability to implement our strategy of
transforming from basic voice and data connectivity to fully converged solutions, developments in the
regulatory environment; continued mobile growth and reductions in Vodacom’s and Telkom’s net
interconnect margins; Telkom’s and Vodacom’s ability to expand their operations and make
investments and acquisitions in other African countries and the general economic, political, social and
legal conditions in South Africa and in other countries where Telkom and Vodacom invest; our ability
to improve and maintain our management information and other systems; our ability to attract and
retain key personnel and partners; our inability to appoint a majority of Vodacom’s directors and the
consensus approval rights at Vodacom may limit our flexibility and ability to implement our preferred
strategies; Vodacom’s continued payment of dividends or distributions to us; our negative working
capital; changes in technology and delays in the implementation of new technologies; our ability to
reduce theft, vandalism, network and payphone fraud and lost revenue to non-licensed operators; the
amount of damages Telkom is ultimately required to pay to Telcordia Technologies Incorporated; the
outcome of regulatory, legal and arbitration proceedings, including tariff approvals, and the outcome of
Telkom’s hearings before the Competition Commission and others; any requirements that we
unbundle the local loop, our ability to negotiate favorable terms, rates and conditions for the provision
of interconnection services and facilities leasing services or if ICASA finds that we or Vodacom have
significant market power or otherwise imposes unfavorable terms and conditions on us; our ability to
implement and recover the substantial capital and operational costs associated with carrier pre-
selection, number portability and the monitoring, interception and customer registration requirements
contained in the South African Regulation of Interception of Communications and Provisions of
Communication-Related Information Act and the impact of these requirements on our business;
1
background image
Telkom’s ability to comply with the South African Public Finance Management Act and South African
Public Audit Act and the impact of the Municipal Property Rates Act; fluctuations in the value of the
Rand and inflation rates; the impact of unemployment, poverty, crime, HIV infection, labor laws and
labor relations, exchange control restrictions and power outages in South Africa; and other matters not
yet known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward looking statements. All written and
oral forward looking statements attributable to us, or persons acting on our behalf, are qualified in
their entirety by these cautionary statements. Moreover, unless we are required by law to update
these statements, we will not necessarily update any of these statements after the date of this annual
report, either to conform them to actual results or to changes in our expectations.
2
background image
TABLE OF CONTENTS
Page
PART I
Item 1.
Identity of directors, senior management and advisors . . . . . . . . . . . . . .
4
Item 2.
Offer statistics and expected timetable . . . . . . . . . . . . . . . . . . . . . .
4
Item 3.
Key information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Item 4.
Information on the company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Item 5.
Operating and financial review and prospects . . . . . . . . . . . . . . . . . . .
142
Item 6.
Directors, senior management and employees . . . . . . . . . . . . . . . . . .
192
Item 7.
Major shareholders and related party transactions . . . . . . . . . . . . . . . .
226
Item 8.
Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
234
Item 9.
The offer and listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
239
Item 10.
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
242
Item 11.
Quantitative and qualitative disclosures about market risk . . . . . . . . . . . .
275
Item 12.
Description of securities other than equity securities . . . . . . . . . . . . . . .
282
PART II
Item 13.
Defaults, dividend arrearages and delinquencies . . . . . . . . . . . . . . . . .
283
Item 14.
Material modifications to the rights of security holders and use of proceeds . . .
283
Item 15.
Controls and procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283
Item 16A.
Audit committee financial expert . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Item 16B.
Code of ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Item 16C.
Principal accountant fees and services . . . . . . . . . . . . . . . . . . . . . .
286
Item 16D.
Exemptions from the listing standards for audit committees . . . . . . . . . . .
287
Item 16E.
Purchases of equity securities by the issuer and affiliated purchasers . . . . . .
289
PART III
Item 17.
Consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . .
290
Item 18.
Consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . .
290
Item 19.
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
291
3
background image
PART I
Item 1.
Identity of directors, senior management and advisors
Not applicable.
Item 2.
Offer statistics and expected timetable
Not applicable.
Item 3. Key information
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF THE TELKOM GROUP
The following table sets forth selected historical consolidated financial and other data of the
Telkom Group as of and for each of the periods set forth therein. Information in the following table
includes our 50% interest in the results, assets, liabilities and equity of Vodacom, which we
proportionately consolidate. Unless otherwise indicated, fixed-line statistical data is derived from the
results of operations of our fixed-line segment, which provides fixed-line voice and data
communications services through Telkom. Telkom’s mobile segment provides mobile services through
its 50% joint venture interest in Vodacom. Telkom’s other segment provides directory services, through
our 64.9% owned subsidiary, TDS Directory Operations, fixed, mobile, long distance and international
communications services throughout Nigeria, through our 75% owned subsidiary, Multi-Links, internet
services outside South Africa through our wholly owned subsidiary, Africa Online, and wireless data
services through our wholly owned subsidiary, Swiftnet, and also includes Telkom Media.
The following selected historical consolidated financial data of the Telkom Group as of and for
each of the three years ended March 31, 2008 was derived from the Telkom Group’s consolidated
financial statements included in this annual report, which have been audited by Ernst & Young Inc.,
Registered Auditors, Chartered Accountants (SA). The following selected historical consolidated
financial data of the Telkom Group as of and for each of the two years ended March 31, 2005 and
2004 was derived from the Telkom Group’s consolidated financial statements not included in this
annual report, which have also been audited by Ernst & Young Inc., Registered Auditors, Chartered
Accountants (SA).
The consolidated financial statements of the Telkom Group have been prepared in accordance
with International Financial Reporting Standards, or IFRS, which differs in certain respects from
U.S. Generally Accepted Accounting Principles, or U.S. GAAP. As permitted by Release Number
33-8879 issued by the U.S. Securities and Exchange Commission, or SEC, and the rules promulgated
pursuant thereto, the Telkom Group’s consolidated financial statements comply with IFRS as issued
by the International Accounting Standards Board, or IASB, and accordingly, the Telkom Group has
not included in this Annual Report on Form 20-F, a reconciliation of its consolidated financial
statement from IFRS to U.S. GAAP.
EBITDA represents net profit for the year, which includes profit on sale of investments, before
taxation, finance charges, investment income and depreciation, amortization, impairment and
write-offs. We believe that EBITDA provides meaningful additional information to investors since
it is widely accepted by analysts and investors as a basis for comparing a company’s underlying
operating profitability with that of other companies as it is not influenced by past capital expenditures
or business acquisitions, a company’s capital structure or the relevant tax regime. This is particularly
the case in a capital intensive industry such as communications. It is also a widely accepted indicator
of a company’s ability to service its long-term debt and other fixed obligations and to fund its
continued growth. EBITDA is not a U.S. GAAP or IFRS measure. You should not construe EBITDA
4
background image
as an alternative to operating profit or cash flows from operating activities determined in accordance
with U.S. GAAP or IFRS or as a measure of liquidity. EBITDA is not defined in the same manner
by all companies and may not be comparable to other similarly titled measures of other companies
unless the definition is the same. In addition, the calculation of EBITDA for the maintenance of our
covenants contained in our TL20 bond is based on accounting policies in use, consistently applied,
at the time the indebtedness was incurred. As a result, EBITDA for purposes of those covenants is not
calculated in the same manner as it is calculated in the table below.
Fixed access lines are comprised of public switched telecommunications network lines, or PSTN
lines, including integrated services digital network channels, or ISDN channels, prepaid lines, ADSL
lines and public and private payphones, but excluding internal lines in service. We calculate fixed-line
penetration, or teledensity, based on the total number of telephone lines in service at the end of the
period per 100 persons in the population of South Africa. Population is the estimated South African
population at the mid year in the periods indicated as published by Statistics South Africa, a South
African governmental department. We calculate fixed-line traffic, other than international outgoing
mobile traffic, international interconnection traffic and international voice over internet protocol traffic,
by dividing traffic operating revenue for the particular category by the weighted average tariff for such
category during the relevant period. Fixed-line international outgoing mobile traffic and international
interconnection traffic are based on the traffic registered through the respective exchanges and
reflected in international interconnection invoices. International voice over internet protocol traffic is
based on the traffic reflected in invoices. We calculate revenue per fixed access line by dividing total
fixed-line revenue during the period by the average number of fixed access lines in service during the
period. We calculate our number of fixed-lines per fixed-line employee on the basis of fixed access
lines in service at period end divided by the number of employees of Telkom at period end.
Rand amounts as of and for the year ended March 31, 2008 have been translated into U.S.
Dollars solely for your convenience at R8.14 per U.S.$1.00, the Rand noon buying rate discussed in
Item 3. “Key Information – Exchange Rates” on March 31, 2008, the date of the Telkom Group’s most
recent consolidated balance sheet included in this annual report. These translations should not be
construed as representations that the Rand amounts could actually be converted into U.S. Dollars at
these rates or at all.
You should read the following information together with Item 3. “Key Information – Risk Factors”,
Item 5. “Operating and Financial Review and Prospects” and the consolidated financial statements
and the notes thereto of the Telkom Group and Vodacom Group included in this annual report.
5
background image
THE TELKOM GROUP
Year ended March 31,
  2004  
  2005   
  2006  
  2007  
  2008  
  2008  
 
  ZAR  
  ZAR   
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions, except per share amounts)
Income Statement Data
Amounts in accordance with IFRS
Operating revenue . . . . . . . . . . . .
40,582
43,160
47,625
51,619
56,285
6,915
Other income
(1)
. . . . . . . . . . . . . .
255
280
480
384
534
66
Operating expenses . . . . . . . . . . .
(31,499)     (32,179)    (33,428)    (37,533)    (42,337)
(5,201)
Employee expenses
(2)
. . . . . . . . . . .
(7,408)
(8,111)
(7,489)
(8,454)
(9,220)
(1,133)
Payments to other operators . . . . . . .
(5,985)
(6,132)
(6,826)
(7,590)
(9,169)
(1,126)
Selling, general and administrative
(3)
. . .
(7,665)
(8,824)    (10,273)     (12,902)    (14,409)
(1,770)
Services rendered . . . . . . . . . . . . .
(2,269)
(2,021)
(2,114)
(2,291)
(2,571)
(316)
Operating leases . . . . . . . . . . . . .
(924)
(803)
(850)
(981)
(838)
(103)
Depreciation, amortization, impairments
and write-offs
(4)
. . . . . . . . . . . . . .
(7,248)
(6,288)
(5,876)
(5,315)
(6,130)
(753)
Operating profit . . . . . . . . . . . . .
9,338
11,261
14,677
14,470
14,482
1,780
Investment income . . . . . . . . . . . .
322
350
397
235
197
24
Finance charges
(3)
. . . . . . . . . . . . .
(3,264)
(1,694)
(1,223)
(1,125)
(1,803)
(221)
Profit before tax . . . . . . . . . . . . .
6,396
9,917
13,851
13,580
12,876
1,583
Taxation . . . . . . . . . . . . . . . . . .
(1,738)
(3,082)
(4,523)
(4,731)
(4,704)
(578)
Profit for the year . . . . . . . . . . . . .
4,658
6,835
9,328
8,849
8,172
1,005
Attributable to:
Equity holders of Telkom . . . . . . . . .
4,589
6,752
9,189
8,646
7,975
981
Minority interest . . . . . . . . . . . . . .
69
83
139
203
197
24
Weighted average number of ordinary
shares outstanding
Basic . . . . . . . . . . . . . . . . . .
557
541
526
514
510
510
Diluted . . . . . . . . . . . . . . . . .
557
543
529
516
516
516
Earnings per share (cents)
Basic . . . . . . . . . . . . . . . . . .
823.9      1,246.9       1,746.1      1,681.0     1,565.0
192.3
Diluted . . . . . . . . . . . . . . . . .
823.9      1,244.5      1,736.6      1,676.3      1,546.9
190.0
Dividends per share (cents)
(5)
. . . . . .
90.0
110.0
900.0
900.0      1,100.0
135.1
Notes:
(1)
Other income includes profit and losses on disposal of investments, property, plant and equipment and intangible assets.
(2)
Employee expenses include workforce reduction expenses of R3 million, R24 million, R88 million, R961 million and
R302 million in the years ended March 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(3)
In the year ended March 31, 2003, we recorded a R117 million gain related to the R325 million provision for potential
liabilities related to Telkom’s arbitration with Telcordia in terms of IAS21 and IAS39 in finance charges as a result of the
strengthening of the Rand. In addition, we included a provision for interest of R40 million related to Telcordia in finance
charges in the year ended March 31, 2003 and a provision for legal fees of R58 million related to Telcordia is included in
services rendered in the year ended March 31, 2003. In the year ended March 31, 2004, all of these provisions were
reversed due to a court ruling at that time. In the year ended March 31, 2007 we recorded a provision of R527 million for
6
background image
probable liabilities related to Telkom’s arbitration with Telcordia, excluding legal fees, of which R510 million is included in
selling, general and administrative expenses and R11 million for interest and R6 million for foreign exchange rate effect is
included in finance charges. In the year ended March 31, 2008 we increased the provision to R569 million for probable
liabilities related to Telkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to
increased interest of R53 million and foreign exchange rate effect of R52 million which are included in finance charges,
partially offset by a provisional payment made in respect of specific sub-claims within the Telcordia claim.
(4)
Depreciation, amortization, impairments and write-offs include costs in respect of write-offs of R285 million (including a
R217 million impairment relating to Telkom Media in the 2008 financial year), R284 million, R188 million, R210 million and
R201 million in the 2008, 2007, 2006, 2005 and 2004 financial years, respectively.
(5)
Dividends per share represents dividends paid in the applicable year in respect of the prior year’s earnings and results.
As of March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
Balance Sheet Data
Amounts in accordance with IFRS
Total assets . . . . . . . . . . . . . . . .
53,174
57,597
57,544
59,146
70,372
8,645
Current assets . . . . . . . . . . . . . . .
11,423
15,045
12,731
10,376
12,609
1,549
Cash and cash equivalents . . . . . . .
3,218
3,210
4,948
749
1,134
139
Other current assets . . . . . . . . . .
8,205
11,835
7,783
9,627
11,475
1,410
Non-current assets . . . . . . . . . . . .
41,751
42,552
44,813
48,770
57,763
7,096
Total liabilities
(6)
. . . . . . . . . . . . .
31,346
31,236
28,078
27,138
37,035
4,550
Current liabilities
(7)
. . . . . . . . . . . . .
14,639
17,366
15,687
18,584
21,931
2,694
Short-term debt
(6)(7)
. . . . . . . . . . .
4,473
5,408
4,161
6,467
7,672
943
Other current liabilities . . . . . . . . .
10,166
11,958
11,526
12,117
14,259
1,751
Non-current liabilities
(8)
. . . . . . . . . .
16,707
13,870
12,391
8,554
15,104
1,856
Long-term debt
(6)(8)
. . . . . . . . . . .
12,703
9,504
7,655
4,338
9,403
1,155
Other non-current liabilities . . . . . . .
4,004
4,366
4,736
4,216
5,701
701
Total equity
(9)
. . . . . . . . . . . . . . .
21,828
26,361
29,466
32,008
33,337
4,095
Attributable to:
Equity holders of Telkom . . . . . . . . .
21,628
26,141
29,165
31,724
32,815
4,031
Minority interest . . . . . . . . . . . . . .
200
220
301
284
522
64
Notes:
(6)
As of March 31, 2008, R141 million of our debt was guaranteed by the Government of the Republic of South Africa.
(7)
Includes short-term portion of finance leases, funding loans and interest bearing and non-interest bearing debt, as well as
utilized credit facilities.
(8)
Includes long-term portion of finance leases, funding loans and interest bearing and non-interest bearing debt.
(9)
Includes share capital and share premium of R5,208 million, R5,329 million, R6,791 million, R8,293 million and
R8,293 million in the 2008, 2007, 2006, 2005 and 2004 financial years, respectively.
7
background image
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
Cash Flow Data
Amounts in accordance with IFRS
Cash flows from operating activities . . . .
13,884
15,711
9,506
9,356
10,603
1,303
Cash flows from investing activities . . . .
(5,423)
(6,306)
(7,286)   (10,412)  (14,106)
(1,733)
Cash flows from financing activities . . . .
(6,481)
(9,897)
(258)
(2,920)
2,943
362
Other Data
Amounts in accordance with IFRS
EBITDA
(10)
. . . . . . . . . . . . . . . . .
16,586
17,549
20,553
19,785
20,612
2,533
Total debt (at period end)
(6)(11)
. . . . . . .
17,176
14,912
11,816
10,805
17,075
2,098
Capital expenditures excluding intangible
assets . . . . . . . . . . . . . . . . . . .
4,936
4,464
6,310
8,648
10,108
1,242
Capital expenditures including intangible
assets . . . . . . . . . . . . . . . . . . .
5,368
5,851
7,506
10,246
11,900
1,462
Notes:
(10) EBITDA can be reconciled to profit for the year as follows:
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
EBITDA . . . . . . . . . . . . . . . . . .
16,586
17,549
20,553
19,785
20,612
2,533
Depreciation, amortization, impairments
and write-offs . . . . . . . . . . . . . . .
(7,248)
(6,288)
(5,876)
(5,315)
(6,130)
(753)
Investment income . . . . . . . . . . . .
322
350
397
235
197
24
Finance charges . . . . . . . . . . . . . .
(3,264)
(1,694)
(1,223)
(1,125)
(1,803)
(221)
Taxation . . . . . . . . . . . . . . . . . .
(1,738)
(3,082)
(4,523)
(4,731)
(4,704)
(578)
Profit for the year . . . . . . . . . . . . .
4,658
6,835
9,328
8,849
8,172
1,005
(11) Includes short-term and long-term finance leases, funding loans and interest bearing and non-interest bearing debt, as
well as utilized credit facilities.
8
background image
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
Fixed-Line Statistical Data
Fixed access lines (thousands) (at year end)
(12)
. .
4,680
4,726
4,708
4,642
4,532
Postpaid
PSTN
(13)
. . . . . . . . . . . . . . . . . . . . . .
3,048
3,006
2,996
2,971
2,893
ISDN channels . . . . . . . . . . . . . . . . . . .
601
664
693
718
754
Prepaid . . . . . . . . . . . . . . . . . . . . . . . .
856
887
854
795
743
Payphones
(14)
. . . . . . . . . . . . . . . . . . . . .
175
169
165
158
143
Fixed-line penetration rate (%) (at year end)
(12)
. .
10.1
10.1
10.0
9.8
9.5
Revenue per fixed access line (ZAR)
(12)
. . . . . .
5,341
5,250
5,304
5,275
5,250
Total fixed-line traffic (millions of minutes)
(15)
. . .
32,942
31,706
31,015
29,323
26,926
Local . . . . . . . . . . . . . . . . . . . . . . . .
20,547
19,314
18,253
14,764
11,317
Long distance . . . . . . . . . . . . . . . . . . .
4,616
4,453
4,446
4,224
3,870
Fixed-to-mobile . . . . . . . . . . . . . . . . . . .
3,980
3,911
4,064
4,103
4,169
International outgoing . . . . . . . . . . . . . . .
427
415
515
558
635
International voice over internet protocol . . . . .
25
89
83
38
43
Interconnection . . . . . . . . . . . . . . . . . . .
3,347
3,524
3,654
3,740
3,895
Subscription based calling plans . . . . . . . . . .
–
–
–
1,896
2,997
Data Communications Services
(at year end)
Managed network sites . . . . . . . . . . . . . . . .
9,061
11,961
16,887
21,879
25,112
Internet dial-up subscribers . . . . . . . . . . . . . .                                 142,208      202,410    228,930      210,453     242,732
Internet ADSL subscribers . . . . . . . . . . . . . .
8,559
22,870
53,997
92,140      115,334
Total ADSL subscribers
(16)
. . . . . . . . . . . . . . .
20,145
58,278    143,509      255,633     412,190
Number of full-time, Telkom employees
(at year end)
(17)
. . . . . . . . . . . . . . . . . . . .
32,358
28,972
25,575
25,864
24,879
Fixed-lines per Telkom employee
(at year end)
(12)(17)
. . . . . . . . . . . . . . . . . . .
145
163
184
180
182
Notes:
(12)  Fixed access lines are comprised of PSTN lines, including ISDN lines and payphones, but excluding Telkom internal lines
in service. Each analog PSTN line includes one access channel, each basic rate ISDN line includes two access channels
and each primary rate ISDN line includes 30 access channels.
(13)  Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fiber.
(14)  Includes public and private payphones.
(15) Traffic includes dial up internet traffic. Telkom has reclassified calling plans from local, long distance and fixed-to-mobile
traffic into a separate line item to disclose traffic from subscription based calling plans in the 2007 and 2008 financial year.
Traffic for the 2006 financial year was not restated. Telkom has in recent years introduced calling plans as a customer
retention strategy in order to defend revenues. These calling plan arrangements comprise monthly subscriptions for
access line rental, value added services and free or discounted rates on calls. Traffic revenue from calling plan
subscriptions was reported as part local traffic revenue in financial years prior to the 2007 financial year, as most of these
calling plans related to local calls only and the amounts were insignificant. The access line rentals and value added
services revenue components of calling plan arrangements are included in subscriptions and connections revenue. In
response to the significant growth in calling plan arrangements, the need arose to separate traffic revenue resulting from
subscription based calling plans into annuity revenue and the respective traffic revenue streams. Commencing in the
2007 financial year, subscription based calling plans revenue includes traffic annuity revenue related to calling plans.
Commencing in the 2007 financial year, discounted and out of plan traffic relating to these calling plans is disclosed under
the applicable traffic revenue streams.
(16)  Excludes Telkom internal ADSL services of 751, 523, 249, 254 and 168 as of March 31, 2008, 2007, 2006, 2005 and 
         2004, respectively.
(17)  Includes employees of Telkom only.
9
background image
10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF VODACOM GROUP
The following table sets forth selected consolidated financial and other data of Vodacom as of and
for each of the periods set forth therein. Information in the Vodacom table reflects 100% of Vodacom’s
results of operations. Unless otherwise indicated, information with respect to Vodacom’s other African
operations in the Vodacom table reflects 100% of the operations of Vodacom’s subsidiaries in
Lesotho, Tanzania and Mozambique. Vodacom Congo was fully consolidated as a subsidiary in
Vodacom’s consolidated financial statements effective April 1, 2004 after certain clauses granting the
outside shareholders participating rights had been removed from the Vodacom Congo shareholders
agreement. As a result, unless otherwise indicated, information with respect to Vodacom Congo in the
table reflects Vodacom’s 51% interest in Vodacom Congo that was proportionately consolidated in
Vodacom’s consolidated financial statements in the year ended March 31, 2004 and 100% of
Vodacom Congo in the years ended March 31, 2008, 2007, 2006 and 2005. We proportionately
consolidate our 50% interest in Vodacom in the Telkom Group’s consolidated financial statements.
Vodacom’s other operating income, direct network operating costs, depreciation, staff expenses,
marketing and advertising expenses, other operating expenses, amortization of intangible assets and
impairment of assets are presented as separate line items in Vodacom’s consolidated financial
statements, but have been combined under the heading “operating expenses” in the table set forth
below.
The following selected historical consolidated financial data of Vodacom as of and for each of the
three years ended March 31, 2008 have been derived from Vodacom’s consolidated financial
statements included in this annual report, which were audited by Deloitte & Touche, Registered
Auditors, Chartered Accountants (SA). The following selected historical consolidated financial data of
Vodacom as of and for each of the two years ended March 31, 2005 and 2004 was derived from
Vodacom’s consolidated financial statements not included in this annual report, which were also
audited by Deloitte & Touche, Registered Auditors, Chartered Accountants (SA).
The consolidated financial statements of Vodacom have been prepared in accordance with IFRS,
which differs in certain respects from U.S. GAAP. As permitted by Release Number 33-8879 issued by
SEC and the rules promulgated pursuant thereto, Vodacom’s consolidated financial statements
comply with IFRS as issued by IASB, and accordingly, Telkom Group has not included in this
Annual Report on Form 20-F, a reconciliation of its consolidated financial statement from IFRS to
U.S. GAAP.
EBITDA represents net profit, which includes the profit on sale of investments, before taxation,
finance charges, investment income and depreciation, amortization and impairments. We believe that
EBITDA provides meaningful additional information to investors since it is widely accepted by analysts
and investors as a basis for comparing a company’s underlying operating profitability with that of other
companies as it is not influenced by past capital expenditures or business acquisitions, a company’s
capital structure or the relevant tax regime. This is particularly the case in a capital intensive industry
such as communications. It is also a widely accepted indicator of a company’s ability to service its
long-term debt and other fixed obligations and to fund its continued growth. EBITDA is not a U.S.
GAAP or IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash
flows from operating activities determined in accordance with U.S. GAAP or IFRS or as a measure of
liquidity. EBITDA is not defined in the same manner by all companies and may not be comparable to
other similarly titled measures of other companies unless the definition is the same.
Vodacom’s customer totals are based on the total number of customers registered on Vodacom’s
network, which have not been disconnected, including inactive customers, as of the end of the year
indicated. Vodacom’s inactive customers are defined as all customers registered on Vodacom’s
network for which no revenue generating activity has been recorded for a period of three consecutive
months. Vodacom’s contract customers are disconnected when they terminate their contract, or their
background image
11
service is disconnected due to non-payment. Prepaid customers in South Africa were disconnected
if they did not recharge their vouchers after being in time window lock for four months for periods from
November and December 2002 until April 2003 and for three months from April 2003 until
December 2003. Time window lock occurs when a customer’s paid active time window, or access
period expires. In December 2003, Vodacom changed the deactivation rule for prepaid customers in
South Africa to align itself with European and industry standards. From December 2003, prepaid
customers in South Africa are disconnected from its network if they record no revenue generating
activity within a period of 215 consecutive days. Up to June 15, 2006, calls forwarded to voicemail
were regarded as revenue generating activity and such SIM cards were classified as active
customers. Because a large number of SIM cards have calls forwarded to voicemail as their only
revenue generating activity and a majority of such messages are never retrieved by the customer,
resulting in estimated ARPUs of less than R1 per month, Vodacom changed its definition of active
customers to exclude calls forwarded to voicemail from the definition of revenue generating activity
effective June 15, 2006. Vodacom deleted approximately 3 million customers during the period of this
rule change. As a result of the rule change, prepaid churn rates and ARPUs increased during the
2007 financial year. Vodacom subsequently changed its definition of revenue generating activity back
to include calls forwarded to voicemail effective September 1, 2006. Such SIM cards were
disconnected from the network after being inactive for a 215 consecutive day period. Since
implementing this change, prepaid SIM cards remaining in an active state on the network, with only
call forwarding to voicemail and no other revenue generating activities, increased significantly.
Vodacom therefore implemented a supplementary disconnection rule in September 2007 to
disconnect inactive prepaid SIM cards after 13 months of being kept in an active state, by call
forwarding to voicemail only, and not having had any other revenue generating activity on Vodacom’s
network. The implementation of the supplementary disconnection rule led to the disconnection of an
additional 2.9 million prepaid SIM cards in September 2007, increasing churn on the prepaid customer
base to 47.9% in the 2008 financial year and resulted in higher prepaid ARPU than would have
otherwise occurred.
For other African countries, each subsidiary has its own disconnection rule to disconnect inactive
prepaid customers. Vodacom Lesotho disconnects its prepaid customers at the expiration of time
window lock of 210 days. Vodacom Tanzania, Vodacom Congo and Vodacom Mozambique
disconnect their prepaid customers if they record no revenue generating activity within a period of
215 consecutive days.
Vodacom’s churn is calculated by dividing the average monthly number of disconnections during
the year by the average monthly total reported customer base during the year. Vodacom’s South
African market share is derived from Vodacom’s total customers, and the total estimated mobile
customers of MTN, Cell C and Virgin Mobile. Vodacom calculates penetration, or teledensity, based
on the total number of customers at the end of the year per 100 persons in the population of South
Africa. Population is the estimated South African population at the mid-year in the years indicated as
published by Statistics South Africa, a South African governmental department. Vodacom’s traffic
comprises total traffic registered on Vodacom’s network, including bundled minutes, outgoing
international roaming calls and calls to free services, but excluding national and incoming international
roaming calls. Vodacom’s average monthly revenue per customer, or ARPU, is calculated by dividing
the average monthly revenue during the year by the average monthly total reported customer base
during the year. ARPU excludes revenue from equipment sales, other sales and services and revenue
from national and international users roaming on Vodacom’s networks. Vodacom’s average monthly
minutes of use per customer, or average MOU, is calculated by dividing the average monthly minutes
during the period by the average monthly total reported customer base during the year. MOU
excludes calls to free services, bundled minutes and data minutes. Cumulative network capital
expenditure per customer is the cumulative network capital expenditure since the launch of
Vodacom’s South African network divided by Vodacom’s average customers in South Africa
for the year.
background image
12
Rand amounts as of and for the year ended March 31, 2008 have been translated into Dollars
solely for your convenience at R8.14 per U.S.$1.00, the Rand noon buying rate discussed in Item 3.
“Key Information – Exchange Rates,” on March 31, 2008, the date of Vodacom’s most recent
consolidated balance sheet included in this annual report. These translations should not be construed
as representations that the Rand amounts could actually be converted into U.S. dollars at these rates
or at all.
You should read the following information together with Item 3. “Key Information – Risk Factors,”
Item 5. “Operating and Financial Review and Prospects” and the consolidated financial statements
and the notes thereto of the Telkom Group and Vodacom Group included in this annual report.
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
Income Statement Data
Amounts in accordance with IFRS
Revenue
22,855
27,315
34,043
41,146
48,178
5,919
Operating expenses
(1)
(17,630)   (20,837)   (25,177)   (30,286)  (35,687)    (4,384)
Operating profit
(2)
. . . . . . . . . . . . .
5,225
6,478
8,866
10,860
12,491
1,535
Interest, dividends and other finance
income
(3)
. . . . . . . . . . . . . . . . . .
112
117
130
75
72
9
Finance cost
(3)
. . . . . . . . . . . . . . .
(290)
(230)
(246)
(370)
(681)
(84)
Gains/(Losses) on remeasurement and
disposal of financial instruments
(3)
. . . . .
(273)
136
(523)
(169)
185
23
Profit before taxation . . . . . . . . . .
4,774
6,501
8,227
10,396
12,067
1,483
Taxation . . . . . . . . . . . . . . . . . .
(1,722)
(2,613)
(3,084)
(3,836)
(4,109)
(505)
Net profit . . . . . . . . . . . . . . . . .
3,052
3,888
5,143
6,560
7,958
978
Attributable to:
Equity shareholders . . . . . . . . . . . .
3,026
3,857
5,026
6,342
7,812
960
Minority interest . . . . . . . . . . . . . .
26
31
117
218
146
18
___________________
Notes:
(1)
Includes other income of R156 million, R120 million, R125 million, R64 million and R58 million in the years ended
March 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(2)
Operating profit and EBITDA includes an impairment of R268 million in respect of assets in Mozambique in the 2005
financial year, a reversal of the impairment loss of R53 million in the 2006 financial year due to an increase in the fair
value of the assets in Mozambique due to exchange rate fluctuations and an impairment loss of R23 million and
R30 million in the 2007 and 2008 financial years in respect of the assets in Mozambique due to a decrease in the fair
value of the assets.
(3)
During the 2008 financial year, Vodacom reclassified gains/(losses) on remeasurement and disposal of financial
instruments from interest, dividends and other finance income and finance costs.
background image
13
As of March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR         U.S.D  
(in millions)
Balance Sheet Data
Amounts in accordance with IFRS
Total assets
20,174
22,595
24,768
28,470
34,175
4,199
Current assets . . . . . . . . . . . . .
7,323
8,706
8,689
7,626
9,707
1,193
Cash and cash equivalents . . . . . . .
2,370
3,990
3,146
771
978
120
Other current assets . . . . . . . . . . . .
4,953
4,716
5,543
6,855
8,729
1,073
Non-current assets . . . . . . . . . . . .
12,851
13,889
16,079
20,844
24,468
3,006
Total liabilities
12,570
14,707
16,096
18,823
22,370
2,748
Current liabilities . . . . . . . . . . . . . .
10,252
11,474
13,859
15,011
17,582
2,160
Short-term debt
(4)
. . . . . . . . . . . .
1,617
2,203
3,036
1,380
3,100
381
Other current liabilities . . . . . . . . .
8,635
9,271
10,823
13,631
14,482
1,779
Non-current liabilities . . . . . . . . . . .
2,318
3,233
2,237
3,812
4,788
588
Long-term debt
(5)
. . . . . . . . . . . .
1,217
2,214
819
2,054
3,032
372
Other non-current liabilities . . . . . . .
1,101
1,019
1,418
1,758
1,756
216
Total equity
7,604
7,888
8,672
9,647
11,805
1,451
Attributable to:
Equity shareholders of Vodacom . . . . .
7,511
7,759
8,389
9,426
11,401
1,401
Minority interest . . . . . . . . . . . . . .
93
129
283
221
404
50
___________________
Notes:
(4)
Includes short-term portion of finance leases, funding loans and interest bearing and non-interest bearing debt, as well
as utilized credit facilities.
(5)
Includes long-term portion of finance leases, funding loans and interest bearing and non-interest bearing debt.
background image
14
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR   
  ZAR  
  U.S.D  
(in millions)
Cash Flow Data
Amounts in accordance with IFRS
Cash flows from operating activities . . . .
4,790
4,150
4,501
4,858
5,125
630
Cash flows from investing activities . . . .
(3,000)
(3,374)
(4,791)
(6,584)
(7,502)
(922)
Cash flows from financing activities . . . .
(798)
(195)
(108)
(200)
3,234
397
Other Data
Amounts in accordance with IFRS
EBITDA
(2)(6)
. . . . . . . . . . . . . . . .
7,757
9,590
11,809
14,244
16,432
2,019
Total debt (at period end)
(7)
. . . . . . . .
2,833
4,417
3,855
3,435
6,132
753
Capital expenditures excluding intangible
assets . . . . . . . . . . . . . . . . . . .
2,891
3,288
4,699
6,137
4,952
608
South Africa . . . . . . . . . . . . . . .
1,659
2,617
3,977
4,651
3,510
431
Other African countries . . . . . . . . .
1,232
671
722
1,486
1,442
177
Capital expenditures including intangible
assets . . . . . . . . . . . . . . . . . . .
3,012
3,494
5,142
7,214
6,923
851
South Africa . . . . . . . . . . . . . . .
1,666
2,800
4,400
5,638
5,402
664
Other African countries . . . . . . . . .
1,346
694
742
1,576
1,521
187
___________________
Notes:
(6)
EBITDA can be reconciled to net profit as follows:
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
EBITDA . . . . . . . . . . . . . . . . . .
7,757
9,590
11,809
14,244
16,432
2,019
Depreciation, amortization and impairments
(2,532)
(3,112)
(2,943)
(3,384)
(3,941)
(484)
Interest, dividends and other financial income
112
117
130
75
72
9
Finance costs . . . . . . . . . . . . . . .
(290)
(230)
(246)
(370)
(681)
(84)
Gains/(Losses) on remeasurement and
disposal of financial instruments . . . . .
(273)
136
(523)
(169)
185
23
Taxation . . . . . . . . . . . . . . . . . .
(1,722)
(2,613)
(3,084)
(3,836)
(4,109)
(505)
Profit for the year . . . . . . . . . . . . .
3,052
3,888
5,143
6,560
7,958
978
(7)
Includes short-term and long-term finance leases, funding loans and interest bearing and non-interest bearing debt, as
well as utilized credit facilities.
background image
15
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
Statistical Data
South Africa
Total mobile customers (thousands)
(at year end)
(8)
. . . . . . . . . . . . . . . . . . . .
9,725
12,838
19,162
23,004
24,821
Contract . . . . . . . . . . . . . . . . . . . . . .
1,420
1,872
2,362
3,013
3,541
Prepaid . . . . . . . . . . . . . . . . . . . . . . .
8,282
10,941
16,770
19,896
21,177
Community services telephones . . . . . . . . . .
23
25
30
95
103
Total inactive mobile customers (%)
(at year end)
(9)
. . . . . . . . . . . . . . . . . . . .
n/a
7.9
8.7
10.7
10.3
Contract . . . . . . . . . . . . . . . . . . . . . .
n/a
1.5
2.4
3.1
4.0
Prepaid . . . . . . . . . . . . . . . . . . . . . . .
n/a
9
9.6
11.8
11.4
Gross connections (thousands) . . . . . . . . . .
4,998
6,180
9,140
10,859
12,040
Contract
(10)
. . . . . . . . . . . . . . . . . . . . .
n/a
434
506
666
782
Prepaid
(10)
. . . . . . . . . . . . . . . . . . . . . .
n/a
5,742
8,618
10,124
11,248
Community services . . . . . . . . . . . . . . . .
4
4
16
69
10
Churn (%) . . . . . . . . . . . . . . . . . . . . . .
36.6
27.1
17.7
33.8
42.3
Contract . . . . . . . . . . . . . . . . . . . . . .
10.1
9.1
10.0
9.7
8.3
Prepaid . . . . . . . . . . . . . . . . . . . . . . .
41.3
30.3
18.8
37.5
47.9
Market share (%) (at year end) . . . . . . . . . . .
54
56
58
58
55
Penetration (%) (at year end) . . . . . . . . . . . .
39
50
71
84
94
Total mobile traffic (millions of minutes)
(11)
. . . .
12,172
14,218
17,066
20,383
22,769
Outgoing . . . . . . . . . . . . . . . . . . . . . .
7,647
9,231
11,354
13,638
15,323
Incoming . . . . . . . . . . . . . . . . . . . . . .
4,525
4,987
5,712
6,745
7,446
ARPU (ZAR) . . . . . . . . . . . . . . . . . . . . .
177
163
139
125
125
Contract . . . . . . . . . . . . . . . . . . . . . .
634
624
572
517
486
Prepaid . . . . . . . . . . . . . . . . . . . . . . .
90
78
69
63
62
Community services . . . . . . . . . . . . . . . .
2,155
2,321
1,796
902
689
Average MOU . . . . . . . . . . . . . . . . . . . .
96
84
74
69
66
Contract . . . . . . . . . . . . . . . . . . . . . .
263
226
206
188
172
Prepaid . . . . . . . . . . . . . . . . . . . . . . .
56
52
49
47
46
Community services . . . . . . . . . . . . . . . .
3,061
3,185
2,327
1,151
883
Capital expenditure per year end customer (ZAR)
1,720
1,515
1,257
1,187
1,239
Number of mobile employees (at year end)
(12)
. . .
3,848
3,919
4,305
4,727
4,849
Number of mobile customers per mobile employee
(at year end)
(8)(12)
. . . . . . . . . . . . . . . . . . .
2,527
3,276
4,451
4,867
5,119
background image
16
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
Other African countries
(13)
Total mobile customers (thousands)
(at year end)
(8)
. . . . . . . . . . . . . . . . . . . .
1,492
2,645
4,358
7,146
9,173
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
80
147
206
279
395
Tanzania . . . . . . . . . . . . . . . . . . . . . .
684
1,201
2,091
3,247
4,207
Democratic Republic of the Congo . . . . . . . . .
670
1,032
1,571
2,632
3,289
Mozambique . . . . . . . . . . . . . . . . . . . .
58
265
490
988
1,282
Churn (%)
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
65.1
17.3
22.3
19.0
17.8
Tanzania . . . . . . . . . . . . . . . . . . . . . .
30.0
29.6
28.5
35.6
45.5
Democratic Republic of the Congo . . . . . . . . .
20.2
23.1
28.1
30.4
48.0
Mozambique . . . . . . . . . . . . . . . . . . . .
0.3
11.3
32.2
41.7
58.7
Gross connections (thousands)
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
51
70
98
119
176
Tanzania . . . . . . . . . . . . . . . . . . . . . .
404
746
1,353
2,092
2,645
Democratic Republic of the Congo . . . . . . . . .
513
565
892
1,688
2,141
Mozambique . . . . . . . . . . . . . . . . . . . .
58
225
342
797
951
Penetration (%) (at year end)
(14)
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
5
7
13
17
26
Tanzania . . . . . . . . . . . . . . . . . . . . . .
3
5
9
16
20
Democratic Republic of the Congo . . . . . . . . .
2
4
6
9
12
Mozambique . . . . . . . . . . . . . . . . . . . .
3
4
8
14
16
ARPU (ZAR)
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
125
92
78
75
73
Tanzania . . . . . . . . . . . . . . . . . . . . . .
128
81
67
52
49
Democratic Republic of the Congo . . . . . . . . .
150
98
86
77
59
Mozambique . . . . . . . . . . . . . . . . . . . .
110
52
36
28
29
Number of employees (at year end)
(12)
. . . . . . .
761
1,074
1,154
1,522
1,992
Lesotho . . . . . . . . . . . . . . . . . . . . . . .
68
63
67
63
97
Tanzania . . . . . . . . . . . . . . . . . . . . . .
316
350
438
527
766
Democratic Republic of the Congo . . . . . . . . .
334
538
479
745
919
Mozambique . . . . . . . . . . . . . . . . . . . .
43
123
170
187
210
Number of mobile customers per mobile employee
(at year end)
(8)(12)
. . . . . . . . . . . . . . . . . . .
1,961
2,463
3,776
4,695
4,605
___________________
Notes:
(8)
Includes inactive customers.
(9)
In the 2005 financial year, a software error was identified in the calculation of inactive customers. Vodacom corrected
inactive customers as of March 31, 2005. Information for prior years is unavailable.
(10)  Gross connections have been restated in the 2006 and 2005 financial years due to a change in Vodacom’s reporting
policy. Conversions between categories have now been excluded from gross connections. Based on the previous policy,
contract connections would have been 610 thousand in the 2005 financial year and 702 thousand in the 2006 financial
year and prepaid connections would have been 5,566 thousand in the 2005 financial year and 8,422 thousand in the
2006 financial year. Information for the 2004 financial year is unavailable.
(11)  Vodacom has changed the calculation of traffic in the 2006 financial year to exclude packet switch data traffic. Traffic has
been recalculated for the 2005 and 2004 financial years.
background image
17
(12)  Vodacom had a total of 732, 581, 469, 183 and 280 temporary and contract employees as of March 31, 2008, 2007,
2006, 2005 and 2004, respectively. Headcount excludes outsourced employees. Employees seconded to other African
countries are included in the number of employees of other African countries and excluded from Vodacom South Africa’s
number of employees.
(13)  Includes 100% of Vodacom’s operations in the Democratic Republic of the Congo.
(14)  Penetration calculations are Vodacom estimates.
background image
18
DIVIDENDS AND DIVIDEND POLICY
All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and
the class B ordinary share, rank equal for dividends. No dividend may be declared to a holder of the
class A ordinary share or class B ordinary share, unless the same dividend is declared to holders
of all ordinary shares. The following table sets forth information with respect to dividends paid by
Telkom. Dividends are expressed in Rands and translated, solely for the convenience of the reader,
into U.S. Dollars at the Rand noon buying rate described in Item 3. “Key Information – Exchange
Rates” below on the relevant dividend payment date. The actual rate that cash dividends are
converted to U.S. Dollars by the depositary may not equal the Rand noon buying rate on the dividend
payment date.
On June 6, 2008, Telkom’s board of directors declared a 2008 financial year final ordinary
dividend No. 13 of R6.60 per share to be paid on July 7, 2008 to shareholders registered
as of July 4, 2008, which are not included in the table below. No special dividend was declared due to
an increased investment in our expansion program, pressure on the fixed-line EBITDA margin and net
debt levels.
Dividends paid per
Dividends paid
Total dividends
Dividend
  Ordinary Share                  
    per ADS                       
  (millions)  
  cover  
Year ended March 31,
  ZAR  
  USD  
  ZAR  
  USD  
  ZAR  
  USD                        
2008
(2)
. . . . . . . . . .
11.00
(3)
1.57
(3)
44.00
(3)
6.29
(3)
5,626.6
(3)
804.9
(3)
2.0x
2007
(4)
. . . . . . . . . .
9.00
(5)
1.25
(5)
36.00
(5)
4.99
(5)
4,677.4
(5)
647.8
(5)
1.9x
2006
(6)
. . . . . . . . . .
9.00
(7)
1.30
(7)
36.00
(7)
5.22
(7)
4,801.2
(7)
695.8
(7)
1.9x
2005
(8)
. . . . . . . . . .
1.10
(9)
0.18
(9)
4.40
(9)
0.72
(9)
606.7
(9)
99.1
(9)
11.1x
2004
(10)
. . . . . . . . .
0.90
(11)
0.13
(11)
3.60
(11)
0.53
(11)
501.3
(11)
74.5
(11)
9.2x
___________________
Notes:
(1)
Dividend cover is calculated by dividing profit for the year attributable to equity holders of Telkom by the dividend for the
year.
(2)
Based on 511,513,237 ordinary shares outstanding. As of March 31, 2008, 21,342,199 of the 520,784,186 issued ordinary
shares were held by Telkom’s subsidiaries.
(3)
Includes a 2007 financial year final ordinary dividend No. 12 of R6.00 per share and a special dividend of R5.00 per share
that was paid on July 9, 2007 to shareholders registered as of July 6, 2007.
(4)
Based on 519,711,236 ordinary shares outstanding. As of March 31, 2007, 23,086,074 of the 532,855,528 issued ordinary
shares were held by Telkom’s subsidiaries.
(5)
Includes a 2006 financial year final ordinary dividend No. 11 of R5.00 per share and a special dividend of R4.00 per share
that was paid on July 14, 2006 to shareholders registered as of July 7, 2006.
(6)
Based on 533,465,571 ordinary shares outstanding. As of March 31, 2006, 23,536,579 of the 544,944,899 issued ordinary
shares were held by Telkom’s subsidiaries.
(7)
Includes a 2005 financial year final ordinary dividend No. 10 of R4.00 per share and a special dividend of R5.00 per share
that was paid on July 8, 2005 to shareholders registered as of July 1, 2005.
(8)
Based on 551,509,083 ordinary shares outstanding. As of March 31, 2005, 23,566,248 of the 557,031,819 issued ordinary
shares were held by Telkom’s subsidiaries.
(9)
Paid on July 9, 2004.
(10)  Based on 557,031,819 ordinary shares outstanding. As of March 31, 2004, 3,185,736 of the 557,031,819 issued ordinary
shares were held by Telkom’s subsidiaries.
(11)  Special dividend.
We cannot assure you that any dividend will actually be paid in the future or what the timing or
amount of any future dividends will be. Telkom’s current dividend policy aims to provide shareholders
with a competitive return on their investment, while assuring sufficient reinvestment of profits to enable
us to achieve our strategy. Telkom may revise its dividend policy from time to time. The determination to
pay dividends, and the amount of the dividends, will depend upon, among other things, the following:
background image
19
•  our earnings;
•  our financial condition;
•  our capital requirements;
•  general business conditions and strategies and other investment opportunities;
•  dividends received from Vodacom;
•  cash flows and the availability of cash;
•  net debt levels;
•  interest coverage and future expectations;
•  share buy back plans;
•  the possible effects on our credit worthiness;
•  contractual restrictions on the payment of dividends;
•  the pay-out and dividend ratios of other major South African companies and other
communications providers; and
•  other factors our board of directors may deem relevant, including future growth prospects.
Under South African law, a company may make payments to its shareholders if authorized thereto
by its organizational documents. A company may not make any payment, in whatever form, to its
shareholders if there are reasonable grounds for believing that:
•  the company is or would, after the payment, be unable to pay its debts as they become due in
the ordinary course of business; or
•  the consolidated assets of the company fairly valued, after the payment, would be less than the
consolidated liabilities of the company.
Under South African law, a shareholder is liable to a company for any payments received by the
shareholder from the company in violation of these restrictions.
Pursuant to Telkom’s memorandum and articles of association, for so long as the Government of
the Republic of South Africa is a significant shareholder, Telkom’s dividend policy and all declarations
of dividends and payments to shareholders must be approved by at least two of the directors
appointed by the Government. Pursuant to Telkom’s memorandum and articles of association, the
Government is a significant shareholder for so long as it holds the class A ordinary share and at least
15% of Telkom’s issued ordinary shares. This percentage is to be reduced from time to time to reflect
the dilutive effect of issuances of new ordinary shares, but may not be less than 10%.
Telkom’s ability to make future dividend payments will be determined based upon its financial
position under IFRS. The following table sets forth a reconciliation of retained earnings in accordance
with IFRS to distributable retained earnings in accordance with IFRS for the periods indicated.
background image
20
Year ended March 31,
  2004  
  2005  
  2006  
  2007  
  2008  
  2008  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  ZAR  
  U.S.D  
(in millions)
Retained earnings of Telkom Group in
accordance with IFRS . . . . . . . . . . .
13,482
19,232
22,904
26,499
27,310
3,355
Share of retained earnings of Vodacom . .
(3,918)
(4,030)
(4,292)
(4,762)
(5,696)
(700)
Distributable retained earnings in
accordance with IFRS . . . . . . . . . .
9,564
15,202
18,612
21,737
21,614
2,655
The distribution of retained earnings of Vodacom is restricted, as Telkom requires the consent of
the other shareholder of Vodacom to declare dividends. As described in Item 10. “Additional
Information – Taxation,” Telkom is required to pay secondary tax on companies at a flat rate of 10%
(12.5% prior to October 1, 2007) in respect of the amount of certain dividends declared by it net of
any dividends received from our joint venture and certain subsidiaries. The Government announced
that it intends to abolish secondary tax on companies in the 2009 financial year and replace it with a
withholding tax at a rate of 10%, applicable to both South African residents and non-residents, subject
to any relevant double tax agreement. As a result of the payment of secondary tax on companies, the
amount of dividends that may actually be paid is less than the amount of distributable reserves.
Distributable reserves are available for distribution based on Telkom’s dividend policy. Telkom’s board
of directors decides the amount of distributable reserves to be reinvested in operations and the
amount of any remaining funds that are available for distribution to shareholders or possible share
repurchases.
Telkom expects to pay any cash dividends solely in Rands. Cash dividends payable to holders
of American Depository Shares, or ADSs, listed on the New York Stock Exchange will be paid to the
depositary’s custodian, which will convert the dividends into Dollars, at the rate of exchange
applicable on the date such dividends are paid, for disbursement to holders. Fluctuations in the
exchange rate between Rands and Dollars and expenses of the depositary will affect the Dollar
amounts actually received by holders of ADSs upon conversion by the depositary of such cash
dividends.
Provided that the relevant share certificate is endorsed “non-resident” or an entry is made to such
effect in the relevant electronic register, there is currently a blanket approval under the South African
exchange control regulations for the free transferability of cash dividends to holders of ordinary shares
or ADSs. See Item 10. “Additional Information – Exchange Controls”.
In addition to the corporate tax on taxable income of South African companies at a rate of 30%
for the 2005 financial year, 29% for the 2006, 2007 and 2008 financial years and 28% for the 2009
financial year, South African companies pay secondary tax on companies as described above.
Capitalization shares or stock dividends distributed to holders of ordinary shares do not incur
secondary tax on companies. Because of this tax treatment, it has become common practice
in South Africa for companies to offer capitalization shares in lieu of cash dividends. Capitalization
shares are shares issued by a company, the payment for which is allocated out of the company’s
reserves, including share premium, or unappropriated profits.
For a discussion of the material South African and U.S. federal income tax provisions regarding the
taxation of dividends on ordinary shares and ADSs, see Item 10. “Additional Information – Taxation.”
Share repurchases
For a discussion of share repurchases, see Item 7. “Major shareholders and related party
transactions.”
background image
21
Taxation
A share repurchase and subsequent cancellation of shares by a South African company is
deemed to be a dividend in terms of the South African Income Tax Act, 58 of 1962, on the difference
between the nominal value of the share and the value purchased, unless purchased from the share
premium of the company that does not comprise capitalized profit. As of March 31, 2008, Telkom had
fully utilized its share premium for this purpose. The tax on such a deemed dividend is payable by the
company at a rate of 10% (12.5% prior to October 1, 2007). The Government announced that it
intends to abolish secondary tax on companies in the 2009 financial year and replace it with a
withholding tax at a rate of 10% applicable to both South Africa residents and non-residents, subject
to any relevant double tax agreement.
background image
22
EXCHANGE RATES
Unless otherwise specified, as used in this annual report:
•   references to “Rand”, “R”, “ZAR” and “SA Cents” are to South African Rand and Cents, the
currency of the Republic of South Africa;
•   references to “Dollars”, “$”, “USD” and “U.S. Cents” are to the United States Dollar and Cents,
the currency of the United States; and
•   references to the “Rand noon buying rate” are to the noon buying rates in New York City for
cable transfers in Rands as certified for customs purposes by the U.S. Federal Reserve Bank
of New York expressed in Rands per U.S.$1.00.
For your convenience, this annual report contains translations of certain Rand amounts into
Dollars. You should not assume, however, that Rands could have been exchanged into Dollars at any
particular rate or at all. Unless otherwise stated, translations of Rand amounts into Dollars have been
made at R8.14 per U.S.$1.00, the Rand noon buying rate on March 31, 2008, the date of the Telkom
Group’s most recent balance sheet included in this annual report. These translations should not be
construed as representations that the Rand amounts could actually be converted into U.S. dollars at
these rates or at all.
The table below shows the high, low, average and end of period Rand noon buying rates for the
periods indicated. The end of period Rand noon buying rate is computed on the last business day of
the relevant period and the average Rand noon buying rate is computed using the Rand noon buying
rate on the last business day of each month during the period indicated.
  End of  
Year ended March 31,
  High  
  Low  
  Average  
  period  
2004
8.24
6.26
7.05
6.32
2005
7.05
5.62
6.22
6.22
2006
6.92
5.96
6.39
6.15
2007
7.94
5.98
7.09
7.29
2008
8.21
6.45
7.15
8.14
January
7.45
6.74
February
7.90
7.41
March
8.21
7.76
2009
April
8.03
7.54
May
7.76
7.47
June
8.12
7.70
July (through July 9)
7.92
7.68
On July 9, 2008, the Rand noon buying rate was R7.68 per U.S.$1.00.
Fluctuations in the exchange rate between the Rand and the Dollar will affect the Dollar amounts
received by holders of American Depositary Shares, or ADSs, each representing four ordinary shares
of Telkom, on conversion of dividends, if any, paid in Rands on the ordinary shares and may affect the
Dollar trading price of the ADSs on the New York Stock Exchange.
background image
23
RISK FACTORS
You should carefully consider the risks described below in conjunction with the other information
and the consolidated financial statements of the Telkom Group and Vodacom and the related notes
thereto included elsewhere in this annual report before making an investment decision with respect to
Telkom’s ordinary shares or ADSs.
Risks related to our business
Any changes to Telkom’s mobile strategy and its inability to successfully implement such
strategy and organizational changes thereto, could cause our growth rates, operating revenue,
net profit and dividends to decline.
As discussed in greater detail below, Telkom has made a decision to invest in the build out of a
fixed-wireless and mobile data network. In addition, on June 2, 2008 Telkom issued a cautionary
announcement regarding its receipt of a non binding proposal by a wholly-owned subsidiary of
Vodafone to acquire a portion of Telkom’s stake in Vodacom, subject to, among other things, Telkom
distributing its remaining stake in Vodacom to Telkom’s shareholders, and the receipt by Telkom of a
letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Limited, affiliated funds of
Och-Ziff Capital Management Group and other strategic investors related to the consortium’s
consideration of making an offer for the entire issued share capital of Telkom subject to a number of
conditions. On July 15, 2008, Telkom issued a further cautionary announcement that its discussions
with Vodafone and independently with the consortium are still ongoing and shareholders are advised
to continue to exercise caution when dealing in Telkom securities. Telkom is currently limited in its
ability to pursue or provide full mobile services in South Africa and sub-Saharan Africa by the
provisions of the Vodacom joint venture agreement with Vodafone. There can be no assurance the
Telkom will ultimately elect to divest of its interest in Vodacom or the structure or the ultimate value of
Telkom and its shareholders of its Vodacom interest, or that Telkom’s mobile strategy will change or
that it will be successful in pursuing any new mobile opportunities. Telkom’s management and board
may expend significant resources and time exploring alternative mobile strategies that ultimately are
not successful, which could cause its growth rates, operating revenue, net profit and dividends to
decline.
Increased competition in the South African telecommunications market may result in a
reduction in overall average tariffs and market share and an increase in costs in our fixed-line
business, which could cause our growth rates, operating revenue and net profit to decline and
our churn rates to increase.
Neotel (Proprietary) Limited, or Neotel, formerly known as SNO Telecommunications (Pty) Limited,
which was granted an additional license to provide public switched telecommunications services in
South Africa, was licensed on December 9, 2005 and commercially launched on August 31, 2006 and
commenced providing services in the beginning of the 2007 calendar year to corporate customers and
other licensees. Neotel is 30% owned by Transtel Telecoms, a division of Transnet Limited, or
Transtel, and Eskom Enterprises (Pty) Limited, or Esitel, which are beneficially owned by the South
African Government, and other strategic equity investors, including 26% beneficially owned by TATA
Africa Holdings (Pty) Limited, a member of the TATA Group, a large Indian conglomerate with
information and communications operations. On March 19, 2008 Neotel announced that the
Competition Tribunal of South Africa had approved its acquisition of Transtel without any conditions.
On April 25, 2008, Neotel announced that the first of its consumer products were available to limited
parts of Johannesburg and Pretoria. The Government has created an infrastructure company, Infraco,
which stated it would provide inter-city bandwidth at cost based prices to Neotel, and later to the rest
of the industry, which will further compete with our communications network as an alternative provider
of communications infrastructure. A process to issue additional licenses to small business operators to
provide telecommunications services in underserviced areas with a teledensity of less than 5%,
background image
24
commenced in 2005 and is continuing. These are referred to as underserviced areas licensees, or
USALs. The Minister of Communications has identified 27 of these underserviced areas. The
Independent Communications Authority of South Africa, or ICASA has issued licenses to successful
bidders in seven of them and the Minister has issued invitations to apply for licenses in 14 additional
areas. In August 2006 ICASA recommended to the Minister that licenses be granted to successful
applicants in 13 of these areas. While it was expected that further licenses would be issued in the
2007 calendar year, no additional licenses were issued. The Minister of Communications, on the other
hand, has issued a policy direction to ICASA, directing it to, where there is more than one license in a
province, merge the licenses and issue one Provincial Under-Serviced Area Network Operator, or
PUSANO license. None of these consolidated licenses have yet been issued by ICASA.
Telkom competes for telephone customers with the three existing mobile communications network
operators, Vodacom, Mobile Telephone Network Holdings (Pty) Limited, a wholly owned subsidiary of
the MTN Group Limited, or MTN, a public company listed on the JSE Limited, or JSE, and Cell C
(Pty) Limited, or Cell C, which entered into a joint venture with Virgin Mobile. Telkom has experienced
significant customer migration in recent years from fixed-line services to mobile services, as well as
substitution of calls placed using mobile services rather than our fixed-line service, with the increase
in mobile penetration in South Africa. If this migration continues, our growth rates, operating revenue
and net profit could decline. Telkom also competes with service providers who use least cost routing
technology that enables fixed-to-mobile calls from corporate private branch exchanges to bypass our
fixed-line network by being transferred directly to mobile networks.
We expect that the introduction of number portability and carrier pre-selection could further
enhance competition and increase our churn rates. As competition intensifies, the main challenges our
fixed-line business faces are continuing to improve customer loyalty through improved services and
products and maintaining our leadership in the South African communications market. As a result of
increasing competition, we anticipate pressure on our overall average tariffs, a reduction in our market
share and an increase in costs in our fixed-line business, which could cause our growth rates,
operating revenue and net profit to decline.
Increased competition in the South African data communications market may adversely impact
our growth rates, operating revenue and net profit.
Following the launch of Vodacom’s, MTN’s and Cell C’s 3G networks, mobile customers are also
now able to browse the internet on a broadband platform, which provides increased competition for
data services. Our business, including Vodacom, also face increased competition from other mobile
operators, value added network operators and private network operators as a result of determinations
by the South African Minister of Communications in September 2004 and the Electronic
Communications Act, No. 36 of 2005, which came into effect on July 19, 2006. The new licensing
framework included in the Electronic Communications Act is resulting in the market becoming more
horizontally layered with a number of separate licenses being issued for electronic communications
network services, electronic communications services, broadcasting services and the radio frequency
spectrum and will substantially increase competition in our fixed-line business.
VANS providers, mobile operators and Neotel are the main competitors in the data market. They
provide competitive internet protocol virtual private networks and internet service provider services to
the business segment. Neotel is entering the market through competitive pricing and niche products
such as fiber connections and rings. We also face competition from consumer oriented internet
service providers. In addition, our data services have faced increased competition from competitors in
the wireless area, particularly the mobile operators, that offer competing broadband services, and, to a
lesser extent, Sentech, which owns and operates satellite transmission systems, a packaged, always-
on, bi-directional broadband service via satellite and a wireless high-speed internet service offer.
Competition in the data market is expected to increase, which could adversely impact growth rates,
operating revenue and net profit.
background image
25
We may not be successful in implementing our strategy of transforming from basic voice and
data connectivity to fully converged solutions offering integrated voice, data, video and
internet services and managing costs through our capability management program, which
could adversely impact our ability to maintain profitability by growing and protecting revenue,
while managing costs.
Our strategy for transformation includes the targeting of significant growth in new business areas
and managing costs in the face of declining fixed-line voice revenues through our capability
management initiative designed to realign our structure, employees and resources to better match our
transforming information, communications and technology business. This may result in changes to our
products, services, markets and culture. If this transformation strategy is unsuccessful there is a risk
that future revenue and profitability will decline. In particular, we have targeted significant growth
in new business areas, such as fixed-mobile capability, broadband services and converged services.
Our ability to succeed in these new business areas is subject to a number of risks, including our ability
to hire and retain individuals with experience in these areas, our ability to leverage the Telkom brand
into new areas and its acceptance by customers in those areas, our ability to source our network
infrastructure and support services from third party suppliers, capital costs and constraints and market
acceptance of new products and services. Our ability to achieve the planned cost reductions through
capability management is further subject to our ability to outsource necessary services and source
strategic partners with the necessary benefits of scale and required information, communications and
technology capabilities to enable continued alignment and transformation. In particular, our
outsourcing initiatives will be subject to compliance with South Africa labor and employment laws and
successful negotiations with our labor unions and workforce. See “Risks related to the Republic of
South Africa – Significant labor expenses as a result of collective bargaining and the cost of
compliance with South Africa labor laws could limit our operating flexibility and disrupt our fixed-line
business operations and reduce our net profit.” In view of the likely level of competition and
uncertainties regarding the level of economic activity, there can be no certainty that we will meet our
growth and cost reduction targets in these areas with a consequential impact on future revenue and
profitability.
There are significant political, economic, regulatory, taxation and legal risks associated with
Vodacom’s and Telkom’s African investments outside of South Africa, which could adversely
affect their businesses and cause their financial condition and net income to decline.
Vodacom currently has investments in mobile communications network operators in Lesotho,
Tanzania, the Democratic Republic of the Congo and Mozambique and Telkom acquired investments
in Africa Online, an internet service provider active in Cote d’Ivoire, Ghana, Kenya, Namibia,
Swaziland, Tanzania, Uganda, Zambia and Zimbabwe, and Multi-Links, which provides
telecommunications services throughout Nigeria. These countries have political, economic, regulatory
and legal systems that are still in the process of transformation and are subject to less developed
corporate governance and business practices and more bureaucratic and regulatory delays than those
in the Republic of South Africa. Many of these countries also suffer from poverty, civil strife, political
conflict, corruption and political mismanagement, all of which could make it difficult for Vodacom and
Telkom to comply with legal requirements, including, in the case of Telkom, the Sarbanes-Oxley Act of
2002, or the Sarbanes-Oxley Act, which could subject Vodacom and Telkom to fines and penalties,
adversely affect their business operations, and cause the value of their investments in these countries
and their revenue and net profit to decline. In particular, the Democratic Republic of the Congo has
had a history of civil war and its first democratic elections only took place on July 30, 2006 and
Zimbabwe has faced international scrutiny and sanctions due to governmental actions and is currently
engaged in contested presidential elections. In addition, there are a limited number of skilled
employees available in these countries. If Telkom and Vodacom are unable to attract and retain skilled
employees for their operations outside of South Africa, these operators could be materially adversely
background image
26
affected. The regulatory and tax environments in these countries also often lack clarity in a number of
areas and are subject to varying interpretations. Political or economic upheaval or changes in laws
and regulations or in their application may harm the operations of the companies in which Vodacom
and Telkom invest and impact the value of these investments.
Most of the fixed-line operators in these countries are state controlled. As a result, the mobile
communications network operators in which Vodacom has invested may encounter difficulties in
negotiating commercially acceptable interconnection agreements and collecting amounts due under
interconnection agreements as Vodacom has experienced this in the Democratic Republic of the
Congo and Tanzania. Telkom’s new investments in African countries may experience similar
difficulties. In addition, Telkom’s and Vodacom’s other African operations have local minority
shareholders and accordingly, they are subject to risks in their dealings with local shareholders that
their interests may not always be aligned with those of Telkom and Vodacom. A number of
jurisdictions in which Vodacom invests have also imposed price controls, particularly for
interconnection, which could reduce Vodacom’s net profit and cause the value of Vodacom’s
investments in these other African countries to decline. There are also foreign exchange control
restrictions in South Africa, which may restrict Vodacom’s and Telkom’s ability to fund their
investments in these countries, and there are foreign exchange controls in a majority of these
countries, which may restrict Vodacom’s and Telkom’s ability to extract value from these investments.
The number of commercially attractive acquisition and investment opportunities for our
fixed-line and mobile businesses on the African continent is limited. Moreover, the
consummation of acquisitions and investments may be unsuccessful, which could have
a material adverse effect on Telkom’s and Vodacom’s future growth.
Telkom is pursuing growth through acquisitions and investments in countries throughout the
African continent and elsewhere. In addition, Vodacom intends to continue to seek future growth
opportunities from acquisitions of telecommunications operators or licenses in other African countries.
There are significant risks associated with Telkom’s and Vodacom’s ability to identify and successfully
consummate and grow acquisitions and investments. There are a limited number of acquisition and
investment opportunities and there is substantial competition for the types of acquisitions and
investments that would meet the criteria of Telkom and Vodacom. Increased competition has driven
up the prices for the types of acquisition and investment opportunities Telkom and Vodacom target,
which has made the identification, consummation and growth of acquisition and investment
opportunities more difficult. As a result, Vodacom has not been able to consummate any recent
acquisitions that meet its investment criteria. In addition, South African foreign exchange control
limitations could delay or prevent investments by Telkom and Vodacom in other countries. There are
also a limited number of partners that are able to arrange their own funding to invest in ventures in
other African countries with Telkom and Vodacom. Telkom has only recently made its first two
investments outside of South Africa and the telecommunications field, and its investment in Telkom
Media represented its first significant initiative outside of its traditional telecommunications business.
Accordingly, Telkom has limited prior experience investing outside of South Africa and in other
businesses. For example, Telkom recently announced its decision to substantially reduce its
investment in Telkom Media, in which Telkom had invested R326 million up to March 31, 2008, and
was required to provide an impairment provision of R217 million. If Telkom is not able to procure a
purchaser for its investment, it could incur additional losses from the investment and its reputation and
relations with ICASA could be harmed. To the extent that Telkom and Vodacom are not able to grow
through other acquisitions and investments, our stock price could decline. Moreover, Telkom and
Vodacom could expend a substantial amount of time and expense pursuing acquisitions they do not
consummate, which could adversely affect their reputation, business, financial condition, results of
operations and growth.
background image
27
The expansion of Telkom’s and Vodacom’s operations may also place a significant strain on their
management, financial, technical and other resources. Their ability to manage future growth through
acquisitions and investments will depend upon their ability to monitor operations, maintain effective
quality, corporate governance and financial controls and significantly expand their internal
management, technical and accounting systems, all of which will result in higher operating expenses.
The integration of acquired communications and mobile businesses may involve, among other things,
implementation and integration of management, financial reporting and control systems, some of
which may be incompatible with their existing systems and therefore may need to be replaced. In
addition, telecommunications operators generally experience higher customer and employee turnover
rates during and after an acquisition or launch of service. We cannot assure that Telkom or Vodacom
will be able to integrate successfully and grow any businesses they may acquire or invest in.
The growth in the mobile market in South Africa has resulted in an increase in the number
of Vodacom and Telkom calls terminating on mobile networks as opposed to our fixed-line
network. Vodacom’s and Telkom’s net interconnect margins and net profit could decline if this
trend continues.
Vodacom and Telkom have experienced a change in the traffic mix as mobile customers have
increased relative to fixed-line customers. This resulted in an increasing percentage of calls from
Vodacom’s network terminating on other mobile networks rather than our fixed-line network.
Vodacom’s interconnection payments have increased and its margins have decreased because the
cost of terminating calls on other mobile networks is higher than the cost of terminating calls on
Telkom’s fixed-line network. As a result, Vodacom’s South African net interconnect margins have
declined in recent years. Similarly, Telkom has incurred increased payments to other operators
as a result of the growth in interconnection traffic for fixed-line calls terminating on mobile networks.
If mobile customers continue to increase and there is little or no growth in fixed-line customers, this
trend could continue and Vodacom’s and Telkom’s net interconnect margins and net profit could
decline.
Increased competition in the mobile communications markets in South Africa and other
African countries may result in a reduction of Vodacom’s average tariffs and Vodacom’s
market share and increased customer acquisition and retention costs, which could cause
Vodacom’s growth rates, revenue and net profit to decline and its churn rates to increase.
Vodacom faces intense competition in the mobile communications markets in South Africa and
other African countries. At March 31, 2008, Vodacom estimates that it held approximately 55%,
MTN held approximately 34%, Cell C held approximately 11% and Virgin Mobile, through its joint
venture with Cell C, held less than 1% of the South African mobile communications market, based on
total estimated customers, compared to 58%, 33%, 9% and less than 1%, respectively, at
March 31, 2007. Increasing competition, together with the further liberalization of the South African
telecommunications industry, may result in the continued reduction in Vodacom’s overall average
tariffs, loss of market share and increased customer acquisition and retention costs, which could
cause Vodacom’s growth rates, revenue and net profit to decline. In addition, the implementation
of mobile number portability in the 2007 financial year and the commencement of the Electronic
Communications Act could further increase competition and cause Vodacom’s churn rates to increase.
If we are not able to continue to improve and maintain our management information and other
systems, we could be subject to losses and inaccuracies in our financial reporting, our ability
to provide accurate and comprehensive operating information and to compete may be harmed
and our share price could decline.
Our management information systems do not provide management with certain operating data
and financial information on a real-time basis that at times has made our budgeting and planning
background image
28
processes difficult and our current operating support system also needs to be evolved and developed
to a new next generation operating support system to integrate and support Telkom’s conversion
to a next generation network. We also currently are not able to provide an end to end process
of order tracking for our voice customers. In addition, our customer and other management
information systems and product catalogue are not yet fully integrated and therefore are not capable
of providing us with comprehensive and detailed operating information, and we are not able to provide
a single bill for customers with multiple locations and products or configure products and services
across voice and data domains. To address these problems, we are in the process of developing
and implementing a unified customer management system capable of generating a single view of the
customer and have launched a scoping exercise to address the evolution to a next generation
network. In addition, we have renewed our focus on information risk management and have identified
several requirements for improved security of Telkom’s information technology systems. To the extent
we are not able to improve our systems and address these vulnerabilities, our ability to provide
accurate and comprehensive operating information and to compete effectively in the increasingly
liberalized South African communications market may be harmed and our share price could decline.
If we lose key personnel or if we are unable to hire and retain highly qualified employees and
partners, our business operations could be disrupted and could impact on our ability to
compete successfully.
Our success, including the success of Vodacom, depends in large part on our ability to hire, retain
and partner with highly qualified employees and partners who possess the requisite qualifications and
technical skills in the communications industry due to the continuous evolution and convergence of
technologies. Telkom and Vodacom do not have long term retention agreements with a majority of
their senior management, any of whom may terminate their employment at any time. The loss of key
personnel could disrupt our business operations if we are unable to replace them with similarly
qualified individuals. As competition in the communications industry increased, Telkom and Vodacom
have experienced significantly increased employee resignations in recent years, particularly of key
technical employees to Neotel, mobile operators and VANS as well as to other global technology
companies. We expect that competition for employees in the South African communications industry
will continue to increase as competition in the communications industry further increases. If we
continue to lose a number of our key employees to our competitors and are not able to attract and
retain highly qualified employees or partners, our business operations could be disrupted and our
ability to compete could be harmed.
We do not have the right to appoint the majority of Vodacom’s directors or members of its
directing committee and the Vodacom joint venture agreement contains approval rights that
may limit our flexibility and ability to implement our preferred strategies.
Although we are a 50% shareholder in Vodacom, Vodafone Group Plc, or Vodafone, beneficially
owns the remaining 50% interest in Vodacom. As a result, our flexibility and ability to implement our
preferred strategies may be limited by the fact that we do not have the right to appoint the majority
of Vodacom’s directors or members of its directing committee. In addition, under our memorandum
and articles of association, the Government is entitled to nominate the directors we appoint to the
Vodacom board. The Vodacom joint venture agreement, which governs the relationship between
Telkom and Vodafone, requires each of Vodacom’s shareholders who own 10% or more
of Vodacom’s shares, which are currently Telkom and Vodafone, to approve certain material
transactions. As a result of these factors, we may not be able to impose strategies on Vodacom that
we believe to be beneficial to us without the approval of Vodafone and Telkom does not have the
ability to dictate or modify Vodacom’s internal control over financial reporting nor the ability in practice
to conduct an assessment of Vodacom’s internal control over financial reporting and has accordingly
excluded them from the scope of Telkom’s Sarbanes-Oxley Section 404 Management Annual Report
on Internal Control over Financial Reporting.
background image
29
If Vodacom does not continue to pay dividends or make other distributions to Telkom, Telkom
may not be able to pay dividends and service its debt and could be required to lower or defer
capital expenditures, dividends and debt reduction, which could cause the trading prices of
Telkom’s ordinary shares and ADSs to decline.
Telkom receives dividends from Vodacom which Telkom uses to fund a portion of its capital and
operating expenditures, service its debt and other financial obligations and pay dividends to Telkom’s
shareholders. Vodacom is legally distinct from Telkom and has no obligation to pay dividends or make
other distributions to Telkom. Vodacom’s ability to pay dividends and make other distributions to
Telkom may be restricted by, among other things, its operations and the availability of funds and the
terms of credit and debt arrangements entered into by it, as well as statutory and other legal
restrictions. In addition, Vodacom’s ability to pay dividends or make distributions to Telkom and its
other shareholder requires the approval of Vodacom’s shareholders who own 10% or more of
Vodacom’s shares, which are currently Telkom and Vodafone. To the extent that Vodacom is unable
to, or otherwise does not, pay dividends or make other distributions to Telkom in the future, Telkom
may not be able to pay dividends and service its debt and could be required to lower or defer capital
expenditures, dividends and debt reduction, which could cause the trading prices of Telkom’s ordinary
shares and ADSs to decline.
We have negative working capital, which may impair our operating and financial flexibility and
require us to defer capital expenditures and we may not be able to pay dividends and our
operations and financial condition could be adversely affected.
We had negative consolidated working capital of approximately R9.3 billion as of March 31, 2008,
compared to negative consolidated working capital of approximately R8.2 billion as of March 31, 2007
and approximately R3.0 billion as of March 31, 2006 and Vodacom had negative working capital of
approximately R7.8 billion as of March 31, 2008, compared to negative working capital of
approximately R7.4 billion as of March 31, 2007 and approximately R5.2 billion as of March 31, 2006.
Negative working capital arises when current liabilities are greater than current assets. We intend to
fund current liabilities through a combination of operating cash flows and with new borrowings and
borrowings available under existing credit facilities. We had R7.6 billion available under existing credit
facilities as of March 31, 2008. If we are unable to generate sufficient operating cash flows or
borrowings to fund our current liabilities, our operating and financial flexibility could be impaired and
we may be required to defer capital expenditures and may not be able to pay dividends and our
business operations and financial condition could be negatively impacted.
Continuing rapid changes in technologies could increase competition or require us to make
substantial additional investments in technologies and equipment, which could reduce our
return on investment and net profit.
The services we offer are technology intensive. The development of new technologies, such
as fixed wireless services, packet radio services, 3G technologies, WiMAX Passive Optical Networks,
ADSL2+, Synchronous High bit rate Digital Subscriber Lines, HSDPA and HSUPA, could increase
competition and make our technology obsolete. We may have to make substantial additional
investments in new technologies to remain competitive. New technologies we choose may prove not
to be commercially successful. In addition, changes in technology could make our existing equipment
obsolete and we may not be able to obtain replacement equipment or parts or may be required to
spend significant capital to replace existing equipment, which may not be available on commercially
acceptable terms or at all. As a result, we could lose customers, fail to attract new customers or incur
substantial costs in order to maintain our customer bases, which could reduce our return on
investments and net profit.
background image
30
If we continue to experience high rates of theft, vandalism, network fraud, payphone fraud and
lost revenue due to non-licensed operators in our fixed-line business, our fixed-line fault rates
could increase and our operating revenue and net profit could decline.
We have experienced significant cable theft, theft of solar panels and wireless communications
equipment, vandalism of payphones, network fraud, such as non-licensed calls, and payphone fraud
in our fixed-line business. Theft and vandalism have caused our fixed-line fault rates to increase and
the repair times on our network and the network downtimes associated with such faults and network
fraud and payphone fraud have resulted in lost operating revenue and significant costs. Theft of cable
increased significantly in the 2008 and 2007 financial years due to the increase in the price of copper.
We have also lost operating revenue to non-licensed operators providing telecommunications services
in South Africa. If we are unable to control theft, vandalism, network fraud and payphone fraud or if we
continue to lose operating revenue to non-licensed operators in our fixed-line business, our fixed-line
fault rates could increase and our operating revenue and net profit could decline.
Delays in the development and supply of communications equipment may hinder the
deployment of new technologies and services and cause our growth rates and net profit to
decline.
Our operations, including the operations of Vodacom, depend in part upon the successful and
timely supply of evolving fixed and mobile communications technologies. We use technologies from
a number of suppliers and make significant capital investments in connection with communications
technologies. If technologies are not developed or delivered by our suppliers on time or do not
perform according to expectations or achieve commercial acceptance, we may be required to delay
service introductions and make additional capital expenditures and we could be required to write-off
investments in technology, which could cause our growth rates and net profit to decline.
Actual or perceived health risks relating to mobile handsets, base stations and associated
equipment and any related publicity or litigation could make it difficult to find attractive sites
for base stations and reduce Vodacom’s growth rates, customer base, average usage per
customer and net profit.
Concern has been expressed that the electromagnetic signals from mobile handsets, base
stations and associated equipment may pose health risks. Actual or perceived risks of mobile
handsets or base stations and related publicity or litigation, could make it difficult to find attractive
sites for base stations and reduce Vodacom’s growth rates, customer base, average usage per
customer and net profit.
Risks related to Telkom’s ownership by the Government of South Africa and major shareholders
Telkom’s major shareholders are entitled to appoint the majority of Telkom’s directors and
exercise control over Telkom’s strategic direction and major corporate actions.
The Government of the Republic of South Africa beneficially owned 39.8% of Telkom’s issued and
41.5% of Telkom’s outstanding ordinary shares plus the class A ordinary share as of June 30, 2008.
Through its ownership and voting arrangements provided for in Telkom’s articles of association, the
Government is entitled to appoint five of Telkom’s directors, and is able to exert considerable influence
over Telkom’s corporate governance, strategic direction and major corporate actions and to appoint
directors of Telkom’s subsidiaries and the Vodacom joint venture. In addition, as of June 30, 2008,
the Public Investment Corporation, an investment management company wholly owned by the
South African Government, directly owned 6.6% of Telkom’s issued and 6.8% of Telkom’s
outstanding ordinary shares, which it acquired in the market, and, through its ownership of Black
Ginger 33 (Pty) Ltd., or Black Ginger, a wholly owned subsidiary, beneficially owned Telkom’s class B
ordinary share, and is entitled to appoint one of Telkom’s directors.
background image
31
Telkom’s articles of association require Telkom to obtain written consent from the Government
before taking actions that would limit Telkom’s ability to provide public switched telecommunication
services. Telkom’s articles of association also require the approval of directors appointed by the
Government in order for Telkom or any of its subsidiaries, including Vodacom, to enter into major
corporate actions and transactions, including amendments to Telkom’s management structure and the
powers of Telkom’s executive committee, the approval of Telkom’s dividend policy and payment of
dividends, increases in Telkom’s indebtedness beyond certain limits and changes of control. As a
result, without the approval and participation of the Government, Telkom is not able to consummate
transactions involving an actual or potential change of control, including transactions in which you
might otherwise receive a premium for your ordinary shares or ADSs over market prices. Because the
Government exercises control over Telkom, holders of ordinary shares and ADSs lack meaningful
power to approve decisions of Telkom’s board of directors or to influence our strategic direction and
major corporate actions.
The Government of the Republic of South Africa may use its position as shareholder of
Telkom and policymaker for, and customer of, the telecommunications industry in a manner
that may be favorable to our competitors and unfavourable to us.
The Government of the Republic of South Africa owned 39.8% of Telkom’s issued and 41.5% of
Telkom’s outstanding ordinary shares as of June 30, 2008. The Government also holds significant
equity stakes in other industry participants, including Sentech, and has an indirect 30% equity interest
in Neotel and recently created Infraco, which is expected to provide inter-city bandwidth at cost based
prices to Neotel and later to the rest of the industry. To further its policy of liberalization of the
telecommunications industry, the Government may adopt and implement policies and exercise its right
to approve regulations that benefit our competitors but are not beneficial to us. In addition, to further
other political or social objectives, the Government may be required to act in a manner that may be
detrimental to our business but advantageous to our competitors.
The Government of the Republic of South Africa is also one of our customers. We estimate that
Government customers, excluding certain Government owned parastatal companies, accounted for at
least 9% of our total fixed-line operating revenue and at least 4% of our total fixed access lines in the
year ended March 31, 2008. The Government has, and in the future may, transfer some or all of its
existing business to Neotel or other operators, including value added network service providers.
Legislation has been enacted to centralize all procurement of telecommunications and information
technology services by the Government, through one agency. If the Government transfers some or all
of its business to other operators, our operating revenue and net profit could decline.
Risks related to regulatory and legal matters
The regulatory environment for the telecommunications industry in South Africa is evolving
and regulations addressing a number of significant matters have not yet been made. The
interpretation of existing regulations, the adoption of new policies or regulations that are
unfavorable to us, or the imposition of additional license obligations on us, could disrupt our
business operations and could cause our net profit and the trading prices of Telkom’s ordinary
shares and ADSs to decline.
The licensing and provision of telecommunications services in the Republic of South Africa is
governed by the Electronic Communications Act, which repealed the Telecommunications Act and
came into effect on July 19, 2006. While a new licensing regime was created by the Electronic
Communications Act, all existing licenses are to remain valid until converted to new licenses in
accordance with the new licensing regime. Regulations made under the Telecommunications Act are
also to remain in force until they are amended or replaced by new regulations made to fully implement
the provisions of the Electronic Communications Act. As a result, the regulatory environment is
background image
32
evolving, lacks clarity in a number of areas and is subject to interpretation, review and amendment as
the telecommunications industry is further developed and liberalized. In addition, the regulatory
process entails a public comment process, which, in light of the politicized issue of privatization of
industries such as telecommunications in South Africa, makes the outcome of the regulations
uncertain and may cause delays in the regulatory process. A number of significant matters have not
been addressed or clarified, including:
•   the process of converting our licenses to the new legal framework provided by the Electronic
Communications Act and the extent of additional obligations and limitations that may be
imposed on our converted licenses as a result of proposals by ICASA to reintroduce quality of
service obligations that lapsed in 2002;
•   the extent to which our fixed-line business will be required to make its facilities or access lines
available to Neotel or other competitors to provide services, other than public switched
telecommunications services, on a resale basis;
•   the extent to which our fixed-line business may be required to unbundle its local loop;
•   the legal and regulatory framework that will ultimately be established to implement the
provisions of the Electronic Communications Act; and
•   the additional obligations that may be imposed on us in terms of the Electronic
Communications Act if we are found to be dominant in a market in which we operate.
ICASA is the regulatory body that governs the South African communications market pursuant
to the Electronic Communications Act. It has been reported that ICASA may lack adequate resources
to effectively fulfill its regulatory and licensing functions and to deal with regulatory challenges that
continue to change given the rapidly evolving telecommunications environment. ICASA’s capacity
may be further strained by the workload that is imposed on it by the Electronic Communications Act.
This combination of factors creates further uncertainties in the regulatory arena and the ability of
ICASA to effectively fulfill its functions. In addition, while we believe our relationship with ICASA has
improved in recent years, we had disagreements with, and cases against, ICASA in the past.
We cannot predict the outcome or timing of any amendments to applicable regulations or the
interpretation thereof, the release of new regulations or their impact on us. However, changes in the
regulation of telecommunications services in South Africa, the imposition of unfavorable terms in our
licenses or the loss or unfavourable amendment of any license could disrupt our business operations
and could cause our net profit and the trading prices of Telkom’s ordinary shares and ADSs to decline.
In addition, new laws and regulations that may require our business customers to make use of
suppliers complying with black economic empowerment requirements may affect us. If Telkom is not
able to meet the minimum requirements of these black economic empowerment initiatives or
restrictions, some of our business customers may be required or elect to obtain all or some of their
telecommunications services from our competitors who may fulfill such requirements.
Our tariffs are subject to approval by the regulatory authorities, which may limit our flexibility
in pricing and could reduce our revenues and net profit. Vodacom’s revenue and net profit
could also decline if wholesale price controls are imposed on it.
Regulations made under the Telecommunications Act, which remain in effect, impose a price cap
on a basket of Telkom’s services and a sub-basket of those services provided to residential
customers, including leased lines up to and including lines of 2 Mbps of capacity and the rental and
installation of business exchange lines. Approximately 57% of Telkom’s operating revenue in the year
ended March 31, 2008 was included in this basket. Our tariffs for these services are filed with ICASA
for approval. Revenue generated from services for which we had exclusivity may not be used to
subsidize competitive services. Effective from August 1, 2005 through July 31, 2008, the annual
permitted increase in revenues from both the whole basket and the residential sub-basket was
background image
33
lowered from 1.5% to 3.5% below inflation and ADSL products and services have been added to the
basket. In addition, the price of no individual service within the residential sub-basket can be
increased by more than 5% above inflation except where specific approval has been received from
ICASA and pursuant to the Electronic Communications Act, revenue generated from services where
we have significant market power may not be used to subsidize competitive services. Early in 2008,
ICASA commissioned a review of the existing price control regulations applicable to Telkom, however,
ICASA has not initiated the statutory public process of reviewing the existing regulations. Telkom is
awaiting communication from ICASA in respect of proposed timelines for the review. It is possible that
both the composition of the basket and the price cap will be changed in a manner detrimental to
Telkom, which could lower its revenues. It is not possible at this stage to assess the extent of these
changes. It is unlikely that these changes will be implemented in time for Telkom’s latest tariff filing,
due to be effective from August 1, 2008.
These limitations on our customer tariffs limit our pricing flexibility and could reduce our net profit.
Similarly, Vodacom’s revenue and net profit could decline if price controls are imposed on it.
Any payments to Telcordia Technologies Incorporated, or Telcordia, in the damages phase of
its arbitration proceedings against Telkom, will be required to be funded by Telkom from cash
flows or the incurrence of debt, which could have a material adverse effect on its financial
condition and results of operations.
Telcordia instituted arbitration proceedings against Telkom in March 2001 seeking to recover
approximately U.S.$130 million for monies outstanding and damages, plus costs and interest at a rate
of 15.5% per year, which was increased by Telcordia to U.S.$172 million in the 2007 financial year
and subsequently decreased to U.S.$128 million in the 2008 financial year. The arbitration proceeding
relates to the cancellation of an agreement entered into between Telkom and Telcordia during June
1999 for the development and supply of an integrated end to end customer assurance and activation
system by Telcordia. In September 2002, the arbitrator found that Telkom had wrongfully repudiated
the contract and a partial award was issued by the arbitrator in favour of Telcordia, which was
subsequently set aside by the South African High Court. On November 29, 2004, the South African
Supreme Court of Appeals granted Telcordia leave to appeal. The South African Supreme Court of
Appeals set aside the South African High Court’s ruling, which was subsequently appealed by Telkom
to the South African Constitutional Court and was dismissed by the South African Constitutional Court.
As a result, the South African Constitutional Court’s judgment brought to finality the dispute over the
merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to
deal with the amount of damages to which Telcordia is entitled. The parties attempted to resolve the
matter by way of mediation in February and April 2008 without success. The arbitration is expected to
continue later in 2008.
Although Telkom is currently unable to predict the exact amount that it may eventually be required
to pay Telcordia, it has made provision for estimated liabilities in respect of the Telcordia claim in the
sum of U.S.$70 million (R569 million), including interest and legal fees. Telkom will be required to fund
any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages
above Telkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could
have a material adverse effect on its financial condition, cash flows and results of operations. See
Item 8. “Financial information – Legal Proceedings.”
We are parties to a number of legal and arbitration proceedings, including complaints before
the South African Competition Commission. If we lose these legal and arbitration proceedings,
we could be prohibited from engaging in certain business activities and could be required to
pay substantial penalties and damages, which could cause our revenue and net profit to
decline and have a material adverse impact on our business and financial condition.
background image
34
We are parties to a number of legal and arbitration proceedings, including complaints filed by the
South African Value Added Network Services Providers Association, the South African Internet Service
Providers Association and other VANS, with the South African Competition Commission, alleging
anticompetitive practices. If we were to lose these legal and arbitration proceedings, we could be
required to cease these practices, divest these businesses and be fined a penalty of up to 10% of
Telkom’s annual turnover, excluding the turnover of subsidiaries and joint venture, for each complaint
for the financial year prior to the dates of the complaints. As competition continues to increase, we
expect that we will become involved in an increasing number of disputes regarding the legality of
services and products provided by us and third parties. These disputes may range from court lawsuits
to complaints lodged by or against us with various regulatory bodies such as the complaint launched
by ORION against Telkom with the South African competition authorities relating to certain discount
plans that Telkom offers and Omnilink, M-Web and Internet Solutions relating to the pricing of
Telkom’s products and services. See “Item 8. Financial Information – Legal Proceedings”. We are not
currently able to predict when these disputes may be resolved or the amount that we may eventually
be required to pay, however, we have not included provisions for any of these claims in our
consolidated financial statements. Hearings for our legal proceeding with the South African Value
Added Network Services Provider Association are currently scheduled before the South African High
Court in the 2009 financial year. In addition, we may need to spend substantial amounts defending or
prosecuting these claims even if we are ultimately successful. If we were to lose these or future legal
and arbitration proceedings, we could be prohibited from engaging in certain business activities and
could be required to pay substantial penalties and damages, which could cause our revenue and net
profit to decline and have a material adverse impact on our business and financial condition. We may
be required to fund any penalties or damages from cash flows or drawings on our credit facilities,
which could cause our indebtedness to increase.
If we are required to unbundle the local loop, or are unable to negotiate favorable terms and
conditions for the provision of interconnection services and facilities leasing services or
ICASA finds that we or Vodacom have significant market power or otherwise imposes
unfavorable terms and conditions on us, our business operations could be disrupted and our
net profit could decline.
The Electronic Communications Act provides that ICASA may prescribe a framework for the
unbundling of Telkom’s local loop, which could significantly increase competition. The Minister of
Communications published policy decisions that the process of unbundling the local loop in South
Africa should be urgently implemented and completed by 2011. In compliance with the Minister’s
request ICASA has initiated consultations with Telkom on the process to be followed, and is expected
to soon open consultation with all other stakeholders. ICASA plans to set up consultative committees
to consider policy and legal, technical and processes, and financial, economic and competition issues
relating to unbundling the local loop.
ICASA is entitled to issue, and has issued, regulations relating to interconnection and facilities
leasing. Pursuant to the Electronic Communications Act, licensees, including Telkom and Vodacom,
must, on request, interconnect with and lease electronic communications facilities to, any other
licensee, unless such request is unreasonable and must enter into interconnection agreements and
facilities leasing agreements for this purpose. Where the parties are unable to reach an agreement,
the Electronic Communications Act confers on ICASA the power to intervene and propose, or impose,
terms and conditions for the interconnection agreement, or refer the matter to the Complaints and
Compliance Committee for resolution. ICASA must review any interconnection agreement to
determine whether it is consistent with the regulations and, if the agreed terms are not consistent with
the regulations, direct the parties to agree on new terms and conditions. The Electronic
Communications Act also empowers ICASA to impose pro-competitive conditions on operators found
to have significant market power in a market or market segments that have ineffective competition,
background image
35
which may affect the manner in which interconnection is provided and facilities are leased by such
operators, and the charges thereof, including the provision of interconnection and facilities at or near
the long run incremental cost, or LRIC, of those services or facilities.
On January 29, 2007, ICASA published a consultation document for public comment and on
May 17, 2007 it held a public enquiry on its intention to define relevant call termination wholesale
markets. In its consultation document ICASA expressed the preliminary view that all providers of
telecommunications networks, including Telkom and Vodacom, have significant market power in their
call termination markets and that the appropriate price controls to be applied to the large operators,
MTN, Vodacom and Telkom, is the LRIC, calculated on the basis of relevant forward looking economic
costs of an efficient operator, including a reasonable cost of capital. In its findings published on
November 9, 2007, ICASA confirmed that it considers each terminating network to be a separate
market, however, it also recognized that the enquiry findings had to be restricted to defining the
markets and that any pronouncements in respect of a determination of significant market power and
any remedies that may flow from such determination will be done by means of regulations made in
accordance with different processes, as envisaged in Section 67 of the Electronic Communications
Act. On May 3, 2007, ICASA published a consultation document for public comment on its intention
to define relevant end to end leased lines and other wholesale markets. In its consultation document
ICASA defined the wholesale markets for fixed-line local loop access, fixed-line narrowband exchange
lines, call origination and call conveyance, symmetric broadband originator services, trunk services for
transmission within South Africa and international leased lines. ICASA expressed the preliminary view
that Telkom is deemed to have significant market power in all these markets and the appropriate price
controls to be applied is likely to be the LRIC, calculated on the basis of relevant forward looking
economic costs of an efficient operator, including a reasonable cost of capital. Regulations are
expected to follow in due course but probably not before the regulations dealing with market analysis,
the determination of the level of competition and the determination of significant market power are
completed. On December 24, 2007, ICASA issued draft regulations to set up the framework for the
leasing of facilities by operators deemed to have significant market power in a defined market for
those facilities. An operator that has control over essential facilities is deemed to have significant
market power in the market for those facilities. The draft regulations consider most of the fixed-line
facilities that we provide to be essential. Final regulations have not yet been published. The most
significant impact on Telkom would be the obligation to build facilities to satisfy such requests where
no spare capacity is available. The Minister of Communications has issued a policy decision declaring
November 1, 2007 as the date from which the exclusivity provisions in our SAT-3 agreements shall be
declared null and void. The Minister of Communications has also issued a policy direction to ICASA
requiring it to prioritize and urgently prescribe a list of essential facilities, ensuring that the facilities
connected to the SAT-3/WASC/SAFE submarine cables can be accessed soon. ICASA has
established a draft regulation for public comment in compliance with this policy direction.
If we are required to unbundle the local loop, are unable to negotiate favorable terms and
conditions for the provisions of interconnection and facilities leasing or ICASA finds that we or
Vodacom have significant market power or otherwise imposes unfavourable terms and conditions on
us, our business operations could be disrupted and our net profit could decline.
If we are unable to recover the substantial capital and operational costs associated with the
implementation of carrier pre-selection and number portability or are unable to implement
these requirements in a timely manner, our business operations could be disrupted and our
net profit could decline. The implementation of carrier pre-selection and number portability
will also likely further increase competition and cause our churn rates to increase.
background image
36
The Telecommunications Act mandates that fixed-line operators are required to implement carrier
pre-selection, which will enable customers to choose and vary their fixed-line telecommunications
carrier for long distance and international calls. Call-by-call carrier pre-selection must be implemented
and must be provided by an operator within two months of it being requested by another operator and
fully automatic pre-selection must be implemented and must be provided by an operator within ten
months of it being requested by another operator. Telkom will not be able to fully implement carrier
pre-selection until Neotel’s interconnection systems and the inter-operator process and systems to
support carrier pre-selection become available, however, Telkom does not believe that it will be able
to implement automatic carrier pre-selection within ten months of it being requested. In addition, the
Electronic Communication Act mandates that number portability to enable customers to retain their
fixed-line and mobile telephone numbers if they switch between fixed-line operators or between
mobile operators be introduced. Telkom is required to implement number portability in blocks of
10,000 numbers within two months after Neotel launches such retail services and individual number
portability within 12 months after receiving a request from Neotel. Telkom and Neotel are currently
in the process of finalizing the testing for the introduction of block number portability which is
scheduled to take place in the middle of the 2008 calendar year. Number portability will therefore
be phased in commencing with number portability in blocks of 10,000 numbers, followed by number
portability in blocks of 1,000 numbers and then individual number portability. Mobile number portability
was introduced on November 11, 2006. We have incurred substantial set-up costs and will incur
maintenance costs in connection with the implementation of these requirements, which could disrupt
our business operations. The extent of recoverability of these costs have not yet been determined and
finalized by ICASA. We may not be able to implement these requirements in a timely manner, which
could result in our business being disrupted and cause our net profit to decline. In addition, the
implementation of these requirements will likely further increase competition and cause our churn
rates to increase.
The implementation of the Regulation of Interception of Communications and Provisions of
Communication-Related Information Act, or RICA, could be costly and may negatively impact
the ability of Telkom and Vodacom to register customers and may require them to disconnect
existing customers, causing their penetration rates, growth rates, revenue and net profit to
decline.
RICA is a South African law that regulates the authorization for and actual lawful interception
of indirect communications. The Act came into effect on September 30, 2005, with the exception
of certain sections requiring the collection of customer details and identity verification prior to providing
mobile cellular telecommunications services. The compliance date for these sections has not yet
been determined and will come into effect by presidential proclamation. RICA obligates service
providers to obtain and store customer details, including names, identity numbers, residential and
business or postal addresses and requires verification of customers’ details with reference to a
certified copy of a customer’s identity document and his or her actual identity document. To date,
Telkom has not been able to complete the implementation of all of these requirements, and Vodacom
may not be able to implement these requirements within the time period in which it is ultimately
required to implement them, which has not yet been determined. Furthermore, the implementation of
RICA is expected to have significant cost implications resulting from the paper verification and storage
requirements and negatively impact the ability of Telkom and Vodacom to register customers due to its
burdensome registration process, which may not be practical and may require the disconnection of
customers for whom such information is unavailable. As a result, Telkom’s and Vodacom’s business
operations could be disrupted and their net profit could decline and they may be liable for penalties to
the extent they are not able to comply with RICA’s requirements.
background image
37
In addition, commencing in June 2006, all licensees, including Telkom and Vodacom, were
required to install equipment and implement procedures to allow lawful interception by law
enforcement agencies in South Africa, including the interception of communications and the
provisioning of call-related information, including billing information. Telkom was not able to completely
comply with all of the requirements by June 2006 and was in consultation with the Office for
Interception Centers and the Department of Communication to adopt a phased approach for
compliance. Telkom subsequently achieved full compliance for all major technologies, including its
public digital exchanges and Internet services, in the 2007 calendar year, although some
implementation measures and implementation schedules remain subject to further agreement. The
directives for the implementation of these requirements for private networks have not yet been
finalized. To the extent that we are unable to comply with all the requirements of RICA or are unable
to substantially recover these costs of compliance, our business operations could be disrupted and
our net profit could decline and we may be liable for penalties.
If Telkom is required to comply with the provisions of the South African Public Finance
Management Act, 1 of 1999, or PFMA, and the provisions of the South African Public Audit Act
of 2004, or PAA, Telkom could incur increased expenses and its net profit could decline and
compliance with the PFMA and PAA could result in the delisting of Telkom’s ordinary shares
and ADSs from the JSE and New York Stock Exchange.
Telkom is required to comply with the provisions of the PFMA and PAA. Telkom applied for and
obtained a temporary exemption from many of the provisions of the PFMA until October 2010 and has
been informed by the South African Auditor-General that it will not be required to comply with the PAA
until such date. If Telkom does not obtain a further exemption from the PFMA or if it is required to
comply with the PAA or its existing exemption from the PFMA is revoked for any reason or it is
otherwise required to comply with the PFMA or PAA, Telkom may be compelled to prepare financial
statements in accordance with accounting principles and practices prescribed by the Government of
the Republic of South Africa which may not correlate with IFRS and would require Telkom to incur
additional costs. Telkom would also be required to comply with, what it believes to be, extremely
prescriptive treasury regulations issued pursuant to the PFMA and PAA, to provide the Government
with advance access to proprietary and potentially price sensitive information and to seek the prior
approval of South African governmental authorities to enter into certain material agreements, to
maintain certain bank accounts, to formulate and implement certain investment strategies or to
discharge its auditors, which would preclude Telkom from acting in the same manner as its
competitors and other listed companies. If Telkom is required to comply with the PFMA and PAA,
Telkom may not be able to comply with the Listings Requirements of the JSE or the listing rules of the
NYSE and Telkom’s ordinary shares and ADSs could be delisted.
Our total property tax expense could increase significantly and our net profit could decline as
a result of the enactment of the South African Local Government: Municipal Property Rates
Act, 6 of 2004.
On May 11, 2004, the South African Municipal Property Rates Act, 6 of 2004, was enacted. The
commencement date for the Act was July 2, 2005. Pursuant to this new Act, municipalities are
required to levy property tax in accordance with a rates policy that must be adopted and regularly
reviewed by municipalities with community participation facilitated through the municipalities’ annual
budget process. Due in part to the fact that no rate policy has to date been prescribed, it is too early
to assess exactly how the new Act would affect us. Certain municipalities have however already
initiated consultative processes with landowners. As a substantial landowner in South Africa, our total
property tax expense could increase significantly and our net profit could decline as a result of the
implementation of this Act.
background image
38
Risks related to the Republic of South Africa
Fluctuations in the value of the Rand and inflation rates in South Africa could have a
significant impact on the amount of Telkom’s dividends, the trading prices of Telkom’s
ordinary shares and ADSs, our operating revenue, operating expenses, net profit, capital
expenditures and on the comparability of our results between financial periods.
The value of the Rand as measured against the Dollar has historically fluctuated significantly.
The value of the Rand as measured against the Dollar has increased from R11.38 per U.S.$1.00 as of
March 29, 2002 to R6.15 per U.S.$1.00 as of March 31, 2006. The value of the Rand as measured
against the Dollar was R8.14 per U.S.$1.00 as of March 31, 2008.
Fluctuations in the exchange rate between the Rand and the Dollar could have an adverse impact on:
•   the Dollar equivalent of any dividends and distributions on Telkom’s ordinary shares and ADSs
payable in Rands;
•   the Dollar equivalent of the Rand denominated prices of Telkom’s ordinary shares; and
•   the market value of Telkom’s ADSs in the United States.
These fluctuations could also impact the amount in Rand terms of our non-Rand denominated
debt, impact our non-Rand denominated financing costs and operating and capital expenditures and
cause our net profit to fluctuate. In addition, the volatility of the Rand as measured against the
Dollar and the Euro resulted in net foreign exchange profits of R123 million in the year ended
March 31, 2006, R202 million in the year ended March 31, 2007 and of R82 million in the year ended
March 31, 2008 in terms of IAS39. In addition, fluctuations in currency exchange rates between the
South African Rand and the currencies in African countries where Telkom and Vodacom have
investments could decrease the value of these businesses and our net profit. See Item 5. “Operating
and Financial Review and Prospects – Operating Results – Principal Factors that affect our Results
of Operations – Volatility of the Rand”.
The levels of unemployment, poverty and crime in South Africa may cause the size of the
South African communications market and our growth rates, operating revenue and net profit,
as well as the trading prices of Telkom’s ordinary shares and ADSs, to decline.
While South Africa features a highly developed financial and legal infrastructure at the core of its
economy, levels of unemployment, poverty and crime exist. In addition, there have been a number of
recent reports of unrest in many of South Africa’s informal settlements. These issues may hinder
investment into South Africa, prompt emigration of skilled workers and may have an impact on
economic growth. Although it is difficult to predict the effect of these issues on South African
businesses or the Government of the Republic of South Africa, they may cause the size of the
communications market and our growth rates, operating revenue and net profit, as well as the trading
prices of Telkom’s ordinary shares and ADSs, to decline.
Should the country continue to experience high occurrences of power outages Telkom’s
operational capacity, expenses and revenues will be affected and its operating revenue and net
profit could decline.
As is the case with enterprises across the country, the widespread and prolonged power outages,
also known as load shedding, are affecting Telkom’s operational capacity, expenses and revenues.
Should high occurrences of power outages across the country continue, Telkom’s business operations
could be disrupted and Telkom’s operating revenue and net profit could decline.
background image
39
The high rates of HIV infection in South Africa could cause the size of the South African
communications market and our growth rates, operating revenue and net profit to decline.
South Africa has a high rate of HIV infection. The exact impact of increased mortality rates due
to AIDS deaths on the cost of doing business in South Africa and the potential growth in the economy
is unclear at this time although employee related costs in South Africa are expected to increase
as a result of the AIDS epidemic and the size of the South African population and the communications
market could decline. Our growth rates, operating revenue and net profit could decline if employee
related expenses increase or our labor supply or the size of the South African population and
communications market decline.
Significant labor disputes, work stoppages, increased employee expenses as a result of
collective bargaining and the cost of compliance with South African labor laws could limit our
operating flexibility and disrupt our fixed-line business operations and reduce our net profit.
Trade unions represented approximately 70% of our total Telkom employees and approximately
14% of Vodacom’s employees as of March 31, 2008. Less than 7% of Vodacom’s employees
participated in a strike action in July 2007 and picketed in March 2007 due to disagreements with
Vodacom’s requirement that the Communication Workers Union have representation of at least 30%
of Vodacom’s employees before qualifying for the right to be recognized and negotiate as a trade
union. Trade unions have resisted workforce reductions and publicly opposed our proposed capability
management and outsourcing plans and our privatization and have instituted and in the future could
institute work stoppages to oppose changes in our employee and shareholding structure or gain
leverage in negotiating collective bargaining agreements. Approximately 23% of Telkom’s employees
participated in a work stoppage in March 2006 and approximately 31% of Telkom’s employees
participated in an additional work stoppage in April 2006 with respect to compensation issues, during
which period Telkom received increased reports of sabotage, vandalism and other incidents.
In addition, during the course of April and May 2007, approximately 35 members of Solidarity
embarked on a five day industrial action due to their dissatisfaction with the implementation of
Telkom’s new shift roster. In addition, a number of South African trade unions, including the trade
unions of our employees, have close links to various political parties and have had a significant
influence in South Africa as vehicles for social and political reform and in the collective bargaining
process. Since 1995 South Africa has enacted various labor laws that enhance the rights of
employees, which have imposed costs on us and have limited our flexibility and ability to implement
workforce reductions.
Telkom is a party to a collective agreement on substantive matters covering the terms and
conditions of employment of its fixed-line unionized employees and other non-management
employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006
to March 31, 2009. The long term substantive agreement provides for the re-opening of negotiations
in the event the consumer price index varies from the April 2006 level of 3.7% by more than 3%.
Due to inflation increasing beyond this percentage, Telkom re-opened the negotiations in December
2007 and thus far, we have not managed to reach settlement. Given the rapidly deteriorating
economic conditions as evidenced by an increase in the consumer price index from 7.9% in
December 2007 to 11.7% in May 2008, the various Trade Union Federations especially COSATU have
requested a double-digit increase. We have received a notice from CWU advising Telkom of its
intention to embark on some unspecified industrial action. If we are unable to implement workforce
reductions as necessary or our planned capability management and outsourcing, particularly as a
result of increased competition, or experience significant labor disputes, work stoppages, increased
employee expenses as a result of collective bargaining or compliance with labor laws, our business
operations could be disrupted and our net profit could be reduced.
background image
40
South African exchange control restrictions could hinder our ability to make foreign
investments and procure foreign denominated financings.
South Africa’s exchange control regulations restrict transactions between residents of the
Common Monetary Area, which consists of South Africa, the Republic of Namibia, and the
Kingdoms of Lesotho and Swaziland, and non-residents of the Common Monetary Area. In particular,
South African companies are generally not permitted, without the prior approval of the Exchange
Control authorities, to export capital from South Africa or to hold foreign currency in excess of certain
prescribed limits.
These restrictions could hinder our ability to make foreign investments and obtain foreign
denominated financing. While the South African Government has relaxed exchange controls in recent
years, it is difficult to predict whether or how it will further relax or abolish exchange control measures
in the future. See Item 10. “Additional Information – Exchange Controls.”
Risks related to ownership of Telkom’s ordinary shares and ADSs
The future sale of a substantial number of Telkom’s ordinary shares or ADSs could cause the
trading prices of Telkom’s ordinary shares and ADSs to decline.
As of June 30, 2008, Government of the Republic of South Africa owned 39.8% of Telkom’s
issued and 41.5% of Telkom’s outstanding ordinary shares, plus the class A ordinary share, Black
Ginger, a wholly owned subsidiary of the Public Investment Corporation, owned 9.0% of Telkom’s
issued and 9.3% of Telkom’s outstanding ordinary shares, plus the class B ordinary share, the Public
Investment Corporation directly owned 6.6% of Telkom’s issued and 6.8% of Telkom’s outstanding
ordinary shares and the Elephant Consortium owned 5.9% of Telkom’s issued and 6.1% of Telkom’s
outstanding ordinary shares. Telkom has adopted a management and employee incentive plan that
provides for the issue or grant of up to 22,281,272 ordinary shares, of which 15.0 million have already
been granted. Sales of substantial amounts of shares by Telkom’s shareholders, or by Telkom, or the
appearance that a large number of shares are available for sale, could cause the trading prices of
Telkom’s ordinary shares and ADSs to decline. Telkom has entered into a registration rights
agreement with the Government of the Republic of South Africa. Pursuant to the agreement, the
Government has the right to cause Telkom to either effect a JSE public offering in South Africa, or
register with the Securities and Exchange Commission all or part of their ordinary shares, or both.
Your rights as a shareholder are governed by South African law, which differs in material
respects from the rights of shareholders under the laws of other jurisdictions.
Telkom is a public limited liability company incorporated under the laws of the Republic of South
Africa. The rights of holders of Telkom’s ordinary shares and therefore many of the rights of Telkom’s
ADS holders are governed by Telkom’s articles of association and by South African law. These rights
differ in material respects from the rights of shareholders in companies incorporated elsewhere, such
as in the United States. In particular, South African law significantly limits the circumstances under
which shareholders of South African companies may institute litigation on behalf of a company.
For a description of the differences between shareholders’ rights under South African law and
Delaware law, see Item 10. “Additional Information – Memorandum and Articles of Incorporation –
Comparison of Shareholders’ Rights under South African and Delaware Law”.
It may not be possible for you to effect service of legal process, enforce judgments of courts
outside of South Africa or bring actions based on securities laws of jurisdictions other than
South Africa against Telkom or against members of its board.
Telkom and all but one of the members of its board of directors and executive officers are
residents outside of the United States. In addition, Telkom’s assets and the assets of members of its
background image
41
board of directors and executive officers are located in whole or in substantial part outside of the
United States. As a result, it may not be possible for you to effect service of legal process within the
United States or elsewhere outside of the Republic of South Africa upon our directors or officers,
including with respect to matters arising under U.S. federal securities laws or applicable state
securities laws. Moreover, it may not be possible for you to enforce against Telkom or the members of
its board of directors and executive officers judgments obtained in courts outside South Africa,
including the United States, based on the civil liability provisions of the securities laws of those
countries, including those of the United States. A foreign judgment is not directly enforceable in South
Africa, but constitutes a cause of action, which may be enforced by South African courts with the
approval of the South African Minister of Trade and Industry. In addition, awards of punitive damages
will not be enforceable in South Africa. Although it is possible for an investor to bring an action against
Telkom in a South African civil court to enforce rights in terms of U.S. federal securities laws, these
laws will not be enforced if they are penal or revenue or taxation laws or laws which are contrary to
South African public policy. It is not possible therefore for an investor to seek to impose criminal
liability on us in a South African court arising from a violation of U.S. federal securities laws.
Your ability to sell a substantial number of ordinary shares and ADSs may be restricted by the
limited liquidity of ordinary shares.
The principal trading market for Telkom’s ordinary shares is the JSE. In addition, as of
March 31, 2008, only 2.7% of the 215,313,193 ordinary shares publicly traded were represented by
ADSs trading on the NYSE. The limited liquidity of the ordinary shares and ADSs could depress the
trading prices of the ordinary shares and ADSs and could limit your ability to sell a substantial number
of ordinary shares or ADSs in a timely manner, especially by means of a large block trade.
background image
42
Item 4.
Information on the company
HISTORY AND DEVELOPMENT OF THE COMPANY
Telkom was incorporated on September 30, 1991 as a public limited liability company
registered under the South African Companies Act, 61 of 1973, as amended. Telkom’s registration
number is 1991/005476/06. Telkom’s principal executive offices are located at Telkom Towers North,
152 Proes Street, Pretoria 0002, Gauteng Province, South Africa. Telkom’s telephone number
is (27) (12) 311 3566 and its internet address is http://www.telkom.co.za. Information contained
on Telkom’s website is not part of this annual report.
Historical background
Prior to 1991, the former Department of Posts and Telecommunications of South Africa provided
telecommunications and post office services in South Africa on an exclusive basis. In 1991, the
Government of South Africa transferred the entire telecommunications enterprise of the Department of
Posts and Telecommunications of South Africa to a new entity, Telkom, as part of a commercialization
process intended to liberalize certain sectors of South Africa’s economy. Telkom remained a wholly
state owned enterprise until May 14, 1997, when the Government of South Africa sold a 30% equity
interest in Telkom to Thintana Communications LLC, a strategic equity investor beneficially owned by
SBC Communications, Inc. and Telekom Malaysia S.D.N. Berhard. On March 7, 2003, we completed
our initial public offering and listing on the JSE and NYSE, pursuant to which the Government of
South Africa sold a total of 154,199,467 ordinary shares, including 14,941,513 ordinary shares
through the exercise of an over-allotment option.
Recent developments
Non-binding proposals received
Telkom has made a decision to invest in the build out of a fixed-wireless and mobile data network.
Telkom is currently limited in its ability to pursue or provide full mobile services in South Africa and
sub-Saharan Africa by the provisions of the Vodacom joint venture agreement with Vodafone. On
May 30, 2008, Telkom received a non binding proposal by a wholly owned subsidiary of Vodafone to
acquire a portion of Telkom’s stake in Vodacom, subject to, among other things, Telkom distributing its
remaining stake in Vodacom to Telkom’s shareholders.
Separately, on May 30, 2008, Telkom received a letter from a consortium comprising
Mvelaphanda Holdings (Proprietary) Limited, affiliated funds of Och-Ziff Capital Management Group
and other strategic investors stating that the consortium was considering making an offer for the entire
issued share capital of Telkom subject to a number of conditions, including, among other things,
confirmation by the Telkom board that Telkom would unbundle its entire 50% stake in Vodacom as
part of the offer.
The discussions with Vodafone commenced on May 14, 2008 and are independent from the
approach received from the consortium. On June 2, 2008 Telkom issued a cautionary statement regarding 
these developments and on July 15, 2008, Telkom issued a further cautionary statement that its discussions 
with Vodafone and independently with the consortium are still ongoing and shareholders are advised to 
continue to exercise caution when dealing in Telkom securities. Telkom’s board does not intend to consider disposing of Telkom or any of its subsidiaries, joint venture or assets without compelling strategic rationale. 
There can be no assurance that Telkom will ultimately elect to divest of its interest in Vodacom or the 
structure or the ultimate value to Telkom and its shareholders of its Vodacom interest, or that Telkom’s 
mobile strategy will change or that it will be successful in pursuing any new mobile opportunities.
See Item 3. “Key Information – Risk Factors – Risks related to our business – Any changes to
Telkom’s mobile strategy and its inability to successfully implement such strategy and organizational
changes thereto, could cause our growth rates, operating revenue, net profit and dividends to
decline.”
background image
43
Senior management
With effect from November 1, 2007, Telkom revised its top management structure to align the
structure to better match its current business needs. The revised structure is designed to facilitate
faster decision-making and more effective execution, smoother integration of various operating
entities, and ensure that multi-national and wholesale customers are better served through
appropriate channels. On November 22, 2007, the board announced the appointment of Reuben
September as chief executive officer. In appointing the chief executive officer, the board followed
a rigorous evaluation process including international benchmarking and consultation with the
Department of Communications, the latter a requirement specified by Telkom’s articles of association.
In addition, on November 1, 2007, Motlatsi Nzeku was appointed as chief of operations, Thami
Msimango was appointed as chief of global operations and subsidiaries, Charlotte Mokoena was
appointed as chief of human resources and Ouma Rasethaba was appointed as chief of corporate
governance. Deon Fredericks was appointed acting chief of finance on November 1, 2007 and Naas
Fourie was appointed as chief of strategy on April 1, 2008.
In June 2008, Alan Knott Craig announced his decision to step down as chief executive officer of
the Vodacom Group effective from September 30, 2008. He is expected to remain as consulting chief
executive officer until the end of the 2009 financial year. Mr. Pieter Uys has been appointed chief
executive officer of the Vodacom Group effective October 1, 2008. At the end of the 2008 financial
year, Leon Crouse ended his term as chief financial officer of the Vodacom Group. Johan van der
Watt is currently acting as chief financial officer of the Vodacom Group.
Liberalization of South African communications market
For a discussion of the changes in the regulatory environment see Item 4. “Regulation and
License Requirements.”
Segmental reporting
As of the beginning of the year the Telkom Group added a new segment to its financial reporting,
the other segment. The Telkom Group’s three reporting segments are fixed-line, mobile and other.
The other segment includes Telkom’s newly acquired Multi-Links and Africa Online subsidiaries, as
well as Telkom Media. It also includes TDS Directory Operations and Swiftnet, which were previously
included in the Telkom Group’s fixed-line segment. The information in this annual report has been
updated to reflect the above changes to Telkom’s reporting segments.
Acquisitions and investments
Acquisition of Africa Online
On February 23, 2007, Telkom acquired 100% of the issued share capital of Africa Online from
African Lakes Corporation for a total cost of R150 million. Africa Online is an internet service provider
active in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and
Zimbabwe. Africa Online’s strategy will focus on brand development, creation and development of
customer channels, improvement of network systems, human resources development and an
expansion drive targeting other African countries.
Acquisition of 75% stake in Multi-Links
With effect from May 1, 2007, Telkom acquired 75% of Multi-Links Telecommunications Limited, or
Multi-Links, in Nigeria through Telkom International, a wholy owned South African subsidiary, for 
U.S.$280 million, or R1,985 million. Multi-Links is a private telecommunications operator with a Unified 
Access License allowing fixed, mobile, data, long distance and international telecommunications services 
focused primarily on corporate clients in Nigeria. Multi-Links strategy will focus on brand awareness and 
promotional campaigns to increase the revenue of
background image
44
fixed-wireless and mobile customers and will seek to offer easy to understand high value bundles,
differentiated on voice quality and service. Broadband internet with internet service provider services
will target high value bundles. High quality internet protocol next generation network services are
planned to be deployed in Lagos to attract high end corporate users and carrier class wholesale
products and services are planned to be introduced by establishing an earth station to provide
international connectivity. The remaining 25% of Multi-Links is owned by Kenston Investment Limited,
an investment company based in the Isle of Man in the United Kingdom.
Telkom Media
Telkom recently launched Telkom Media (Proprietary) Limited, a private company that intends to
have a 30% black economic empowerment shareholding, in addition to the Telkom BEE component,
which on August 31, 2006 applied to ICASA for a commercial satellite and cable subscription
broadcast license. From May 28 to June 12, 2007 ICASA held public hearings into the applications by
18 applicants for a satellite and cable subscription broadcast license. On September 12, 2007, ICASA
granted Telkom Media a commercial satellite and cable subscription broadcast license, the issuance
of which is subject to the negotiation and satisfaction of certain conditions, including the approval and
finalization of the BEE component. We cannot assure you that Telkom Media will receive this license
from ICASA or be able to launch commercial operations.
Partners in the black economic empowerment entity are Videovision Entertainment, MSG Afrika
Media and WDB Investment Holdings (Proprietary) Limited.
Telkom recently announced its decision to substantially reduce its investment in Telkom Media,
in which it had invested R326 million up to March 31, 2008, and was required to provide an
impairment provision of R217 million. Telkom will be investigating all opportunities to do this in the
best interest of Telkom shareholders and all other stakeholders. Telkom confirms it has received
proposals relating to Telkom’s announced intention to substantially reduce its stake in Telkom Media.
No decision has been made to date and Telkom is currently reviewing the proposals and anticipates
making a decision in the near future.
Vodacom’s acquisitions and dispositions
Service provider acquisitions
On August 31, 2007, Vodacom purchased an additional 30% shareholding in Smartphone SP
(Proprietary) Limited, or Smartphone, for R935.0 million, with goodwill amounting to R931.2 million,
increasing its shareholding from 70% to 100%.
On September 1, 2007, Vodacom increased its interest in the equity of Smartcom (Proprietary)
Limited, or Smartcom, to 100% by acquiring an additional 12% for R18.0 million, with goodwill
amounting to R18.0 million.
Subsequent to the above acquisitions, the operations of Smartphone, Smartcom and Cointel
V.A.S. (Proprietary) Limited were integrated into the operations of Vodacom Service Provider
Company (Proprietary) Limited.
Vodacom Ventures (Proprietary) Limited
Vodacom Ventures (Proprietary) Limited, or Vodacom Ventures, was formed for the purpose
of generating innovative telecommunications products and services for Vodacom by investing
in companies. In September 2007, Vodacom Ventures acquired an additional 16% equity stake
in G-Mobile Holdings Limited, a Wi-Fi corporation, by exercising its call option, resulting in Vodacom
Ventures holding 26% of the aggregate issued share capital of G-Mobile Holdings Limited. During
November 2007, Vodacom Ventures acquired a 35% stake in Xlink Communications (Proprietary)
Limited, a value added service provider of wireless data transfer systems and services using GPRS,
EDGE, 3G and HSDPA.
background image
45
Dispositions
On September 3, 2007, Vodacom disposed of its 100% interest in Stand 13 Eastwood Road
Dunkeld (Proprietary) Limited for R16 million.
Vodacom’s black economic empowerment, or BEE, equity deal
Vodacom is in the process of finalizing a R7.5 billion BEE equity deal for an interest of less than
10% in Vodacom South Africa, whereby 30% of the BEE shares are expected to be made available
to black South Africans and Vodacom’s black business partners in a public share offer that will
specifically be targeted at low-income groups. Vodacom staff are expected to take up a further
25% and the remaining 45% is expected to be taken up by two BEE strategic partners. Vodacom
announced that it had selected Thebe Investment Corporation (Pty) Ltd and Royal Bafokeng
Holdings (Pty) Ltd as preferred parties and signed transaction agreements with these two parties on
June 26, 2008. In June 2008, Tiger Consortium, one of the losing bidders filed a court interdict against
Vodacom. On June 6, 2008, the application was dismissed by the South Africa High Court without
decision on the merits and ordered costs payable for Vodacom’s counsel. If the Tiger Consortium wish
to proceed with this matter further, it would be required to pay these costs and provide security for
future costs. While Telkom has announced that it supports a BEE deal, the final terms are in the
process of being approved by Vodafone and Telkom. Vodacom is expected to announce the details
of the broad-based black economic empowerment transaction in the third quarter of 2008.
Vodacom’s change in South African prepaid customer base
Vodacom’s South African operations define active customers as customers with a SIM card
that have revenue generating activity in the three months leading up to the reporting date.
Up to June 15, 2006, calls forwarded to voicemail were regarded as revenue generating activity
and such SIM cards were classified as active customers. An analysis of the customer base, based
on a statistical sampling, has revealed that a large number of SIM cards have calls forwarded
to voicemail as their only revenue generating activity and a majority of such messages are never
retrieved by the customer, resulting in estimated ARPUs of less than R1 per month.
As a result, Vodacom changed its definition of active customers to exclude calls forwarded
to voicemail from the definition of revenue activity effective June 15, 2006. Vodacom deleted
approximately 3 million customers during the period of this rule change. As a result of the rule change,
prepaid churn and ARPU increased during the 2007 financial year.
Vodacom subsequently changed its definition of revenue generating activity back to include calls
forwarded to voicemail effective September 1, 2006. Such SIM cards were disconnected from the
network after being inactive for a 215 consecutive day period. Since implementing this change,
prepaid SIM cards remaining in an active state on the network, with only call forwarding to voicemail
and no other revenue generating activities, increased significantly. Vodacom therefore implemented a
supplementary disconnection rule in September 2007 to disconnect inactive prepaid SIM cards after
13 months of being kept in an active state, by call forwarding to voicemail only, and not having had
any other revenue generating activity on Vodacom’s network. The implementation of the
supplementary disconnection rule led to the disconnection of an additional 2.9 million prepaid SIM
cards in September 2007, increasing churn on the prepaid customer base to 47.9% in the 2008
financial year and resulted in higher prepaid ARPU than would have otherwise occurred.
Vodacom Business
During the 2007 financial year, Vodacom created Vodacom Converged Solutions, which was
intended to become a significant supplier of converged information, communications and technology
services across the entire market, including the bundling of products across previously separate
background image
46
markets into a one-stop-shop for the customer. It further involved the expansion of the existing
network to provide both fiber and wireless solutions as may be required.
During the 2008 financial year, Vodacom restructured Vodacom Converged Solutions and
renamed it Vodacom Business. Vodacom Business was established to provide converged solutions
and services to corporate customers. The strategic aim of the division is to play a role in the
broadband access services space, capitalize on transmission and self-provisioning opportunities, grow
revenue through managed services opportunities and enhance the retention of corporate clients. The
intention is to gain market traction and a customer base while developing a next generation network.
Vodacom Business developed a service portfolio that includes next-generation internet protocol voice
services, managed networks and infrastructure services, access services, hosting and applications.
The platforms, systems and organization have been created and the initial commercial products are
being marketed, with the balance of the service portfolio expected to become available online during
the course of the 2008 calendar year.
Vodacom agreement with MultiChoice
On May 8, 2007 Vodacom formalized entry into the broadcasting and multimedia market by
announcing that it had secured an exclusive pay TV agency agreement with MultiChoice. With DStv
Select, Vodacom and non-Vodacom customers have a choice between two DStv Select bouquets,
each offering a variety of the latest entertainment, news, sport, movies, documentaries and music
channels. Vodacom had approximately 31,000 Unique Mobile TV users as of March 31, 2008,
compared to approximately 33,000 Unique Mobile TV users as of March 31, 2007.
BUSINESS OVERVIEW
Business summary
Telkom is one of the largest companies registered in South Africa and one of the largest
communications services providers on the African continent based on operating revenue and assets.
We had consolidated operating revenue of R56.3 billion ($6.9 billion), profit for the year attributable
to the equity holders of Telkom of R8.0 billion ($981 million) and cash flow from operating activities
of R10.6 billion ($1.3 billion) in the year ended March 31, 2008 and we had total assets of
R70.4 billion ($8.6 billion) and equity attributable to the equity holders of Telkom of R32.8 billion
($4.0 billion) as of March 31, 2008. As of March 31, 2008, we had approximately 4.5 million telephone
access lines in service and 99.9% of our telephone access lines were connected to digital exchanges.
We offer business, residential and payphone customers a wide range of services and products,
including:
•  fixed-line voice services, including subscriptions and connections services, local, long distance,
fixed-to-mobile and international voice services, interconnection and hubbing communications
services, international voice over internet protocol services, subscription based value-added
voice services and customer premises equipment rental and sales;
•   fixed-line data services, including domestic and international data transmission services, such
as point to point leased lines, ADSL services and packet-based services, managed data
networking services and internet access and related information technology services;
•   mobile communications services, including voice services, data services, value-added services
and handset sales through Vodacom, our 50% joint venture with Vodafone; and
•   other services, including directory services, through our TDS Directory Operations Group, fixed,
mobile, data and international communications services in Nigeria through our newly acquired
Multi-Links subsidiary, internet services outside South Africa, through our Africa Online
subsidiary, and wireless data services through our Swiftnet subsidiary.
background image
47
Vodacom is our mobile communications joint venture with Vodafone. Vodacom is the largest
mobile communications network operator in South Africa with an estimated market share of
approximately 55% as of March 31, 2008 based on total estimated customers. Vodacom had
34.0 million customers as of March 31, 2008, of which 24.8 million were in South Africa. Vodacom
has investments in mobile communications network operators in Lesotho, Tanzania, the Democratic
Republic of the Congo and Mozambique. Vodacom had consolidated revenue of R48.2 billion
($5.9 billion), net profit attributable to equity shareholders of R7.8 billion ($960 million) and
cash flow from operating activities of R5.1 billion ($630 million) in the year ended March 31, 2008
and total assets of R34.2 billion ($4.2 billion) and equity attributable to equity holders of Vodacom
of R11.4 billion ($1.4 billion) as of March 31, 2008.
Our competitive strengths
We believe that we are well-positioned to strengthen our business and successfully meet future
competition based on the following:
We have the leading market position and are well placed to face increased competition in the
South African fixed-line communications market.
We believe our leading market position and our strong brand recognition will enable us to
successfully meet increased competition in the fixed-line communications market. Key to maintaining
our leading market position is our continued focus on developing innovative product offerings in
anticipation of client needs, efficiency improvements, deployment of key technologies and the
successful implementation of our business strategy.
We have undertaken the following actions to ensure we retain our position:
•  focused our marketing initiatives on creating greater awareness of our range of consumer
products and business solutions to ensure that our customers continue to view us as a
competitive and innovative telecommunications provider that caters to their individual needs;
•  organized our sales and marketing force into more specialized divisions to focus on the
different customer segments in South Africa;
•  entered into long term contracts with a number of our larger corporate and business customers
through volume and term discount plans;
•  developed well established distribution channels such as TelkomDirect and Vodashop
distribution channels and improved our online distribution channel, which offers fully automated
purchasing and provisioning of TelkomInternet via the telkomsa.net website;
•  improved the value proposition to our customers by launching new bundled packages such
as Do Broadband to strengthen our leadership position in broadband and enhancing existing
packages such as Telkom Closer and SupremeCall and also launched Do Education towards
the latter part of the 2008 financial year to further enhance its Do Broadband value proposition;
and
•  broadened our enterprise product portfolio by launching among other Dual Mail, a push to
email solution, Easy VPN and VPN Lite, a VPN solution for SMMEs, MetroLan, high speed
ethernet metropolitan area network connectivity, desktop support services and hosted
interactive voice response applications.
We have a fully digital fixed-line network that provides service to every major urban area
in South Africa.
We believe our extensive digital fixed-line network places us in a strong position to compete with
new providers of communications services as it enables us to sell value-added voice and data
services. We have:
background image
48
•  modernized our fixed-line network, and, as of March 31, 2008, had 99.9% of our telephone
access lines connected to digital exchanges;
•  modernized and enhanced our fixed-line network’s resiliency and performance through the
deployment of synchronous digital hierarchy managed self-healing optical fiber rings and
by increasing our use of optical fiber;
•  deployed a national network operations center with the ability to proactively monitor our
network and offer managed data networking services to global and corporate customers;
•  deployed a national business solution center alongside our national network operations center
and our data center which provides Telkom with a centralized information technology backbone;
•  entered into a supply contract for the development of the EASSy submarine cable system,
which will link eight countries from Sudan to South Africa, connecting the Eastern African
seaboard as well as landlocked countries, to the rest of the world and providing connectivity
across the continent to support the increase in local traffic for existing and new broadband
services;
•  invested in a third upgrade of the South Atlantic Telecommunications Cable-3/West African
Submarine Cable/South Africa Far East, or SAT-3/WASC/SAFE, submarine cable system,
which provides increased fiber optic transmission capability between South Africa and
international destinations;
•  invested in the Europe – India Gateway cable system that is expected to provide Telkom with
very cost effective onward connectivity for the SAT-3/WASC/SAFE and EASSy cables;
•  enhanced our core and access network to meet increased demand for broadband services
such as xDSL;
•  supplemented our fixed-line access network with point to multipoint wireless access, WiFi and
WiMAX;
•  evolved our intelligent network service platform capabilities to meet customer demand by
installing an open services platform that will provide value added services across Telkom’s
voice network;
•  evolved our internet protocol network to a carrier class multi protocol label switching, or MPLS,
enabled network with quality of service that supports enhanced services such as internet
protocol and virtual private networks; and
•  acquired satellite bandwidth available from Intelsat in the Atlantic and Indian Ocean regions.
Telkom also has access to satellite capacity from 64 Kbps to 45 Mbps upon request. We are
currently making use of satellites in 15 orbital slots for servicing with and from or to South
Africa. Our satellite capabilities and capacity ensure redundancy in our network and will enable
us to maximize opportunities with internet service provider services through Africa Online.
We are an integrated communications service provider offering bundled voice, data,
broadband and internet services and mobile services through Vodacom with the expertise to
expand our service offerings.
Our network and resources enable us to provide customers with a wide range of integrated
communications services, including voice services, data communications services, broadband
services and internet services and mobile services through Vodacom. We have undertaken the
following actions to strengthen our data communications service capabilities and improve our
integrated communications service offerings:
•  successfully launched ISDN in 1995, ADSL in August 2002, VPN Supreme in 2003, WiFi in
2005 and MetroLan, local area networks in metropolitan areas in March 2008 and have
introduced several flexible and cost effective options for these products;
background image
49
•  developed extensive experience in designing and operating customized data communications
and managed data networking products and services, including managed local and wide area
networks;
•  established contracts with a number of leading communications equipment and software
suppliers such as Amdocs, MDSI, Ericsson, Alcatel-Lucent, Nokia-Siemens, Tellabs, Cisco
Systems, Gilat; SAAB-Grintek, 2C Telecommunications, CBI-Electric, Aberdare ATC
Telecommunications, Malesela Taihan Electric Cable and Sun Microsystems to provide fully
integrated communications solutions over our core fixed-line network and satellite capacity and
have introduced several flexible and cost effective options for these products;
•  deployed an extensive voice-over-internet protocol, or VoIP, network, and launched
a voice over internet protocol regional clearing house to serve as a hub for voice traffic on the
African continent;
•  successfully introduced a full range of private branch exchange, or PABX, systems sourced
from LG Electronics, Siemens and Cisco, with the capability to integrate with IP and DSL
technologies;
•  we are able to offer our customers advanced mobile solutions, including voice and data,
through Vodacom; and
•  obtained access to portions of the 350 MHz, 3.5 GHz, 26 GHz and 38 GHz radio frequency
bands and were assigned radio frequency spectrum licenses for both the 1800 MHz and 2100
MHz (3G) radio frequency bands.
We have a highly qualified management team.
We believe our management team and employees have the required experience and
knowledge to execute our business strategy in the face of increased competition. Rapidly changing
technology, increasing specialization requirements and capacity gaps necessitate ongoing
development and training. Telkom continues to invest significantly in its employees to ensure
that the appropriate business skills in the communications industry are available to meet customer
requirements. Telkom has developed detailed plans to identify high potential individuals within the
company who can be developed for future senior management positions to ensure all future
employee requirements are met. Telkom has demonstrated the strength of its succession and
retention plans by appointing approximately 69% of senior management vacancies, including all of its
current chief officers, from within the company, utilizing the existing skills and potential of its current
employee base.
Vodacom is the leading South African mobile communications network operator with strong
brand recognition, extensive network coverage and distribution channels and a growing data
product offering.
Vodacom is the largest mobile communications network operator in South Africa with an estimated
market share of approximately 55% as of March 31, 2008 based on total estimated customers.
Vodacom has an extensive network that covers approximately 98% of South Africa’s population
based on the last official census conducted in 2001 and approximately 72% of the total land surface
area of South Africa as of March 31, 2008. Vodacom has a broad distribution network consisting
of Vodacom owned shops and sales forces and independent dealers, franchises, national chains and
Vodacom Direct shops as well as an extensive informal distribution channel servicing primarily the
emerging market. Vodacom continues to enjoy success through its data initiatives, with data revenue
contributing 10.4% in the 2008 financial year. Vodacom will seek to grow its revenue in South Africa
by launching and expanding a range of non-traditional mobile products and services in areas such
as telemetry, media and entertainment, and financial services.
background image
50
Vodacom is leveraging its successful experience in sub-Saharan South Africa to grow revenue
by providing converged infrastructure and services in its five existing countries of operation
and, to the extent available, by selectively acquiring additional communications licenses or
operators in other African markets.
Vodacom intends to increase revenue by continuing to grow its existing operations in sub-Saharan
Africa through converged infrastructure and services and, to the extent available, by selectively
acquiring additional communications licenses or operators in other African markets. Vodacom is
developing infrastructure, initially in South Africa, that will enable it to deliver end-to-end converged
solutions extending from mobile to fixed line voice and data, managed data networks, voice over
internet protocol solutions, hosted facilities and applications and security and managed hosting
solutions. Vodacom is continuing to pursue future growth through selected mobile expansion initiatives
in other African markets. Investments outside of South Africa are evaluated and monitored against key
investment criteria, focusing primarily on countries with stable economic and political conditions, low
penetration and good prospects for growth, market leadership and profitability. Other key factors
include Vodacom’s ability to gain majority ownership, develop strong local partnership relationships
and obtain non-recourse financing. Other African operations are branded under the “Vodacom” name.
Vodacom is also considering entering new markets by seeking out alternative entry strategies such
as through management and technical service agreements and acquiring non-traditional GSM
operators such as internet service providers and other telecommunications service providers.
Vodacom benefits from an experienced management team complemented by its experienced
international and local shareholders, Vodafone and Telkom.
Vodacom has an experienced management team with a record of innovation as the first
commercial 3G network operator in South Africa, the first mobile communications network operator in
the world to offer prepaid mobile communications services on an intelligent network platform and to
offer its customers coverage across the whole of Africa where commercial roaming based on the
Global System for Mobile, or GSM, communications technology is available. Vodacom was also the
first South African mobile communications network operator to provide nationwide coverage in South
Africa. Alan Knott Craig, who announced his decision to step down as chief executive officer of the
Vodacom Group effective from September 30, 2008, has agreed to remain as consulting chief
executive officer until the end of the 2009 financial year in order to provide continuity to Vodacom
Group and ensure that a qualified successor is appointed.
Vodacom benefits from the financial, operational and managerial expertise of its shareholders,
Vodafone and Telkom. Vodacom has an alliance with Vodafone, pursuant to which Vodacom is able
to market Vodafone branded products and services, such as the Vodafone Mobile Connect Card,
Vodafone live!, Mobile TV, BlackBerry®, and Vodafone Simply. Vodacom’s alliance with Vodafone also
provides Vodacom access to Vodafone’s global research and development, and access to Vodafone’s
marketing and buying powers.
Our group strategy
We will seek to differentiate ourselves from competitors by moving from a provider of basic voice
and data connectivity to become Africa’s preferred information, communications and technology
service provider, offering fully converged voice, data, video and Internet services. Our core strategy
is to defend and grow profitable revenue, while managing costs. We will seek to defend profitable
revenue by providing superior, customized solutions that meet the needs of consumer, business and
wholesale customers. We will pursue growth of profitable revenue through fixed-wireless and mobile
data services, broadband services and converged services both in South Africa and internationally.
We will seek to grow both organically as well as through partnerships and acquisitions, while
managing costs through our capability management initiative designed to realign our structure,
background image
51
employees and resources to better match our transforming information, communications and
technology business.
Defend profitable revenue
Our primary objectives in defending profitable revenue are to:
• Maintain fixed-line net revenue.
• Retain our leading fixed-line market share.
• Increase annuity revenue as a percentage of total fixed-line operating revenue.
We will seek to defend profitable revenue by:
•  Improving our competitiveness in areas where competition is expected to intensify through tariff
rebalancing in order to maintain fixed-line net revenue and retain our leading fixed-line market
share. Pricing is a key element of this strategy. Our tariff rebalancing will primarily focus on the
relationship between the actual costs and tariffs of line rentals and traffic in order to more
accurately reflect underlying costs and better compete in a liberalized communications market.
We will seek to protect our margins in response to increased competition. We have reduced
long distance call unit tariffs an average of 10% effective August 1, 2006 and by another 10%
effective August 1, 2007, while increasing line rental an average of 8% effective August 1, 2006
and 12% effective August 1, 2007. We are also seeking to rebalance long distance and local
call unit tariffs to decrease arbitrage opportunities on call charges. In addition, we have reduced
overall data tariffs with 9% effective August 1, 2006 and 11.9% effective August 1, 2007 to
better align with costs, especially on International Private Leased Circuits and will seek
opportunities for further tariff rebalancing. We also intend to increase per-second billing benefits
as part of our bundled packages.
•  Building customer retention (resistance to switch) through initiatives that entice customers
to stay with Telkom in order to maintain fixed-line net revenue and retain our leading fixed-line
market share. We will focus on customer centricity to combat churn and encourage retention
by implementing value and needs-based customer segmentation and better customer value
and portfolio management. In addition, we will seek to foster long-term relationships with
enterprise and wholesale customers through volume and term agreements. During the 2008
financial year, we established a customer data environment that provides Telkom with a holistic
view of the customer to enable better customer segmentation based on value, behavior and
needs. We will also seek to implement process improvements in order to improve service
delivery. As a result of initiatives implemented in the 2008 financial year, the percentage ADSL
faults cleared within 24 hours improved from 33% in the 2007 financial year to 42% in the 2008
financial year.
•  Building customer loyalty by providing superior value propositions that position Telkom as the
service provider of choice in order to maintain fixed-line net revenue and retain our leading
fixed-line market share. Constant innovation of products and services will be pursued to re-
vitalize Telkom’s image and reputation. We will seek to improve communication with customers
and ensure that they are informed about Telkom and its products.
•  Converting revenue streams to annuity revenue. We will seek to continue to protect our voice
revenue from fixed-to-mobile substitution and against voice over internet protocol providers by
bundling call minutes with access line rental in an attractive subscription-based value
proposition to deliver greater value to our customers. We will continue to enhance annuity-
based calling plans and bundles, including Telkom Closer, which is targeted at the residential
customer and offers line rental, preferential rates for international outgoing calls, pure per-
second billing for fixed-to-mobile calls and free minutes in selected options. In the 2008
financial year, we enrolled 184,822 customers in Telkom Closer calling plans, thereby
background image
52
converting 30% of residential subscribers to annuity-based calling plans. Our SupremeCall
calling plan offers pure per-second billing on all outgoing calls and is targeted at the small,
medium and large business customers. We grew our SupremeCall calling plan by 149.2%
to 12,916 customers in the 2008 financial year.
Grow profitable revenue through fixed-wireless and mobile data services
We will seek to grow profitable revenue through fixed-wireless and mobile data services by
providing an integrated bundled offering with superior speeds and quality through our fixed-line
network, combined with mobility when required by customers, by:
•  Transforming our fixed-line business to incorporate key value-added services, including fixed-
mobile converged voice services.
•  Building a fixed-wireless and mobile data network in selected areas that utilizes less vulnerable
access technologies, reducing copper theft, and improved service levels in order to retain
customers. We will also seek to enter into roaming and other arrangements where economical
in those areas where we choose not to build our own network. We will seek to leverage our
well established relationships with our corporate customers and as the provider of the local
mobile backbone network, believe we are ideally positioned to offer a full range of products and
services. We are aiming to launch services in the 2009 financial year. In order to implement this
strategy, we have obtained access to the 1800 MHz and 2100 MHz spectrum bands. We have
elected to pursue our fixed-wireless and mobile data services utilizing CDMA technology, which
we believe is less costly to roll-out than GSM technology, will complement our Multi-Links
CDMA network and other CDMA networks in Africa and will enable us to scale up our service
offering as demand and mobile opportunities permit. We have accordingly appointed Huawei
for the deployment of W-CDMA technology. We do not intend to recreate a national mobile
backbone in South Africa, but instead will seek to focus on higher margin areas and will seek to
take advantage of emerging technologies that enable roaming across networks utilizing
different mobile technologies. Through this network, we will seek to offer:
•  wireless access in campus environments, gated communities, security complexes and other
developments in order to speed up service provisioning and provide cost-effective services.
•  mobile data services in niche markets, including temporary or complementary links to fixed-
broadband connections and expansion of our Do Broadband service to Do Mobile
Broadband.
•  fixed/nomadic voice services, which encompasses the provisioning of a fixed-wireless
network, but does not allow cell to cell handover.
We believe that having a coherent, integrated and synergistic fixed-mobile capability will enhance
our ability to successfully partner with others where synergistic opportunities exist and make
acquisitions in order to compete locally and internationally.
Grow profitable revenue through broadband and converged services
We will seek to grow profitable revenue in our broadband and converged services areas by:
•  Increasing broadband revenues in our retail and wholesale businesses. In our retail business,
we will seek to increase broadband penetration with a target penetration of at least 20% of our
fixed-lines. We are aggressively expanding our broadband footprint, increasing the bandwidth
in order to offer and host higher bandwidth applications, such as video services. Our ADSL
offering is enhanced with a value added portal through which our customers have access
to a host of broadband value added services. As a result, we increased the number of ADSL
subscribers by 61.2% from 255,633 as of March 31, 2007 to 412,190 as of March 31, 2008,
resulting in broadband penetration of 9.1% of fixed lines as of March 31, 2008. Furthermore,
background image
53
managed data network services revenue has increased by 36.2% from R534.7 million in the
2007 financial year to R728.5 million in the 2008 financial year as a result of the 14.8% growth
of managed network sites from 21,879 as of March 31, 2007 to 25,112 as of March 31, 2008.
In order to leverage ADSL access, we launched VPN Lite to retail customers in the 2008
financial year. Our VPN Lite product includes an advanced self-help and online charging
solution. Our VPN products have gained increasing traction in the market by catering to
increased data usage and demand for converged services and we have increased our VPN
sites by 58.0% to 12,741 as of March 31, 2008. We intend to launch several new products and
services in the 2009 financial year, including voice over broadband and hosted internet protocol
multimedia contact centers, as well as next generation services.
We are also seeking to increase wholesale broadband revenues. The growth in traffic
on mobile networks has stimulated the demand for leased lines, the revenue from which
has grown by 11.1% from R1.7 billion in the 2007 financial year to R1.8 billion in the
2008 financial year. To enable our wholesale customers to resell ADSL access, we launched
a new wholesale ADSL resell service in the 2008 financial year. In the 2009 financial year,
we expect to launch wholesale ethernet services, as well as next generation Diginet
and SDH services.
•  Continuing to increase converged services revenue, including from information technology,
internet service provider, data and storage center, content and managed services. We will seek
to increase average annual revenue per line by providing converged information,
communications and technology solutions to the enterprise market and enabling the digital
home in the consumer market. We are focusing our efforts on service differentiation through
enhanced value packages and bundles according to customer requirements, while ensuring
improved service delivery and assurance. We intend to launch several new products enabled
by the deployment of our next generation network, including next generation voice, data and
converged offerings.
•  Pursuing partnerships with content providers to enhance our offerings in the consumer market.
Our content strategy is to enable the bundling of content to provide added value in a variety
of subscription and pay-as-you-go models. Specifically, we will seek to increase sales of our
broadband offering by providing customers with rich media content through our Do Broadband
portal, which bundles ADSL access and a TelkomInternet account at discounted prices.
•  Aggressively seeking to improve our market share in the information technology services sector
over the next five years by aiming to take advantage of opportunities offered by information,
communications and technology convergence and targeting the medium to large business
segment to meet their demand for end-to-end solutions. We believe our network management
capabilities put us in a strong position to deliver data and value added managed services at
speeds and quality levels superior to our competitors. Several products, including Metro LAN,
have been introduced to strengthen our data communications service capabilities and improve
our integrated communications service offerings in response to increased demand for higher
bandwidth in the corporate and global segment.
•  Seeking to expand our domestic data center operations both organically and through
international acquisitions. We will seek to stimulate the use of bandwidth over our network
through our data center business and believe we are well positioned as we already offer basic
data services, as well as managed WAN/VPN and LAN services. In addition, through the
convergence of information technology and telecommunications, we are seeking to satisfy
customer demand for one-stop solutions for their communications and information technology
infrastructure requirements. Our data center strategy will be designed to provide customers a
more cost effective solution, while enabling us to capitalize on a high margin growth
opportunity.
background image
54
•  Endeavoring to improve our innovation capability and aid product innovation through access to
new technology, service and business models in global markets. We intend to partner with
venture capital partners where opportunities exist to invest in promising global technologies, as
well as media and telecommunication developments that we can deploy in our markets.
Grow profitable revenue internationally
We will seek to grow profitable revenue internationally by:
•  Increasing revenue from international investments and services. We will seek to become
a Pan-African integrated service provider that offers international communications and internet
connectivity, hosting and managed data services and wireless voice and mobile broadband
solutions. Over the long-term, we will seek to provide international data connectivity to major
cities in Africa through regional hubs, such as Nigeria and South Africa. We intend to establish
a management services company to complement our geographic expansion strategy.
•  Increasing international revenue from our newly acquired Africa Online and Multi-Links
subsidiaries. In February 2007, we acquired full control of Africa Online, an internet service
provider in Africa, and effective May 1, 2007, we acquired a 75% interest in Multi-Links, a
provider of fixed, mobile, long distance and international communications services throughout
Nigeria. We will seek to leverage synergies across the Telkom Group to grow revenue from
these subsidiaries both organically and through acquisitions. Through Multi-Links, we will seek
to introduce converged fixed and mobile services into the Nigerian market. Multi-Links’
subscriber base increased 210% from 262,431 as of September 30, 2007 to 813,392 as of
March 31, 2008 and increased to more than 1,000,000 shortly thereafter. We will seek to
expand Africa Online to become a truly Pan-African internet service provider. Africa Online will
seek to optimize synergies with Telkom, focusing on market expansion in order increase its
revenue in its corporate and multi-national markets as well as from wireless broadband internet
access. We will also seek to leverage Telkom’s available international capacity to deploy
satellite-based internet access through Africa Online. In addition, Africa Online is expected to
be the vehicle through which Telkom will deliver internet services outside of South Africa. Africa
Online had 14,393 subscribers as of March 31, 2008. Africa Online currently operates in nine
countries and will seek to expand and grow its presence to 15 countries throughout Africa.
Managing costs through our capability management initiative
We will seek to manage costs by realigning our structure, employees and resources to better
match our transforming information, communications and technology business and improve customer
service. The transformation of the communications industry and increasing market and competitive
pressure has put communications companies such as Telkom under increasing revenue and expense
constraints while requiring improved customer service. As a result, we have launched a capability
management initiative designed to ensure that the capabilities needed to succeed in a converged
communications market are established through the optimal utilization of external as well as internal
capabilities, extracting efficiencies where possible through scale of a rapidly maturing retail and
wholesale market and better organizing functional areas in a more deregulated and liberalized
communications market. Our capability management initiative includes the internal consolidation of
certain functional areas and the selection of strategic long term partners with proven performance for
other functional areas. The following areas are expected to be impacted: call center operations,
ancillary services, network service providers, network field operations, network core operations,
information technology operations and retail outlets.
background image
55
Capitalize on the growing mobile communications and internet service provider markets in
South Africa and other African markets
Telkom has made a decision to invest in the build out of a fixed-wireless and mobile data network.
Telkom is currently limited in its ability to pursue or provide full mobile services in South Africa and
sub-Saharan Africa by the provisions of the Vodacom joint venture agreement with Vodafone. On
June 2, 2008 Telkom issued a cautionary announcement regarding its receipt of a non binding
proposal by a wholly-owned subsidiary of Vodafone to acquire a portion of Telkom’s stake in
Vodacom, subject to, among other things, Telkom distributing its remaining stake in Vodacom to
Telkom’s shareholders. On June 2, 2008 Telkom issued a cautionary statement regarding these 
developments and on July 15, 2008, Telkom issued a further cautionary announcement that its
discussions with Vodafone and independently with the Mvelaphanda Holdings (Proprietary) Limited
consortium are still ongoing and shareholders are advised to continue to exercise caution when
dealing in Telkom securities. Telkom’s board does not intend to consider disposing of Telkom or any of
its subsidiaries, joint ventures or assets without compelling strategic rationale. There can be no
assurance that Telkom will ultimately elect to divest of its interest in Vodacom or the structure or the
ultimate value to Telkom and its shareholders of its Vodacom interest, or that Telkom’s mobile strategy
will change or that it will be successful in pursuing any new mobile opportunities.
Vodacom’s strategic objectives are to achieve sustainable growth in profits and cash flow by
maintaining its leadership position in the mobile voice and data space while seeking out new
innovative horizontal and vertical revenue expansion. In order to achieve these objectives, Vodacom
intends to pursue the following strategies:
•  Continue to maintain its leadership position in its core mobile voice and data business.
Vodacom will continue to strive for growth in profits by seeking out new innovative products
and services to retain its customer base and grow average revenue per user from such
customers. Vodacom will also seek to control its cost base so as to gain greater economies of
scale and maximize longer term use of its assets and investments. Vodacom continued to
invest in customer service in order to maintain its leading position and completed a sixth
customer care call center, built at a cost of R116 million in the Johannesburg central business
district. Two more walk-in customer care centers were completed in major shopping malls in
Gauteng. A sizeable investment was also made in training advanced data specialists that have
been deployed at our customer care centers nationally to answer data related queries.
•  Seek out new horizontal expansion opportunities. Vodacom aims to extend its reach into
horizontal businesses such as media, entertainment and advertising. Vodacom believes that its
brand position, effective distribution network and significant customer base places it in a strong
position to launch products and services in these growth sectors. Vodacom has recently
launched mobile advertising, which has contributed R24.1 million to Vodacom’s revenue in the
2008 financial year. Vodacom will seek to leverage this business to contribute to its overall
growth in revenues and profitability. Vodacom also aims to seek out new growth opportunities
in financial services such as mobile payment services, telemetry and online services through its
focus on mobile internet.
•  Seek out new vertical expansion opportunities. Vodacom’s focus in the future is to be active in
every area of communications. This means a significant shift away from being a mobile-centric
operator to becoming a leading provider of electronic communications infrastructure and related
services. Vodacom has also officially launched Vodacom Business through which it aims to
provide converged voice, data, internet services and hosting solutions to a corporate customer
base through investments in fiber optic rings.
•  Increase revenue from geographic expansion opportunities. Vodacom intends to increase
revenue from its other African operations, by continuing to grow its existing operations in sub-
Saharan Africa through converged infrastructure and services, and, to the extent available, by
selectively acquiring additional communications licenses or operators in other African markets
background image
56
in the future that have stable economic and political conditions and good prospects for growth,
market leadership and profitability. Vodacom is also considering entering new markets by
seeking out alternative entry strategies such as through management and technical services
agreements and acquiring non-traditional GSM operators such as internet service providers
and other communications service providers. In its other African operations, Vodacom seeks to
gain majority ownership, develop strong local partnership relationships and, if possible, obtain
non-recourse financing. Vodacom’s revenue from other African operations increased 30.3% in
the year ended March 31, 2008 to R5.4 billion and 39.2% in the year ended March 31, 2007 to
R4.1 billion from R3.0 billion in the year ended March 31, 2006, 50% of which is included in the
Telkom Group’s revenue. As a result, Vodacom’s revenue from other African countries
increased from 10.1% of Vodacom’s total revenue in the 2007 financial year to 11.2% of
Vodacom’s total revenue in the 2008 financial year.
Fixed-line communications
Overview
Our fixed-line segment is our largest business segment and includes our fixed-line voice, data and
internet businesses. Our fixed-line services consist of:
•  fixed-line subscription and connection services to postpaid, prepaid and private payphone
customers using PSTN lines, including ISDN lines, and the sale of subscription based value-
added voice services and customer premises equipment rental and sales;
•  fixed-line traffic services to postpaid, prepaid and payphone customers, including local, long
distance, fixed-to-mobile, international outgoing and international voice over internet protocol
traffic services;
•  interconnection services, including terminating and transiting traffic from South African mobile
operators, as well as from international operators and transiting traffic from mobile to
international destinations; and
•  fixed-line data and internet services, including domestic and international data transmission
services, such as point to point leased lines, ADSL services, packet-based services, managed
data networking services and internet access and related information technology services.
Products and services
Subscriptions and connections
We provide postpaid, prepaid and private payphone customers with digital and analog fixed-line
access services, including PSTN lines, ISDN lines, and wireless access between a customer’s
premises and our fixed-line network. Each analog PSTN line includes one access channel, each basic
rate ISDN line includes two access channels and each primary rate ISDN line includes 30 access
channels. Each ISDN line transmits signals at speeds of 64 kbps per channel. Subscriptions to ADSL
are included in our data services revenue. We were the first fixed-line operator in the world to provide
prepaid service on a fixed-line network. Our prepaid service offers customers an alternative to the
conventional postpaid fixed-line telephone service. All costs, including installation, telephone
equipment, line rental and call charges, are paid in advance so that there are no monthly phone bills.
We target our prepaid service mainly at first time home phone customers who do not have sufficient
credit history and are located in areas where we can provide access to our network without significant
additional investment. Customers who have previously had their telephone service disconnected due
to non-payment are also encouraged to migrate to our prepaid service option in order to reduce future
non-payments while satisfying demand for our services. In the 2007 financial year, we introduced
Waya Waya, which is our most affordable fixed-line offer yet. Existing customers are required to pay
R120 in advance to cover line rental for a year, thereby ensuring that our customers stay connected.
background image
57
We also offer subscriptions to value-added voice services. We offer a broad range of value-added
voice services on a subscription or usage basis, including call forwarding, call waiting, conference
calling, voice-mail, toll free calling, ShareCall, which permits callers and recipients to share call costs,
speed dialling, enhanced fax services and calling card services for payphones. These services
complement our basic voice services and provide us with additional revenue while satisfying customer
demand, enhancing our brand and increasing customer loyalty. Value added voice services such as
our CallAnswer voicemail service are also bundled with value added calling plans such as Telkom
Closer to further enhance the value to our customer.
We provide payphone services throughout South Africa. As of March 31, 2008, we operated
approximately 138,344 public payphones and approximately 4,538 private payphones, of which
approximately 41% were coin operated and combination payphones and the remainder were card
operated payphones.
The following table sets forth information regarding our postpaid and prepaid lines and payphones
as of the dates indicated, excluding our internal lines:
            As of March 31,              
2007/2006
2008/2007
   2006   
   2007   
    2008   
   % change  
  % change  
(in thousands, except percentages)
Postpaid PSTN
(1)
. . . . . . . . . . . . . . . .
2,996
2,971
2,893
(0.8)
(2.6)
Business . . . . . . . . . . . . . . . . . . . . .
1,412
1,426
1,429
1.0
0.2
Residential . . . . . . . . . . . . . . . . . . .
1,584
1,545
1,464
(2.5)
(5.2)
Prepaid PSTN . . . . . . . . . . . . . . . . .
854
795
743
(6.9)
(6.5)
ISDN channels . . . . . . . . . . . . . . . . .
693
718
754
3.6
5.0
Payphones
(2)
. . . . . . . . . . . . . . . . . .
165
158
143
(4.2)
(9.5)
Total fixed access lines
(3)
. . . . . . . . . . .
4,708
4,642
4,533
(1.4)
(2.4)
Notes:
(1)
Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fiber.
(2)
Includes public and private payphones.
(3)
Total fixed access lines are comprised of PSTN lines, including ISDN channels, prepaid lines, ADSL lines and public and
private payphones, but excluding internal lines in service. Each analog PSTN line includes one access channel, each
basic rate ISDN line includes two access channels and each primary rate ISDN line includes 30 access channels.
The following table shows information related to the number of our fixed access lines in service,
net line growth and churn for the periods provided. Churn is calculated by dividing the number of
disconnections by the average number of fixed access lines in service during the period.
                 As of March 31,        
2007/2006
2008/2007
   2006    
   2007   
   2008  
  % change  
  % change  
(in thousands, except percentages)
Opening balance . . . . . . . . . . . . . . . .
4,726
4,708
4,642
(0.4)
(1.4)
Net line growth . . . . . . . . . . . . . . . . .
(18)
(66)
(110)
(266.7)
(66.7)
Connections . . . . . . . . . . . . . . . . . . .
615
572
497
(7.0)
(13.1)
Disconnections . . . . . . . . . . . . . . . . .
(633)
(638)
(608)
0.8
(4.7)
Closing balance . . . . . . . . . . . . . . . .
4,708
4,642
4,532
(1.4)
(2.4)
Churn (%) . . . . . . . . . . . . . . . . . . . .
13.4
13.6
13.3
1.5
(2.2)
Connections include new line orders resulting primarily from changes in service and, to a lesser
extent, new line roll-out. Disconnections include both customer initiated disconnections and Telkom
initiated disconnections. Included in disconnections and churn are those customers who have
terminated their service with Telkom and subsequently subscribed to a new service with Telkom as a
result of relocation of premises or change of subscription to a different type of service.
background image
58
In the 2008 financial year, Telkom continued to focus on customer retention by enhancing its
bundled products. In August 2007, Telkom added 30 free local minutes of standard time to its Telkom
Closer 1 and 2 plans, and reduced the rates to selected international destinations and introduced pure
per second billing for fixed to mobile calls in its Telkom Closer 3, 4 and 5 plans. Telkom Closer 1 and
2 plans will be further enhanced to include 60 free local internet minutes effective August 1, 2008. In
addition, the Telkom Closer 3, 4 and 5 plans will be enhanced to include 1,300 free standard time
minutes effective August 1, 2008. In addition, Telkom expanded its current PC bundle campaign to
also offer products such as X-Boxes.
In the 2007 financial year Telkom continued to focus on customer retention through discounted
offers, relaxation of credit management policies and targeted marketing campaigns, including Project
Reconnect, a marketing campaign targeted at customers changing locations; the re-launch of
PD Connect, a marketing and tracking service for property developers; and the implementation of
specialized sales teams for gated communities. Telkom continues to focus on offering value for
money, by launching and continuously enhancing packages such as PC bundles and Telkom Closer,
including the following:
Telkom Closer 1
Includes line rental, Call Answer, a minimum charge at a flat rate for calls during
off peak time up to one hour, and a discounted per record rate for local and
long- distance calls subject to a minimum charge and since August 2007, 30 free
local minutes during standard time. In addition, with effect from August 2008,
this package includes 60 free local internet minutes during callmore time.
Telkom Closer 2
Includes line rental, Call Answer, unlimited free calls for calls during off peak
time up to one hour, and a discounted per record rate for local and long-distance
calls subject to a minimum charge and since August 2007, 30 free local minutes
during standard time. In addition, with effect from August 2008, this package
includes 60 free local internet minutes during callmore time.
Telkom Closer 3
Includes line rental, Call Answer, 1,000 inclusive free peak time minutes,
unlimited free calls for calls during off peak time up to one hour, a discounted
per second rate for local and long distance calls subject to a minimum charge,
and, since August 2007 reduced rates to selected international destinations and
pure per second billing for fixed to mobile calls.
Telkom Closer 4
All the benefits of Telkom Closer 3 bundled with DSL 384.
Telkom Closer 5
All the benefits of Telkom Closer 3 bundled with DSL 4096.
Telkom Closer plans 1 to 3 have an option to purchase 150 or 75 local internet hours during
Callmore time.
Despite these campaigns, Telkom’s fixed-line base declined by 2.4% in the 2008 financial year
and 1.4% in the 2007 financial year. The decrease in the number of subscriber lines was mainly in the
lower revenue generating areas such as prepaid PSTN lines and residential postpaid PSTN lines,
partially offset by an increase in ISDN channels and business postpaid PSTN lines. The higher
revenue generating areas, such as business lines, showed a positive growth of 0.2% in the 2008
financial year and 1.0% in the 2007 financial year. The decrease in the number of residential postpaid
PSTN lines was primarily as a result of customer migration to mobile and higher bandwidth products
such as ADSL and lower connections, while the decrease in prepaid PSTN lines was primarily as a
result of customer migration to mobile services and our residential postpaid PSTN services to enable
access to subscription based calling plans. The decline in prepaid services in the 2008 financial year,
was offset in part by “Waya-Waya”, which accounted for approximately 32.5% of prepaid services as
of March 31, 2008. The increase in ISDN channels and ADSL services was primarily driven by
increased demand for higher bandwidth and functionality. This, together with the alignment of the
residential and business DSL product and the upgrading of DSL 192 to DSL 384, without any
background image
59
additional cost to the customer, has added to the positive growth in ADSL. ISDN services grew
by approximately 5.0% in the 2008 financial year mainly due to Telkom’s primary rate service which
grew 9.5%, while its basic rate declined 3.2%.
We also offer telecommunications equipment rentals and sales, such as telephones and private
branch exchange systems, or PABX systems, related post-sales maintenance and service for
residential and business customers in South Africa. The market in South Africa for such equipment
and systems, commonly known as customer premises equipment, is characterized by high
competition and low profit margins. We believe, however, that the supply and servicing of customer
premises equipment is an essential element of providing a full service to our customers.
Traffic
We offer local, long distance, fixed-to-mobile, international outgoing and international voice over
internet protocol services to business, residential and payphone customers throughout South Africa
at tariffs that vary depending on the destination, distance, length, day and time of call. Local traffic
services are for calls made to destinations less than 50 km from origination. Long distance traffic
services are for calls made to national destinations greater than 50 km from origination. We provide
international outgoing services, including both voice and data traffic. We provide direct international
dialling access to approximately 230 destinations.
Telkom has in recent years introduced calling plans as a customer retention strategy in order to
defend revenues. These calling plan arrangements comprise monthly subscriptions for access line
rental, value added services and free or discounted rates on calls. Traffic revenues from calling plan
subscriptions was reported as part of local traffic revenue in financial years prior to the 2007 financial
year, as most of these calling plans related to local calls only and the amounts were insignificant. The
access line rentals and value added services revenue components of calling plan arrangements are
included in subscriptions and connecting revenue. In response to the significant growth in calling plan
arrangements, the need arose to separate traffic revenue resulting from subscription based calling
plans into annuity revenue and the respective traffic revenue streams. Commencing in the 2007
financial year, subscription based calling plans revenue includes traffic annuity revenue related to
calling plans. Discounted and out of plan traffic relating to these calling plans is disclosed under the
applicable traffic revenue streams.
The following table sets forth information regarding our fixed-line traffic, excluding interconnection
traffic, for the periods indicated. We calculate fixed-line traffic by dividing fixed-line traffic revenues for
the particular category by the weighted average tariff for such category during the relevant period.
        Year ended March 31,      
2007/2006
2008/2007
  2006  
  2007  
  2008  
  % change  
  % change  
(in millions, except percentages)
Local
(1) (2)
. . . . . . . . . . . . . . . . . . . . .
18,253
14,764
11,317
(19.1)
(23.3)
Long distance
(1) (2)
. . . . . . . . . . . . . . . .
4,446
4,224
3,870
(5.0)
(8.4)
Fixed-to-mobile . . . . . . . . . . . . . . . . .
4,064
4,103
4,169
1.0
1.6
International outgoing . . . . . . . . . . . . . .
515
558
635
8.4
13.8
International voice over internet protocol . . . .
83
38
43
(54.2)
13.2
Subscription based calling plans
(2)
. . . . . . .
–
1,896
2,997
–
58.6
Total traffic . . . . . . . . . . . . . . . . . . .
27,361
25,583
23,031
(6.5)
(10.0)
Notes:
(1)
Local and long distance traffic includes dial-up internet traffic.
(2)
Traffic from subscription based calling plans has been reclassified from local and long distance traffic into a separate line
item in the 2007 and 2008 financial years. Traffic from subscription based calling plans was not reclassified in the 2006
financial year.
background image
60
Traffic was adversely affected in both the 2008 and 2007 financial years by the increasing
substitution of calls placed using mobile services rather than our fixed-line service and dial-up internet
traffic being substituted by our ADSL service, as well as the decrease in the number of prepaid and
residential postpaid PSTN lines and increased competition in our payphone business. The decrease in
international voice over internet protocol traffic in the 2007 financial year is primarily due to relocation
of the international call center business by one of our customers outside South Africa.
Interconnection services
We provide interconnection services to Neotel, which began October 2007, the three mobile
operators, Vodacom, MTN and Cell C, and certain other entities that lawfully provide licensed
telecommunications services in South Africa consisting of call termination and call transit, as well
as access, through our network, to other services, including FreeCall 0800, ShareCall 0860 and
HomeFree, emergency services and directory enquiry services.
We also provide interconnection services to international operators in respect of incoming
international calls and hubbing traffic through South Africa to other countries. We are seeking to
establish ourselves as the principal international telecommunications hub for Africa through our
investments in undersea cables and our network and our arrangements with other operators in Africa
in order to continue to increase international hubbing revenue.
The following table sets forth information regarding interconnection traffic terminating on or
transiting through our network for the periods indicated. We calculate interconnection traffic, other
than international outgoing mobile traffic and international interconnection traffic, by dividing
interconnection revenue for the particular category by the weighted average tariff for such category
during the relevant period. Fixed-line international outgoing mobile traffic and international
interconnection traffic are based on the traffic registered through the respective exchanges and
reflected in international interconnection invoices.
        Year ended March 31,        
2007/2006
2008/2007
  2006  
  2007  
  2008  
  % change  
  % change  
(in millions, except percentages)
Domestic mobile interconnection traffic . . . . .
2,299
2,419
2,502
5.2
3.4
Domestic fixed interconnection traffic . . . . . .
–
–
113
–
n/a
International interconnection traffic . . . . . . .
1,355
1,321
1,280
(2.5)
(3.1)
Total . . . . . . . . . . . . . . . . . . . . . . .
3,654
3,740
3,895
2.4
4.1
Domestic mobile interconnection traffic includes traffic from mobile operators terminating on our
network, international outgoing calls from mobile networks and access to other services such as
emergency services and directory enquiry services. The increase in domestic mobile interconnection
traffic in the years ended March 31, 2008 and 2007 was primarily due to an overall increase in mobile
calls as a result of growth in the mobile market, partially offset by increased mobile-to-mobile calls
bypassing our network.
Domestic fixed interconnection traffic includes traffic from Neotel, USALs and VANS.
International interconnection traffic consists of international termination traffic and international
hubbing traffic. International interconnection traffic decreased in the 2008 financial year due to a
decrease in volumes as a result of loss of volumes to Neotel, Sentech, the USALs and illegal
operators terminating traffic in the country. International interconnection traffic decreased in the 2007
financial year due to a decrease in international switch hubbing traffic.
background image
61
Data communications services
We offer a wide range of national and international data communications services, including:
•  data transmission services, such as point to point leased lines, ADSL and packet-based
services;
•  managed data networking services;
•  global services; and
•  internet access and related information technology services.
Data transmission services
Data transmission services provide the connection of information technology applications over
wide area networks. These services include point to point leased lines and packet-based services.
We have a growing portfolio of data transmission products tailored to different customer needs from
high bandwidth mission critical applications to low bandwidth best effort applications. We also offer our
customers tailor-made cost effective customer specific solutions.
Leased lines. We provide national and international leased lines in South Africa. Leased lines are
fixed connections between locations, which are secure and exclusive to the user, and are mainly used
for high volume data or multimedia transmission. Leased lines are our principal data transmission
service and include Diginet, Diginet Plus and Megaline services. We also provide leased lines to
broadcasters for audio and video services. Our leased line customers pay an initial installation charge
and a recurring fee based on the type, length and capacity of the leased line. Leased line charges
have decreased since the 2005 financial year and we expect that competition may increase pressure
on prices in the future. We are currently enhancing the Diginet portfolio to cater for the migration of
customers from the old platform to NG Diginet Frame to ensure continuity in service.
Large numbers of leased lines are provided to the mobile operators at negotiated wholesale rates
for the build out of their networks. With the growth in traffic carried on the mobile networks, a need
was identified for the deployment within these networks of transmission links with transmission speeds
higher than the 2 Mbps provided by existing agreements. We entered into broadband fixed link leasing
agreements with Vodacom and MTN in the 2004 financial year and with Cell C in the 2005 financial
year. These agreements have been enhanced over time, and we currently provide broadband links
at speeds of 45 Mbps, 155 Mbps and 622 Mbps, and anticipate that we will soon be providing links
at speeds of 2.5 Gbps. Formalized service level agreements and term and volume based discount
structures, as a counter to the competitive challenges that are occurring in this area of the business
have been put in place. These agreements have been enhanced over time, and we anticipate that we
will soon be providing links at speeds of 45 Mbps, 155 Mbps and 622 Mbps, and agreements and
term and volume based discount structures have been put in place, as a counter to the competitive
challenges that are occurring in this area of the business.
Recognizing the increasing threat of competition in the provision of leased lines to the mobile
operators, Telkom introduced further discounting structures in the 2007 and 2008 financial years in
order to improve the attractiveness of Telkom’s product offerings to this rapidly growing market.
Fixed link leasing agreements were also entered into with some of the smaller operators, including
VANS and USALs, as well as Neotel. Vodacom and MTN have both indicated that they intend
to self-provide some of the leased lines, which they require for the build out of their networks,
as an alternative to leasing them from Telkom. We are currently negotiating improved leased line
prices with the mobile operators in order to retain revenue from leased lines.
background image
62
The following table sets forth the bandwidth capacity of our Diginet, Diginet Plus, ATM Express
and broadcasting data transmission services:
Leased line
Bandwidth
Diginet . . . . . . . . . . . . . . . . . . . . . . .
2.4 Kbps to 64 Kbps
Diginet Plus . . . . . . . . . . . . . . . . . . . .
128 Kbps to 2 Mbps
ATM Express . . . . . . . . . . . . . . . . . . . .
2 Mbps to 155 Mbps
Broadcasting
Analogue audio . . . . . . . . . . . . . . . . . .
7.5 or 15 KHz
Analogue video . . . . . . . . . . . . . . . . . . .
70 MHz
Digital . . . . . . . . . . . . . . . . . . . . . . . .
2 Mbps to 155 Mbps
Our portfolio of global international products consists of a number of different products. We have
international private line circuits, or IPLCs, which are our Diginet and Megaline equivalent to
international destinations with bandwidths ranging from 2.4 Kbps up to 155 Mbps. The international
private line circuits use both cable infrastructure, and satellite infrastructure. This product is
complimented by our three global alliances with Infonet, Equant and BT, which are used to offer
customers connectivity based on those companies’ global networks. Our global alliances have
coverage throughout the world and it is easier for customers to use them from an ordering, installation
and support point of view, as they have physical presence or formally appointed partners in each
country.
We are busy with a product enhancement on the IPLC portfolio by productizing restoration and
adding SLAs. Telkom has also started offering IRU service offerings, which are expected to ensure the
long term retention of customers as well as incremental revenue streams. Another diversification of
the International leased line portfolio was the introduction of partial IPLC in April 2008.
Telkom Wholesale launched a new wholesale service, offering Resell ADSL on April 10, 2007 to
value added network service licensees and internet service providers. Resell ADSL enables wholesale
customers to resell ADSL access to their customers. The main advantage of this service is that the
wholesale customer is the single point of contact for new ADSL access orders and first level ADSL
service assurance. The service is provisionally available to those customers who have an active,
broadband friendly Telkom analogue telephone service. Telkom Resell ADSL offers the following
service options:
•  Resell ADSL up to 384 Kbps.
•  Resell ADSL up to 512 Kbps.
•  Resell ADSL up to 4096 Kbps.
The service is provided with a self-install option only and service providers are able to provide
their own modems.
ADSL Services. ADSL allows the provisioning of high speed connections over existing copper
wires using digital compression. We have different ADSL services available, aimed at the distinct
needs of our customers. In an attempt to simplify our DSL offering and to increase value to the
customer we have aligned the residential and business DSL product offerings and upgraded all DSL
192 customers to DSL 384 without any additional cost to the customer. The following table indicates
our product offerings as of March 31, 2008:
DSL                DSL
DSL
       384       
       512       
       1024       
Downstream speed . . . . . . . . . . . . . . .
Up to
384 Kbps
512 Kbps
4096 Kbps
Upstream speed . . . . . . . . . . . . . . . . .
Up to
128 Kbps
256 Kbps
384 Kbps
background image
63
In April 2007, Telkom launched Do Broadband, which bundles ADSL access and a TelkomInternet
account at discounted rates. We have also launched DSL Self-install as an alternative to the usual
installation process involving a visit from a Telkom technician. Apart from the convenience of Self-
install, it enables customers to save R490.00 in installation fees. We intend to continue to offer ADSL
packages, including a free modem, with a 24 month contract. Telkom has further launched a value
added portal in May 2007 through which our customers have access to a host of our broadband value
added services. With the launch of the portal, Telkom introduced Do Music, which offers our
customers affordable music downloads across all genres. In January 2008, we launched an
educational portal called Edunet. We intend to offer more value added services through the portal in
future.
Packet-based services. Packet-based services are based on a statistical multiplexing technique
that allows customers to share bandwidth more cost effectively based on a virtual private network
concept. Our packet-based services include packet-switched services (X.25), frame relay services,
asynchronous transfer mode (ATM) services and internet protocol (IP) services.
Our asynchronous transfer mode based services include ATM Express and Megaline Plus.
ATM Express provides digital transmission services for wide area networks at speeds from 2 Mbps up
to 155 Mbps. ATM Express provides a medium for companies to transmit high volumes of information
at high speeds over their wide area network with high quality and reliable connections. Voice, video
and data applications can be supported simultaneously over a connection. Megaline Plus is a
broadband service providing for the carrying of voice, video and data at a constant bit rate across
our asynchronous transfer mode network. ATM Express and Megaline Plus serve as an integral
component of our integrated virtual private network service offering that allows for the convergence
of voice, data, video, e-commerce and web services across a single access medium over our
network. We expect our asynchronous transfer mode based service revenue to grow as a result of
customers’ growing demand for bandwidth, flexibility and reliability. The development of new access
products such as the MetroLan and NG SDH will also ensure new growth in the data portfolio.
Our primary internet protocol data transmission product is an IP-based VPN product, branded
VPN Supreme. VPN Supreme offers our customers the ability to converge voice, data and video
applications over a single, managed VPN. This is supported by VPN Lite, a retail product aimed at the
lower end of the market to leverage ADSL access. On the international front we have invested in an
internet protocol and voice-over internet protocol network and launched a regional clearinghouse to
serve as a hub for voice traffic on the African continent. We have launched Telkom Global VPN which
enables converged services globally.
The current wholesale Easy VPN product will be enhanced to include leased lines in addition to
the current ADSL access service being utilized with the product.
Managed data networking services
Our managed data networking services combine our data transmission services discussed above
with active network management provided from our state-of-the-art national network operations
center. We offer a wide range of integrated and customized networking services, including planning,
installation, management and maintenance of corporate wide data, voice and video communications
networks, as well as other value-added services, such as capacity, configuration and software version
management on customers’ networks. To support our service commitment, we offer guaranteed
service level agreements on a wide range of our products, which include guaranteed availability, or
uptime, of the network through the use of our national network operations center.
Our managed data networking services include our customer network care service, which
facilitates the network management of all our data transmission services using the leased lines or
packet-based services discussed above, and our Spacestream and IVSat products, which are satellite
background image
64
based products. Spacestream is a high quality, flexible satellite networking service that supports data,
voice, fax, video and multimedia applications, both domestically and into the rest of Africa.
Managed data networking services are billed on a monthly basis and vary by customer depending
on the particular services provided and the number of network sites under management. The following
table sets forth information regarding the number of managed network sites for each of our managed
data networking services as of the dates indicated.
           As of March 31,         
2007/2006
2008/2007
  2006  
  2007  
  2008  
  % change  
  % change  
Terrestrial based . . . . . . . . . . . . . . . . .
9,492
12,905
17,237
36.0
33.6
Satellite based . . . . . . . . . . . . . . . . . .
7,395
8,974
7,875
(1)
21.4
(12.2)
Total managed network sites . . . . . . . . .
16,887
21,879
25,112
29.6
14.8
Note:
(1)
Satellite based managed network sites declined during the 2008 financial year as a result of Uthingo, the South African
lottery operator, losing its license to operate.
Our portfolio of global international products consists of a number of different products. We have
international private line circuits, which are our Diginet and Megaline equivalent to international
destinations with bandwidths ranging from 2.4 Kbps up to 155 Mbps. The international private line
circuits use both cable infrastructures, such as submarine cables, or satellite infrastructure. This
product is complimented by our three global alliances with Infonet, Equant and BT, which are used to
offer customers connectivity based on those companies’ global networks. Our global alliances have
coverage throughout the world and it is easier for customers to use them from an ordering, installation
and support point of view, as they have physical presence or formally appointed partners in each
country. Due to the packet-based nature of these global networks, the cost efficiencies inherent in
these networks can be passed on to customers to ensure more affordable services. We also
expanded our global portfolio with the launch of our own Global VPN during the last quarter of the
2007 financial year.
Internet access services and other related information technology services
We are one of the leading internet access providers in South Africa in the retail and wholesale
internet access provision markets. We also package our TelkomInternet product with personal
computers, ADSL and ISDN services, as well as our satellite access products, SpaceStream Express
and SpaceStream Office.
Our South African internet eXchange, or SAIX, is South Africa’s largest internet access provider,
offering dedicated and dial-up, ADSL and satellite internet connectivity to internet service providers
and value added network providers. SAIX has offered fixed-line network internet access through
dialup service since 1995. SAIX derives revenue for its access services primarily from subscription
fees paid by internet service providers and value added network providers for access services.
In order to grow the portfolio, an opportunity has been identified to develop a service targeted mainly
at night users of the SAIX ADSL service. These customers can be regarded as heavy users as they
use the service mainly for games, music and movie downloading. The SAIX customer base has
expanded beyond service providers and value added network providers, and now includes Vodacom
and other operators in Africa. These include incumbents in Mozambique, Namibia, Angola, Zimbabwe
and Lesotho.
An opportunity has been identified to develop a SAIX northern hemisphere internet service
targeted at African operators and ISPs to enhance further growth of internet access services north
of the equator. The customers in this region normally purchase their internet services from Europe
at far cheaper rates than southern African internet operators. The establishment of a central SAIX hub
in London is expected to ensure that we can capture this market and increase our revenue.
background image
65
In the retail market, TelkomInternet offers a range of internet services to residential and business
customers. These services include analog and ISDN dial-up services, ADSL services and
TelkomInternet powered by Satellite services. The access services are complemented by a range of
value-added services, including e-mail services, domain name services and hosting services. All
TelkomInternet access bundles include e-mail services, Web based e-mail access, anti-virus services,
exclusive content through our TelkomInternet website and 24 hour technical support services.
Telkom offers full commercial service of a broadband based internet access powered by satellite.
It is a Vsat product offering that allows effective sharing of the satellite platform making the service
more affordable. Following the successful introduction of TelkomInternet via satellite, Telkom
expanded its SpaceStream Express product into Africa branded as SpaceStream Africa.
In July 2005, TelkomInternet introduced a range of internet access and personal computer
bundles to the consumer market. These bundles included a personal computer, internet access,
internet call minutes, and various traditional Telkom services. During the 2007 financial year
TelkomInternet also introduced toll free technical support.
The following table sets forth information regarding our wholesale and retail internet services and
customers as of the dates indicated.
          Year ended March 31,           
2007/2006
2008/2007
  2006  
  2007  
  2008  
 % change 
 % change 
Wholesale
Internet leased lines-equivalent 64 kbps . . . .
16,832
19,247
22,541
14.3
17.1
Dial-up ports . . . . . . . . . . . . . . . . . . .
12,889
11,462
7,010
(11.1)
(38.8)
Retail
Internet dial-up subscribers . . . . . . . . . . .                      228,930
210,453
242,732
(8.1)
15.3
Internet ADSL subscribers . . . . . . . . . . .
53,997
92,140
115,334
70.6
25.2
Our wholesale internet services are billed on a bandwidth basis while our retail internet services
are billed on a monthly subscription basis. We also generate fixed-line traffic revenue from internet
traffic routed over our fixed-line network.
Various opportunities have been identified nationally to develop a hosting solution bundled with
SAIX. This solution is expected to increase the retention of customers and related revenues.
Information technology and related services. We have expanded our data offering to selected
information technology services that include local area network services, basic hosting, data center
hosting, managed infrastructure hosting, web application hosting, security services, disaster recovery,
storage services and application service provider hosting. Our security services include firewalls,
intrusion detection, and spam and virus protection.
We also offer e-commerce products and services, including electronic data interchange, hosted
procurement market place, payment gateways, electronic storefronts, electronic bill presentment and
message translation services. CyberTrade, our web based e-commerce service provider, provides
users with a secure platform to perform online banking and stock market trading, to buy and sell
goods and products from electronic merchants and to access critical information.
Fees and tariffs
Tariff rebalancing
We made significant progress in rebalancing our fixed-line tariffs. Telkom’s tariff rebalancing
program was historically aimed at better aligning its fixed-line traffic charges with underlying costs
background image
66
and international norms. Telkom expects that its tariff rebalancing in the future will focus more on the
relationship between the actual costs and tariffs of subscriptions and connections and traffic in order
to more accurately reflect underlying costs and in response to increased competition.
Regulations made under the Telecommunications Act, which remain in effect, impose a price cap on
a basket of Telkom’s specified services, including installations; prepaid and postpaid line rental; local,
long distance and international calls; fixed-to-mobile calls; public payphone calls; ISDN services; our
Diginet product; and our Megaline product. A similar cap applies to a sub-basket of those services
provided to residential customers, including leased lines up to and including lines of 2 Mbps of capacity
and the rental and installation of business exchange lines. Approximately 64% of Telkom’s operating
revenue in the year ended March 31, 2007 was included in this basket compared to approximately 57%
of Telkom’s operating revenue in the year ended March 31, 2008. Our tariffs for these services are filed
with ICASA for approval. The price cap operates by restricting the annual percentage increase in
revenues from all services included in the basket that are attributable solely to price changes to annual
inflation, measured by changes in the consumer price index, less a specified percentage.
Historically, the annual permitted percentage increase in revenues from both the whole basket
and the residential sub-basket was 1.5% below inflation. Effective from August 1, 2005 through
July 31, 2008, the annual permitted increase in revenues from both the whole basket and the
residential sub-basket was lowered to 3.5% below inflation and ADSL products and services have
been added to the basket. In addition, the price of no individual service within the residential sub-
basket can be increased by more than 5% above inflation except where specific approval has been
received from ICASA and pursuant to the Electronic Communications Act, revenue generated from
services where we have significant market power may not be used to subsidize competitive services.
Early in 2008, ICASA commissioned a review of the existing price control regulations applicable to
Telkom, however, ICASA has not initiated the statutory public process of reviewing the existing
regulations. Telkom is awaiting communication from ICASA in respect of proposed timelines for the
review. It is possible that both the composition of the basket and the price cap will be changed in a
manner detrimental to Telkom, which could lower its revenues. It is not possible at this stage to
assess the extent of these changes. It is unlikely that these changes will be implemented in time for
Telkom’s latest tariff filing, due to be effective from August 1, 2008.
ICASA approved a 3.0% reduction in the overall tariffs for services in the basket effective
September 1, 2005, a 2.1% reduction in the overall tariffs for services in the basket effective
August 1, 2006 and a 1.2% reduction on its regulated basket of products and services effective
August 1, 2007. On June 20, 2008, Telkom filed with ICASA proposed average price increases
on its regulated basket of products and services of 2.4% as a result of inflation increases, effective
August 1, 2008. The price control formula would have permitted Telkom to apply for a 17.2% price
increase due to the high consumer price index in South Africa and excess carryover of lower price
increases for prior periods. See Item 3. “Key Information – Risk Factors – Risks Related to Regulatory
and Legal Matters – Our tariffs are subject to approval by the regulatory authorities, which may limit
our flexibility in pricing and could reduce our net profit. Vodacom’s revenue and net profit could also
decline if wholesale price controls are imposed on it” above and “Regulation and License
Requirements” below. All tariffs include value added tax at a rate of 14%.
Subscription and connection tariffs
We provide reduced installation charges to most packaged services and provide discounts for
other customer specific solutions. In order to attract high volume corporate and business customers
we offer volume and term programs on certain data products that fix rates at the lower of the
prevailing rates or the rate at the time of the contract. We also offer term discounts on our ISDN
primary service.
background image
67
The following tables show our subscriptions and connections tariffs as of September 1, 2005,
August 1, 2006, August 1, 2007 and our proposed tariffs as of August 1, 2008 based on our tariff filing
with ICASA in June 2008.
                             As of September 1, 2005                       
PSTN
PSTN
ISDN2
ISDN2A
ISDN30
Postpaid
Prepaid
Basic
Basic
Primary
(ZAR, including value-added tax)
Business
Installation . . . . . . . . . . . . . . . . . . .
316.10
n/a
443.35
605.10
23,876.00
Monthly rental . . . . . . . . . . . . . . . . .
122.60
n/a
230.50
245.00
3,677.87
Residential
Installation . . . . . . . . . . . . . . . . . . .
316.10
182.50
443.35
605.10
n/a
Monthly rental . . . . . . . . . . . . . . . . .
92.28
57.25
195.90
220.50
n/a
                                      As of August 1, 2006                        
PSTN
PSTN
ISDN2
ISDN2A
ISDN30
Postpaid
Prepaid
Basic
Basic
Primary
(ZAR, including value-added tax)
Business
Installation . . . . . . . . . . . . . . . . . . .
342.30
n/a
480.10
655.25
25,855.30
Monthly rental . . . . . . . . . . . . . . . . .
132.75
n/a
230.50
245.00
3,982.59
Residential
Installation . . . . . . . . . . . . . . . . . . .
342.30
197.60
480.10
655.25
n/a
Monthly rental . . . . . . . . . . . . . . . . .
99.92
57.25
166.52
176.40
n/a
                                As of August 1, 2007                                 
PSTN
PSTN
ISDN2
ISDN2A
ISDN30
Postpaid
Prepaid
Basic
Basic
Primary
(ZAR, including value-added tax)
Business
Installation . . . . . . . . . . . . . . . . . . .
383.37
n/a
537.72
733.88
28,957.94
Monthly rental . . . . . . . . . . . . . . . . .
148.68
n/a
258.15
274.40
4,460.50
Residential
Installation . . . . . . . . . . . . . . . . . . .
383.37
221.30
537.72
733.88
n/a
Monthly rental . . . . . . . . . . . . . . . . .
111.90
57.25
186.50
197.57
n/a
                                      As of August 1, 2008                           
PSTN
PSTN
ISDN2
ISDN2A
ISDN30
Postpaid
Prepaid
(1)
Basic
Basic
Primary
(ZAR, including value-added tax)
Business
Installation . . . . . . . . . . . . . . . . . . .
425.50
n/a
596.87
814.61
32,143.31
Monthly rental . . . . . . . . . . . . . . . . .
165.00
n/a
286.55
304.60
4,460.50
Residential
Installation . . . . . . . . . . . . . . . . . . .
425.50
245.60
596.87
814.61
n/a
Monthly rental . . . . . . . . . . . . . . . . .
124.20
57.25
207.01
219.30
n/a
Note:
(1)
The tariff for residential weekly rental is R13.21.
background image
68
Traffic tariffs
Local, long distance and fixed-to-mobile
When setting local and long distance call pricing, a number of variables are considered in order
to generate an optimal level of revenue and to balance demand and affordability within our price cap
limitations. These include the duration, the distance between the points of origin, the destination, the
time of day and the day of the week of the call.
For calls from our fixed-line customers to mobile users, we bill our customers the standard retail
tariff, retain a fixed portion of the retail tariff and pay the remainder of the tariff to the mobile operator.
The following table sets forth our postpaid and prepaid traffic tariffs as of September 1, 2005,
August 1, 2006, August 1, 2007 and our proposed tariffs as of August 1, 2008 based on our tariff
filing with ICASA in June 2008.
September 1,
August 1,
August 1,
August 1,
2005
2006
2007
2008
Peak  Off peak Peak  Off peak Peak  Off peak Peak Off peak
rates
(1)
rates
(2)
rates
(1)
rates
(2)
rates
(1)
rates
(2)
rates
(1)
rates
(2)
(ZAR, including value-added tax)
Postpaid services
(residential and business)
Local minimum call charge (0 – 50 km)
for first unit
(3)
. . . . . . . . . . . . . . . . . .
0.59
0.59
0.59
0.59
0.59
0.59
0.65
0.65
Local call rate per minute (0 – 50 km)
after first unit
(3)
. . . . . . . . . . . . . . . . .
0.38
0.16
0.38
0.16
0.38
0.17
0.39
0.19
Long distance minimum call charge (>50 km)
for first unit
(4)
. . . . . . . . . . . . . . . . . .
0.80
0.80
0.72
0.72
0.65
0.65
0.65
0.65
Long distance call rate per minute (>50 km)
after first unit
(4)
. . . . . . . . . . . . . . . . .
0.80
0.40
0.72
0.36
0.65
0.33
0.65
0.33
Fixed-to-mobile call rate per minute
(5)
. . . . .
1.89
1.17
1.89
1.17
1.89
1.17
1.89
1.17
Prepaid services (residential only)
Local minimum call charge (0 – 50 km)
for first unit
(6)
. . . . . . . . . . . . . . . . . .
0.59
0.59
0.62
0.62
0.62
0.62
0.68
0.68
Local call rate per minute (0 – 50 km)
after first unit
(6)
. . . . . . . . . . . . . . . . .
0.43
0.18
0.45
0.19
0.46
0.21
0.48
0.23
Long distance minimum call charge (>50 km)
for first unit
(7)
. . . . . . . . . . . . . . . . . .
0.80
0.80
0.84
0.84
0.76
0.76
0.76
0.76
Long distance call rate per minute (>50 km)
after first unit
(7)
. . . . . . . . . . . . . . . . .
0.95
0.48
1.00
0.50
0.90
0.45
0.90
0.45
Fixed-to-mobile call rate per minute
(5)
. . . . .
1.89
1.17
1.89
1.17
1.89
1.17
1.89
1.17
Notes:
(1)
Monday to Friday 7 a.m. to 7 p.m. for local and long distance calls. Monday to Friday 7 a.m. to 8 p.m. for fixed-to-mobile
calls.
(2)
Monday to Thursday 7 p.m. to 7 a.m. the next morning, and Friday 7 p.m. to Monday 7 a.m. for local and long distance
calls. Monday to Thursday 8 p.m. to 7 a.m. the next morning, and Friday 8 p.m. to Monday 7 a.m. for fixed-to-mobile
calls.
(3)
The first unit for peak calls is 100 seconds with effect from August 1, 2008 (August 1, 2007, August 1, 2006 and
September 1, 2005: 94 seconds) and for off peak calls with effect from August 1, 2008 is 210 seconds (August 1, 2007:
209 seconds, August 1, 2006 and September 1, 2005: 223 seconds).
(4)
The first unit for peak calls is 60 seconds and for off peak calls is 120 seconds.
(5)
Calls are charged in increments of 60 seconds for the first minute and in increments of 30 seconds thereafter.
background image
69
(6)
The first unit for peak calls with effect from August 1, 2008 is 86 seconds (August 1, 2007: 81 seconds,
August 1, 2006 and September 1, 2005: 83 seconds) and for off peak calls with effect from August 1, 2008
is 179 seconds (August 1, 2007: 181 seconds, August 1, 2006 and September 1, 2005: 194.5 seconds).
(7)
The first unit for peak calls is 51 seconds and for off peak calls is 101 seconds.
International outgoing
Our outgoing international call tariffs and payments are based on settlement rates negotiated with
other international carriers on a bilateral basis. The following table sets forth our international outgoing
traffic tariffs per minute as of September 1, 2005, August 1, 2006, August 1, 2007 and our proposed
tariffs as of August 1, 2008 based on our tariff filing with ICASA in June 2008 for residential and
business customers to the ten most frequently called countries based on traffic. Telkom’s 2008
proposed international call tariffs will result in an approximate overall 0.2% increase in international
tariffs.
As of
As of
As of
As of
September 1,
August 1,
August 1,
August 1,
2005
2006
2007
2008
Peak Off peak Peak Off peak Peak Off peak Peak Off peak
rates
(1)
rates
(2)
rates
(1)
rates
(2)
rates
(1)
rates
(2)
rates
(1)
rates
(2)
(ZAR, including value-added tax)
United Kingdom . . . . . . . . . . . . . . . .
1.70
1.50
1.40
1.30
0.95
0.85
0.90
0.80
United States . . . . . . . . . . . . . . . . .
1.70
1.50
1.20
0.99
0.95
0.85
0.90
0.80
Namibia . . . . . . . . . . . . . . . . . . . .
1.66
1.30
1.30
1.30
1.40
1.15
1.10
0.98
Zimbabwe . . . . . . . . . . . . . . . . . . .
1.66
1.30
1.60
1.30
1.40
1.15
1.62
1.33
Botswana . . . . . . . . . . . . . . . . . . .
1.66
1.30
1.64
1.28
1.40
1.15
1.40
1.15
Australia . . . . . . . . . . . . . . . . . . . .
1.70
1.50
1.50
1.50
1.40
1.15
1.40
1.15
Germany . . . . . . . . . . . . . . . . . . . .
2.00
1.80
2.00
1.94
2.22
2.15
2.03
1.59
Swaziland . . . . . . . . . . . . . . . . . . .
1.66
1.30
1.66
1.30
1.40
1.15
1.10
0.98
India . . . . . . . . . . . . . . . . . . . . . .
2.30
2.00
1.80
1.80
1.80
1.70
1.81
1.59
Mozambique . . . . . . . . . . . . . . . . . .
2.70
2.50
2.50
2.50
1.40
1.15
1.40
1.15
Notes:
(1)
Monday to Friday 8 a.m. to 8 p.m.
(2)
Monday to Thursday 8 p.m. to 8 a.m. the next morning, and Friday 8 p.m. to Monday 8 a.m.
background image
70
Subscription based plans
The following table set forth the tariff rates for our Telkom Closer plans as of August 1, 2007 and
our proposed tariff rates as of August 1, 2008 based on our tariff filing with ICASA in June 2008.
Closer 1
Closer 2
Closer 3
Closer 4
Closer 5
Line rental,
Line rental,
Line rental,
Line rental,
Line rental,
Call Answer
Call Answer
Call Answer
Call Answer
Call Answer
DSL 384
DSL 4096
Standard time:
49c per minute
49c per minute
1,000 free minutes
1,000 free minutes
1,000 free minutes
49c minimum local
and long distance,    increase to 1,300,
(1)
increase to 1,300,
(1)
increase to 1,300,
(1)
and long distance,
first 30 local
per second billing
per second billing
per second billing
first 30 local minutes   minutes free
for fixed to mobile
for fixed to mobile
for fixed to mobile
free
Callmore time:
R1.40 per call local
Unlimited local &
Free up to 1 hour,
Free up to 1 hour,
Free up to 1 hour,
and long distance
and long distance
per second billing
per second billing
per second billing
up to an hour,
calls up to an
for fixed to mobile
for fixed to mobile
for fixed to mobile
60 free local
hour, 60 free local     calls
calls
calls
internet minutes
(1)
internet minutes
(1)
Standard
Standard
72c per minute,
72c per minute,
72c per minute,
international tariffs
international tariffs    65c minimum to
65c minimum to
65c minimum to
30 most popular
30 most popular
30 most popular
destinations
destinations
destinations
Rate as of August 1, 2007
R120
R145
R300
R429
R651
Rate as of August 1, 2008
R135
R161
R333
R462
R684
Note:
(1) Enhancement from August 1, 2008.
Telkom SupremeCall is a calling plan that enables customers to save on their total
telecommunication costs. SupremeCall offers customers’ savings on all major call types in return for a
committed monthly amount of usage. Customers are able to choose calling plans ranging from R1,000
to R20,000 with savings of up to 25% on the inclusive amount of call usage purchased.
The following table set forth the tariff rates for Telkom SupremeCall as of August 1, 2008 based on
our tariff filing with ICASA in June 2008. SupremeCall package prices have not changed since
implementation.
SupremeCall Options available
Monthly rental
(Incl. VAT)
SupremeCall 1000
R1,000
SupremeCall 1750
R1,750
SupremeCall 2500
R2,500
SupremeCall 4000
R4,000
SupremeCall 6000
R6,000
SupremeCall 8000
R8,000
SupremeCall 10000
R10,000
SupremeCall 12000
R12,000
SupremeCall 15000
R15,000
SupremeCall 18000
R18,000
SupremeCall 20000
R20,000
background image
71
Interconnection tariffs
Interconnection termination rates for mobile operators are distance independent and are based on
aggregated measurements of traffic crossing the points of interconnection measured on a per-second
basis. For national calls from mobile users to fixed-line customers, the mobile operator pays us a
termination fee. The risk of uncollectibles is carried by the originating operator. For incoming
international calls destined for mobile users, we pay the mobile operator a termination rate which is
the same as the rate we pay for fixed-to-mobile calls, and for outgoing international calls originating
from mobile users, the mobile operators pay to us our standard wholesale rate for international calls.
In order to better compete for outgoing international traffic originated by the mobile operators, Telkom
replaced its discounted retail charging model for such traffic with a wholesale charging model with
Vodacom in April 2006 and with MTN and Cell C in August 2006.
Our current interconnection tariffs are set out in interconnection agreements negotiated and
agreed by us and the other operators. ICASA is entitled to issue, and has issued, regulations relating
to interconnection between South African licensed operators. Telkom’s interconnection agreements
provide for annual increases in the portion of fixed-to-mobile tariffs retained by Telkom and the
termination rates payable by Telkom to the mobile operators as well as the termination rates payable
to Telkom from the mobile operators for mobile-to-fixed calls.
The following table sets forth our fixed-to-mobile retail tariffs, including our termination rates paid
to mobile operators and our retention rates, and our mobile-to-fixed tariffs as of January 1, 2006,
January 1, 2007 and January 1, 2008. Fixed-to-mobile tariffs are billed for the first 60 seconds and
30 second increments thereafter. Termination rates paid to mobile operators are paid on a per second
basis.
As of
As of
As of
January 1,
January 1,
January 1,
2006
2007
2008
Peak Off peak Peak Off peak Peak Off peak
rates
(1)
rates
(2)
rates
(1)
rates
(2)
rates
(1)
rates
(2)
(ZAR, including value-added tax)
Fixed-to-mobile retail rate . . . . . . . . . . . . . . . . .
1.89
1.17
1.89
1.17
1.89
1.17
Termination rate paid to mobile operators . . . . . . . . . .
1.43
0.88
1.43
0.88
1.43
0.88
Retention rate . . . . . . . . . . . . . . . . . . . . . . . .
0.46
0.29
0.46
0.29
0.46
0.29
Mobile-to-fixed retail rate
Termination rate paid to Telkom . . . . . . . . . . . . . . .
0.33
0.18
0.33
0.18
0.33
0.18
Notes:
(1)
Monday to Friday 7 a.m. to 8 p.m.
(2)
Monday to Thursday 8 p.m. to 7 a.m. the next morning and Friday 8 p.m. to Monday 7 a.m.
Neotel was licensed on December 9, 2005 and commercially launched on August 31, 2006 and
commenced providing services in the beginning of the 2007 calendar year to corporate customers and
other licensees. On April 25, 2008 Neotel announced that the first of its consumer products were
available to limited parts of Johannesburg and Pretoria. The following table sets forth our retail tariffs
applicable to calls to Neotel, effective from May 23, 2007, including our termination rates paid to
Neotel and our retention rates, and our interconnection tariffs which are applied between Telkom and
Neotel. Telkom’s retail tariff for such calls is billed on a per second basis with a minimum charge of
65 cents. The interconnection fees payable between Telkom and Neotel are pseudo-distance based
rates coupled to the national numbering plan regulations, consisting of a lower within billing zone, or
WBZ, rate, and a higher beyond billing zone, or BBZ, rate. If a call is handed over to the other
network in the same billing zone as that in which it terminates, then the WBZ rate is applicable. If it is
handed over in a billing zone other than that in which it terminates, then the BBZ rate is applicable.
background image
72
As of May 23, 2007
Peak
Off peak
rates
(1)
rates
(2)
(ZAR, including value-added tax)
Telkom to Neotel retail rate . . . . . . . . . . . . . . . . . . .
0.65
0.65
WBZ termination rate paid to Neotel . . . . . . . . . . . . . . .
0.23
0.23
Retention rate . . . . . . . . . . . . . . . . . . . . . . . . . .
0.42
0.42
Telkom to Neotel retail rate . . . . . . . . . . . . . . . . . . .
0.65
0.65
BBZ termination rate paid to Neotel . . . . . . . . . . . . . . .
0.33
0.33
Retention rate . . . . . . . . . . . . . . . . . . . . . . . . . .
0.32
0.32
Neotel to Telkom calls
Termination rate paid to Telkom (WBZ) . . . . . . . . . . . . .
0.26
0.14
Termination rate paid to Telkom (BBZ) . . . . . . . . . . . . . .
0.38
0.22
Notes:
(1)
Monday to Friday 7 a.m. to 8 p.m.
(2)
Monday to Thursday 8 p.m. to 7 a.m. the next morning and Friday 8 p.m. to Monday 7 a.m.
Various interconnection agreements have also been signed with smaller operators such as VANS
and USALs.
The following table sets forth our Telkom-to-USAL retail tariffs effective from May 23, 2007,
including our termination rates paid to the USALs and our retention rates, and our USAL-to-Telkom
tariffs applied between Telkom and the USALs. Telkom’s fixed-to-USAL retail tariffs for mobile USAL
calls are billed for the first 60 seconds which is the minimum charge applicable for the call, and in
30 second increments thereafter. Telkom’s fixed-to-USAL retail tariffs for calls within the USALs’
service area are billed on a per second basis with a minimum charge of 65 cents. Termination rates
paid to the USALs are paid on a per second basis.
As of May 23, 2007
Peak
Off peak
rates
(1)
rates
(2)
(ZAR, including value-added tax)
Tekom-to-USAL retail rate (Calls to mobile USAL numbers) .
1.89
1.17
Termination rate paid to USAL . . . . . . . . . . . . . . . . . .
1.43
0.88
Retention rate . . . . . . . . . . . . . . . . . . . . . . . . . .
0.46
0.29
Telkom-to-USAL retail rate (Calls to fixed USAL numbers) .
0.83
0.43
Termination rate paid to USAL . . . . . . . . . . . . . . . . . .
0.33
0.18
Retention rate . . . . . . . . . . . . . . . . . . . . . . . . . .
0.50
0.25
USAL-to-Telkom calls
Termination rate paid to Telkom . . . . . . . . . . . . . . . . .
0.33
0.18
Notes:
(1)
Monday to Friday 7 a.m. to 8 p.m.
(2)
Monday to Thursday 8 p.m. to 7 a.m. the next morning and Friday 8 p.m. to Monday 7 a.m.
The following table sets forth our retail tariffs applicable to calls to VANS effective from May 23,
2007, including the termination rates paid to the VANS and our retention rates, and our VANS-to-
Telkom tariffs applied between Telkom and the VANS. Telkom’s retail charges for calls to VANS are
billed on a per second basis with a minimum charge of 65 cents. The interconnection fees payable to
Telkom by the VANS are distance based rates as given below.
background image
73
As of May 23, 2007
Peak
Off peak
rates
(1)
rates
(2)
(ZAR, including value-added tax)
Telkom-to-VANS retail rate
Termination rate paid to VANS
(3)
. . . . . . . . . . . . . . . . .
n/a
n/a
Retention rate . . . . . . . . . . . . . . . . . . . . . . . . . .
0.50
0.50
VANS-to-Telkom calls (Local)
Termination rate paid to Telkom . . . . . . . . . . . . . . . . .
0.32
0.16
VANS-to-Telkom calls (Long distance)
Termination rate paid to Telkom . . . . . . . . . . . . . . . . .
0.50
0.25
Notes:
(1)
Monday to Friday 7 a.m. to 7 p.m.
(2)
Monday to Thursday 7 p.m. to 7 a.m. the next morning and Friday 7 p.m. to Monday 7 a.m.
(3)
Telkom’s fixed-to-VANS retail rate varies based on the termination rates charged by the various VANS to Telkom.
An interconnection agreement was signed between Telkom and Sentech on June 1, 2007 which
provides for the termination by Telkom of calls brought into the country by Sentech pursuant to its
international telecommunication gateway service license. Pursuant to this agreement, Telkom charges
Sentech the same termination rates as it charges Neotel described above. As Sentech’s license
allows it to provide a carrier of carriers service to other operators, it does not have end-users within
the country, and the interconnection agreement therefore does not provide for the termination of calls
on Sentech’s network. It does however provide for either operator to transit international traffic via the
other if they so require. Physical interconnection is currently in the process of being established.
Data tariffs
We charge monthly fees for leased lines, which vary based on bandwidth and distance, and
monthly service charges for ADSL, which are not distance dependent. The following table sets
forth the monthly tariffs for our data leased lines using 20 km distances and ADSL service as of
September 1, 2005, August 1, 2006, August 1, 2007 and our proposed tariffs as of August 1, 2008
based on our tariff filing with ICASA in June 2008. Subscription to ADSL service also requires the
subscription to a PSTN postpaid line.
background image
74
As of
As of
As of
As of
September 1,
August 1,
August 1,
August 1,
  2005  
  2006  
  2007  
  2008  
(ZAR, including value-added tax)
ADSL installation charges
HomeDSL 192/384/512/1024
(1)
. . . . . . .
404
437.5
490
543.91
BusinessDSL 512/1024
(1)
. . . . . . . . . .
404
437.5
490
543.91
ADSL access rental charges
HomeDSL 192 . . . . . . . . . . . . . . .
270
245
n/a
n/a
HomeDSL 384 . . . . . . . . . . . . . . .
359
245
152
152
HomeDSL 512/BusinessDSL 512 . . . . . .
477
362
326
326
HomeDSL 1024/BusinessDSL 1024
(1)
. . .
680
516
413
413
Diginet (64 Kbps) . . . . . . . . . . . . . . .
2,214
2,160
2,039
1,985
Diginet Plus (512 Kbps) . . . . . . . . . . . .
5,245
5,067
4,658
4,493
ATM Express
2 Mbps – Bronze . . . . . . . . . . . . . .
11,953
10,827
9,747
9,435
2 Mbps – Silver . . . . . . . . . . . . . . .
15,418
14,120
12,711
12,319
34 Mbps – Silver . . . . . . . . . . . . . .
89,613
81,059
72,955
70,648
140 Mbps – Silver . . . . . . . . . . . . . .
296,246
255,460
229,908
222,610
Notes:
(1)
HomeDSL 1024 and BusinessDSL 1024 were launched in September 2005. These amounts represent the tariffs at date
of service launch.
Managed data networking services are billed on a monthly basis and vary by customer depending
on the particular services provided and the number of network sites under management.
Sales and marketing
We group our fixed-line customer base into the following three categories in order to more
effectively target and service our customers:
•  business customers;
•  mass markets, including small business and residential customers; and
•  payphone customers.
Business customers
Business customers are comprised of global and corporate customers, business and
government customers and wholesale customers segments. We have a division for global and
corporate customers, one for business and government customers and one for wholesale customers.
Our marketing departments are split into two divisions: retail marketing, which supports the global
and corporate business and government customers and wholesale marketing, which supports our
wholesale customers. Our business customer category accounted for approximately 70.2% of our total
fixed-line operating revenue in the year ended March 31, 2008 and approximately 40.3% of our total
fixed access lines as of March 31, 2008.
Global and corporate
Global and corporate customers comprise over 330 of South Africa’s largest financial, retail,
manufacturing and mining companies with domestic and international operations. Global and
corporate customers accounted for approximately 17.6% of our total fixed-line operating revenue
in the year ended March 31, 2008 and approximately 10.0% of our total fixed access lines as of
March 31, 2008. We have increased our sales and marketing efforts aimed at our large global and
background image
75
corporate customers in order to continue to improve customer loyalty. We offer tailored packaged
solutions and seek to enter into long-term relationships with our global and corporate customers
in order to maintain our leadership position in this customer market. We market and sell our products
and services to these customers primarily through corporate account managers, supported by a team
of specialists in the field of pre-sales consulting, project management and post-sales service
managers.
Business and government
Business and government customers comprise approximately 277,000 large and medium
business and governmental accounts. We estimate that Government customers, excluding certain
Government owned parastatal companies, accounted for at least 9% of our total fixed-line operating
revenue in the year ended March 31, 2008 and at least 4% of our total fixed access lines as of
March 31, 2008. We also offer tailored packaged solutions and seek to enter into long term
relationships with our government and larger business customers. In addition, we established a
customer relation program to focus on retaining business customers. We market and sell our products
and services to these customers primarily through customer account managers in the government
section and sales representatives in the business segment, the Telkom Business Call Center and
customer service branches. As of March 31, 2008, we had approximately 137 Telkom Direct shops
located throughout South Africa to assist our business customers in finding the products and end user
equipment that best fits their needs. We have been successful in signing our business customers to
long term service agreements. We have also been successful in growing our ISDN, internet access,
PABX, satellite and data, including ADSL, products and services.
Wholesale
Wholesale provides services to any national or international duly licensed intermediary.
Wholesale customers comprise mobile operators, domestic licensed network operators, international
operators and service providers and domestic value-added network service providers. The wholesale
market segmentation will change with the license conversion. We expect wholesale revenue from
domestic operators to increase with the expansion of Neotel’s operations and the further liberalization
of the South African telecommunications industry, although we believe that with the advent of the
Electronic Communications Act, competition in this sector will increase and there will be downward
pressure on prices. Products sold to wholesale customers primarily include national and international
voice termination services, data services and international transiting services. We also provide internet
protocol services to internet service providers. We are currently focusing on developing wholesale
products that cater to the needs of a more liberalized fixed-line market in South Africa. We are also
expanding our wholesale product portfolio to go into non-traditional markets outside of South Africa.
Our marketing and sales strategy for the wholesale services market is to be the carrier of choice for
other operators and the connectivity provider of choice for domestic and other African service
providers. We believe our digital network both in South Africa and in our international undersea cables
provides a solid foundation from which we can leverage these services. We continuously revisit
destinations for wholesale voice termination services. We intend to focus on expanding our
relationships with international operators and further increasing the penetration of our transiting and
connectivity services to international operators, including other African operators, for traffic into and
out of Africa.
Mass markets
Mass markets comprises small business customers and residential customers, including both
prepaid and postpaid residential customers using PSTN, ISDN and ADSL services. Small business
customers comprise approximately 297,000 accounts.
background image
76
Mass market customers accounted for approximately 28.2% of our total fixed-line revenue
in the year ended March 31, 2008 and approximately 56.6% of our total fixed access lines as of
March 31, 2008. Residential customers accounted for approximately 49.1% of our total fixed access
lines as of March 31, 2008. Prepaid residential customers accounted for approximately 16.4% of our
total fixed access lines as of March 31, 2008, compared to approximately 17.1% of our total fixed
access lines as of March 31, 2007. Small business customers accounted for approximately 7.5% of
our total fixed access lines as of March 31, 2008.
We are seeking to compete in the residential market by offering communications packages
focused on improving convenience and security to enhance consumers’ lifestyles, while at the same
time increasing revenue per customer. We intend to continue to introduce calling plans that target high
use customers and are designed to increase consumers’ value for money. We market and sell our
residential products through our customer call centers, Vodacom’s customer service branches and
Telkom Direct shops, the South African Post Office, independent distributors and vendors and through
telemarketing. We are focused on increasing the penetration of our ADSL services to retail and high-
end residential customers through targeted direct advertising to high internet usage subscribers.
Payphone customers
Payphones comprise our public and private payphone units. Payphones accounted for
approximately 1.6% of our total fixed-line revenue in the year ended March 31, 2008 and
approximately 3.1% of our total fixed access lines as of March 31, 2008.
We seek to provide easy access to our services through the effective placement of our phones
and phonecard outlets in high traffic areas, while cutting costs by removing non-profitable pay phones.
Our key focus area is the premier market, which includes municipalities, prisons, gas stations,
shopping malls, airports, and train stations. In furtherance of this goal, we target and enter into
nationwide contracts with multi location telephone providers to ensure wider distribution of our
payphones. We market and sell our payphone products through our regional sales force and call
centers. In order to improve efficiencies in public services and telephony, Telkom implemented a
quality management system in compliance with the South African Bureau of Standards ISO9001:2000
standards, which was certified by the South African Bureau of Standards in 2003. The aim was to
develop products and services based on these quality standards and improved processes in an effort
to grow and improve public telephony revenues and create a customer relations center through a call
center. An income management center, which is responsible for coin collections, and banking and a
dedicated fault handling center for the maintenance of payphone equipment was established.
Customer care and service
We know that customers do business where their worth and uniqueness is valued and where
it is easy for them to do business. The customer centricity program is making progress to ensure that
the whole business is wrapped around the customer, steering away from being a predominantly
product-centric organization. A key enabler of this is the establishment of a customer data
environment that for the first time will provide Telkom with a single 360 degree view of the customer
to enable refined customer segmentation based on value, behavior and needs. This will transform the
business to the extent that the customer is at the centre of all decision making in the Company.
In future the outcome of the customer analytics approach will be a refined segmentation structure
for the organisation, as well as a Marketing structure built around the different customer groups, and
not around our products as in the past. This will provide the much needed end-to-end ownership of,
and accountability for, the customer experience with Telkom. The segmentation outcome will also
provide a consistent prioritization framework across the organisation for differentiated service and
experience delivery to different customers.
background image
77
We offer a number of customer care initiatives tailored to our different customer segments.
We allocate service managers to each of our global and corporate customers, who are responsible
for ensuring that all new installations and repairs are performed in a satisfactory and timely manner.
In addition, in March 1998 we established a corporate customer call center in Cape Town for our
global and corporate customers, capable of making minor infrastructure changes from a single
location. We also use professional program managers to manage the implementation of complex
network solutions. We offer service level agreements on a number of our existing data
communications products where technology allows us to do so and our goal is to introduce service
level agreements on all new data communications products in the future. We confer VIP status on
each of our global and corporate customers and other selected customers that allows them direct
access to key people within our organization to ensure quick resolution of any problems they may
have regarding our products and services. We also intend on launching a wholesale call center for
use by our expanding base of wholesale customers.
Our Telkom business call center provides customer support for our medium and small business
customers. We also offer a broad range of internet based customer care tools to allow customers to
manage their relationship with us more conveniently. The Telkom and TelkomInternet websites offer
online services such as fault reporting for voice services, automated online registration and password
changes for internet services, electronic bill presentation and an email query facility.
We also provide our customers with a free SMS payment reminder where a cellular phone
number is provided to avoid suspension of late paying customers.
background image
78
Network
Network service quality
We have made significant investments in our national network operations center and our data
center designed to increase our ability to identify and anticipate future customer needs more rapidly
and to provide the appropriate solutions and services. In order to take advantage of economies of
scale in scheduling, we have consolidated our six voice installation and fault management centers
into two centers to address faults, installation and service appointment scheduling and have
consolidated our six data installation and fault management centers into two centers.
The following table sets forth information regarding Telkom’s service delivery measurements
during the periods indicated.
                  Year ended March 31,                   
  2006  
  2007  
  2008  
Residential voice
% cleared in 24 hours . . . . . . . . . . . . . .
47%
50%
38%
Faults per 1,000 lines . . . . . . . . . . . . . . .
470
485
476
% installed in 5 days . . . . . . . . . . . . . . .
49%
81%
54%
Business voice
% cleared in 24 hours . . . . . . . . . . . . . .
61%
66%
50%
Faults per 1,000 lines . . . . . . . . . . . . . . .
300
328
264
% installed in 5 days . . . . . . . . . . . . . . .
63%
83%
63%
Data subrate
% cleared in 24 hours . . . . . . . . . . . . . .
92%
84%
93%
Faults per 1,000 lines . . . . . . . . . . . . . . .
801
870
875
% installed in 10 days . . . . . . . . . . . . . .
40%
41%
19%
ADSL business
% cleared in 24 hours . . . . . . . . . . . . . .
54%
33%
42%
Faults per 1,000 lines . . . . . . . . . . . . . . .
480
575
575
% installed in 20 days . . . . . . . . . . . . . .
56%
76%
56%
Residential and business voice orders installed in five days and faults cleared in 24 hours
declined in the 2008 financial year due to the increased focus on ADSL services. The ADSL installed
base grew by 61% during the 2008 financial year and 78% during the 2007 financial year. This growth
resulted in an increase in the number of reported faults and impacted on the time taken to clear faults.
This growth also impacted on data subrate services as they share ADSL resources. The increase of
approximately 20% in network failures during the 2007 financial year, contributed to the increased
subrate faults per 1000 lines. Network failures consist of cable breaks, cable theft and failures on
other core network elements. We implemented a self install option for ADSL, which had a positive
impact on ADSL installation.
We have changed the measurements of the installation measures as indicated in the table below.
The change in the methodology is to more accurately reflect on the demands placed on us by
customers. In addition we have differentiated between those services that require network or
infrastructure build activity compared to those that can be provided by flow-through means, that is
where no network or infrastructure build is required. This separation provides insight as to how Telkom
is addressing the demands in both flow-through as well as build instances and provides focus on the
two processes with the objective of reducing cycle times for both processes. It removes the potential
masking of the one process over the other.
background image
79
      Year ended March 31,   
   2007   
   2008   
Residential voice
% installed within 28 working days initial timeframe
– No build . . . . . . . . . . . . . . . . . . . .
84%
91%
% installed within 80 working days initial timeframe
– Build . . . . . . . . . . . . . . . . . . . . . .
73%
82%
Business voice
% installed within 21 working days initial timeframe
– No build . . . . . . . . . . . . . . . . . . . .
77%
85%
% installed within 70 working days initial timeframe
– Build . . . . . . . . . . . . . . . . . . . . . .
81%
84%
Data subrate
% installed within 30 working days initial timeframe
– No build . . . . . . . . . . . . . . . . . . . .
49%
48%
% installed within 90 working days initial timeframe
– Build . . . . . . . . . . . . . . . . . . . . . .
54%
79%
ADSL business
% installed within 21 working days initial timeframe
– No build . . . . . . . . . . . . . . . . . . . .
56%
79%
% installed within 60 working days initial timeframe
– Build . . . . . . . . . . . . . . . . . . . . . .
68%
66%
We expect to continue to change the method in which we measure performance to align with
changes in the information communication technology industry that focus more on broadband and
data services and also to support Telkom’s customer centricity drive.
Infrastructure and technology
The following table sets forth information related to the digitalization and upgrade of our network
at the dates indicated.
                                        As of March 31,                                  
  2004  
  2005  
  2006  
  2007  
  2008  
Digitalization (percentage of lines) . . .
99.9
99.9
99.9
99.9
99.9
ATM switches . . . . . . . . . . . . . .
189
202
212
228
255
Digital exchange units . . . . . . . . .
4,321
4,339
4,427
4,448
4,463
Internet Protocol Routers . . . . . . . .
32
70
76
79
158
National network operations center
We have a state-of-the-art national network operations center, capable of monitoring our core
network and coordinating and dispatching core network repair personnel from one control point based
in Centurion, Pretoria. Our national network operations center enables us to be more proactive in
anticipating, localizing and isolating problems, such as congestion and cable breaks, so that they can
be corrected promptly. The national network operations center is capable of providing up to the
minute, real-time visual summary of the status of our entire network. Our national network operations
center includes an emergency restoration and control center that manages all network failure
restorations. Network service management specialists are able to obtain up to the minute information
from this center in order to proactively update global and corporate customers who have services
affected by any major network failure, including voice and data network services.
background image
80
Switching network
An important part of our fixed-line network modernization program has been switch digitalization.
As of March 31, 2008, 99.9% of our telephone access lines were connected to digital exchanges.
Switch digitalization has made our network more efficient and resilient and has enabled us to offer
new value-added voice and data services, including caller line identification, electronic call answering
and the provisioning of innovative billing systems. Our switching network infrastructure is based on a
two-tier structure utilizing large capacity digital switches. The upper, or primary, tier is used for the
switching of long distance and international traffic and the lower, or secondary, tier is used for the
switching of regional and local traffic.
The primary tier consists of eight switching centers and two international switching centers.
Each of the switching centers includes two switches which are geographically diverse for
redundancy purposes and in order to handle larger volumes during peak times. Each of the primary
switching centers is interconnected by at least two self healing diverse routes. Interconnection
between our network and the networks of the three South African mobile operators and Neotel takes
place at primary level switches in the main centers. Two international telephone switching centers
each containing one switch, serve as the international gateways. Secondary switching centers are
connected to the primary switching centers by at least two self-healing diverse routes. Each
secondary switching center includes one switch with internal redundancy mechanisms.
Transmission network
Our national transmission network comprises a synchronous digital hierarchical and wave
division-multiplexing network. Both the primary and the secondary tier are based on a combination of
ring and meshed topology, which provides a dual path to each connection point. The ring topology
consists of interlocking self-healing rings, while the meshed topology consists of high capacity digital
cross-connects and next generation synchronous digital hierarchy equipment, connected in meshed
fashion via high capacity digital links. The primary tier consists of eight stacked rings and fifteen digital
cross-connects, while the secondary tier consists of 544 rings and 85 digital cross-connects. The next
generation synchronous digital hierarchy footprint consists of 460 elements across the primary
(national) and secondary (local) tiers. The synchronous digital hierarchy network, with its network
management capability, provides for faster provision and modification of service, improved grade of
service and lower maintenance costs. Telkom is investing in additional capacity to meet requirements
for growth in data traffic and leased lines.
Metro Ethernet
In the 2007 financial year, we began deploying Metro Ethernet, a next generation network
technology that provides cost effective, high speed, fiber based connectivity in metropolitan areas.
In addition to increased bandwidth capacity, the technology also offers features required for next
generation services such as bandwidth on demand and internet protocol TV, or IPTV.
The new network will be used to support and enhance existing customers’ services such
as broadband access via ADSL and WiMAX technologies. New corporate and service provider
wholesale services are expected to be developed that draw directly from the new feature set
offered by Metro Ethernet.
Metro Ethernet is currently being rolled out in the metropolitan areas of the Western Cape,
Northern Gauteng (Pretoria), Gauteng Central (Greater Johannesburg), KwaZulu-Natal (Durban)
and Eastern Cape (Port Elizabeth).
background image
81
Access network
Access for our PSTN and data networks is primarily via copper. Telkom is still deploying additional
access network infrastructure to enable the provisioning of ISDN and xDSL services on demand.
Fiber in the loop, or FTTx, with optical fiber distributed multiplexors and cross connects are also
provided to mobile operators, corporate and large businesses, office parks and shopping centers.
Point-to-point radio systems are also provided for non-fibered areas such as rural areas and for
redundancy in our core network. In addition, Telkom is focusing on the rehabilitation of its existing
copper and fiber access network infrastructure to improve the reliability and quality of its network
and to make it broadband friendly. Viable areas, which are out of reach of the broadband footprint,
will be serviced by appropriate wireless local loop (point to multipoint) technologies.
Asynchronous transfer mode network
We have rolled out an asynchronous transfer mode network to deliver broadband services
to global and corporate customers. As of March 31, 2008, we had 255 switches in our asynchronous
transfer mode network. The present available bandwidth between the core switches on our
asynchronous transfer mode network is 224 STM-1s or 33.5 Gbps, while the available bandwidth
between the access switches, metropolitan switches and core switches is 760 STM-1s or 113.8 Gbps.
Access to our asynchronous transfer mode network is primarily provided via fiber and synchronous
digital hierarchy.
Public broadband internet protocol network
Our public broadband internet protocol network comprises a three tier hierarchical network
consisting of eight core sites, 30 edge sites and 65 access locations, including over 26,796 modems
with an estimated dial-up base of greater than 500,000 customers, including Telkom and other internet
service providers as of March 31, 2008.
Telkom has designed its internet protocol network as the core for new products and services with
multi protocol label switching, or MPLS, deployed in the network. 15,000 layer three virtual private
network or VPN endpoints have been deployed.
Telkom currently has a total bandwidth of 4.5 Gbits to a total of six international points
of presence. One is located in Amsterdam, two in London, one in New York, one in Ashburn
(Washington D.C.) and one in Hong Kong. Internet protocol transit bandwidth from the six international
points of presence to global tier 1 service providers amounts to 4.0 Gbits.
Broadband services
Telkom’s Broadband services comprise xDSL through copper as a wireline access and WiMAX
as wireless access. We are currently deploying fiber to the curb as well as to our large customers.
We introduced ADSL as a wireline access technology in August 2002 for our internet protocol
network. The ADSL roll out has been designed to provide maximum coverage in terms of prospective
ADSL customers. Our ADSL footprint covers approximately 92.2% of our customer base and consists
of 2,660 digital subscriber line access multiplexers, serving approximately 412,190 customers as of
March 31, 2008, an increase from 86.8% of our customer base and 2,237 digital subscriber line
access multiplexers, serving approximately 255,633 customers as of March 31, 2007, and
143,509 customers as of March 31, 2006. This network is managed from our national network
operations center.
background image
82
Voice over internet protocol network
Softswitch capability is being deployed initially as an overlay network to enable the communication
of voice over internet protocol services. Our current voice over internet protocol network terminates
calls for numerous international voice carriers into our fixed-line network. Call centers from around the
world that have relocated to South Africa due to favorable economic conditions and lower resource
costs are also hosted on our voice over internet protocol network. Telkom has points of presence for
connectivity to the voice over internet protocol network in Amsterdam, London, New York, Ashburn
(Washington D.C.), Hong Kong, Zambia, Zanzibar, Tanzania, Senegal and Madagascar. The network
can terminate 69 media gateways, or approximately 32,700 voice circuits and offers H.323, SIP, ISDN
or SS7 interconnection options. The media gateways compress the traditional voice channels of
64 Kbps to 8 Kbps channels thus enabling us to reduce the cost of international calls, while
maintaining the perceived voice quality of a 64 Kbps call.
WiFi
In February 2005, Telkom launched a hot spot service that provides wireless data access
service by using 802.11b/g WiFi technology. Any user with a wireless enabled notebook computer
or personal digital assistant can connect to the service while in the coverage area. WiFi is mainly
targeted at restaurants, hotel groups, major shopping malls and some sites on national routes.
At March 31, 2008, Telkom had 237 hotspots, up from 75 at March 31, 2007.
WiMAX
Telkom has launched services based on fixed (IEEE 802. 16-2004) WiMAX technology.
This technology is a standard based broadband wireless access technology that provides throughput
connectivity in a point-to-multipoint configuration. The technology is designed to enable Telkom to
compliment its ADSL service offering in metropolitan and rural areas and in areas where ADSL
services are not yet available. Telkom is also pursuing the provision of a voice service to compliment
the broadband service offering and a trial is currently in progress. If successful, this will be used to
provide service in areas where Telkom experiences problems with the fixed-line copper network.
Telkom has a memorandum of understanding in place with Intel Corporation for the interchange of
information pertaining to WiMAX in order to keep up with the latest WiMAX developments. Telkom is a
member of the WiMAX Forum and actively monitors the Forum for any developments.
International connectivity
We offer international connectivity from two international switching centers to terrestrial, satellite
and submarine cable routes. Further international connectivity has been provided with the deployment
of very small aperture terminals and other satellite transmitters located at strategic locations
throughout the country. Telkom has satellite bandwidth available from Intelsat, SES Skies and
HellaSat. Telkom also has access to satellite capacity from 64 Kbps to 45 Mbps upon request.
We are currently making use of satellites in 15 orbital slots for services within and from or to South
Africa. The Indian Ocean region can be connected to two satellites and the Atlantic Ocean region can
be connected to three satellites. Satellite access is provided from our earth stations at Hartebeeshoek,
west of Pretoria, Crowthorne in Gauteng, Malvern in Durban, Chelsea in Port Elizabeth and
Klipheuwel in Cape Town. Currently we have satellite voice and data connectivity to locations not
reachable via undersea cable.
We have investments in three cable systems connecting Africa and international destinations.
A submarine cable system, SAT-2, exists between Cape Town and Europe. We are the largest
capacity owner on the SAT-2 submarine cable system with the right to use approximately 65% of the
capacity. Consistent with our strategy of increasing international carrier traffic on our network, we have
background image
83
invested approximately U.S.$95 million in the SAFE and SAT-3/WASC submarine cable systems that
were introduced into service during 2002. The cable systems provide fiber optic connectivity between
South Africa and international destinations. These cable systems utilize the latest technology available
in order to provide improved high speed voice, data, video and other on demand high bandwidth
services and have increased fiber optic bandwidth between Europe, Asia and Africa. We have the
right to approximately 24% of the capacity on the SAFE and SAT-3/WASC submarine cable systems,
making us the largest capacity owner in these cable systems out of the 35 telecommunications
operators who have invested over U.S.$700 million in these systems. The length of the SAFE cable is
approximately 13,100 km and the SAT-3/WASC is approximately 14,300 km. These cables are
expected to be upgraded to approximately three times their current available capacity during the 2009
calendar year in anticipation of the 2010 World Cup demand.
In addition, on March 9, 2007 the Eastern Africa Submarine System, or EASSy, supply contract
was signed by a 23-member EASSy consortium with Alcatel-Lucent. The supply contract came into
force on March 20, 2008 and manufacturing has already commenced. Telkom invested approximately
US$23 million and will have an ownership interest in the EASSy cable system of approximately 8%.
The EASSy cable will connect to South Africa at the same landing point as the SAFE cable in
Mtunzini, north of Durban. Telkom will seek to provide network operations center and administrator
services to the EASSy consortium. Telkom also expects to be in a position to sell onward connectivity
to Europe, America and Asia to East African operators using the EASSy cable. Telkom’s primary use
for the EASSy cable will be to establish and improve its East African fiber connectivity and also to use
EASSy as an alternative global diverse route out of South Africa.
The 9,900 km high performance fiber optic cable is being deployed to link eight countries from
Sudan to South Africa, via Somalia, Kenya, Tanzania, Madagascar and Mozambique. Landings are
planned for Port Sudan, Sudan; Djibouti; Mogadishu, Somalia; Mombasa, Kenya; Dar Es Salaam,
Tanzania; Tollary, Madagascar; Maputo, Mozambique; and Mtunzini, South Africa.
Based on Alcatel-Lucent’s submarine and terrestrial optical solutions, EASSy will connect the
eastern African seaboard as well as landlocked countries, to the rest of the world. It will also provide
connectivity across the continent to support the increase in local traffic from existing and new
broadband services. EASSy is expected to provide Telkom the opportunity to expand its footprint
further into Africa, creating further opportunities for access to future potential markets. In delivering a
regional capacity of up to 640 Gbit/s. By complementing existing undersea networks, EASSy is being
designed to provide continuity of service in times of natural disasters and to alleviate congestion
during periods of peak traffic.
By interconnecting with Sea-Me-WE 3, Sea-Me-We 4 and SAT-3/SAFE, the EASSy undersea
cable will also serve as a supporting infrastructure for these networks. Landlocked states such as
Ethiopia, Botswana, Rwanda, Burundi, Uganda, Zambia and Zimbabwe will also be able to access
the EASSy cable. The EASSy project is scheduled for completion by the middle of the 2010 calendar
year.
Information technology/operations support systems
The quality of our operations support systems, which store, manage and analyze essential
business information, is critical to the success of Telkom’s business. Telkom’s operations support
systems permit Telkom to make timely and informed business decisions and respond to our
customers’ needs with tailored solutions. Telkom has dedicated significant resources to the design and
implementation of new operations support systems based on a comprehensive and well defined
information technology strategy.
We have a data center in Centurion, Pretoria in order to improve internal information technology
service levels and offer external internet and related services such as managed data center hosting
background image
84
services. The center is safeguarded by state of the art environmental and security systems capable of
performing maintenance without impacting service or availability. The complex houses a 2,100 square
meter data center and over 9,000 square meters of usable office space and includes a twenty four
hour command/operations center. The command center contains a large video wall that enables
personnel to keep abreast of the current state of our information technology infrastructure twenty four
hours a day.
Our data center has been leveraged to include both our internal support systems and our external
hosted offerings. We have a business continuity and disaster recovery plan utilizing both our
Centurion and its sister data center site in Bellville locations for redundancy purposes. Both operations
can be monitored and operated from either location via service management tools and data for critical
systems is transferred between these sites for rapid disaster recovery should it be necessary. Our
power support systems have also been upgraded to add an additional level of environmental
redundancy. This redundancy is shared between the data center and the new national business
solutions center building to reduce cost. We are currently expanding the Bellville center with an
additional 1,500 square meters of computer room space.
Telkom’s national business solution center was built alongside the national network operations
center and the data center providing Telkom with a centralized information technology backbone. The
national business solutions center was commissioned and we are currently hosting 51 out of our
59 hosting customers in the national business solutions center. Both the data center and the national
business solution center are operated from a command center and now provides an additional
3,000 square meters of computer room space designed to the same specifications as our primary
data center requirements. In addition, this new facility gives Telkom the ability to provide high
availability configurations that are split between both buildings for redundancy purposes. Network
reliability has also been enhanced by creating a totally redundant, shared network environment
between the data center, the national business solution center building and the national network
operations center.
Telkom is currently in the process of implementing a number of management information and
other operating support systems in order to better respond to the increased liberalization of the South
African communications industry. These systems are being designed to integrate with Telkom’s billing
and other management information systems, to provide Telkom with the capability of providing
comprehensive and detailed operating information, a single bill for customers with multiple locations
and products and configuring products and services across voice and data domains. The nature and
the current status of these systems are as follows:
•  Workforce management system – an automated mechanism to manage and optimize Telkom’s
workforce utilization. The first phase of the workforce management system was completed
in the 2006 financial year. The roll-out of the second and third phases of the workforce
management system commenced during the 2007 financial year and was completed in the
2008 financial year.
•  Customer management system solution – a system to unify both voice and data customers,
to manage and maintain all customer information and interactions and to produce an optional
single bill for customers’ voice and data services or products. The implementation of this
solution for Telkom’s customers with non-voice related products and services was successfully
implemented during the 2007 financial year. The implementation for voice related products and
services commenced during the 2008 financial year and is targeted for completion in the 2009
financial year.
•  Product catalogue (in conjunction with the customer management system solution) – a system
to configure and maintain products and services for both voice and data domains, to bundle
products and groups of products across voice and data product and service domains, and to
provide contract management functionalities for both voice and data services or products and
background image
85
customers. The implementation of this solution for Telkom’s customers with non-voice related
products and services was successfully implemented during the 2007 financial year.
•  The implementation for voice related products and services commenced during the 2008
financial year and is targeted for completion in the 2009 financial year.
•  Order management system (in conjunction with the customer management system solution) –
a system to provide end-to-end management of customer orders. The implementation of this
solution for Telkom’s customers with non-voice related products and services was successfully
implemented during the 2007 financial year. The implementation for voice related products and
services commenced during the 2008 financial year and is targeted for completion in the 2009
financial year.
•  Fault management solution – a system to accelerate the real-time and accurate detection of
problems in Telkom’s network by event collection, filtering and correlation. The first phase was
successfully implemented in the national network operations center in the 2007 financial year
with active surveillance now being performed on 19 technologies and the next phase is planned
to be completed in the 2009 financial year.
•  Next generation operation support system – Telkom’s current operating support system needs
to be evolved and developed to a new next generation operating support system to integrate
and support Telkom’s conversion to a next generation network. The first phase was a
comprehensive scoping exercise that was launched in the 2007 financial year. The second
phase will entail a program of various projects dealing with the implementation of solutions
specifically designed to support next generation products and services.
Competition
Competition in the South African fixed-line communications market is intense and is increasing as
a result of the Electronic Communications Act and determinations issued by the Minister of
Communications.
The new licensing framework included in the Electronic Communications Act is resulting in the
market becoming more horizontally layered with a number of separate licenses being issued for
electronic communications network services, electronic communications services, broadcasting
services and the radio frequency spectrum and will substantially increase competition in our fixed-line
business. In addition, pursuant to the Telecommunications Act and determinations issued by the
Minister of Communications:
•  mobile cellular operators are permitted to obtain fixed telecommunications links from parties
other than Telkom;
•  VANS operators and private network operators are permitted to resell the telecommunications
facilities that they obtain from Telkom;
•  VANS operators are permitted to allow their services for the carrying of voice, including voice
over internet protocol;
•  Telkom is no longer the sole provider of facilities to VANS operators; and
•  licensing for the provision of payphone services has been expanded.
See “Regulation and License Requirements”.
We compete primarily on the basis of customer service, quality, dependability and price in those
areas where we currently face competition and where we expect to compete for public switched
telecommunications services in the future. We intend to introduce new products and services and tariff
structures with the aim of maintaining and gaining revenue.
background image
86
Mobile competition
Telkom competes for telephone customers with the three existing mobile operators, Vodacom, our
50% owned joint venture, MTN and Cell C. MTN is a public company listed on the JSE Limited and
Cell C entered into a joint venture with Virgin Mobile, which has further increased competition. Telkom
also competes with service providers who use least cost routing technology that enables fixed-to-
mobile calls from corporate private branch exchanges to bypass our fixed-line network by being
transferred directly to mobile networks. In recent periods, our fixed-line business has experienced
significant customer migration from our fixed-line services to mobile services, as well as substitution of
calls placed using mobile services rather than our fixed-line service. ICASA has begun a review
process of mobile termination rates aimed at reducing high mobile interconnect charges, which, once
completed, is also likely to impact upon Telkom’s own termination rates and interconnection revenues.
Data competition
We also face increased competition from mobile operators, value added network operators and
private network operators as a result of determinations by the South African Minister of
Communications in September 2004 and the Electronic Communications Act, which came into effect
on July 19, 2006.
Neotel and VANS providers such as Internet Solutions are our main competitors in the data
market. Neotel is entering the market through competitive pricing and niche products such as fiber
connections and rings. VANS provide competitive internet protocol virtual private networks and
internet service provider services to the business segment. Consumer orientated internet service
providers such as MWeb are our main competitors in the consumer internet market.
In addition, our data services have faced increased competition from iBurst, a competitor to
Telkom in the wireless area that offers competing broadband services, and, to a lesser extent,
Sentech, which owns and operates satellite transmission systems, a packaged, always-on,
bidirectional broadband service via satellite and a wireless high-speed internet service offering.
Similarly, the mobile operators’ 3G, HSDPA and EDGE networks also enable customers to browse the
internet via mobile broadband services, which provide increased competition for our data services.
The mobile data providers have reduced prices significantly creating price competition in our data
markets. We believe that VANS operators and internet service providers will increasingly move into
the corporate and voice services market, while telecommunications service providers try to expand
into the managed data network and international traffic markets. We expect that alliances will be
forged between VANS operators, telecommunications service providers and content providers to
concentrate on the delivery of converged services within a few years. Domestically, expansion into
new markets by VANS and mobile companies will take place, while development of new products and
services will intensify the competition. We expect competition to further increase as a result of
consolidation in the market, with competitors growing through mergers, acquisitions and alliance-
forming activity. The entry of multinational corporations to South Africa is expected to be a further
incentive for global communications operators, which already service these corporations abroad,
to establish or enhance their presence in South Africa.
Competition in the data market is expected to increase as a result of the VANS providers’ ability
to deliver complex managed data solutions and integrated information communications technology
solutions, as well as expected future alliances between the VANS and fixed and mobile operators.
Technological advances will also enable more and more convergence and integration which in turn
will enable more effective competition and usage of bandwidth.
As competition increases in the South African market, South African telecommunication service
providers, including Telkom, are expected to increasingly look to other developing markets for new
revenue streams, particularly in sub-Saharan Africa. Internationally, Telkom’s new Africa Online
business already competes with Internet Solutions and MTN Network Solutions. In addition,
Verizon is already present in a number of other African markets.
background image
87
Fixed-line voice competition
In September 2004, the South African Minister of Communications granted an additional license
to provide public switched telecommunications services to Neotel that is 30% owned by Transtel and
Esitel, which are beneficially owned by the South African Government, and other strategic equity
investors, including 26% beneficially owned by TATA Africa Holdings (Pty) Limited, a member of the
TATA Group, a large Indian conglomerate with information and communications operations. On March
19, 2008 Neotel announced that the Competition Tribunal of South Africa had approved its acquisition of
Transtel without any conditions, Neotel was licensed on December 9, 2005 and commercially launched
on August 31, 2006 and commenced providing services in the beginning of the 2007 calendar year to
large corporations and other licensees.
Neotel has started providing services to corporate customers and to licensees. On April 25, 2008,
Neotel announced that the first of its consumer products were available to limited parts of
Johannesburg and Pretoria. The Government has created an infrastructure company, Infraco, which
stated it would provide inter-city bandwidth at cost based prices to Neotel, and later to the rest of the
industry, which will further compete with our communications network. Infraco was established by an
Act of parliament: the Broadband Infraco Act, No. 33 of 2007. The Electronic Communications Act,
No 36 of 2005, has been amended by the Electronic Communications Amendment Act, No. 37 of
2007 to permit electronic communications licenses to be issued to Infraco.
A process to issue additional licenses to small business operators to provide telecommunications
services in underserviced areas with a teledensity of less than 5% commenced in 2005 and
is continuing. The Minister of Communications has identified 27 of these underserviced areas.
ICASA has issued licenses to successful bidders in seven of them and the Minister has issued
invitations to apply for licenses in 14 additional areas. In August 2006 ICASA recommended to the
Minister that licenses be granted to successful applicants in 13 of these areas. While it was expected
that further licenses would be issued in the 2007 calendar year, none were issued. The Minister of
Communications, has issued a policy direction to ICASA directing it to, where there is more than one
license in a province, merge the licenses and issue one Provincial Under-Serviced Area Network
Operator, or PUSANO license. None of these consolidated licenses have yet been issued by ICASA.
Telkom’s fixed-line voice business is expected to be further impacted by continuing developments
of voice over internet protocol and by the rollout of limited mobility services. Wireless operator iBurst
has started to offer portable voice services over their wireless internet services. Additionally, voice
over internet protocol and other operators with international gateway licenses are expected to create
increased competition for Telkom’s fixed-line voice business in carrying international traffic in and out
of South Africa.
We expect that the introduction of number portability and carrier pre-selection could further
enhance competition in our fixed-line voice business and increase our churn rates. As competition
intensifies, the main challenges our fixed-line voice business faces are continuing to improve
customer loyalty through improved services and products and maintaining our leadership in the South
African communications market. As a result of increasing competition, we anticipate pressure on our
overall average tariffs, a reduction in our market share and an increase in costs in our fixed-line
business, which could cause our growth rates, operating revenue and net profit to decline.
Procurement
We utilize a transparent multi disciplined approach to purchasing and supplier management in
order to ensure that we receive the best products and services from reliable suppliers at the best
overall price. We have established cross functional sourcing teams staffed with individuals from
different areas of our organization to evaluate and make recommendations on certain bids, which,
depending on value, require the further approval of our executive committee and board of directors
background image
88
and notification of certain approvals to our board of directors. Bid requests are published in our weekly
tender bulletin and on our web site. We have adopted affirmative procurement policies that favour
historically disadvantaged suppliers. We seek to utilize at least two suppliers for all critical equipment
where possible in order to minimize supply risk. In the year ended March 31, 2008, our top twenty
suppliers accounted for approximately 57% of all purchases and our main supplier was Total Facilities
Management Company (Pty) Limited, or TFMC, which accounted for approximately 14.5% of all
expenditure. During the year ended March 31, 2008, Telkom directed R9.2 billion to black economic
empowerment suppliers, representing approximately 71% of Telkom’s total procurement spending,
compared to R8.8 billion and R6.4 billion in the years ended March 31, 2007 and 2006, respectively.
Mobile communications
Overview
We participate in the South African mobile communications market through our 50% interest
in Vodacom. Vodacom is the largest mobile communications network operator in South Africa with
an estimated market share of approximately 55% as of March 31, 2008 based on total estimated
customers. Vodacom has investments in mobile communications network operators in Lesotho,
Tanzania, the Democratic Republic of the Congo and Mozambique. Vodacom’s other shareholder
is Vodafone, which beneficially owns 50% of Vodacom.
South Africa
Vodacom had approximately 24.8 million customers in South Africa as of March 31, 2008.
As of March 31, 2008, Vodacom’s 7,300 base stations were capable of reaching approximately 98%
of the country’s population based on the last official census conducted in 2001 and approximately
72% of the total land surface of the country. The estimated penetration rate for mobile
communications in South Africa has increased to approximately 94% as of March 31, 2008.
Vodacom offers public mobile communications services which are based on second generation
Global System for Mobile Communications, or GSM, and third generation Universal Mobile
Telecommunication System, or UMTS, mobile communication standards. Vodacom was granted
a mobile cellular telecommunications license in South Africa in September 1993 and commenced
service in June 1994. This mobile cellular telecommunications service license was confirmed and
reissued in August 2002 pursuant to the Telecommunications Act, and was renewed until May 30,
2024 on the same terms and conditions as the existing license. In addition, Vodacom was awarded
a permanent 1,800 MHz license and a 3G spectrum license during the 2005 financial year.
Products and services
Vodacom offers a wide range of mobile voice and data communications products and services,
including value-added services. Vodacom’s services also include the sale of handsets. Vodacom has
a history of innovation as illustrated by its record of product offerings. Vodacom was the first mobile
communications network operator in the world to offer prepaid mobile communications services on an
intelligent network platform and to offer its customers coverage across the whole of Africa where
commercial GSM roaming is available. Vodacom was also the first mobile communications network
operator in South Africa with nationwide coverage. Vodacom launched the first commercial
3G network in South Africa in December 2004. Vodacom entered into an alliance with Vodafone,
pursuant to which Vodacom is able to market Vodafone branded products and services.
Significant products launched include data, voice and SMS bundles for prepaid, Top Up and
contract customers. Vodacom continued to launch and support Vodafone products such as Vodafone
Simply, welcome tones, extended Mobile TV to 23 channels and Vodafone live! release 7 with its
simple, tabular, user friendly approach. A number of corporate and business products were also
background image
89
launched, ranging from e-mail and enhanced voicemail to corporate access points which enhance the
security of mobile customers using a 3G/HSDPA data card remotely and in May 2008, High Speed
Uplink Packet Access, or, HSUPA, an enhancement of Vodacom’s HSDPA service.
Vodacom Converged Solutions, subsequently renamed Vodacom Business, was formed in the
2007 financial year to provide converged solutions and services to corporate customers. The strategic
aim of the division is to play a role in the broadband access services space, capitalize on transmission
and self-provisioning opportunities, grow revenue through managed services opportunities and
enhance the retention of corporate clients. The intention is to gain market traction and a customer
base while developing a next generation network. Vodacom Business developed a service portfolio
that includes next-generation internet protocol voice services, managed networks and infrastructure
services, access services, hosting and applications. The platforms, systems and organization have
been created and the initial commercial products are being marketed, with the balance of the service
portfolio expected to become available online during the course of the 2008 calendar year.
On May 8, 2007 Vodacom formalized entry into the broadcasting and multimedia market by
announcing that it had secured an exclusive pay TV agency agreement with MultiChoice. With DSTV
Select, Vodacom and non-Vodacom customers have a choice between two DSTV Select bouquets,
each offering a variety of the latest entertainment, news, sport, movies, documentaries and music
channels.
In order to achieve company growth, Vodacom diversified horizontally into the internet service
provider and information technology services industries in the 2008 financial year.
Vodacom will seek to continue to grow data revenues by launching useful office tools and
software applications such as 3G, HSDPA, HSUPA, Mobile TV, Vodafone Mobile Connect Cards and
BlackBerry®, at competitive prices. BlackBerry® Connect, as well as BlackBerry® Built-In, which
enable customers to access BlackBerry® services without a traditional BlackBerry® device, have
become available on top of the range handsets such as HTC, Nokia and Sony Ericsson. In the future,
Vodacom intends to continue to focus on offering premier interactive voice response, premium short
messaging services, general packet radio services, multimedia services, HSDPA services, HSUPA
services, internet services, e-mail services and fixed-to-mobile products.
Prepaid services
As of March 31, 2008, approximately 85.3% of Vodacom’s South African customers were prepaid
customers. Vodacom has two prepaid products, Vodago and 4U. Vodago was Vodacom’s initial
prepaid product and offers two tariff plans, Vodago Standard and Vodago Smartstep. Vodacom’s 4U
is a prepaid per second billing product targeted at the youth market who have higher usage
of SMS and a need for per second billing. Since its inception, the number of 4U customers has
increased significantly and as of March 31, 2008, approximately 92.7% of Vodacom’s prepaid
customers were 4U customers. Vodago and 4U provide instant access to the Vodacom network and
enable low volume customers to control mobile telephone costs based on usage because there are
no long term contracts. Fax and certain data services became available to Vodago customers in the
2006 financial year.
In the 2008 financial year, Vodacom removed the time window for all of its prepaid offerings, thus
simplifying its prepaid offering. As a result, Vodacom now offers a range of values for customers to
recharge in any amount ranging from R5 to R1,000. Prepaid customers are now also able to recharge
with a range of SMS bundles to suit their needs either by purchasing an SMS voucher or by
purchasing their bundle using their airtime on the phone already. Vodacom also launched a
Yebo4Less tariff plan in the 2008 financial year to Vodacom’s prepaid customers, which offers
discounts on their base call rate tariff depending on location and network capacity at the time of day.
Discounts are offered ranging from 0% to 99% for on-net and off-net calls. Vodacom also offers eight
background image
90
prepaid vouchers, seven of these ranging from R12 worth of airtime value and a 90 day usage time
window to R1,100 worth of airtime value and a 365 day usage time window. An eighth voucher option
is available for R365 that allows the customer R265 worth of airtime value and a two-year airtime
window regardless of activity. Vodacom launched a Big Bonus voucher in July 2006 which has a face
value of R899 and gives the customer R900 of airtime whereby the customer receives R75 of airtime
credit every 30 days over a 12 month period. In November 2005, Vodacom introduced the 46664
starter pack, a Super six starter pack in which Vodacom donates a portion of the proceeds to the
Nelson Mandela 46664 Foundation to help fight against HIV/AIDS. During the 2005 financial year,
Vodacom introduced a new Super six 4U starter pack which changed the Vodago Super six starter
pack to include free SMSs.
Recharge-related innovations in the 2005 financial year included the Yebo 5 voucher, adding SMS
as a recharge channel, and the addition of electronic recharge as a service to the Vodacom4me
portal. Remaining airtime value and time window are accumulated provided the customer recharges
before the time window expires. The accumulated time window cannot exceed 24 months. Vodacom
also offers a voucher that entitles customers to receive unlimited incoming calls for 365 days.
This voucher does not entitle the customer to make outgoing calls, but can be combined with other
vouchers that entitle the customer to make outgoing calls as well as accumulate time window.
A wide variety of retail outlets, such as handset dealers, gas stations, tobacco shops and post
offices, sell recharge vouchers for Vodacom’s prepaid customers. Recharging can also take place
electronically and through the use of banking networks. Because prepaid customers pay in advance
for their mobile service, the risk of bad debts is eliminated and the risk of fraud is substantially
reduced. In addition, prepaid services provide cost savings to Vodacom as bills do not need to be sent
to prepaid customers and handsets for prepaid customers are not subsidized. There are less service
offerings for the prepaid mobile communications market than there are for the contract base market.
Following the launch of 4U and Vodago Smartstep, Vodacom is continuing to implement initiatives to
expand its prepaid mobile communications service offerings and to gain a greater understanding of its
prepaid customer base and its requirements.
Contract subscription services
As of March 31, 2008, approximately 14.3% of Vodacom’s South African customers were contract
customers compared to 13.1% as of March 31, 2007 as contracts have become more affordable and
tailored to different market segments. Contract subscription is typically for an initial 24-month contract.
Vodacom offers residential and business contract customers a range of mobile service packages
designed to appeal to specific customer segments. Vodacom offers two broad categories of contract
subscription packages: consumer packages, such as Weekend Everyday, and business packages,
such as Business Call. Additional packages such as Shared Talk 1500 were launched in the 2007
financial year to address the small and medium sized enterprises, or SME market. Vodacom launched
the Family Top Up package in the 2004 financial year, a hybrid contract product which combines the
benefits of a contract service with the financial control offered by a prepaid service and is designed to
facilitate migrations to contract packages from existing prepaid packages. Vodacom’s Family Top Up
package has proven highly successful and continues to contribute to the revenue growth in contract
customers, although the introduction of lower end packages resulted in Top Up packages
representing a smaller percentage of total contract packages. As of March 31, 2008, 26.4% of
Vodacom’s contract customers were Top Up customers compared to 30.0% as of March 31, 2007
and 27.6% as of March 31, 2006.
The monthly subscription and call charges vary with each of the packages. All contract packages
make available voice, fax and data services, voice-mail, caller identification, call forwarding, call
waiting and short message service capabilities. Depending on the contract package, customers either
pay a fixed monthly charge and receive a set number of free minutes or pay a monthly subscription
background image
91
for access plus a per minute or per second fee. In addition, Vodamail Executive is available to all
contract packages on request. This is an integrated voice and fax mailbox that offers features such as
Faxmail, group distribution list and voice-mail messaging.
Community services
Vodacom has developed a number of community services telephone units that are positioned
throughout communities either on an individual basis or grouped in a container under the Vodacom
brand. Community service phones are purchased by local entrepreneurs who resell community phone
services. Community service phones are preloaded with airtime and can be recharged electronically
by telephone shop operators when the airtime on the phone expires.
The demand for community service phones has been strong since its introduction. Vodacom had
deployed approximately 103,024 community service phones as of March 31, 2008, exceeding its initial
aggregate license target of 22,000 community service phones. The development of community service
phones has made it possible to provide mobile access to the more than 20 million South Africans who
live in rural communities where there is less than one telephone line per hundred people and have
improved the quality of life for many South Africans who previously had no access to
telecommunications. Community service phones have also been a cost effective method of
significantly increasing traffic revenue on Vodacom’s network due to their low roll-out costs to
Vodacom and low barriers to entry for customers. Community service phone ARPUs decreased by
23.6% to R689 per month in the 2008 financial year from R902 per month in the 2007 financial year
due to increased competition, from Cell C and other products that have tariff structures that are
competitive to community service plans.
Value-added mobile voice and data services
Vodacom offers an extensive portfolio of value-added mobile voice and data services,
including caller identification, call forwarding, call waiting, voice-mail, entertainment, mobile
information and commerce services, short messaging services, mobile multimedia services,
data services, mobile internet access, fax services, e-Billing, video mail, missed call keeper,
and twin call services, the latter of which enable customers to use two mobile phones under
the same number. Through Vodacom’s 10% investment in Wireless Business Solutions, also
known as iBurst, a competitor to Telkom in the wireless area, Vodacom now supplies customers
with continued high speed connectivity through broadband internet and email services. Wireless
Business Solutions has a license that enables it to build a WiMax network that complements
Vodacom’s HSDPA wireless broadband service. Vodacom’s Call Sponsor offering enables contract
customers to sponsor the calls of up to three prepaid customers. Vodacom has experienced
substantial growth in the use of its value-added voice and data services, resulting in increased
traffic revenue on its network.
Vodacom launched the first commercial 3G network in South Africa in December 2004 and was
the first to launch the HSUPA service during May 2008. HSUPA is an enhancement of Vodacom’s
current HSDPA 3.6 service, which will offer users maximum upload speeds of up to 1.4 Mbps and
download speeds of up to 3.6 Mbps. In the 2005 financial year, Vodacom entered into an alliance with
Vodafone, pursuant to which Vodacom is able to market Vodafone branded products and services. In
connection with the launch of its 3G network, Vodafone launched Vodafone Mobile Connect Cards,
3G/GPRS/HSDPA datacards providing fast, secure access to corporate networks from laptop or
desktop computers, Vodafone live! with global and local content, picture and video messaging and
downloads, Mobile TV and BlackBerry®. Vodacom’s alliance with Vodafone also provides Vodacom
access to Vodafone’s global research and development and access to Vodafone’s marketing and
buying powers. Significant data price reductions during the 2007 financial year were introduced to
further establish Vodacom as a serious contender in the data connectivity space and offered a viable
alternative to fixed-line while increasing mobile data adoption.
background image
92
Vodacom launched Voicemail2SMS, a value added service offering contract customers the ability
to have their voicemail messages converted to SMS, in the 2008 financial year. Vodacom also
launched a reverse charge service in the 2008 financial year, enabling contract customers to accept
and pay for calls made by other Vodacom customers. Further enhancements are expected to be
added to the service to enable all of Vodacom’s prepaid and contract customers to accept calls as
well in the 2009 financial year. On May 8, 2007 Vodacom formalized entry into the broadcasting and
multimedia market by announcing that it had secured an exclusive pay TV agency agreement with
MultiChoice. MultiChoice provides direct-to-home satellite services. With DStv Select, the direct-to-
home digital satellite services operated under the brand name DStv, Vodacom and non-Vodacom
customers have a choice between two DStv Select bouquets, each offering a variety of the latest
entertainment, news, sports, movies, documentaries and music channels. Vodacom also launched the
Adult Content Management System, a mobile system that enables parents to prevent their children
receiving mature content, in the 2007 financial year. Vodacom has adopted a conservative approach
which prohibits the delivery of undesirable content and limits all users to a level of content similar to
that which is freely available at newsagents. Children are further protected from not only visually
unsuitable material, but also from chat rooms and unsuitable websites. On December 1, 2005
Vodafone Release 7 was launched with welcome tones and Mobile TV as major new services.
By March 31, 2008 there were 26 TV channels available on Vodafone live! In the 2004 financial year,
Vodacom launched SMS-only roaming and promotional offerings such as free MMSs and free SMSs.
Vodacom launched MyLife, its MMS and GPRS network service, on October 17, 2002, Office
Anywhere in August 2003, location based services Look4me in February 2004 and Look4it
in March 2004. Vodacom was also the first to launch BlackBerry® devices into the South African
market, shifting the focus to data and e-mail on demand.
A focus area in the 2007 financial year has been to enhance self service, both through the
Vodacom4me portal and the *111# service. These offer customers the ability to automatically set up
their own phone for data and multimedia messaging services, to check billing and bundle information
real-time and apply for, and change value-added services if required. The service has been promoted
more aggressively in the 2008 financial year and customers are now also able to purchase data and
SMS bundles via this self service facility.
Vodacom continued to deliver on its data strategy which utilizes wireless application service
providers, or WASPs, to provide ease of connectivity and standardized interfaces. Currently, the
WASP model is driven largely by consumer applications, with the majority of interest being in
premium-rated outgoing SMS and bulk incoming SMS services. During the 2008 financial year a
consolidation of WASPs had been encouraged by Vodacom, which resulted in the reduction of active
WASPs from 165 as of March 31, 2007 to 149 as of March 31, 2008. Vodacom also provides premium
rated MMS and interactive voice response, as well as the Vodacom online billing service, which has
been increasing. This enables the content provider, or WASP, to issue Vodacom billing tickets,
enabling Vodacom to collect subscription services on their behalf. WASP services are provided by
Vodacom, as well as Cointel. Revenues from WASP services increased by 33% in the 2008 financial
year to R494 million as the number of services has increased.
Data revenue contributed 10.4% of Vodacom’s total revenue in the year ended March 31, 2008,
up from 8.1% in the year ended March 31, 2007 and 6.0% in the year ended March 31, 2006.
Vodacom’s data revenue increased primarily due to higher penetration levels influenced by more
affordable product offerings. In South Africa, Vodacom transmitted 4.7 billion SMSs over its network
in the 2008 financial year, compared to 4.5 billion SMSs in the 2007 financial year. There was an
increase in users of GPRS in the 2008 financial year, with the number of GPRS users increasing to
approximately 4.7 million as of March 31, 2008 from approximately 2.8 million as of March 31, 2007
and approximately 1.4 million as of March 31, 2006. The number of active data users includes
approximately 1.4 million MMS users, approximately 370,000 data card and USB modem users,
background image
93
approximately 1.3 million 3G/HSDPA handsets, approximately 1.4 million Vodafone live! users and
approximately 31,000 Unique Mobile TV users as of March 31, 2008, compared to approximately
1.2 million MMS users, approximately 149,000 data card and USB modem users, approximately
584,000 3G/HSDPA handsets, approximately 899,000 Vodafone live! users and approximately
33,000 Unique Mobile TV users as of March 31, 2007. As of March 31, 2008 Vodacom had 32,273
BlackBerry® users registered on its network, compared to approximately 23,328 as of March 31,
2007. Vodacom expects that the broad introduction of “always on” faster response and generally
higher speed packet-switched data services, such as GPRS and universal mobile telecommunications
system, or UMTS, will provide the platform for future value-added services.
Handset sales
Vodacom Service Provider Company (Pty) Limited, or Vodacom Service Provider, sells handsets
to its distribution channel and other service providers. Service providers in South Africa generally
subsidize handsets when a contract customer enters into a new contract or renews an existing
contract, depending on the airtime and tariff plan and type of handset purchased. Handset sales
amounted to approximately 5.1 million units, 4.6 million units and 3.8 million units in the 2008, 2007
and 2006 financial years, respectively, representing increases of approximately 10.9%, 21.1% and
58.3% in the 2008, 2007 and 2006 financial years, respectively. Vodacom’s state of the art warehouse
in Midrand handled an average of 2,600 orders per day, up by 13.7% from the prior year figure of
2,287 orders per day. Approximately 98.1% of all deliveries to distribution channels are finalized within
48 hours of receipt of the order. Camera technology in phones has improved with 2 mega pixel
cameras being the standard and 7 mega pixel cameras now available on high end phones. HSDPA
handsets became available to the market in the 2007 financial year. In addition, Bluetooth technology
is available on most mid- and high-end phones. The Vodafone live! handset portfolio has continued to
increase during the course of the 2008 financial year and accounted for approximately 18% of
Vodacom’s total sales in the 2008 financial year compared to 32% for the 2007 financial year.
3G handset prices also declined significantly in the 2007 and 2008 financial years making 3G
handsets now more affordable. HSDPA card sales increased in the 2008 financial year, accounting for
approximately 5% of total sales for the year. Vodacom provides laptop or desktop computers to
customers who enter into certain contract agreements. These services are expected to continue to be
successful in the coming year with the introduction of embedded HSDPA 3.6 modules in laptop
computers.
Mobile users may use any handset on the Vodacom or any other network if the handset contains
a SIM-card for Vodacom or the other network. No modifications, other than the replacement of the
SIM-card, are required to utilize handsets on either the Vodacom or other mobile communications
network operators’ networks, unless the handset is network locked.
Interconnection services
Vodacom has interconnection agreements with national mobile operators, MTN and Cell C, as
well as with Telkom, Neotel and carrier-of-carriers licensee, Sentech. In addition, Vodacom has an
interconnection agreement in place with eight VANS operators.
Roaming services
Vodacom has national roaming agreements in place with national mobile network operator Cell C,
which is terminable fifteen years after commencement on or after November 14, 2016, as well as with
USALs Amatole, iTel, BTel, Karabotel and Kingdom Communications, which are terminable three
years after commencement. These agreements unilaterally enable the customers of Cell C and the
USALs to make use of Vodacom’s network to originate and terminate calls as well as to access other
background image
94
telecommunication services. In addition to allowing the USALs customers to roam on Vodacom’s
network, Vodacom provides the USALs with certain ancillary services such as SIM card provisioning,
recharge facilities and customer care.
To enable Vodacom to provide its customers with telecommunication services while outside of
South Africa and to provide services to customers of foreign networks operators while outside South
Africa, Vodacom has international roaming agreements with 397 foreign mobile network operators in
182 countries as of March 31, 2008. Of these, 149 allow for GPRS roaming, 54 allow for 3G roaming,
three allow for HSDPA roaming, and 27 allow for prepaid roaming. Objectives for the 2009 financial
year will continue to focus on increasing the footprint for Vodafone Passport, prepaid and GPRS
networks as well as maintaining reductions in the inter-operator tariffs charged to Vodacom by other
networks.
Customers
Vodacom has experienced substantial growth in its mobile customer base since its inception in
1994. As of March 31, 2008, there were an estimated 45 million mobile customers in South Africa,
which represents an estimated penetration rate of 94% of the population. As of March 31, 2008,
Vodacom estimated that its customers represented approximately 55% of South African mobile
customers, making Vodacom the leading mobile communications network provider in South Africa
based on total estimated customers. For a breakdown in Vodacom’s customers for the past five years,
see Item 3. “Key Information – Selected Historical Consolidated Financial and Other Data
of Vodacom Group.”
The South African customer base has continued to grow in the 2008 and 2007 financial years
with the majority of the growth resulting from the prepaid market, partially offset by an increase
in prepaid churn due to the implementation of the supplementary disconnection rule. The strong
growth in contract customers was a direct result of the large number of gross connections achieved
with continued levels of handset support to service providers in respect of the contract base, coupled
with decreased churn in the contract base. Loyalty and retention programs continue to play an integral
role in achieving the strategy of retaining market share and attracting new customers. Prepaid gross
connections increased 11.1% to approximately 11.2 million in the 2008 financial year compared to
approximately 10.1 million in the 2007 financial year. Contract gross connections increased 17.4%
to approximately 782,000 in the 2008 financial year compared to approximately 666,000 in the
2007 financial year. Growth in contract customers was largely due to the increase in connections
in Family Top Up, 3G data card packages, Messenger data packages and Weekend Everyday
consumer packages. As of March 31, 2008, 26.4% of Vodacom’s contract customers were Top Up
customers, compared to 30.0% as of March 31, 2007 and 27.6% as of March 31, 2006.
Vodacom expects that the number of contract customers in South Africa will eventually level off
and that the number of prepaid customers in South Africa will continue to grow in the medium term
driven by the continued demand for basic voice telephone services. Vodacom’s growth in prepaid
customers could be negatively impacted by restrictions contained in RICA, which may require a
burdensome registration process for customers and may require Vodacom to disconnect prepaid
customers if it is not able to obtain such information. See Item 3. “Key Information – Risk Factors”.
Vodacom believes that mobile communications services provide a cost effective means of telephone
services for customers in underserviced and rural, outlying areas. Vodacom’s efforts will therefore
continue to focus on growing customer numbers while carefully managing its existing customer base,
marginal revenue per customer and customer related acquisition and retention costs. Vodacom, MTN
and Cell C each provide connection commissions to service providers and dealers, or agents. These
are often utilized by agents to subsidize handsets as an incentive for customers to switch operators to
obtain a new handset and to reduce the cost of access. As a result, Vodacom is seeking to lower its
background image
95
contract churn rate and retain high value customers through focused handset upgrade policies, loyalty
programs and other retention measures, while continuously monitoring customer acquisition and
retention costs. Vodacom also actively manages churn through customer relationship management
systems, developing its own distribution and logistics capabilities and other retention initiatives.
Prepaid customer churn is negatively affected by the high rate of unemployment in South Africa and
the low cost of access.
Traffic
The following table sets forth information related to the traffic volume of Vodacom’s customers
in South Africa for the periods indicated. Traffic comprises outgoing calls made in South Africa and
abroad and incoming calls received by Vodacom’s customers in South Africa, excluding national
roaming and incoming international roaming calls.
       Year ended March 31,     
2007/2006
2008/2007
   2006   
   2007   
  2008  
% change
% change
(millions of minutes, except percentages)
Total traffic . . . . . . . . . . . . . . . . . .
17,066
20,383
22,769
19.4
11.7
Outgoing . . . . . . . . . . . . . . . . . . . .
11,354
13,638
15,323
20.1
12.4
Incoming (interconnection) . . . . . . . . . . .
5,712
6,745
7,446
18.1
10.4
Growth in traffic in the 2008 financial year was mainly due to the 7.9% growth in the total
customer base in South Africa from 23.0 million customers as of March 31, 2007 to 24.8 million
customers as of March 31, 2008. Customer calling patterns continued the trend of the past few years
where the total mobile-to-mobile traffic increased 13.5% while total mobile-to-fixed and fixed-to-mobile
traffic only increased 3.5% in the 2008 financial year. Growth in traffic in the 2007 financial year was
mainly due to the 20.1% growth in the total customer base in South Africa from 19.2 million customers
as of March 31, 2006 to 23.0 million customers as of March 31, 2007, with total mobile to mobile
traffic increasing by 23.9% and total mobile-to-fixed and fixed-to-mobile traffic increasing by 2.9%
in the 2007 financial year.
Tariffs
Vodacom’s tariffs are subject to regulatory scrutiny, and, in certain circumstances, approval of
ICASA. The contract tariff packages are designed to appeal to consumers and business customers.
Vodacom sets its contract subscription package tariffs utilizing a balanced mix of access and usage.
For those tariff packages where voice usage is high, the per minute rate is lowered and the monthly
subscription tariff is raised. For those packages where the voice usage is low, the per minute tariff rate
is increased and the monthly subscription tariff is lowered. For those users where the monthly
subscription tariff is a barrier to entry, Vodacom offers prepaid packages with no monthly subscription
tariff, but sets the per minute voice tariff rate higher. Vodacom and MTN are parties to an amended
interconnection agreement with each other and new interconnection agreements with Cell C.
Effective January 2005, the mobile-to-mobile interconnection rates for both commercial and
community service telephone originated calls were increased from R1.23 peak and R0.73 off peak
to R1.25 peak and R0.77 off peak for commercial calls and from R0.04 peak and R0.04 off peak
to R0.06 peak and R0.06 off peak for community service calls, in each case exclusive of VAT.
The following table sets forth selected tariff information as of March 31, 2008 for a family top up
package, a consumer contract package, a business contract package and a prepaid package. Peak
hours are weekdays between 7:00 a.m. and 8:00 p.m., whereas Happy Hours, which was introduced
in the 2006 financial year, are weekdays between 5:00 p.m. and 8:00 p.m. Off peak hours are all other
times and all day during public holidays and weekends. Tariffs for international calls vary according to
the destination country of the call. Vodacom South Africa’s most recent annual tariff amendments were
background image
96
lodged on September 19, 2006 and approved by ICASA on September 29, 2006. The amendments
resulted in an average tariff decrease on packages affected of 1.8%, which was effective
November 1, 2006.
                                                                               ______________________________________________
Family            Leisure
Business
Top Up
(1)
Contract
(2)
Contract
(3)
Prepaid   
(4)
(ZAR, including value-added tax)
Connection fee . . . . . . . . . . . . . . . . . . .
97.00
97.00
97.00
–
Monthly charge/subscription . . . . . . . . . . . . .
135.00
135.00
800.00
–
National calls
(ZAR/minute, including value-added tax)
Mobile-to-fixed peak calls . . . . . . . . . . . . . .
2.20
2.75
1.15
2.85
Mobile-to-fixed off peak calls . . . . . . . . . . . .
0.97
0.95
0.90
1.12
Mobile-to-mobile peak calls – own network . . . . .
1.80
1.80
1.43
2.85
Mobile-to-mobile “Happy Hours” – own network . .
1.49
1.49
n/a
1.49
Mobile-to-mobile off peak calls – own network . . .
0.97
0.90
0.90
1.12
Mobile-to-mobile peak calls – other networks . . . .
2.75
2.75
1.85
2.99
Mobile-to-mobile off peak calls – other networks . .
1.05
0.95
1.15
1.30
International calls
Peak . . . . . . . . . . . . . . . . . . . . . . . . .
7.20, 10.80,
1.76
1.76
7.20, 10.80,
14.40, 18.00,
+ Retail
+ Retail  14.40, 18.00,
21.60 or 25.20
Telkom
Telkom
21.60
depending
peak
peak
or 25.20
on zone
rate
rate
depending
on zone
Off peak . . . . . . . . . . . . . . . . . . . . . . .
7.20, 10.80,
0.95
0.95
7.20, 10.80,
14.40, 18.00,
+ Telkom
+ Telkom   14.40, 18.00,
21.60 or 25.20
off peak
off peak
21.60
depending
rate
rate
or 25.20
on zone
depending
on zone
(ZAR, including value-added tax)
SMS per message
Peak . . . . . . . . . . . . . . . . . . . . . . . . .
0.80
0.80
0.80
0.80
Off peak . . . . . . . . . . . . . . . . . . . . . . .
0.35
0.35
0.35
0.35
Notes:
(1)
Tariff for “Family Top Up”, Vodacom’s hybrid contract package. Vodacom’s “Family Top Up” contract includes R135 of
credit airtime value per month. Calls are charged for the first 60 second increment and 30 second increments thereafter.
As of March 31, 2008, “Family Top Up” customers accounted for 12.1% of Vodacom’s total contract customers.
(2)
Tariff for “Weekend Everyday”, Vodacom’s consumer contract package. Vodacom’s “Weekend Everyday” contract includes
120 free off peak minutes per month. Calls are charged for the first 60 second increment and 30 second increments
thereafter. As of March 31, 2008, “Weekend Everyday” customers accounted for 17.7% of Vodacom’s total contract
customers.
(3)
Tariff for “Talk 500S,” a business contract package. Vodacom’s “Talk 500S” contract includes 500 free minutes and
100 free SMSs per month. Calls are charged for the first 60 second increment and 30 second increments thereafter. As of
March 31, 2008, “Talk 500S” customers accounted for 7.9% of Vodacom’s total contract customers.
(4)
Tariff for “4U”. Calls are charged per second. As of March 31, 2008. “4U” customers accounted for 92.7% of Vodacom’s
total prepaid customers.
background image
97
Sales and marketing
Vodacom’s sales and marketing strategy is split into two focus areas, marketing and brand
building and sales and distribution. Vodacom’s promotional strategy seeks to build a brand that
is widely recognized by customers. Vodacom’s advertising and promotion campaign is focused
on television advertising and sponsorship of sporting and entertainment events.
The sale and distribution of Vodacom’s products and services and the acquisition and retention
of customers are performed by Vodacom’s wholly owned subsidiary, Vodacom Service Provider
Company, a company incorporated in South Africa, and the other independent and exclusive service
providers. In recent years, Vodacom has purchased a number of the previously independent service
providers and consolidated its sales and distribution operations into Vodacom Service Provider
Company. See Item 4. “Information on the company – Recent Developments – Vodacom’s
acquisitions and dispositions – Service provider acquisitions.”
In addition, Vodacom Service Provider Company seeks to enter into exclusive relationships with
leading national retailers, wholesalers, dealers and franchisees in order to acquire and retain contract
and prepaid customers. Vodacom utilized one exclusive service provider and two independent
non-exclusive service providers as of March 31, 2008.
Vodacom currently targets four market segments, namely:
•  Corporate market – services to corporations and enterprises;
•  Developed market – services to customers in the higher income groups;
•  Developing market – services to customers in underserviced areas and lower income groups,
who increasingly participate in the economy; and
•  Youth market – services specifically designed for the needs of the youth.
Since most customers in the developed market already have cell phones, Vodacom’s objective
in the short to medium term is to retain market share and attract new customers through attractive
products. Loyalty and retention programs played an integral role in achieving this objective.
Vodacom also sought to increase its contract customer base by migrating appropriate high-end prepaid
customers to Vodacom’s hybrid contract product, Top Up, in the 2008 and 2007 financial years.
As of March 31, 2008, Vodacom’s distribution network consisted of:
•  Vodaworld – A unique one stop mobile telecommunications mall, showcasing the latest
technology in cellular hardware;
•  Dealers and franchises – 980 Vodacom and third party owned mobile dealer and franchise
outlets, which include Vodashops, Vodacares, Vodacom 4U, Chatz and Cellshack shops,
Smartcall, Smartcom and Glocell;
•  National chains – 14,300 retail outlets;
•  Vodacom Direct – Vodacom’s call center based and online selling division;
•  Vodacom Business – An extensive direct sales division within Vodacom which concentrates on
the sale of contracts, data products and value added services and more recently, information,
communications and technology converged services to businesses;
•  Wholesale – A significant channel comprising street vendors serving underserviced areas; and
•  Service provider distribution – Consisting of direct sales, corporate dealers and franchise stores
such as Nashua and Autopage.
background image
98
Dealer incentives
Vodacom pays amounts to its service providers and dealers for the ongoing administration of its
customers on a monthly basis.
Vodacom also pays the following incentive commissions to its service providers and dealers:
Contract connection incentive commissions. These commissions are paid to service providers
or dealers for the acquisition and activation of each new customer for all contract packages.
Contract retention incentive commissions. These commissions are paid to service providers
or dealers for the retention of all contract packages, excluding Vodacom 4U. The purpose of these
incentives is to retain customers.
Prepaid incentive commissions. These commissions are paid to service providers or dealers for
the acquisition and activation of each new customer for all prepaid packages.
Distribution incentive commissions. These commissions are paid to service providers or dealers
to maintain and increase their loyalty to, and exclusivity with, Vodacom. These incentives include
exclusivity payments and advances to service providers in respect of purchases of assets for stores
and providing distribution outlets with distribution subsidies to maintain the loyalty of distribution
outlets through the stimulation of sales.
Handset incentive commissions. These incentives are offered by Vodacom to dealers who
purchase phones from Vodacom to provide to customers, which are recorded as a net against
revenue.
Customer care
Vodacom services customer needs through a variety of channels such as call centers, walk-in
centers established in Bloemfontein, Cape Town, Durban, Johannesburg, Midrand and Port Elizabeth
and interactive voice response, through e-mail and Vodacom’s web sites. Vodacom’s key focus for the
2008 financial year has been to focus on call handling with the primary focus being the distribution of
customer calls to appropriately skilled agents, accompanied by a redesign of the customer care
interactive voice response. Vodacom’s key focus areas for the 2007 financial year was to grow
capacity in its call centers and concentrate on customer retention following the implementation of
mobile number portability. Approximately 70% of customer queries in the 2008 financial year were
handled by the interactive voice response system and more than 80% of customer queries were
resolved with the first call. Vodacom has become increasingly proactive in developing relationships
with its customers, particularly in the high revenue segment of the market. Seven centers are currently
active, and one more is planned in the Gauteng Province. As data services became more popular,
all of these centers were upgraded to assist customers with queries of a technical nature and in the
case of the Vodaworld center, a dedicated data center was created where customers receive
personalized attention to resolve their highly technical data related queries.
Customer care was previously split into two focus areas, namely systems support and operations
and retentions. During the 2008 financial year the systems support area was transferred to the
information technology division of Vodacom, which has enabled the customer care area to better
focus on customer retention. An email contact center has been established and has experienced
significant growth. The outsourcing of Vodacom’s directory inquiries and basic prepaid calls continued
successfully in the 2008 financial year.
A new strategic call handling approach was developed to consolidate skills and move customer
care from a multi-skilled environment, to a specialized single skilled environment. This project was
closely aligned with the redesign of the existing customer care interactive voice response unit.
Customers from across the country from four language groups were interviewed to design an effective
background image
99
customer interface. Changes included new interactive voice response menu structures, the re-
scripting of interactive voice response prompts, and more effective call routing designed to provide an
improved overall customer experience. Call volume to agents has subsequently dropped due to fewer
repeat calls.
A national project to train an additional 400 flexi agents was implemented during October 2007.
Furthermore, in order to address the annual increase in call volumes during December and January,
a structured long term plan for continuous recruitment, training, coaching and up-skilling of flexi
agents was implemented.
Specialization of call centers has been very successful. A data call center was established to
focus on the support of GPRS and 3G HSDPA products. For the first time staff have been trained on
both telecommunications and information technology skills and customer feedback has been positive.
A highly specialized dedicated support desk was also established and is providing successful first tier
and second tier support, combined with valuable statistical analysis of customers’ reasons for porting
their mobile numbers.
Vodacom has a customer relationship management package that enables it to create a historical
profile of customers so that customer information can be shared among the group and used in
Vodacom’s customer retention initiatives. Although customer focus has always been important to
Vodacom, during recent years customer relationship management has become a key strategic focus
area and an important philosophy in Vodacom. Vodacom continued to expand call centers, increase
focus on efficiency and increase staff training as part of improving this continuously challenging area
in the 2008 financial year. Vodacom strives to improve relationships with customers by understanding
their needs, their likes, dislikes, how they use its products and how they would like Vodacom to
interact with them. Vodacom reassures its performance through independent customer satisfaction
surveys designed by Vodafone and conducted on a quarterly basis. Vodacom launched its Vodacom
Customer Reward Program to recognize and reward for influential and high spending contract
individuals, which it believes, has contributed to a very low churn in this sector. During the 2007
financial year a Vodacom credit card was introduced whereby Vodacom contract customers are given
discounts on travel, leisure, security, education and cellular products. The prepaid loyalty program
remained popular as Vodacom prepaid customers were able to exchange their talking points earned
when recharging for rewards such us free SMS bundles, call discounts and free cell phones.
This program has proved to be extremely popular among our high end prepaid customers while the
YeboMillionares program continues to be a favourite with Vodacom’s emerging market customers.
In addition, Vodacom has undertaken a number of other initiatives, including the development
of distribution and logistics capabilities to better service customers, called Vodacare. As of
March 31, 2008 the Vodacare infrastructure consisted of 39 branches and franchises in all the major
centers providing walk-in customer support to Vodacom customers, and an advanced repair center
hub for high-level repairs situated in Midrand. Vodacom believes that, with an average of
approximately 80,000 repairs per month, this dedicated customer service support infrastructure
differentiates Vodacom’s service from that of its competitors. Vodacom has a 48 hour swap program
to further increase service levels. The primary focus is to manage and facilitate the process of putting
the customer back on the air with as little interruption as possible and is achieved by using a
combination of repairs, swaps, refurbished handsets, loan handsets, and managed repairs through
third parties.
Vodacom plans to continue to invest in sophisticated information systems to facilitate the interface
between operational support systems, administrative systems, billing systems, distribution systems
and customer service systems. Vodacom believes that the new information systems will allow for the
development of enhanced service management processes.
background image
100
Vodacom’s contract customers receive itemized bills and are encouraged to pay by direct debit
transfer. Vodacom has a flexible billing system for corporate customers allowing it to offer multiple
tariff rates, more customized billing information and billing for all GPRS- and 3G-related services.
Vodacom monitors its exposure to credit loss and customer fraud through a credit scoring system that
evaluates potential contract customers. The evaluation process has led to decreases in contract
customer churn rates and increases in the overall credit quality of its mobile contract customers. For
its prepaid customers, Vodacom offers the option to recharge over the telephone and certain websites
using credit cards in order to make the recharge process quicker and easier, as well as from internet
sites from specific banks.
Infrastructure and technology
Vodacom operates one of the largest mobile communications networks based on total
estimated customers on the African continent using and deploying digital GSM technology within the
GSM 900/1800/2100 MHz frequency bands.
In South Africa, the network’s core infrastructure is characterized by mobile switching centers
(including visitor location registers and gateways), while the radio network consists of radio network
controllers, Node Bs (UMTS base transceiver stations), base station controllers and base transceiver
stations. At this point Vodacom has deployed GPRS in all areas of its GSM network, whereas EDGE
is deployed to a lesser degree and UMTS is in turn deployed to an even lesser degree, largely in
major metropolitan areas, key towns and resorts only.
                      As of March 31,                      
   2006  
  2007  
  2008  
Macro base transceiver stations . . . . . . . . . . . . .
4,873
5,231
5,603
Micro base transceiver stations . . . . . . . . . . . . .
1,528
1,634
1,697
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,401
6,865
7,300
The Vodacom network’s UMTS 3G infrastructure as of March 31, 2008 consisted of 29 radio
network controllers, 2,559 UMTS base transceiver stations (Node B), 13,731 UMTS transceivers
and HSDPA functionality across the 3G network.
During the 2008 year, Vodacom commenced with the deployment of a WiMAX network on behalf
of Wireless Business Solutions. Phase 1 of this network was deployed in Johannesburg, Pretoria,
Cape Town and Durban. As of March 31, 2008, 60 WiMAX base stations were ready for network
switch-on. Vodacom is planning user trials in the second quarter of the 2009 financial year.
Prepaid services are supported by the same GSM technology as contract services. In addition,
prepaid services utilize a network of intelligent network nodes and associated front-ends and
mediation systems for a variety of interactive voice response and electronic recharging options,
including commercial bank ATM and point of sale terminal recharging.
As of March 31, 2008, Vodacom’s transmission network was comprised of 24,238 E1 links and
484 broadband links leased from Telkom, which are managed by a comprehensive next generation
synchronous digital hierarchy digital cross-connect and multi-services platform infrastructure. In
addition, Vodacom operates an extensive data network for its internal and commercial data
requirements, based on multi-protocol label switching internet protocol. It is comprised of more than
450 nodes and is supported by the Ethernet over synchronous digital hierarchy.
Vodacom embarked on the self-provisioning of transmission capability towards the end of the
2007 calendar year. 145 microwave links have been installed and are operational. Vodacom is
currently deploying core fiber rings in Gauteng, the northern borders of Gauteng, KwaZulu-Natal, the
Western Cape, the Eastern Cape and the Central region for the self-provisioning of a regional
transmission core network.
background image
101
This network enables Vodacom to provide value-added voice and data services supported
by voice-mail platforms, short messaging service centers, a wireless application protocol platform,
a mobile internet gateway platform supporting advanced SIM toolkit applications and an intelligent
network platform.
Vodacom has designed its mobile communications network using scaleable technology in order
to be able to increase capacity in an economic manner as demand dictates. The network is capable
of providing a high level of service quality despite an extremely varied distribution of traffic, difficult
terrain conditions and a complex regulatory environment. In the year ended March 31, 2008,
Vodacom’s 2G network had a call retention rate of 99.3% and a call success rate of 99.1%
in South Africa.
As of March 31, 2008, approximately 36% of Vodacom’s base stations were 3G enabled and
Vodacom had installed dual band (GSM900/GSM1800 MHz) base transceiver stations in
2,532 locations, including 19,081 GSM1800 MHz transceivers. In addition, all base transceiver
stations in metropolitan areas have been upgraded with dual band antennas and feeder cables to
accommodate GSM1800 MHz radio equipment, while Vodacom continues to deploy GSM1800 radio
equipment in all regions to provide additional customer capacity as necessitated by the increase in
network traffic. In the design of its network, Vodacom has paid careful attention to the needs of
customers and to the environment by making an extensive effort to implement sites in the most
discrete manner possible. Furthermore, attention has been given to management of electromagnetic
emissions to ensure compliance with recognized international environmental standards such as those
developed by the International Commission on Non Ionizing Radiation Protection.
In the 2007 financial year Vodacom replaced its entire legacy Siemens Nixdorf platforms with
Fujitsu Siemens servers in its Siemens intelligent network and changed the architecture, operating
system, database and application environments supported on these systems.
In parallel to this, the prepaid data billing architecture was changed in order to provide the
necessary data billing flexibility required for new services such as prepaid data bundles and
differential charging for on and off-network data traffic.
Vodacom’s billing system allows for the billing of GPRS/UTMS services, such as multi-media
messaging services and other content-based services. Unlike traditional GSM services where calls
are billed on a per second or per minute basis, customers utilizing GPRS services are billed according
to the number of bytes of data sent or received.
During the 2008 financial year, Vodacom built Techno Park, a business engineering center.
Techno Park houses most of the engineering and technology group’s technical functions and staff in
one building. It includes a state of the art laboratory where network configurations, hardware and
software can be evaluated and developed, and provides a simulated live network for testing.
Techno Park also houses a major technical node of the commercial Vodacom network, including key
switching, intelligent networking, value added services and radio and transmission equipment.
This includes two Vodacom earth stations that were completed during the 2007 financial year.
These are now commercially operational and provide direct satellite communications with Vodacom’s
non South African operations.
Base capability was developed to support the suite of services launched by Vodacom Business.
This included deployment of infrastructure, tier 1 internet network capability, entry-level data centers
in Midrand to offer hosting, managed hosting and security services, and commencement of the final
phase of a thousand square meter data center.
Vodacom believes its 3G license will continue to assist in stimulating further growth in products
and services to satisfy customer demand. As a result, during the 2008 financial year Vodacom
increased its capital spending in this area and expects to further increase its capital spending in this
area in the 2009 financial year.
background image
102
Competition
The current South African mobile telecommunications market consists of three mobile
communications network operators, Vodacom, MTN, a wholly owned subsidiary of MTN Group
Limited, a public company listed on the JSE and Cell C, which announced in June 2006 that
it entered into a joint venture with Virgin Mobile. As of March 31, 2008, Vodacom was the market
leader with an estimated 55% market share based on the total estimated customers in the South
African mobile communications market, while MTN had an estimated 34% market share, Cell C had
an estimated 11% market share and Virgin Mobile, through its joint venture with Cell C, held less
than 1% of the estimated market share. Vodacom competes primarily on the basis of product quality,
availability and network coverage. Vodacom believes that increased competition could have an
adverse impact on its tariffs and churn rate.
Operations in other African countries
Vodacom intends to increase revenue from its other African operations by continuing to grow
its existing operations in sub-Saharan Africa, through converged infrastructure and services and,
to the extent available, by selectively acquiring additional telecommunications licenses or operators
in other African markets in the future. Investments outside of South Africa are evaluated and
monitored against key investment criteria, focusing primarily on countries with stable economic
and political conditions or good prospects for growth, market leadership and profitability. Other key
factors include Vodacom’s ability to gain majority ownership, develop strong local partnership
relationships and obtain non-recourse financing, where available. Where Vodacom is not able to
obtain non-recourse financing, it seeks to fund operations from internally generated funds. Other
African operators are branded under the “Vodacom” name. Vodacom is also considering entering
new markets by seeking out alternative entry strategies such as through management and technical
service agreements and acquiring non-traditional GSM operators such as internet service providers
and other telecommunications service providers.
Vodacom has investments in mobile communications network operators in Lesotho, Tanzania, the
Democratic Republic of the Congo and Mozambique. The number of customers served by Vodacom’s
operations outside South Africa has grown significantly to approximately 9.2 million as of March 31,
2008 from approximately 7.1 million as of March 31, 2007 and approximately 4.4 million as of March 31,
2006. Revenue from Vodacom’s operations outside of South Africa has grown to R5,394 million in the
year ended March 31, 2008 from R4,139 million in the year ended March 31, 2007 and
R2,974 million in the year ended March 31, 2006. Our share of Vodacom’s operating profit from other
African operations was R395 million in the year ended March 31, 2008, compared to R261 million in
the year ended March 31, 2007 and R144 million in the year ended March 31, 2006.
Lesotho
Vodacom owns an 88.3% interest in Vodacom Lesotho (Pty) Limited, or Vodacom Lesotho,
a company incorporated in the Kingdom of Lesotho, while Sekha-Metsi Enterprises (Pty) Limited,
a company incorporated in the Kingdom of Lesotho, owns the remaining 11.7% of Vodacom Lesotho.
Vodacom Lesotho’s network was commercially launched in May 1996. Vodacom Lesotho’s license
has a term of 20 years with eight years remaining.
Although Vodacom Lesotho is a very small operation by South African standards, Vodacom
launched its Lesotho operations due to the strategic geographical importance of Lesotho in terms
of Vodacom’s market share in neighboring South Africa. The network has 77 base transceiver
stations, one mobile service switching center, three base station controllers, one short message
service center, one intelligent network platform and one voicemail platform. WiMax base stations have
been installed in various towns in the lowlands of Lesotho to facilitate fixed data connections for
enterprise clients. Vodacom Lesotho’s capital expenditures were R39 million, R25 million and
background image
103
R26 million in the 2008, 2007 and 2006 financial years, respectively. The continued investment is an
indication of the company’s drive to expand and optimize the existing infrastructure in order to provide
the widest coverage and superior network quality and service levels to its customer base.
Vodacom Lesotho offers a variety of prepaid and contract products to customers.
Vodacom Lesotho’s prepaid plans are consistently the most popular packages and accounted
for 97.0% of Vodacom Lesotho’s total customers as of March 31, 2008, compared to 97.5% as of
March 31, 2007 and 97.1% as of March 31, 2006. The current prepaid offering is known as
Mocha-o-chele. During the 2008 financial year, Vodacom Lesotho launched bulk printing, a new
concept where Vodacom dealers can print paper vouchers from their own premises, a strategy aimed
at phasing out physical vouchers to reduce production costs and minimize fraud. Vodacom Lesotho’s
SuperTalk contract products offer bundled minutes and a subsidized handset. The recently launched
Super Talk Dual 500 and 1000 packages offer free bundled minutes and SMSs in Lesotho, South
Africa and other selected countries worldwide. Additional contract packages include Corporate
Executive, Master Plan, Budget Plan and Family Plan, which provide connectivity options without
bundled services or subsidized handsets, except for the Corporate Executive plan, which offers free
or subsidized handsets. Vodacom Lesotho also offers public phone services and a direct connect
service allowing customers to access the Vodacom Lesotho network directly from their PABX.
Vodacom Lesotho also offers community services and has recently introduced an ultra low cost
product, Motsamai Payphone, to promote entrepreneurship and increase public phone distribution.
With Motsamai, a new tariff of M0.50 per unit was also introduced to promote accessibility and
affordability to communication. Vodacom Lesotho’s distribution is maintained via nine Vodashops,
seven Super Dealers and four retail groups and Vodacom products can be purchased from various
outlets in Lesotho. Customers are serviced through a walk-in customer care center or via a customer
care call center which operates seven days a week. A state-of-the-art repair center with centers
around the country was completed in the 2008 financial year. Churn decreased in the 2008 and 2007
financial years due to better service to customers, better network quality and wider coverage,
improved call centre service and more affordable tariffs in real terms. Growth is fuelled by new
coverage and increased distribution, complimented by the strong Vodacom brand.
The regulatory environment in Lesotho continues to prove challenging. The regulatory authorities
in Lesotho issued a Communications Sector Liberalization Framework in January 2007. In terms of
this framework, there is to be no limit on the number of participants in any service. All existing network
operators will be allowed to operate international gateways and voice and data services are to be fully
liberalized. Further proposals in the framework that will allow specified classes of internet service
providers to have gateway licenses was not implemented during the 2008 financial year.
Econet-Ezicell remains the only direct mobile GSM competitor in Lesotho with Vodacom Lesotho
still maintaining superior coverage and infrastructure. Vodacom Lesotho has increased its international
roaming agreements to exceed that of Econet Ezicell. This will remain a priority in the 2009 financial
year, with the core focus of retaining and expanding its estimated 80% market share as of March 31,
2008. As a result of the implementation of the framework for liberalization of the communications
sector in February 2007, Vodacom Lesotho was authorized as a second network operator with an
international gateway license and now competes with Telecom Lesotho in this area. Telecom Lesotho
now also offers CDMA mobile service that competes with Vodacom Lesotho. Telecom Lesotho also
provides a product, Lekomo Flexi, which is a mobile service using the Econet-Ezicell infrastructure.
The headcount for Vodacom Lesotho increased to 97 employees as of March 31, 2008, compared
to 63 employees as of March 31, 2007 and 67 employees as of March 31, 2006. The increase was
the result of the company’s continued expansion. The number of customers per employee, including
temporary employees, decreased from 4,429 customers per employee as of March 31, 2007 to
4,072 customers per employee as of March 31, 2008 due to an increase in the number of temporary
employees.
background image
104
Through World Bank secured financing, the regulatory authorities in Lesotho commissioned a
study on interconnect and tariff rationalization in 2006. The objective of the study was to recommend
the appropriate level of tariff regulation based on cost models for interconnection and retail rates.
The consultants recommended a reduction in the mobile termination rates and an increase in the fixed
termination rates. After review of these recommendations the network operators agreed on new
interconnect rates that incorporated some recommendations of the study and have requested
regulatory ratification for the new rates. Lesotho regulatory authorities however rejected the suggested
rates and recommended their own rates. During the 2008 financial year, a partial implementation of
the recommendations of the tariff rationalization study was implemented by the regulatory authority.
The recommendation for relaxation of the regulatory regime for tariff regulation in respect of mobile
operators to allow for price reductions to stimulate competition has not, however, been implemented.
Tariff regulation is still strictly controlled by the tariff approval process of the regulatory authority.
Tanzania
Vodacom owns a 65% interest in Vodacom Tanzania Limited, or Vodacom Tanzania, a company
incorporated in the United Republic of Tanzania, or Tanzania, while Mirambo Limited, a company
incorporated in Tanzania, owns a 35% interest in Vodacom Tanzania. Prior to the 2008 financial year,
these shares were owned by Caspian Limited (19%) and Planetel Communications Limited (16%).
The roll-out of Vodacom Tanzania’s network commenced in March 2000 and the commercial launch
of the network occurred in August 2000.
Vodacom Tanzania became the largest mobile communications network operator in Tanzania
within one year of launching. Vodacom Tanzania’s capital expenditures were R713 million, R958 million
and R322 million in the 2008, 2007 and 2006 financial years, respectively. Network coverage was
approximately 40% of the land surface of Tanzania and approximately 63% of the population as of
March 31, 2008 compared to approximately 20% of the land surface and approximately 54% of the
population as of March 31, 2007.
In 2007, Vodacom Tanzania commercially launched its mobile internet offering over its 3G/HSDPA
and 2.5G GPRS and EDGE networks, which together with its leased line offering utilizing WiMAX,
have enhanced data revenues. The 3G/HSDPA data product covers Dar es Salaam, Dhoma and
Arusha while the GPRS and EDGE networks have national coverage. Core data revenues continued
to be primarily from SMS in the 2008 financial year, supported by Vodaflava, previously Vodatariffa,
a premium rated SMS-based information, ring tone and logo download service.
Vodacom Tanzania’s current package offerings are Vodago, its prepaid product, Vodachoice,
its contract product, and Vodajazza, a hybrid service that provides cost control to the postpaid
customer. During the course of the 2006 financial year, Vodacom Tanzania introduced Vodafasta,
a recharge product which allows prepaid customers to electronically recharge airtime via registered
vendors. This product enhances the availability of Vodago prepaid airtime and reduces the cost of
physical distribution. Vodachoice continues to be the preferred contract package although Vodajazza,
a contract hybrid product offered on the prepaid billing platform, has gained popularity in the corporate
market, and was re-launched during the 2008 financial year into bundled packages. Vodacom
Tanzania was the first operator in Tanzania to introduce per second billing on October 3, 2003.
Per second billing has proved highly successful in Tanzania, and as of March 31, 2008, approximately
4.1 million of Vodacom Tanzania’s customers were utilizing this service, compared to approximately
3.2 million as of March 31, 2007 and approximately 2.0 million as of March 31, 2006. Vodacom
Tanzania currently offers international roaming on 327 networks in 145 countries.
The Vodacom Tanzania market profile was 99.4% prepaid as of March 31, 2008, compared
to 99.3% prepaid as of March 31, 2007 and 99.5% prepaid as of March 31, 2006, and this is not
expected to change significantly in the near future. Vodacom Tanzania had a churn rate of 45.5%
in the 2008 financial year, 35.6% in the 2007 financial year and 28.5% in the 2006 financial year due
to the high and increasing levels of competition in Tanzania.
background image
105
There were three other mobile operators licensed in Tanzania, Zantel, Tigo and Celtel Tanzania.
Two further operators, Tanzanian Telecommunications Company Limited, or TTCL, and Benson
Informatics, both locally controlled companies, were granted mobile licenses and launched code
division multiple access, or CDMA, mobile networks in the 2007 financial year. A further license was
issued to Excellent Com Tanzania Limited and it is anticipated that they will commence operations
towards the end of 2008.
Zantel, which had historically operated exclusively on the island of Zanzibar, moved onto the
mainland during the 2006 financial year and enhanced its coverage by entering into a national
roaming agreement with Vodacom Tanzania, effective from July 31, 2005. TTCL transferred its
majority shareholding in Celtel Tanzania to the Tanzanian government and subsequently Celtel
International B.V. was acquired by Mobile Telecommunications Company, or MTC, of Kuwait.
Tigo is controlled by Millicom International Cellular S.A. There was no national prepaid tariff reduction
during the 2008 financial year, however Celtel and Tigo have been active in providing unlimited free
on net calls during peak times and free or substantially discounted late night calls. Zantel have
provided free calls across all networks on a promotional basis. Vodacom Tanzania has responded
by launching and then enhancing on a promotional basis, its late night offering “Chombeza Time”.
Since the deregulation of the international market, many more international operators entered the
market, which allowed Vodacom Tanzania to reduce international call tariffs toward the end of the
2005 financial year.
During the 2007 financial year, Celtel launched a roaming product (“One Network” concept) over
all its networks in the East African region, namely Tanzania, Uganda and Kenya. This product will
allow all of Celtel’s prepaid customers to roam on these networks at the tariff of the host network.
During the 2008 financial year, Celtel extended the product across all their networks in Africa. In the
2007 financial year, Vodacom Tanzania, in co-operation with Safaricom in Kenya and MTN in Uganda,
launched its Kama Kawaida product which allows roaming at home tariffs on these preferred roaming
partner networks. During the 2008 financial year, Uganda Telecom, MTN Rwanda and Burundi’s Ucom
were added as roaming partners.
Vodacom Tanzania’s estimated market share was approximately 52% as of March 31, 2008,
compared to approximately 55% as of March 31, 2007 and approximately 58% as of March 31, 2006.
Vodacom estimates that Celtel had a market share of approximately 29%, 28% and 27%, Tigo had
a market share of approximately 13%, 12% and 11%, and Zantel had a market share of approximately
6%, 5% and 4% as of March 31, 2008, 2007 and 2006, respectively, based on the total estimated
mobile market. TTCL and Benson Informatics combined had an estimated market share of less than
1% as of March 31, 2008.
Vodacom Tanzania had a total headcount of 766 employees as of March 31, 2008, compared
to 527 employees as of March 31, 2007 and 438 as of March 31, 2006. Included in employees
as of March 31, 2008, 2007 and 2006 are 15, 9 and 10 secondees, respectively, who are employed
out of Vodacom International Limited.
Vodacom Tanzania continues to support the development of local Tanzanian skills.
Vodacom Tanzania views employee relations as a key factor in ensuring a positive working
environment. Staff issues are addressed via a consultative forum where staff are given a platform
to address issues and agreed actions are monitored on a monthly basis.
New Telecommunications Regulations were introduced effective February 23, 2005. Vodacom
Tanzania is currently regulated by the Tanzanian Communications Regulatory Authority, or TCRA,
under the Tanzania Communications Act, 1993, as well as the Tanzania Regulatory Authority Act,
2003 and it is under these communications acts, that the new New Telecommunications Regulations
were adopted and the TCRA introduced a converged licensing framework, otherwise referred to as the
unified licensing framework, which is service and technology neutral. The new regulations ended the
background image
106
fixed-line monopoly of TTCL, and lead to the liberalization of the telecommunications market within
the country.
The negotiation of the terms and conditions of migration of Vodacom Tanzania’s existing license
to the new regulatory framework was finalized during the 2007 year. Vodacom Tanzania was granted
new licenses on July 26, 2006 in connection with the migration to a new regulatory framework.
These licenses were for national and international network facilities, network services application
services and radio frequency spectrum resource usage. All licenses, with the exception of the
application services license, run for a fixed term of 25 years. The application services license is for an
initial term of five years for national and 10 years for international, which is automatically renewable
with no additional obligations up to a period of 25 years. The microwave frequency usage license
covers GSM and Digital Crossconnect Systems at 900 MHz and 1800 MHz and broadband
frequencies for WiMAX and 3G/UMTS.
In February 2006, the Tanzanian Communications and Regulatory Authority, or TCRA, issued new
interconnection rates for both mobile and fixed operators. The mobile termination rate was reduced
from 8.9 US cents to 8.0 US cents from March 1, 2006, slightly above the previously published
expected rate of 7.9 US cents. During the 2008 financial year, the TCRA issued a new interconnection
determination effective January 1, 2008, which reduces the interconnection rate to 7.83 US cents, with
further reductions due to reduce the rate to 7.16 US cents for the year commencing January 1, 2012.
The rates were determined in US cents but settlement will be at a fixed determined rate of 97
Tanzanian schillings. Further the determination was extended to include all international terminating
calls and going forward no differentiation was made between fixed and mobile operators.
Democratic Republic of the Congo
On December 11, 2001, Vodacom, together with Congolese Wireless Network s.p.r.l., a company
incorporated in the Democratic Republic of the Congo, formed Vodacom Congo (RDC) s.p.r.l.,
or Vodacom Congo, a company incorporated in the Democratic Republic of the Congo. Vodacom
owns a 51% interest in Vodacom Congo, while Congolese Wireless Network owns the remaining 49%
interest in Vodacom Congo. Congolese Wireless Network s.p.r.l. had a limited existing network in the
Democratic Republic of the Congo. Vodacom Congo’s network was officially launched under the
Vodacom brand in May 2002. Vodacom Congo has 11 years remaining on its license.
During the year ended March 31, 2004, 51% of Vodacom Congo was proportionally consolidated
in Vodacom’s consolidated financial statements. Effective April 1, 2004, Vodacom Congo was being
fully consolidated as a subsidiary in Vodacom’s consolidated financial statements after certain clauses
granting the minority shareholders participating rights were removed from the shareholders
agreement.
Vodacom Congo is currently performing well under challenging circumstances. The local currency
appreciated 2.7% against the US Dollar in the 2008 financial year, after depreciating 17% against the
US Dollar in the 2007 financial year, appreciating 13.0% against the US Dollar over the 2006 financial
year, and depreciating 32.9% in the 2005 financial year. Improved affordability during the 2006
financial year, and the increase in spending power as a result of a positive economic outlook during
2007 and 2008, fuelled expansion of Vodacom Congo’s customer base as the penetration rate of
mobile customers in Congo increased from 6% as of March 31, 2006 to 9% as of March 31, 2007 and
12% as of March 31, 2008. ARPU was affected negatively as lower end users constituted a large part
of the growth and the inactive customer base increased. The main contributing factors in achieving
customer and profit growth during the 2008 financial year include coverage roll-out in strategic areas,
capacity upgrades, the launching of new products and services and an effective and aggressive sales
and distribution strategy.
background image
107
Vodacom believes that its current coverage and market share levels provide Vodacom Congo
a strong position to benefit from an economic upturn. Network coverage has been rolled out in all
of the nine provinces of the Democratic Republic of the Congo, including 274 towns and consisted
of 425 base stations and six mobile service switching centers as of March 31, 2008, compared
to 238 towns, 368 base stations and four mobile service switching centers as of March 31, 2007
and 184 towns, 373 base stations and four mobile service switching centers as of March 31, 2006.
Network capacity in the main centers has also been upgraded to maintain quality and service.
Vodacom Congo covered approximately 11% of the geographical area of the Democratic Republic
of the Congo and approximately 53% of the population as of March 31, 2008, compared to
approximately 10% of the geographical area and approximately 53% of the population as of
March 31, 2007 and approximately 8% of the geographical area and approximately 44% of the
population as of March 31, 2006.
Vodacom Congo is financing its roll-out in the Democratic Republic of the Congo with a
combination of external shareholder medium term funding and internally generated funds. Vodacom
Congo’s capital expenditure was R659 million, R506 million and R273 million in the 2008, 2007 and
2006 financial years, respectively.
Vodacom Congo currently offers contract, prepaid, PABX, ISP and public phone services.
The contract product is aimed at the corporate market with the focus on value added services and
customer service. Services to contract customers were enhanced in the 2006 financial year with the
possibility to migrate to Top Up options and the introduction of the corporate PABX product.
New business solutions such as ATM recharge and GPRS terminals have been launched for banks
and other corporate customers, to perform real time transactions to enable their businesses in the
DRC. The prepaid and public phone products are aimed at the broad Congolese market with the main
competitive advantage being coverage, network quality and distribution. To further enhance its
revenue streams, Vodacom Congo commercially launched a new prepaid per second billing package
in December 2007. The package was introduced to counter similar products introduced by the
competition in the market and to further enhance the Vodacom Congo portfolio of products and
services. Vodacom Congo also introduced a MMS service and a missed call notification service.
To further enhance data revenue streams, Vodacom Congo commercially launched GPRS
in February 2006. The application was introduced to support data transfer requirements during
the electoral process and meet the data demands of local businesses and corporate clients.
Vodacom Congo acquired the business of an internet service provider named InterConnect s.p.r.l
in the Democratic Republic of the Congo for R21.2 million, effective November 1, 2006.
The acquisition enables Vodacom Congo to offer additional products and services such as data
and voice bundled packages to new and existing customers.
In May 2005, Vodacom Congo launched an electronic voucher solution called “Voda E” in order
to strengthen its distribution capabilities and enable customers to recharge to the value of U.S.$0.30,
compared to the previous lowest denomination of U.S.$1.00, and to transfer airtime among users via
text messaging with the use of a standard handset. The new airtime distribution platform accounted
for approximately 55% of all voucher sales on Vodacom Congo’s network in the 2008 financial year,
compared to approximately 40% in the 2007 financial year. In the 2007 financial year Vodacom Congo
introduced a U.S.$1 Vodago voucher as well as a secured electronic distribution system, or SEDS,
which provides secure printed vouchers with extended distribution. SEDS was introduced to
compliment the Electronic Voucher Distribution system with enhanced voucher security and operating
system capacity.
During the 2008 financial year, a walk-in customer care center was opened with the objective
of improving service to corporate and data customers. Vodacom Congo’s customer care center serves
customers in their choice of French, English, Lingala, Kingongo, Swahili and Tshiluba. Vodacom
background image
108
Congo’s interactive voice response handled in excess of 100,000 calls per day as of March 31, 2008.
Vodacom Congo has been successful in establishing international roaming agreements with
380 operators in 165 countries.
Vodacom Congo’s customer base consisted of 97.6%, 98.3% and 97.9% prepaid customers
as of March 31, 2008, 2007 and 2006, respectively. Vodacom competes on the basis of effective
distribution channels, network coverage, network quality, launch of new products and services
and a strong and respected brand.
Vodacom Congo continued to be the market leader in the Democratic Republic of the Congo with
an estimated market share of approximately 41% as of March 31, 2008, compared to approximately
47% as of March 31, 2007 and approximately 48% as of March 31, 2006 based on the total estimated
mobile market. Celtel had an estimated market share of approximately 37% as of March 31, 2008,
compared to approximately 39% as of March 31, 2007 and 44% as of March 31, 2006 based on the
total estimated mobile market. The other two competitors in the Democratic Republic of the Congo,
Tigo and Congo Chine Telecom, had estimated market shares of approximately 9% and 13%,
respectively, as of March 31, 2008. Celtel is the main competitor in the Democratic Republic of the
Congo with a similar approach of covering a large part of the population across the country, focusing
its coverage in the main city centers as well as smaller rural towns. SAIT re-launched its network
under the brand name Tigo in the 2007 financial year. This effort consisted of re-branding Tigo
through aggressive TV, sponsorships and outdoor media activity. During the 2006 year Celtel and
Tigo embarked on an aggressive pricing campaign and further coverage roll-out. Tigo continued this
trend during the 2007 financial year, while Celtel focused on coverage roll out. Tigo and Congo Chine
Telecom increased market share during the current year mainly as a result of significantly reduced
tariffs and the launch of new packages offering low tariffs and increased bonuses combined with
aggressive marketing and advertising.
Vodacom Congo had 919, 745 and 479 employees as of March 31, 2008, 2007 and 2006,
respectively. The process of evaluation, identifying and training of local staff is a continuous focus
of the company as part of the skills transfer process. The DRC employment market is currently very
competitive with the arrival of multi-national companies. Vodacom Congo staff are an attractive target
for recruitment as a result of their highly valued skills and training. Vodacom Congo embarked on an
intensive program of training staff and projects such as the implementation of the Vodacom Congo
employees’ cooperative and wellness program. In previous years, a bursary scheme was
implemented, aimed at targeting and developing students, and a retention scheme was implemented,
aimed at retaining key employees. Vodacom Congo is focused on social responsibility programs,
including education, health, welfare, environment, culture and art. Since 2002, the company has
invested close to US$3.5 million in various social projects.
The National Regulatory Agency, or NRA, were active during the 2007 financial year working with
international consultants appointed by the World Bank on the reformation of the telecommunication
legislative framework and regulations. Key focus areas included:
•  spectrum (national planning, management and fees);
•  interconnection guidelines and principles;
•  cost modelling;
•  numbering (national planning, management and fees); and
•  universal service fund (constitution and funding mechanisms).
Draft guidelines and regulations on spectrum and numbering plans were submitted to network
operators for consultation purposes during the 2007 year. The NRA also held public hearings in
regards to the introduction of 3G technology.
background image
109
In the 2008 financial year, a Bill was initiated by the Minister of Finance that will subject mobile
operators to excise duties of 10% with a total burden of taxes on services revenue amounting to 28%.
This Bill was passed on May 8, 2008 and is awaiting promulgation by the Head of State.
The telecommunications industry in the Democratic Republic of the Congo is subject
to a recently promulgated ministerial decree requiring the registration of the entire customer base
of all network operators. This decree requires prescribed particulars of all customers to be obtained
and maintained by June 30, 2008. The sanction for non-compliance by any operator who has not
identified its customers in accordance with the requirements of this decree within three months
from March 28, 2008 could result in:
•  a fine equivalent to between US$5 thousand and US$10 thousand per customer;
•  suspension of the license for a period not exceeding three months in the event of repetition;
and
•  suspension of the license in the event of a likely disturbance of law and order/safety.
Vodacom is making every effort to obtain the required information but management believes it is
unlikely that Vodacom will meet all the requirements as prescribed in this decree by June 30, 2008.
Management is engaging with the relevant ministries on this matter and is presently unable to reliably
assess the potential impact on Vodacom in the event of non-compliance with this decree.
SuperCell, affiliated to MTN-Rwanda cell, was previously granted a license on a regional basis
by the Rassemblement Congolais pour la Démocratie, or RCD, political organization. The new political
order established RCD as a recognized political power and SuperCell was granted a national license.
Although the issue remains unresolved, the National Regulatory Agency’s position is currently that
no local interconnection is allowed with SuperCell. In view of the controversy associated with
SuperCell’s operations, the Minister of Post, Telephone and Telegraph subjected the validity of the
SuperCell license to a minimum required investment in the Democratic Republic of the Congo by
SuperCell of core network elements.
In addition to its GSM license rights, Vodacom Congo was granted additional exploitation rights
for PABX (including an assigned spectrum for corporate direct connection) and internet/WiMAX.
Mozambique
Vodacom Mozambique was established on October 23, 2003 and launched commercial
operations on December 15, 2003. Vodacom owned 98% of VM S.A.R.L., trading as Vodacom
Mozambique and the remaining 2% was held by a local consortium named EMOTEL. Effective April 1,
2007, Vodacom International Limited (Mauritius) sold an 8% stake in Vodacom Mozambique to local
investors, with 5% being purchased by Intelec Holdings Limitada and EMOTEL acquiring an additional
3%. On May 12, 2008 Vodacom International Limited entered into an agreement to sell 5% of its 90%
owned equity investment in Vodacom Mozambique, which will leave Vodacom International Limited
with an 85% equity investment in Vodacom Mozambique. Certain suspensive conditions are to be met
before the transaction will be effective. Vodacom Mozambique was awarded its license in August of
2002, but due to the fixed-line operator and the cellular operator being one company with no
interconnect rates applicable, the license was not accepted until August 2003 when the issues were
satisfactorily resolved. The license is a 2G GSM license and will expire in December 2018. Vodacom
Mozambique applied for a third generation license in the 2008 financial year. Vodacom Mozambique
applied for a third generation, 3G, license during the 2008 financial year.
Vodacom Mozambique’s infrastructure consisted of two mobile service switching centers, six base
station controllers and 220 base transceiver stations as of March 31, 2008. Vodacom Mozambique
increased its network to a capacity of approximately 4.0 million customers as of March 31, 2008.
background image
110
Vodacom Mozambique’s capital expenditure was R111 million, R85 million and R121 million in the
2008, 2007 and 2006 financial years, respectively. GPRS/Enhanced Data for GSM Evolution,
or EDGE, has been available since the end of June 2006 for contract and prepaid customers.
EDGE is a data service that provides a faster version of GSM wireless service. In tandem with the
launch of GPRS and MMS, Vodacom Mozambique also launched VodaMail, a free e-mail service
available to all contract customers.
Since prepaid continues to be the bulk of the business in Mozambique, a range of new
innovative services were launched during the 2007 financial year to enhance the overall value
proposition of Bazza Bazza, a prepaid product. These services include Bazza Bonus, a high-spend
airtime reward scheme that rewards customers daily with free airtime based on the previous day’s
spend. As a further measure to reward customers, 60+ was launched in August 2006, which rewards
customers with free SMSs for long duration calls. In February 2007 Bazza uau! was launched which
introduced a third prepaid tariff plan with the benefit of rewarding customers for receiving calls.
Launched in July 2007, Vodakool is an innovative illustration of how mobile communications can
empower Mozambicans. Vodakool, the news and information portal exclusive to Vodacom, links
customers with breaking local and international news, sports results, weather and financial information
in partnership with local content providers. In a country where traditional media reach is generally
restricted to the confines of large cities, this service helps to bridge the information divide in a society
where it is all too prevalent. Vodakool also serves as an important medium in reaching existing
customers and is used to keep them informed about the latest new products, Vodacom events,
promotions and special offers.
Other product and service launches in the 2008 financial year include a new value added offering
in its prepaid starter pack, voucher based tariff promotions and retention programs for both the
prepaid and contract customer base. Other services launched in the 2007 financial year include SMS
bundles for contract customers, electronic invoicing, an unstructured supplementary service data,
or USSD, based self-care menu, premium rated SMS and interactive voice response, or IVR, based
competitions, and content based services through third party wireless application service providers,
or WASPs.
Vodacom Mozambique offers customers contract and prepaid plans and continued to roll out
public phones in the 2008 year. Prepaid packages accounted for 97.9%, 99.0% and 98.5% of gross
connections in the 2008, 2007 and 2006 financial years, respectively. Contract products are mainly
aimed at the corporate and business market, while prepaid products are aimed at the large informal
market. Vodacom Mozambique has an interactive voice response in place and customer care can
handle customer queries in two languages, namely Portuguese and English.
During the 2006 financial year, Vodacom Mozambique moved towards an exclusive distribution
arrangement, expanded its distribution network and introduced regional distribution centers.
Vodacom Mozambique also increased its growth due to the introduction in the 2006 financial year
of growth incentive and stretch target parameters included in the commercial incentive models offered
to distribution partners, resulting in an increase in the subscriber base during the 2007 and 2008
financial years.
During the 2008 financial year Vodacom Mozambique managed to increase its customer base
by 29.8% to approximately 1,282,000 customers as of March 31, 2008 from approximately 988,000
customers as of March 31, 2007. The increase in total customers is primarily a result of approximately
951,000 gross connections in the 2008 financial year, compared to approximately 797,000 in the
2007 financial year, offset in part by a churn rate of 58.7% in the 2008 financial year, compared
to 41.7% in the 2007 financial year.
Vodacom Mozambique’s only competition is Moçambique Cellular, previously Telecomunicações
Móveis de Moçambique, Lda, or mCel, a company owned by Telecomunicações de Moçambique,
background image
111
or TDM, who is also the national fixed-line operator. Vodacom Mozambique had an estimated
market share of approximately 40% as of March 31, 2008, compared to approximately 35% as of
March 31, 2007 and 30% as of March 31, 2006 based on the total estimated mobile market.
mCel continues to be an aggressive competitor and is expected to continue to be a formidable
opponent in the future given its greater financial and market power. As of February 2006, mCel had
soft-launched its GPRS offering to contract customers in the Maputo area and started with its full
GPRS offering in May 2006. Vodacom Mozambique is focusing on coverage expansion, building
sound distribution and delivering innovative value propositions underscored by a warm and receptive
brand identity. A unique point of differentiation for Vodacom Mozambique has come from its corporate
social investment projects which saw the complete reconstruction of a school in Maputo, as well
as the construction of an entirely new school in Maputo that opened in May 2007 and the donation
of books and encyclopedias to more than 40 schools nationally. During the 2008 financial year,
Vodacom Mozambique implemented a revenue based corporate social investment fund whereby
0.02% of monthly prepaid and contract revenue is allocated to a corporate social investment fund
administered by a board of trustees who will then allocate resources to charitable causes.
Vodacom Mozambique was accepted as a partner to the “Made in Mozambique” initiative in the
2007 financial year that is being propagated by the Ministry of Industry and Commerce. This venture
is designed to promote local industry and export initiatives.
Vodacom Mozambique employed 210, 187 and 170 people as of March 31, 2008, 2007 and 2006,
respectively. Vodacom Mozambique continues to support the development of local skills. A succession
plan and development programs were implemented to transfer skills and knowledge to local
employees. Staff issues are addressed via a consultative forum where they are given a platform to
address issues.
In March 2006 the INCM was formally notified by the Administrative Tribunal that, upon Vodacom
Mozambique’s application, Resolution 10/05 of December 20, 2005 that established significantly lower
interconnection rates has been suspended. During October 2006, the Ministry of Communications
published a Telecommunications Sector Strategy. This is the result of a project launched in prior
periods to prepare a competition policy for Mozambique. The project was funded by the United States
Agency for International Development, or USAID, and the World Bank. A discussion document was
circulated for comment and Vodacom Mozambique was a member of the ministerial task force that
assisted in the development of the policy. The strategy was prepared in anticipation of the end of
TDM’s exclusivity in December 2007, and to prepare for convergence in the sector. The agenda of the
Instituto Naçional das Comunicaçoes de Moçambique, or INCM, for 2007, released in December 2006
included:
•  preparation of service quality regulations;
•  introduction of number portability (the INCM has already invited bids from consultants to
investigate the introduction of portability);
•  preparation of regulations governing the allocation of spectrum and service numbers;
•  preparation of legislation ending TDM’s exclusivity;
•  preparation of convergence legislation;
•  preparation of an interconnection cost model; and
•  the re-issue of licenses to conform to new convergence legislation.
In February 2007, the INCM appointed a consultant to facilitate the introduction of cost based
interconnection. As a result of the study initiated by the INCM, asymmetrical interconnection rates
have been introduced in Mozambique as of January 1, 2008 which have been agreed to by all
operators for a period of two years ending December 31, 2009. The asymmetrical rates were
proposed by the consultant as a result of Vodacom Mozambique’s late entry into the market and
background image
112
include an annual inflation adjustment. This two year period will allow operators to develop their own
interconnect costing models, based on the long term prospective incremental costs methodology,
or LTPIC. If the results of such models clearly demonstrate to the remaining operators that there
are substantial differences to the above-mentioned tariffs for 2009, the rates may be reviewed.
All operators have been informed by the INCM that all licenses are to be re-issued in compliance
with the new Telecommunications Law of 2004. Vodacom Mozambique was invited to submit
suggestions to any amendments it wished to make to its existing license. To date, no new licenses
have been issued. However, Vodacom Mozambique applied to expand its international gateway rights
and to lease transmission capacity to entities other than licensed telecommunication network
operators, such as internet service providers and satellite companies, during the end of the
2006 calendar year but to date no formal response has been received from the INCM.
Vodacom continues to engage TDM in regards to excessive transmission prices. Vodacom
informed the INCM that it is considering the sanctions available in terms of the law in respect of the
pricing that can lead to TDM being declared a dominant operator.
Vodacom Mozambique believes that its ability to strictly manage costs in the face of low ARPU
and low minutes of usage, while expanding coverage and distribution and intensifying promotional
and product offerings, will be critical to achieving improved results.
Due to the competitive and economic environment in which Vodacom Mozambique
operates, Vodacom assesses its assets for impairment in accordance with the requirements
of IAS 36: Impairment of Assets. The recoverable amount of these assets was based on the fair
value less cost of disposal at March 31, 2008, 2007 and 2006. The fair value of the assets was based
on the assumption that the assets would be disposed of on an item by item basis. The amount by
which the carrying amount exceeded the recoverable amount was recognized as an impairment loss
in Vodacom’s and Telkom Group’s consolidated financial statements for the 2008 and 2007 financial
years. In the 2006 financial year, this impairment loss was reversed in part due to an increase in the
fair value of the assets.
Procurement – Vodacom South Africa
Vodacom South Africa solicits bids for all goods and services in excess of R1 million. Bids are
through a closed tender system by invitation only. A multi-disciplinary cross-functional team evaluates
and awards bids to the best supplier based on the best overall score, taking into account technical
specification, delivery time, costing, financial viability, the participation of black economic
empowerment partners and quality.
Vodacom spent approximately 72% of its eligible procurement expenditure with BEE companies
during the year ended March 31, 2008, compared to approximately 71% during the year ended
March 31, 2007 and approximately 66% during the year ended March 31, 2006.
The completion of Vodacom’s BEE equity deal is expected to enhance Vodacom’s transformation
rating thereby improving its competitiveness in the procurement environment.
Vodacom seeks to utilize at least two suppliers for all critical equipment where possible
to minimize supply risk. Vodacom’s main technology suppliers are Siemens for the core and
3G network, and Alcatel-Lucent and Motorola for radio networks.
background image
113
Other operations
Our other operations segment provides directory services, through our TDS Directory Operations
Group, fixed mobile, data and other international communications services in Nigeria, through our
newly acquired Multi-Links subsidiary, internet services outside South Africa, through our Africa Online
subsidiary, and wireless data services, through our Swiftnet subsidiary, and includes Telkom Media.
TDS Directory Operations and Swiftnet were previously included in our fixed-line segment.
TDS Directory Operations
We own 64.9% of TDS Directory Operations, the largest directory publisher in South Africa
providing white and yellow pages directory services and electronic white pages. In the year ended
March 31, 2008, TDS Directory Operations published approximately 2,460 million white, 2,078 million
yellow and 3,375 million combined directories. TDS Directory Operations also provides electronic
yellow pages and value added content through full color advertisements. TDS Directory Operations
has improved the accessibility and distribution of directories through door-to-door delivery and
electronic media. We also provide national telephone inquiries and directory services. The remaining
35.1% of TDS Directory Operations is owned by Maister Directories (Pty) Ltd. On January 23, 2007,
TDS Directory Operations acquired a 100% shareholding in a shell company and subsequently
renamed it TDS Directory Operations (Namibia) (Pty) Ltd, which provides directory services in
Namibia. On October 31, 2008, TDS Directory Operations sold a 25% interest in TDS Directory
Operations (Namibia) (Pty) Ltd to Ripanga Investment Holdings (Pty) Ltd, a black economic
empowerment partner in Namibia, for two million Namibian dollars.
TDS Directory Operations’ capital expenditures were R42 million in the 2008 financial year
as the company sought to continue to expand access and distribution into new markets. TDS
Directory Operations invested in a new online platform in order to combat declining revenue from
printed products.
TDS Directory Operations’ primary competitors for print materials include Caxton, Easy Info and
Brabys. TDS Directory Operations’ primary internet competitors include Yahoo, Google, Ananzi, as
well as vertical search capabilities such as Auto Trader and Supersport. TDS Directory Operations’
estimated market share as of March 31, 2008 was approximately 9% in respect of print media and
approximately 11% in respect of internet directory services.
TDS Directory Operations had 610 employees as of March 31, 2008.
Multi-Links
With effect from May 1, 2007, Telkom acquired 75% of Multi-Links Telecommunications Limited,
or Multi-Links, through Telkom International, a wholly owned South African subsidiary, in Nigeria, for 
U.S.$280 million, or R1,985 million. The remaining 25% of Multi-Links is owned by Kenston Investment 
Limited, an investment company based in the Isle of Man in the United Kingdom. Multi-Links is a private telecommunications operator with a Unified Access License allowing fixed, mobile, data, long distance 
and international telecommunications services focused primarily on corporate clients in Nigeria. 
In the 2008 financial year, Multi-Links had R845.4 million of revenue and R2,206 million of total assets. Telkom expects to spend U.S.$533 million in capital expenditures at Multi-Links in the 2009 financial year.
Multi-Links’ Unified Access License was granted on November 1, 2006 and has a term of ten
years, with eight years remaining. There are currently nine operators licensed with Unified Access
Services Licenses in Nigeria, making the Nigerian telecommunications market extremely competitive
as operators may use any access technology to deliver voice, data and video services to their
customers.
background image
114
Multi-Links’ strategy will focus on brand awareness and promotional campaigns to increase the
revenue of fixed-wireless and mobile customers and will seek to offer easy to understand high value
bundles, differentiated on voice quality and service. Broadband internet with internet service provider
services will target high value bundles. High quality internet protocol next generation network services
are planned to be deployed in Lagos to attract high end corporate users and carrier class wholesale
products and services are planned to be introduced by establishing an earth station to provide
international connectivity.
Multi-Links’ subscriber base increased 210% from approximately 262,000 as of September 30, 2007
to approximately 812,000 as of March 31, 2008 and increased to more than 1,000,000 shortly
thereafter. Multi-Links offers a variety of mobile prepaid products to its customers. Talk ‘n Talk is the
most popular package and accounted for approximately 43% of Multi-Links’ total customers as of
March 31, 2008. Multi-Links’ distribution is conducted through seven customer service branches,
320 independent dealers and a direct sales force of 226 employees. Customers are serviced through
Multi-Links’ customer service branches and call center. As a relatively new operator, Multi-Links had
a low churn rate of approximately 2% in the 2008 financial year.
Multi-Links has a SAT3 co-location site at its Nitel Lagos cable station, which is operational with a
20 Meg internet protocol wholesale link to London carrying CDMA internet traffic. Multi-Links’ adoption
of a turnkey project strategy as a method to expedite service was instrumental in the achievement of
targets with the first phase of the expansion of its fiber network being completed on a full turnkey
delivery basis. Multi-Links is moving away from a build/own model for its cell sites towards a leasing
model and approximately one third of its new cell-sites in the 2008 financial year are leased from
service providers.
In the 2008 financial year, Multi-Links’ build and expansion program achieved the following:
•  commissioned its first Huawei packet exchange in Abuja with 300k capacity;
•  extended its Lagos switch by 250k capacity to 600k capacity;
•  extended the number of its towers from 91 to 223;
•  extended the number of its base stations from 134 to 269;
•  established a new main network site in Gbagada, Lagos; and
•  added 1,300kms of national backbone fiber, resulting in a total of 2,500kms.
As from April 1, 2007 a new chief executive officer, Justin Ramayia, and a new chief financial
officer, Hasnain Motlekar, have been appointed to Multi-Links. Multi-Links had 680 employees
as of March 31, 2008. The number of customers per employee is 1,196 as of March 31, 2008.
The tariff structure of operators in Nigeria must be approved by the Nigerian Communications
Commission, or NCC, before being implemented in order to ensure that they are not anti-competitive
and that there is no cross subsidization of services as cross-subsidization is prohibited by the
Nigerian Telecommunications Act. Every operator is allowed to set, vary and modify its tariff structure
as approved by the NCC.
Interconnect agreements among operators in Nigeria are governed by Interconnection
Regulations promulgated by the NCC. Only operators with valid operating licensees can
interconnect with each other.
background image
115
The prescribed rates for domestic traffic currently in force in Nigeria are set by the NCC
as follows:
Description of Call
Tariff Rate
Near-End Fixed Termination
N10.80
Far-End Fixed Termination
N9.10
Mobile Termination
N11.40
SMS
N5.00
There are also a few licensed interconnect clearing houses, or ICHs, which are interconnected
to all the major operators. The ICH provides transit services between small operators and larger
ones, such as Multi-Links.
Any operator that has an International gateway license can carry international traffic and
operators are free to determine who carries this traffic.
There were indications from the regulator that it is considering introducing number portability
to the industry. There is currently no official policy or indications as to the expected time for
implementation of number portability. Mobile number portability is not, however, expected to have
a significant impact on the mobile market because mobile subscribers often already subscribe
to more than one network, and also often subscribe to both CDMA and GSM networks.
The Universal Service Fund is currently being administered under the Nigerian Universal Access
and Universal Service Regulations 2007 promulgated by the NCC. The National Assembly
appropriates monies to the fund from time to time. Currently, the NCC is the major contributor to the
fund. It contributes a portion of the annual operating levy it collects from all operators. However, under
Nigerian Regulation 72, the NCC may establish a Universal Service Provider Levy which is a fee to be
levied on all operators subject to annual operating levies in the event that available funding is
insufficient for its current operational requirements. The amount to be levied cannot exceed 1% of any
operator’s net revenue. Multi-Links may therefore be required at some future time to pay this levy.
Operators are required by Section 38(1) of the Nigerian Economic and Financial Crimes
Commission (Establishment) Act, 2004 and Sections 12 and 13 of the Nigerian Advance Fee Fraud
and Other Related Offences Act 2006, to provide call data and other subscriber details which
otherwise are confidential information.
The NCC in furtherance of its responsibilities under the Nigerian Telecommunications Act has
issued guidelines on co-location and infrastructure sharing. The regulations are designed, among
other things, to encourage co-location and infrastructure sharing among telecommunications operators
in order to:
•  ensure that the incidence of unnecessary duplication of infrastructure is minimized or avoided;
•  protect the environment by reducing the proliferation of infrastructure and facilities installations;
•  promote fair competition through equal access to the installations and facilities of operators on
mutually agreed terms; and
•  encourage operators to pursue a cost based policy in order to reduce tariffs chargeable to
consumers.
Infrastructure that operators are encouraged to share with each other subject to commercial
viability, technical feasibility and other agreed terms, including rights of way, masts, poles, antenna,
tower structures, ducts, trenches, space in buildings and electric power. The NCC does not interfere
in the negotiations between operators in this regard. If it is established, however, that negotiation
toward reaching an agreement for co-location and infrastructure sharing between operators have
broken down, the NCC may intervene on behalf of an aggrieved party and provide the terms upon
which the operators involved would affect co-location and infrastructure sharing.
background image
116
Presently, the NCC has not issued any licenses to USALs. However, under Section 112 of the Act,
NCC is empowered to consider, design and determine a system which shall promote the widespread
availability and usage of network services and applications services throughout Nigeria by
encouraging the installation of network facilities and the provision of network services and applications
services to institutions or customer groups and in unserviced or underserviced areas. There are
indications that more than one operator may be selected to implement this project.
The NCC is undertaking an audit on WiMAX spectrum with the aim of possibly re-allocating
spectrum segments to operators that do not have spectrum through an auction process. This will allow
more operators to use WiMAX as a new competitive technology to deliver broadband services.
Africa Online
On February 23, 2007, Telkom acquired 100% of the issued share capital of Africa Online from
African Lakes Corporation for a total cost of R150 million. Africa Online is an internet service provider
active in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and
Zimbabwe. Africa Online’s strategy will focus on brand development, creation and development
of customer channels, improvement of network systems, human resources development and an
expansion drive targeting other African countries. In the 2008 financial year, Africa Online had
R110 million of revenue and R122 million of total assets.
Africa Online offers wireless and fixed technologies, hosting and domain registration to both
consumer and corporate customers. In the 2008 financial year, dedicated corporate links and
consumer wireless were the highest revenue streams followed closely by dial-up business. Dial up
packages, however, are the most popular and accounted for approximately 60% of Africa Online’s
total customers as of March 31, 2008. Consumer wireless customers are expected to continue to
grow with Africa Online’s continued investment in infrastructure. The following table sets forth Africa
Online’s customers as of the periods indicated:
   As of March 31,   
2008/2007
   2007  
  2008  
% change
Dial-up ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,599
8,936
(23.0)
Consumer wireless . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,939
4,340
123.8
Unbundled local loop . . . . . . . . . . . . . . . . . . . . . . . . . .
100
174
74.0
ADSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300
257
(14.3)
VSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
84
223.1
Dedicated corporate . . . . . . . . . . . . . . . . . . . . . . . . . .
     578  
     602  
   4.2  
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,542
14,393
(1.0)
The reason for the decrease in the number of dial-up and ADSL customers is that Africa Online
has shifted its marketing approach to increase customers on its own wireless network infrastructure
as opposed to dial-up and ADSL networks.
Africa Online’s distribution is conducted through various channels including direct sales and
different types of resellers depending on the customer segment. Customers are serviced through
customer relationship managers and a 24 hour call center. Africa Online’s primary competitors include
former telecommunication companies that have entered the internet service provider market and other
private companies.
Africa Online’s network had 31 points of presence, 46 mobile broadband transceiver stations,
25 fixed broadband wireless access transceiver stations, 13 network operation and support centers
and 12 data centers across nine countries as of March 31, 2008. Africa Online’s capital expenditure
was US$5.7 million in the 2008 financial year as compared to US$0.8 million in the 2007 financial
year. The increase in Africa Online’s capital expenditure was primarily for the improvement of service
background image
117
quality and to increase the range of information, communications and technology services offered in
the market.
Africa Online had 379 employees as of March 31, 2008. A new chief executive officer,
John Joseph, and a new chief financial officer, Munaff Cassim, were appointed to Africa Online
during May 2007.
Africa Online’s footprint covers East Africa, Southern Africa and West Africa. The regulatory
environments are fairly different in each of Africa Online’s different regions. East Africa is liberalized
and Africa Online provides services across the information, communications and technology spectrum,
including voice over internet protocol services, in East Africa. Markets in Southern Africa are still
regulated, limiting the services Africa Online is able to provide to its customers. West Africa is a fairly
liberalized market and Africa Online is presently seeking to take advantage of this opportunity.
Telkom Media
Telkom recently launched Telkom Media (Proprietary) Limited, a private company that
intends to have a 30% black economic empowerment shareholding, in addition to the
Telkom BEE component, which on August 31, 2006 applied to ICASA for a commercial satellite and
cable subscription broadcast license. From May 28 to June 12, 2007 ICASA held public hearings
into the applications by 18 applicants for a satellite and cable subscription broadcast license.
On September 12, 2007, ICASA granted Telkom Media a commercial satellite and cable subscription
broadcast license, the issuance of which is subject to the negotiation and satisfaction of certain
conditions, including the approval and finalization of the BEE component. We cannot assure you that
Telkom Media will receive this license from ICASA or be able to launch commercial operations.
Partners in the black economic empowerment entity are Videovision Entertainment, MSG Afrika
Media and WDB Investment Holdings (Proprietary) Limited.
Telkom recently announced its decision to substantially reduce its investment in Telkom Media,
in which it had invested R326 million up to March 31, 2008, and was required to provide an
impairment provision of R217 million. Telkom will be investigating all opportunities to do this in the
best interest of Telkom shareholders and all other stakeholders. Telkom confirms it has received
proposals relating to Telkom’s announced intention to substantially reduce its stake in Telkom Media.
No decision has been made to date and Telkom is currently reviewing the proposals and anticipates
making a decision in the near future.
Telkom Media had 142 employees as of March 31, 2008. A chief executive officer, Mandla
Ngcobo, and a chief financial officer, Lourens van Niekerk, were appointed to Telkom Media.
Swiftnet
We own 100% of Swiftnet, which operates under the name Fastnet Wireless Service. Fastnet
is a wireless network providing asynchronous wireless access on our X.25 network, Saponet-P,
to its customer base. This service has been expanded by Swiftnet to offer a GPRS driven solution
using a dual SIM card allowing the customer to roam on both the Vodacom and MTN GPRS South
African networks. Services include retail credit card and check point of sale terminal verification,
telemetry, security and vehicle tracking.
Swiftnet’s network has 180 base transceiver stations, and one base station network management
center, Swiftnet currently runs a short message service over its network that feeds back into a third
party operator connected to the mobile operators. Swiftnet currently operates two sites for redundancy
purposes, one in Centurion and one in Rosebank, for modem and router based services.
background image
118
Swiftnet has a number of regional offices nationally that manage more than 160 contractors.
Customers are serviced through a tier 1 and tier 2 technical call center as well as in-house
technicians and external contractors. Swiftnet has a sales team in support of various retail and
wholesale relationships. Swiftnet had an estimated 33% market share in the Point of Sale
communications market based on customers in the 2008 fiscal year, with strong competition from
three main competitors, ConnectNet, X-Link and Datalink. New services such as ADSL router services
are being developed to broaden the revenue stream dependency.
A new chief executive officer, John Myers, was appointed to Swiftnet as of July 9, 2007 and a new
chief financial officer, Nokuthula Ngubeni, was appointed to Swiftnet as of April 4, 2008. Swiftnet had
85 employees as of March 31, 2008.
Swiftnet is in breach of its license that requires it to have at least 30% of its shares held by black
economic empowerment individuals or entities. ICASA has required Swiftnet to remedy the breach
of its license, which expired on August 24, 2006. On February 14, 2007 Telkom announced that
it had entered into an agreement to sell a 30% stake in Swiftnet to the Radio Surveillance Consortium,
a group of empowerment investors, for R55 million following a competitive sale process run by an
independent adviser. The transaction would not have required any financial support or facilitation from
Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not
approved by ICASA. Swiftnet is currently seeking black economic empowered individuals or entities
who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to discuss its
specific license terms and conditions. Swiftnet has submitted its comments on the draft license terms
and conditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted
by Telkom as its sole shareholder, has had a further meeting with ICASA on February 27, 2008.
It was decided that the draft amended license that ICASA sent to Swiftnet during October 2007 would
not form the basis of the conversion process, but instead the original license issued to Swiftnet in
August 1995 would be used as the basis for license conversion. The transaction is still subject to
ICASA approval. With regard to shareholder issues, ICASA indicated that there is currently no
agreement within the industry as to acceptable BEE shareholding percentages for all licensees.
ICASA indicated that the shareholding issue for the Swiftnet license would need to be in line
with BEE values applicable to other similar licensees.
CAPITAL EXPENDITURES
For information relating to our capital expenditures, see Item 5. “Operating and Financial Review
and Prospects – Liquidity and Capital Resources – Group Liquidity and Capital Resources”.
REGULATION AND LICENSE REQUIREMENTS
Overview
The licensing and provision of telecommunications services in the Republic of South Africa has
historically been subject to the Telecommunications Act and the extensive regulations made under the
Telecommunications Act. The Telecommunication Act was repealed by the Electronic Communications
Act when the Electronic Communications Act came into effect on July 19, 2006. While a new licensing
regime has been created by the Electronic Communications Act, all existing licenses are to remain
valid until converted to new licenses in accordance with the new licensing regime. Regulations made
under the Telecommunications Act are also to remain in force until new regulations required are made
to fully implement the provisions of the Electronic Communications Act. As a result, the regulatory
environment is evolving, lacks clarity in a number of areas and is subject to interpretation, review and
amendment as the telecommunications industry is further developed and liberalized. In addition, the
regulatory process entails a public comment process, which, in light of the politicized issue of
background image
119
privatization of industries such as telecommunications in South Africa, makes the outcome
of the regulations uncertain and may cause delays in the regulatory process. A number of significant
matters have not been addressed or clarified. ICASA has started several regulatory process, the most
important of which are:
•  the conversion of existing licenses to individual electronic communications services and
electronic communications network services licenses;
•  the establishment of the standard terms and conditions for class and individual licenses;
•  the establishment of the special terms and conditions that may apply to each individual
licensee;
•  the determination of the definition of the various markets;
•  the establishment of the methodologies that will be used to determine the level of
competitiveness in each market and the existence of significant market power therein; and
•  the determination of the regulatory remedies that may be imposed on a licensee upon a finding
of significant market power.
It is not possible to determine at this stage the outcome of these processes or the timeframe
within which they will be concluded. It is not, however, likely that ICASA will complete the license
conversion process by July 2008 as stipulated in the Electronic Communications Act and will therefore
be required to use the additional six month that the Act allows. It is likely that we will be found to have
significant market power in many of the markets in which we operate and will have regulatory
remedies imposed on us, including cost based prices for interconnection services and the leasing
of communication facilities.
Electronic Communications Act
In March 2005, the Minister of Communications tabled a Convergence Bill in Parliament
to promote convergence and establish the legal framework for convergence in the broadcasting,
broadcasting signal distribution and telecommunications sectors that repealed the
Telecommunications Act, however, all existing licenses are to remain valid until converted to new
licenses in accordance with the new licensing regime and regulations made under the
Telecommunications Act are also to remain in force until they are amended or replaced by new
regulations made to fully implement the provisions of the Electronic Communications Act. The bill,
renamed the Electronic Communications Bill, was passed by the Parliament of South Africa in
December 2005 and was signed by the President of South Africa on April 18, 2006. The Electronic
Communications Act came into effect on July 19, 2006.
The Electronic Communications Act aims to supplement or replace sector specific legislation
and change the market structure from a vertically integrated, infrastructure based, market structure
to a horizontal, service based, technology neutral, market structure with a number of separate
licenses being issued for different areas, and to clarify the different roles of ICASA and the
Minister of Communications in policy development, licensing and regulation. The main aspects
addressed by the Electronic Communications Act are:
•  the policy making powers of the Minister of Communications;
•  the regulation making, licensing and radio frequency spectrum control powers of ICASA;
•  the licensing framework for communications and broadcasting services;
•  the power of ICASA to intervene where special market conditions exist, such as significant
market power or essential facilities;
•  the obligations of licensees to interconnect and lease telecommunications facilities, and the
powers of ICASA to enforce such obligations; and
background image
120
•  transitional provisions to address the conversion of existing licenses to the new licenses
envisioned in the Electronic Communications Act.
The Electronic Communications Act has recently been amended to enable state investment and
licensing in the sector. With that amendment, the Minister of Communications is empowered to initiate
and facilitate strategic government infrastructure investments in information, communications and
technology companies.
Implementation of the Electronic Communications Act
In order to give effect to the new licensing and regulatory regime set out by the Electronic
Communications Act, ICASA is required to make a large number of regulations and determinations
concerning, among other things, the conversion of existing licenses into electronic communications
service and electronic communications network service licenses, the issuing of new class and
individual electronic communications service and electronic communications network service licenses,
the establishment of the pro-competitive framework consisting in the definition of markets, the
determination of the level of competition and the existence of significant market power in these
markets, and the establishment of pro-competitive remedies that can be imposed on licensees found
to have significant market power in a market.
The main areas of regulation making that the Electronic Communications Act contemplates are
those relating to interconnection, leasing of communications facilities, including the determination of
which communications facilities are deemed to be “essential facilities,” the framework for the definition
of relevant markets, the determination of the level of competition in each market, the determination of
the existence of significant market power in relevant markets and the imposition of pro-competitive
conditions on licensees found to have significant market power. The following draft regulations have
been published by ICASA for comment:
•  draft regulations setting out the conceptual framework for the definition of relevant markets
or market segments;
•  draft regulations setting out the methodology to be used to determine the effectiveness
of competition in a defined market or market segment;
•  draft regulations setting out the methodology to be used in determining that a licensee has
significant market power in a defined market or market segment;
•  regulations relating to the identification of pro-competitive measures on licensees found to have
significant market power in a defined market or market segment;
•  draft regulations pursuant to which ICASA will undertake periodic reviews of the markets,
market segments and significant market power;
•  draft regulations dealing with the administrative procedure that will be used when undertaking
an investigation pertaining to anti-competitive conduct;
•  draft regulations on the leasing of communications facilities;
•  draft regulations on the identifications of communications facilities deemed to be essential
facilities; and
•  draft regulations on interconnection.
ICASA
In 2000, the Independent Communications Authority of South Africa Act, 13 of 2000, created
ICASA, a regulatory body for the telecommunications and broadcasting industries. ICASA serves
as the primary regulatory and licensing authority for the South African communications industry.
Upon its establishment, ICASA inherited a legacy of regulatory problems from its predecessors. It has
background image
121
been reported that ICASA may lack adequate resources to effectively fulfill its regulatory and licensing
functions and to deal with regulatory challenges that continue to change given the rapidly evolving
telecommunications environment.
A bill amending the ICASA Act, Act No. 13 of 2000, was passed by the Parliament of South Africa
and signed by the President and came into effect on July 19, 2006. The amendment to the ICASA Act
redefines and expands the powers of ICASA to control, in conjunction with the Electronic
Communications Act, the communications market. The main provisions of the ICASA Act amendments
are the removal of the power of the Minister to approve regulations made by ICASA, increased power
of ICASA to conduct enquires and to enforce its rulings and the establishment of a Complaints and
Compliance Committee to assist ICASA in hearings and making findings on complaints and
allegations of non-compliance with the Electronic Communications Act. There are many linkages
between the Electronic Communications Act and the proposed amendments to the ICASA Act.
Policy directions
Under the Electronic Communications Act, the Minister of Communications may make policies
and, subject to a one month public comment period, issue policy directions to ICASA except in respect
of the granting, amendment or withdrawal of communications or broadcasting licenses. ICASA, in
exercising its functions, must consider policies made or policy directions issued by the Minister.
Regulations
Under the Electronic Communications Act, ICASA may, subject to public consultation, make
regulations on any matter as provided in the Electronic Communications Act, and any such regulation
may declare any contravention thereof to be an offense. ICASA must, among other things, make
regulations relating to the granting of licenses, radio frequency spectrum management, allocation of
numbers, interconnection, facilities leasing, the declaration of essential communications facilities and
the identification of relevant markets for the purpose of determining the existence of significant market
power. ICASA may also make regulations to impose special obligations on licensees found to have
significant market power in a relevant market.
Under South African law, it is possible for licensees such as Vodacom and Telkom and for other
interested parties to have the regulations and rulings issued by ICASA reviewed and tested in a court
of law for compliance with the objectives and other provisions of the Electronic Communications Act,
and other relevant laws such as the South African Constitution.
The Electronic Communications Act is not entirely clear on a number of issues which are
expected to be addressed by regulation. In addition, because ICASA was only established in 2000
and the regulations governing the telecommunications industry in South Africa are evolving, lack of
clarity exists in a number of areas that are still subject to interpretation, review and amendment.
Therefore there is some degree of regulatory uncertainty for Telkom, Vodacom and other
communications providers. In addition, the regulatory process entails a public comment process
which, in light of the politicized issue of the privatization of industries such as telecommunications in
South Africa, makes the outcome of the process uncertain and may cause delays.
Licensing framework
The types of licenses that can be granted are:
•  electronic communications network services for the provision of communications infrastructure
for the own use of the licensee or for the use of other licensees, including broadcasters;
•  electronic communications services for the conveyance of communications over electronic
communications networks, but excluding broadcasting services;
background image
122
•  broadcasting services for the unidirectional broadcasting of television or sound material; and
•  radio frequency spectrum licenses.
ICASA may make regulations prescribing that certain services may be provided without a license.
The Electronic Communications Act provides that licenses for electronic communications network
services, electronic communications services and broadcasting services can be issued as individual
licenses or as class licenses. Individual licenses are required for electronic communications network
services and commercial and public broadcasting services that are of provincial or national scope, for
electronic communications services for voice telephony utilizing numbers from the national numbering
plan, for any service where a state entity owns more than 25% of the share capital of the licensee,
and for any service that ICASA finds to have significant impact on socio-economic development.
ICASA may only accept and consider applications for individual electronic communications network
service licenses following a policy direction issued by the Minister of Communications. The granting
of individual licenses is subject to an extensive process of evaluation that includes public hearings.
The granting of class licenses is subject to a simple process of registration. A draft regulation
providing the framework for the granting of licenses was published by ICASA for comment
on March 7, 2007. In addition, the Minister of Communications has issued a policy direction
to ICASA requesting it to consider whether VANS licensees should be authorized to provide services
as well as provide and operate facilities or networks. ICASA subsequently announced the names of
certain VANS licensees whom they considered eligible for being awarded electronic communications
network services licenses. Other VANS who were not selected are challenging ICASA in litigation with
regard to its process of converting VANS licenses. ICASA would have to issue network service
licenses for such networks. We expect that the new licensing framework will result in the market
becoming more horizontally integrated and will substantially increase competition in our fixed-line
business.
The following licensing regulations have been finalized:
•  regulations on the processes and procedures for the registration, amendment, renewal,
surrender and transfer of class licenses;
•  regulations on the processes and procedures for applications for individual electronic
communications service licenses, electronic communications network service licenses and
broadcasting licenses;
•  regulations on the standard terms and conditions for individual and class licenses for electronic
communications service, electronic communications network service and broadcasting;
•  regulations setting out the minimum standard for end–users and subscriber service charters.
ICASA has subsequently published a notice inviting comments for a possible reconsideration
of those standards due to requests from the industry; and
•  regulations outlining a code of conduct for electronic communications licensees and electronic
network communications licensees.
Regulations on license fees are still outstanding as it appears that ICASA has not yet received the
required direction from the Minister of Communications.
License conversion
All existing licenses are to remain valid until converted by ICASA in line with the new licensing
framework, which is required to be done within 24 months from July 19, 2006, the commencement
date of the Electronic Communications Act. As a result, Telkom’s licenses will be converted to new
licenses in accordance with the new licensing regime. Conversion is required to be on no less
favorable terms than the original license. However, as part of the conversion process, ICASA may
grant rights and impose obligations on the licensee, in order to ensure that the existing licenses
comply with the Electronic Communications Act. ICASA has started a process of converting our
background image
123
licenses to the new licensing framework. The process of converting our radio spectrum licenses
started in October 2006, but has not yet been finalized. Regulations providing the framework
to convert our PSTS and VANS licenses have been published by ICASA, including the standard
terms and conditions that will apply to all electronic communications services and electronic
communications network services licenses, including ours. In addition to standard terms and
conditions generally applying to a type of license, the Electronic Communications Act provides that
ICASA may set out additional terms and conditions applicable to any individual license or class
license. ICASA has proposed draft additional conditions applicable to the electronic communications
service and electronic communications network service licenses that will be issued to existing
licensees, including Telkom, and has drafted proposed additional terms and conditions for Telkom’s
licenses. Telkom has formally commented on these proposed terms and conditions as they apply
to it. ICASA, after taking into account the comments received, is expected to publish the final
proposed terms and conditions for public comment. ICASA is required to complete the license
conversion process by July 18, 2008. It is, however, not likely that they will meet this target and
will use the six additional months provided for in the Electronic Communications Act to complete
this process.
The process of converting our licenses to the new licensing framework may be lengthy and
complex and could result in the imposition of additional obligations and limitations in connection with
the converted licenses, which could disrupt our business operations and decrease our net profit.
Existing regulations
All existing regulations are to remain in force until repealed or amended by ICASA. However,
many of the existing regulations may be required to be amended and many additional regulations
may need to be made to fully implement the Electronic Communications Act. ICASA’s capacity may
be further strained by the workload that will be imposed on it by the Electronic Communications Act,
which creates further uncertainties in the regulatory arena and the ability of ICASA to effectively
fulfill its functions. We cannot predict the outcome or timing of any amendments or modifications
to applicable regulations or the interpretation thereof, the release of new regulations or their impact
on us. ICASA has issued draft regulations in respect of the subsidization of mobile handsets.
These draft proposals have all been published for public comment, but no hearings on the public
comments have yet been held by ICASA and no final regulations have been made yet.
Licensing of the second national operator
In September 2004, the South African Minister of Communications granted an additional license
to provide public switched telecommunications services to a second national operator, Neotel, that
is 30% owned by Transtel and Esitel, which are beneficially owned by the South African Government,
and other strategic equity investors, including 26% beneficially owned by TATA Africa Holdings (Pty)
Limited, a member of the TATA Group, a large Indian conglomerate with information and
communications operations. On March 19, 2008 Neotel announced that the Competition Tribunal of
South Africa had approved its acquisition of Transtel without any conditions. Neotel was licensed on
December 9, 2005 and commercially launched on August 31, 2006 and commenced providing
services in the beginning of the 2007 calendar year to corporate customers and other licensees. On
April 25, 2008, Neotel announced that the first of its consumer products were available to limited parts
of Johannesburg and Pretoria.
Licensing of Infraco
The Government has created an infrastructure company, Infraco, which stated it would provide
inter-city bandwidth at cost based prices to Neotel, and later to the rest of the industry, which will
further compete with our communications network as an alternative provider of communications
infrastructure. The Government’s pronouncements indicate that Infraco will also lead the
background image
124
establishment of a submarine cable from South Africa to Europe along the west coast of Africa,
in partnership with private enterprise.
Underserviced areas
A process to issue additional licenses to small business operators to provide telecommunications
services in underserviced areas with a teledensity of less than 5% commenced in 2005 and is
continuing. The Minister of Communications has identified 27 of these underserviced areas. ICASA
has issued licenses to successful bidders in seven of them and the Minister has issued invitations
to apply for licenses in 14 additional areas. In August 2006 ICASA recommended to the Minister that
licenses be granted to successful applicants in 13 of these areas. While it was expected that further
licenses would be issued in the 2007 calendar year, no additional licenses have been issued.
The Minister of Communications has issued a policy direction to ICASA directing it, where there is
more than one license in a province, to merge the licenses and issue one Provincial Under-Serviced
Area Network Operator, or PUSANO license. None of these consolidated licenses have yet been
issued by ICASA.
Competition matters
The Electronic Communications Act replaces the concept of Major Operator status, which was
developed by ICASA through regulations, with that of significant market power in a market or market
segment. Factors in determining significant market power are, among others, dominance or control
of essential facilities. The Electronic Communications Act empowers ICASA to impose pro-competitive
conditions on operators found to have significant market power in such markets or market segments
that have ineffective competition, which may affect the manner in which interconnection is provided
and facilities are leased by such operators, and the charges thereof.
If we are found to have significant market power in any of the markets in which we operate,
we may be required to provide interconnection and facilities to our competitors at or near the
long run incremental cost, of those services or facilities, and our operating revenue and net profit
could decline. On January 29, 2007, ICASA published a consultation document for public comment
and on May 17, 2007 it held a public enquiry on its intention to define relevant call termination
wholesale markets. In its consultation document ICASA expressed the preliminary view that all
providers of telecommunications networks, including Telkom and Vodacom, have significant market
power in their call termination markets and that the appropriate price controls to be applied to the
large operators, MTN, Vodacom and Telkom, is the long run incremental cost calculated on the basis
of relevant forward looking economic costs of an efficient operator, including a reasonable cost
of capital. In its findings published on November 9, 2007, ICASA confirmed that it considers each
terminating network to be a separate market, however, it also recognized that the enquiry findings had
to be restricted to defining the market and that any pronouncement in respect of a determination of
significant market power and any remedies that may flow from such determination will be done by
means of regulations made in accordance with different processes, as envisaged in Section 67 of the
Electronic Communications Act. Regulations are expected to follow in due course. On May 3, 2007
ICASA published a consultation document for public comment, on its intention to define relevant end
to end leased lines and other wholesale markets. In its consultation document ICASA defined the
wholesale markets for fixed-line local loop access, fixed-line narrowband exchange lines, call
origination and call conveyance, symmetric broadband originator services, trunk services for
transmission within South Africa and international leased lines. ICASA expressed the preliminary view
that Telkom is deemed to have significant market power in all these markets and that the appropriate
price control to be applied is likely to be the long run incremental cost, calculated on the basis of
relevant forward looking economic costs of an efficient operator, including a reasonable cost of capital.
Regulations are expected to follow in due course, but probably not before the regulations dealing with
background image
125
market analysis, the determination of the level of competition and the determination of significant
market power are completed. Where ICASA determines that a licensee has engaged or intends to
engage in an act that is likely to substantially prevent or lessen competition, ICASA may direct the
licensee to cease or refrain from engaging in such act and may impose penalties for failure to comply
with such direction.
Interconnection
The Electronic Communications Act provides that any licensee, other than broadcasting service
licensees, must, on request, interconnect with any other licensee, unless such request is
unreasonable, and must enter into an interconnection agreement with the requesting party for this
purpose. Where the parties are unable to reach an agreement, the Electronic Communications Act
confers on ICASA the power to intervene and propose, or impose, terms and conditions for the
interconnection agreement, or refer the matter to the Complaints and Compliance Committee,
established as provided in the amendments to the ICASA Act described above, for resolution. ICASA
must review any interconnection agreement to determine whether it is consistent with the regulations
and, if the agreed terms are not consistent with the regulations, direct the parties to agree on new
terms and conditions.
Any dispute arising under an interconnection agreement can be referred by a party to the
Complaints and Compliance Committee for resolution, and any decision of the Complaints and
Compliance Committee is effective and binding on the parties, unless an order of a court of competent
jurisdiction is granted against the decision.
ICASA may exempt a licensee from the obligation to interconnect where such licensee has not
been found to have significant market power in the relevant market. ICASA must prescribe regulations
to facilitate the conclusion of interconnection agreements by stipulating interconnection agreement
principles. ICASA may prescribe a framework of wholesale interconnection rates to be charged in
circumstances where the existence of significant market power has been determined.
The interconnection agreements between Telkom and Vodacom and MTN that preceded the
Telecommunications Act were renegotiated and amended in 2001. An interconnection agreement,
on substantially the same terms, was negotiated and concluded with Cell C. An interconnection
agreement has also been concluded between Telkom and Neotel and filed with ICASA
on March 6, 2007. Interconnection agreements have also been concluded between Telkom,
the USALs and those VANS licensees to whom ICASA has granted access to subscriber numbers.
An interconnection agreement has also been signed with Sentech. An unresolved issue is whether
these interconnection agreements will be required to be amended after the final interconnection
regulations are promulgated. The Electronic Communications Act and draft interconnection regulations
compel operators to provide interconnection on a non discriminatory basis, whereas currently each
class of operator receives a different interconnection rate.
ICASA has begun a review process of mobile termination rates aimed at reducing high mobile
interconnect charges, which, once completed, is also likely to impact upon Telkom’s own termination
rates and interconnection revenues. ICASA has issued draft regulations on interconnection. The draft
regulations provide for a general obligation to interconnect by all licensees. The draft regulation does
not provide for interconnection rates. These will be dealt with by regulations made as a result of the
market review process.
Facilities leasing
The Electronic Communications Act provides that an electronic communications network licensee
must, on request, lease electronic communications facilities to any other licensee, unless such
request is unreasonable, and must enter into a facilities leasing agreement with the requesting party
background image
126
for this purpose. Where the parties are unable to reach an agreement, the Electronic Communications
Act confers on ICASA the power to intervene and propose, or impose, terms and conditions for the
facilities leasing agreement, or refer the matter to the Complaints and Compliance Committee for
resolution. ICASA must review any facilities leasing agreement to determine whether it is consistent
with the regulations and, if the agreed terms are not consistent with the regulations, direct the parties
to agree on new terms and conditions.
Any dispute arising under a facilities leasing agreement can be referred by a party to ICASA,
and the Complaints and Compliance Committee must resolve the dispute and any decision of the
Complaints and Compliance Committee is effective and binding on the parties, unless an order
of a court of competent jurisdiction is granted against the decision.
ICASA may exempt a licensee from the obligation to lease communications facilities where
such licensee has not been found to have significant market power in the relevant market.
ICASA must prescribe regulations to facilitate the conclusion of facilities leasing agreements by
stipulating facilities leasing agreement principles. ICASA may prescribe a framework of wholesale
rates applicable to specified electronic communications facilities in circumstances where the existence
of significant market power has been determined. Notwithstanding a finding of significant market
power, ICASA may exempt, under certain circumstances, an electronic communications network
licensee from the obligation to lease fiber loops and sub-loops serving residential premises.
ICASA has issued draft regulations on facilities leasing. The most significant impact on Telkom would
be the obligation to build facilities to satisfy such request where no spare capacity is available.
ICASA must prescribe a list of essential facilities, including local loops and sub-loops and associated
electronic communications facilities, and electronic communications facilities connected to
international electronic communications facilities such as submarine cables and satellite earth
stations. ICASA may require that essential communications facilities be supplied at a cost based price,
likely to be the long run incremental cost of that facility. The Minister of Communications has issued
a policy decision declaring November 1, 2007 as the date from which the exclusivity provisions in our
SAT-3 agreements shall be declared null and void. The Minister of Communications has also issued
a policy direction to ICASA requiring it to prioritize and urgently prescribe a list of essential facilities,
ensuring that the facilities connected to the SAT-3/WASC/SAFE submarine cables can be accessed
soon. ICASA has established a draft regulation for public comment in compliance with this policy
direction.
On December 24, 2007, the Minister of Communications published “Proposed Guidelines for the
Rapid Deployment of Electronic Communications Facilities”. If the final guidelines are published
in their current form, they will not affect our rights in our existing submarine cables and landing
stations, but may affect our ability to be parties to new submarine cables and landing stations,
which might negatively affect our ability to meet demand for international communications services.
A fixed link facilities leasing agreement which provides for leasing by Neotel of 2 Mbps leased
lines has been concluded between Telkom and Neotel and filed with ICASA on September 12, 2006.
Further agreements for the leasing by Neotel of other facilities are expected to be negotiated as
required. If we are unable to negotiate favorable terms and conditions for the provision of the services
and facilities covered by the guidelines or ICASA otherwise imposes terms and conditions that are
unfavorable to us, our business operations could be disrupted and our net profit could decline.
Unbundling the local loop
While the Telecommunications Act provided that we were not to be required to unbundle our local
loop for a period of two years after the issue of a license to Neotel, The Electronic Communications
Act provides that ICASA may prescribe a framework for the unbundling of Telkom’s local loop.
background image
127
On May 23, 2007, the Local Loop Unbundling Committee set up by the Minister of
Communications to develop appropriate policies for the unbundling of the local loop in South Africa
submitted its report to the Minister of Communications recommending, among other things:
•  three forms of local loop unbundling to be considered, full unbundling of the metallic loop, line
sharing and wholesale bit stream access; and
•  the regulatory process, with full industry participation should commence as soon as possible
and be completed in 2011.
The Minister of Communications published policy decisions that the process of unbundling the
local loop in South Africa should be urgently implemented and completed by 2011. In compliance with
the Minister’s request ICASA has initiated consultations with Telkom on the process to be followed,
and is expected to soon open consultation with all other stakeholders. ICASA plans to set up
consultative committees to consider policy and legal, technical and processes, and financial,
economic and competition issues relating to unbundling the local loop.
Tariffs
For a discussion of our tariffs and the regulations related thereto, see Item 4. “Fixed-line
communications – Fees and tariffs”, and for a discussion of Vodacom’s tariffs and the regulations
thereto, see Item 4. “Mobile communications – Fees and tariffs.”
Universal service obligations and service quality targets
As part of our five year exclusivity period ended May 7, 2002, we had 16 service quality and line
roll-out targets for our fixed-line business. We substantially met all of our fixed-line service and line
roll-out targets with the exception of our residential fault rate target, our aggregate fixed-line roll-out
target and targets which required us to provide service to underserviced villages and to replace
analog lines with digital lines. ICASA has started a process to convert existing licenses to the new
licensing framework contained in the Electronic Communications Act. It is possible that as a result
of the conversion process quality of service targets will again be imposed on us with penalties if
targets are not met.
Draft regulations on the pricing and provision of ADSL services were published by ICASA, which
would, among other things, have prohibited Telkom from charging a monthly rental for providing ADSL
service and limited Telkom to charging only an installation fee for such service. The final regulations
published by ICASA on August 17, 2006 did not contain any limitations on the pricing of these
services, but did impose quality of service obligations on Telkom for these services related to, among
other things:
•  services to be provided within 30 working days from application in ADSL enabled exchanges;
•  the provision of uncapped local bandwidth;
•  the guarantees of minimum speeds;
•  the prohibition of port prioritization; and
•  the prohibition of periodic resets.
When the regulations were published we were not able to fully comply with them. We informed
ICASA of the areas of non compliance and provided ICASA our proposed plans to become compliant.
ICASA raised no objections to our proposed approach. Since then, we have made several changes to
the various ADSL service offerings to ensure compliance. A customer brought a case against us to
ICASA’s Complaint and Compliance Committee in 2007, alleging non-compliance with the ADSL
regulations. ICASA’s Complaint and Compliance Committee ruled in our favour.
background image
128
Our public switched telecommunications license requires us to provide basic voice telephone
service to every person in South Africa who requests such service, who can afford it and who enters
into a contract with us for such service, and to install, connect, maintain and repair a telephone to use
such service, and provide access to emergency organizations and directory information services.
However, we are not required to provide the foregoing services where ICASA determines that the
demand for such services can be met by other means and, as a result, it would be unduly
burdensome in the circumstances for us to provide the telecommunications service requested.
The Minister of Communications issued a public statement in 2002 describing our future
obligations to assist in the continued development of communications services to the South African
population. The obligation will be a contribution to the Universal Service Fund, or USF, and ongoing
universal service obligations imposed on us through the generic terms of our license. In the past we
had to contribute to the USF R10 million per annum escalated by inflation from 1997. Beginning in the
2005 financial year, such contribution was set at 0.2% of the prior year’s annual turnover derived from
the provision of telecommunications service that it is licensed to provide. Telkom paid R61.8 million in
July 2007 for this contribution pursuant to its license. Vodacom’s contribution to the USF is on the
same basis as Telkom. Vodacom paid R65.1 million in the 2008 financial year for this contribution
pursuant to its license.
We have been issued with frequency spectrum licenses in the 1800 MHz and 2100 MHz bands.
While no special obligations have been imposed in these licenses, ICASA has indicated that
obligations may be imposed at a later stage, the nature of which is not known at this date.
New social obligations were imposed with Vodacom’s new 1800 MHz license and third generation
spectrum license or 3G. The 1800 MHz frequency spectrum band obligations require Vodacom to
provide a minimum of 2,500,000 SIM card packages with certain privileges to designated individuals
within five years; a minimum of 125,000 handsets within five years; and a minimum airtime window
period of 12 months for these SIM cards. The 3G radio spectrum band obligations require Vodacom
to provide: internet access to no less than 140 institutions for persons with disabilities within three
years; internet access to no less than 5,000 public schools within eight years; and a minimum of
1,400 handsets within three years. The Department of Communications has assisted in the
identification of certain beneficiaries within various government departments and the license stipulates
that roll-out can only commence upon approval of the implementation plans by ICASA.
The implementation plans in respect of 1800 MHz and 3G were submitted to ICASA in August 2005.
The 1800 MHz obligation is currently on hold due to a tariff dispute. ICASA has approved the 3G roll
out plans for the following provinces: Gauteng (50), Northwest (47), Limpopo (69), KwaZulu-Natal
(136) and Eastern Cape (413). Vodacom has completed rollout in Gauteng, Northwest and Limpopo.
KwaZulu-Natal and Eastern Cape are still in progress. Vodacom proposed that airtime used on the
SIM cards be charged at a uniform rate to be agreed between all three mobile operators and the
internet usage rates be at a 50% discounted rate, as provided for in the Telecommunications Act.
Vodacom has been funding the training of community services telephone operators since the 2005
financial year. The focus during the 2005 and 2006 financial years, was on growth management,
financial management and marketing. The focus during the 2007 and 2008 financial years was on basic
business skills, growth management, financial management and marketing Vodacom’s universal service
obligations consists of a contribution to the USF and possible new universal access obligations.
Regulatory accounts
Under the Electronic Communications Act and our public switched telecommunications service
license, we are required to report and account to ICASA, our retail and wholesale activities using
a specific accounting methodology set out in a Chart of Accounts and Cost Allocation Manual,
or COA/CAM. The adoption of this methodology by us requires the aggregating and disaggregating of
background image
129
general ledger accounts in a different manner than we prepare accounts in accordance with IFRS.
These accounts are known as the regulatory financial statements. It also requires a reconciliation of
our regulatory accounts with our annual financial statements. We were required to put the necessary
accounting and management information systems, which would have enabled us to prepare such
reports and accounts, in place by May 7, 2002, subject to ICASA issuing the COA/CAM regulations.
The regulations, however, were only published on July 19, 2002. After negotiations with ICASA,
Telkom submitted its regulatory financial statements based on the historical cost of the company on
September 30, 2004, and submitted its current cost regulatory financial statements to ICASA on
September 30, 2005 and its current cost regulatory financial statements with reports indicating the
long run incremental cost for the 2006 financial year on September 30, 2006. The COA/CAM
regulations also require us to develop procedures manuals that set out how we will implement the
COA/CAM accounting methodology in practice. The procedures manual for the accounting separation
on an historical cost basis was approved by ICASA on June 30, 2004, while the procedures manual
for the conversion to the current cost basis was submitted to ICASA on July 5, 2005 and the
procedure manual for accounting on a long run incremental cost basis was submitted to ICASA on
March 31, 2006 for their approval. The same set of complete procedures manuals were again
submitted to ICASA on September 30, 2007. ICASA instituted a review of the regulatory financial
statements and the supporting procedures manuals in January 2008, which was finalized during
March 2008. While ICASA indicated their general acceptance of the work done in the finalization
of both the procedures manuals and the regulatory financial statements, ICASA did request Telkom
to provide more detail on certain issues such as some of the allocations methodologies used.
In addition they raised a concern relating to the inadequate disclosure of the pre-tax weighted average
cost of capital used and wholesale results. Telkom has agreed with ICASA that this information will be
disclosed in more detail in the 2008 regulatory financial statements submission.
Carrier pre-selection
The Telecommunications Act mandates that fixed-line operators are required to implement carrier
pre-selection, which will enable customers to choose and vary their fixed-line telecommunications
carrier for long distance and international calls. These provisions are retained in the Electronic
Communications Act. Regulations were published on June 24, 2005 for the implementation of carrier
pre-selection in two phases. In phase one, call-by-call carrier pre-selection must be implemented and
must be provided by an operator within two months of it being requested by another operator.
In phase two, fully automatic pre-selection must be implemented and must be provided by an operator
within ten months of it being requested by another operator. Telkom had already conditioned its
exchanges to handle call-by-call carrier pre-selection by December 31, 2003. On February 12, 2008,
Telkom met with Neotel to discuss their request for implementing carrier pre-selection.
Telkom will not be able to fully implement carrier pre-selection until Neotel’s interconnection systems
and the inter-operator process and systems to support carrier pre-selection become available,
however, Telkom does not believe that it will be able to implement automatic carrier pre selection
within ten months of it being requested. The request for phase 2 of carrier pre-selection can only
be made after the functional specification and ordering system specification have been agreed
to between Telkom and Neotel and approved and published by ICASA. Call-by-call carrier pre-
selection will be implemented in 2008 once the interconnection agreement has been amended, the
testing phase has been completed successfully and Neotel has received its prefix code from ICASA.
Regulations indicate that the system set-up costs may be recovered as part of the prescribed annual
review of fees and charges, but no further detail is available. ICASA has not yet defined the manner
in which such costs could be recovered. In addition, we may not be able to implement these
requirements in a timely manner, which could result in our business being disrupted and cause our net
profit to decline and the implementation of these requirements will likely further increase competition
and cause our churn rates to increase.
background image
130
Slamming, which is the transfer of a user from one operator to another without such user’s
knowledge or authorization, is to be prohibited. There is a risk that the procedure to combat slamming
may not be effective and would result in further market share losses. Carrier pre-selection is not
applicable to mobile cellular operators.
Number portability
The Telecommunications Act mandates that number portability to enable customers to retain their
fixed-line and mobile telephone numbers if they switch between fixed-line operators or between
mobile operators be introduced. These provisions are retained in the Electronic Communications Act.
A framework number portability regulation was published at the end of 2004 that generically provides
for the introduction of fixed-to-fixed and mobile-to-mobile number portability. Telkom is required to
implement number portability in blocks of 10,000 numbers within two months after Neotel launches
such retail services and individual number portability within 12 months of receiving a request from
Neotel. Telkom has received a request from Neotel to implement both block and individual number
portability and Telkom and Neotel are currently in the process of finalizing the testing for the
introduction of block number portability which is scheduled to take place in the middle of the 2008
calendar year. Number portability will therefore be phased in commencing with number portability in
blocks of 10,000 numbers, followed by number portability in blocks of 1,000 numbers and then
individual number portability. After several delays mobile number portability phase one was launched
on November 11, 2006. Phase 2, which was implemented during April 2007, includes multi-line
porting, secure file transfer protocol access to third parties and operational software upgrades
on the central reference data base. From launch until the end of March 2008 there have
been 192,289 successful ports. In the 2007 financial year, Cell C registered a net gain
of 14,057 subscribers, Vodacom a net loss of 6,018 subscribers and MTN a net loss
of 8,039 subscribers. In the 2008 financial year Vodacom registered a net gain of 4,484 subscribers,
MTN a net gain of 6,138 subscribers and Cell C a net loss of 10,622 customers.
The set-up and per-operator costs are typically the largest cost components of implementing
number portability. Similar to carrier pre-selection, there is a risk of not fully recovering system set-up
costs. In addition, we may not be able to implement these requirements in a timely manner, which
could result in our business being disrupted and cause our net profit to decline and the
implementation of these requirements will likely further increase competition and cause our churn
rates to increase.
Licenses
Fixed-line telephone services
Public switched telecommunications services
On November 15, 1996, we were deemed to be the holder of a license to provide public switched
telecommunication services under the Telecommunications Act and on May 7, 1997, we were issued a
written license by the Minister for Posts, Telecommunications and Broadcasting to provide public
switched telecommunications services in South Africa for a minimum period of 25 years, which
included our exclusivity period of five years that ended on May 7, 2002.
Under this license we are authorized to provide, among other things, the following:
•  national long distance telecommunications services;
•  international telecommunications services;
•  local access telecommunications services;
•  public pay telephone services;
background image
131
•  fixed-lines, infrastructure and facilities required to provide the above services;
•  telecommunications facilities to be used by any person for the provision of value-added
network services;
•  telecommunications facilities comprising fixed-lines to be used by operators for the provision of
mobile communications services and any other telecommunications services;
•  telecommunications facilities to be used by any person for the provision of any private
telecommunications network, with the exception of certain private telecommunications networks
situated on a single piece of land or two or more contiguous pieces of land owned by the same
person, or maintained by Transnet or Eskom as authorized under the Telecommunications Act;
•  connection to our network of any other licensed telecommunications system or service both
inside and outside of South Africa; and
•  conveyance of signals to and from telecommunications systems and equipment connected
to our network, together with any switching or other services incidental to such conveyance.
Additionally, we are entitled under the Telecommunications Act to manufacture, sell, supply,
distribute and maintain certain telecommunication facilities and equipment, including customer
premises equipment and software, provided that ICASA consents to the commercial marketing,
distribution or sale of such facilities or equipment.
Furthermore, the 2001 amendment to the Telecommunications Act provides for fixed-mobile
services to be deemed a new public switched telecommunications service that may be provided
with a public switched telecommunications service license or an underserviced area license.
A fixed-mobile service is a service that permits a customer of the licensee to access the public
switched telecommunications network of the licensee and obtain telecommunications services from
such licensee from either a fixed point or while in motion within the local exchange area, but does not
permit or include call handover between cells. Our public switched telecommunications service license
was not amended to include fixed-mobile services. No similar provision is contained in the Electronic
Communications Act.
The license fee payable by us under this license amounts to 0.1% of our annual revenues
generated from the provision of the licensed public switched telecommunications services.
Our public switched telecommunications services license may be revoked by ICASA if we
repeatedly fail to comply with an order made by ICASA pursuant to the Telecommunications Act
and fail to correct the non-compliance within 90 days of being requested to comply, or if we are placed
in final liquidation or put under a provisional or final judicial management order.
We are also obliged to publish our charges and the manner which we adopt for determining those
charges in respect of the various telecommunications services provided by us. Provision is also made
for the protection of customer confidentiality and other information that we receive from our customers
in the course of providing telecommunications services to them. Bills to our customers must reflect the
type of service, the units for which charges are made, and at a minimum, the starting time of each
connection, the number called and the duration and number of units for each call. Our records must
identify for customers the basis for the amount charged for the use of our services and we are
required to retain such information to allow ICASA the ability to have an independent quality
assurance check performed to ensure that the billing process complies with the aforesaid
requirements.
Our license also requires us to establish efficient procedures, taking into account predominant
regional languages and to provide assistance to customers with complaints during normal business
hours. Our procedures for dealing with customer complaints must include a procedure for referring
any disputes relating to such complaints to an affordable independent arbitration procedure instead
of a court. Finally, we are required, in consultation with ICASA, to prepare and publish a code
background image
132
of practice that duly takes account of predominant regional languages, giving guidance to our
customers in respect of any disputes with or complaints from such customers relating to the
provision of telecommunications services.
ICASA has started a process to convert existing licenses to the new licensing framework
contained in the Electronic Communications Act. It is possible as a result of the conversion
process, quality of service targets will again be imposed on us with penalties if targets are not met.
Other licenses
On November 15, 1996, we were deemed to be the holder of a license to provide value-added
network services under the Telecommunications Act and on May 7, 1997, we were issued a written
license by the Minister for Posts, Telecommunications and Broadcasting to provide value-added
network services on a non-exclusive basis for a period of 25 years.
Our value-added network service license may be revoked by ICASA if we repeatedly fail
to comply with an order made by ICASA and fail to correct the non-compliance within 90 days,
or if we are placed in final liquidation or under a provisional or final judicial management order.
On February 21, 1997, we were deemed to be the holder of a radio frequency spectrum license
to provide telecommunication services and facilities, and on May 7, 1997, we were issued a written
license by the Minister for Posts, Telecommunications and Broadcasting to use the relevant bands
of radio frequency spectrum. We use the radio spectrum for the provision of fixed links within our
network, both land based and satellite, and for wireless local loop applications. Where these bands
were licensed to us on a shared or non-exclusive basis, ICASA is to ensure that any other licenses
issued to other entities do not create harmful interference with our use of the radio frequency
spectrum. Our use of the radio frequency spectrum is subject to our compliance with the relevant
provisions of international telecommunications conventions, the radio regulations and the International
Telecommunications Union radio regulations agreed to or adopted by South Africa. We are only
authorized to use our assigned frequency bands for the provision of public switched
telecommunication services.
Our radio frequency spectrum license may be revoked by ICASA if we repeatedly fail to comply
with an order made by it and fail to correct the non-compliance within 90 days of being requested
to comply, or if we are placed in final liquidation or under a provisional or final judicial management
order. Additionally, our radio frequency license will terminate if our public switched telecommunication
services license is terminated.
Under the Telecommunications Act each of Vodacom, MTN, Telkom and Neotel are entitled to
apply for, and acquire, licenses for the use of 1800 MHz radio frequency spectrum and radio
frequency spectrum for the provision of third generation services. Cell C’s existing license already
includes the right to use radio frequency spectrum in the 1800 MHz band. Vodacom and MTN have
obtained licenses for the use of 1800 MHz radio frequency spectrum and radio frequency spectrum
for the provision of third generation services and Telkom has been granted additional radio frequency
spectrum licenses and access to portions of the 350 MHz, 3.5 GHz, 26 GHz and 38 GHz radio
frequency bands, which can be used for various services as stipulated in its license. Recently Telkom
was also assigned radio frequency spectrum licenses for both the 1800 MHz and 2100 MHz (3G)
radio frequency bands.
Our Swiftnet subsidiary has been granted a telecommunications license and a radio frequency
spectrum license providing for:
•  Swiftnet to construct, maintain and operate a national wireless data network and to provide
wireless data telecommunication services; and
•  interconnection with our network.
background image
133
Swiftnet is in breach of its license that requires it to have at least 30% of its shares held by black
economic empowerment individuals or entities. ICASA has required Swiftnet to remedy the breach
of its license, which expired on August 24, 2006. On February 14, 2007 Telkom announced that
it had entered into an agreement to sell a 30% stake in Swiftnet to the Radio Surveillance Consortium,
a group of empowerment investors, for R55 million following a competitive sale process run by an
independent adviser. The transaction would not have required any financial support or facilitation from
Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not
approved by ICASA. Swiftnet is currently seeking black economic empowered individuals or entities
who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to discuss its
specific license terms and conditions. Swiftnet has submitted its comments on the draft license terms
and conditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by
Telkom as its sole shareholder, has had a further meeting with ICASA on February 27, 2008. It was
decided that the draft amended license that ICASA sent to Swiftnet during October 2007 would not
form the basis of the conversion process, but instead the original license issued to Swiftnet in August
1995 would be used as the basis for license conversion. The transaction is still subject to ICASA
approval. With regard to shareholder issues, ICASA indicated that there is currently no agreement
within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated
that the shareholding issue for the Swiftnet license would need to be in line with BEE values
applicable to other similar licensees.
Mobile cellular telephone services
On September 30, 1992, a multiparty implementation agreement was concluded between
Telkom, Vodacom, MTN, the Postmaster-General and the South African Government dealing with the
licensing of Vodacom and MTN. Vodacom was issued with a mobile cellular telecommunications
license in South Africa in 1993 for a validity period of 15 years. This mobile cellular
telecommunications service license was confirmed and reissued in August 2002 pursuant to the
Telecommunications Act. Vodacom’s license is automatically renewable on the same terms and
conditions should no notice of termination be received five years prior to the expiration of the initial
license term. Vodacom’s license was thus automatically renewed until May 30, 2024.
On July 1, 1997, Vodacom was deemed to be the holder of a license to provide mobile cellular
telecommunications services in accordance with the Telecommunications Act, subject to the terms and
conditions of the written mobile cellular telecommunications license issued by the Postmaster-General
and the multiparty implementation agreement, and on August 19, 2002, Vodacom was issued a written
mobile cellular telecommunications service license by the Minister of Communications and ICASA,
pursuant to the Telecommunications Act, incorporating the terms and conditions of the original license
and agreement, subject to certain legislatively mandated changes. Under this license, Vodacom is
authorized to construct, maintain and use its public land mobile communications network for the
provision of mobile cellular telecommunications services, and to interconnect with our public switched
telecommunications network and the public land mobile communications networks of other licensed
mobile cellular telecommunications service providers. An initial license fee of R100,000,000 was
payable by Vodacom and an ongoing license fee of 5% of Vodacom’s audited net operational income
generated from the provision of the licensed services is payable by Vodacom quarterly in arrears.
Vodacom’s mobile cellular telecommunications license may be revoked by ICASA, with the
approval of the Minister of Communications, if Vodacom is placed in liquidation or under judicial
management, or if there is a change in the direct or indirect ownership of 25% of the issued voting
share capital of Vodacom in any one transfer or a change in the ownership of any of the issued voting
share capital of Vodacom that results in a change to the composition of one-quarter of Vodacom’s
board of directors, in either case without ICASA’s prior written approval, Vodacom takes steps
to deregister itself or is deregistered, or Vodacom fails to pay the required license fee after due
demand by ICASA.
background image
134
Vodacom’s use of its public land mobile communications network is authorized for the provision
of a GSM based national mobile cellular telecommunications service and the connection of fixed and
mobile terminal equipment using GSM cellular telephony technology. For the duration of this license,
Vodacom’s network must conform to the GSM specification standards and recommendations of the
International Telecommunications Union as adopted by South Africa, as well as with the GSM
specifications set by the European Technical Standards Institute, or ETSI.
Vodacom’s mobile cellular telecommunications license requires Vodacom to provide facilities
to enable a caller, free of charge, to communicate with an emergency organization as swiftly
as practicable and sets out certain customer service standards with which Vodacom is required
to comply. This license also requires Vodacom to use reasonable endeavors to ensure that certain
information is kept confidential. Vodacom is obliged to provide directory services and to liaise with
other licensees in that regard. Vodacom and its service providers are not entitled to show any undue
preference to any person or class of person and Vodacom must develop, publish and enforce
guidelines for use by its personnel when handling inquiries and complaints from customers to whom
it supplies telecommunications facilities. These guidelines must be included in its contracts with
service providers and must be published and available to customers. Vodacom’s license prescribes
that the guidelines must address the following areas of the provision of customer services:
•  procedures for handling customer complaints;
•  the time frame for handling customer complaints through such procedures;
•  further recourse available to a customer who is dissatisfied with Vodacom’s complaint handling
procedures;
•  procedures adopted by Vodacom to check the accuracy of a customer’s telephone account;
•  procedures to be adopted by Vodacom to assist customers in disaster situations; and
•  availability to customers of quality of service information relating to Vodacom’s network
services.
Vodacom was also issued a radio frequency spectrum license simultaneously with its mobile
cellular telecommunications license permitting it to use an assignment of 2x10 MHz in the
890.2 – 900 MHz paired with the 935.2 – 945.0 MHz radio frequency spectrum bands, for purposes of
providing mobile cellular telecommunications services, valid for the duration of Vodacom’s mobile
telecommunications license of fifteen years. Vodacom was also granted a license, effective
July 1, 1995, for the use of an additional assignment of 2x1 MHz of GSM900 MHz radio frequency
spectrum band under its mobile cellular telecommunications license. Pursuant to the
Telecommunications Act, the three mobile cellular licensees were given the right, upon application,
to be granted licenses to use 1800 MHz frequency spectrum on payment of fees as determined
by the Minister of Communications. Vodacom was awarded a permanent 1800 MHz license on
October 29, 2004 comprising an assignments of 2x12 MHz and a 3G spectrum license on
November 30, 2004, comprising an assignment of 2x10 MHz radio frequency spectrum.
Vodacom received an additional 3G spectrum assignment of 2x5 MHz on February 15, 2007.
The license fee for the 1800 MHz and 3G spectrum license is a R5 million access fee each per
annum and R100,000 per MHz pair. On 7 September 2007 Vodacom was issued a radio frequency
and station license in the C-Band for the operation of an international fixed link via satellite.
Vodacom has to date been allocated a total of 46 million numbers, including the full 072, 076, 082
and 079 number ranges, along with part of the 071 number range. ICASA has started using the
interleaving principle and allocated part of the 071 number ranges to MTN.
background image
135
Vodacom was issued a license to provide value added network services on October 20, 1998.
On May 20, 2005, ICASA published new regulations for value added network service providers.
This set of regulations repeals the previous set of regulations under which Vodacom had to re-apply
for its VANS license on February 27, 2004. In terms of the new regulations, Vodacom is deemed to
have applied in accordance with the regulations. On August 26, 2005, ICASA re-issued Vodacom’s
value added network service license (VLS40/0034). Vodacom is obliged to keep and maintain
statistics on complaints made to it by its customers. The statistics must be provided to ICASA at least
once every six months and ICASA may, after consultation with Vodacom, publish these statistics.
Ownership restrictions
Pursuant to the ownership regulations issued under the Telecommunications Act, 103 of 1996,
which have not been repealed by ICASA Telkom is a public switched telecommunications services
licensee operating in a “concentrated market”, which is a market where there are fewer than five
licensees. Pursuant to these regulations, no person who holds a direct or indirect 5% ownership
interest in Telkom, other than the Government of South Africa and passive institutional investors who
do not participate in our management, is entitled to hold a 5% or greater ownership interest in any
other licensed operator providing the same category of telecommunications services as Telkom in that
concentrated market, such as the second national operator. The same prohibition applies in relation
to a person holding such an ownership interest in both Vodacom and another mobile cellular
telecommunications service licensee. In addition, licensees such as Telkom and Vodacom are
required to maintain accurate and detailed records indicating the name, address, telephone number,
e-mail address and other contact details of all persons holding a direct or indirect ownership interest
of 5% or more in the licensee, the number of shares or other ownership interests owned of record
by each such person, the identity of each such person entitled to vote, and must annually file such
information with ICASA. ICASA is entitled, at the request of the licensee, to waive the licensee’s
obligations with respect to maintaining certain of the information where the licensee’s issued share
capital is listed on the JSE or any other internationally recognized securities exchange and the
information is not kept in the ordinary course with respect to such listed issued share capital and
is not otherwise required by such exchanges. Under the same regulations, licensees such as Telkom
and Vodacom are required to obtain the prior written approval of ICASA, in an application that is
signed by the licensee, the transferor and the transferee, for any transfer of a control interest in the
licensee. A control interest in a licensee includes a direct or indirect:
•  beneficial ownership of more than 25% of the issued share capital of that licensee;
•  entitlement to vote a majority of the votes that may be cast at a general meeting of that licensee;
•  ability to appoint or veto the appointment of a majority of the directors of that licensee;
•  holding company of that licensee; or
•  ability to direct or cause the direction of the management and policies of that licensee in a way
similar to the foregoing.
The criterion to be used by ICASA in considering the application is whether the licensee will
be able to satisfy its obligations under its licenses and comply with the Telecommunications Act,
103 of 1996, and the regulations thereunder after the transfer concerned. Any transfer in violation
of these regulations is void.
Other regulatory issues
We are subject to the provisions of the Competition Act, 89 of 1998, which, together with the
Electronic Communications Act regulates anti-competitive behavior in the communications industry
in South Africa. Under the provision of these two Acts, we may not act anti-competitively or unfairly
discriminate against any person. Activities within the communications and broadcasting sectors are
background image
136
regulated primarily by ICASA, but with concurrent jurisdiction of the Competition Commission on
competition-related matters. Although the concurrent jurisdiction of ICASA and the Competition
Commission in the information communications technology sector is coordinated via a memorandum
of agreement between the two bodies, there remain concerns around clear jurisdictional
responsibilities on certain issues. ICASA is investigating three alleged complaints of anti-competitive
behavior against Vodacom, a guilty finding of anti-competitive behavior by the Competition Tribunal
could result in penalties of up to 10% of annual turnover and could disrupt our business and decrease
our net profit.
South Africa is a member of the World Trade Organization and is a signatory to the Basic
Agreement on Telecommunications. The commitments made by South Africa are embodied in the
provisions of the Electronic Communications Act in respect of the liberalization of the South African
telecommunications industry.
RICA is a South African law that regulates the authorization for and actual lawful interception
of direct and indirect communications. The Act came into effect on September 30, 2005, with the
exception of certain sections requiring the collection of customer details and identity verification prior
to providing mobile cellular telecommunications services. The compliance date for these sections has
not been determined and will come into effect by presidential proclamation. The amendment bill
on RICA was discussed at the select committee on security and constitutional affairs, select
committee, in the National Council of Provinces, after being passed by the national assembly.
After discussions, the select committee decided to postpone deliberations on the bill, indefinitely.
The effect of the decision of the select committee is that the RICA amendment bill is not likely to be
finalized by parliament during the 2008 session, but will in probability be considered during the 2009
session of parliament. RICA obligates service providers to obtain and store customer details, including
names, identity numbers, residential and business or postal addresses and requires verification
of customers’ details with reference to a customer’s identity document. To date Telkom has not been
able to complete the implementation of all of these requirements and Vodacom may not be able
to implement these requirements within the time period in which it is ultimately required to implement
them, which has not yet been determined. Furthermore, the implementation of RICA is expected
to have significant cost implications resulting from the paper verification and storage requirements
and negatively impact the ability of Telkom and Vodacom to register customers due to its burdensome
registration process, which may not be practical and may require the disconnection of customers for
whom such information is unavailable. As a result, Telkom’s and Vodacom’s business operations could
be disrupted and their net profit could decline and they may be liable for penalties to the extent they
are not able to comply with RICA’s requirements. We are finalizing preparations to implement the
process during the second half of the 2008 calendar year to satisfy requirements. Implementation will
be phased to minimize costs while we are waiting for consideration of a request to amend section 39
of the Act. The request to amend originated from the envisaged changes to section 40 of the Act
applicable to the mobile operators whereby the obligation to retain the paper copy was suspended.
In addition, commencing in June 2006, all licensees, including Telkom and Vodacom, were
required to install equipment and implement procedures to allow lawful interception by law
enforcement agencies in South Africa, including the interception of communications and the
provisioning of call-related information, including billing information. Telkom was not able
to completely comply with all of the requirements by June 2006 and was in consultation with the
Office for Interception Centers and the Department of Communication to adopt a phased approach for
compliance. Telkom subsequently achieved full compliance for all major technologies, including its
public digital exchanges and Internet services, in the 2007 calendar year, although some
implementation measures and implementation schedules remain subject to further official agreement
with the responsible government agency. The directives for the implementation of these requirements
for private networks have not yet been finalized. Systems to facilitate subscriber registration have
been developed, tested and made available to the relevant customer touch points by Vodacom ahead
background image
137
of the promulgation of the governing legislation. To the extent that we are unable to comply with all the
requirements of RICA or are unable to substantially recover these costs of compliance, our business
operations could be disrupted and our net profit could decline and we may be liable for penalties.
In certain South African judgments, we have been regarded as an organ of state. In addition,
some legislation, notably the South African Promotion of Administrative Justice Act, 3 of 2000, have
provisions that identify us as rendering a public service. As a result, some decisions that would
otherwise be normal business decisions in other listed companies need to go through a consultative
process with the Government before we can make them.
The Broad-Based Black Economic Empowerment Act, No. 53 of 2003, or the B-BBEE Act, aims
at establishing a legislative framework for the promotion of black economic empowerment.
Among other things, it empowers the Minister of Trade and Industry to issue codes of good practice
and to publish sectorial transformation charters for that purpose. The codes of good practice aim to
establish a balanced scorecard on empowerment, which deals with equity ownership, management
and control of enterprises by black people, and employment, procurement, skills development,
enterprise development and other developmental intervention aimed at the empowerment of black
people. The Department of Trade and Industry has published all codes of good practice. The codes
are mandatory on all organs of state, and will affect all enterprises that, directly or indirectly, conduct
business with organs of state, in that their empowerment rating in terms of the codes, will determine
their ability to conduct such business.
Sectorial transformation charters have a similar purpose to the codes of good practice, but are
voluntarily applied by enterprises in a sector, and not mandatory. However, the B-BBEE Act makes
provision for transformation charters to be gazetted, under certain circumstances, as a code of good
practice, applicable to the enterprises in the relevant sector and those conducting business with them.
The process to develop the Information Communication and Technology, or ICT, black economic
empowerment charter commenced on September 16, 2003. The ICT Charter seeks to establish
a framework for the promotion of transformation in the ICT sector through the establishment
of a balanced scorecard on empowerment, which deals with the items addressed in the codes
of good practice above. The scoring of the balanced scorecard will ultimately determine the black
economic empowerment status of a company intending to engage Government when applying for a
license in a regulated economic activity, entering into a public-private partnership, or engaging in any
economic activity in South Africa. As such this process is of vital importance to Telkom and Vodacom.
Telkom and Vodacom have been actively involved in the development of the BEE Charter for the
ICT sector. A final draft of the ICT charter has received Cabinet approval, but will not be published
as a voluntary charter and instead will be gazetted as a code. The final set of genetic codes of good
practice has been gazetted in February 2007. The process of converting the ICT charter into codes
of good practice for the ICT sector is almost complete and proposed ICT codes were submitted to the
Minister of Communications in July 2007 for approval. Before the ICT codes are finally approved they
will be gazetted for public comment for a period of two months.
The codes of good practice require business to make use of suppliers complying with the black
economic empowerment requirements. We have started a process to ensure that we obtain a grading
as a black economic empowered company sufficient for our business needs. If we are not able to
meet the minimum requirements of the codes of good practice or the ICT charter, whichever may be
applicable, some of our business customers may be required or elect to obtain all or some of their
telecommunications services from our competitors who may fulfill such requirements.
The Electronic Communications Act provides that ICASA must specify the percentage of equity
ownership to be held in applicants for individual licenses by persons from historically disadvantaged
groups. The percentage may not be less than 30% or such higher percentage as may be prescribed
by ICASA.
background image
138
ORGANIZATIONAL STRUCTURE
Our group operational structure is as follows:
Swiftnet (Proprietary)
Limited
Africa Online Limited
Multi-Links
Telecommunications
Limited
Telkom Media
(Proprietary) Limited
64.9%
50.0%
100.0%
100.0%
75.0%
75.0%
Fixed-Line
Mobile
Other
Telkom SA Limited
Vodacom Group
(Proprietary) Limited
TDS Directory Operations
(Proprietary) Limited
background image
139
Vodacom’s group operational structure is as follows:
Telkom SA Limited
Vodafone Holdings (SA)
(Proprietary) Limited
and its subsidiary
Vodafone Telecommunications
Investments (SA) (Proprietary) Limited
Vodacom Tanzania
Limited
Vodacom International Holdings
(Proprietary) Limited
Vodacom International Limited
(Mauritius)
Vodacom Group
(Proprietary) Limited*
Vodacom (Proprietary)
Limited
Vodacom Services Provider
Company (Proprietary) Limited
Vodacom Congo
(RDC) s.p.r.l
VM, S.A.R.L.**
(trading as Vodacom
Mozambique)
Vodacom Lesotho
(Proprietary) Limited
50%
100%
100%
100%
88.3%
90%
51%
65%
100%
50%
*
The structure only includes major operating entities and holding companies.
**  Effective April 1, 2007 Vodacom International Limited (Mauritius) sold an 8% equity interest to local investors, with 5% being
purchased by Intelec Holdings Limitada and Empresa Moçambicana de Telecommuniçãcoes acquiring an additional 3%.
background image
140
Our business consists of three segments:
•  a fixed-line segment;
•  a mobile segment; and
•  an other segment.
Our fixed-line segment consists of our fixed-line business, which provides fixed-line access and
data communications services through Telkom. Our mobile segment consists of our 50% interest in
Vodacom, our joint venture. Our other segment consists of directory services through our 64.9%
owned TDS Directory Operations subsidiary; wireless data services through our wholly owned
Swiftnet subsidiary, Internet services in Africa through our wholly owned Africa Online subsidiary and
fixed, mobile, data, long distance and international telecommunications services focused primarily on
corporate clients in Nigeria through our 75% owned Multi-Links subsidiary.
PROPERTY, PLANT AND EQUIPMENT
Fixed-line
Our principal executive offices are located at Telkom Towers North, 152 Proes Street, Pretoria
0002, Republic of South Africa and comprised approximately 27,000 square meters of office space
as of March 31, 2008. In addition, our information technology center comprised approximately
22,000 square meters and our network operations center comprised approximately 24,000 square
meters as of March 31, 2008. Our executive offices are leased from the Telkom Retirement Fund
under a lease agreement which will expire on January 31, 2019. The total area of all our properties
as of March 31, 2008 comprised approximately 2.5 million square meters consisting of approximately
1.5 million square meters of owned, approximately 640,000 square meters of leased and
approximately 403,000 square meters of other type properties. As of March 31, 2008, we leased
approximately 222,000 square meters of office space pursuant to lease agreements. Except as stated
to the contrary below, our leases expire at various times ranging from one month to five years.
Our properties primarily consisted of 2,459 electronic telephone exchanges, 49 microwave
transmission towers, three satellite stations, 137 Telkom Direct shops, 263 customer service centers,
three information technology centers and one network management center as of March 31, 2008.
background image
141
Details of the principal immovable property leased and owned by our fixed-line business as of
March 31, 2008 are as follows:
Leased
Current
Type of
or
monthly
Expiration
        property     
owned
      Lessor  
Lessee
        Location                
      rental   
      date     
Head office
Leased
Telkom
Telkom
152 Proes Street, Pretoria,
R6,051,657
Jan 31, 2019
Retirement Fund
South Africa
Office
Leased
Bridgeport/Lanor
Telkom
195 Nelson Mandela
R932,164
Jun 30, 2009
Joint Venture
Drive, Bloemfontein,
South Africa
Information
Leased
Telkom
Telkom
21 Teddington Street,
R1,303,862
Jan 31, 2019
technology center
Retirement Fund
Tygerberg, Bellville,
South Africa
Equipment related
Leased
Telkom
Telkom
178 Vermeulen Street,
R524,607
Jan 31, 2019
Retirement Fund
Pretoria, South Africa
Network operations
Owned
n/a
n/a
55 Oak Avenue, Highveld,
n/a
n/a
Center
Centurion, South Africa
Information
Owned
n/a
n/a
91 Oak Avenue Highveld,
n/a
n/a
Technology,
Centurion, South Africa
Technopark
National Business
Owned
n/a
n/a
61 Oak Avenue, Highveld,
n/a
n/a
Solutions Center
Centurion, South Africa
Hillbrow Microwave
Owned
n/a
n/a
Claim Street, Hillbrow,
n/a
n/a
Tower
Johannesburg, South Africa
Pretoria Microwave
Owned
n/a
n/a
Devenish Street, Groenkloof,
n/a
n/a
Tower
Pretoria, South Africa
Hartebeesthoek
Owned
n/a
n/a
Old Krugersdorp Road,
n/a
n/a
satellite station
On The Farm Hartebeesthoek,
South Africa
Electronic telephone
Owned
n/a
n/a
Sivewright Street, New
n/a
n/a
exchange
Doornfontein, Johannesburg,
South Africa
Our leased and owned property facilities are managed pursuant to a management agreement
with TFMC, a company incorporated in South Africa, of Meersig Building, 48 West Avenue, Centurion.
The consideration paid to TFMC for management services in the year ended March 31, 2008 was
R160 million. The management agreement terminates on March 31, 2011.
Mobile
Vodacom’s principal executive offices are located at Vodacom Corporate Park, 082 Vodacom
Boulevard, Vodavalley, Midrand, 1685, Republic of South Africa. Vodacom’s South African properties
primarily consisted of 7,300 base transceiver stations, 379 base station controllers, 53 mobile
switching centers, including VLRs and gateways, a network management center and customer service
centers as of March 31, 2008. The number of mobile switching centers have decreased in the 2007
financial year due to the implementation of new equipment with increased capacity per unit when
compared to the replaced equipment. The total area of all of Vodacom’s properties, excluding its
network and retail outlets, was approximately 209,073 square meters as of March 31, 2008, consisting
of approximately 173,446 square meters of owned properties and approximately 35,627 square
meters of leased properties. Vodacom’s leases expire at various times on terms up to 15 years.
Vodacom leases transmission lines from Telkom under a lease agreement for the provision of its
backbone infrastructure.
background image
142
Item 5. Operating and financial review and prospects
OPERATING RESULTS
You should read the following discussion together with the consolidated financial statements of
the Telkom Group and Vodacom and the notes thereto included elsewhere in this annual report. The
Telkom Group and Vodacom have prepared their consolidated financial statements in accordance with
IFRS, which differs in certain respects from US GAAP.
Overview of our business
For an overview of our business see Item 4. “Information on the company – Business overview –
Business summary.”
Principal factors that affect our results of operations
Liberalization of the South African telecommunications market and increasing competition
Our operating results are significantly impacted by increasing competition in the South African
communications market. As competition intensifies, the main challenges our fixed-line business faces
are continuing to improve customer loyalty through improved services and products and maintaining
our leadership in the South African communications market. As a result of increasing competition, we
anticipate pressure on overall average tariffs, a reduction in our market share and an increase in costs
in our fixed-line business, which could cause our growth rates, operating revenue and net profit to
decline. Increased future competition may also result in a reduction in Vodacom’s overall average
tariffs, loss of market share and an increase in its customer acquisition and retention costs. At the
same time, we expect competition to stimulate overall market demand for communications services,
which could cause Vodacom’s growth rates, revenue and net profit to decline. See Item 3. “Key
Information – Risk Factors – Risks Related to our Business – Increased competition in the South
African telecommunications market may result in a reduction in overall average tariffs, market share
and an increase in costs in our fixed-line business, which could cause our growth rates, operating
revenue and net profit to decline and our churn rates to increase,” Item 4. “Information on the
company – Fixed-line communications – Competition” and Item 4. “Information on the Company –
Regulation and License Requirements.”
South African fixed-line communications market
While South Africa features a highly developed financial and legal infrastructure at the core of its
economy, it also suffers from high levels of unemployment and income disparity. With respect to the
economically disadvantaged communities of the population, communications providers must compete
with other basic necessities for customers’ limited resources. In a number of areas of the country and
for particular communities, mobile services are the preferred alternative to fixed-line services, primarily
due to mobility. Although the fixed-line penetration rate in South Africa was only 9.5% and 9.8% as of
March 31, 2008 and March 31, 2007, respectively, due to the diverse rural geography and
demographic factors in South Africa, we do not expect South Africa’s fixed-line penetration rates to
increase in the near term. In the 2008 and 2007 financial years, our total fixed access lines decreased
primarily due to a decrease in the number of residential PSTN lines, partially offset by an increase in
ISDN channels and business postpaid PSTN lines. Residential postpaid PSTN lines were adversely
impacted by customer migration to mobile and higher bandwidth products such as ADSL and lower
connections, while the decrease in prepaid PSTN lines was primarily as a result of customer migration
to mobile services and our residential postpaid PSTN services. Similarly, traffic declined in both the
2008 and 2007 financial years, being adversely affected by the increasing substitution of calls placed
background image
143
using mobile services rather than our fixed-line services and dial up internet traffic being substituted
by our ADSL service, as well as the decrease in the number of residential PSTN lines and increased
competition in our payphone business. During the same period, ISDN channels and ADSL services
have increased, driven by increased demand for higher bandwidth and functionality. In light of these
market conditions, we will seek to maintain existing customers in the face of increasing competition
and increase sales of data products while utilizing existing capacity, largely through increased sales of
our bundled products.
South African mobile communications market
South Africa has experienced significant growth in the number of mobile users since GSM mobile
services were launched in the country in 1994. The penetration rate for mobile users increased from
an estimated 2.4% at March 31, 1997 to an estimated 94% at March 31, 2008. As a result, Vodacom’s
South African revenue increased 19.1% and 15.6% in the 2007 and 2008 financial years, respectively.
While we believe the mobile penetration rate will continue to increase, as the market is currently
maturing and has a high cell phone penetration rate, we do not expect that it will continue to grow at
the same high rates that it has experienced in the recent past. Consequently, Vodacom is seeking to
maintain its leadership position in the South African market through the introduction of new, innovative
products to ensure it gains new customers, retains existing customers and differentiates itself from its
competitors. Vodacom will continue to invest in its business intelligence to enhance customer
segmentation to better target products and converged communications. Vodacom intends to invest
further in expanding its network and improving network quality and customer service levels to ensure
it maintains its leadership position.
Vodacom is seeking to expand its data offering through services such as multimedia messaging
services, information and banking services, location based services and advertising on cell phones.
To achieve further company growth and revenue, Vodacom’s strategy is to become a leading
provider of converged communications and related services, initially focusing on the corporate and
small, medium and micro enterprises markets. This initiative is driven by Vodacom Business, which
was officially launched in February 2008.
Vodacom Business offers the market a full set of converged technology and communications
services.
Vodacom Business is developing a service portfolio that includes next-generation internet protocol
voice services, managed networks and infrastructure services, access services, hosting and
applications.
Underpinning Vodacom’s growth in data and converged solutions is a serious involvement in
international data transmission. Vodacom believes it is critical for Vodacom to play a significant role
and the company is active in a number of international transmission incentives, such as the Seacom,
Eassy Cable and Infraco developments. Vodacom’s previous focus of customer acquisition and
selective growth in other African countries still remain focus areas.
In furtherance of these strategies, in the 2005 financial year, Vodacom signed an alliance with its
shareholder, Vodafone, which gives Vodacom access to Vodafone’s branded products and services,
global research and development and access to Vodafone’s marketing and buying powers. In addition,
Vodacom launched the first commercial 3G network in South Africa in December 2004. Vodacom also
launched Vodafone Mobile Connect Cards, 3G/GPRS/HSDPA datacards providing fast, secure access
to corporate networks from computers, Vodafone live!, with global and local content, picture and video
messaging and downloads, Mobile TV and BlackBerry®. In addition, during the 2007 financial year,
Vodacom launched 3G with HSDPA, giving its customers access to global high speed broadband
communications, and in May 2008, Vodacom launched HSUPA, an enhancement of its HSDPA.
background image
144
A large part of the growth in mobile services was due to the success of prepaid services.
Approximately 85.3% of Vodacom’s South African mobile customers were prepaid customers at March
31, 2008 and 93.4% of all gross connections were prepaid customers in the 2008 financial year.
During the 2008 and 2007 financial years the growth in contract customers in South Africa exceeded
the growth in prepaid customers as a result of the migration of the South African middle class from
prepaid to contract services. The increasing number of prepaid users, who tend to have lower average
usage, together with the lower overall usage as the lower end of the market continues to be
penetrated have historically resulted in decreasing overall average revenue per customer. The shift in
the customer mix to higher spending contract customers, which represented 14.3% of total South
African customers as of March 31, 2008 compared to 13.1% as of March 31, 2007, enabled total
South African ARPU to remain stable at R125 per month in the 2007 and 2008 financial years after
decreasing from R139 per month in the 2006 financial year. South African contract ARPU decreased
to R486 per month in the 2008 financial year from R517 per month in the 2007 financial year and
R572 per month in the 2006 financial year. South African prepaid ARPU decreased to R62 per month
in the 2008 financial year from R63 per month in the 2007 financial year and R69 per month in the
2006 financial year. In the 2008, 2007 and 2006 financial years, contract and prepaid customer ARPU
were also negatively impacted by the high growth in Vodacom’s hybrid contract product, Family Top
Up, which contributed to the migration of higher spending prepaid customers, who tend to spend less
than existing contract customers, to contracts.
Tariffs
Our operating results are significantly impacted by tariff levels. See Item 3. “Key Information –
Risk Factors – Risks Related to Regulatory and Legal Matters – Our tariffs are subject to approval by
the regulatory authorities, which may limit our flexibility in pricing and could reduce our revenue and
net profit. Vodacom’s revenue and net profit could also decline if wholesale price controls are imposed
on it” and Item 4. “Information on the Company – Business Overview – Fixed-line Communications –
Fees and Tariffs – Tariff Rebalancing”.
Vodacom’s and Telkom’s increasing interconnection payments
Vodacom and Telkom have experienced a significant change in the traffic mix as mobile
customers have increased relative to fixed-line customers. This resulted in an increasing percentage
of calls from Vodacom’s network terminating on other mobile networks rather than our fixed-line
network. Vodacom’s interconnection payments have increased and its margins have decreased
because the cost of terminating calls on other mobile networks is higher than the cost of terminating
calls on Telkom’s fixed-line network. As a result, Vodacom’s South African net interconnect revenue
has been declining in recent years. Similarly, Telkom has incurred increased payments to other
operators as a result of the growth in interconnection traffic for fixed-line calls terminating on mobile
networks. If mobile customers continue to increase and there is little or no growth in fixed-line
customers, this trend could continue and Vodacom’s and Telkom’s margins and net profit could
decline.
Acquisitions and dispositions
The revenue, expenses, net profit, cash flows and capital expenditures of Telkom and Vodacom
have significantly been impacted by their acquisitions and dispositions, particularly Multi-Links and
Vodacom’s service provider acquisitions in recent years. See Item 4. “Information on the company –
Recent Developments – Acquisitions and Investments” and “– Vodacom’s acquisitions and
dispositions.”
background image
145
Volatility of the Rand
The value of the Rand as measured against the US Dollar has historically fluctuated significantly.
The value of the Rand as measured against the Dollar has increased from R11.38 per U.S.$1.00 as of
March 31, 2002 to R6.15 per U.S.$1.00 as of March 31, 2006. The value of the Rand as measured
against the Dollar was R8.14 per U.S.$1.00 as of March 31, 2008. Telkom’s policy is to hedge its
foreign denominated debt and operating and capital expenditures. Vodacom’s policy is to hedge its
foreign denominated commitments for operating and capital expenditures for its South African
operations. Currency exchange hedges are not always available in other African countries or are not
available on commercially acceptable terms. Decreases in the value of the Rand as measured against
other currencies could increase the future cost in Rand terms of future foreign denominated debt,
future foreign denominated financing costs and future foreign denominated operating and capital
expenditures. Fair value adjustments on financial instruments are recorded in the Telkom Group’s
consolidated financial statements in the period they occur pursuant to IAS39 – Recognition and
Measurement of Financial Instruments. The effect of the application of this standard increased our
consolidated profit before tax by R123 million in the 2006 financial year, R202 million in the 2007
financial year and R82 million in the 2008 financial year. Future exchange rate and financial market
volatility may continue to materially impact our future results due to the large volume of foreign
exchange contracts entered into by us to cover our foreign currency denominated debt, financing and
operating costs and capital expenditures.
Theft, vandalism, network fraud, payphone fraud and non-licensed operators
We have experienced significant cable theft, theft of solar panels and wireless communications
equipment, vandalism of payphones, network fraud, such as non-licensed calls, and payphone fraud
in our fixed-line business. Theft and vandalism have caused our fixed-line fault rates to increase and
the repair times on our network and the network downtime associated with such faults and network
fraud and payphone fraud have resulted in lost operating revenue and significant costs. Theft of cable
increased significantly in the 2008 and 2007 financial years due to the increase in the price of copper.
We have also lost operating revenue to non-licensed operators providing telecommunications services
in South Africa. If we are unable to control theft, vandalism, network fraud and payphone fraud, or if
we continue to lose operating revenue to non-licensed operators in our fixed-line business, our fixed-
line fault rates could increase and our operating revenue and net profit could decline.
Capital expenditures
Historically, our fixed-line capital expenditures were aimed primarily at modernizing our network
and rolling out lines in order to comply with our license obligations and prepare for competition. As we
seek to implement our current strategy in the face of a significantly more competitive environment due
to the entry of Neotel and the further liberalization of the South African communications market as a
result of the enactment of the Electronic Communications Act, we have shifted our capital expenditure
focus as we seek to evolve our fixed-line network to an internet protocol-based next generation
network. As a result, we expect that our fixed-line capital expenditures in the 2009 financial year will
be spent primarily in the following areas:
•  Maintaining current service levels and growth;
•  Improvements to current networks;
•  Enhancing customer centricity;
•  Evolving to a next generation network;
•  Regulatory and legal to comply with regulatory obligations;
•  Wireless access network deployment in high margin areas and for corporate customers; and
•  Expansion of international networks through our subsidiaries.
background image
146
Our consolidated capital expenditures in property, plant and equipment for the 2009 financial year
is budgeted to be approximately R15.2 billion, of which approximately R7.0 billion is budgeted to be
spent in our fixed-line segment and approximately R5.2 billion is budgeted to be spent in our mobile
segment, which is our 50% share of Vodacom’s budgeted capital expenditure of approximately
R10.4 billion, and approximately R3.0 billion is budgeted to be spent in our other segment. Our capital
expenditures are continuously examined and evaluated against the perceived economic benefit and
may be revised in light of changing business conditions, regulatory requirements, investment
opportunities and other business factors. See “Liquidity and Capital Resources – Capital Expenditures
and Investments.”
Employee related expenses
Employee related expenses are a significant component of our total fixed-line operating
expenses. Fixed-line employee expenses increased 4.2% from R7.1 billion in the 2007 financial year
to R7.4 billion in the 2008 financial year primarily due to increased salaries and wages and related
benefits as a result of annual average salary increases of 7.0%, a 1.1% increase in the number
of employees in our fixed-line business in the 2008 financial year, and increased payments to part
time staff and contractors to meet customer centricity objectives and the deployment of next
generation network objectives. The number of Telkom employees declined by approximately 31,236
positions from March 31, 1997 through March 31, 2006, increased by 289 positions in the year ended
March 31, 2007 and decreased by 985 positions in the 2008 financial year. At March 31, 2008, we
had 24,879 Telkom employees. Telkom is a party to a collective agreement on substantive matters
covering the terms and conditions of employment of its fixed-line unionized employees and other non-
management employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1,
2006 to March 31, 2009. The long term substantive agreement provides for the re-opening of
negotiations in the event the consumer price index varies from the April 2006 level of 3.7% by more
than 3%. Due to inflation increasing beyond this percentage, Telkom re-opened the negotiations in
December 2007 and thus far, we have not managed to reach a settlement. Given the rapidly
deteriorating economic conditions as evidenced by an increase in the consumer price index from 7.9%
in December 2007 to 11.7% in May 2008, the various Trade Union Federations especially COSATU
have requested a double-digit increase. We have received a notice from CWU advising Telkom of its
intention to embark on some unspecified industrial action.
Telkom had placed a moratorium on employee reductions until March 31, 2007. Telkom recently
announced that it was launching a capability management process to identify partners for network
operations, information technology management and Telkom Direct shops pursuant to which certain
elements will be outsourced to professional service providers. Telkom has issued a closed request for
proposals for professional services in this regard.
Telkom is engaging with organized labor in line with transparency and labor regulations in
connection with the implementation of its capability management program. If we are unable to
implement workforce reductions as necessary or outsourcing as planned, particularly as a result of
increased competition, or experience significant labor disputes, work stoppages, increased employee
expenses as a result of collective bargaining or compliance with labor laws, our business operations
could be disrupted and our net profit could be reduced.
Results of operations
Our operating structure comprises three segments, fixed-line, mobile and other. Our fixed-line
segment provides fixed-line voice and data communications services through Telkom. Our mobile
segment provides mobile services through its 50% joint interest in Vodacom. Our other operations
segment provides directory services through our TDS Directory Operations Group, fixed mobile, data
and other international communications services in Nigeria, through our newly acquired Multi-Links
subsidiary, internet services outside South Africa, through our Africa Online subsidiary, and wireless
data services, through our Swiftnet subsidiary, and includes Telkom Media. TDS Directory Operations
and Swiftnet were previously included in our fixed-line segment.
background image
147
We proportionately consolidate Vodacom’s results into the Telkom Group’s consolidated financial
statements. This means that we include 50% of Vodacom’s results in each of the line items in the
Telkom Group’s consolidated financial statements and in the year-to-year discussion below. We fully
consolidate our TDS Directory Operations, Multi-Links, Africa Online, Swiftnet and Telkom Media
subsidiaries in the Telkom Group’s consolidated financial statements.
Year ended March 31, 2008 compared to year ended March 31, 2007
and year ended March 31, 2006
Consolidated results
The following table shows information related to our operating revenue, operating expenses,
operating profit, profit for the year, profit margin, EBITDA and EBITDA margin for the periods
indicated.
Telkom Group’s segmental results
                        Year ended March 31,                
2006
2007
2008
2007/2006
2008/2007
ZAR
%
ZAR
%
ZAR
%
% change
% change
(in millions, except percentages)
Operating revenue . . . . .          47,625
100.0
51,619
100.0
56,285
100.0
8.4
9.0
Fixed-line . . . . . . . . . .
31,832
66.8
32,345
62.7
32,572
57.9
1.6
0.7
Mobile . . . . . . . . . . . .
17,021
35.7
20,573
39.8
24,089
42.8
20.9
17.1
Other . . . . . . . . . . . .
952
2.0
979
1.9
1,993
3.5
2.8
103.6
Intercompany eliminations . .
(2,180)
(4.5)
(2,278)
(4.4)
(2,369)
(4.2)
4.5
4.0
Other income
(1)
. . . . . . .
480
100.0
384
100.0
534
100.0
(20.0)
39.1
Fixed-line . . . . . . . . . .
465
96.9
334
87.0
497
93.1
(28.2)
48.8
Mobile . . . . . . . . . . . .
50
10.4
42
10.9
56
10.5
(16.0)
33.3
Other . . . . . . . . . . . .
10
2.1
54
14.1
67
12.5
440.0
24.1
Intercompany eliminations . .
(45)
(9.4)
(46)
(12.0)
(86)
(16.1)
2.2
87.0
Operating expenses . . . .         33,428
100.0
37,533
100.0
42,337
100.0
12.3
12.8
Fixed-line . . . . . . . . . .
22,454
67.2
24,083
64.1
24,962
59.0
7.3
3.6
Mobile . . . . . . . . . . . .
12,635
37.8
15,185
40.5
17,898
42.3
20.2
17.9
Other . . . . . . . . . . . .
564
1.7
589
1.6
1,830
4.3
4.4
210.7
Intercompany eliminations . .
(2,225)
(6.7)
(2,324)
(6.2)
(2,353)
(5.6)
4.4
1.2
Operating profit
(2)
. . . . . .
14,677
100.0
14,470
100.0
14,482
100.0
(1.4)
0.1
Fixed-line . . . . . . . . . .
9,843
67.1
8,596
59.4
8,107
56.0
(12.7)
(5.7)
Mobile . . . . . . . . . . . .
4,436
30.2
5,430
37.5
6,247
43.1
22.4
15.0
Other . . . . . . . . . . . .
398
2.7
444
3.1
230
1.6
11.6
(48.2)
Intercompany eliminations . .
–
–
–
–
(102)
(0.7)
–
–
Operating profit margin (%) .
30.8
28.0
25.7
(9.1)
(8.2)
Fixed-line . . . . . . . . . .
30.9
26.6
24.9
(13.9)
(6.4)
Mobile . . . . . . . . . . . .
26.1
26.4
25.9
1.1
(1.9)
Other . . . . . . . . . . . .
41.8
45.4
11.5
8.6
(74.7)
Profit for the year attributable
to equity holders of Telkom .
9,189
100.0
8,646
100.0
7,975
100.0
(5.9)
(7.8)
Profit margin (%) . . . . . .
19.3
16.7
14.2
(13.5)
(15.0)
EBITDA
(2)(3)
. . . . . . . . .
20,553
100.0
19,785
100.0
20,612
100.0
(3.7)
4.2
Fixed-line . . . . . . . . . .
14,206
69.1
12,178
61.6
11,839
57.4
(14.3)
(2.8)
Mobile . . . . . . . . . . . .
5,908
28.8
7,123
36.0
8,217
39.9
20.6
15.4
Other . . . . . . . . . . . .
439
2.1
484
2.4
373
1.8
10.3
(22.9)
Intercompany eliminations . .
–
–
–
–
183
0.9
n/a
n/a
EBITDA margin (%) . . . .
43.2
38.3
36.6
(11.3)
(4.4)
background image
148
Notes:
(1)
Other income includes profit and losses on disposal of investments, property, plant and equipment and intangible assets.
(2)
Total operating profit and EBITDA and mobile operating profit and EBITDA include our 50% share of a reversal of
Vodacom’s impairment loss of R53 million in the 2006 financial year due to an increase in the fair value of the assets in
Mozambique and an impairment loss of R30 million and R23 million in the 2008 and 2007 financial years respectively, in
respect of the assets in Mozambique due to a decrease in the fair value of the assets.
(3)
EBITDA represents profit for the year, which includes profit on sale of investments, before taxation, finance charges,
investment income and depreciation, amortization, impairments and write-offs. See footnote 9 in Item 3. “Key Information
– Selected Historical Consolidated Financial and Other Data of the Telkom Group” and footnote 6 in Item 3. “Key
Information – Selected Historical Consolidated Financial and Other Data of Vodacom Group” for a reconciliation of
EBITDA of the Telkom Group and Vodacom, respectively, to net profit. We believe that EBITDA provides meaningful
additional information to investors since it is widely accepted by analysts and investors as a basis for comparing a
company’s underlying operating profitability with that of other companies as it is not influenced by past capital
expenditures or business acquisitions, a company’s capital structure or the relevant tax regime. This is particularly the
case in a capital intensive industry such as communications. It is also a widely accepted indicator of a company’s ability
to service its long-term debt and other fixed obligations and to fund its continued growth. EBITDA is not a US GAAP or
IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash flows from operating
activities determined in accordance with US GAAP or IFRS or as a measure of liquidity. EBITDA is not defined in the
same manner by all companies and may not be comparable to other similarly titled measures of other companies unless
the definition is the same. In addition, the calculation of EBITDA for the maintenance of our covenants contained in our
TL20 bond is based on accounting policies in use, consistently applied, at the time the indebtedness was incurred. As a
result, EBITDA for purposes of those covenants is not calculated in the same manner as it is calculated in the above
table.
EBITDA can be reconciled to operating profit as follows:
   Year ended March 31,   
2006
2007
2008
ZAR
ZAR
ZAR
(in millions)
Fixed-line
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,206
12,178
11,839
Depreciation, amortization, impairments and write-offs . . . . . . . . . .
 (4,363) 
 (3,582) 
 (3,732) 
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,843
8,596
8,107
Mobile
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,908
7,123
8,217
Depreciation, amortization and impairments . . . . . . . . . . . . . . .
 (1,472) 
 (1,693) 
 (1,970) 
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,436
5,430
6,247
Other
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
439
484
373
Depreciation, amortization, impairments and write-offs . . . . . . . . . .
   (41)  
   (40)  
   (143)  
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
398
444
230
Operating revenue
Operating revenue increased in the years ended March 31, 2008 and 2007 due to increased
operating revenue in our mobile other and fixed-line segments. Vodacom’s operating revenue
increased in the 2008 financial year primarily due to increased airtime, data, interconnection and
equipment sales revenue as a result of strong customer growth. Vodacom’s operating revenue
increased in the 2007 financial year primarily due to increased data, interconnection and equipment
sales revenue as a result of continued customer growth. The increase in revenue in our other
background image
149
segment in the 2008 financial year was primarily due to the inclusion in the 2008 fiscal year of
revenue generated by our newly acquired subsidiaries, Multi-Links and Africa Online.
Fixed-line operating revenue remained flat with a marginal increase of 0.7% in the 2008 financial
year primarily due to continued growth in data services, interconnection revenues and higher revenue
from subscription based calling plans, partially offset by a decrease in local and long distance traffic.
The increase in fixed-line operating revenue in the 2007 financial year was primarily due to continued
growth in data revenue and higher subscriptions and connections revenue partially offset by lower
average traffic tariffs, lower local and long distance traffic and lower interconnection revenue.
These additional revenue streams were further supported by the continued growth in advertising
revenue from our subsidiary, TDS Directory Operations, offset in part by a slight reduction in wireless
data services revenue from our subsidiary, Swiftnet due to increased competition in the wireless data
environment. Revenue from directory services increased in the years ended March 31, 2007
and 2008 primarily due to annual tariff increases and increased marketing and online efforts,
resulting in increased spending on advertising by existing customers and additional advertising
revenue from new customers.
Other income
Other income includes profit on the disposal of investments, property, plant and equipment and
intangible assets. The increase in fixed-line other income in the 2008 financial year was primarily due
to the disposal of more properties at a higher value during the 2008 fiscal year. The decrease in fixed-
line other income in the 2007 financial year was primarily due to lower sales of assets and properties
as well as a decrease in profit on disposal of investments, which resulted from the reclassification of
assets held by the Cell captive to an annuity policy that qualified as a plan asset, effective June 1,
2006. The profits and losses that would have previously been included in other income are now
treated as movements in the plan assets funding the post retirement medical aid obligation.
Operating expenses
Operating expenses increased in the years ended March 31, 2008 and 2007 as a result of
increased operating expenses in our mobile, other and fixed-line segments. The increase in mobile
operating expenses in the 2008 financial year was primarily due to inflationary factors and growth in
the business, which led to increased selling, general and administrative expenses to support the
expansion of 3G, growth in Vodacom’s South African and African operations and increased
competition, increased payments to other network operators due to higher outgoing traffic and the
increased percentage of outgoing traffic terminating on other mobile networks, higher employee costs
as a result of increased headcount as well as increased depreciation, amortization and impairment.
The increase in mobile operating expenses in the 2007 financial year was primarily due to increased
selling, general and administrative expenses to support the expansion of 3G, growth in Vodacom’s
South African and other African operations and increased competition, increased payments to other
network operators due to higher outgoing traffic and the increased percentage of outgoing traffic
terminating on other mobile networks, increased depreciation, amortization and impairment, higher
employee costs as a result of increased headcount, average 7.5% annual salary increases, an
increase in the provision for bonus schemes and an increase in the provision for long term incentives
for executives and increased operating leases.
The increase in the other segment’s operating expenses in the 2008 financial year was primarily
due to the inclusion of operating expenses relating to our newly acquired subsidiaries, Multi-Links and
Africa Online, and the creation of Telkom Media, all of which impacted all expense categories.
Increases in other operating expenses in the 2008 financial year were primarily driven by significant
increases in payments to other operators, employee expenses, depreciation, amortization and
impairments, operating leases and services rendered.
background image
150
The increase in fixed-line operating expenses in the 2008 financial year was primarily due to
increased payments to other operators, higher employee expenses and services rendered, partially
offset by lower leases and selling, general and administrative expenses. Payments to other operators
increased primarily due to increased calls from our fixed-line network to mobile and international
operators as result of higher call volumes from our fixed-line network to the mobile and international
networks. Employee expenses increased due to higher salaries and wages as a result of average
annual salary increases and higher share compensation expenses, partially offset by a reduced
provision for team award and a reduction in the number of employees. Services rendered increased
primarily due to increased property management costs mainly related to increased electricity usage,
electricity rates and taxes, payments to consultants to explore local and international investment
opportunities, higher security costs due to increases in contract prices and maintenance and
monitoring of the cable alarm system and legal fees related to Telcordia. Operating leases decreased
in the year ended March 31, 2008 primarily due to a discount received on the extension of
our vehicle lease and a reduction in the number of vehicles from 9,694 at March 31, 2007
to 8,792 at March 31, 2008. Selling, general and administrative expenses decreased primarily
due to the provision for probable liabilities in the Telcordia dispute in the 2007 financial year, which
were not increased significantly in the 2008 financial year, and lower marketing expense, partially
offset by the R217 million impairment of the Telkom Media loan in the 2008 financial year – increased
materials and maintenance expenses and higher bad debts. Depreciation, amortization, impairments
and write-offs increased in the year ended March 31, 2008 primarily as a result of higher amortization
of intangible assets and increased depreciation due to the ongoing investment in telecommunications
network equipment and data processing equipment, partially offset by lower asset write-offs.

The increase in fixed-line operating expenses in the 2007 financial year was primarily attributable
to increased selling, general and administrative expenses, employee expenses, payments to other
operators, and services rendered, partially offset by lower depreciation, amortization, impairments and
write-offs as a result of an increase in the useful lives of certain assets. Selling, general and
administrative expenses increased primarily as a result of the provision raised for possible liabilities
in the Telcordia dispute, higher materials and maintenance expenses, increased marketing and
sponsorships, and increased costs of sales due to the reclassification of finance leases associated
with customer premises equipment in selling, general and administrative expenses, partially offset
by a provision for VAT that was reversed due to a revenue ruling from SARS. Employee expenses
increased due to higher salaries and wages as a result of average annual salary increases of 7.0%
and related benefits, an increase in the number of employees and increased payments to part time
employees and contractors. Payments to other network operators increased primarily due to higher
call volumes from our fixed-line network to the mobile networks and higher payments to international
network operators as a result of higher international outgoing volumes and a weaker exchange rate.
Services rendered increase in the year ended March 31, 2007 primarily due to increased payments
to consultants to explore local and international investment opportunities, customer centricity and
higher security and property management costs at TFMC.
Operating profit
Operating profit increased in the 2008 financial year due to increased mobile operating profit as a
result of higher operating revenue, partially offset by lower fixed-line operating profit and operating
profit from our other segment. Operating profit decreased in the 2007 financial year due to decreased
fixed-line operating profit as a result of higher operating expenditure, partially offset by increased
mobile operating profit. As a result, the fixed-line operating profit margin decreased from 30.9% in the
2006 financial year to 26.6% in the 2007 financial year and decreased to 24.9% in the 2008 financial
year and the mobile operating profit margin increased from 26.1% in the 2006 financial year to 26.4%
in the 2007 financial year and decreased to 25.9% in the 2008 financial year. The operating margin for
our other segment increased from 41.8% in the 2006 financial year to 45.4% in the 2007 financial
year and decreased to 11.5% in the 2008 financial year.
background image
151
Investment income
Investment income consists of interest received on short term investments and bank accounts and
income received from our investments. Investment income decreased 16.2% to R197 million in the
2008 financial year and decreased 40.8% to R235 million in the 2007 financial year from R397 million
in the 2006 financial year. The decrease in the 2008 financial year was primarily due to lower interest
received from fixed deposits and repurchase agreements mainly due to lower cash balances.
The decrease in the 2007 financial year was primarily due to lower interest received as a result
of lower cash balances available for short term investments and increased taxation payments.
Finance charges
Finance charges include interest paid on local and foreign borrowings, amortized discounts
on bonds and commercial paper bills, fair value gains and losses on financial instruments and
foreign exchange gains and losses.
The following table sets forth information related to our finance charges for the periods indicated.
Finance charges
      Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
Interest expense . . . . . . . . . . . . . . . . . . .
1,346
1,327
1,885
(1.4)
42.1
Local loans . . . . . . . . . . . . . . . . . . . . . .
1,506
1,488
2,041
(1.2)
37.2
Foreign loans . . . . . . . . . . . . . . . . . . . . .
9
–
19
–
n/a
Finance charges capitalized . . . . . . . . . . . . .
(169)
(161)
(175)
(4.7)
8.7
Foreign exchange losses and fair value
movements . . . . . . . . . . . . . . . . . . . . . .
(123)
(202)
(82)
(64.2)
59.4
Fair value (adjustments) on derivative instruments . .
(170)
(448)
(196)
(163.5)
56.3
Foreign exchange losses . . . . . . . . . . . . . . .
47
246
114
423.4
(53.7)
Total finance charges . . . . . . . . . . . . . . . .
1,223
1,125
1,803
(8.0)
60.3
During the year ended March 31, 2008, finance charges increased primarily due to a higher
interest expense resulting from higher debt levels in the fixed-line, mobile and other segments, and
foreign exchange losses and fair value movements decreased primarily due to currency movements
and fair value losses on the put option we have in place relating to Multi-Links and Vodacom Congo.
This was partially offset by fair value adjustments as a result of the significant weakness of the Rand
against international currencies. During the year ended March 31, 2007, finance charges decreased
due to a slightly reduced interest expense resulting from lower interest bearing debt levels, and an
increase in the net fair value and exchange gains due to currency movements and fair value
adjustments of our consolidated special purpose entity used to fund Telkom’s post retirement medical
benefit obligation.
Taxation
Our consolidated tax expense decreased 0.6% to R4,704 million in the year ended March 31,
2008 and increased 4.6% to R4,731 million in the year ended March 31, 2007 from R4,523 million in
the year ended March 31, 2006. The decrease in the 2008 financial year was primarily due to higher
non-deductible expenses relating mostly to the impairment of Telkom Media and Africa Online assets,
the increase in STC tax credits utilized in respect of the repurchase of Telkom share, the utilization of
the Multi-Links assessed losses and the impact of the tax rate change on deferred taxation from 29%
background image
152
to 28% with effect from April 1, 2008. The increase in the 2007 financial year was mainly due to the
higher capital gains tax liability created and higher non-deductible expenses in Telkom company and
Vodacom.
The following table sets forth information related to our effective tax rate for the Telkom Group,
Telkom Company and Vodacom for the periods indicated:
Year ended March 31,
2006
2007
2008
2007/2006
2008/2007
  %  
  %  
  %  
  % change
% change
Effective tax rate
Telkom Group . . . . . . . . . . . . . . . . . . . . .
32.7
34.9
36.5
6.7
4.6
Telkom Company . . . . . . . . . . . . . . . . . . .
25.0
24.2
24.6
(3.2)
1.7
Vodacom . . . . . . . . . . . . . . . . . . . . . . .
37.5
36.9
34.1
(1.6)
(7.6)
The increase in the Telkom Group effective tax rate in the 2008 financial year was mainly due to
higher non-deductible expenses relating mostly to the impairment of Telkom Media and Africa Online
assets, the increase in STC tax credits utilized in respect of the repurchases of Telkom shares and the
impact of the tax rate change on deferred taxation from 29% to 28% with effect from April 1, 2008.
The increase in the Telkom Group effective tax rate in the 2007 financial year was mainly due to
higher capital gains tax and higher non-deductible expenses in Telkom company and Vodacom.
The higher effective tax rate for Telkom Company in the year ended March 31, 2008 was primarily
due to higher non-deductable expenses relating to the R217 million impairment of the Telkom Media
loan and an increase of R198 million in secondary tax on companies, partially offset by higher exempt
income resulting from dividends received from Vodacom and other subsidiaries. The lower effective
tax rate for Telkom Company in the year ended March 31, 2007 was primarily due to higher exempt
income resulting mainly from dividends received primarily from Vodacom partially offset by higher non-
deductable expenses relating to the Telcordia dispute. Vodacom’s effective tax rate decreased in the
2008 financial year primarily due to the decrease in the rate of secondary tax on companies from
12.5% to 10%. The lower effective tax rate for Vodacom in the 2007 financial year was mainly due to
the utilization of the Vodacom Congo’s capital expenditure allowances.
Minority interests
Minority interests in the income of subsidiaries decreased 3.0% to R197 million in the year ended
March 31, 2008 primarily due to the purchase of the remaining equity interest of 30% in Smartphone
on August 31, 2007, partially offset by an increase in profits generated by our TDS Directory 
Operations subsidiary and Vodacom Tanzania. Minority interests in the income of subsidiaries increased
46.0% to R203 million in the year ended March 31, 2007 primarily due to the increase in profits
generated by Smartphone, Vodacom Tanzania and Cointel partially offset by the purchase of
additional equity interests in Smartphone and Cointel.
Profit for the year attributable to equity holders of Telkom
Profit for the year attributable to equity holders of Telkom decreased in the 2008 financial year
primarily due to decreased operating profit in our fixed-line and other segments, partially offset by
increased operating profit in our mobile segment. Higher finance charges and lower investment
income were partially offset by lower taxation. Profit for the year attributable to equity holders of
Telkom decreased in the 2007 financial year primarily due to decreased operating profit in our fixed-
line segment, partially offset by increased operating profit in our mobile segment. Lower investment
income and higher taxation was partially offset by an increase in net fair value and exchange gains.
background image
153
Fixed-line segment
The following is a discussion of the results of operations from our fixed-line segment before
eliminations of intercompany transactions with the mobile and other segments. Our fixed-line segment
is our largest segment based on revenue and profit contribution.
Fixed-line operating revenue
Our fixed-line operating revenue is derived principally from fixed-line subscriptions and
connections; traffic, which comprises local and long-distance traffic, fixed-to-mobile traffic, international
outgoing traffic and international voice over internet protocol services; and interconnection, which
comprise terminating and hubbing traffic. We also derive fixed-line operating revenue from our data
business, which includes data transmission services, managed data networking services and internet
access and related information technology services.
Telkom has in recent years introduced calling plans as a customer retention strategy in order to
defend revenues. These calling plan arrangements comprise monthly subscriptions for access line
rental, value added services and free or discounted rates on calls. Traffic revenue from calling plan
subscriptions was reported as part of local traffic revenue in financial years prior to the 2007 financial
year, as most of these calling plans related to local calls only and the amounts were insignificant. The
access line rentals and value added services revenue components of calling plan arrangements are
included in subscriptions and connections revenue. In response to the significant growth in calling
plan arrangements, the need arose to separate traffic revenue resulting from subscription based
calling plans into annuity revenue and the respective traffic revenue streams. Commencing in the
2007 financial year, subscription based on calling plans revenue includes traffic annuity revenue
related to calling plans. Discounted and out of plan traffic relating to these calling plans is disclosed
under the applicable traffic revenue streams.
The following table shows operating revenue for our fixed-line segment broken down by major
revenue streams and as a percentage of total revenue for our fixed-line segment and the percentage
change by major revenue stream for the periods indicated.
Fixed-line operating revenue
                           Year ended March 31,                     
2006
2007
2008
2007/2006
2008/2007
ZAR
%
ZAR
%
ZAR
%
% change
% change
(in millions, except percentages)
Subscriptions and
connections . . . . . . .
5,803
18.2
6,286
19.4
6,330
19.4
8.3
0.7
Traffic . . . . . . . . . . .                    17,563
55.2
16,740
51.8
15,950
49.0
(4.7)
(4.7)
Local . . . . . . . . . .
5,753
18.1
4,832
14.9
4,076
12.6
(16.0)
(15.6)
Long-distance . . . . .
3,162
9.9
2,731
8.5
2,252
6.9
(13.6)
(17.5)
Fixed-to-mobile . . . .
7,647
24.0
7,646
23.6
7,557
23.2
–
(1.2)
International outgoing .
1,001
3.2
988
3.1
986
3.0
(1.3)
(0.2)
Subscription based
calling plans . . . . . .
–
–
543
1.7
1,079
3.3
–
98.7
Interconnection . . . . . .
1,654
5.2
1,639
5.1
1,757
5.4
(0.9)
7.2
Data . . . . . . . . . . .
6,674
21.0
7,489
23.1
8,308
25.5
12.2
10.9
Sundry revenue . . . . .
138
0.4
191
0.6
227
0.7
38.4
18.8
Fixed-line operating
revenue . . . . . . . . .                    31,832
100.0
32,345
100.0
32,572
100.0
1.6
0.7
background image
154
Fixed-line operating revenue increased in the 2008 financial year primarily due to continued
growth in data services and higher revenue from subscription based calling plans, interconnection and
subscriptions and connections, partially offset by a decrease in traffic revenue, particularly local and
long distance traffic revenue. Fixed-line operating revenue increased in the 2007 financial year,
primarily due to continued growth in data services and higher subscriptions and connections revenue,
partially offset by lower average traffic tariffs, lower local and long distance traffic and lower
interconnection revenue.
Fixed-line operating revenue was adversely impacted in both the 2008 and 2007 financial years
due to a decrease in the number of residential postpaid PSTN lines primarily as a result of customer
migration to mobile and higher bandwidth products such as ADSL and lower connections, and a
decrease in the number of prepaid PSTN lines as a result of customer migration to mobile services
and our residential postpaid PSTN services to enable access to subscription based calling plans and
was positively impacted by our increase in ISDN channels, ADSL services and, to a lesser extent,
business postpaid PSTN lines. In addition, traffic was adversely affected in both years by the
increasing substitution of calls placed using mobile services rather than our fixed-line service and dial-
up traffic being substituted by our ADSL service, as well as the decrease in the number of prepaid and
residential postpaid PSTN lines and increased competition in our payphones business. As a result,
traffic declined 4.7% in both the 2008 and 2007 financial years. Revenue per fixed access line
decreased 0.5% to R5,250 in the 2008 financial year from R5,275 in the 2007 financial year primarily
due to the decline in traffic tariffs and local traffic volumes, partially offset by increased subscription
based calling plans, interconnection and subscriptions and connections tariffs. Revenue per fixed
access line decreased 0.5% to R5,275 in the 2007 financial year from R5,304 in the 2006 financial
year primarily due to the decline in traffic tariffs, lower local traffic volumes and lower interconnection
revenue, partially offset by increased subscriptions and connection tariffs.
Subscriptions and connections. Revenue from subscriptions and connections consists of revenue
from connection fees, monthly rental charges, value added voice services and the sale and rental of
customer premises equipment for postpaid and prepaid PSTN lines, including ISDN channels and
private payphones. Subscriptions and connections revenue is principally a function of the number and
mix of residential and business lines in service, the number of private payphones in service and the
corresponding charges. The following table sets forth information related to our fixed-line subscription
and connection revenue during the periods indicated.
Fixed-line subscription and connection revenue
       Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
% change
% change
Total subscriptions and connections revenue
(ZAR millions, except percentages) . . . . . . . .
5,803
6,286
6,330
8.3
0.7
Total subscription access lines (thousands,
except percentages)
(1)
. . . . . . . . . . . . . . . .
4,551
4,490
4,395
(1.3)
(2.1)
Postpaid
PSTN
(2)
. . . . . . . . . . . . . . . . . . . . . . . .
2,996
2,971
2,893
(0.8)
(2.6)
ISDN channels . . . . . . . . . . . . . . . . . . . .
693
718
754
3.6
5.0
Prepaid PSTN . . . . . . . . . . . . . . . . . . . . .
854
795
743
(6.9)
(6.5)
Private payphones . . . . . . . . . . . . . . . . . .
8
6
5
(25.0)
(16.7)
Notes:
(1)
Total subscription access lines are comprised of PSTN lines, including ISDN lines and private payphones, but excluding
internal lines in service and public payphones. Each analog PSTN line includes one access channel, each basic rate
ISDN line includes two access channels and each primary rate ISDN line includes 30 access channels.
(2)
Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fiber.
background image
155
Revenue from subscriptions and connections increased in the years ended March 31, 2008 and
2007 mainly due to increased tariffs as well as an increase in the number of ISDN lines and, to a
lesser extent, business postpaid PSTN lines, partially offset by lower residential postpaid PSTN lines
and prepaid PSTN lines. The average monthly prices for subscriptions increased by 6.0% on
September 1, 2005, 8.3% on August 1, 2006 and 12.0% on August 1, 2007. In the 2007 financial year,
revenue from the sale of customer premises equipment increased as a result of the reclassification
of the related leases previously accounted for as operating leases to finance leases, resulting in the
recognition of income from the lease of customer premises equipment at the time of sale as opposed
to over the life of the contract. In addition, increased revenue was received from voice enhanced
services, mainly as a result of increased penetration.
The decrease in the number of residential postpaid PSTN lines in service in both the 2008 and
2007 financial years was primarily as a result of customer migration to mobile and higher bandwidth
products such as ADSL and lower connections. The increase in the number of postpaid ISDN
channels was driven by increased demand for higher bandwidth and functionality. The decrease in
prepaid PSTN lines in both the 2008 and 2007 financial years was primarily due to continued
migration to mobile services and our residential postpaid PSTN services to enable access to
subscription based calling plans. In addition, we relaxed our credit policies which led to fewer
migrations of our postpaid customers to prepaid service in the 2008 and 2007 financial years.
For a discussion of our connection and rental fees, see Item 4. “Information on the Company –
Business Overview – Fixed-line communications – Fees and tariffs – Subscription and connection
tariffs” and for a discussion of the number of lines during the periods, see Item 4. “Information on the
Company – Business Overview – Fixed-line communications – Products and services”.
Traffic. Traffic revenue consists of revenue from local, long distance, fixed-to-mobile and
international outgoing calls, international voice over internet protocol services and subscription based
calling plans. Traffic revenue is principally a function of tariffs and the volume, duration and mix
between relatively more expensive domestic long distance, international and fixed-to-mobile calls and
relatively less expensive local calls.
Telkom has in recent years introduced calling plans as a customer retention strategy in order to
defend revenues. These calling plan arrangements comprise monthly subscriptions for access line
rental, value added services and free or discounted rates on calls. Traffic revenue from calling plan
subscriptions was reported as part of local traffic revenue in financial years prior to the 2007 financial
year, as most of these calling plans related to local calls only and the amounts were insignificant. The
access line rentals and value added services revenue components of calling plan arrangements are
included in subscriptions and connections revenue. In response to the significant growth in calling
plan arrangements, the need arose to separate traffic revenue resulting from subscription based
calling plans into annuity revenue and the respective traffic revenue streams. Commencing in the
2007 financial year, subscription based on calling plans revenue includes traffic annuity revenue
related to calling plans. Discounted and out of plan traffic relating to these calling plans is disclosed
under the applicable traffic revenue streams.
Traffic includes dial up internet traffic. Telkom has reclassified calling plans from local, long
distance and fixed-to-mobile traffic into a separate line item to disclose traffic from subscription based
calling plans in the 2007 and 2008 financial year. Traffic for the 2006 financial year was not restated.
background image
156
The following table sets forth information related to our fixed-line traffic revenue for the periods
indicated.
Fixed-line traffic revenue
    Year ended March 31,    
2006
2007
2008
2007/2006
2008/2007
% change
% change
Local traffic revenue (ZAR millions, except
percentages) . . . . . . . . . . . . . . . . . . . . .
5,753
4,832
4,076
(16.0)
(15.6)
Local traffic (millions of minutes, except
percentages)
(1)
. . . . . . . . . . . . . . . . . . .
18,253
14,764
11,317
(19.1)
(23.3)
Long distance traffic revenue (ZAR millions,
except percentages) . . . . . . . . . . . . . . . . .
3,162
2,731
2,252
(13.6)
(17.5)
Long distance traffic (millions of minutes, except
percentages)
(1)
. . . . . . . . . . . . . . . . . . .
4,446
4,224
3,870
(5.0)
(8.4)
Fixed-to-mobile traffic revenue (ZAR millions,
except percentages) . . . . . . . . . . . . . . . . .
7,647
7,646
7,557
–
(1.2)
Fixed-to-mobile traffic (millions of minutes, except
percentages)
(1)
. . . . . . . . . . . . . . . . . . .
4,064
4,103
4,169
1.0
1.6
International outgoing traffic revenue
(ZAR millions, except percentages) . . . . . . . .
1,001
988
986
(1.3)
(0.2)
International outgoing traffic (millions of minutes,
except percentages)
(1)
. . . . . . . . . . . . . . .
515
558
635
8.3
13.8
International voice over internet protocol (millions
of minutes, except percentages)
(2)
. . . . . . . . .
83
38
43
(54.2)
13.2
Subscription based calling plans revenue
(ZAR millions, except percentages) . . . . . . . .
–
543
1,079
–
98.7
Subscription based calling plans (millions of
minutes, except percentages) . . . . . . . . . . .
–
1,896
2,997
–
58.1
Total traffic revenue (ZAR millions, except
percentages) . . . . . . . . . . . . . . . . . . . . .
17,563
16,740
15,950
(4.7)
(4.7)
Total traffic (millions of minutes, except
percentages)
(1)
. . . . . . . . . . . . . . . . . . .
27,361
25,583
23,031
(6.5)
(10.0)
Average total monthly traffic minutes per average
monthly access line (minutes)
(3)
. . . . . . . . . .
482
456
417
(5.4)
(8.6)
Notes:
(1)
Traffic, other than international voice over internet protocol traffic, is calculated by dividing total traffic revenue by the
weighted average tariff during the relevant period. Traffic includes dial up internet traffic.
(2)
International voice over internet protocol traffic is based on the traffic reflected in invoices.
(3)
Average monthly traffic minutes per average monthly access line are calculated by dividing the total traffic by the
cumulative number of monthly access lines in the period.
Traffic revenue declined in the 2008 and 2007 financial years primarily due to lower average traffic
tariffs and lower local traffic volumes partially offset by increased subscription based calling plans and
revenue, international outgoing and fixed-to-mobile traffic.
ICASA approved a 3.0% reduction in the overall tariffs for services in the basket for which there is
a price cap effective September 1, 2005, a 2.1% reduction in the overall tariffs for services in the
basket effective August 1, 2006 and a 1.2% reduction in the overall tariffs for services in the basket
effective August 1, 2007. Traffic was adversely affected in both the 2008 and 2007 financial years by
the increasing substitution of calls placed using mobile services rather than our fixed-line service and
dialup traffic being substituted by our ADSL service, as well as the decrease in the number of prepaid
and residential postpaid PSTN lines and increased competition in our payphone business.
background image
157
For a discussion of our traffic tariffs, see Item 4. “Information on the Company – Business
Overview – Fixed-line communications – Fees and tariffs – Traffic tariffs” and for a discussion of our
traffic during the periods discussed, see Item 4. “Information on the Company – Business Overview
–Fixed-line communications – Products and Services – Traffic.”
Local traffic revenue decreased in the 2008 financial year primarily due to significantly lower traffic
resulting primarily from internet call usage being substituted by our ADSL service, the substitution of
calls placed using mobile services and discounts to business customers, partially offset by increased
local off-peak tariffs and traffic volumes related to Telkom Closer packages. Local traffic revenue
decreased in the 2007 financial year due to lower traffic resulting primarily from internet call usage
being substituted by our ADSL service and the substitution of calls placed using mobile services. We
increased penetration of discount and subscription based calling plans to stimulate usage in the 2008
and 2007 financial years and to counteract mobile substitution, which effectively lowers the cost to the
customer. On September 1, 2005, we decreased the price of local peak calls after the first unit by
5.0% to 38 SA Cents per minute (VAT inclusive). This price was unchanged on August 1, 2006 and
August 1, 2007. On August 1, 2007, the price of local off-peak calls increased 4.1% on average.
Long distance traffic revenue decreased in the 2008 financial year mainly due to a decrease in
average long distance tariffs and, to a lesser extent, decreased long distance traffic, partially offset by
increased traffic related to Telkom Closer packages and Worldcall. Long distance traffic revenue
decreased in the 2007 financial year mainly due to a decrease in average long distance tariffs, which
was partially offset by increased long distance traffic. We decreased our fixed-line long distance traffic
tariffs by 10% on September 1, 2005, a further 10% on August 1, 2006 and a further 10% on
August 1, 2007.
Revenue from fixed-to-mobile traffic consists of revenue from calls made by our fixed-line
customers to the three mobile networks in South Africa and is primarily a function of fixed-to-mobile
tariffs and the number, the duration and the time of calls. Fixed-to-mobile traffic revenue decreased in
the 2008 financial year due to higher discount offered to customers in order to retain traffic, partially
offset by higher traffic related to the Telkom Closer packages. Fixed-to-mobile traffic revenue was flat
in the 2007 financial year. Increased fixed-to-mobile traffic was partially offset by higher discounts
offered to customers in order to retain traffic on our network. The increase in fixed-to-mobile traffic in
the 2008 and 2007 financial years was primarily due to discounts offered to larger customers on fixed-
to-mobile calls.
Revenue from international outgoing traffic consists of revenue from calls made by our fixed-line
customers to international destinations and from international voice over internet protocol services and
is a function of tariffs and the number, duration and mix of calls to destinations outside South Africa. In
the 2008 and 2007 financial years, international outgoing traffic revenue declined primarily as a result
of a decrease in the average international outgoing tariffs, partially offset by an increase in
international outgoing traffic primarily as a result of the reduced tariffs. The average tariffs to all
international destinations decreased by 11.1% on August 1, 2006 and by 9.0% on August 1, 2007.
Revenue from subscription based calling plans include revenue from Telkom’s subscription based
plans, Telkom Closer and Supreme Call, which are bundled products on post-paid PSTN lines that
include discounted rates and free minutes for a fixed monthly subscription fee. In the 2008 financial
year, revenue from subscription based calling plans increased by 98.7% primarily due to a 69.4%
increase in customers subscribing to these packages.
Interconnection. We generate revenue from interconnection services for traffic from calls made by
other operators’ customers that terminate on or transit through our network. Revenue from
interconnection services includes payments from domestic mobile, domestic fixed and international
operators regardless of where the traffic originates or terminates. The following table sets forth
information related to interconnection revenue for the years indicated.
background image
158
Interconnection revenue
    Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
Interconnection revenue (ZAR millions, except
percentages) . . . . . . . . . . . . . . . . . . . . .
1,654
1,639
1,757
(0.9)
7.2
Interconnection revenue from domestic mobile
operators (ZAR millions, except percentages) . .
760
816
838
7.4
2.7
Domestic mobile interconnection traffic
(millions of minutes, except percentages)
(1)
. . . .
2,299
2,419
2,502
5.2
3.4
Interconnection revenue from domestic fixed-line
operators (ZAR millions, except percentages) . .
–
–
28
–
–
Domestic fixed-line interconnection traffic
(millions of minutes, except percentages)
(2)
. . . .
–
–
113
–
–
Interconnection revenue from international
operators (ZAR millions, except percentages) . .
894
823
891
(7.9)
8.3
International interconnection traffic
(millions of minutes, except percentages)
(2)
. . . .
1,355
1,321
1,280
(2.5)
(3.1)
Notes:
(1)
Domestic mobile interconnection traffic, other than international outgoing mobile traffic, is calculated by dividing total
domestic mobile and domestic fixed-line interconnection traffic revenue, respectively, by the weighted average domestic
mobile and domestic fixed-line interconnection traffic tariffs during the relevant period. International outgoing mobile traffic
is based on the traffic registered through the respective exchanges and reflected in interconnection invoices.
(2)
International interconnection and domestic fixed-line interconnection traffic is based on the traffic registered through the
respective exchanges and reflected on interconnection invoices.
Interconnection revenue from domestic mobile operators includes revenue for call termination and
international outgoing calls from domestic mobile networks, as well as access to other services, such
as emergency services and directory enquiry services. Interconnection revenue from domestic mobile
operators increased in the 2008 and 2007 financial years mainly due to increased traffic from
domestic mobile operators, partially offset by lower average tariffs on mobile international outgoing
calls. Domestic mobile interconnection traffic increased in the years ended March 31, 2008 and 2007
primarily due to an overall increase in mobile calls as a result of a growing mobile market, partially
offset by increased mobile-to-mobile calls bypassing our network. Interconnection revenue from
domestic mobile operators includes fees paid to our fixed-line business by Vodacom of R468 million in
the year ended March 31, 2008, R468 million in the year ended March 31, 2007 and R464 million in
the year ended March 31, 2006. Fifty percent of these amounts were attributable to our interest in
Vodacom and were eliminated from the Telkom Group’s revenue on consolidation.
Interconnection revenue from domestic fixed-line operators includes fees paid by Neotel,
underserviced area license holders and value added network service providers for call termination and
international outgoing calls, as well as access to other services, such as emergency services and
directory inquiry services. With effect from May 23, 2007, ICASA approved interconnection rates with
Neotel, underserviced area license holders and value added network service providers for
interconnection on our fixed-line network. In October 2007, Neotel commenced interconnection with
Telkom. In July 2007, Telkom began interconnection with the underserviced area license holders and
in November 2007, value added network service providers. We expect interconnection revenue to
increase as a result of the entrance of Neotel and the further liberalization of the South African
telecommunications industry, which may partially mitigate declines in revenue in other areas.
background image
159
Interconnection revenue from international operators includes amounts paid by foreign operators
for the use of our network to terminate calls made by customers of such operators and payments from
foreign operators for interconnection hubbing traffic through our network to other foreign networks.
Interconnection revenue from international operators increased in the year ended March 31, 2008
primarily due to the weakening of the Rand against the SDR, the notional currency in which
international rates are determined, and increased switched hubbing traffic volumes due to a reduction
in tariffs to stimulate competitiveness, partially offset by lower volumes and settlement rates.
Interconnection revenue from international operators decreased in the year ended March 31, 2007
primarily due to decreased settlement rates and volume discounts and decreased switched hubbing
traffic volumes, partially offset by increased international termination tariffs and the weakening of the
Rand.
Data. Data services comprise data transmission services, including leased lines and packet based
services, managed data networking services and internet access and related information technology
services. In addition, data services include revenue from ADSL. Revenue from data services is mainly
a function of the number of subscriptions, tariffs, bandwidth and distance. The following table sets
forth information related to revenue from data services for the periods indicated.
Data services revenue
   Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
Data services revenue (ZAR millions, except
percentages) . . . . . . . . . . . . . . . . . . . . .
6,674
7,489
8,308
12.2
10.9
Leased lines and other data revenue
(1)
. . . . . . .
5,304
5,828
6,460
9.9
10.8
Leased line facilities revenues from mobile
operators . . . . . . . . . . . . . . . . . . . . . . .
1,370
1,661
1,848
21.2
11.3
Number of managed network sites (at period end) . .
16,887
21,879
25,112
29.6
14.8
Internet dial-up subscribers (at period end) . . . . . .              228,930    210,453   242,732
(8.1)
15.3
Internet ADSL subscribers (at period end) . . . . . .
53,997
92,140    115,334
70.6
25.2
Total ADSL subscribers (at period end)
(2)
. . . . . . .              143,509    255,633   412,190
78.1
61.2
Notes:
(1)
Leased lines and other data revenue includes all data services revenue other than leased line facilities revenue from
mobile operators.
(2)
Excludes Telkom internal ADSL services of 751, 523 and 249 as of March 31, 2008, 2007 and 2006, respectively.
Our data services revenue increased in both the 2008 and 2007 financial years primarily due to
increased revenue from data connectivity service, including ADSL connectivity and SAIX, internet
access, and managed data networks, including VPN Supreme and increased revenue from leased
line facilities from mobile operators. These increases were partially offset by decreased tariffs for
leased line facilities to mobile operators and data connectivity services. Revenue from leased line
facilities from mobile operators increased in the years ended March 31, 2008 and 2007 primarily due
to the roll-out of third generation and universal mobile telecommunications system products by the
mobile operators.
Operating revenue from our data services included R1,028 million, R907 million and R845 million
in revenue received by our fixed-line business from Vodacom in the years ended March 31, 2008,
2007 and 2006, respectively. Fifty percent of these amounts were attributable to our interest in
Vodacom and were eliminated from the Telkom Group’s revenue on consolidation.
background image
160
For a discussion of our data services, see Item 4. “Information on the Company – Business
Overview – Fixed-line communications – Products and services – Data communications services”.
Sundry revenue. Sundry revenue includes revenue relating to collocation of other licensed
operators on Telkom owned properties, the sale of materials and revenue related to the recovery of
costs for work performed on behalf of other licensed operators. Sundry revenue increased by 18.8%
to R227 million in the 2008 financial year and 38.4% to R191 million in the 2007 financial year from
R138 million in the 2006 financial year primarily due to an increase in prices, and in the 2007 financial
year, volumes, for collocation and recoveries.
Fixed-line operating expenses
The following table shows the operating expenses of our fixed-line segment broken down by
expense category as a percentage of total revenue and the percentage change by operating expense
category for the years indicated.
Fixed-line operating expenses
                            Year ended March 31,                   
2006
2007
2008
2007/2006
2008/2007
% of
% of
% of
ZAR
revenue
ZAR
revenue
ZAR
revenue
% change
% change
(in millions, except percentages)
Employee expenses
(1)
. .
6,314
19.8
7,096
21.9
7,397
22.7
12.3
4.2
Payments to other
network operators . . . .
6,140
19.3
6,461
20.0
6,902
21.2
5.2
6.8
Selling, general and
administrative expenses
(2)(3)
2,837
8.9
3,976
12.3
3,899
11.9
40.1
(1.9)
Services rendered . . . .
2,045
6.4
2,206
6.8
2,413
7.4
7.9
9.4
Operating leases . . . . .
755
2.4
762
2.4
619
1.9
0.9
(18.8)
Depreciation,
amortization, impairments
and write-offs . . . . . . .
4,363
13.7
3,582
11.1
3,732
11.5
(17.9)
4.2
Fixed-line operating
expenses . . . . . . . .                   22,454
70.5
24,083
74.5
24,962
76.6
7.3
3.6
Notes:
(1)
Employee expenses include workforce reduction expenses of R3 million, R24 million and R85 million in the years ended
March 31, 2008, 2007 and 2006, respectively.
(2)
In the year ended March 31, 2007 we recorded a provision of R527 million for probable liabilities related to Telkom’s
arbitration with Telcordia, excluding legal fees, of which R510 million is included in selling, general and administrative
expenses and R11 million for interest and R6 million for foreign exchange rate effect is included in finance charges. In the
year ended March 31, 2008 we recorded a provision of R569 million for probable liabilities related to Telkom’s arbitration
with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million and foreign
exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional payment made
in respect of specific sub-claims within the Telcordia claim.
(3)
Includes a R217 million impairment relating to Telkom Media in the 2008 financial year.
background image
161
Fixed-line operating expenses increased in the 2008 financial year primarily due to increased
payments to other network operators, employee expenses, services rendered and depreciation,
amortization, impairment and write-offs, partially offset by lower leases and selling, general and
administrative expenses. Fixed-line operating expenses increased in the 2007 financial year primarily
due to increased selling, general and administrative expenses, employee expenses, payments to
other operators and services rendered, partially offset by lower depreciation, amortization,
impairments and write-offs.
Employee expenses. Employee expenses consist mainly of salaries and wages for employees,
including bonuses and other incentives, benefits and workforce reduction expenses.
The following table sets forth information related to our employee expenses for the years
indicated.
Fixed-line employee expenses
   Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
% change
% change
(ZAR millions, except percentages and
number of employees)
Salaries and wages . . . . . . . . . . . . . . . . . .
4,466
5,095
5,509
14.1
8.1
Benefits . . . . . . . . . . . . . . . . . . . . . . . .
2,383
2,673
2,671
12.2
(0.1)
Workforce reduction expenses . . . . . . . . . . . .
85
24
3
(71.8)
(87.5)
Employee related expenses capitalized . . . . . . .
(620)
(696)
(786)
12.3
12.9
Employee expenses . . . . . . . . . . . . . . . . .
6,314
7,096
7,397
12.4
4.2
Number of full-time, fixed-line employees
(at period end) . . . . . . . . . . . . . . . . . . . .
25,575
25,864
24,879
1.1
(3.8)
Employee expenses increased in the year ended March 31, 2008 primarily due to higher salaries
and wages as a result of average annual salary increases of 7.0%, and increased share option grant
expenses as a result of the higher number of shares granted in the year, partially offset by lower team
awards. Employee expenses increased in the year ended March 31, 2007 primarily due to higher
salaries and wages as a result of average annual salary increases of 7.0% and related benefits, a
1.1% increase in the number of fixed-line employees and increased payments to part time employees
and contractors.
Salaries and wages increased in the year ended March 31, 2008 primarily due to average annual
salary increases of 7.0% and was further impacted by increased payments to contractors from original
equipment manufacturers. Salaries and wages increased in the year ended March 31, 2007 primarily
due to average annual salary increases of 7.0% and a 1.1% increase in the number of fixed-line
employees and increased payments to part time employees and contractors to meet customer
centricity objectives and the deployments of next generation network objectives.
Benefits include allowances, such as bonuses, company contributions to medical aid, pension and
retirement funds, leave provisions, workmen’s compensation and levies payable for skills
development. Benefits decreased in the 2008 financial year primarily due to lower team awards, a
lower provision for medical aid for pensioners as a result of the annuity policy qualifying as a plan
asset in June 2006, a lower provision for leave as a result of the decrease in the number of
employees and lower training expenses, partially offset by increased share option grant expenses as
a result of the higher number of shares allocated during the year. Benefits increased in the 2007
financial year due to increases in salaries and wages, higher pension fund contributions resulting from
the movement of employees from the pension fund to the retirement fund and the funding of the
related deficit, increased post-retirement telephone benefits, increased sales commissions, increased
training and increased critical skills retention.
background image
162
Workforce reduction expenses include the cost of voluntary early retirement, termination
severance packages offered to employees and the cost of social plan expense to prepare affected
employees for new careers outside Telkom. Workforce reduction expenses decreased substantially in
the years ended March 31, 2008 and 2007 due to the moratorium on voluntary severance packages
taken in the 2007 financial year. Workforce reduction expenses in the 2007 financial year included
social planning expenses as part of Telkom’s workforce reduction program. An additional four
employees in the 2008 financial year, 13 employees in the 2007 financial year and 245 employees in
the 2006 financial year left Telkom as part of the conclusion of Telkom’s workforce reduction initiatives
for the 2005 financial year. For additional information related to our fixed-line employee numbers, see
Item 4. “Information on the Company – Business Overview – Fixed-line communications –
Employees”.
Employee related expenses capitalized include employee related expenses associated with
construction and infrastructure development projects. Employee related expenses capitalized
increased in the years ended March 31, 2008 and March 31, 2007 primarily due to annual salary
increases and increased capital expenditures on projects during the year.
Payments to other network operators. Payments to other network operators include settlement
payments paid to the three South African mobile communications network operators and commencing
in the 2008 financial year, Neotel, for terminating calls on their networks and to international network
operators for terminating outgoing international calls and traffic transiting through their networks.
The following table sets forth information related to our payments to other network operators for
the periods indicated.
Fixed-line payments to other network operators
    Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(ZAR millions, except percentages)
Payments to mobile communications network
operators . . . . . . . . . . . . . . . . . . . . . . .
5,220
5,425
5,460
3.9
0.6
Payments to international and other network
operators . . . . . . . . . . . . . . . . . . . . . . .
920
1,036
1,208
12.6
16.6
Payments to fixed-line operators . . . . . . . . . . .
–
–
234
n/a
n/a
Payments to other network operators . . . . . . .
6,140
6,461
6,902
5.2
6.8
Payments to fixed-line operators in the 2008 financial year were as a result of interconnection
commencing with Neotel, USALS and VANS during the 2008 financial year. Payments to mobile and international
network operators increased in the 2008 and 2007 financial years primarily due to higher call volumes
from our fixed-line network to the mobile networks, resulting from discounts offered on our CellSaver
and Telkom Closer products, increased fixed-to-mobile calls by business customers due to growth in
the mobile market, increased international outgoing traffic arising from our reduced average
international tariffs and a weaker exchange rate in the 2008 and 2007 financial years. As discussed
above in Item 4. “Information on the company – Fixed-line communications – Fees and tariffs –
Interconnection tariffs,” the termination rate we pay to mobile operators and our retention have not
changed in the three years ended March 31, 2008, while our international outgoing tariffs have
generally decreased during this period. Payments to other network operators include payments made
by our fixed-line business to Vodacom, which were R3,017 million, R2,954 million and R2,855 million
in the years ended March 31, 2008, 2007 and 2006, respectively. Fifty percent of these amounts were
attributable to our interest in Vodacom and were eliminated from the Telkom Group’s expenses on
consolidation.
background image
163
Selling, general and administrative expenses. Selling, general and administrative expenses
include materials and maintenance costs, marketing expenditures, bad debts, theft, losses and other
expenses, including obsolete stock and cost of sales.
The following table sets forth information related to our fixed-line selling, general and
administrative expenses for the periods indicated.
Fixed-line selling, general and administrative expenses
   Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(ZAR millions, except percentages)
Materials and maintenance . . . . . . . . . . . . . .
1,608
1,900
1,996
18.2
5.1
Marketing . . . . . . . . . . . . . . . . . . . . . . .
378
604
583
59.8
(3.5)
Bad debts . . . . . . . . . . . . . . . . . . . . . . .
154
137
217
(11.0)
58.4
Other
(1)(2)
. . . . . . . . . . . . . . . . . . . . . . . .
697
1,335
1,103
91.5
(17.4)
Selling, general and administrative expenses
(1)(2)
.
2,837
3,976
3,899
40.1
(1.9)
Notes:
(1)
In the year ended March 31, 2007 we recorded a provision of R527 million for probable liabilities related to Telkom’s
arbitration with Telcordia, excluding legal fees, of which R510 million is included in selling, general and administrative
expenses and R11 million for interest and R6 million for foreign exchange rate effect is included in finance charges. In the
year ended March 31, 2008 we increased the provision to R569 million for probable liabilities related to Telkom’s
arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million
and foreign exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional
payment made in respect of specific sub-claims within the Telcordia claim.
(2)     
Includes a R217 million impairment relating to Telkom Media in the 2008 financial year.
Selling, general and administrative expenses decreased primarily due to the provision for
probable liabilities in the Telcordia dispute in the 2007 financial year, which were not increased
significantly in the 2008 financial year, and lower marketing expense, partially offset by the
R217 million impairment of the Telkom Media loan in the 2008 financial year – increased materials
and maintenance expenses and higher bad debts. Selling, general and administrative expenses
increased in the year ended March 31, 2007 primarily due to the provision raised for probable
liabilities in the Telcordia dispute, higher materials and maintenance expenses, increased marketing
and sponsorships and increased costs of sales due to the reclassification of finance leases
associated with customer premises equipment in selling, general and administrative expenses.
Materials and maintenance expenses include stock write-offs, subcontractor payments and
consumables required to maintain our network. Materials and maintenance expenses increased in the
year ended March 31, 2008 primarily due to increased operating maintenance projects as result of an
increase in the number of technologies employed in the network and higher fuel costs as a result of
the increased price of fuel. Materials and maintenance expenses increased in the year ended
March 31, 2007 primarily due to higher incidents of copper theft, increased operating maintenance
projects and a higher number of maintenance contracts as result of new technology rollout.
Marketing expenses decreased in the year ended March 31, 2008 primarily due to lower
sponsorships and decreased calling plan advertising during the year. Marketing expenses increased
in the year ended March 31, 2007 primarily due to increased sponsorships, higher market research
costs and increased advertising and media campaigns. We expect marketing expenses in response
to increased competition, including from Neotel, and the further liberalization of the South African
communications industry generally, and the marketing of our packages will increase and sponsorships
will decrease.
background image
164
Bad debt increased in the year ended March 31, 2008 due to provisions for higher international
bad debts in certain countries, including Nigeria, Gaban and the United Kingdom. Bad debt decreased
in the year ended March 31, 2007 resulting primarily from improved credit management and credit
vetting policies, targeted line roll-out and an improved profiling of debtors. Bad debt as a percentage
of revenue was 0.7%, 0.4% and 0.5% in the 2008, 2007 and 2006 financial years, respectively.
Other expenses include obsolete stock, cost of sales, subsistence and travel and an offset for bad
debts recovered. Other expenses decreased in the year ended March 31, 2008 primarily due to the
provision for probable liabilities in the Telcordia dispute in the 2007 financial year, which were not
increased significantly in the 2008 financial year, partially offset by the R217 million impairment of the
Telkom Media loan in the 2008 financial year. Other expenses increased in the year ended March 31,
2007 primarily due to the provision raised for probable liabilities in the Telcordia dispute and increased
costs of sales due to the reclassification of finance leases associated with customer premises
equipment in selling, general and administrative expenses.
Services rendered. Services rendered include payments in respect of the management of our
properties, to TFMC, a facilities and property management company, consultants and security.
Consultants comprise fees paid to collection agents and to providers of other professional services
and external auditors. Security refers to services to safeguard the network and contracts to ensure a
safe work environment, such as guard services.
The following table sets forth information relating to services rendered expenses for the periods
indicated.
Fixed-line services rendered
   Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(ZAR millions, except percentages)
Property management . . . . . . . . . . . . . . . .
1,109
1,141
1,222
2.9
7.1
Consultants, security and other . . . . . . . . . . . .
936
1,065
1,191
13.8
11.8
Services rendered . . . . . . . . . . . . . . . . . .
2,045
2,206
2,413
7.9
9.4
Property management increased in the year ended March 31, 2008 primarily as a result of
increased property payment costs, mainly related to increased electricity usage, electricity rates and
taxes, payments to consultants to explore local and international investment opportunities, higher
security costs due to increases in contract prices and maintenance and monitoring of the cable alarm
system and legal fees related to Telcordia. Property management increased in the year ended March
31, 2007 primarily as a result of increased salary, wages, maintenance, rates and taxes at TFMC,
which are passed through to us. Payments to consultants increased in the year ended March 31,
2007 primarily due to increased payments to consultants to explore local and international investment
opportunities, customer centricity and higher security costs.
Operating leases. Operating leases include payments in respect of equipment, buildings and
vehicles. Operating leases decreased in the year ended March 31, 2008 primarily due to a discount
received on the extension of our vehicle lease and a reduction in the number of vehicles from 9,694 at
March 31, 2007 to 8,792 at March 31, 2008. Operating leases was relatively flat in the year ended
March 31, 2007.
background image
165
Fixed-line depreciation, amortization, impairments and write-offs
   Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
% change
% change
Depreciation of property, plant and equipment . . . .
3,789
2,993
3,061
(21.0)
2.3
Amortization of intangibles . . . . . . . . . . . . . .
387
305
409
(21.2)
34.1
Write-offs of property, plant and equipment and
intangible assets . . . . . . . . . . . . . . . . . .
187
284
262
51.9
(7.7)
Depreciation, amortization, impairments and
write-offs . . . . . . . . . . . . . . . . . . . . . .
4,363
3,582
3,732
(17.9)
4.2
Depreciation, amortization, impairments and write-offs increased in the year ended March 31,
2008 primarily as a result of higher amortization of intangible assets and increased depreciation due
to the ongoing investment in telecommunications network equipment and data processing equipment,
partially offset by lower asset write-offs. Depreciation, amortization, impairments and write-offs
decreased in the year ended March 31, 2007 primarily as a result of an increase in the useful life of
certain assets, partially offset by ongoing investment in telecommunications network equipment and
data processing equipment.
Mobile segment
Mobile encompasses all the operating activities of our 50% joint venture investment in Vodacom,
the largest mobile operator in South Africa with an approximate 55% market share as of March 31,
2008 based on total estimated customers in South Africa. In addition to its South African operations,
Vodacom has investments in mobile communications network operators in Lesotho, Tanzania, the
Democratic Republic of the Congo and Mozambique.
Vodacom’s operations outside of South Africa are at an earlier stage in their expansion and
market penetration than its operations in South Africa. Customers in other African countries increased
significantly over the past three financial years to approximately 9.2 million as of March 31, 2008 from
approximately 7.1 million as of March 31, 2007 and approximately 4.4 million as of March 31, 2006.
A substantial portion of the growth was from prepaid services. Services outside of South Africa are
mainly prepaid as these countries suffer from poverty and also due to the lack of banking systems and
credit histories.
The following table shows information related to our 50% share of Vodacom’s operating revenue
and operating profit broken down by Vodacom’s South African operations and operations in other
African countries for the periods indicated. All amounts in this table and the discussion of our mobile
segment that follows represent 50% of Vodacom’s results of operations unless otherwise stated and
are before the elimination of intercompany transactions with us.
Mobile operating revenue and profits
                         Year ended March 31,             
2006
2007
2008
2007/2006
2008/2007
ZAR
%
ZAR
%
ZAR
%
% change
% change
(in millions, except percentages)
Operating revenue . . .           17,021
100.0
20,573
100.0
24,089
100.0
20.9
17.1
South Africa . . . . . . .                 15,535
91.3
18,504
89.9
21,392
88.8
19.1
15.6
Other African countries . .
1,486
8.7
2,069
10.1
2,697
11.2
39.2
30.4
Operating profit
(1)
. . . .
4,436
100.0
5,430
100.0
6,247
100.0
22.4
15.0
South Africa . . . . . . .
4,292
96.8
5,170
95.2
5,852
93.7
20.5
13.2
Other African countries . .
144
3.2
260
4.8
395
6.3
80.6
51.9
EBITDA
(1)(2)
. . . . . . . .
5,908
100.0
7,123
100.0
8,217
100.0
20.6
15.4
background image
166
Notes:
(1)
Mobile operating profit and mobile EBITDA include our 50% share of a reversal of Vodacom’s impairment loss of
R53 million in the 2006 financial year due to an increase in the fair value of the assets in Mozambique and an impairment
loss of R23 million and R30 million in the 2007 and 2008 financial years, respectively, in respect of the assets in
Mozambique due to a decrease in the fair value of the assets.
(2)
Mobile EBITDA comprises our 50% share of Vodacom’s EBITDA, which represents mobile net profit, which includes the
profit on sale of investments, before taxation, finance charges, investment income and depreciation, amortization and
impairments. See footnote 6 in Item 3. “Key Information – Selected Historical Consolidated Financial and Other Data
of Vodacom Group” for a reconciliation of EBITDA of Vodacom to net profit. See footnote 3 in the table under “Operating
and Financial Review and Prospects – Results of Operations – Year ended March 31, 2008 compared to year ended
March 31, 2007 and year ended March 31, 2006 – Consolidated results” for a reconciliation of mobile EBITDA
to operating profit. We believe that EBITDA provides meaningful additional information to investors since it is widely
accepted by analysts and investors as a basis for comparing a company’s underlying operating profitability with that
of other companies as it is not influenced by past capital expenditures or business acquisitions, a company’s capital
structure or the relevant tax regime. This is particularly the case in a capital intensive industry such as communications.
It is also a widely accepted indicator of a company’s ability to service its long-term debt and other fixed obligations and
to fund its continued growth. EBITDA is not a US GAAP or IFRS measure. You should not construe EBITDA as an
alternative to operating profit or cash flows from operating activities determined in accordance with US GAAP or IFRS
or as a measure of liquidity. EBITDA is not defined in the same manner by all companies and may not be comparable
to other similarly titled measures of other companies unless the definition is the same.
Mobile operating revenue
Vodacom derives revenue from mobile services as well as other related or value added goods
and services. Vodacom’s revenue is mainly in the form of airtime charges, primarily airtime payments
from customers registered on Vodacom’s network; data products and services; interconnection
revenue from other operators for the termination of calls on Vodacom’s network and national roaming
revenue, revenue from equipment sales, including sales of handsets and accessories; and revenue
from international services, including airtime charges for the use of Vodacom’s network through
roaming of customers from other international networks and Vodacom customers who roam abroad.
The following table shows our 50% share of Vodacom’s revenue broken down by major revenue
type and as a percentage of total operating revenue for our mobile segment and the percentage
change by revenue type for the periods indicated.
Mobile operating revenue
                  Year ended March 31,                    
2006
2007
2008
2007/2006
2008/2007
ZAR
%
ZAR
%
ZAR
%
% change
% change
(in millions, except percentages)
Airtime . . . . . . . . . .                     10,043
59.0
11,854
57.6
13,548
56.3
18.0
14.3
Data . . . . . . . . . . .
1,019
6.0
1,671
8.1
2,501
10.4
64.0
49.7
Interconnection . . . . . .
3,348
19.7
3,918
19.0
4,443
18.4
17.0
13.4
Equipment sales . . . . .
1,993
11.7
2,350
11.4
2,526
10.5
17.9
7.5
International airtime . . .
486
2.9
653
3.2
918
3.8
34.4
40.6
Other sales and services .
132
0.7
127
0.7
153
0.6
(3.8)
20.5
Mobile operating
revenue . . . . . . . . .                    17,021
100.0
20,573
100.0
24,089
100.0
20.9
17.1
background image
167
The following table sets forth non-financial operational data of Vodacom for the periods indicated.
The amounts stated reflect 100% of Vodacom’s customers and traffic minutes.
    Year ended March 31,     
2006
2007
2008
2007/2006
2008/2007
% change
% change
South Africa
Total mobile customers (thousands) (at year end)
(1)
. . . .
19,162
23,004
24,821
20.1
7.9
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,362
3,013
3,541
27.6
17.5
Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,770
19,896
21,177
18.6
6.4
Community services telephones . . . . . . . . . . . . . . . .
30
95
103
216.7
8.4
Total inactive mobile customers (%) (at year end)
(2)
. . . .
8.7
10.7
10.3
23.0
(3.7)
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4
3.1
4.0
29.2
29.0
Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.6
11.8
11.4
22.9
(3.4)
Gross connections (thousands) . . . . . . . . . . . . . . .
9,140
10,859
12,040
18.8
10.9
Contract
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
506
666
782
31.6
17.4
Prepaid
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,618
10,124
11,248
17.5
11.1
Community services . . . . . . . . . . . . . . . . . . . . . . .
16
69
10
331.3
(85.5)
Churn (%)
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
17.7
33.8
42.3
91.0
25.1
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.0
9.7
8.3
(3.0)
(14.4)
Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.8
37.5
47.9
99.5
27.7
Total mobile traffic (millions of minutes)
(5)
. . . . . . . . . .
17,066
20,383
22,769
19.4
11.7
Outgoing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,354
13,638
15,323
20.1
12.4
Incoming . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,712
6,745
7,446
18.1
10.4
ARPU (ZAR)
(6)
. . . . . . . . . . . . . . . . . . . . . . . . .
139
125
125
(10.1)
0.0
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
572
517
486
(9.6)
(6.0)
Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
63
62
(8.7)
(1.6)
Community services . . . . . . . . . . . . . . . . . . . . . . .
1,796
902
689
(49.8)
(23.6)
Average MOU
(7)
. . . . . . . . . . . . . . . . . . . . . . . . .
74
69
66
(6.8)
(4.3)
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
206
188
172
(8.7)
(8.5)
Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
47
46
(4.1)
(2.1)
Community services . . . . . . . . . . . . . . . . . . . . . . .
2,327
1,151
883
(50.5)
(23.3)
Number of mobile employees (at year end)
(8)
. . . . . . . .
4,305
4,727
4,849
9.8
2.6
Number of mobile customers per mobile employee
(8)
. . .
4,451
4,867
5,119
9.3
5.2
Other African countries
(9)
Total mobile customers (thousands) (at year end)
(1)(2)
. . .
4,358
7,146
9,173
64.0
28.4
Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
206
279
395
35.4
41.6
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,091
3,247
4,207
55.3
29.6
Democratic Republic of Congo . . . . . . . . . . . . . . . . .
1,571
2,632
3,289
67.5
25.0
Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . .
490
988
1,282
101.6
29.8
Gross connections (thousands)
Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
119
176
21.4
47.9
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,353
2,092
2,645
54.6
26.4
Democratic Republic of Congo . . . . . . . . . . . . . . . . .
892
1,688
2,141
89.2
26.8
Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . .
342
797
951
133.0
19.3
Churn (%)
(4)
Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.3
19
17.8
(14.8)
(6.3)
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.5
35.6
45.5
24.9
27.8
Democratic Republic of Congo . . . . . . . . . . . . . . . . .
28.1
30.4
48.0
8.2
57.9
Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . .
32.2
41.7
58.7
29.5
40.8
ARPU (ZAR)
(6)
Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
75
73
(3.8)
(2.7)
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
52
49
(22.4)
(5.8)
Democratic Republic of Congo . . . . . . . . . . . . . . . . .
86
77
59
(10.5)
(23.4)
Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . .
36
28
29
(22.2)
3.6
Number of employees (at year end)
(8)
. . . . . . . . . . . .
1,154
1,522
1,992
31.9
30.9
Lesotho . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
63
97
(6.0)
54.0
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
438
527
766
20.3
45.4
Democratic Republic of Congo . . . . . . . . . . . . . . . . .
479
745
919
55.5
23.4
Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . .
170
187
210
10.0
12.3
Number of mobile customers per mobile employee
(at year end)
(8)
. . . . . . . . . . . . . . . . . . . . . . . . .
3,776
4,695
4,605
24.3
(1.9)
background image
168
Notes:
(1)
Vodacom’s customer totals are based on the total number of customers registered on Vodacom’s network, which have not
been disconnected, including inactive customers, as of the end of the period indicated.
(2)
Vodacom’s inactive customers are defined as all customers registered on Vodacom’s network for which no revenue
generating activity has been recorded for a period of three consecutive months. Vodacom’s contract customers
are disconnected when they terminate their contract, or their service is disconnected due to non-payment.
Up to June 15, 2006, calls forwarded to voicemail were regarded as revenue generating activity and such SIM cards
were classified as active customers. Because a large number of SIM cards have calls forwarded to voicemail as their
only revenue generating activity and a majority of such messages are never retrieved by the customer, resulting in
estimated ARPUs of less than R1 per month, Vodacom changed its definition of active customers to exclude calls
forwarded to voicemail from the definition of revenue generating activity effective June 15, 2006. Vodacom deleted
approximately 3 million customers during the period of this rule change. As a result of the rule change, prepaid churn
rates and ARPUs increased during the 2007 financial year. Vodacom subsequently changed its definition of revenue
generating activity back to include calls forwarded to voicemail effective September 1, 2006. Such SIM cards were
disconnected from the network after being inactive for a 215 consecutive day period. Since implementing this change,
prepaid SIM cards remaining in an active state on the network, with only call forwarding to voicemail and no other
revenue generating activities, increased significantly. Vodacom therefore implemented a supplementary disconnection rule
in September 2007 to disconnect inactive prepaid SIM cards after 13 months of being kept in an active state, by call
forwarding to voicemail only, and not having has any other revenue generating activity on Vodacom’s network. The
implementation of the supplementary disconnection rule led to the disconnection of an additional 2.9 million prepaid SIM
cards in September 2007, increasing churn on the prepaid customer base to 47.9% in the 2008 financial year and
resulted in higher prepaid ARPU than would have otherwise occurred.
For other African countries, each subsidiary has its own disconnection rule to disconnect inactive prepaid customers.
Vodacom Lesotho disconnects its prepaid customers at the expiration of time window lock of 210 days. Vodacom
Tanzania, Vodacom DRC and Vodacom Mozambique disconnect their prepaid customers if they record no revenue
generating activity within a period of 215 consecutive days.
(3)
Gross connections have been restated in the 2006 financial year due to a change in Vodacom’s reporting policy.
Conversions between categories have now been excluded from gross connections. Based on the previous policy,
contract connections would have been 702 thousand in the 2006 financial year and prepaid connections would
have been 8,422 thousand in the 2006 financial year.
(4)
Vodacom’s churn is calculated by dividing the average monthly number of disconnections during the year by the average
monthly total reported customer base during the year. Vodacom’s South African market share is derived from Vodacom’s
total customers, and the total estimated mobile customers of MTN, Cell C and Virgin Mobile.
(5)
Vodacom’s traffic comprises total traffic registered on Vodacom’s network, including bundled minutes, outgoing
international roaming calls and calls to free services, but excluding national and incoming international roaming calls.
Vodacom has changed the calculation of traffic in the 2006 financial year to exclude packet switch data traffic.
(6)
Vodacom’s average monthly revenue per customer, or ARPU, is calculated by dividing the average monthly revenue
during the year by the average monthly total reported customer base during the year. ARPU excludes revenue from
equipment sales, other sales and services and revenue from national and international users roaming on Vodacom’s
networks.
(7)
Vodacom’s average monthly minutes of use per customer, or average MOU, is calculated by dividing the average monthly
minutes during the period by the average monthly total reported customer base during the year. MOU excludes calls to
free services, bundled minutes and data minutes.
(8)
Vodacom had a total of 732, 581 and 469 temporary and contract employees as of March 31, 2008, 2007 and 2006,
respectively. Headcount excludes outsourced employees. Employees seconded to other African countries are included
in the number of employees of other African countries and excluded from Vodacom South Africa’s number of employees.
(9)
Includes 100% of Vodacom’s operations in the Democratic Republic of the Congo.
Vodacom’s operating revenue increased in the 2008 and 2007 financial years primarily due to
increased airtime, data, interconnection and equipment sales revenue as a result of continued
customer growth. Vodacom’s equipment sales further increased in the 2008 financial year due to the
added functionality of new phones based on new technologies and in the 2007 financial year due to
the continued uptake of new handsets in South Africa as a result of cheaper Rand-prices of new
handsets and the added functionality of new phones based on new technologies.
background image
169
Our 50% share of Vodacom’s revenue from operations outside of South Africa increased to
R2,697 million for the year ended March 31, 2008 from R2,069 million for the year ended March 31,
2007 from R1,486 million in the year ended March 31, 2006. The increase in Vodacom’s operating
revenue from other African countries in the 2008 and 2007 financial years was primarily due to
substantial increases in the number of customers in Vodacom’s operations, particularly in Tanzania,
the Democratic Republic of the Congo and Mozambique, and the weakening of the Rand in the 2008
and 2007 financial year, which resulted in higher Rand converted revenue, partially offset by lower
ARPU resulting from the higher volume of lower spending prepaid customers. Revenue from
Vodacom’s other African countries as a percentage of Vodacom’s total mobile operating revenue
increased to 11.2% in the year ended March 31, 2008 from 10.1% in the year ended March 31, 2007
and 8.7% in the year ended March 31, 2006.
A large part of the growth in mobile services was due to the success of prepaid services and the
increased growth in contract customers due to prepaid customers migrating to contracts.
South African contract ARPU decreased to R486 per month in the 2008 financial year from R517
per month in the 2007 financial year and R572 per month in the 2006 financial year. South African
prepaid ARPU decreased to R62 per month in the 2008 financial year from R63 per month in the 2007
financial year and R69 per month in the 2006 financial year. In the 2008, 2007 and 2006 financial
years, contract and prepaid customer ARPU were also negatively impacted by the high growth in
Vodacom’s hybrid contract product, Family Top Up, which contributed to the migration of higher
spending prepaid customers, who tend to spend less than existing contract customers, to contracts. In
the 2007 financial year, Vodacom changed its definition of active customers to exclude calls forwarded
to voicemail from the definition of revenue generating activity for a six-month period, resulting in the
deletion of approximately 3 million customers. Prepaid ARPU was positively impacted by this
temporary rule change in the 2007 financial year. Vodacom subsequently changed its definition of
revenue generating activity back to include calls forwarded to voicemail effective September 1, 2006.
Such SIM cards were disconnected from the network after being inactive for a 215 consecutive day
period. Since implementing this change, prepaid SIM cards remaining in an active state on the
network, with only call forwarding to voicemail and no other revenue generating activities, increased
significantly. Vodacom therefore implemented a supplementary disconnection rule in September 2007
to disconnect inactive prepaid SIM cards after 13 months of being kept in an active state, by call
forwarding to voicemail only, and not having has any other revenue generating activity on Vodacom’s
network. The implementation of the supplementary disconnection rule led to the disconnection of an
additional 2.9 million prepaid SIM cards in September 2007, which resulted in higher prepaid ARPU
than would have otherwise occurred. Approximately 85.3% of Vodacom’s South African mobile
customers were prepaid customers at March 31, 2008 and approximately 93.4% of all gross
connections were prepaid customers in the 2008 financial year. Vodacom expects the number of
prepaid mobile users to continue to grow to a greater extent than contract mobile users. The
increasing number of prepaid users, who tend to have lower average usage, and the lower overall
usage as the lower end of the market is penetrated have historically resulted in decreasing overall
average revenue per customer. Total South African ARPU remained stable at R125 per month in the
2008 financial year, after decreasing in the 2007 financial year to R125 per month from R139 per
month in the 2006 financial year. Total South African ARPU remained stable in the 2008 financial year,
despite declining South African contract and prepaid ARPU, due to a shift in the customer mix to
higher spending contract customers, which represented 14.3% of total South African customers as of
March 31, 2008 compared to 13.1% as of March 31, 2007.
background image
170
Service providers in South Africa generally subsidize handsets when a contract customer enters
into a new contract or renews an existing contract depending on the airtime and tariff plan and type of
handset purchased. Subsidized handset sales give customers an incentive to switch operators to
obtain new handsets and have contributed to churn. Handsets for prepaid customers are not
subsidized by Vodacom as these users have the freedom of switching operators and contribute to
churn. Vodacom is more vulnerable to churn than other mobile communications providers in South
Africa since it has the largest number of customers in South Africa. To date, mobile number portability
had no significant impact on churn.
The cost to acquire contract customers in a highly developed market is high. Vodacom has
therefore implemented upgrade and retention policies over the last few years and has strived to
maintain a high level of incentives to service providers in order to reduce churn. Vodacom’s churn rate
for contract customers in South Africa decreased to 8.3% in the 2008 financial year from 9.7% in the
2007 financial year and 10.0% in the 2006 financial year mainly due to an improvement in service and
products to customers and the continued high level of handset support to retain customers. Prepaid
churn is adversely impeded by an increasingly competitive market, lower barriers to entry for prepaid
customers in South Africa and the volatile nature of the prepaid customer base. Vodacom’s churn rate
for prepaid customers in South Africa increased to 47.9% in the 2008 financial year from 37.5% in the
2007 financial year and 18.8% in the 2006 financial year. The increase in prepaid churn in the 2008
financial year was mainly due to the supplementary disconnection rule implemented, which led to the
disconnection of an additional 2.9 million prepaid SIM cards in September 2007. The increase in
prepaid churn in the 2007 financial year was mainly due to the deletion of 3 million customers as a
result of the rule change for revenue generating activity and the resulting clean up of inactive
customers. For a discussion of Vodacom’s churn rate, see Item 3. “Key Information – Selected
Historical Consolidated Financial and Other Data of the Vodacom Group.”
Airtime. Vodacom derives airtime revenue from connection and monthly rental fees and airtime
usage fees paid by Vodacom’s contract customers for use of its mobile networks. Airtime revenue also
includes fees paid by Vodacom’s prepaid phone customers for prepaid starter phone packages and
airtime recharge vouchers utilized, which entitle customers to receive unlimited incoming calls up to
365 days. Airtime revenue depends on the total number of customers, traffic volume, mix of prepaid
and contract customers and tariffs.
Vodacom’s airtime revenue increased in the years ended March 31, 2008 and March 31, 2007
primarily due to continued customer growth, partially offset in the 2007 financial year by an overall
continued decline in ARPU resulting from the effect of growth in lower spending prepaid customers. As
Vodacom’s primary market in South Africa continues to mature and Vodacom continues to connect
more marginal customers in its South African operations, Vodacom expects that growth in airtime in
South Africa will continue to slow. Total customers increased 12.7% and 28.2% in the years ended
March 31, 2008 and 2007, respectively, primarily due to strong prepaid customer growth in South
Africa and significant customer growth in Vodacom’s operations outside of South Africa, particularly in
Tanzania, the Democratic Republic of the Congo and Mozambique in the 2008 and 2007 financial
years. New products, packages and services also had a role in Vodacom’s customer growth in the
2007 financial year. For a discussion of Vodacom’s customers and traffic see Item 4. “Information on
the Company – Business Overview – Mobile communications – South Africa – Customers” and Item
4. “Information on the Company – Business Overview – Mobile communications – South Africa –
Traffic”.
Data revenue. Vodacom derives data revenue from mobile data, including short messaging
services, or SMSs, and multimedia messaging services, or MMSs, general packet radio services, or
GPRS, and third generation services, or 3G. Data revenue contributed 10.4% of Vodacom’s total
revenue in the year ended March 31, 2008, up from 8.1% in the year ended March 31, 2007 and
6.0% in the year ended March 31, 2006. Vodacom’s mobile data revenue increased in the year ended
background image
171
March 31, 2008 primarily due to higher penetration levels influenced by more affordable product
offerings. Vodacom’s mobile data revenue increased in the year ended March 31, 2007 primarily due
to significant growth in SMS usage and the continued rollout of data initiatives such as Vodafone
Mobile Connect Cards, Vodafone Live!, Mobile TV, BlackBerry® and the continued delivery of wireless
application services.
In South Africa, Vodacom transmitted 4.7 billion SMSs over its network in the 2008 financial year,
compared to 4.5 billion SMSs in the 2007 financial year. There was an increase in users of GPRS in
the 2008 financial year, with the number of GPRS users increasing to approximately 4.7 million as of
March 31, 2008 from approximately 2.8 million as of March 31, 2007 and approximately 1.4 million as
of March 31, 2006. The number of active data users includes approximately 1.4 million MMS users,
approximately 370,000 data card and USB modem users, approximately 1.3 million 3G/HSDPA
handsets, approximately 1.4 million Vodafonelive! users and approximately 31,000 Unique Mobile TV
users as of March 31, 2008, compared to approximately 1.2 million MMS users, approximately
139,000 data card and USB modem users, approximately 584,000 3G/HSDPA handsets,
approximately 899,000 Vodafonelive! users and approximately 33,000 Unique Mobile TV users as of
March 31, 2007. As of March 31, 2008 Vodacom had 32,273 BlackBerry® users registered on its
network, compared to approximately 23,328 as of March 31, 2007. Vodacom expects that the broad
introduction of “always on” faster response and generally higher speed packet-switched data services,
such as GPRS and universal mobile telecommunications system, or UMTS, will provide the platform
for future value-added services.
Interconnection. Vodacom generates interconnection revenue when a call originating from our
fixed-line network and more recently, Neotel, or one of the other mobile operators’ networks
terminates on Vodacom’s network. Interconnection revenue also includes revenue from Cell C for
national roaming services. Vodacom does not have a roaming agreement with MTN. Vodacom
generates national roaming revenue when its mobile network carries a call made from a Cell C
customer. Interconnection revenue depends on the volume of traffic terminating on Vodacom’s
network, the interconnection termination rates payable by ourselves and the other mobile operators to
Vodacom and national roaming rates.
Vodacom’s interconnection revenue increased in the years ended March 31, 2008 and March 31,
2007 primarily due to an increase in the number of calls terminating on Vodacom’s network as a result
of the increased number of Vodacom’s customers and South African mobile users generally. The
growth in the 2008 and 2007 financial years was also attributable to the growth in the substitution of
fixed-line calls by mobile calls and incoming traffic resulting from an overall increase in the customer
base of other mobile operators. The increases were partially offset by a reduced number of fixed-line
calls from Telkom’s network terminating on Vodacom’s network. As discussed above in Item 4.
“Information on the company – Fixed-line communications – Fees and tariffs – Interconnection tariffs,”
the termination rate we pay to Vodacom and in Item 4. “Information on the company – Mobile
communications – Tariffs,” the mobile-to-mobile interconnection rates have not changed in the three
years ended March 31, 2008. Interconnection revenue in our mobile segment included R1,482 million,
R1,454 million and R1,409 million in the years ended March 31, 2008, 2007 and 2006, respectively,
for calls received from our fixed-line business, which were eliminated from the Telkom Group’s
revenue on consolidation.
Equipment sales. Vodacom generates revenue from equipment sales primarily from the sale of
mobile phones and accessories. Vodacom purchases handsets for itself and for external service
providers in bulk at purchase discounts in order to lower the cost of handset subsidization for contract
customers. Equipment sales revenue fluctuates based on whether external providers and Vodacom’s
other African operators source equipment from Vodacom in South Africa or purchase equipment from
third party suppliers.
background image
172
Vodacom’s equipment sales increased in the 2008 and 2007 financial years primarily due to the
growth of Vodacom’s customer base and the continued uptake of new handsets in South Africa as a
result of cheaper Rand-prices of new handsets and the added functionality of new phones based on
new technologies such as 3G enabled phones, camera phones and color screens. Sales of the
Vodafone live! handset increased significantly to 2,793,710 handsets in the 2008 financial year from
1,994,269 handsets in the 2007 financial year. The average price per handset sold was R1,052 in the
2008 financial year compared to R1,067 in the 2007 financial year.
International airtime. International airtime revenues are predominantly from international calls
by Vodacom customers, roaming revenue from Vodacom’s customers making and receiving calls
while abroad and revenue from international customers roaming on Vodacom’s networks. International
airtime increased 40.6% to R918 million in the year ended March 31, 2008 and 34.4% to R653 million
in the year ended March 31, 2007 primarily as a result of an increase in customers resulting in
increased traffic.
Other. Revenue from other sales and services includes revenue from Vodacom’s cell captive
insurance vehicle, wireless application services provider, or WASP, revenue, site sharing rental
income as well as other revenue from non-core operations. Vodacom’s other sales and services
revenue increased 20.5% to R153 million in the 2008 financial year primarily due to an increase
in inactivated starter packs which do not contain an expiration date, but which are recognized as
income after a period of 36 months. Vodacom’s other sales and services revenue decreased 3.8%
to R127 million in the 2007 financial year primarily due to lower income recognized as a result
of a reduction in inactivated starter packs which do not contain an expiration date, partially offset
by higher revenue of Cointel and higher site rental income.
Mobile operating expenses
The following is a discussion of our mobile segment’s operating expenses which are comprised
of our 50% interest in Vodacom’s operating expenses. Vodacom’s operating expense line items are
presented in accordance with the line items reflected in the Telkom Group’s consolidated operating
expenses which are different from the operating expense line items contained in Vodacom’s
consolidated financial statements.
The following table shows our 50% share of Vodacom’s operating expenses and the percentage
change for the periods indicated.
Mobile operating expenses
    Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
Employee expense . . . . . . . . . . . . . . . . . .
1,019
1,186
1,488
16.4
25.5
Payments to other network operators . . . . . . . .
2,317
2,818
3,279
21.6
16.4
Selling, general and administrative expenses . . . .
7,327
8,777
10,271
19.8
17.0
Services rendered . . . . . . . . . . . . . . . . . . .
65
82
115
26.2
40.2
Operating leases . . . . . . . . . . . . . . . . . . .
435
629
775
44.6
23.2
Depreciation, amortization and impairments . . . . .
1,472
1,693
1,970
15.0
16.4
Mobile operating expenses . . . . . . . . . . . . .
12,635
15,185
17,898
20.2
17.9
The increase in mobile operating expenses in the 2008 financial year was primarily due to
inflationary factors and growth in the business, which led to increased selling, general and
administrative expenses to support the expansion of 3G, growth in Vodacom’s South African and
African operations and increased competition, increased payments to other network operators due to
background image
173
higher outgoing traffic and the increased percentage of outgoing traffic terminating on other mobile
networks, higher employee costs as a result of increased headcount as well as increased
depreciation, amortization and impairment. The increase in mobile operating expenses in the 2007
financial year was primarily due to increased selling, general and administrative expenses to support
the expansion of 3G, growth in Vodacom’s South African and African operations and increased
competition, increased payments to other network operators due to higher outgoing traffic and the
increased percentage of outgoing traffic terminating on other mobile networks, increased depreciation,
amortization and impairment, higher employee costs as a result of increased headcount, average
7.5% annual salary increases, an increase in the provision for deferred bonus schemes and an
increase in the provision for long term incentives for executives and increased operating leases.
Employee expenses. Employee expenses consist mainly of salaries and wages of employees as
well as contributions to employee pension, medical aid funds and benefits and the deferred bonus
incentive scheme.
Vodacom’s employee expenses increased in the year ended March 31, 2008 primarily as a result
of a 9.5% increase in headcount to support the expansion of customer care operations, the
strengthening of senior management structures to support the growth in ongoing operations and the
launch of Vodacom Business. Annual salary increases and increased provisions for long-term
incentive schemes also contributed to the increase in staff expenses. Vodacom’s employee expenses
increased in the year ended March 31, 2007 primarily as a result of an 14.5% increase in the number
of employees to support the growth in operations as well as a 7.5% average annual salary increases,
an increase in the provision for deferred bonus schemes and an increase in the provision for long
term incentives for executives.
Total headcount in Vodacom’s South African operations increased 2.6% to 4,849 employees
as of March 31, 2008 and 9.8% to 4,727 employees as of March 31, 2007 from 4,305 employees
as of March 31, 2006. Total headcount in Vodacom’s other African countries increased 30.9%
to 1,992 employees as of March 31, 2008 and 31.9% to 1,522 employees as of March 31, 2007
from 1,154 employees as of March 31, 2006. Total headcount includes temporary agency
employees. Employees seconded to other African countries are included in the number of employees
of other African countries and excluded from Vodacom South Africa’s number of employees.
Employee productivity in South Africa and other African countries, as measured by customers per
employee, increased 3.0% to 4,969 customers per employee as of March 31, 2008 and 12.0%
to 4,825 customers per employee as of March 31, 2007 from 4,308 customers per employee
as of March 31, 2006.
Payments to other network operators. Payments to other network operators consist mainly of
interconnection payments made by Vodacom’s South African and other African operations for
terminating calls on other operators’ networks. Vodacom’s payments to other network operators
increased significantly in the years ended March 31, 2008 and 2007 as a result of increased outgoing
traffic in line with increased customer growth and the increasing percentage of outgoing traffic
terminating on the other mobile networks rather than Telkom’s fixed-line network as the cost of
terminating calls on other mobile networks is higher than calls terminating on Telkom’s fixed-line
network. As the mobile communications market continues to grow in South Africa, Vodacom expects
that interconnection charges will continue to increase and adversely impact Vodacom’s profit margins.
Payments to other network operators in our mobile segment included R234 million, R234 million
and R232 million in the years ended March 31, 2008, 2007 and 2006, respectively, for interconnection
fees paid to our fixed-line segment, which were eliminated from the Telkom Group’s operating
expenses on consolidation.
background image
174
Selling, general and administrative expenses. Selling, general and administrative expenses
include customer acquisition and retention costs, packaging, distribution, marketing, regulatory license
fees, bad debts and various other general administrative expenses, including accommodation,
information technology costs, office administration, consultant expenses, social economic investment
and insurance.
The following table sets forth information related to our 50% share of Vodacom’s selling, general
and administrative expenses for the periods indicated.
Mobile selling, general and administrative expenses
   Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
Selling, distribution and other . . . . . . . . . . . . .
6,415
7,703
9,063
20.1
17.7
Marketing . . . . . . . . . . . . . . . . . . . . . . .
488
573
632
17.4
10.3
Regulatory and license fees . . . . . . . . . . . . .
406
490
527
20.7
7.6
Bad debts . . . . . . . . . . . . . . . . . . . . . . .
18
11
49
(38.9)
345.5
Selling, general and administrative expenses . . .
7,327
8,777
10,271
19.8
17.0
Vodacom’s selling, general and administrative expenses increased in the years ended
March 31, 2008 and 2007 primarily due to an increase in selling, distribution and other expenses,
incentive costs, regulatory and license fees and marketing expenses to support the launch and
expansion of 3G, growth in Vodacom’s South African and African operations and increased competition.
Selling, distribution and other expenses include cost of goods sold, commissions, customer
acquisition and retention expenses, distribution expenses and insurance. The increase in selling,
distribution and other expenses in the 2008 and 2007 financial years was primarily due to increased
customer connections, competition, revenue, cost of equipment as a result of increased handset sales
and maintenance of the GSM infrastructure and billing systems as well as due to the Vodafone global
alliance fee.
The increase in marketing expenses in the 2008 and 2007 financial years was mainly due to
promoting new technologies, including 3G and Vodafone live!, promoting number portability in the
2007 financial year and further promoting the Vodacom brand in all operations. The increases in
regulatory and license fees during the reporting periods were directly related to the increase in
operating revenues and corresponding payments under Vodacom’s existing licenses. The increase in
bad debts in the 2008 financial year resulted from a clean-up of Smartphone debtors following the
increase in shareholding to 100%.
Services rendered. Services rendered include consultancy services for technical, administrative
and managerial services, audit fees, legal fees and communication and information technology costs.
Services rendered increased in the years ended March 31, 2008 and 2007 primarily due to higher
consultancy costs relating to facility management and special projects.
Operating leases. Operating leases include payments in respect of rentals of GSM transmission
lines as well as office accommodation, office equipment and motor vehicles. The increase in
Vodacom’s operating leases in the years ended March 31, 2008 and 2007 was primarily due to an
increase in the lease of transmission lines and other accommodation. Operating leases in our mobile
segment included R514 million, R453 million and R423 million in the years ended March 31, 2008,
2007 and 2006, respectively, for operating lease payments to our fixed-line segment, which were
eliminated from the Telkom Group’s operating expenses on consolidation.
background image
175
Depreciation, amortization and impairments. Depreciation, amortization and impairments
increased in the years ended March 31, 2008 and 2007 primarily due to higher capital expenditure as
a result of the implementation and expansion of 3G/HSDPA networks, the weakening of the Rand
against the other functional currencies of Vodacom and the impairment of assets in Vodacom
Mozambique. Amortization of intangibles was higher in the year ended March 31, 2007 due to the
business acquisitions in that financial year.
Other segment
Other operating revenue
Our other operating revenue is derived principally from directory services, through our TDS
Directory Operations Group, fixed, mobile, data, long distance and international communications
services throughout Nigeria, through our 75% owned subsidiary, Multi-Links, internet services outside
South Africa, through our Africa Online Subsidiary, and wireless data services, through our Swiftnet
subsidiary, and includes 100% of the losses of Telkom Media.
The following table shows the operating revenue for our other segment broken down by major
revenue streams and the percentage change by major revenue stream for the periods indicated.
Other operating revenue
    Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
TDS Directory Operations . . . . . . . . . . . . . .
834
865
930
3.7
7.5
Multi-Links . . . . . . . . . . . . . . . . . . . . . . .
–
–
845
n/a
n/a
Africa Online . . . . . . . . . . . . . . . . . . . . .
–
8
110
n/a
n/a
Swiftnet . . . . . . . . . . . . . . . . . . . . . . . .
118
106
94
(10.2)
(11.3)
Telkom Media . . . . . . . . . . . . . . . . . . . . .
–
–
14
n/a
n/a
Other operating revenue . . . . . . . . . . . . . .
952
979
1,993
2.8
103.6
Our other operating revenue increased in the 2008 financial year primarily due the inclusion in the
current year of revenue generated by our newly acquired subsidiaries, Multi-Links and Africa Online.
Multi-Links, which was acquired with effect from May 1, 2007, contributed R845m from its customers
in the Nigerian market since its acquisition, and Africa Online, which was acquired with effect from
February 23, 2007, increased the revenue contribution to the group from R8m during the 2007
financial year to R110m during the 2008 financial year.
These additional revenue streams were further supported by the continued growth in advertising
revenue from our subsidiary, TDS Directory Operations, offset in part by a slight reduction in wireless
data services revenue from our subsidiary, Swiftnet due to increased competition in the wireless data
environment. Revenue from directory services increased in the years ended March 31, 2007 and 2008
primarily due to annual tariff increases and increased marketing and online efforts, resulting in
increased spending on advertising by existing customers and additional advertising revenue from new
customers. During the 2008 financial year, R4m of revenue for TDS Directory Operations was
generated through the investment in TDS Directory Operations Namibia, which was acquired in
January 2007 to provide directory services in Namibia.
Other operating expenses
The following table shows operating expenses for our other segment broken down by major
expense categories and the percentage change for the periods indicated.
background image
176
Other operating expenses
   Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
Employee expense . . . . . . . . . . . . . . . . . .
156
173
340
10.9
96.5
Payments to other operators . . . . . . . . . . . . .
9
10
698
11.1 6,880.0
Selling, general and administrative expenses . . . .
325
336
532
3.4
58.3
Services rendered . . . . . . . . . . . . . . . . . . .
5
5
45
–
800.0
Operating leases . . . . . . . . . . . . . . . . . . .
28
25
72
(10.7)
188.0
Depreciation, amortization and impairments . . . . .
41
40
143
(2,4)
257.5
Other operating expenses . . . . . . . . . . . . .
564
589
1,830
4.4
210.7
Increases in other operating expenses in the 2008 financial year were primarily driven by
significant increases in payments to other operators, employee expenses, depreciation, amortization
and impairments, operating leases and services rendered. The increase in these operating expenses
in the 2008 financial year was primarily due to the inclusion of operating expenses relating to our
newly acquired subsidiaries, Multi-Links and Africa Online, and the creation of Telkom Media, all of
which impacted all expense categories.
The following tables shows the contributions to other operating expenses by each of the five
subsidiaries contained in our other segment and the percentage change for the periods indicated.
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
TDS Directory Operations . . . . . . . . . . . . . .
488
504
530
3.3
5.2
Multi-Links . . . . . . . . . . . . . . . . . . . . . . .
–
–
942
n/a
n/a
Africa Online . . . . . . . . . . . . . . . . . . . . .
–
8
118
n/a     1,375.0
Swiftnet . . . . . . . . . . . . . . . . . . . . . . . .
76
77
89
1.3
15.6
Telkom Media . . . . . . . . . . . . . . . . . . . . .
–
–
151
n/a
n/a
Other operating expenses . . . . . . . . . . . . .
564
589
1,830
4.4
210.7
Multi-Links and Africa Online were the main contributors to the significant increase in payments
to other operators in the 2008 financial year, with R624m payments made by Multi-Links and
R141m payments made by Africa Online to enable their respective networks in the nine countries
of operation to supply data transmission services, managed data networking services and internet
access and related information technology services in these newly acquired markets.
Employee expenses increased by 96.5% in the 2008 financial year due to a significant investment
in workforce during the 2008 financial year. Employee expenses of R88m in Telkom Media, R39m
by Multi-Links and R28m by Africa Online were required to attract and develop the necessary skilled
workforce in each of these new operating environments.
The 58.3% increase in selling, general and administrative expenditure in the 2008 financial year
primarily related to R141m spent at Multi-Links, mainly on materials and maintenance to enable the
further development and maintenance of its CDMA network in order to achieve subscriber growth
and network reliability.
The increased investment in property, plant and equipment by Multi-Links in Nigeria and Kenya
to establish a new main network site in Gbagada, Lagos, enhance the switching capacity in Lagos,
expand base stations and towers, and to extend fiber deployment, resulted in a significant increase
in depreciation, amortization and impairments in this segment in the 2008 financial year. The increase
primarily related to R86m depreciation cost in Multi-Links and R12m from Africa Online.
background image
177
The increases in services rendered and operating leases were also directly related to our newly
acquired subsidiaries, Multi-Links, Africa Online and Telkom Media, that were not previously included
in the Telkom Group results.
LIQUIDITY AND CAPITAL RESOURCES
Group liquidity and capital resources
Cash flows
The following table shows information regarding our consolidated cash flows for the periods
indicated.
   Year ended March 31,   
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
Cash flows from operating activities . . . . . . . . .
9,506
9,356
10,603
(1.6)
13.3
Cash flows from investing activities . . . . . . . . . .
(7,286) (10,412)   (14,106)
42.9
35.5
Cash flows from financing activities . . . . . . . . .
(258)
(2,920)
2,943
n/a
200.8
Net (decrease)/increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . .
1,962
(3,976)
(560)
(302.7)
85.9
Effect of foreign exchange rate differences . . . . . .
(8)
29
44
(462.5)
51.7
Net cash and cash equivalents at the beginning
of the year . . . . . . . . . . . . . . . . . . . . . . .
2,301
4,255
308
84.9
(92.8)
Net cash and cash equivalents at the end of
the year . . . . . . . . . . . . . . . . . . . . . . . .
4,255
308
(208)
(92.8)
(167.5)
Cash flows from operating activities
Our primary sources of liquidity are cash flows from operating activities and borrowings.
We intend to fund our expenses, indebtedness and working capital requirements from cash
generated from our operations and from capital raised in the markets. The increase in cash flows
from operating activities in the 2008 financial year is mainly due to lower taxation payments as well
as an increase in cash generated from operations, partially offset by higher dividends paid.
The decrease in cash flows from operating activities in the 2007 financial year is mainly due
to higher taxation payments, partially offset by the increase in cash generated from operations.
Cash flows from investing activities
Cash flows from investing activities relate primarily to investments in our fixed-line network, our
other segment’s networks and our 50% share of Vodacom’s investments in its mobile networks in
South Africa and other African countries. The increase in cash flows used in investing activities in the
2008 financial year was mainly the result of R1,985 million cash utilized for the purchase of Multi-
Links and increased equity investments in Smartphone, increased capital expenditures in our fixed-
line, mobile and other segments and lower proceeds on the disposal of investments, partially offset by
higher proceeds on the disposal of property, plant and equipment and intangibles. The increase in
cash flows used in investing activities in the 2007 financial year was mainly the result of increased
capital expenditure in both the fixed-line and mobile segments and acquisitions of subsidiaries and
reduced disposals and additions to investments.
background image
178
Cash flows from financing activities
Cash flows from financing activities are primarily a function of borrowing and share buy back
activities.
In the 2008 financial year, loans raised and the decrease in net financial assets exceeded loans
repaid, shares bought back and cancelled and finance lease obligation repaid. In the 2008 financial
year, cash flows from financing activities was primarily due to the issuance of R18,806 million nominal
value of commercial paper bills, as well as entering into call and term loans of R5,600 million to fund
the redemption of the TK01 bond and other cash flows from investing activities, including R1.6 billion
of additional bank borrowings and interest bearing debt by Vodacom. This was partially offset by the
maturing commercial paper debt of R15,773 million nominal value, the repayment of the TK01 bond
with a nominal value of R4,680 million and R1,647 million paid for the repurchase of shares during the
year.
In the 2007 financial year, loans and finance leases repaid and shares repurchased and cancelled
exceeded loans raised and the decrease in net financial assets, by R2,920 million. In the 2007
financial year cash flows used in financing activities increased primarily due to the lower sale of
repurchase agreements and derivative instruments that were sold in the 2006 financial year to fund
dividends and tax payments. On October 31, 2006, we repaid the TL06 local bond having a nominal
value of R2,100 million and during the 2007 financial year, we repaid R3,731 million in nominal value
of commercial paper bill debt. Commercial paper bills having a nominal value of R4,651 million were
issued in the 2007 financial year.
In the 2006 financial year, loans and finance lease repaid and shares repurchased and cancelled
exceeded loans raised and the decrease in financial assets by R258 million. On April 11, 2005, we
repaid Euro 500 million of our 7.125% unsecured Euro bond that was issued on April 12, 2000 by
issuing commercial paper bills ranging in maturities from one month to one year, with yields of
between 7.00% and 7.51% and by issuing a further R600 million 10.5% unsecured local bond (TL06)
due October 31, 2006 at a yield to maturity of 8.18%. In addition, we repaid a net of R2,720 million of
commercial paper bills and utilized R1,502 million for the share buy-back. Cash inflows from maturing
financial assets amounted to R4,544 million in the 2006 financial year.
Working capital
We had negative consolidated working capital of approximately R9.3 billion as of March 31, 2008,
compared to negative consolidated working capital of approximately R8.2 billion as of March 31, 2007
and approximately R3.0 billion as of March 31, 2006 and Vodacom had negative working capital of
approximately R7.9 billion as of March 31, 2008, compared to negative working capital of
approximately R7.4 billion as of March 31, 2007 and approximately R5.2 billion as of March 31, 2006.
Negative working capital arises when current liabilities are greater than current assets. The increase
in negative working capital in the 2008 financial year was primarily due to an increase in the current
portion of interest bearing debt due to the repayment of the TK01 local bond with short term debt that
was subsequently partially refinanced by the TL12 and TL15 bonds after the year end, a reduction in
cash available due to acquisition activities, increased capital expenditure, increased dividends paid,
shares repurchased and an increase in trade and other payables. The increase in negative working
capital in the 2007 financial year was primarily due to a reduction in cash used to pay dividends, tax
and capital expenditures and an increase in the current portion of interest bearing debt, as a result of
the TK01 local bond becoming due on March 31, 2008. Telkom is of the opinion that the Telkom
Group’s cash flows from operations, together with proceeds from liquidity available under credit
facilities and in the capital markets, will be sufficient to meet the Telkom Group’s present working
capital requirements for the twelve months following the date of this annual report. We intend to fund
current liabilities through a combination of operating cash flows and with new borrowings and
borrowings available under existing credit facilities. We had R7.6 billion available under existing credit
facilities as of March 31, 2008.
background image
179
See Item 3. “Key Information – Risk Factors – Risks Related to Our Business – If Vodacom does
not continue to pay dividends or make other distributions to Telkom, Telkom may not be able to pay
dividends and service its debt and could be required to lower or defer capital expenditures, dividends
and debt reduction, which could cause the trading prices of Telkom’s ordinary shares and ADSs to
decline”. See Item 3. “Key Information – Risk Factors – Risks Related to Our Business – We have
negative working capital, which may impair our operating and financial flexibility and require us to
defer capital expenditures and we may not be able to pay dividends and our operations and financial
condition could be adversely affected”.
Capital expenditures and investments
The following table shows the Telkom Group’s investments in property, plant and equipment
including intangible assets, including our 50% share of Vodacom’s investments, for the periods
indicated.
   Year ended March 31,  
2006
2007
2008
2007/2006
2008/2007
ZAR
ZAR
ZAR
% change
% change
(in millions, except percentages)
Group capital expenditure
Fixed-line . . . . . . . . . . . . . . . . . . . . . . .
4,900
6,594
6,794
34.6
3.0
Baseline . . . . . . . . . . . . . . . . . . . . . .
2,128
3,409
4,038
60.2
18.5
Revenue generating . . . . . . . . . . . . . . . .
374
159
57
(57.5)
(64.2)
Network evolution . . . . . . . . . . . . . . . . .
330
784
1,092
137.6
39.3
Sustainment . . . . . . . . . . . . . . . . . . . .
596
416
277
(30.2)
(33.4)
Effectiveness and efficiencies . . . . . . . . . . .
1,080
1,141
841
5.6
(26.3)
Company support . . . . . . . . . . . . . . . . .
375
497
451
32.5
(9.3)
Regulatory . . . . . . . . . . . . . . . . . . . . .
17
188
37    1,005.9
(80.3)
Mobile . . . . . . . . . . . . . . . . . . . . . . . .
2,571
3,608
3,460
40.3
(4.1)
Other . . . . . . . . . . . . . . . . . . . . . . . . .
35
44
1,646
25.7     3,640.9
Total investment in property, plant and
equipment and intangible assets . . . . . . . . . .
7,506
10,246
11,900
36.5
16.1
Fixed-line capital expenditure, which include spending on intangible assets, increased 3.0%
to R6,794 million in the 2008 financial year from R6,594 million in the 2007 financial year and
represented 20.9% of fixed-line revenue compared to 20.4% in the 2007 financial year. The increase
in baseline and revenue generating capital expenditure to R4,095 million in the 2008 financial year
from R3,568 million in the 2007 financial year was largely for the deployment of technologies to
support the growing data services business (including ADSL footprint, links to the mobile cellular
operators and expenditure for access line deployment in selected high growth residential areas.
The continued focus on rehabilitating the access network and increasing the efficiencies in the
transport network contributed to the network evolution and sustainment capital expenditure
increasing to R1,369 million in the 2008 financial year from R1,200 million in the 2007 financial year.
Telkom continues to focus on its operations support system investment with current emphasis on
workforce management, provisioning and fulfilment, assurance and customer care hardware
technology upgrades on the billing platform and performance and service management. During the
year ended March 31, 2008, R841 million was spent on the implementation of systems compared to
R1,141 million in the 2007 financial year. Mobile capital expenditure (50% of Vodacom’s capital
expenditure) decreased by 4.1% to R3,460 million in the 2008 financial year from R3,608 million in the
background image
180
2007 financial year and represents 14.4% of mobile revenue compared to 17.5% in the 2007 financial
year which was mainly spent in the cellular network infrastructure consisting of radio, switching and
transmission network infrastructure and computer software. The decrease in capital expenditure in
other African countries was largely as a result of decreased investment in Tanzania, Democratic
Republic of the Congo and Mozambique offset by an increase in investment in Lesotho.
Our capital expenditure of R6,594 million on fixed-line capital expenditure in the year ended
March 31, 2007 was higher than the budgeted fixed-line capital expenditure for the 2007 financial year
of R6.5 billion largely due to investment in broadband services and an unfavorable exchange rate.
The 34.6% increase in fixed-line capital expenditure in the 2007 financial year was primarily due to
higher expenditure for business and residential broadband services, wholesale services to the mobile
cellular operators, access line deployment in selected high growth residential areas, technologies to
support the continued growth in our data services business, the ongoing rehabilitation of our access
network and increasing the efficiencies and redundancies in our transport network in line with our
planned migration to an internet protocol next generation network. The 40.3% increase in mobile
capital expenditure in the 2007 financial year reflects the increased investment in South Africa and
other African countries in network infrastructure due primarily to the increased customer base and
higher traffic and to further support 3G technologies.
See “Principal factors that affect our Results of Operations – Capital Expenditures”.
Our consolidated capital expenditures in property, plant and equipment for the 2009 financial year
is budgeted to be approximately R15.2 billion, of which approximately R7.0 billion is budgeted to be
spent in our fixed-line segment, and approximately R5.2 billion is budgeted to be spent in our mobile
segment, which is our 50% share of Vodacom’s budgeted capital expenditure of approximately
R10.4 billion, and approximately R3.0 billion is budgeted to be spent in our other segment. Our capital
expenditures are continuously examined and evaluated against the perceived economic benefit and
may be revised in light of changing business conditions, regulatory requirements, investment
opportunities and other business factors. See “Liquidity and Capital Resources – Capital
Expenditures”.
Contingent liabilities
See Item 8. “Financial information – Legal proceedings.” See also Item 3. “Key Information – Risk
Factors – Risks Related to Regulatory and Legal Matters” and Item 8. “Financial Information –
Consolidated Financial Statements and Other Financial Information – Legal Proceedings”. See also
note 38 of the notes to the audited consolidated financial statements of the Telkom Group and note 38
of the notes to the audited consolidated financial statements of Vodacom included herein for additional
information related to contingent liabilities of the Telkom Group and Vodacom, respectively.
Employee benefit special purpose entity
We had liabilities of R1,356 million, R1,139 million and R2,607 million in the years ended
March 31, 2008, 2007 and 2006, respectively, in respect of post retirement medical aid obligations
for current and retired employees.
In order to fund the liability towards the Medical aid, we set up a special purpose entity in the
2002 financial year for the purposes of funding these post retirement medical benefit obligations. In
years prior to the 2006 financial year, this special purpose entity was purely used as a financing tool
as we still retained our obligation to provide post retirement medical aid benefits to retired employees.
The sinking fund held in the special purpose entity did not meet the definition of a plan asset in terms
of IAS19 – Employee Benefits. Our interest in the special purpose entity was by way of equity, and
this entity was fully consolidated in the Telkom Group’s financial statements.
background image
181
During the 2006 financial year, a portion of the funds held in the sinking fund of the special
purpose entity was transferred to an annuity policy with the intention of specifically ringfencing funds
towards the liability for pensioners over the age of 65. As of the end of the 2006 financial year, the
annuity policy did not meet the definition of a plan asset in terms of IAS19 – Employee Benefits and
therefore the annuity fund portion was still included in the investments value as noted above. During
the 2007 financial year an addendum to the cell captive annuity policy contract was signed, which
ensured that the annuity fund in the special purpose entity qualifies as a plan asset with effect from
June 1, 2006. This changed the presentation of the liability and asset as the annuity policy meets the
definition of a plan asset in terms of IAS19, which requires that the liability be reduced by the fair
value of the plan asset. The effect of this on the consolidated annual financial statements is a
reduction in investments as well as liabilities in the amount of R1,961 million. The amount of the
reduction would have been approximately R1,731 million as of March 31, 2006 had this arrangement
been in place as of that date. The fair value of the funds in this special purpose entity was
R1,291 million, R1,279 million and R2,819 million as of March 31, 2008, 2007 and 2006, respectively,
which was included in investments.
Off-balance sheet transactions
We did not have any off-balance sheet transactions during the year ended March 31, 2008.
Contractual obligations
The following table sets forth the Telkom Group’s contractual obligations as of March 31, 2008:
    Payments due by period   
Less than
1-3
3-5
More than
Total
1 year
years
years
5 years
(In ZAR millions)
Long-term debt obligations . . . . . . . . . . . . .
17,631
6,413
7,539
159
3,520
Capital (finance) lease obligations . . . . . . . . .
1,167
122
81
197
767
Operating leases . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . .
2,061
341
473
440
807
Rental receivable on buildings . . . . . . . . . . .
(266)
(94)
(127)
(42)
(3)
Transmission and data lines . . . . . . . . . . . .
709
134
252
238
85
Vehicles . . . . . . . . . . . . . . . . . . . . . .
1,444
233
548
663
–
Equipment . . . . . . . . . . . . . . . . . . . . .
13
10
3
–
–
Sport and marketing contracts . . . . . . . . . . .
680
282
376
19
3
Forward exchange contracts
– To buy . . . . . . . . . . . . . . . . . . . . . .
4,181
4,181
–
–
–
– To sell . . . . . . . . . . . . . . . . . . . . . .
(1,555)
(1,555)
–
–
–
Other long-term liabilities
(1)
. . . . . . . . . . . . .
6,461
1,014
1,123
1,246
3,078
Total . . . . . . . . . . . . . . . . . . . . . . . .
32,526
11,081
10,268
2,920
8,257
Note:
(1)
Other long-term liabilities comprise the expected benefit payments from the Telkom Retirement Fund and the Telkom
Pension Fund for the following ten years. These benefit payments are funded by the plan assets in the Telkom Retirement
Fund and Telkom Pension Fund, respectively. The contributions to the fund in each year is determined on a statutory
basis. In addition Telkom may be required to make additional contributions should there be a shortfall in the fund. In
addition to the above, Telkom has an obligation under its post-retirement medical aid liability of R4,850 million which
includes an unrecognized net actuarial loss of R1,565 million which is funded by plan assets of R1,929 million resulting in
a recognized liability of R1,356 million. Telkom is required to fund the shortfall in this obligation in future years, as and
when the obligation becomes payable.
background image
182
Telkom has renewed its full maintenance lease agreement for its vehicles with debis Fleet
Management (Pty) Limited, a company incorporated in South Africa, as of April 1, 2005. The original
master lease agreement was for a period of five years and expired on March 31, 2005.
The agreement has been extended for a further period of three years that expired on March 31, 2008.
During August 2007 new terms were negotiated and approved and as a result the operating lease 
commitments for vehicles are based on the new agreement which expires March 31, 2013.
Funding sources
To date, we have financed our operations primarily from cash flows from operations and by
borrowings in the South African and international capital markets. Access to international capital
markets and its associated cost of funding depends in part on our credit ratings. We maintain an
active dialog with the principal credit rating agencies who review our ratings periodically. Standard &
Poor’s International Ratings, LLC, a division of McGraw-Hill Companies Inc. has rated our long term
foreign currency and our long term local currency issuer ratings as BBB, and Moody’s Investors
Services Inc., has rated our foreign currency long term debt issuer rating A3 and our national scale
issuer rating as Aa3.za. As of March 31, 2008, 89.6% of our debt was local debt, compared to 90.6%
as of March 31, 2007 and 92.3% as of March 31, 2006. Our Rand denominated debt bears interest at
rates ranging from 180 to 250 basis points above treasuries and the effective interest rate for the year
ended March 31, 2008 was 12.62%. Fixed rate debt represented approximately 51.4% of our total
consolidated debt as of March 31, 2008.
background image
183
The following table sets forth our consolidated indebtedness, including finance leases
as of March 31, 2008.
Interest
Outstanding
Nominal amount
Maturing
payment
Interest
as of March
outstanding as of
Year ended March 31,
After
   dates    
   rate (%)   
   31, 2008  
  March 31, 2008
2009
2010
2011
2012
2013
2013
     ZAR       
          ZAR           
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
(in millions)
TELKOM
Bonds
10% statutorily guaranteed
March
local bond due not later
31,
than March 31, 2008
September
(TK01)
(1)(2)(3)
. . . . . . .
30
10
–
–
–
–
–
–
–
–
6% unsecured local bond
due February 24, 2020
February
(TL20)
(1)(4)
22
6
1,283
2,500
–
–
–
–
–
2,500
Zero coupon unsecured
loan stock due
September 30, 2010
(PP02)
(5)
. . . . . . . . .
–
–
304
430
–
–
430
–
–
–
Zero coupon unsecured
loan stock due June 15,
2010 (PP03)
(6)
. . . . . .
–
–
977
1,350
–
–
1,350
–
–
–
Finance leases . . . . .
n/a
12%-38%
856
856
26
11
–
17
36
766
Commercial paper . . .
–
–
4,201
4,383
3,483
900
–
–
–
–
Zero coupon unsecured
commercial paper bills
with a maturity not later
than April 2, 2009.
The average discount
rate on these commercial
paper bills is 11.71%
per annum.
Call Borrowings . . . . .
Various
11.58
2,600
2,600
2,600
–
–
–
–
–
Term Loans . . . . . . .
Various
12.22
3,000
3,000
–
3,000
–
–
–
–
Bank facilities
R459 million unsecured
overdraft facility with
ABSA Bank Limited,
repayable on demand
and a R1 billion
unsecured commited
facility, repayable on
Mutually
364 days notice.
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
R1 billion unsecured
committed overdraft facility
with The Standard Bank of
South Africa Limited,
repayable with 365 days
Mutually
of drawdown. . . . . . . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
R500 million unsecured
overdraft facility with
FirstRand Bank Limited,
Mutually
repayable on demand. . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
R150 million unsecured
overdraft facility with
Commerzbank AG,
Mutually
repayable on demand. . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
U.S.$35 million unsecured
short-term loan facility
with Calyon Corporate
and Investment bank,
Mutually
repayable on demand. . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
background image
184
Interest
Outstanding
Nominal
Maturing
payment
Interest
as of March
outstanding as of
Year ended March 31,
After
  dates   
rate (%)
    31, 2008
  March 31, 2008
2009
2010
2011
2012
2013
2013
      ZAR      
         ZAR           
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
(in millions)
R1 billion uncommitted/
short-term facility with
Sumitomo Mitsui Banking
Mutually
Corporation. . . . . . . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
R500 million call loan
facility with iNkotha
Investments Ltd.
Mutually
repayable on demand. . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
R1 billion loan agreement
with Old Mutual
Specialized finance
(Pty) Ltd. repayable
Mutually
on demand. . . . . . . . .
–
agreed
Not utilized
Not utilized
–
–
–
–
–
–
Various bank loans
(3)
. . .
–
Various
141
141
–
–
21
13
9
98
Bank overdraft and
other short-term debt . . .
–
41
41
41
–
–
–
–
–
Total Telkom . . . . . . .
13,403
15,301
6,150
3,911
1,801
30
45
3,364
VODACOM
(7)
U.S.$18.4 million
shareholders Loan with
LIBOR + 5%
Mirambo Limited
(8)
–
71
71
–
–
–
–
–
71
U.S.$180 million term loan
to Vodacom International
LIBOR + 0.35%
Limited . . . . . . . . . .
–
731
731
–
731
–
–
–
–
R1 billion subscription
agreement with Asset
Backed Arbitage . . . . .
– JIBAR + 0.78% to
500
500
–
–
500
–
–
–
Securities (Pty) Ltd . . . .
JIBAR + 0.82%
U.S.$37.0 million
preference shares by
Vodacom
Congo(R.D.C) s.p.r.l.
(9)
–
4.0%
150
150
150
–
–
–
–
–
U.S.$1 million short term
facility by Vodacom
Congo (R.D.C) s.p.r.l.
–
18.0%
4
4
4
–
–
–
–
–
R6.0 million of the
shareholder loan with
Number Portability
Company (Proprietary)
Prime
Limited . . . . . . . . . .
–
3
3
–
–
–
–
–
3
Various finance leases
(10) .
–
12.1% – 16.9%
308
308
97
49
81
42
39
–
Various other short-term
loans . . . . . . . . . . .
–
8%
48
48
4
22
22
–
–
–
Bank overdrafts and
other short-term debt . . .
–
–
1,298
1,298
1,298
–
–
–
–
–
Total Vodacom
(7)
. . . . .
3,113
3,113
1,553
802
603
42
39
74
TDS DIRECTORY
OPERATIONS
Various finance leases
(10)
–
Various
3
3
1
2
–
–
–
–
TELKOM MEDIA
Various loans . . . . . . .
–
8
8
–
4
2
2
–
–
MULTI-LINKS
U.S.$15 million from Zenith
Bank . . . . . . . . . . .
–
LIBOR + 3.5%
45
45
45
–
–
–
–
–
Naira 1,500 million FCMB
loan . . . . . . . . . . . .
–
13%
87
87
–
70
17
–
–
–
U.S.$17 million ECA
funding . . . . . . . . . .
–
LIBOR + 2.5%
82
82
–
–
–
–
–
82
U.S.$42 million ECA
Huawei VFF funding . . .
–
LIBOR + 2%
319
319
–
–
319
–
–
–
AFRICA ONLINE
Various loans . . . . . . .
–
12
12
3
6
2
1
–
–
Bank overdrafts and
other short term debt . . .
–
3
3
3
–
–
–
–
–
TOTAL OTHER . . . . . .
–
559
559
52
82
340
3
–
82
GRAND TOTAL . . . . .
17,075
18,973
7,755
4,795
2,744
75
84
3,520
background image
185
Notes:
(1)
Listed on the Bond Exchange of South Africa.
(2)
Open ended bond issue, and number of bonds issued varies from time to time. The bonds matured on March 31, 2008.
(3)
R141 million of Telkom’s indebtedness outstanding as of March 31, 2008 was guaranteed by the Government of the
Republic of South Africa.
(4)
2,500 of these bonds were issued on February 22, 2000 at a yield to maturity of 15.00%. The TL20 bond was listed on
the Bond Exchange of South Africa with effect from April 1, 2005.
(5)
Issued on February 25, 2000. Original amount issued was R430 million. The yield to maturity of this instrument issued by
Telkom is 14.37%.
(6)
Issued on June 15, 2000. Original amount issued was R1,350 million. The yield to maturity of this instrument is 15.175%.
(7)
Represents Telkom’s 50% share of Vodacom’s indebtedness.
(8)
Repayable on approval of at least 60% of the shareholders of Vodacom Tanzania Limited.
(9)
The preference shares are redeemable, at the discretion of the shareholders, and only on the basis
that the shareholders are repaid simultaneously and in proportion to their shareholding.
(10) Secured by land and buildings.
We expect to repay the indebtedness and other obligations in the above table with cash flows
from operations, and the refinancing of debt with new borrowings and borrowings available under
existing credit facilities. Telkom’s special purpose entity established to fund post retirement medical
benefits obligations indirectly held 161,550 of Telkom’s ordinary shares as of March 31, 2008.
The funds raised through the issuances of the above indebtedness were used for the extension
and modernization of our communications networks, the provision of additional communications
services, the refinancing of existing indebtedness and for general working capital purposes.
The debt instruments in the above table do not contain any restrictive covenants except a number
of the instruments contain provisions limiting our ability to create liens. Some of our debt contains
cross default provisions. In addition, a side letter to the subscription agreement (as amended) of our
R2.5 billion 6% local bonds due February 24, 2020 contain financial maintenance covenants requiring
the Telkom Group to maintain the following ratios:
•  EBITDA to net interest expense ratio of no less than 3.5:1; and
•  net interest bearing debt to EBITDA ratio of no greater than 2.0:1 in the 2003 financial year,
increasing to 3.0:1 in the years thereafter.
The above ratios are calculated semi-annually based on accounting policies in use at the time the
indebtedness was incurred. Because the above ratios are calculated based on accounting policies in
use at the time the indebtedness was incurred, EBITDA for purposes of the ratios is not calculated in
the same manner as it is calculated elsewhere in this document. The covenants will be effective for so
long as the initial subscriber holds at least 70% in nominal value of the bonds.
The R1.6 billion bridge facility contains financial covenants requiring the Telkom Group to maintain
the following ratios:
•  Net interest bearing debt to EBITDA of not more than 3.0 times.
•  EBITDA to net finance charges of not less than 3.5 times.
The full amount drawn under the bridge facility was repaid on April 29, 2008.
We are in compliance with the above ratios during the year ended March 31, 2008.
background image
186
All debt incurred by Telkom prior to 1991 is guaranteed by the Government of the Republic of
South Africa pursuant to Section 35 of the South African Exchequer Act, 66 of 1975. The Government
of the Republic of South Africa does not guarantee debt incurred thereafter or Vodacom’s debt. As of
March 31, 2008, R141 million of our total debt of R17.1 billion was guaranteed by the Government of
the Republic of South Africa.
No loans have been furnished by Telkom or any of its subsidiaries for the benefit of any director or
any member of our senior management team as of March 31, 2008.
Telkom’s policy is to hedge its exposure to foreign exchange rate fluctuations. Currency exchange
hedges are not always commercially available in other African countries. Interest rate risk is converted
to Rands and managed per our policy and control manual which stipulates guidelines on exposure to
fixed and floating rate debt. Telkom’s target is a net debt to EBITDA ratio for its fixed-line and other
segments of 1.3 times.
Targets in a transforming industry such as ours are inherently risky, particularly in later years and
investors should not place undue reliance on such targets.
Change in accounting policy
The Telkom Group’s consolidated financial information discussed herein reflects the following
changes to the basis of preparation:
•  the adoption of an amendment to IAS1 and IFRS7, which are applicable for financial years
beginning on or after January 1, 2007;
•  the adoption of Circular 8/2007, which is applicable for financial years ending on or after
August 31, 2007;
•  the adoption of IFRIC8, which is applicable for financial years beginning on or after
May 1, 2006;
•  the adoption of IFRIC9, which is applicable for financial years beginning on or after
June 1, 2006;
•  the adoption of IFRIC10, which is applicable for financial years beginning on or after
November 1, 2006; and
•  the adoption of IFRIC11, which is applicable for financial years beginning on or after
March 1, 2007.
For a more detailed description of these items, please see note 2 of the notes to the audited
consolidated financial statements of the Telkom Group and note 48 of the notes to the audited
consolidated financial statements of Vodacom included in this annual report.
Significant accounting judgments and estimates
The preparation of consolidated financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods. Although these estimates are based on
management’s best knowledge of current events and actions that the Telkom Group may undertake in
the future, actual results ultimately may differ from those estimates.
The presentation of the results of operations, financial position and cash flows in the consolidated
financial statements of the Telkom Group is dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the preparation of these consolidated financial
background image
187
statements. Management has made certain judgments in the process of applying the Telkom Group’s
accounting policies. These, together with the key assumptions concerning the future, and other key
sources of estimation uncertainty at the balance sheet date, are as follows:
Property, plant and equipment and intangible assets
The useful lives of assets are based on management’s estimation. Management considers the
impact of changes in technology, customer service requirements, availability of capital funding and
required return on assets and equity to determine the optimum useful life expectation for each of the
individual categories of property, plant, equipment and intangible assets. Due to the rapid
technological advancement in the telecommunications industry, as well as Telkom’s plan to migrate to
a next generation network over the next few years, the estimation of useful lives could differ
significantly on an annual basis due to unexpected changes in the roll-out strategy. The impact of the
change in the expected useful life of property, plant and equipment is described more fully in note 5.6
of the consolidated financial statements of the Telkom Group. The estimation of residual values of
assets is also based on management’s judgment as to whether the assets will be sold or used to the
end of their useful lives and what their condition will be like at that time.
For intangible assets that incorporate both a tangible and intangible portion, management uses
judgment to assess which element is more significant to determine whether it should be treated as
property, plant and equipment or intangible assets.
Refer to notes 10 and 11 of the notes to the audited consolidated financial statements of the
Telkom Group for the method used to apply our accounting principles.
Asset retirement obligations
Management judgment is exercised when determining whether an asset retirement obligation
exists, and in determining the present value of expected future cash flows and discount rate when the
obligation to dismantle or restore the asset arises, as well as the estimated useful life of the related
asset.
Impairments of property, plant and equipment, and intangible assets
Management is required to make judgments concerning the cause, timing and amount of
impairment. In the identification of impairment indicators, management considers the impact of
changes in current competitive conditions, cost of capital, availability of funding, technological
obsolescence, discontinuance of services and other circumstances that could indicate that an
impairment exists. The Telkom Group applies the impairment assessment to its separate cash-
generating units. This requires management to make significant judgments concerning the existence
of impairment indicators, identification of separate cash-generating units, remaining useful lives of
assets and estimates of projected cash flows and fair value less costs to sell. Management judgment
is also required when assessing whether a previously recognized impairment loss should be reversed.
Where impairment indicators exist, the determination of the recoverable amount of a cash-
generating unit requires management to make assumptions to determine the fair value less costs to
sell and value in use. Key assumptions on which management has based its determination of fair
value less costs to sell include the existence of binding sale agreements, and for the determination of
value in use include projected revenues, gross margins, average revenue per asset component,
capital expenditure, expected customer bases and market share. The judgments, assumptions and
methodologies used can have a material impact on the fair value and ultimately the amount of any
impairment.
Refer to notes 10 and 11 of the notes to the audited consolidated financial statements of the
Telkom Group for the method used to apply our accounting principles.
background image
188
Impairment of other financial assets
At each balance sheet date management assesses whether there are indicators of impairment of
financial assets, including equity investments. If such evidence exists, the estimated present value of
the future cash flows of that asset is determined. Management judgment is required when determining
the expected future cash flows. To determine whether the decline in fair value is prolonged, reliance is
placed on an assessment by management regarding the future prospects of the investee. In
measuring impairments, quoted market prices are used, if available, or projected business plan
information from the investee for those financial assets not carried at fair value.
Refer to notes 12 and 19 of the notes to the audited consolidated financial statements of the
Telkom Group for the method used to apply our accounting principles.
Impairment of receivables
An impairment is recognized for estimated losses firstly on an individually significant trade
receivable and secondly on a group of trade receivables with similar credit risk that are assessed to
be impaired based on objective evidence as a result of one or more events that occurred during the
reporting period. For those customers which have defaulted management makes judgments based on
an assessment of their ability to make payments based on credit worthiness and historical write-off
experience. Should the financial condition of the customers change, actual write offs could differ
significantly from the impairment.
Refer to notes 12 and 18 of the notes to the audited consolidated financial statements of the
Telkom Group for the method used to apply our accounting principles.
Leases
The determination of whether an arrangement is, or contains, a lease is based on whether, at the
date of inception, the fulfillment of the arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset.
Leases in which a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases. Payments made under operating leases, net of any
incentives from the lessor, are charged to the income statement on a straight line basis over the
period of the lease.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident
to ownership. Assets acquired in terms of finance leases are capitalized at the lower of fair value or
the present value of the minimum lease payments at inception of the lease and depreciated over the
lesser of the useful life of the asset or the lease term. The capital element of future obligations under
the leases are included as a liability in the balance sheet. Lease finance costs are amortized in the
income statement over the lease term using the effective interest rate method. Where a sale and
leaseback transaction results in a finance lease, any excess of sale proceeds over the carrying
amount is deferred and recognized in the income statement over the term of the lease.
Refer to notes 12, 15 and 37 of the notes to the audited consolidated financial statements of the
Telkom Group for the method used to apply our accounting principles.
Deferred taxation asset
Management judgment is exercised when determining the probability of future taxable profits
which will determine whether deferred tax assets should be recognized or derecognized. The
realization of deferred tax assets will depend on whether it is possible to generate sufficient taxable
income, taking into account any legal restrictions on the length and nature of the taxation asset. When
deciding whether to recognize unutilized taxation credits, management needs to determine the extent
that future payments are likely to be available for set-off. In the event that the assessment of future
payments and future utilization changes, the change in the recognized deferred taxation assets must
be recognized in profit or loss.
background image
189
Refer to note 16 of the notes to the audited consolidated financial statements of the Telkom Group
for the method used to apply our accounting principles.
Taxation
The tax rules and regulations in South Africa as well as the other African countries within which
the Group operates are highly complex and subject to interpretation. Additionally, for the foreseeable
future, management expects South African tax laws to further develop through changes in South
Africa’s existing tax structure as well as clarification of the existing tax laws through published
interpretations and the resolution of actual tax cases. Management has made a judgment that all
outstanding tax credits will be available for utilization before the tax regime change is effective,
despite the change of secondary tax on companies to withholding tax.
Refer to note 8 of the notes to the audited consolidated financial statements of the Telkom Group
for the method used to apply our accounting principles.
Taxation of subsidiaries
The growth of the Telkom Group, following its geographical expansion into other African countries
over the past few years, has made the estimation and judgment more challenging. The resolution of
taxation issues is not always within the control of the Telkom Group and it is often dependent on the
efficiency of the legal processes in the relevant taxation jurisdictions in which the Telkom Group
operates. Issues can, and often do, take many years to resolve. Payments in respect of taxation
liabilities for an accounting period result from payments on account and on the final resolution of open
items. As a result there can be substantial differences between the taxation charge in the consolidated
income statement and the current taxation payments. Group entities are regularly subject to
evaluation, by the relevant tax authorities, of its historical tax filings and in connection with such
reviews, disputes can arise with the taxing authorities over the interpretation or application of certain
tax rules to the business of the relevant Group entities. These disputes may not necessarily be
resolved in a manner that is favorable for the Telkom Group. Additionally the resolution of disputes
could result in an obligation for the Telkom Group that exceeds management’s estimate.
Deferred taxation rate
Management makes judgments on the tax rate applicable based on the Group’s expectations at
balance sheet date on how the asset is expected to be recovered or the liability is expected to be
settled.
Refer to note 16 of the notes to the audited consolidated financial statements of the Telkom Group
for the method used to apply our accounting principles.
Employee benefits
The Group provides defined benefit plans for certain post-employment benefits. The Group’s net
obligation in respect of defined benefits is calculated separately for each plan by estimating the
amount of future benefits earned in return for services rendered. The obligation and assets related to
each of the post retirement benefits are determined through an actuarial valuation, which relies
heavily on assumptions as disclosed in note 29 to the consolidated annual financial statements. The
assumptions determined by management make use of information obtained from the Group’s
employment agreements with staff and pensioners, market related returns on similar investments,
market related discount rates and other available information. The assumptions concerning the
expected return on assets and expected change in liabilities are determined on a uniform basis,
considering long-term historical returns and future estimates of returns and medical inflation
expectations. In the event that further changes in assumptions are required, the future amounts of
post retirement benefits may be affected materially.
The discount rate used reflects the average timing of the estimated defined benefit payments. The
discount rate is based on long term South African government bonds with the longest maturity period
background image
190
as reported by the Bond Exchange of South Africa. The discount rate is expected to follow the trend of
inflation.
The overall expected rate of return on assets is determined based on the market prices prevailing
at that date, applicable to the period over which the obligation is to be settled.
Telkom provides equity compensation in the form of the Telkom Conditional Share Plan to its
employees. The related expense and reserve are determined through an actuarial valuation, which
relies heavily on assumptions. The assumptions include employee turnover percentages and whether
specified performance criteria will be met. Changes to these assumptions could affect the amount of
expense ultimately recognized in the consolidated financial statements.
Refer to note 29 of the notes to the audited consolidated financial statements of the Telkom Group
for the method used to apply our accounting principles.
Provisions and Contingent liabilities
Management’s judgment is required when recognizing and measuring provisions and when
measuring contingent liabilities as set out in notes 28 and 38 of the consolidated annual financial
statements, respectively. The probability that an outflow of economic resources will be required to
settle the obligation must be assessed and a reliable estimate must be made of the amount of the
obligation. Provisions are discounted where the effect of discounting is material. The discount rate
used is the rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability, all of which requires management judgment. The Group
is required to recognize provisions for claims arising from litigation when the occurrence of the claim
is probable and the amount of the loss can be reasonably estimated. Liabilities provided for legal
matters require judgments regarding projected outcomes and ranges of losses based on historical
experience and recommendations of legal counsel. Litigation is however unpredictable and actual
costs incurred could differ materially from those estimated at the balance sheet date.
Refer to note 28 of the notes to the audited consolidated financial statements of the Telkom Group
for the method used to apply our accounting principles.
Revenue recognition
To reflect the substance of each transaction, revenue recognition criteria are applied to each
separately identifiable component of a transaction. In order to account for multiple-element revenue
arrangements in developing its accounting policies, the Telkom Group considered the guidance
contained in the United States Financial Accounting Standards Board (FASB) Emerging Issues Task
Force No 00-21 Revenue Arrangements with Multiple Deliverables. Judgment is required to separate
those revenue arrangements that contain the delivery of bundled products or services into individual
units of accounting, each with its own earnings process, when the delivered item has stand-alone
value and the undelivered item has fair value. Further judgment is required to determine the relative
fair values of each separate unit of accounting to be allocated to the total arrangement consideration.
Changes in the relative fair values could affect the allocation of arrangement consideration between
the various revenue streams.
Judgment is also required to determine the expected customer relationship period. Any changes
in these assessments may have a significant impact on revenue and deferred revenue.
Dealer incentives
Telkom provides incentives to its retail payphone card distributors as trade discounts. Incentives
are based on sales volume and value. Revenue for retail payphone cards is recorded as traffic
revenue, net of these discounts as the cards are used.
Vodacom acts as a principal in its relationship with its dealers and service providers. Dealers and
service providers are not permitted to purchase and resell Vodacom airtime, they simply pass on to
the customer, the airtime that arises from the customer’s use of the Vodacom network.
background image
191
The role of the dealers and service providers is to undertake sales and marketing of airtime
services, including connection and renewal of contract customers and sales to pre paid customers,
and certain administrative services in relation to customers connected to the Vodacom network, such
as sales force and customer care and billing of individual customers for which they are compensated
by Vodacom. In effect, Vodacom has simply outsourced these functions, which they would otherwise
have performed internally, incurred and recorded as expenses, and the contract between Vodacom
and their dealers and service providers specifies what these functions are and how they will be
compensated by incentive commissions.
Vodacom pays amounts to its service providers and dealers for the ongoing administration of its
customers on a monthly basis.
The following incentive commissions are also paid by Vodacom to its dealers and service
providers:
Contract connection and retention incentive commissions
Contract products that may include deliverables such as a handset and 24 month service are
defined as arrangements with multiple deliverables. The arrangement consideration is allocated to
each deliverable, based on the fair value of each deliverable on a stand alone basis as a percentage
of the aggregated fair value of the individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost and commissions paid to service providers
and dealers that are applicable to these identified deliverables are recognized based on the same
recognition criteria of the individual deliverable at the time the product or service is delivered.
Contract retention incentive commissions
These commissions are paid to service providers or dealers for all contract packages.
Vodacom calculates the incentive paid monthly and the expense is recognized in the period
it is earned by the service provider or dealer.
Prepaid incentive commissions
Prepaid products that may include deliverables such as a SIM card and airtime are defined
as arrangements with multiple deliverables. The arrangement consideration is allocated to each
deliverable, based on the fair value of each deliverable on a stand alone basis as a percentage
of the aggregated fair value of the individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost and commissions paid to service providers
and dealers that are applicable to these identified deliverables are recognized on the same
recognition criteria of the individual deliverable at the time the product or service is delivered.
Distribution incentive commissions
These commissions are paid to service providers or dealers to maintain and increase their loyalty
to, and exclusivity with, Vodacom. These commissions are deferred and expensed over the
contractual relationship period.
Handset incentive commissions
These incentives are offered by Vodacom to dealers who purchase phones from Vodacom
to provide to customers, which are recorded as a net against revenue.
background image
192
Item 6.
Directors, senior management and employees
DIRECTORS AND SENIOR MANAGEMENT
Directors and senior management of Telkom
Directors of Telkom
The management of Telkom is vested in its board of directors. Telkom’s articles of association
specify that the board shall consist of not less than eight and not more than eleven members.
It currently has nine members. In accordance with Telkom’s articles of association, the Government,
as the holder of the class A ordinary share, and the Public Investment Corporation, through its wholly
owned subsidiary, Black Ginger 33 (Pty) Ltd., or Black Ginger, as the beneficial holder of the class B
ordinary share, are entitled to appoint directors based on the percentage of the issued ordinary shares
owned by them. As of the date hereof, the Government is entitled to appoint five directors, including
two executive directors, and the Public Investment Corporation is entitled to appoint one executive
or non-executive director to Telkom’s board of directors. Telkom’s shareholders are entitled to appoint,
in a general meeting, that number of directors, if any, that are not appointed by the holder of the class
A ordinary share, the holder of the class B ordinary share or the board of directors. The shareholders
in a general meeting are not entitled to fill a vacancy created by a director appointed by either the
holder of the class A ordinary share or the class B ordinary share. If, as of March 4, 2011, the class A
ordinary share and class B ordinary share have not otherwise been converted into ordinary shares
under the terms of Telkom’s articles of association, they will be so converted and the rights of the
beneficial holders of the class A ordinary share and class B ordinary share, respectively, including
their rights to appoint members of Telkom’s board of directors will be terminated.
The chief executive officer is Telkom’s most senior executive and the exercise of his authority
is subject to the authority and direction of the board of directors. Telkom’s articles of association
provide that the chief executive officer shall be an executive director nominated and appointed
at least every three years by the board of directors, after consultation with the Government,
for so long as it is a significant shareholder. Pursuant to Telkom’s articles of association, the board
of directors is required to meet at least once a quarter.
Significant shareholder
Pursuant to Telkom’s articles of association, a significant shareholder is any person that holds
either a class A ordinary share or a class B ordinary share and at least 15% of Telkom’s issued
ordinary shares, subject to adjustment to reflect additional issuances of ordinary shares by Telkom
after March 4, 2003, provided that the percentage will not be lower than 10%.
Thintana Communications sold a 14.9% interest in Telkom to South African and certain
international institutional investors in June 2004. Following the completion of this sale, Thintana
Communications beneficially owned a 15.1% interest in Telkom, including the class B ordinary share,
and remained a significant shareholder. In November 2004 Thintana Communications announced that
it sold its remaining 15.1% interest in Telkom, including its class B ordinary share, to the Public
Investment Corporation, an investment management company wholly owned by the South African
Government, and Black Ginger. Following the sale by Thintana Communications, all of Thintana
Communications’ representatives on Telkom’s board and its management designees were replaced.
As of June 30, 2008, Black Ginger beneficially owned 9.0% of Telkom’s issued and 9.3% of
Telkom’s outstanding shares and the class B ordinary share. The Public Investment Corporation
directly owned 6.6% of Telkom’s issued and 6.8% of Telkom’s outstanding ordinary shares that were
acquired in the market. Black Ginger is not a “significant shareholder” of Telkom, however, it is entitled
background image
193
to appoint one executive or non-executive director to Telkom’s board of directors, as the beneficial
holder of the class B ordinary share. As of June 30, 2008, the Government of the Republic of South
Africa owned 39.8% of Telkom’s issued and 41.5% of Telkom’s outstanding ordinary shares, plus the
class A ordinary share, and is entitled to appoint five directors, including two executive directors, to
Telkom’s board of directors and is the only “significant shareholder” of Telkom. In addition, as of June
30, 2008, the Elephant Consortium beneficially owned 5.9% of Telkom’s issued and 6.1% of Telkom’s
outstanding shares that were initially purchased by the Public Investment Corporation from Thintana
Communications and subsequently transferred to the Elephant Consortium. To the Telkom Group’s
knowledge, the Elephant Consortium is not affiliated with the Government of the Republic of South
Africa or the Public Investment Corporation. The Elephant Consortium is not a “significant
shareholder” of Telkom and is not entitled to appoint any executive or non-executive directors to
Telkom’s board of directors.
Directors
The following resignations and appointments to the Telkom board of directors occurred since
April 1, 2007:
Resignations
Date of resignation
LLR Molotsane
April 5, 2007
PL Zim
April 11, 2007
DD Tabata
September 19, 2007
M Mostert
September 19, 2007
YR Tenza
September 19, 2007
TF Mosololi
October 26, 2007
TD Mahloele
January 30, 2008
B Molefe
March 5, 2008
MJ Lamberti
June 3, 2008
A G Rhoda
July 3, 2008
Appointments
Date of appointment
RJ September
May 8, 2007
MJ Lamberti
May 29, 2007
RJ Huntley
September 20, 2007
Dr E Spio-Garbrah
September 20, 2007
Dr VB Lawrence
September 20, 2007
B Molefe
January 30, 2008 and July 3, 2008
AG Rhoda
March 5, 2008
The following are Telkom’s directors as of March 31, 2008. All of Telkom’s directors are citizens of
the Republic of South Africa, unless otherwise indicated.
background image
194
Year
of
Business
Expiration of
Year of
Name
birth
address
Position
term of office
appointment
Shirley Therese Arnold
(1)
1950
Telkom Towers North
Chairperson of the
2009
2006
152 Proes Street
board; Non-
Pretoria,
executive Director
0002, South Africa
Reuben September . . .
1957
Telkom Towers North
Chief Executive
2010
2007
152 Proes Street
Officer, Executive
Pretoria,
Director
0002, South Africa
Sibusiso Luthuli
(2)
. . . . .
1973
14 Crompton Street,
Non-executive
2008
2005
Pinetown, 3600,
Director
South Africa
Brahm du Plessis
(2)
. . .
1955
41 St. John Road
Non-executive
2008
2004
Houghton, 2041,
Director
until next
South Africa
AGM
Keitumetse Matthews
(1)
1951
Shop G4, Richmond
Non-executive
2009
2006
Centre, Main Road,
Director
Plumstead,
Cape Town, 7800,
South Africa
Mark Lamberti
(2)(3)
. . . .
1950
54 Oxford Avenue
Non-executive
2010
2007
Sandhurst, Sandton
Director
2196, South Africa
RJ Huntley
(1)
. . . . . . . . .
1962
Unit A1, Building A,
Non-executive
2010
2007
1st Floor,
Director
Rutherford Estate,
1 Scott Street,
Waverley,
Johannesburg, 2001,
South Africa
Dr E Spio-Garbrah
(1)(4)
.
1953
CTO, Fourth Floor,
Non-executive
2010
2007
28 Hammersmith
Director
Grove,
London W6 7BA,
England.
Dr VB Lawrence
(1)(5)
. . .
1945
Stevens Institute of
Non-executive
2010
2007
Technology, Castle
Director
Point on Hudson,
Hoboken, New Jersey,
07030, United States
of America
AG Rhoda
(6)(7)
. . . . . . . .
1960
Maxfin 367,
Non-executive
Open term
2008
Surrey Ave,
Director
Block B, Ferndale,
Johannesburg, 2194
In addition, the following director was appointed to the board after March 31, 2008:
B Molefe
(6)
. . . . . . . . . .
1966
Glenfield Office Park,
Non-executive
Open term
2008
Oberon Avenue
Director
Faerè Glen,
0043
background image
195
Notes:
(1)
Government representative.
(2)
Independent.
(3)
Resigned June 3, 2008.
(4)
Ghanaian.
(5)
American.
(6)
Public Investment Corporation representative.
(7)
Resigned July 3, 2008
Shirley Therese Arnold was appointed to the board on November 1, 2006 as chairperson and
non-executive director. Ms. Arnold has served as a non-executive director and chairperson of the
Empowerment Committee of Peermont Global Ltd since July 2004. Ms. Arnold is a member of the
Chairpersons Forum, Gordon Institute of Business and also a member of the Independent Directors
Initiative and the Institute of Directors in South Africa. She is a trustee of the Thutuka Bursary Fund
(SAICA) and the Maths Centre, and is also a patron of the Student Sponsorship Programme.
Ms. Arnold was a non-executive director of Ernst & Young South Africa from February 2002
to April 2006 and acting chairperson from February 2005 to April 2006. She was also a member
of the accounting firm’s nominations committee from November 2004 to April 2006. Ms. Arnold holds
a Bachelor of Arts degree and a Certificate in Education.
Reuben September was appointed to the board on May 8, 2007 and as chief executive officer
on November 22, 2007. Previously, he served as acting chief executive officer since April 5, 2007,
as chief operating officer since September 5, 2005, as chief technical officer from May 2002 until August
2005 and as managing executive of technology and network services from March 2000
to April 2002. He has worked in various engineering and commercial positions at Telkom since 1977. He
is a member of the Professional Institute of Engineers of South Africa (ECSA) and holds
a Bachelor of Science degree in Electrical and Electronic Engineering from the University of Cape Town.
Mr. September is also a director of Vodacom.
Sibusiso Luthuli was appointed to the board on July 29, 2005. Mr. Luthuli is the managing
director of Ithala Limited, a position he was appointed to in July 2004. Prior to that he was finance
director of Ithala Limited from January 2004 to June 2004. Other positions Mr. Luthuli held include that
of executive manager at Nedbank Corporate from April 2000 to December 2003. He is non-executive
chairman of Enaleni Pharmaceuticals Limited, chairman of the University of KwaZulu-Natal Audit
Committee, a member of the University of KwaZulu-Natal Council, director of Richards Bay Industrial
Development Zone (IDZ) Company, member of Thekweni Municipality Audit Committee, director of
Luthuli & Luthuli Investments (Proprietary) Limited, trustee of Amathuli Trust and member of the KZN
Provincial Government audit committee. Mr. Luthuli holds a Bachelor of Commerce degree from the
University of Zululand, a post graduate diploma in Accountancy from the University of Durban
Westville, and is a qualified Chartered Accountant (South Africa).
Brahm du Plessis was appointed to the board on December 2, 2004. Advocate du Plessis has
been a practicing advocate at the Johannesburg Bar since 1987, specializing in intellectual property
law. Prior to that he was a senior lecturer in Roman-Dutch Law at the University of Cape Town. He
was a founder member of the CDRT (Community Dispute Resolution Trust) and is past chairman of
the Johannesburg branch of NADEL. He has published a law journal article on the Contracts in
Restraint of Trade in Roman and Roman-Dutch Law. Advocate du Plessis is a member of Advocates
for Transformation and a member of the Johannesburg Bar Council. Advocate du Plessis holds
Bachelor of Arts and LLB degrees from the University of Stellenbosch and an LLM degree from the
University of London (LSE).
background image
196
Keitumetse Matthews was appointed to the board on June 19, 2006. Ms. Matthews is a
businesswoman and has been a member of Keida Children’s Books CC since April 2006. Ms.
Matthews was chief legal advisor for the South African Broadcasting Corporation from March 2002 to
September 2005. In April 2000, she was appointed special advisor to the Minister of Communications
until February 2002. Other positions that Ms. Matthews has held include that of legal advisor at Midi
Television, housing lawyer at the London Borough of Lambert Legal Services and copyright lawyer at
British Broadcasting Corporation. Ms. Matthews is a Barrister-at-Law and also holds a Bachelor of
Arts (Honors) degree.
Mark Lamberti was appointed to the board on May 29, 2007. Mr. Lamberti is the deputy
chairman of the board and chief executive officer of Massmart Holdings Limited, a company he
founded 19 years ago and of which he was the largest private shareholder until recently. Mr. Lamberti
stepped down as chief executive officer and was appointed non-executive chairman on July 1, 2007.
Mr. Lamberti currently serves as a non-executive director of Allied Electronics Corporation Limited and
Business Leadership South Africa and is co-chairman of the Consumer Goods Council of South
Africa. Mr. Lamberti holds a Bachelor of Commerce degree from the University of South Africa, a
Masters degree in Business Administration from the University of the Witwatersrand and is an
alumnus of the Harvard Graduate School of Business Administration where he completed the
Presidents Program in Leadership.
Jackie Huntley was appointed to the board on September 20, 2007. Jackie is a practicing
attorney and senior partner with the law firm Mkhabela Huntley Adekeye Inc. In 1999 she established
a black-woman-led law firm Huntley Inc., and in 2006 Huntley Inc. merged with Mukwevho Mkhabela
Adekeye Incorporated to form Mkhabela Huntley Adekeye Inc. as one of the major black law firms
in South Africa. She joined Gold Fields of South Africa Limited in 1990 as a legal advisor in the
commercial law department, thereafter joined Nedcor Bank Limited in 1993 and spent four years,
three years as a legal advisor and one year in the credit department. Jackie has extensive experience
in Commercial and Corporate law, including Telecommunications Law. She also worked extensively
in low cost housing, having advised the South African Department of Housing and Institutions in the
housing sector on housing policy and legal aspects of housing. Jackie holds BProc, Bachelor of Laws
degrees and a Management Advanced Programme Certificate from the University of the
Witwatersrand and she is an admitted attorney of the High Court of the Republic of South Africa.
Dr. Ekwow Spio-Garbrah was appointed to the board on September 20, 2007. He is the chief
executive officer of the London-based Commonwealth Telecom Organisation, a 100 year old
inter-governmental organization, of which South Africa is a member. He was Ghana’s Minister of
Communication from July 1997 to December 1998 and Minister of Education from December 1998 to
January 2001, and Ambassador of Ghana to the USA and Mexico from June 1994 to June 1997. He
has served as acting Chairman of Ghana’s National Communications Authority from July 1997 to
December 1998, first Chairman of Ghana’s VAT Service Board from 1997 to 1998 and was a member
of the Governing Board of UNESCO in Paris. Previously, he was a senior official of the African
Development Bank, the World Bank Group, Southwestern Bell (USA) and Hill and Knowlton (USA).
He holds a BA (Hons), English, from the University of Ghana, a Graduate Certificate in International
Banking from the New York University, a Graduate Diploma, in Journalism and Communications and
an M.A in International Affairs from Ohio University and was awarded an LLD (Honoris Causa) by
Middlebury University, USA.
background image
197
Dr. Victor Lawrence was appointed to the board on September 20, 2007.Dr Lawrence is an
industry leader in digital communications research and development, an entrepreneur, an active
member of engineering professional organizations, an author, and a teacher who has extensive
international experience. Dr Lawrence is the Charles W Bachelor Chair Professor of Electrical and
Computer Engineering and Associate Dean for Special Programs at Stevens Institute of Technology.
He is also the founding Director of the “Intelligent Networked Systems Center”, INetS. Dr Lawrence
holds BSc, MSc and Ph.D degrees in Electrical and Computer Engineering from the University of
London in the United Kingdom.
Athol Rhoda was appointed to the board on March 5, 2008. Mr. Rhoda is a qualified Chartered
Accountant (South Africa) and a registered accountant by profession and has been a member of the
South African Institute of Chartered Accountants since 1986. He was the Executive Head of Finance:
AngloGold South Africa Operations from 1991 to 2001, and he also served as a non-executive
director of Teba Bank from 2000 to 2001, director of SCMB, as well as the managing director of
Diners Club International from 2001 to 2003. Mr Rhoda has been a director of the Public Investment
Corporation since September 2007.
Alternate directors of Telkom
On April 22, 2008, B Molefe was appointed as alternate director to AG Rhoda, after having
previously served as a member of the board. On July 3, 2008 AG Rhoda resigned as a director and
was replaced by B Molefe with immediate effect.
Senior management of Telkom
With effect from November 1, 2007, Telkom revised its top management structure to align the
structure to better match its current business needs. The revised structure is designed to facilitate
faster decision-making and more effective execution, smoother integration of various operating
entities, and ensure that multi-national and wholesale customers are better served through
appropriate channels. On November 22, 2007, the board announced the appointment of Reuben
September as chief executive officer. In appointing the chief executive officer, the board followed
a rigorous evaluation process, including international benchmarking and consultation with the
Department of Communications, the latter a requirement specified by Telkom’s articles of association.
In addition, on November 1, 2007, Motlatsi Nzeku was appointed as chief of operations, Thami
Msimango was appointed as chief of global operations and subsidiaries, Charlotte Mokoena was
appointed as chief of human resources and Ouma Rasethaba was appointed as chief of corporate
governance. Deon Fredericks was appointed acting chief of finance on November 1, 2007 and
Naas Fourie was appointed as chief of strategy on April 1, 2008.
The following are members of senior management of Telkom as of March 31, 2008:
Year of
Year of
Name
birth
Position
employment
Reuben September
(1)
. . . .
1957
Chief Executive Officer
1977
Deon Fredericks . . . . . .
1960
Acting Chief of Finance
1993
Motlatsi Nzeku . . . . . . .
1961
Chief of Operations
1994
Thami Msimango . . . . . .
1966
Chief of Global Operations and
1984
Subsidiaries
Naas Fourie . . . . . . . . .
1959
Chief of Strategy
1994
Charlotte Mokoena . . . . .
1965
Chief of Human Resources
2002
Ouma Rasethaba . . . . . .
1960
Chief of Corporate Governance
2006
Note:
(1)
Biography set forth above.
background image
198
The business address of each of Telkom’s senior management is Telkom Towers North, 152 Proes
Street, Pretoria, South Africa 0002.
Deon Fredericks was appointed as acting chief financial officer on November 1, 2007.
Previously he served as Telkom’s group executive of corporate finance accounting services and
as chief accountant from November 2004 to November 2007. He originally joined Telkom SA Limited
in 1993 as a senior manager in internal audit and has held several executive positions in the various
facets of finance. He is a Chartered Accountant (South Africa) and a member of the Chartered
Institute of Management Accountants (UK). Mr. Fredericks also holds a Bachelor of Commerce
(Honours) degree in Business Management. He also serves as a director of Vodacom, TDS Directory 
Operations, Multi-Links, Africa Online and Telkom Media. He also serves on the audit
committee of Vodacom, TDS Directory Operations and Multi-Links.
Motlatsi Nzeku was appointed chief information officer in March 2006. Previously, he was group
executive of procurement since November 2004 and managing executive of customer services from
April 2001 to October 2004. He holds a Bachelor of Science in Mathematics and Physics and a
Bachelor of Engineering degree.
Thami Msimango was appointed chief technical officer in September 2005 and resigned
on March 31, 2007. Mr. Msimango joined Telkom in 1984 and has held a number of positions
in Telkom. Previously, he was managing executive of technology and network services from
July 2003 to September 2005 and executive Technology, Direction and Integration from June 2002
to June 2003. Mr. Msimango has been involved in the information and communication technology
sector for the past 22 years beginning his career in the former Department of Posts and
Telecommunications in 1984. Mr. Msimango has taken a number of management programs at various
higher education institutions. Mr. Msimango is a non-executive director of Telkom Media, Africa Online and
Multi-Links.
Naas Fourie was appointed as chief of strategy on April 1, 2008 after having acted in the position
from November 2007. Mr. Fourie joined Telkom in 1994 and has held a number of positions in Telkom.
Previously, he was managing executive of commercial services from April 2005 to October 2007 and
executive of marketing services from April 1999 to March 2005. Mr. Fourie holds a Bachelor of Arts,
Bachelor of Divinity and Bachelor of Accounting Science (Honours) degree and completed the
advanced executive program of the Kellogg School of Business. Mr Fourie is a director of Swiftnet
and alternate director of Vodacom.
Charlotte Mokoena was appointed as chief of human resources from November 1, 2007.
Previously, she was group executive of human resources from December 2002 to October 2007,
group executive of the Telkom Center for Learning from May 2002 to November 2002 and
organizational capability manager for Coca-Cola Africa from November 2001 to April 2002. She holds
a Bachelor of Arts Honours degree in Human resources development from the Johannesburg
University, a Bachelor of Social Sciences from North West University and a post-graduate diploma in
training and performance management from Leicester University.
Ouma Rasethaba was appointed as chief corporate affairs officer on November 1, 2007.
She joined Telkom in February 2006 serving as group executive of regulatory and public policy.
Prior to joining Telkom she practiced as an advocate of the High Court of South Africa. She also held
the position of special director of Public Prosecutions at the National Prosecuting Authority from
February 2000 to January 2006. She holds a Bachelors degree in law (B.Proc.) from the University of
the North, an Honours degree in law (LLB) from the University of the Witwatersrand, a Masters
degree in law (LLM) from the University of Pretoria as well as a Higher Diploma in Company Law from
the University of the Witwatersrand. She is non-executive director and chairman and member of the
audit committee of TDS Directory Operations (Pty) Limited.
There are no family relationships between any of Telkom’s directors or members of senior
management.
background image
199
Senior management of Vodacom
The following are members of senior management of Vodacom as of March 31, 2008:
Year of
Year of
Name
birth
Position
employment
Alan Knott-Craig . . . . . .
1952
Chief Executive Officer of
Vodacom Group
1993
Leon Crouse . . . . . . . .
1953
Chief Financial Officer of
(resigned March 31, 2008) .
Vodacom Group
1993
Johan van der Watt
1966
Acting Chief Financial Officer of
(acting with effect from
Vodacom Group
1993
April 1, 2008)
Shameel Aziz Joosub . . . .
1971
Managing Director of Vodacom
South Africa
1994
Pieter Uys . . . . . . . . . .
1962
Chief Operating Officer of
Vodacom Group
1993
The business address of each of Vodacom’s executive officers is Vodacom Corporate Park,
082 Vodacom Boulevard, Vodavalley, Midrand, South Africa.
Alan Knott-Craig has served as a managing director of Vodacom (Pty) Limited since 1993 and
chief executive officer of Vodacom Group since October 1996. Prior to 1993, Mr. Knott-Craig was the
senior general manager of mobile communications at Telkom until 1993, when he left to join Vodacom.
Mr. Knott-Craig holds a Bachelor of Science degree in Electrical Engineering (Cum Laude) from the
University of Cape Town and a Master of Business Leadership degree from the University of South
Africa and was awarded an honorary Doctorate in Business Leadership from the University of South
Africa in 2006. He was inducted as one of the eight Gold Members of the GSM Association’s 2001
inaugural “Roll of Honor” for his contribution to bringing mobile communications to South Africa.
He serves as a Commissioner on the Presidential National Commission on Information Society &
Development for ICTs. In June 2008, Alan Knott Craig announced his decision to step down as chief
executive officer of the Vodacom Group effective from September 30, 2008. He is expected to remain
as consulting chief executive officer until the end of the 2009 financial year.
Leon Crouse has served as chief financial officer and group finance director of Vodacom Group
since October 1996. Prior to 1996, Mr. Crouse served as Vodacom’s general manager of Finance
since Vodacom’s inception in 1993. Mr. Crouse is also a director of several Vodacom subsidiaries.
Mr. Crouse holds a Bachelor of Commerce degree and a Certificate in the Theory of Accounting
from the Nelson Mandela Metropolitan University of Port Elizabeth and is a Chartered Accountant
(South Africa).
Johan van der Watt was appointed as acting chief financial officer of the Vodacom Group on
April 1, 2008. Previously, he has served as executive director of finance of Vodacom, South Africa
from April 2005 to April 2008 and as financial director of Vodacom (Pty) Limited from August 2000
to March 2005. Mr. van der Watt is a Chartered Accountant (South Africa).
Shameel Aziz-Joosub has served as managing director of Vodacom (Pty) Limited since
April 2005. He has served as a director and as the managing director of Vodacom Service Provider
Company (Pty) Limited since September 2000. Prior to September 2000, Mr. Aziz-Joosub worked
in Vodacom’s finance department since 1994 and was managing director of Vodacom Equipment
Company (Pty) Limited, the former handset distribution company in the Vodacom Group, before
merging it with Vodacom Service Provider Company. Mr. Aziz-Joosub also serves as director of
Vodacom Group (Pty) Limited. Mr. Aziz-Joosub holds a Bachelor of Accounting Science (Honors)
background image
200
degree from the University of South Africa and holds a Masters of Business Administration degree
from the University of Southern Queensland, Australia, and is an Associated General Accountant and
Commercial and Financial Accountant (South Africa).
Pieter Uys has served as chief operating officer of Vodacom Group since April 2004 and
managing director of Vodacom (Pty) Limited from December 2001 to March 2005. Mr. Uys was
appointed as chief executive officer of Vodacom Group effective October 1, 2008. Mr. Uys holds
a Bachelor of Science degree in Engineering and a Masters degree in Engineering from the
University of Stellenbosch and a Master of Business Administration degree from the Stellenbosch
Business School. Mr. Uys joined Vodacom in 1993 as a member of the initial engineering team.
Reserved matters
Pursuant to Telkom’s articles of association, for so long as the Government is a significant
shareholder, neither Telkom nor any of its subsidiaries may take action with respect to certain
reserved matters unless authorized by the board, if, and to the extent that, the matters are not within
the scope of the exclusive powers and authority delegated to the operating committee, which has
been replaced by the executive committee, referred to below. In addition, the authorizing resolution
of the board relating to any Government reserved matter must have received the affirmative vote
of at least two of the directors appointed by the Government. The following are Government
reserved matters:
•  the approval or amendment of Telkom’s strategic objectives or those of any subsidiary;
•  any determination of or amendment to Telkom’s management structure or schedule of
authorizations granted by the board to management;
•  prior to May 8, 2004, any determination by the board of directors with respect to the scope
or revocation of the exclusive powers and authority of the operating committee or the human
resources review committee referred to below, and at any time, the countermanding, amending
or supplementing of any decision or action made or taken by the operating committee
or the human resources review committee before May 8, 2004;
•  the formation of any committee of, or the delegation of any authority to such committee, by the
board of directors, other than as expressly set out in the articles of association;
•  an increase or reduction in the issued share capital of Telkom or its subsidiaries;
•  any issue, conversion or allotment of shares or securities by Telkom or any subsidiary;
•  the approval or making of the dividend policy from time to time and the declaration or
distribution of any dividends by Telkom or by its subsidiaries;
•  any material change in Telkom’s business or that of its subsidiaries;
•  the incurrence, creation or assumption by Telkom of any indebtedness which would cause the
debt/equity ratio of Telkom, or the Telkom Group on a consolidated basis, to exceed 1.00;
•  any merger or consolidation involving Telkom or any transfer of any of Telkom’s assets or
liabilities or those of its subsidiaries where the consideration or purchase price, as the case
may be, exceeds minimum thresholds;
•  the execution, renewal, amendment or termination of any contract between Telkom or its
subsidiaries and any shareholder who owns in excess of 10% of the ordinary shares, unless
the Government has an interest in the contract in question that conflicts with the interest
of Telkom or the applicable subsidiary;
•  the establishment by Telkom of any subsidiary;
background image
201
•  any change to the name under which Telkom or any subsidiary does business;
•  any change in Telkom’s financial or tax year;
•  any winding-up or liquidation of Telkom or any of its subsidiaries;
•  after May 7, 2004 and subject to the audit and risk management committee’s exclusive
authority referred to below, the appointment of Telkom’s auditors insofar as the South African
Companies Act, 61 of 1973, requires such appointment to be made by directors;
•  any material alteration of the terms of any employee share ownership scheme approved
by a general meeting; and
•  any change in the number of directors making up the board.
Telkom’s articles of association provide that the articles relating to these reserved matters will fall
away on March 4, 2011.
background image
202
COMPENSATION
Compensation of directors
The following table sets forth in Rands, the cash and non-cash compensation, paid by Telkom to
its executive and non-executive directors in the year ended March 31, 2008:
Performance
Fringe
bonus
and other
Fees
Remuneration
benefits
Total
    ZAR    
         ZAR        
    ZAR   
    ZAR      
   ZAR    
2008
Emoluments per director:
Non-executive . . . . . . . . .
4,632,933
4,632,933
SL Arnold . . . . . . . . . . . .
1,124,373
–
–
–
1,124,373
B du Plessis . . . . . . . . . .
393,967
–
–
–
393,967
TD Mahloele . . . . . . . . . .
357,684
–
–
–
357,684
TF Mosololi
(1)
(resigned
October 26, 2007) . . . . . . .
174,960
–
–
–
174,960
M Mostert
(2)(3)
(resigned
September 19, 2007) . . . . .
229,433
–
–
–
229,433
DD Tabata (resigned
September 19, 2007) . . . . .
250,583
–
–
–
250,583
YR Tenza (resigned
September 19, 2007) . . . . .
305,633
–
–
–
305,633
PL Zim (resigned
April 11, 2007) . . . . . . . . .
5,333
–
–
–
5,333
PSC Luthuli . . . . . . . . . .
502,117
–
–
–
502,117
KST Matthews . . . . . . . . .
501,217
–
–
–
501,217
MJ Lamberti (resigned
June 3, 2008) . . . . . . . . .
–
–
–
–
B Molefe
(4)
(appointed
January 30, 2008) (resigned
March 5, 2008, re-appointed
July 3, 2008) . . . . . . . . . .
20,497
–
–
–
20,497
RJ Huntley (appointed
September 20, 2007) . . . . .
193,833
–
–
–
193,833
Dr E Spio-Gabrah
(2)
(appointed
September 20, 2007) . . . . .
272,841
–
–
–
272,841
Dr VB Lawrence (appointed
September 20, 2007) . . . . .
286,176
–
–
–
286,176
A Rhoda
(5)
(appointed
March 5, 2008, resigned
July 3, 2008) . . . . . . . . . .
14,286
–
–
–
14,286
Executive . . . . . . . . . . .
–
14,489,833    3,436,308   13,244,896   31,171,037
LRR Molotsane
(6)
(left the employment of Telkom
on April 5, 2007) . . . . . . .–
12,036,076
–
26,124   12,062,200
RJ September
(2)(7)
(appointed
May 8, 2007) . . . . . . . . . .
–
2,453,757    3,436,308   13,218,772    19,108,837
CEO . . . . . . . . . . . . . .
–
1,016,524    3,436,308    10,438,538   14,891,370
Acting CEO . . . . . . . . . .
1,437,233
2,780,234
4,217,467
Total emoluments paid by Telkom
4,632,933
14,489,833    3,436,308    13,244,896   35,803,970
background image
203
Notes:
(1)
Paid to Tsogo Sun Limited.
(2)
In addition to these amounts Vodacom paid Mr. M Mostert R270,833, Dr. Spio-Gabrah R43,750 and RJ September
R175,000 for fees as directors during the 2008 financial year.
(3)
In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom board
resolved that it was in the best interest of the company and shareholders to deploy the highest quality skills currently
resident in Telkom, to evaluate, structure and make recommendations to the board on major transactions.
During the 2008 financial year Dr Mostert led all efforts in this regard and was remunerated accordingly. Moreover in
compliance with the principles of good governance, the board took legal advice and established that there was no conflict
of interest arising out of his involvement in the transaction evaluated.
(4)
Paid to Public Investment Corporation.
(5)
Paid to Rhoda and Associates.
(6)
Included in fringe and other benefits is a pension contribution for LRR Molotsane of R4,690 (2007: R295,462) paid to the
Telkom Retirement Fund. The payment included in remuneration was made in terms of a settlement agreement betweem Telkom 
and Mr. Molotsane.
(7)
Included in fringe and other benefits is a pension contribution for RJ September of R280,261 paid to the Telkom
Retirement Fund and a payment made in terms of a restraint of trade agreement.
In the year ended March 31, 2008, the aggregate consolidated compensation of Telkom’s
directors and senior management (29 persons, including a portion of the year for two individuals
who served as acting chiefs during such time), paid or accrued, was R111 million which includes
remuneration, bonuses, termination, fringe and other benefits paid to directors and members of senior
management who resigned or were replaced during the year.
The Telkom Group set aside or accrued R1.6 million to provide pension, retirement and similar
benefits for its directors and senior management (29 persons, including a portion of the year for two
individuals who served as acting chiefs during such time) in the year ended March 31, 2008, including
directors and members of senior management who resigned or were replaced during the year.
Bonus and profit sharing
Senior management and executive directors participate in the Telkom top management incentive
scheme. The incentive scheme consists of a team award, which is based 70% on Telkom financial
drivers and 30% on Telkom performance drivers. Payment of bonuses for the 2008 financial year took
place in June 2008.
Remuneration of non-executive directors
Fees for Telkom’s non-executive directors are determined by the board of directors based
on market practice, within the restrictions contained in Telkom’s articles of association.
Telkom’s non-executive directors receive no other pay or benefits other than directors’ fees,
with the exception of reimbursement of expenses incurred in connection with their directorships.
The non-executive directors do not participate in the share scheme, bonus scheme or incentive plans
outlined herein and are not eligible for pension scheme membership.
Loans
Telkom has not made any loans to any of its directors or senior management referred to herein.
Service agreements
Telkom has a service agreement with Reuben September, which has a three year term, expiring
November 30, 2010, with an annual one year renewal, subject to either party tendering notice of their
intention to terminate the agreement on or before June 30th of the applicable year. All other members
of the executive committee have indefinite service employment contracts with a three month notice
period by either party.
background image
204
Retention and restraint agreements
Restraint agreements have been signed with the chief executive officer and with four of the chief
officers, which prevents them from competing within the communications industry for two years from
last day of employment. In addition, three of the chief officers have retention agreements that will
lapse on October 31, 2011.
Incentive plans
At Telkom’s Annual General Meeting held on January 27, 2004, Telkom’s shareholders approved
a conditional share plan for all employees. A maximum of 22,281,272 ordinary shares were permitted
to be made available for purposes of the plan. As of March 31, 2008, 18,004,284 ordinary shares
were allocated under this plan, representing approximately 3.5% of Telkom’s issued ordinary shares.
No additional shares will be granted in terms of the share plan after March 31, 2008. Allocation to
management employees in terms of this plan shall not exceed 2% of Telkom’s issued ordinary share
capital. The remaining 2% is reserved for the remainder of the staff. No one participant in the plan
may acquire more than 0.05% of Telkom’s issued ordinary share capital.
The board may determine the maximum number of shares that will be awarded to each participant
in a conditional contract. Each conditional contract obligates Telkom to allot and issue to the employee
or procure the transfer to the employee, free of cash, the number of shares awarded to the employee,
subject to certain performance criteria applicable to him or her being met within a specified period.
The number of shares ultimately awarded to the employee, however, is dependent upon the extent
to which the employee meets certain performance criteria and, in any event, must not exceed the
number awarded. For a management employee, the performance criteria must be met over three
years. For a non-management employee, the performance criteria must be met for one-third of his
or her shares at the end of two years, for the next third at the end of three years and for the last third
at the end of four years, each from the date of his or her conditional contract. At the end of these
periods, the rights of the employees will vest, provided that each performance criterion has been met
and the employee is still a Telkom employee. Subject to the board’s discretion, if the employment
is terminated due to death, other than suicide, workforce reduction where he or she does not receive
a voluntary severance package, outsourcing, normal retirement or workforce reduction due to ill
health, his or her rights will remain unaffected; otherwise, the employee will lose his or her rights
to acquire any shares apart from the rights that have already vested. Subject to the board’s discretion,
the board may decide to make a cash payout based on certain criteria for employees who accept
voluntary service packages pursuant to the workforce reduction program. Rights to acquire shares
that are lost are available for reissue under the conditional share plan. A Telkom employee cannot
receive any dividends for awarded shares or be entitled to vote, with respect to awarded shares until
their rights to shares are vested. In addition, a Telkom employee may not assign any of his or her
rights or obligations under this plan.
On March 17, 2004, the Telkom board of directors approved guidelines for the allocation
of shares. The first grant of 3,046,242 shares was made based on the following:
•  the Telkom share price on the JSE based on the last ten trading days prior to March 30, 2004;
and
•  the Telkom’s final financial results for the 2004 financial year as measured by the team award.
For officers, executives and managers, the number of ordinary shares was based on a percentage
of the individual’s total remuneration package and the individual’s performance assessed through
Telkom’s performance enhancement process. The following illustrates how individual performance
influences the number of shares:
background image
205
Performance
% award
Did not meet targets
0%
Met all targets
100%
Exceeded all targets
100%+*
* Subject to board discretion
For employees in Telkom’s collective bargaining unit, the number of ordinary shares was based
on a percentage applied to the weighted average remuneration per job level, regardless of the
individual’s performance as assessed through Telkom’s performance and development management
system. However, the number of ordinary shares depended on a sliding scale of the Telkom financial
performance, as measured by Telkom’s gain-sharing plan. The following table illustrates the sliding
scale:
Overall % achievement of Telkom
         financial targets           
% award
Less than 90%
0%
Between 90% and 95%
50%
Between 95.1% and 99.9%
75%
100% and above
100%+*
* Subject to board discretion
On June 23, 2005, the Telkom board of directors approved the second grant of 2,024,465 shares
under the conditional share plan. The second allocation was made based on the following:
•  the Telkom share price on the JSE based on the last ten trading days prior to the allocation
date of June 1, 2005;
•  the individual performance assessment of employees on the management levels for the 2005
financial year;
•  the total remuneration packages of employees as at April 1, 2005; and
•  Telkom’s final financial results for the 2005 financial year.
The Telkom board approved the third grant of 1,825,488 shares with effect from June 2, 2006
to employees pursuant to the Telkom conditional share plan. The third allocation was made based
on the following:
•  the Telkom share price on the JSE based on the last ten trading days prior the allocation date
of June 1, 2006;
•  the individual performance assessment of employees on the management levels for the 2006
financial year;
•  the total remuneration packages of employees as of April 1, 2006; and
•  Telkom’s final financial results for the 2006 financial year.
On June 2, 2006, the board of directors also approved, pursuant to the conditional share plan, the
vesting of one third of the 2004 financial year conditionally allocated shares for non-management
employees, which was two years after the initial allocation. As a result, 450,505 ordinary shares
granted for the 2004 fiscal year vested.
On June 8, 2007, the board of directors also approved, pursuant to the conditional share plan, the
vesting of a further one third of the 2004 financial year conditionally allocated shares for non-
management employees, which was three years after the initial allocation, one third of the 2005
background image
206
financial year conditionally allocated shares for non-management employees, which was two years
after the initial allocation, as well as the 2004 financial year conditionally allocated shares for
management employees, which was three years after the initial allocation. As a result, approximately
1.7 million ordinary shares granted for the 2004 and 2005 fiscal years, vested.
On September 4, 2007, the board of directors approved the fourth grant of 6,089,810 ordinary
shares pursuant to the conditional share plan with a grant date of September 27, 2007 in respect
of the 2007 financial year. In addition, on September 4, 2007, the board of directors approved
an enhanced allocation for the third grant in respect of the 2006 financial year of 4,966,860 ordinary
shares pursuant to the conditional share plan, also with a grant date of September 27, 2007.
The enhanced grant in respect of the 2006 financial year will vest at the same time and pursuant
to the same conditions as the third grant in respect of the 2006 financial year. The vesting period for
the third and fourth grants in respect of the 2006 and 2007 financial years, including the enhanced
third grant in respect of the 2006 financial year, were also amended compared to the previous grants.
For the grants awarded in respect of the 2004 and 2005 financial years to non-management
employees, shares vested as follows: 0% in year one and 33% in each of the three years thereafter.
The shares allocated in respect of the 2006 and 2007 financial years to non-management employees
and for all management employees will now all vest fully at the end of the third year from the date
of grant.
background image
207
BOARD PRACTICES
Corporate governance statement
The board is committed to ensuring that the affairs of Telkom are conducted with integrity and
in accordance with principles set out in the King Report on Corporate Governance 2002, or King II,
and the Sarbanes Oxley Act of 2002.
Compliance with the King Code and JSE Listings Requirements
By virtue of its listing on the JSE, Telkom is obliged to comply with the Code of Corporate
Practices and Conduct contained in King II and in accordance with the new JSE Listings
Requirements which came into effect on September 1, 2003. Telkom is required to disclose the extent
of its new compliance with King II and provide reasons for non-compliance.
Telkom complies in all material respects with the principles of King II. While it acknowledges the
importance of good governance, the board is aware that Telkom does not strictly comply with certain
principles set out in King II. These areas of non-compliance stem mainly from certain provisions
in Telkom’s articles of association framed to safeguard the interests of the two controlling
shareholders, that at the time of the listing were the Government of the Republic of South Africa and
Thintana Communications. In November 2004, Thintana Communications announced that it sold its
entire remaining shareholding in Telkom, 15.1%, together with the class B share, to the Public
Investment Corporation and Black Ginger. We have been informed that the Public Investment
Corporation’s shareholding fell below 15% of Telkom’s issued ordinary shares. As a result, it is no
longer a “significant shareholder”. The Government is now the sole “significant shareholder.” The
Government’s reserved matters as a “significant shareholder” holding the class A ordinary shares
were unaffected by the sale by Thintana Communications of its entire shareholding in Telkom.
Most of the areas of non-compliance will be resolved by no later than March 5, 2011, when the
provisions of Telkom’s articles of association resulting in non-compliance with King II fall away
or earlier if the “significant shareholders” shareholding falls below certain stipulated levels.
The board of directors
The board of directors was comprised of one executive and nine non-executive directors and had
one vacancy as of June 30, 2008. The Government and Black Ginger, a wholly owned subsidiary of
the Public Investment Corporation, are the beneficial holders of the class A and class B ordinary
shares, respectively. Based on their beneficial ordinary shareholding and their holding of the class A
and class B shares, the Government is entitled to appoint five directors, including two executive
directors, and the Public Investment Corporation
is entitled to appoint one executive or non-executive director, to the board, as of June 30, 2008.
The non-executive directors have a wide range of skills and significant commercial experience,
that enable them to bring independent judgment to bear on the board’s deliberations and decisions.
No single director or block of directors dominates decision making at board meetings.
The roles of chairman and chief executive officer do not reside in the same person. The chairman
is a non-executive director appointed by the class A shareholder, the Government, in consultation with
the class B shareholder. The chief executive officer is appointed by the board on a renewable service
contract, in consultation with each significant shareholder.
The board meets at least once a quarter, including for sessions devoted to discussing strategy
and business planning. Extraordinary board meetings are convened when necessary to deliberate
on issues that require board resolutions between scheduled meetings. Certain members of senior
management are in attendance at board meetings. Other members of management are periodically
invited to make presentations on particular issues of interest to the board.
background image
208
Board papers and other relevant documentation are timeously circulated, giving board members
sufficient time to consider the issues on the agenda, thus enabling them to make informed decisions
on the issues at hand.
Telkom has a formal induction program for newly appointed directors and specific training
is provided for audit committee members. The induction of newly appointed directors is conducted
by the chairman and chief executive officer with input from the company secretary. Where a newly
appointed director has no or limited board experience, the induction program is structured to meet the
individual director’s specific needs.
In terms of Telkom’s articles of association, board decisions on certain specified matters require
the affirmative vote of at least two of the class A shareholder directors, appointed by the Government.
The board encourages attendance at annual general meetings by the directors and
members of management. A majority of directors, one of whom must be a representative
of the class A Ordinary Share is required for a quorum for board meetings.
A number of standing committees have been established to assist the board and the directors
in the effective discharge of their responsibilities. Where deemed necessary, special committees are
established by the board to consider specific issues and make recommendations to the board. Board
and special committees are free to take independent professional advice at the cost of Telkom in
carrying out their delegated duties. During the 2008 financial year, the board established three new
committees, namely a nominations committee, a strategy committee and an investment committee.
Directors’ attendance of board meetings
Four scheduled board meetings and 16 special meetings were held during the 2008 financial year.
The following table presents the possible meetings based on the appointment and resignation of
members.
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Non-executive
ST Arnold (Chairman) . . . . . . . . . . . . . . . .
4
4
16
16
TD Mahloele (resigned January 30, 2008) . . . . .
2
1
16
14
M Mostert (resigned September 19, 2007) . . . . .
1
1
8
8
DD Tabata (resigned September 19, 2007) . . . . .
1
1
8
7
YR Tenza (resigned September 19, 2007) . . . . .
1
1
8
7
B du Plessis . . . . . . . . . . . . . . . . . . . . .
4
4
16
15
TF Mosololi (resigned October 26, 2007) . . . . . .
1
1
9
5
PL Zim (resigned April 11, 2007) . . . . . . . . . .
0
0
1
0
PSC Luthuli . . . . . . . . . . . . . . . . . . . . .
4
3
16
13
KST Matthews . . . . . . . . . . . . . . . . . . . .
4
4
16
15
MJ Lamberti (appointed May 29, 2007) (resigned
June 3, 2008) . . . . . . . . . . . . . . . . . . . .
4
4
12
8
RJ Huntley (appointed September 20, 2007) . . . .
3
3
8
8
Dr E Spio-Garbrah (appointed September 20, 2007)
3
3
8
6
Dr VB Lawrence (appointed September 20, 2007) .
3
3
8
8
AG Rhoda (appointed March 5, 2008, resigned
July 3, 2008) . . . . . . . . . . . . . . . . . . . . .
2
1
0
0
B Molefe (appointed January 30, 2008,
resigned March 5, 2008, re-appointed July 3, 2008)
1
0
0
0
Executive
LRR Molotsane (left the employment of Telkom
on April 5, 2007) . . . . . . . . . . . . . . . . . . .
0
0
0
0
RJ September (appointed May 8, 2007) . . . . . .
4
4
15
15
Note:
(1) The table represents the possible meetings based on the appointment and resignation dates of members.
background image
209
Executive committee
The chief executive officer has the power of authority to, among other things:
•  implement approved business plans, annual budgets and all other matters and issues relating
to the achievement of Telkom’s obligations under its licenses, including without limitations
network expansion, equipment procurement, tariff setting and packaging, customer service and
marketing; and
•  prepare, review and recommend to the board the annual budgets and any amendments
thereto.
The chief executive officer shall, in carrying out the powers set out above, be assisted
by an executive committee. The chief executive officer is the chairman of the executive committee.
The executive committee consists of seven members.
Decisions at meetings of the executive committee are taken by a majority vote of the members.
In the event of an equality of votes, the chairman of the committee has a casting vote.
The following were the members of the executive committee as of June 30, 2008:
•  RJ September (Chairman);
•  DJ Fredericks;
•  MJ Nzeku;
•  TG Msimango;
•  IM Fourie;
•  CK Mokoena; and
•  GJ Rasethaba.
Members’ attendance of executive committee meetings
Executive committee meetings are held regularly as and when specific business issues arise.
Audit and risk management committee
The audit and risk management committee is to consist of not less than three non-executive
directors.
A non-executive director who is not the chairman of the board chairs the committee. No member
of the audit and risk management committee may, other than in his or her capacity as a member
of that committee, the board or any other committee of the board, accept any consulting, advisory
or other compensatory fee from Telkom or any subsidiary of Telkom or be an affiliated person
of Telkom or any subsidiary or vendor of Telkom. See Directors’ Interest in note 39 of the
Consolidated Financial Statements.
The responsibilities of the audit and risk management committee include, among other things, the
following:
•  consider and make recommendations for the appointment, compensation, retention and
oversight of any registered public accounting firm engaged for the purpose of preparing and
issuing an audit opinion or performing other audit, review or attest services for the listed issuer,
and each such registered public accounting firm shall report directly to the audit and risk
management committee;
•  evaluate the independence and effectiveness of the external auditor(s) within the meaning
of the rules and regulations of the U.S Securities and Exchange Commission and the New York
Stock Exchange and other applicable rules and regulations and consider whether any non-audit
services rendered by such auditors substantively impair their independence;
background image
210
•  subject to any exceptions permitted by the rules and regulations of the U.S Securities and
Exchange Commission, pre-approve all permissible audit and non-audit services to be provided
by the external auditors; provided, however, that the audit and risk management committee
may establish pre-approval policies and procedures as permitted by the rules and regulations
of U.S Securities and Exchange Commission so long as such policies and procedures are
detailed as to the particular service and the audit and risk management committee is informed
of each service and such policies and procedures do not include delegation of the audit and
risk management committee’s responsibilities under the U.S Securities Exchange Act of 1934
to management;
•  discuss and review, with the external auditor(s) before the audit commences, the auditor(s)
engagement letter, the terms, nature and scope of the audit function and the audit fee and
where more than one auditor are involved, the maintenance of a professional relationship and
co-ordination between them;
•  make suggestions on problem areas that the audit should address;
•  consider any accounting treatments, significant unusual transactions or accounting judgments,
that could be contentious;
•  consider whether any significant ventures, investments or operations are not subject to external
audit;
•  review the overall audit role, minimize duplication, discuss implications of new auditing
standards and ensure that the external audit fee will sustain a proper audit and provide value
for money;
•  obtain assurance from the external auditor(s) that adequate accounting records are being
maintained;
•  obtain and review with the lead audit partner and a more senior representative of the
independent auditor, annually or more frequently as the audit and risk management committee
considers appropriate, a report by the external auditor describing: any material issues raised
by the most recent internal quality-control review, or peer review, of the external auditor,
or by any inquiry, review or investigation by governmental, professional or other regulatory
authorities, within the preceding five years, in respect of independent audits carried out by the
external auditor, and any steps taken to deal with these issues;
•  pre-approve the hiring or appointment to the board of directors of any current or former partner,
principal, shareholder or professional employee of the Company’s external audit firm or any
close family member thereof, all of which shall be in accordance with the rules and regulations
of the U.S Securities and Exchange Commission. In addition, the audit and risk management
committee shall pre-approve the hiring of any employee or former employee of the external
auditors for group management positions within the company, regardless of whether that
person was a member of the company’s audit team;
•  liaise with and monitor the activities of other audit committees in the Telkom Group;
•  review and evaluate the lead partner of the external audit firm;
•  ensure the rotation of the lead audit partner and concurring partner every five years and other
audit partners every seven years, and consider whether there should be regular rotation of the
audit firm itself;
•  review with management and the external auditors the results of the audit, including any
problems or difficulties encountered and management’s response. This review will include any
restrictions on the scope of the external auditor’s activities or on access to requested
information, and any significant disagreements with management;
background image
211
•  examine and review the annual financial statements, including the company’s disclosures
under “Operating and Financial Review and Prospects”, the interim reports, the accompanying
reports to shareholders, the preliminary announcement of results and any other announcement
regarding the company’s results or other financial information to be made public, prior
to submission and approval by the board, focusing particularly on:
•  tax and litigation matters;
•  any changes in accounting policies and practices;
•  major judgmental areas;
•  significant adjustments resulting from the audit;
•  the basis on which the company has been determined a going concern;
•  capital adequacy;
•  compliance with accounting standards, local and international, compliance with stock
exchange and legal requirements;
•  the efficiency of major adjustments processed at year end;
•  compliance with the financial conditions of loan covenants;
•  reviewing special documents such as prospectuses as and when prepared;
•  earnings press releases, as well as financial information and earnings guidance provided
to analysts and rating agencies;
•  off balance sheet structures;
•  review with management, and any outside professionals as the audit and risk management
committee considers appropriate, the effectiveness of the company’s disclosure controls and
procedures;
•  monitor the effective functioning of internal audit, ensuring that the roles and functions of the
external audit and internal audit are sufficiently clarified and coordinated to provide an objective
overview of the operational effectiveness of the company’s systems of internal control and
reporting, including:
•  evaluating the effectiveness of internal audit;
•  reviewing the internal audit function’s compliance with its mandate as approved by the audit
and risk management committee;
•  reviewing the effectiveness of the company’s systems of internal control, including internal
financial control and business risk management and maintaining effective internal control
systems;
•  considering the appointment, dismissal or re-assignment of the head of the internal audit
function;
•  reviewing and approving the internal audit charter, internal audit plans and internal audit’s
conclusions with regard to internal control;
•  reviewing the adequacy of corrective action taken in response to significant internal audit
findings;
•  reviewing significant matters reported by the internal audit function;
•  assessing the adequacy of performance of the internal audit function, and the adequacy
of available internal audit resources;
•  reviewing the co-operation and co-ordination between the internal and external audit
functions and coordinating the formal internal audit work plan with external auditors to avoid
duplication of work;
background image
212
•  reviewing significant differences of opinion between management and the internal audit
function;
•  monitoring the maintenance of proper and adequate accounting records;
•  evaluating the independence and effectiveness of the internal auditors;
•  monitoring the overall operational and financial reporting environment;
•  monitoring the systems to safeguard the company’s assets against unauthorized use
or disposal;
•  requesting investigations into matters within its scope, for example, evaluations of the
effectiveness of the company’s internal control, cases of employee fraud, misconduct
or conflict of interest; and
•  reviewing the company’s policies in respect to risk assessment and risk management;
In this regard the audit and risk management committee will consider and review the findings
and recommendations of the risk and safety, health and environmental committees insofar
as they are relevant to the functions of the audit and risk management committee;.
•  ensure compliance with legal and regulatory requirements to the extent that it may have
an impact on financial statements. The audit and risk management committee shall receive
reports by the disclosure committee and the risk committee on legal and regulatory compliance
and shall:
•  review with management, and any internal or external counsel as the audit and risk
management committee considers appropriate, any legal matters, including the status of
pending litigation, that may have a material impact on the company and any material report’s
or inquiries from regulatory or governmental agencies;
•  review with the general counsel the adequacy and effectiveness of the company’s
procedures to ensure compliance with its legal and regulatory responsibilities. The audit and
risk management committee shall also review the legal and compliance function’s
organization, responsibilities, plans, results, budget and staffing;
•  establish procedures for (i) the receipt, retention and treatment of complaints received by the
company regarding accounting, internal accounting controls, auditing matters or potential
violations of law and (ii) the confidential, anonymous submission by employees of the
company of concerns regarding questionable accounting or auditing matters or potential
violations of law; and
•  the audit and risk management committee shall obtain reports from management, the
internal auditor and the independent auditor regarding compliance with all applicable legal
and regulatory requirements, including the Foreign Corrupt Practices Act;
•  monitor the effective functioning of enterprise risk management ensuring that the roles and
functions of the risk officer are clarified and coordinated to provide an objective overview
of the operational effectiveness of the company’s systems of internal control, reporting
and risk management. This includes:
•  using the risk management strategy to prioritize and direct the audit effort;
•  evaluate and review the effectiveness of enterprise risk management and risk control
measures;
•  reviewing the enterprise risk management’s functions and compliance with its mandate
as approved by the audit and risk management committee;
•  reviewing and approving the enterprise risk management charter and enterprise risk
management plans;
background image
213
•  monitor the adequacy of corrective action taken in response to significant risks;
•  assessing the adequacy of available enterprise risk management resources;
•  monitoring the maintenance of proper and adequate risk records;
•  reviewing significant differences of opinion between management and enterprise risk
management functions;
•  monitoring the systems to safeguard the company’s assets against those risks that might
have a negative impact on Telkom’s business;
•  reviewing the company’s policies in respect to enterprise-wide risk management (risk
assessment and risk financing);
•  evaluate the planned risk assessments to be undertaken so as to pro-actively identify,
evaluate risks and exposures as well as opportunities that could impact or support the
achievement of Telkom’s objectives; and
•  review the effectiveness of risk awareness strategies; and
•  annually assess the effectiveness of the audit and risk management committee and its
members.
Telkom’s audit and risk management committee adopted a pre-approval policy for services by
external auditors, which does not allow for certain services, including bookkeeping, financial system
design, valuation services, actuarial services, internal audit outsourcing services and legal services
not related to the audit. The committee also pre-approves proposed audit related services, tax
services and other permissible services. The pre-approval policy requires all auditing and non audit
services provided by Telkom’s external auditors to be pre-approved by the audit and risk management
committee. The chairman of the audit and risk management committee is the primary member of the
audit and risk management committee that has the authority to pre-approve audit and non audit
services outside of the meetings and, in his absence, any member of the audit and risk management
committee.
The following are the members of the audit and risk management committee as of June 30, 2008:
•  PSC Luthuli (Chairman);
•  RJ Huntley; and
•  AG Rhoda (resigned July 3, 2008).
As indicated above, Telkom’s audit and risk management committee is to consist of not less than
three non-executive directors. As a result of the resignations of MJ Lamberti on June 3, 2008 and
AG Rhoda on July 3, 2008 from the Telkom board of directors and all committees thereof, Telkom’s
audit and risk management committee currently consists of two non-executive directors, one of whom
is a representative of the Government of South Africa. The board of directors is currently assessing
the composition and membership of all the committees of its board of directors, including the audit
and risk management committee, and intends to address any instances of non-compliance with their
charters by the end of the 2008 calendar year. Telkom’s current articles of association requires
shareholders to approve the appointment of any members of Telkom’s board of directors, other than
the directors nominated by the class A and class B shareholders, and Telkom’s class A and class B
shareholding rights granted in its current shareholders agreement that will expire in March 2011
restricts the board's ability to appoint independent members. Telkom’s board of directors expects to
request a special general meeting in which it intends to propose an amendment to its current articles
of association to permit the board of directors to appoint independent directors when a casual
vacancy occurs, whom can then be retired and made available for re-election at the first annual
general meeting following their appointment.
background image
214
In addition, AG Rhoda, who served on the Telkom audit and risk management committee from
March 5, 2008 to July 3, 2008 was a representative of the Public Investment Corporation, an
investment management company wholly owned by the South African Government. Because the
Public Investment Corporation directly beneficially owned 6.6% of Telkom’s issued and 6.8% of
Telkom’s outstanding shares and Black Ginger, a wholly owned subsidiary of the Public Investment
Corporation owned 9.0% of Telkom’s issued and 9.3% of Telkom’s outstanding ordinary shares and
the class B ordinary share, AG Rhoda’s appointment to the Telkom audit and risk management
committee may have violated the New York Stock Exchange rules and Rule 10A-3(b)(1) of the
Exchange Act that require that each member of the audit committee of a listed issuer to be
independent. Any such violation was corrected by AG Rhoda’s resignation on July 3, 2008.
Telkom’s board of directors has determined that the chairman of its audit committee, Mr. Sibusiso
Luthuli, is the audit committee financial expert within the meaning of Item 16A. (b) and (c) of the
requirements of Form 20-F of the SEC. The SEC has determined that the audit committee financial
expert designation does not impose on the person with that designation, any duties, obligations or
liability that are greater than the duties, obligations or liabilities imposed on such person as a member
of the audit committee of the board of directors in the absence of such designation. Mr. Luthuli is a
qualified Chartered Accountant (SA).
The external auditors are invited when appropriate to attend the audit and risk management
committee meetings.
Members’ attendance of audit and risk management committee meetings
Four scheduled audit and risk management committee meetings and one special meeting were
held during the 2008 financial year. The following table presents the possible meetings based on
appointment and resignation dates of members.
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Existing members
PSC Luthuli (Chairman) . . . . . . . . . . . . . . .
4
4
1
1
MJ Lamberti (appointed May 29, 2007 and
resigned June 3, 2008) . . . . . . . . . . . . . . .
4
4
1
1
RJ Huntley (appointed September 20, 2007) . . . .
2
1
1
1
AG Rhoda (appointed March 5, 2008, resigned
July 3, 2008) . . . . . . . . . . . . . . . . . . . . .
1
0
0
0
Resignations
YR Tenza (resigned September 19, 2007) . . . . .
2
2
1
1
M Mostert (resigned September 19, 2007) . . . . .
2
0
1
0
TF Mosololi (resigned October 26, 2007) . . . . . .
2
1
1
0
Note:
(1) The table represents the possible meetings based on the appointment and resignation dates of members.
Nominations committee
On September 4, 2007, the Telkom board of directors established a nomination committee.
The nominations committee consists of a minimum of three members and is chaired by an
independent non-executive director. The committee makes recommendations to the board on the
composition of the board, and the balance between executive, non-executive and independent non-
executive directors with respect to aspects of diversity and experience. The committee is responsible
background image
215
for identifying and nominating candidates and formulating succession plans for the approval of the
board. In addition, the committee recommends to the board, the continuation of services of any
director who has reached the retirement age, as well as directors who are retiring by rotation,
for re-election.
The following are members of the nominations committee as of June 30, 2008:
•  PSC Luthuli (Chairperson);
•  ST Arnold; and
•  one vacancy
Members’ attendance of nominations committee meetings
Three scheduled nominations committee meetings and one special meeting were held during the
2008 financial year. The following table presents the possible meetings based on appointment and
resignation dates of members.
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Existing members
PSC Luthuli (Chairperson) . . . . . . . . . . . . .
3
3
1
1
ST Arnold . . . . . . . . . . . . . . . . . . . . . .
3
3
1
1
MJ Lamberti (resigned June 3, 2008) . . . . . . . .
3
3
1
1
Note:
(1) The table represents the possible meetings based on the appointment and resignation dates of members.
Strategy committee
On November 16, 2007, the Telkom board of directors established a strategy committee.
The strategy committee consists of a minimum of three members.
The committee assists the board with Telkom’s strategies and resulting financial performance.
The functions of the committee, include, among other things, the following:
•  verifying that management is fully conversant with the theory and principles of strategic
management;
•  ensuring that management annually researches all stakeholders to determine their satisfaction
with and expectations from the company;
•  ensuring that management provides a comprehensive internal review of the resources,
capabilities and competencies of the Telkom Group;
•  monitoring the strategic compliance of annual business plans and budgets for existing
operations and assets as well as for all proposed acquisitions and investments;
•  monitoring the efficiency and success of strategy implementation; and
•  ensuring that the board’s strategic questions and concerns are addressed by management.
The following are members of the strategy committee as of June 30, 2008:
•  Dr E Spio-Garbrah (Chairperson);
•  RJ September; and
•  Dr VB Lawrence.
background image
216
Members’ attendance of strategy committee meetings
Two scheduled strategy committee meetings were held during the 2008 financial year. The
following table presents the possible meetings based on appointment and resignation dates of
members.
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Existing members
Dr E Spio-Garbrah (Chairperson) . . . . . . . . . .
2
2
0
0
RJ September . . . . . . . . . . . . . . . . . . . .
2
2
0
0
MJ Lamberti (resigned June 3, 2008) . . . . . . . .
2
2
0
0
Dr VB Lawrence . . . . . . . . . . . . . . . . . . .
2
2
0
0
Note:
(1) The table represents the possible meetings based on the appointment and resignation dates of members.
Investment committee
On November 16, 2007, the Telkom board of directors established an investment committee.
The investment committee consists of a minimum of five members.
The responsibilities of the committee include, among other things, the following:
•   to examine, review and recommend investment policy, criteria and parameters in the context
of the Telkom Group’s targeted growth, debt levels and returns;
•   to examine, review and recommend potential new investments proposed by executive
management with due regard to the Telkom Group’s strategic and financial objectives, the
structural basis of integration and the operational and managerial demands occasioned by the
investment;
•   to monitor the performance of existing investments against investment criteria and
pre-investment assumptions;
•   to examine and review recommendations by executive management to dispose of investments;
•   to monitor and make recommendations of the Telkom Group’s financial facilities and financing
structures; and
•   to make recommendations, pursuant to the above, on the selection of merchant banks and
professional advisors.
The following are members of the investment committee as of June 30, 2008:
•  RJ Huntley (Acting chairperson);
•  PCS Luthuli;
•  RJ September;
•  DJ Fredericks; and
•  one vacancy.
background image
217
Members’ attendance of investment committee meetings
One scheduled investment committee meeting was held during the 2008 financial year.
The following table presents the possible meetings based on appointment and resignation dates of
members.
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Existing members
RJ Huntley (Acting chairperson) . . . . . . . . . . . . . .
1
1
0
0
PSC Luthuli . . . . . . . . .
1
1
0
0
MJ Lamberti (resigned June 3, 2008) . . . . . . . .
1
1
0
0
RJ September . . . . . . . . . . . . . . . . . . . .
1
1
0
0
DJ Fredericks . . . . . . . . . . . . . . . . . . . .
1
1
0
0
Note:
(1) The table represents the possible meetings based on the appointment and resignation dates of members.
Human resources review and remuneration committee
The human resources review and remuneration committee consists of a majority of non-executive
directors and was chaired by Mr. MJ Lamberti until his resignation on June 3, 2008 and
by Mr. B du Plessis thereafter. The human resources review and remuneration committee reviews
the terms upon which Telkom’s executive directors and senior management are employed and
compensated and upon which Telkom’s non-executive directors and executive directors are
compensated and make recommendations to the board with respect to such matters. Actions of the
human resources review and remuneration committee must be approved by a majority vote of its
members. In the event of a tie, the chairperson of the human resources review and remuneration
committee shall have a casting vote.
The following are members of the human resources review and remuneration committee as of
June 30, 2008:
• B du Plessis (Chairperson);
• KST Matthews; and
• one vacancy.
Members’ attendance of human resources review and remuneration committee meetings
Six scheduled human resources review and remuneration committee meetings and two special
meetings were held during the 2008 financial year. The following table presents the possible meetings
based on appointment and resignation dates of members.
background image
218
Scheduled
Special
Number of
Number of
meetings
(1)
Attendance
meetings
(1)
Attendance
Existing members
KST Matthews . . . . . . . . . . . . . . . . . . . .
6
6
2
2
B du Plessis (Chairperson with effect from
June 6, 2008) . . . . . . . . . . . . . . . . . . . .
6
6
2
2
Ex-officio non-voting member
CK Mokoena (Chief of Human Resources) . . . . .
5
5
1
1
RJ September (appointed April 5, 2007) . . . . . .
5
4
1
1
Resignations
LRR Molotsane (left the employment of Telkom
on April 5, 2007) . . . . . . . . . . . . . . . . . . .
0
0
0
0
DD Tabata (resigned September 19, 2007) . . . . .
4
4
1
1
ST Arnold
(2)
. . . . . . . . . . . . . . . . . . . . .
6
6
2
2
TD Mahloele (resigned January 30, 2008) . . . . .
5
1
2
0
MJ Lamberti (Chairperson) (resigned June 3, 2008)
5
5
2
2
Notes:
(1)
The table represents the possible meetings based on the appointment and resignation dates of members.
(2)
Resigned from the committee with effect February 15, 2008 but continues to attend by invitation.
At its meeting held on November 9, 2006, the board resolved that the human resource review
and remuneration committee should comprise only non-executive directors. As a result,
Mr. LRR Molotsane, Mr. RJ September and Ms. CK Mokoena attended meetings of the committee
by invitation only.
Directors’ remuneration
Telkom believes that the levels and make-up of the remuneration packages offered
to the directors of Telkom, especially the chief executive officer, are sufficient to attract
and retain the directors needed to run Telkom’s business successfully. In order to avoid paying
more than is necessary and to ensure that Telkom offers competitive packages, Telkom constantly
benchmarks itself against its peer group.
In determining specific remuneration packages for the chief executive officer and non-executive
directors, the human resources review and remuneration committee consults with the chairperson
of the board, and is sensitive to the remuneration and employment conditions elsewhere in the
Telkom Group. In doing so, performance related elements of the remuneration constitute a large
proportion of the total remuneration package of the chief executive officer and are specifically
designed to align his interests with those of shareholders and to give such executive directors
incentives to perform at the highest level.
Should the service of any of Telkom’s executive directors be terminated early, the human
resources review and remuneration committee will tailor its approach in respect of compensation
commitments to the circumstances of the case with the broad aim of avoiding rewarding poor
performance, while dealing fairly with cases where departure is not due to poor performance.
No director is involved in deciding his or her own remuneration. In addition, Telkom has adopted a
formal and transparent procedure for developing a policy on executive directors’ remuneration.
Telkom’s articles of association provide that the remuneration of the directors for their service
as directors shall be determined by the directors, after taking into account the recommendations
of the human resources review and remuneration committee. Non-executive directors are not,
as part of their remuneration, allocated shares in Telkom but may purchase shares in Telkom.
background image
219
Directors’ remuneration and interests are detailed in note 39 to the Telkom Group’s consolidated
annual financial statements included elsewhere herein.
Company secretary and professional advice
The directors have unrestricted access to the services and advice of the company secretary.
Directors are entitled, after consultation with the chairman of the board, to seek independent
professional advice about the affairs of Telkom at Telkom’s expense.
The termination of the services of the company secretary is a matter to be decided by the board.
Directors’ and officers’ dealings
The board has adopted an insider trading policy in terms of which the directors, officers and
employees of Telkom are prohibited from dealing in Telkom’s securities when in possession of price
sensitive information that has not yet been made public. In addition, Telkom imposes a “closed period”
from the end of the reporting periods (i.e., year-end and half year-end) until the publication of the
results during which period the directors, officers and employees of Telkom are prohibited from dealing
in Telkom’s securities.
Outside the closed periods directors and officers of Telkom are required to obtain prior approval
from the Chairman of the board and the company secretary before dealing in Telkom’s securities.
Where the chief executive officer needs to deal in Telkom’s shares outside closed periods, the
chairman must give the approval. Where the chairman needs to deal in Telkom’s shares outside the
closed periods, prior approval must be obtained from the company secretary. Directors’ dealings
in Telkom’s securities are published on SENS within the regulated timeframes. The SENS
announcements that were published during the year are made available on the website
www.telkom.co.za/ir. Our website and the information contained therein or connected thereto
shall not be deemed to be incorporated into or a part of this annual report.
Risk management
The Telkom Group has adopted a continuous, systematic enterprise-wide risk management
process for assessing and monitoring its potential business and financial risks. As part of this process
for the 2006 financial year, the service organizations reviewed key identified residual risks, which are
the residual risks after mitigating controls have been considered. The risks are currently being
reassessed and aligned to our current business. The components of the risk management system are
designed to enable us to anticipate risks and to manage them carefully in the pursuit of our business
goals. The principles, guidelines, processes and responsibilities of our internal control system have
been defined and established to help ensure prompt and accurate accounting of all business
transactions and to continuously provide reliable information about the Telkom Group’s financial
position for internal and external use. The board of directors continuously monitors treasury policies,
risk limits and control procedures. The audit and risk management committee reviews the
effectiveness of the risk management processes and reports regularly to the board.
The Telkom Group’s risk exposure and management thereof is discussed in note 12 of the Telkom
Group’s consolidated annual financial statements.
background image
220
Financial statements
The board of directors is responsible for preparing the Telkom Group’s financial statements.
In this regard, it is the board’s responsibility to present a balanced and understandable assessment
of both interim and annual financial information as well as other price sensitive public reports,
including any reports to ICASA and other information that Telkom is statutorily obliged to disclose.
The directors report on the business as a going concern with supporting assumptions and
qualifications as and when necessary at the time of the Telkom Group’s interim and annual financial
statements, and have established a formal and transparent arrangement for considering the financial
reporting and internal control principles.
On June 7, 2007, Telkom’s audit committee formalized a disclosure committee to oversee
Telkom’s disclosures and to assist the audit committee, the chief executive officer and the chief
financial officer in fulfilling their responsibilities in this respect.
The purpose of the disclosure committee is to ensure that Telkom implements and maintains
internal procedures for the timely collection, evaluation and accurate disclosure, as appropriate, of
information potentially subject to public disclosure under the legal, regulatory and stock exchange
requirements to which it is subject and which is made available in the market place or to the
investment community. Such procedures are designed to source information that is relevant to an
assessment of the need to disclose developments and risks that pertain to Telkom’s businesses, and
their effectiveness for this purpose to be reviewed periodically.
The initial membership of the disclosure committee was proposed by the chief financial officer and
approved by the chief executive officer. Thereafter members may be replaced, or new members
appointed, as required by the chief executive officer, the chief financial officer and the Audit Committee.
Notwithstanding the foregoing, the chief executive officer and chief financial officer, under exceptional
circumstances may at any time assume any or all of the responsibilities of the disclosure committee.
The disclosure committee is required to meet once a quarter commencing after June 2007
or as frequently as circumstances dictate to ensure accuracy and completeness of Telkom’s
disclosure statements and to evaluate its disclosure controls that may need revision due to changes
in Telkom’s organization, business lines and regulatory environment and any changes in economic
or industry conditions.
Code of ethics
Telkom has adopted a business code of ethics that seeks to instill in its employees the spirit
of fairness, respect and ethical standards in dealing with Telkom’s customers, competitors, suppliers,
investors, shareholders and communities to ensure that Telkom’s integrity is not compromised.
Specific documentation to raise and maintain ethical awareness and to guide all levels of
employees include the Telkom Insider Trading Policy, Telkom Acceptance of Directorships, Work
Outside the Scope of Telkom Duties, as well as other Telkom policies, procedures and applicable laws
as amended from time to time.
In business dealings on behalf of Telkom, employees are expected to avoid activities that
might give rise to conflicts of interest. In view of this, certain responsibilities for management and
all employees are clearly communicated. Employees are expected to act in the exclusive interest
of Telkom. Procedures have been put in place to deal with conflicts of interest where these arise in the
course of employees’ day-to-day activities, such as disciplinary action, suspension or even termination
of employment and civil or criminal proceedings. Telkom has established a confidential hotline service
to encourage and enable whistle blowing. As part of the business code of ethics, there is a policy
to protect whistleblowers from discrimination and harassment. Telkom has also introduced fraud and
management systems.
background image
221
The business code of ethics is reviewed regularly to ensure that it keeps up with developments
both inside and outside Telkom. The business code of ethics is published on Telkom’s website
at www.telkom.co.za/ir. Information contained on Telkom’s website or connected thereto shall
not be deemed to be incorporated into or a part of this annual report.
Employment equity
Telkom has in place an employment equity policy, which seeks to promote equity in the workplace
by promoting equal opportunity and fair treatment through the elimination of unfair discrimination
against people from previously disadvantaged groups in the workplace. Unfair discrimination in the
workplace on the basis of gender, race, culture, religion, etc., is prohibited.
The main objectives of this policy are to:
•   create an environment in which the best-qualified person is employed regardless of gender,
religion, culture and race;
•   create within Telkom a balanced profile of employees that reflects the composition
of South African society at large;
•   correct racial and social imbalances of the past; and
•   provide for Telkom’s current and future requirements for skilled staff.
Relationship with shareholders
Telkom is and remains ready, when practical and legal, to enter into dialogue with shareholders
and make such information publicly available to all shareholders. Telkom will make every effort to
keep its shareholders intelligently informed. Telkom has established an investor relations function
and an investor relations portal (www.telkom.co.za/ir) for communication with investors.
Information contained on Telkom’s investor portal is not a part of this annual report.
EMPLOYEES
Fixed-line employees
The following table sets forth the number of our full time employees in our fixed-line segment.
                 As of March 31,                   
2007/2006
2008/2007
    2006   
  2007  
  2008  
% change
% change
Network and technology . . . . .
19,637
19,645
17,929
0.0
(8.7)
Marketing and sales . . . . . . .
4,099
4,254
4,982
3.8
17.1
Support and other . . . . . . . . .
1,839
1,965
1,968
6.9
0.2
Total . . . . . . . . . . . . . . .
25,575
25,864
24,879
1.1
(3.8)
In addition to our full time employees, Telkom had 3,801 temporary employees
on March 31, 2008. Our employees are represented by the Communication Workers Union,
or CWU, the South African Communications Union, or SACU, and the MWU-Solidarity Union.
The Alliance of Telkom Unions, or ATU, disbanded during the course of the 2007 financial year.
Some of our employees also belong to other unions that are not recognized by Telkom for collective
bargaining purposes, including the Postal Union, the Society of Telkom Engineers, the South African
Steel and Allied Workers Union and the United Association of South Africa. As of March 31, 2008,
approximately 70% of our total Telkom employees were union members.
background image
222
Employee related expenses are a significant component of our total fixed-line operating
expenses. Fixed-line employee expenses increased 4.2% from R7.1 billion in the 2007 financial
year to R7.4 billion in the 2008 financial year. The number of Telkom employees declined
by approximately 31,236 positions from March 31, 1997 through March 31, 2006, increased
by 289 positions in the year ended March 31, 2007 and decreased by 985 positions in the 2008
financial year. As of March 31, 2008, Telkom had 24,879 employees.
Telkom is a party to a collective agreement on substantive matters covering the terms and
conditions of employment of its fixed-line unionized employees and other non-management
employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006
to March 31, 2009. In addition, Telkom signed a new collective recognition agreement with ATU and
CWU in mid-2004, designed to enhance the relationship between shop stewards and management.
The long term substantive agreement provides for the re-opening of negotiations in the event the
consumer price index varies from the April 2006 level of 3.7% by more than 3%. Due to inflation
increasing beyond this percentage, Telkom re-opened the negotiations in December 2007 and thus
far, we have not managed to reach settlement. Given the rapidly deteriorating economic conditions
as evidenced by an increase in the consumer price index from 7.9% in December 2007 to 11.7%
in May 2008, the various Trade Union Federations especially COSATU have requested
a double-digit increase. We have received a notice from CWU advising Telkom of its intention to
embark on some unspecified industrial action.
Telkom had placed a moratorium on employee reductions until March 31, 2007. Telkom recently
announced that it was launching a capability management process to identify partners for network
operations, information technology management and Telkom Direct shops pursuant to which certain
elements will be outsourced to professional service providers. Telkom has issued a closed request for
proposals for professional services in this regard.
Our ability to achieve the planned cost reductions through capability management is further
subject to our ability to outsource necessary services and source strategic partners with the necessary
benefits of scale and required information, communications and technology capabilities to enable
continued alignment and transformation. In particular, our outsourcing initiatives will be subject to
compliance with South Africa labor and employment laws and successful negotiations with our labor
unions and workforce. See Item 3. “Key Information – Risks related to the Republic of South Africa –
Significant labor expenses as a result of collective bargaining and the cost of compliance with South
Africa labor laws could limit our operating flexibility and disrupt our fixed-line business operations and
reduce our net profit.”
Telkom is engaging with organized labor in line with transparency and labor regulations in
connection with the implementation of its capability management program. If we are unable to
implement workforce reductions as necessary or our planned capability management and outsourcing,
particularly as a result of increased competition, or experience significant labor disputes, work
stoppages, increased employee expenses as a result of collective bargaining or compliance with labor
laws, our business operations could be disrupted and our net profit could be reduced.
Trade unions have resisted workforce reductions and publicly opposed our proposed capability
management and outsourcing plans and our privatization and have instituted and in the future could
institute work stoppages to oppose changes in our employee and shareholding structure or gain
leverage in negotiating collective bargaining agreements. Approximately 23% of Telkom’s employees
participated in a work stoppage in March 2006 and approximately 31% of Telkom’s employees
participated in an additional work stoppage in April 2006 with respect to compensation issues, during
which period Telkom received increased reports of sabotage, vandalism and other incidents. In
addition, during the course of April and May 2007, approximately 35 members of Solidarity embarked
on a five day industrial action due to their dissatisfaction with the implementation of Telkom’s new shift
roster.
background image
223
A number of South African trade unions, including the trade unions of our employees, have close
links to various political parties. In the past, trade unions have had a significant influence in South
Africa as vehicles for social and political reform and in the collective bargaining process. Since 1995,
South Africa has enacted various labor laws that enhance the rights of employees and have resulted
in increased compliance costs.
These laws:
•  confirm the right of employees to belong to trade unions;
•  guarantee employees the right to strike, the right to picket and the right to participate
in secondary strikes in prescribed circumstances;
•  provide for mandatory compensation in the event of termination of employment due
to redundancy;
•  limit the maximum ordinary hours of overtime work;
•  increase the rate of pay for overtime;
•  require large employers, such as us, to implement employment equity policies
to benefit previously disadvantaged groups and impose significant monetary penalties
for non-compliance; and
•  provide for the financing of training programs by means of a levy grant system and a national
skills fund.
We believe that investment in employee training and development is essential to implementing
corporate cultural change and improving customer satisfaction. In order to improve the skill levels of
our employees, we invested R283.1 million in employee training and development in the year ended
March 31, 2008.
Leadership development continues to remain our primary priority, with specific focus on previously
disadvantaged groups. We have launched a number of initiatives designed to train our employees and
encourage employee retention.
Mobile employees
The following table sets forth the number of Vodacom’s employees as of the dates indicated.
                      As of March 31,               
2007/2006
2008/2007
     2006  
  2007  
  2008  
% change
% change
South Africa . . . . . . . . . . . .
4,305
4,727
4,849
9.8
2.6
Other African . . . . . . . . . . .
1,154
1,522
1,992
31.9
30.9
Total
(1)
. . . . . . . . . . . . . . .
5,459
6,249
6,841
14.5
9.5
Note:
(1)
Vodacom had a total of 732, 581 and 469 temporary and contract employees as of March 31, 2008, 2007 and 2006,
respectively. Headcount excludes outsourced employees. Employees seconded to other African countries are included
in the number of other African countries and excluded from Vodacom South Africa’s number of employees.
Vodacom is an equal opportunity employer committed to empowerment and has developed
an employment equity policy that is available to all employees. Vodacom’s South African employees’
participation in unions was approximately 13.9% as of March 31, 2008, approximately 12.3%
as of March 31, 2007 and approximately 10.2% as of March 31, 2006. Vodacom believes that the
relationship between its management and its employees and labor unions is good.
Less than 7% of Vodacom’s employees participated in a strike action in July 2007 and picketed in
March 2007 due to disagreements with Vodacom’s requirements that the Communications Workers
Union have representation of at least 30% of Vodacom’s employees before qualifying for the right to
be recognized and negotiate as a trade union.
background image
224
Other employees
The following table sets forth the number of employees in our other segment as of the dates
indicated.
                 As of March 31,               
2007/2006
2008/2007
2006
2007
2008
% change
% change
TDS Directory Operations . . . .
514
549
610
6.8
11.1
Swiftnet . . . . . . . . . . . . . .
67
76
85
13.4
11.8
Africa Online . . . . . . . . . . .
–
317
379
–
19.6
Multi-Links . . . . . . . . . . . .
–
–
680
–
–
Telkom Media . . . . . . . . . . .
–
–
142
–
–
Total . . . . . . . . . . . . . . .
581
942
1,896
62.1
101.3
TDS Directory Operations’ employees increased in the 2008 financial year primarily in order to
expand its marketing capacity.
SHARE OWNERSHIP
As of March 31, 2008, none of Telkom’s directors had any beneficial or non-beneficial interest in any
of Telkom’s shares except as stated below:
           Beneficial         
      Non-beneficial     
% of Telkom
outstanding
Directors’ shareholding
Direct
Indirect
Direct
Indirect
Total
shares
2008
Executive
RJ September . . . . . . . .
7,155
–
–
–
7,155
Total . . . . . . . . . . . . .
7,155
–
–
–
7,155
2007
Non-executive
TF Mosololi . . . . . . . . .
455
–
–
–
455
*
Total . . . . . . . . . . . . .
455
–
–
–
455
*
Note:
* Less than 1%.
As of March 31, 2008, none of Telkom’s directors or senior management individually held more
than 1% of Telkom’s outstanding ordinary shares.
As of March 31, 2008, Telkom’s directors and senior management (16 persons) collectively
beneficially held 18,829 ordinary shares. The foregoing information does not include ordinary shares
held by the Government or the Public Investment Corporation.
background image
The following ordinary shares were allocated to members of Telkom’s senior management under
its conditional share plan. These shares do not vest until three years from the date of grant subject
to company performance.
Additional
June 2004
June 2005
June 2006
June 2006
June 2007
Total
allocation
allocation
allocation
allocation
allocation
allocation
Existing members
RJ September . . . . . . . . . . .
6,549
5,450
5,849
23,397
26,457
67,702
DJ Fredericks . . . . . . . . . . .
1,889
1,974
1,842
11,204
11,167
28,076
MJ Nzeku . . . . . . . . . . . . . .
4,913
3,667
4,436
17,744
20,031
50,791
TG Msimango . . . . . . . . . . .
3,755
3,489
4,436
17,744
26,457
55,881
IM Fourie . . . . . . . . . . . . . .
1,850
3,489
3,433
10,299
11,755
30,826
CK Mokoena . . . . . . . . . . . .
3,745
2,795
3,819
11,457
13,781
35,597
GJ Rasethaba . . . . . . . . . . .
–
–
2,616
7,849
9,450
19,915
Resignations
LRR Molotsane (left the
employment of Telkom
on April 5, 2007) . . . . . . . . . .
–
–
11,457
–
–
11,457
(1)
KR Patel (resigned
October 31, 2007) . . . . . . . . .
5,534
4,733
4,670
18,678
20,031
53,646
SG Ntoele (member of the
executive committee from
April 1, 2007 to November 1, 2007)
4,288
3,489
3,433
10,299
11,755
33,264
MB Sallie (member of the executive
committee from April 1, 2007 to
November 1, 2007) . . . . . . . . .
4,294
3,205
3,433
10,299
11,755
32,986
Note:
(1)
Pursuant to a settlement agreement between Telkom and Mr. Molotsane, the shares allocated to Mr. Molotsane did not
vest.
225
background image
226
Item 7.
Major shareholders and related party transactions
MAJOR SHAREHOLDERS
Overview
Telkom and its predecessors had been responsible for the exclusive provision of public
switched telecommunication services in the Republic of South Africa from 1910 through May 2002.
Prior to 1991, Telkom’s business was conducted as a division of the Department of Posts and
Telecommunications of the Government of the Republic of South Africa. On September 30, 1991, the
Government of the Republic of South Africa embarked upon a commercialization process through
which the Department of Posts and Telecommunications transferred its telecommunications enterprise
to Telkom. Telkom remained a wholly state owned entity until May 14, 1997, when the Government of
the Republic of South Africa sold a 30% equity stake in Telkom to Thintana Communications, which
was 60% beneficially owned by SBC Communications and 40% beneficially owned by Telekom
Malaysia. On March 7, 2003, the Government sold 154,199,467 of its ordinary shares in a global initial
public offering, including 14,941,513 ordinary shares through the exercise of an over-allotment option.
Prior to the global offering, the Government owned 67% of Telkom’s issued and outstanding ordinary
shares. As part of the global offering, on March 4, 2003, the Government granted to persons
employed by Telkom on March 4, 2003 and eligible former employees of Telkom, options to purchase
11,140,636 of its ordinary shares, through the Diabo Share Trust, which were exercisable in four equal
tranches over a period of three years commencing six months after March 4, 2003, which were held
by the Government until exercised. On March 4, 2005, the second anniversary of Telkom’s listing,
785,160 bonus shares were allotted by the South African Government to qualifying shareholders
under the Khulisa offer. Thintana Communications sold a 14.9% interest in Telkom to South African
and certain international institutional investors in June 2004. In November 2004, Thintana
Communications announced that it sold its remaining 15.1% interest in Telkom, including its class B
ordinary share, to the Public Investment Corporation, an investment management company wholly
owned by the South African Government, and its subsidiary, Black Ginger.
The following sets forth entities or persons known to Telkom to be the beneficial holders of 5%
or more of Telkom’s issued and outstanding ordinary shares as of June 30, 2008. The following
information is based on public filings and disclosures.
Number of
Percentage of class
Name of shareholder
ordinary shares
Issued
Outstanding
Government of the Republic of South Africa . . . . . . . .
207,055,866
(1)
39.8%
41.5%
Black Ginger . . . . . . . . . . . . . . . . . . . . . . . .
46,604,997
(2)
9.0%
9.3%
Public Investment Corporation . . . . . . . . . . . . . . .
34,123,066
6.6%
6.8%
Elephant Consortium . . . . . . . . . . . . . . . . . . . .
30,467,930
5.9%
6.1%
Notes:
(1)
Includes one Class A ordinary share held in the Republic of South Africa by the Government, which represents 100%
of the class.
(2)
Includes one Class B ordinary share held directly by Black Ginger, a wholly owned subsidiary of the Public Investment
Corporation which represents 100% of the class.
As of March 31, 2008, ADRs evidencing approximately 1,443,801 ADSs were held of record by
approximately 12 record holders. The 5,775,204 ordinary shares represented by those ADRs
(approximately 1.1% of Telkom’s issued and 1.2% of Telkom’s outstanding ordinary shares) were
registered in the name of Standard Bank of South Africa. As of June 30, 2008, ADRs evidencing
approximately 692,133 ADSs were held of record by approximately 15 record holders. The 2,768,532
ordinary shares represented by those ADRs (approximately 0.5% of Telkom’s issued and 0.6% of
Telkom’s outstanding ordinary shares) were registered in the name of Standard Bank of South Africa.
background image
227
Some of these ADRs were held of record by persons outside the United States. In addition, as of
March 31, 2008, we estimate that approximately 67 million publicly traded ordinary shares were held
of record outside of South Africa, of which approximately 44 million are estimated to be held in the
United States. Since certain of Telkom’s ADRs and ordinary shares are held by brokers or other
nominees, the number of ADRs and ordinary shares held of record and the number of record holders
outside of South Africa may not be representative of the location of where the beneficial holders are
resident.
Telkom’s special purpose entity established to fund post retirement medical obligations indirectly
held approximately 161,550 of Telkom’s ordinary shares as of March 31, 2008.
As authorized by its shareholders at annual general meetings held on January 27, 2004,
October 14, 2004, October 21, 2005, October 20, 2006 and October 26, 2007, Telkom is authorized
to purchase up to 20% of its issued share capital. This authority is valid until Telkom’s next Annual
General Meeting, or for 15 months from the date of the resolution, whichever period is shorter.
In the year ended March 31, 2006, Telkom repurchased 12,086,920 of its ordinary shares at a
volume weighted average price of R124.31 per share, including costs. These ordinary shares have
been cancelled from the issued share capital by the Registrar of Companies. Telkom repurchased
12,089,371 of its ordinary shares at a volume weighted average price of R132.04 per share, including
costs, in the 2007 financial year. The ordinary shares have been cancelled for the issued share capital
by the Registrar of Companies. Between January 22, 2008 and March 6, 2008, Telkom repurchased
12,071,334 ordinary shares at a volume weighted average price of R136.47 per share, including
costs.
Between August 3, 2004 and September 15, 2004, Rossal a wholly owned subsidiary
of Telkom, repurchased 9,531,454 shares at a volume weighted average price of R78.49 per share,
including costs, which are being held in treasury for purposes of the Telkom conditional share plan.
On June 4, 2004, Telkom purchased Acajou for share repurchase activities, including for the Telkom
conditional share plan. Between June 7, 2004 and September 30, 2004, Acajou purchased
10,849,058 shares at a volume weighted average price of R76.12 per share, including costs, which
are also being held in treasury. In the year ended March 31, 2004, Rossal, repurchased 3,185,736
shares at a volume weighted average price of R74.58 per share, including costs, which are being
held in treasury for purposes of the Telkom conditional share plan.
In terms of the South African Companies Act, 61 of 1973, a subsidiary company may acquire
up to 10% of the shares in its holding company and if the holding company acquires its own shares
directly, such shares must be cancelled.
Telkom plans on continuing its buy back strategy based on certain criteria.
Except as stated under Item 6. “Directors, Senior Management and Employees – Share
Ownership”, none of Telkom’s directors or senior management is the beneficial owner of any
of Telkom’s ordinary share capital. Except as disclosed above, Telkom is not directly or indirectly
owned or controlled by any other corporation, foreign government or any other natural or legal
person severally or jointly and Telkom is not aware of any arrangements, the operation of which may
at a subsequent date result in a change of control of Telkom. The Government, as a significant
shareholder holding the class A ordinary share, has special voting rights that are more fully described
in Item 6. “Directors, Senior Management and Employees” above and Item 10. “Additional Information
– Memorandum and Articles of Association – Variation of Rights” below.
background image
228
RELATED PARTY TRANSACTIONS
Registration rights agreement
Telkom has entered into a registration rights agreement with the Government and Thintana
Communications. Pursuant to the agreement, the Government has the right to cause Telkom to either
effect a JSE public offering in South Africa, or register with the Securities and Exchange Commission
all or part of its ordinary shares, or both, at any time starting after the Minister’s 545 day lock-up
period after the expiration of or release from Thintana Communications’ 180-day lockup period.
The Government can demand any number of successive registrations, but no more than one in any
calendar year, provided that Thintana Communications was entitled to two such registrations prior
to the Government becoming entitled to demand any registrations. In addition, the Government has
the right to have its ordinary shares registered or sold in a listed public offering any time that Telkom
or any other person seeks registration of, or a listed public offering for, Telkom’s issued and
outstanding ordinary shares.
Pursuant to the registration rights agreement, in the event that the Government exercises its right
to include shares held by it in a JSE public offering or US registration of Telkom shares that is sought
by Telkom or by any other person, Telkom would be required to bear and pay all expenses incurred
in connection with such offering or registration, including all registration, listing and filing and
qualification fees, as well as underwriting discount and commissions. However, in the event that the
Government exercises its right to demand Telkom to effect a JSE public offering or US registration
of ordinary shares held by it, Telkom would be required to bear and pay all expenses incurred in
connection with registration, listing and filing or qualifications, however, certain fees relating to such
registration or listing shall be borne by the Government. In that case, underwriting discounts and
commissions will be borne by each relevant party based on the number of shares issued or sold
by that party. Telkom is required to indemnify certain parties, including the Government and the
underwriters and their respective directors, officers, employees and agents against certain losses
in connection with such public offering or registration.
Relationship with the Government of the Republic of South Africa
The Government of the Republic of South Africa is Telkom’s largest shareholder and is
responsible for the telecommunications industry policy in the Republic of South Africa. The
Government also holds significant equity stakes in other industry participants, including Sentech,
and has an indirect 30% equity interest in Neotel and recently created Infraco, which is expected
to provide inter-city bandwidth at cost based prices to Neotel and later to the rest of the industry.
To further its policy of liberalization of the telecommunications industry, the Government may adopt
and implement policies and exercise its right to approve regulations that benefit our competitors but
are not beneficial to us. In addition, to further other political or social objectives, the Government may
be required to act in a manner that may be detrimental to our business but advantageous
to our competitors.
The Ministry of Communications has the most direct role in our business. However, we have
interactions with several other Ministries, including the Ministry of Finance for matters relating
to taxation, the Ministry of Labor for matters relating to employment and the Ministry of Trade and
Industry for matters relating to the communications industry, particularly regarding the Codes of Good
Practice on Broad Based Black Economic Empowerment.
background image
229
The Government of the Republic of South Africa as regulator
Ministry of Communications
The Ministry of Communications has a number of roles that, directly or indirectly, affect us:
•  The Ministry of Communications represents the Government of the Republic of South Africa as
Telkom’s shareholder. The Minister has the powers and duties conferred on a shareholder
of a public limited liability company by South African law and Telkom’s articles of association.
•  The Ministry is responsible for the development of communications policy and for proposing
legislation to implement such policy, subject to supervision by the Cabinet of the Republic of
South Africa. The Ministry is also responsible for administering the Electronic Communications
Act, 36 of 2005, and the Independent Communications Authority of South Africa Act, 13
of 2000.
•  Under the Electronic Communications Act, the Ministry may make policies and issue
policy directions to ICASA, except in respect of the granting amendment or withdrawal
of communications or broadcasting licenses. ICASA, in exercising its functions, must consider
policies made or policy directions issued by the Minister.
ICASA
ICASA is the regulatory body for the telecommunications and broadcasting industries. ICASA
derives its powers from the Independent Communications Authority of South Africa Act, 13 of 2000,
and, with respect to telecommunications, from the Electronic Communications Act, No. 36 of 2005,
which has repealed the Telecommunications Act, 103 of 1996. ICASA serves as the primary regulatory
and licensing authority for the South African telecommunications and broadcasting industries, except
for specific licenses that can only be granted by the Minister of Communications.
ICASA’s primary powers under the Electronic Communications Act and the ICASA Act are to:
•  conduct public inquiries in any matter relevant to the achievement of the objectives of the
Electronic Communications Act or to the performance of its functions in terms of the Electronic
Communications Act;
•  plan, control and manage the radio frequency spectrum and license its usage;
•  grant telecommunications licenses;
•  make regulations as provided for in the Electronic Communications Act;
•  approve, amend or reject agreements entered into by telecommunications licensees relating
to interconnection or the leasing of telecommunications facilities, in accordance with the
relevant regulations; and
•  investigate and adjudicate alleged contraventions of the Electronic Communications Act,
regulations or license conditions by licensees and, where appropriate, impose sanctions
provided in the Electronic Communications Act.
A bill amending the ICASA Act, No. 13 of 2000, was passed by the Parliament of South Africa and
signed by the President and came into effect on July 19, 2006. The amendment to the ICASA Act
redefines and expands the powers of ICASA to control, in conjunction with the Electronic
Communications Act, the communications market. The main provisions of the ICASA Act amendments
are the removal of the power of the Minister to approve regulations made by ICASA, increased power
of ICASA to conduct enquiries and to enforce its rulings and the establishment of a Complaints and
Compliance Committee to assist ICASA in hearings and making findings on complaints and
allegations of non-compliance with the Electronic Communications Act.
background image
230
Public Finance Management Act and Public Audit Act
Telkom is required to report certain aspects of its business and operations, such as its corporate
and business plans, to the Minister of Communications in her capacity as executive authority of
Telkom pursuant to the PFMA and PAA. Telkom has obtained a temporary exemption from certain
provisions of the PFMA until October 2010 and has been informed by the South African Auditor-
General that it will not be required to comply with the PAA until such date. See Item 3. “Key
Information – Risk Factors – Risks Related to Regulatory and Legal Matters – If Telkom is required to
comply with the provisions of the South African Public Finance Management Act, 1 of 1999, or PFMA,
and the provisions of the South Africa Public Audit Act of 2004, or PAA, Telkom could incur increased
expenses and its net profit could decline and compliance with the PFMA and PAA could result in the
delisting of Telkom’s ordinary shares and ADSs from the JSE and the New York Stock Exchange”.
The Government of the Republic of South Africa as a customer
The departments and agencies of the Government of the Republic of South Africa in the
aggregate comprise one of our largest customers. Generally, we deal with the various departments
and agencies of the Government as separate customers, and the provision of services to any one
department or agency does not constitute a material part of our revenues. Legislation has been
enacted to centralize all procurement by the Government through one agency. We estimate that in the
year ended March 31, 2008, Government customers, excluding certain Government owned parastatal
companies, accounted for at least 9% of our total fixed-line revenue and at least 4% of our total fixed
access lines. The Government has, and in future may, transfer some or all of its existing business to
Neotel or other operators, including value added network service providers. Legislation has been
enacted to centralize all procurement of telecommunications and information technology services by
the Government, through one agency. If the Government transfers some or all of its business to other
operators, our operating revenue and net profit could decline.
The Government of the Republic of South Africa Guarantees
Pursuant to Section 35 of the South African Exchequer Act, 66 of 1975, the Government of the
Republic of South Africa guaranteed Telkom’s borrowings incurred prior to 1991. As of March 31,
2008, R141 million of our total indebtedness of R17.1 billion was guaranteed by the Government of
the Republic of South Africa.
Relationship with Vodacom and related transactions
Vodacom joint venture agreement
We acquired a 50% equity interest in Vodacom in 1993. Our rights as a shareholder of Vodacom
are governed by a joint venture agreement, which was entered into on March 29, 1995, among
Telkom, Vodafone, VenFin, Vodacom and other related parties. On April 20, 2006, Vodafone acquired
100% of the shares of VenFin Limited, who ultimately owned 15% in Vodacom, thus increasing its
beneficial interest in Vodacom to 50%.
Governance
The Vodacom joint venture agreement sets the number of directors of the board of directors of
Vodacom at a minimum of twelve. Telkom and Vodafone each have the right to appoint four directors
and the remaining four directors are appointed by shareholders holding 10% or more of the issued
shares of Vodacom who are a party to the joint venture agreement. Currently, the only shareholders
holding beneficially 10% or more of the issued shares in Vodacom are Telkom and Vodafone.
background image
231
Under the Vodacom joint venture agreement, the Vodacom board was required to establish
a directing committee and delegate all its power, functions and authority to act on behalf of Vodacom
to this committee. This authority cannot be revoked without the prior written consent of the
shareholders holding 10% or more of the issued shares of Vodacom. The directing committee
comprises all directors appointed to Vodacom’s board by shareholders holding 10% or more of the
issued shares of Vodacom. Currently, the directing committee consists of eight members comprising
four directors appointed by Telkom and four directors appointed by Vodafone.
The unanimous written agreement of those shareholders holding 10% or more of the issued
shares of Vodacom is required for, among other things, the following consensus matters prior to
Vodacom or any of its subsidiaries that are a party to the joint venture agreement taking any of the
following actions:
•  changing the nature of or discontinuing its business;
•  disposing of a material part of assets, shares or claims against its subsidiaries;
•  making material acquisitions, merging with another company or entering into a change
of control transaction;
•  altering or affecting its capital structure, including the issuance of any shares, the granting
of options or the issue of convertible debentures;
•  proposing any special resolution;
•  altering its dividend policy;
•  incurring certain interest bearing debt which exceeds 50% of the consolidated shareholders’
funds;
•  establishing any employee bonus or share incentive scheme;
•  appointing or removing any director to or from its board of directors, otherwise than in
accordance with the joint venture agreement;
•  entering into any agreement with any of its shareholders or affiliates;
•  agreeing to any material alteration of its rights flowing from any license held by it or its
subsidiaries enabling such companies to do their business;
•  approving or amending the business plan of Vodacom; and
•  appointing or removing the chairperson of the board or chief executive officer.
If the shareholders holding 10% or more of the issued shares of Vodacom fail to reach agreement
on an above consensus matter, they are required to exercise all the powers that they have to ensure
the consensus matter is not consummated. Should any dispute arise between the shareholders
holding 10% or more of the issued shares of Vodacom regarding the failure of those shareholders
to reach consensus, the dispute is to be referred for determination to the chairpersons of those
shareholders at the request of any shareholder holding 10% or more of the issued shares
of Vodacom. If the chairpersons fail to reach agreement on the consensus matter in question,
each shareholder is entitled to enforce any rights through any competent court.
Pursuant to the Vodacom joint venture agreement, all members of the directing committee
are required to agree on certain matters and, in the event of disagreement, the issue is treated
as a consensus matter requiring the unanimous written consent of those shareholders holding
10% or more of the issued shares of Vodacom. The following matters require unanimous approval:
•  the approval or amendment of any subsidiary company business plans;
•  expenditures that are in excess of 10% of total budgeted expenditures;
•  non-budgeted capital expenditures that are in excess of 5% of the consolidated shareholders’
funds;
background image
232
•  the encumbrance of any assets or the issuance of guarantees where the liability secured
is in excess of the lower of 5% of the consolidated shareholders’ funds or R10 million;
•  any agreement with any shareholder of Vodacom; and
•  the appointment of the company secretary.
The approval of at least six directors appointed to the directing committee is required to take
action with respect to:
•  the approval or adoption of the terms and conditions and any amendments to the interconnect
and transmission agreements concluded with Telkom;
•  the setting or adjustment of tariffs; and
•  the approval of terms and conditions of supply and associated agreements with the suppliers
of infrastructure.
Non-competition
Each party to the Vodacom joint venture agreement has agreed that neither it nor its affiliates will
form a similar joint venture relationship, or invest in any competitive business in the Republic of South
Africa. This restraint lapses with respect to each party two years after the date such party ceases
to be a shareholder of Vodacom or upon termination of the joint venture agreement.
In addition, each party to the Vodacom joint venture agreement has agreed that it will not own,
manage or otherwise become engaged in any GSM mobile telecommunications entity or analogue
system or otherwise participate in any mobile telecommunications activities in any African country,
a major portion of which is situated below the equator, (“the extended territory”) unless the party
proposing to engage in such activity first offers Vodacom the opportunity to pursue such activity and
Vodacom declines. Any decision by Vodacom to become involved in a GSM or analogue system
in this territory would require the written consent of those shareholders holding 10% or more of the
issued shares of Vodacom if such involvement is a consensus matter as contemplated in the
Vodacom joint venture agreement.
Right of first offer
If any Vodacom shareholder that is a party to the joint venture agreement wishes to sell any
of the shares held by it, it must offer to sell such shares and an equivalent portion of its claims
on loan accounts in Vodacom to the other party to the joint venture agreement. If none of the
non-transferring parties accepts such an offer to purchase all of the shares and claims offered
on the terms in the notice, then the selling shareholder has the right to sell the shares and an
equivalent portion of its claims to a third party at a price not lower than the price, and upon
the terms, set forth in the seller’s original offer.
Other related transactions with Vodacom
We market and sell our residential products through Vodacom.
Other related transactions
The following are additional related party transactions of which Telkom is aware:
Mesdames Arnold, Matthews and Huntley and Dr. Spio-Garbrah and Mr. Lawrence, five of
Telkom’s board members as of March 31, 2008, were the Government’s representatives on Telkom’s
board of directors. Messrs. Tabata, Tenza and Mostert, previous Government representatives,
resigned on September 19, 2007, and were replaced by Ms. Huntley, Dr. Spio-Garbrah and
Mr. Lawrence. Mr. Mahloele, one of Telkom’s Board members, was the Public Investment
background image
233
Corporation’s representative on Telkom’s board of directors. He resigned on January 30, 2008 and
was replaced by AG Rhoda. AG Rhoda resigned on July 3, 2008 and was replaced by B Molefe. The
Public Investment Corporation is currently only entitled to appoint one representative to Telkom’s
board of directors.
Mr. Dumisani Tabata, one of Telkom’s former board members, is a director and shareholder of
Vuwa Investments (Proprietary) Limited, which acquired a 40% interest in the SAIL Group Limited,
with effect from October 1, 2006. SAIL Group is a sports marketing company that does business with
Telkom. Telkom paid R17,094,884 in the 2008 financial year for goods and services from the SAIL
Group. The outstanding creditors balance at Telkom as of March 31, 2008 was R885,000. Vodacom
paid R592,474,403 in the 2008 financial year for goods and services from the SAIL Group. The
outstanding creditors balance at Vodacom as of March 31, 2008 was R21,260,584. Vuwa Investments
is a consortium member of Amandla Omoya, who has bid to acquire a stake in Vodacom.
See also note 41 to the Telkom Group’s consolidated financial statements for additional
information with respect to related party transactions.
background image
234
Item 8.
Financial information
CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER FINANCIAL INFORMATION
Consolidated financial statements
Reference is made to Item 18 of this annual report for this information.
Legal proceedings
Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator
of the International Court of Arbitration, operating under the auspices of the International Chamber of
Commerce. Telcordia is seeking to recover approximately U.S.$130 million for monies outstanding
and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to
US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008
financial year. The arbitration proceeding relates to the cancellation of an agreement entered into
between Telkom and Telcordia during June 1999 for the development and supply of an integrated end-
to-end customer assurance and activation system by Telcordia. In September 2002, the arbitrator
found that Telkom had wrongfully repudiated the contract and a partial award was issued by the
arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High
Court to review and set aside the partial award. On November 27, 2003, the South African High Court
set aside the partial award and issued a cost order in favour of Telkom. On May 3, 2004, the South
African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to
pay the legal costs of Telkom. On November 29, 2004 the Supreme Court of Appeals granted
Telcordia leave to appeal. Telcordia filed a notice of appeal and also petitioned the United States
District Court for the District of Columbia to confirm the partial award, which petition was dismissed,
along with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition
in the United States District Court of New Jersey. The United States District Court of New Jersey also
dismissed Telcordia’s petition, reaffirming the decision of the United States District Court of Columbia.
Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.
The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard
on October 30 and October 31, 2006. Following the successful upholding of the appeal, Telkom filed
an application for leave to appeal to the Constitutional Court on only the issue revolving around the
Supreme Court of Appeals’ failure to recognize Telkom’s rights of access to the courts under the
South African Arbitration Act. The Constitutional Court has since dismissed Telkom’s appeal with
costs. The Constitutional Court judgment brought to finality the dispute over the merits of Telcordia’s
claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount
of damages to which Telcordia is entitled. Two hearings were held at the International Dispute
Resolutions Centre, or IDRC. The first hearing was held in London on May 21, 2007 and was
a ‘directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting
out a consolidated list of proposals and issues to form part of the damages hearing.
The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the
application by Telcordia for the striking out of part of Telkom’s defense on the basis that Telkom had
raised issues in its defense that had already been heard by the arbitrator prior to his partial award.
This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling
Telcordia to provide certain particulars requested by Telkom with regard to the claims by Telcordia.
In his ruling, the arbitrator also set out a list of issues for determination of the damages.
background image
235
The mediation took place in London in February and April of 2008 without success. In the interim
the parties have agreed to the appointment by the arbitrator of a third party expert to deal with the
technical issues in relation with the software that was required to be provided by Telcordia, who will
make a recommendation to the arbitrator in dealing with the amount of the claims. The arbitration is
expected to continue later in 2008.
Although Telkom is currently unable to predict the exact amount that it may eventually be required
to pay Telcordia, it has made provisions for estimated liabilities in respect of the Telcordia claim in the
sum of US$70 million (R569 million), including interest and legal fees. Telkom will be required to fund
any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages
above Telkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could
have a material adverse effect on its financial condition, cash flows and results of operations.
Competition Commission
We are parties to a number of legal and arbitration proceedings filed by parties with the South
African Competition Commission alleging anti-competitive practices described below. If Telkom were
found to have committed prohibited practices as contained in the Competition Act, 1998, as amended,
Telkom could be required to cease these practices, divest these businesses and be fined a penalty of
up to 10% of Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for
each complaint for the financial years prior to the dates of the complaints. The Competition
Commission has to date not imposed the maximum penalty on any offender.
As competition continues to increase, we expect that we will become involved in an increasing
number of disputes regarding the legality of services and products provided by us and third parties.
These disputes may range from court lawsuits to complaints lodged by or against us with various
regulatory bodies. We are currently unable to predict the amount that we may eventually be required
to pay in these proceedings, however, we have not included provisions for any of these claims in our
financial statements. In addition, we may need to spend substantial amounts defending or prosecuting
these claims even if we are ultimately successful. If Telkom is required to cease these practices,
divest itself of the relevant businesses or pay significant fines, Telkom’s business and financial
condition could be materially adversely affected and its revenue and net profit could decline. We may
be required to fund any penalties or damages from cash flows or drawings on our credit facilities,
which could cause our indebtedness to increase.
Independent Cellular Service Provider Association of South Africa (ICSPA)
In 2002, the ICSPA filed a complaint against Telkom at the Competition Commission in terms of
the Competition Act, alleging that Telkom had entered into contracts with large corporations, providing
large discounts with the effect of discouraging the corporates from using the ‘premicell’ device
installed by their members. ICSPA alleged various contraventions of the Competition Act. Telkom
provided the Competition Commission with certain information requested. Telkom also referred the
Competition Commission to its High Court application in respect of utilization of the ‘premicell’ device.
The Competition Commission declined to refer the matter to the Competition Tribunal. ICSPA then
referred the matter to the Competition Tribunal on September 18, 2003. Telkom filed its answering
affidavit on November 28, 2003. ICSPA has taken no further action since then.
The South African Value Added Network Services (SAVA)
On May 7, 2002, the South African Value Added Network Services Providers’ Association, an
association of VANS providers, filed complaints against Telkom at the Competition Commission of the
Republic of South Africa under the South African Competition Act, 89 of 1998, alleging, among other
things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of
background image
236
1998, and that it was engaged in price discrimination. The Competition Commission determined,
among other things, that several aspects of Telkom’s conduct contravened the Competition Act, 89 of
1998, and referred certain of the relevant complaints to the Competition Tribunal for adjudication. The
referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to
certain VANS providers to construct their networks, refusal to lease access facilities to VANS
providers, provision of bundled and cross subsidized competitive services with monopoly services,
discriminatory pricing with regard to leased line services and alleged refusal to peer with certain VANS
providers.
Telkom brought an application for review against the Competition Commission and the
Competition Tribunal in the South African High Court, in respect of the decision by the Competition
Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the
Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA
has the requisite jurisdiction. In the review application, Telkom also sought to set aside the decision by
the Competition Commission to refer the complaints to the Competition Tribunal on the basis that the
Competition Commission was biased, that the referral was out of time and that the Competition
Commission had not adhered to the memorandum of understanding between it and ICASA. Only the
Competition Commission opposed the application and filed an answering affidavit.
The main complaint at the Competition Commission was held over pending the outcome of the
review application.
The application for review was heard on April 24 and 25, 2008. The South African High Court
Judge set aside the decision of the Competition Commission to refer the SAVA complaints and the
Omnilink complaint against Telkom discussed below to the Competition Tribunal. The decision was
made based on three grounds, namely that:
•  the Competition Commission failed to comply with the peremptory provisions of the
memorandum of understanding between the Competition Commission and ICASA;
•  the referral was out of time, on the basis that the agreements with the complainants to extend
the time which the Competition Commission was allowed to investigate the complaints were
invalid;
•  the Competition Commission’s reliance on a report by the Link Centre created reasonable
apprehension of bias, since some of the complainants contribute financially to the Link Centre
and the Link Centre’s advisory board includes employees of the complainants in the SAVA
complaints.
The Judge did not make a decision on the question of jurisdiction (i.e., whether ICASA or the
Competition Tribunal has the jurisdiction to deal with competition matters in the electronic
communications industry). To date, the Competition Commission has not appealed the South African
High Court ruling.
Omnilink
On August 22, 2002 Omnilink filed a complaint against Telkom at the Competition Commission
alleging that Telkom was abusing its dominance by discriminating in its price for Diginet services
as against those charged to VANS and the price charged to customers who apply for a Telkom IVPN
solution. The Competition Commission conducted an enquiry and subsequently referred the
complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter
is currently being dealt with together with the SAVA matter discussed above and formed part of the
application to the South African High Court by Telkom to set aside the decision by the Competition
Commission to refer this complaint to the Competition Tribunal.
background image
237
Orion/Telkom (Standard Bank and Edcon)
In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the
Competition Commission concerning Telkom’s discounts offered on public switched
telecommunication services to corporate customers. In terms of the rules of the Competition
Commission, the Competition Commission, who acts as an investigator, had one year to investigate
the complaint. Orion simultaneously with the filing of the complaint, also filed an application against
Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting and
restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s
Cellsaver discount plan.
The Competition Commission completed its investigation and decided that there was no prima
facie evidence of any contravention of the Competition Act. Orion however referred the matter to the
Competition Tribunal in terms of section 51 of the Competition Act, which allows for parties to refer
matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the
main complaint before the Competition Tribunal. To date there has been no further developments
on this matter.
Internet Service Association (ISPA)
In December 2005, the ISPA, an association of ISPs, filed complaints against Telkom at the
Competition Commission regarding alleged anti-competitive practices on the part of Telkom. The
complaints deal with the cost of access to SAIX, the prices offered by TelkomInternet, the alleged
delay in provision of facilities to ISPs and the alleged favorable installation timelines offered to
TelkomInternet customers. The Competition Commission has formally requested Telkom to provide
it with certain records of orders placed for certain services, in an attempt to first investigate the latter
aspects of the complaint. Telkom provided the Competition Commission with the information and
is awaiting the Commission’s response.
M-Web and Internet Solutions (IS)
On June 29, 2005, M-Web and Internet Solutions, or IS, jointly lodged a complaint with the
Competition Commission against Telkom and also requested interim relief at the Competition Tribunal.
The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail
products and its IP Connect products, the termination of the peering link between Telkom and IS, the
wholesale pricing of SAIX bandwidth for ADSL users of other internet service providers, the
architecture of Telkom’s ADSL access route and the manner in which internet service providers can
only connect to Telkom’s edge service router via IP Connect as well as alleged excessive pricing for
bandwidth on Telkom’s international undersea cable. The application for interim relief at the
Competition Tribunal dealt with allegations that Telkom should maintain the peering link between
IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the traffic
generated by ADSL customers of M-Web as traffic destined for the peering link and that Telkom
upgrade its peering link to accommodate the increased ADSL traffic emanating from M-Web and
maintain a maximum of 65% utilization. Telkom filed its answering affidavit, and is awaiting IS and
M-Web’s replying affidavit.
Since then, Telkom has entered into a new peering agreement with IS and has responded
to numerous documentation and information requests from the Competition Commission. To date
there has been no further developments on this matter, either in the filing of a replying affidavit by
IS/M Web in the interim relief application or in the investigation of the matter by the Competition
Commission.
background image
238
M-Web
On June 5, 2007, M-Web brought an application against Telkom for interim relief at the
Competition Tribunal with regard to the manner in which Telkom provides wholesale ADSL internet
connections. M-Web requested the Competition Tribunal to grant an order of interim relief against
Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not
higher than the lowest retail price. M-Web further applied for an order that Telkom implement the
migration of end customers from Telkom PSTS ADSL access to M-Web without interruption of the
service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear
the matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over”
as to the merits of the matter. Telkom also filed an application in the Transvaal Provincial Division of
the South African High Court on July 3, 2007 for an order declaring that the Competition Tribunal does
not have jurisdiction to hear the application for interim relief made to it by M-Web. The application
before the High Court was set down for hearing during the first quarter of the 2009 financial year. The
parties however entered into settlement negotiations, which resulted in the withdrawal of the interim
relief application at the Competition Tribunal by M-Web as well as a withdrawal of the jurisdictional
challenge filed at the South African High Court by Telkom. The parties are in further negotiations.
We are not currently able to predict when these disputes may be resolved or the amount that
we may eventually be required to pay, however, we have not included provisions for all of these
claims in our consolidated financial statements. In addition, we may need to spend substantial
amounts defending or prosecuting these claims even if we are ultimately successful. If we were
to lose these or future legal and arbitration proceedings, we could be prohibited from engaging
in certain business activities and could be required to pay substantial penalties and damages, which
could cause our revenue and net profit to decline and have a material adverse impact on our business
and financial condition. We may be required to fund any penalties or damages from cash flows or
drawings on our credit facilities, which could cause our indebtedness to increase.
We are parties to various additional proceedings and lawsuits in the ordinary course of our
business, which our management does not believe will have a material adverse impact on us.
Dividend policy
For a discussion of Telkom’s dividend policy, see Item 3. “Key Information – Dividends and
Dividend Policy.”
SIGNIFICANT CHANGES
Except as disclosed elsewhere in this annual report, there have been no significant changes
in Telkom’s business since March 31, 2008, the date of the consolidated annual financial statements
included in this annual report.
background image
239
Item 9. The offer and listing
Markets
Telkom’s ordinary shares are listed on the JSE in the “Telecommunications Services” sector under
the symbol “TKG” and ISIN Code “ZAE000044897” and its ADSs are listed on the New York Stock
Exchange, Inc. under the symbol “TKG”. The ADSs are evidenced by American Depositary Receipts,
or ADRs, issued by The Bank of New York, as depositary, under the Deposit Agreement, dated as of
March 3, 2003, among Telkom, The Bank of New York, as depositary, and the registered and
beneficial owners from time to time of ADRs. The following table sets forth, for the periods indicated:
•  the reported high and low market quotations as reported by the JSE; and
•  the reported high and low sales prices on the NYSE Composite Tape of the ADSs:
JSE (ZAR per
NYSE (USD per
ordinary share)
ADS)
High
Low
High
Low
2004 Financial Year . . . . . . . . . . . . . .
78.80
29.10
49.60
14.85
First Quarter
April 2003 . . . . . . . . . . . . . . . . . .
34.75
29.10
18.25
14.68
May 2003 . . . . . . . . . . . . . . . . . .
34.00
30.50
17.70
15.58
June 2003 . . . . . . . . . . . . . . . . .
38.75
31.30
20.80
15.75
Second Quarter
July 2003 . . . . . . . . . . . . . . . . . .
45.00
38.80
24.35
21.20
August 2003 . . . . . . . . . . . . . . . .
43.02
40.00
23.44
21.46
September 2003 . . . . . . . . . . . . . .
44.07
40.30
25.34
22.15
Third Quarter
October 2003 . . . . . . . . . . . . . . . .
53.50
43.30
30.90
24.90
November 2003 . . . . . . . . . . . . . .
65.30
53.20
40.50
30.75
December 2003 . . . . . . . . . . . . . .
70.51
62.80
43.10
37.70
Fourth Quarter
January 2004 . . . . . . . . . . . . . . . .
75.01
62.50
44.90
35.00
February 2004 . . . . . . . . . . . . . . .
77.60
67.25
45.05
40.85
March 2004 . . . . . . . . . . . . . . . . .
78.80
68.45
49.60
41.60
2005 Financial Year . . . . . . . . . . . . . .
117.00
70.25
79.85
42.38
First Quarter
April 2004 . . . . . . . . . . . . . . . . . .
87.00
75.50
54.80
43.75
May 2004 . . . . . . . . . . . . . . . . . .
79.40
72.50
47.26
42.45
June 2004 . . . . . . . . . . . . . . . . .
86.50
73.00
52.75
45.25
Second Quarter
July 2004 . . . . . . . . . . . . . . . . . .
84.00
77.75
54.25
50.90
August 2004 . . . . . . . . . . . . . . . .
81.99
76.00
51.00
46.70
September 2004 . . . . . . . . . . . . . .
80.00
72.55
48.00
44.80
Third Quarter
October 2004 . . . . . . . . . . . . . . . .
87.00
73.50
56.75
46.44
November 2004 . . . . . . . . . . . . . .
103.50
82.00
70.25
55.70
December 2004 . . . . . . . . . . . . . .
101.00
91.20
66.90
63.80
Fourth Quarter
January 2005 . . . . . . . . . . . . . . . .
109.00
93.01
72.75
62.10
February 2005 . . . . . . . . . . . . . . .
116.31
104.20
79.50
68.10
March 2005 . . . . . . . . . . . . . . . . .
117.00
101.50
79.85
67.00
background image
240
JSE (ZAR per
NYSE (USD per
ordinary share)
ADS)
High
Low
High
Low
2006 Financial Year . . . . . . . . . . . . . .
171.00
98.45
111.50
64.01
First Quarter
April 2005 . . . . . . . . . . . . . . . . . .
109.50
98.45
70.36
64.75
May 2005 . . . . . . . . . . . . . . . . . .
116.39
106.50
73.98
66.05
June 2005 . . . . . . . . . . . . . . . . .
120.30
104.10
71.25
64.11
Second Quarter
July 2005 . . . . . . . . . . . . . . . . . .
131.00
108.00
77.15
64.01
August 2005 . . . . . . . . . . . . . . . .
130.00
120.00
79.98
75.25
September 2005 . . . . . . . . . . . . . .
129.98
121.35
81.85
76.50
Third Quarter
October 2005 . . . . . . . . . . . . . . . .
130.00
114.65
79.35
70.85
November 2005 . . . . . . . . . . . . . .
145.00
125.80
86.75
77.75
December 2005 . . . . . . . . . . . . . .
141.59
130.05
88.90
82.11
Fourth Quarter
January 2006 . . . . . . . . . . . . . . . .
152.00
134.75
99.85
88.00
February 2006 . . . . . . . . . . . . . . .
171.00
148.05
111.50
98.67
March 2006 . . . . . . . . . . . . . . . . .
165.90
148.10
108.39
97.36
2007 Financial Year . . . . . . . . . . . . . .
175.50
119.10
109.50
66.00
First Quarter
April 2006 . . . . . . . . . . . . . . . . . .
167.85
139.50
109.50
91.79
May 2006 . . . . . . . . . . . . . . . . . .
147.00
127.51
96.40
76.90
June 2006 . . . . . . . . . . . . . . . . .
142.50
121.05
86.00
67.42
Second Quarter
July 2006 . . . . . . . . . . . . . . . . . .
134.50
119.10
78.80
66.00
August 2006 . . . . . . . . . . . . . . . .
139.50
127.00
79.35
73.90
September 2006 . . . . . . . . . . . . . .
140.50
128.50
77.00
69.01
Third Quarter
October 2006 . . . . . . . . . . . . . . . .
143.00
132.55
76.70
68.80
November 2006 . . . . . . . . . . . . . .
145.50
127.88
79.95
72.78
December 2006 . . . . . . . . . . . . . .
144.55
131.10
81.90
74.13
Fourth Quarter
January 2007 . . . . . . . . . . . . . . . .
161.02
141.50
90.24
79.00
February 2007 . . . . . . . . . . . . . . .
175.50
155.50
98.49
85.50
March 2007 . . . . . . . . . . . . . . . . .
171.00
155.50
96.20
84.75
2008 Financial Year . . . . . . . . . . . . . .
195.02
115.01
113.00
64.53
First Quarter
April 2007 . . . . . . . . . . . . . . . . . .
181.00
164.06
102.30
91.75
May 2007 . . . . . . . . . . . . . . . . . .
181.65
163.00
102.29
92.00
June 2007 . . . . . . . . . . . . . . . . .
182.05
167.01
104.25
94.00
Second Quarter
July 2007 . . . . . . . . . . . . . . . . . .
179.00
161.24
104.75
93.25
August 2007 . . . . . . . . . . . . . . . .
177.73
152.49
99.70
82.50
September 2007 . . . . . . . . . . . . . .
195.02
170.00
105.80
97.57
Third Quarter
October 2007 . . . . . . . . . . . . . . . .
187.20
170.10
113.00
101.25
November 2007 . . . . . . . . . . . . . .
180.50
142.00
111.61
82.25
December 2007 . . . . . . . . . . . . . .
159.00
136.54
95.15
75.61
background image
241
JSE (ZAR per
NYSE (USD per
ordinary share)
ADS)
High
Low
High
Low
Fourth Quarter
January 2008 . . . . . . . . . . . . . . . .
144.58
115.01
82.25
70.57
February 2008 . . . . . . . . . . . . . . .
142.90
129.00
76.05
65.00
March 2008 . . . . . . . . . . . . . . . . .
152.45
131.00
76.76
64.53
2009 Financial Year through June 30
First Quarter
April 2008 . . . . . . . . . . . . . . . . . .
136.50
126.00
70.40
64.05
May 2008 . . . . . . . . . . . . . . . . . .
140.00
127.00
73.20
65.77
June 2008 . . . . . . . . . . . . . . . . .
158.00
140.05
78.50
70.58
On June 30, 2008, the last trading price of the ordinary shares as reported by the JSE was
R141.50 per share and the last trading price of the ADSs on the NYSE Composite Tape was
U.S.$75.90.
background image
242
Item 10.
Additional information
MEMORANDUM AND ARTICLES OF ASSOCIATION
Set forth below is a summary of material information relating to Telkom’s share capital, including
summaries of certain provisions of Telkom’s memorandum and articles of association, the South
African Companies Act, 61 of 1973, and the Listings Requirements of the JSE. This summary is
qualified in its entirety by the provisions of Telkom’s memorandum and articles of association and by
the applicable provisions of South African law and the Listings Requirements of the JSE. You should
refer to the full text of Telkom’s memorandum and articles of association, which is incorporated by
reference as an exhibit to this annual report.
General
Telkom was incorporated on September 30, 1991, as a public limited liability company registered
under the South African Companies Act with registration number 1991/005476/06. Telkom is governed
by its memorandum and articles of association and the provisions of the South African Companies
Act, 61 of 1973. Telkom is also subject to the Listings Requirements of the JSE and the New York
Stock Exchange.
Telkom’s main object and business is to supply telecommunications, broadcasting, multimedia
technology, information and other related information technology services to the general public.
Share capital
Pursuant to a special resolution passed at a general meeting of Telkom held on January 16, 2003,
Telkom’s authorized and issued share capital was, with effect from March 4, 2003, altered by the
conversion of one ordinary share held by the Government into one class A ordinary share with a par
value of R10 and one ordinary share held by Thintana Communications into one class B ordinary
share with a par value of R10. Telkom’s authorized share capital was R10,000,000,000, divided into
999,999,998 ordinary shares with a par value of R10 each, one class A ordinary share with a par
value of R10 and one class B ordinary share with a par value of R10, as of March 31, 2006, 2007
and 2008.
background image
243
In addition to Telkom’s one Class A ordinary share and one Class B ordinary share that were
issued and outstanding during this period, the following table shows Telkom’s issued and outstanding
from April 1, 2005 through March 31, 2008:
Number of shares
Shares issued at April 1, 2005 . . . . . . . . . . . . . . . . . . . . .
557,031,819
Shares held in treasury at April 1, 2005 . . . . . . . . . . . . . . . .
(23,566,248)
Shares outstanding at April 1, 2005 . . . . . . . . . . . . . . . . .
533,465,571
Shares repurchased and cancelled during 2006 financial year . . . .
(12,086,920)
Shares vested to employees from treasury during 2006 financial year
29,669
Shares outstanding at March 31, 2006 . . . . . . . . . . . . . . .
521,408,320
Shares issued at March 31, 2006 . . . . . . . . . . . . . . . . . . .
544,944,899
Shares held in treasury at March 31, 2006 . . . . . . . . . . . . . .
(23,536,579)
Shares repurchased and cancelled . . . . . . . . . . . . . . . . . .
(12,089,371)
(1)
Shares vested to employees from treasury during 2007 financial year
450,505
Shares outstanding at March 31, 2007 . . . . . . . . . . . . . . .
509,769,454
Shares issued at March 31, 2007 . . . . . . . . . . . . . . . . . . .
532,855,528
Shares held in treasury at March 31, 2007 . . . . . . . . . . . . . .
(23,086,074)
Shares repurchased and cancelled or to be cancelled . . . . . . . .
(12,071,344)
Shares vested to employees from treasury during 2008 financial year
1,743,875
Shares outstanding at March 31, 2008 . . . . . . . . . . . . . . .
499,441,985
Shares held in treasury at March 31, 2008 . . . . . . . . . . . . . .
21,342,199
Shares issued at March 31, 2008 . . . . . . . . . . . . . . . . . .
520,784,184
Note:
(1)
1,035,506 of these ordinary shares were cancelled in the 2008 financial year.
Only ordinary shares are listed on the JSE and ADSs listed on the New York Stock Exchange only
represent ordinary shares. The class A and B ordinary shares are not listed on any stock exchange.
No alterations to Telkom’s share capital occurred during the five years preceding the date
of this annual report, other than the alteration of Telkom’s authorized and issued share capital
on March 4, 2003 and as discussed above.
All of Telkom’s issued and outstanding ordinary shares rank equally with each other and are fully
paid and not subject to calls for additional payments of any kind. Except as specified in Telkom’s
articles of association, selected provisions of which are described in this annual report, the class A
ordinary share and the class B ordinary share rank equally with the ordinary shares.
Significant shareholder
Pursuant to Telkom’s articles of association, a “significant shareholder” is the registered holder of
the class A ordinary share or the class B ordinary share and, in addition, of at least 15% of the issued
ordinary shares, which percentage will be adjusted from time to time to reflect the dilutive effect of any
issuance of new ordinary shares by Telkom after March 4, 2003, provided that the percentage will not
be lower than 10%. A significant shareholder has certain specific rights in terms of Telkom’s
memorandum and articles of association as more fully described below in “Directors” and Item 6.
“Directors, Senior Management and Employees – Directors and Senior Management – Reserved
Matters.” As of the date hereof, the Government is the only significant shareholder.
background image
244
If, by March 4, 2011, the class A ordinary share and class B ordinary share have not otherwise
been converted into ordinary shares under the terms of Telkom’s articles of association, they will
automatically be so converted and the rights of the holders of the class A ordinary share and class B
ordinary share, including any rights as significant shareholders, will be terminated under Telkom’s
articles of association.
Dividends
Telkom’s shareholders, in a general meeting, or its board, from time to time, may declare a
dividend to be paid to the registered holders of one or more classes of shares; provided that Telkom’s
shareholders may not declare a greater dividend in a general meeting than is recommended by the
board and provided further that no dividend may be declared to a holder of the class A ordinary share
or class B ordinary share, unless the same dividend is declared to holders of all ordinary shares. In
addition, the declaration or distribution of dividends or other distributions must be approved by the
board as a reserved matter. See Item 6. “Directors, Senior Management and Employees – Directors
and Senior Management – Reserved Matters”.
Pursuant to Telkom’s articles of association, dividends on ordinary shares will not bear interest.
Dividends are declared payable to shareholders registered as such on a date subsequent to the date
of publication of the announcement of the declaration of the dividend. This date may not be sooner
than 14 days after the date of such publication. All unclaimed dividends may be invested or otherwise
utilized by the board for Telkom’s benefit until claimed, provided that dividends unclaimed after a
period of three years shall be forfeited. Forfeited dividends revert to Telkom or its assigns.
Any dividend or other sum payable in cash to a shareholder may be transmitted by ordinary post
to the address of the shareholder recorded in the register or any other address the shareholder may
previously have given to Telkom in writing or by electronic transfer to such bank account as the
shareholder may previously have given to Telkom in writing. Telkom will not be responsible for any
loss in transmission. Subject to the approval of shareholders in a general meeting, any dividend may
be paid and satisfied, either wholly or in part, by the distribution of specific assets as the board may
determine and direct at the time of declaring the dividend.
Any cash dividends paid by Telkom will be declared in South African Rands. The shareholders in
a general meeting, or the board of directors, may at the time of declaring a dividend, stipulate that the
dividend be paid to shareholders having registered addresses outside South Africa or who have given
written instructions requesting payment at addresses outside South Africa, shall be paid in a currency
other than South African currency. Holders of ADSs on the relevant record date will be entitled to
receive any dividends payable in respect of the ordinary shares underlying the ADSs, subject to the
terms of the deposit agreement. Cash dividends paid in Rands will be converted by the depositary to
Dollars and paid by the depositary to holders of ADSs, net of conversion expenses of the depositary,
in accordance with the deposit agreement, a copy of which is incorporated by reference to Exhibit 2.2
to this annual report.
Voting rights
Subject to any rights or restrictions attached to any class of shares, every shareholder present at
a general meeting in person, by proxy or by representation will, on a show of hands, have one vote
only and, in the case of a poll, that proportion of the total votes which the aggregate amount of the
nominal value of the shares held by that shareholder bears to the aggregate of the nominal value
of all the shares issued by Telkom. For a description of shareholders’ rights to request a poll, see
Item 10. “Additional Information – Memorandum and Articles of Association – General Meetings of
Shareholders”. A shareholder is entitled to appoint a proxy to attend, speak and vote at any meeting
on the shareholder’s behalf. The proxy need not be a shareholder of Telkom.
background image
245
Issue of additional shares and pre-emptive rights
Subject to the provisions of the South African Companies Act, 61 of 1973, the JSE Listings
Requirements and any rights or restrictions attached to any class of shares, shareholders in a general
meeting may authorize the board to allot and issue shares or grant options over unissued shares to
such persons at such times, and generally on such terms and conditions, and for such consideration,
whether payable in cash or otherwise, as it may decide. Telkom’s shareholders granted to the board
the authority to allot and issue up to 22,281,272, representing 4% of Telkom’s issued ordinary share
capital, ordinary shares to the participants under Telkom’s conditional share plan in a general meeting
held on January 27, 2004. There may not be any increase or reduction in Telkom’s issued share
capital or that of any of its subsidiaries without the authorization of the board as a reserved matter.
See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management –
Reserved Matters.” No change in the number of issued class A ordinary shares or class B ordinary
shares may be made without the approval of the holder of the class A ordinary share and class B
ordinary share, respectively.
The Listings Requirements of the JSE require Telkom’s unissued ordinary shares to be offered
first to existing shareholders in proportion to their holdings of ordinary shares unless these shares are
issued for the acquisition of assets. The shareholders may, however, grant either a general approval
in a general meeting authorizing the directors to issue ordinary shares for cash or a specific approval
for a particular issue of ordinary shares, without first offering them to existing shareholders. Issues of
ordinary shares for cash pursuant to a general approval in the aggregate in any one financial year
may not exceed 15% of the issued share capital of that class. The maximum discount at which
securities may be issued under a general approval is 10% of the weighted average trading price of
those securities over 30 business days on the JSE prior to the date that the price of the issue is
determined or agreed by the directors. A specific approval to issue ordinary shares is subject to,
among other things, the disclosure of the number, or maximum number, of securities to be issued and
disclosure of whether the discount at which the securities are to be issued is unlimited and, if not, the
limit. A general and specific approval are each subject to the requirement of approval of a 75%
majority of votes cast by shareholders present or represented by proxy at a general meeting,
excluding, in the case of a specific approval, any parties and their associates participating in the
specific issue for cash. As of the date hereof, except for the authority referred to above, no general or
specific approval authorizing the directors to issue shares for cash has been granted to the board by
the shareholders of Telkom.
Subject to the South African Companies Act, 61 of 1973, the directors or Telkom’s shareholders
may resolve in a general meeting to utilize all or any part of Telkom’s reserves, or any amount
available for distribution as a dividend and not required for the payment or provision of dividends on
preference shares, to pay for Telkom’s authorized but unissued shares to be issued as fully paid
capitalization shares to shareholders entitled to receive such distributions as a dividend.
Transfer of shares
Telkom’s articles of association do not contain any restriction on the right to transfer ordinary
shares, except as described below. Ordinary shares may be transferred by an instrument in writing in
any usual common form or in such other form as the board of directors may approve if such transfer
does not arise pursuant to a trade of such shares on the JSE. The transferor will be deemed to
remain the holder of the ordinary shares until the name of the transferee is entered in Telkom’s share
register in respect of the transferred ordinary shares. Every instrument of transfer presented for
registration must be accompanied by the certificate representing the ordinary shares to be transferred
and/or such other evidence Telkom may require to prove the title of the transferor or the transferor’s
right to transfer the ordinary shares.
background image
246
Although shareholders are entitled to hold their ordinary shares in certificated form, ordinary
shares may only be traded on the JSE if they have been dematerialized through Share Transactions
Totally Electronic Limited, or STRATE. A dematerialized share is not evidenced by a share certificate
and may not be transferred by an instrument in writing, but is represented and transferred by means
of electronic book entries.
The class A share is not transferable to any transferee, except to an eligible Ministry, as defined in
the articles of association, without the written consent of the class B shareholder. If the class A share
is to be transferred to an eligible Ministry, it may be so transferred only if it is transferred together with
as many shares as would be sufficient to constitute the transferee a significant shareholder without
taking account of any other shares already held by or on behalf of such transferee at the time of the
actual delivery of the class A share to the transferee pursuant to the applicable underlying contract,
and only after consultation with the class B shareholder. The class A share will be converted into an
ordinary share on March 4, 2011 or if, at any time before then, it ceases to be held by the Minister, as
defined in the articles of association, or the class B share is converted into an ordinary share.
The class B share, including the rights attached to it, may be transferred to a transferee only if it is
transferred together with as many shares as would be sufficient to constitute the transferee a
significant shareholder without taking account of any other shares already held by or on behalf of such
transferee at the time of the actual delivery of the class B share to the transferee pursuant to the
applicable underlying contract, and only after consultation with the class A shareholder. The class B
share will be converted into an ordinary share on March 4, 2011 or if, at any time before then, the
class B shareholder ceases to hold at least 5% of Telkom’s issued shares.
Disclosure of interest in shares
Pursuant to the South African Companies Act, 61 of 1973, registered shareholders are required at
the end of every calendar quarter to disclose to the issuer the identity of each other person who has a
beneficial interest in the shares held by the registered holder and the number and class of those
shares. Moreover, an issuer of shares may, by notice in writing, require a person who is a registered
holder of, or whom the issuer knows or has reasonable cause to believe, has a beneficial interest in, a
share issued by the issuer to identify to the issuer the person on whose behalf a share is held. The
addressee of the notice may also be required to give particulars of the extent of the beneficial interest
held during the three years preceding the date of the notice. All issuers of shares are obliged to
establish and maintain a register of the disclosures described above and to publish in their
consolidated annual financial statements a list of the persons who hold beneficial interests equal to or
in excess of 5% of the total number of shares of that class issued by the issuer together with the
extent of those beneficial interests.
Register of members
Telkom keeps a register of its members, being shareholders whose names have been included in
this register, in South Africa. Telkom may keep a branch share register in any foreign country, subject
to the approval of the South African Reserve Bank.
General meetings of shareholders
Telkom is required by the South African Companies Act, 61 of 1973, to hold an annual general
meeting not later than nine months after the end of every financial year and within 15 months after the
date of its last preceding annual general meeting. The board may convene a general meeting
whenever it thinks fit and must do so on the request of 100 shareholders or of shareholders holding,
at the date of request, not less than one-twentieth of shares carrying voting rights.
background image
247
Telkom is required by the South African Companies Act, 61 of 1973, to provide at least 21 “clear
days” intervening notice for annual general meetings and for general meetings at which special
resolutions are proposed, and at least 14 “clear days” intervening notice for all other general
meetings. “Clear days” exclude the date on which notice is given, and the date on which the meeting
is held.
A holder of shares may by notice require Telkom to record an address within South Africa which
shall be deemed to be his or her address for the purpose of the service of notices. Telkom’s articles of
association require notices of general meetings to be in writing and to be given or served on any
shareholder either by sending the notice, or a message advising that the notice is available on a
website and containing the address of such website by electronic mail or telefacsimile to an electronic
mail address or telefacsimile number notified to Telkom for this purpose. Alternatively, the written
notice may be given by delivery in person or by sending it through the post, properly addressed, to a
shareholder at his or her address shown in the register of shareholders or to a beneficial holder of
Telkom’s shares at the address which has been disclosed to Telkom and recorded in its register of
such disclosures. Notice may be given to any beneficial holder of Telkom’s shares who has not
disclosed his or her address, electronic mail address or telefacsimile number to Telkom, by publishing
that notice or an advertisement that such notice is available on a website, in the South African
Government Gazette and any newspaper determined by Telkom’s directors. Any notice to
shareholders must simultaneously be given to the secretary or other suitable official of any recognized
stock exchange on which Telkom’s shares are listed in accordance with the requirements of the stock
exchange. Every notice shall be deemed to have been received on the date on which it is so delivered
and, if it is sent by post, on the day on which it is posted. If it is published in the South African
Government Gazette or if it is advertised in the Government Gazette, it is deemed to have been
received on the date it appears in the Government Gazette. If it is sent by electronic mail or
telefacsimile, it is deemed to have been sent on the day it is sent or transmitted.
No business may be transacted at any general meeting unless the requisite quorum is present
when the meeting proceeds to business. A quorum is at least three shareholders present in person or,
in the case of a shareholder which is a company, by representation, and entitled to vote, provided that
no quorum will be constituted if the class A shareholder and class B shareholder are not duly
represented. If within thirty minutes from the time appointed for the meeting a quorum is not present,
the meeting will stand adjourned to the same day in the next week, or if that day is a South African
public holiday or a Saturday or Sunday, the next succeeding day other than a South African public
holiday, Saturday or Sunday, at the same time and place. The quorum at the adjourned meeting shall
be three shareholders present in person or by representation. If a quorum at the initial meeting was
not established because of the absence of the class A shareholder or class B shareholder, the
presence of the absent shareholder is not required to establish a quorum at the adjourned meeting. In
order to pass a special resolution, shareholders holding in the aggregate not less than one fourth of
the total votes of all shareholders entitled to vote must be present in person or by proxy at the
meeting.
At a general meeting, a resolution put to the vote will be decided by a show of hands unless a poll
is demanded by:
•  the chairman of the meeting;
•  not less than five shareholders having the right to vote at such meeting; or
•  a shareholder or shareholders representing not less than one tenth of the total voting rights of
all shareholders having the right to vote at the meeting or a shareholder or shareholders
entitled to vote and holding in aggregate not less than one tenth of Telkom’s issued share
capital.
background image
248
Resolutions will be carried by a majority of the votes recorded at the meeting except in the case
of a special resolution which must be passed either on a show of hands, by not less than three fourths
of the number of Telkom’s shareholders entitled to vote who are present in person, by proxy or by
representation or, where a poll has been demanded, by not less than three fourths of the total votes to
which the shareholders present in person, by proxy or by representation are entitled.
Annual report and accounts
Telkom’s board is required to keep such accounting records and books of account as are
prescribed by the South African Companies Act, 61 of 1973. Generally, no shareholder, other than a
director, has any right to inspect any of Telkom’s accounting record books, accounts or documents.
The board is required, in respect of each of Telkom’s financial years, to prepare annual
consolidated financial statements and present them before the annual general meeting.
Pursuant to the Listings Requirements of the JSE, unaudited interim reports must be distributed to
all shareholders within three months after the end of the first six months of Telkom’s financial year.
Telkom’s consolidated financial statements must, in conformity with IFRS, fairly present the state
of affairs and business of Telkom and all of its consolidated subsidiaries at the end of the financial
year concerned and the profit or loss of Telkom and all of its consolidated subsidiaries for that
financial year.
Changes in capital
Telkom may from time to time by special resolution:
•  consolidate, divide or sub-divide all or any part of Telkom’s issued or unissued capital;
•  increase or cancel all or any part of Telkom’s unissued capital;
•  convert any of Telkom’s shares, whether issued or not, into shares of another class;
•  convert all or any of Telkom’s paid-up shares into stock and reconvert such stock into paid-up
shares; or
•  convert any shares having a par value into shares having no par value and vice versa.
Telkom may from time to time reduce its issued share capital, share premium, stated capital,
reserves and/or any capital redemption reserve fund with the approval of an ordinary resolution of
Telkom’s shareholders in a general meeting and with a resolution of Telkom’s directors. Any increase
or reduction in Telkom’s issued share capital or that of any of Telkom’s subsidiaries must be approved
by directors as a reserved matter. See Item 6. “Directors, Senior Management and Employees –
Directors and Senior Management – Reserved Matters”.
Variation of rights
Whenever Telkom’s capital is divided into different classes of shares, the rights attached to any
class of shares in issue may be varied, modified or abrogated by special resolution, provided that no
variation that adversely affects those rights may be made without the written consent or ratification of
the holders of three fourths of the issued shares of that class or a resolution passed in the same
manner as a special resolution at a separate general meeting of the holders of such shares.
The affirmative vote or consent of the holder of the class A ordinary share or the holder of the
class B ordinary share, as the case may be, is required for any amendment, alteration or cancellation
of any of the provisions of Telkom’s memorandum and articles of association that would alter or
change the powers, preferences or special rights of the class A ordinary share or class B ordinary
share or the holder of the class A ordinary share or class B ordinary share, as the case may be, so as
background image
249
to affect either adversely. Telkom’s memorandum and articles of association further require Telkom to
obtain written consent from the Government before issuing any securities or amending any existing
securities in a manner that would adversely affect the Government’s right under a special condition
set forth in Telkom’s memorandum of association, including the creation of a new class of shares or
the amendment of the rights attached to an existing class of shares to provide them with rights
superior to or equal to or adversely affecting the rights of Government under this condition. This
special condition provides, among other things, that Telkom must obtain written consent from the
Government before:
•  taking any action that would result in Telkom’s ceasing to provide telecommunications services
under its public switched telecommunications services license in the Republic of South Africa;
or
•  disposing of assets, the effect of which would materially impair Telkom’s ability to fulfill its
obligation under its public switched telecommunications services license.
The rights conferred upon the holders of the shares of any class will be deemed not to be directly
or indirectly adversely affected by the creation or issue of further shares ranking equally with them or
the cancellation of any shares of any other class.
Distribution of assets on liquidation
If Telkom is liquidated, whether voluntarily or compulsorily, the assets remaining after the payment
of all of Telkom’s liabilities and the costs of winding-up shall be distributed among the shareholders in
proportion to the numbers of shares held by them, subject to the rights of any shareholders to whom
shares have been issued on special conditions and subject to Telkom’s right to set-off unpaid capital
or premium against the liability, if any, of shareholders. Furthermore, with the authority of a special
resolution, the liquidator may divide among the shareholders, in specie or kind, the whole or any part
of the assets, whether or not those assets consist of property of one kind or different kinds.
Any winding up or liquidation of Telkom must be authorized as a board reserved matter.
See Item 6. “Directors, Senior Management and Employees – Directors and Senior Management
– Reserved Matters”.
Purchase of shares
The South African Companies Act, 61 of 1973, permits loans by a company to its employees,
other than directors, for the purpose of purchasing or subscribing for shares of that company or of its
holding company.
The procedure for acquisition by a company of its own shares is regulated both by the South
African Companies Act, 61 of 1973, and the Listings Requirements of the JSE. The South African
Companies Act, 61 of 1973, provides that a company may, by special resolution, if authorized by its
memorandum and articles of association, approve the acquisition of its shares; provided that a
company may not make any payment in whatever form to acquire any share issued by that company
if there are reasonable grounds for believing that the company is or would, after the payment, be
unable to pay its debts or if the consolidated assets of the company fairly valued would, after the
payment, be less than the consolidated liabilities of the company. The South African Companies Act,
61 of 1973, also provides that:
•  a subsidiary may acquire up to a maximum of 10% in the aggregate of the number of issued
shares of its holding company, or parent company; and
•  a company may make payments to its shareholders if authorized by its memorandum and
articles of association, subject to the provisions referred to above relating to its ability to pay
debts and solvency.
background image
250
Under South African law and the Listings Requirements of the JSE, the shareholders in a general
meeting may approve a specific acquisition by the company of its issued shares or grant the company
a general authority to acquire its issued shares by way of a renewable mandate which is valid until
the company’s next annual general meeting, provided that such authority may not extend beyond
15 months from the date of the granting of the general authority. The general authority is subject
to, among other things, the following:
•  the acquisition of ordinary shares must be on the “open market” of the JSE;
•  the number of ordinary shares that may be acquired pursuant to the general authority may not,
in the aggregate, exceed 20% of Telkom’s issued share capital in any one financial year; and
•  the ordinary shares may not be acquired at a price that is more than 10% above the weighted
average of the market value of the ordinary shares for the five business days immediately
preceding the date on which the transaction is effected.
At Telkom’s annual general meeting held on October 26, 2007, the shareholders of Telkom
granted Telkom, through a special resolution, the authority for Telkom or a subsidiary of Telkom to
acquire Telkom’s issued and outstanding ordinary share capital from time to time, upon such terms
and conditions and in such amounts as the directors of Telkom and/or its subsidiaries may from time
to time decide, but always subject to the Companies Act, 61 of 1973, as amended, and the listing
requirements from time to time of the JSE, which general approval shall endure until the following
annual general meeting of Telkom, or 15 months from the date of the resolution, whichever period is
shorter. As a result, Telkom is authorized to purchase up to 20% of its issued share capital.
Directors
Pursuant to Telkom’s articles of association, the holder of the class A ordinary share and the
holder of the class B ordinary share, for so long as they hold the class A ordinary share and the class
B ordinary share, respectively, are entitled to appoint directors based on the percentage of the issued
ordinary shares owned by them as follows:
•  if either shareholder owns at least 25% of the issued ordinary shares, it has the right to appoint
five directors, including two executive directors;
•  if either shareholder owns at least 20%, but less than 25% of the issued ordinary shares, it has
the right to appoint four directors, including, in the case of the Public Investment Corporation,
two executive directors and, in the case of the Government, one executive director;
•  if either shareholder owns at least 15%, but less than 20% of the issued ordinary shares, it has
the right to appoint three directors, including, in the case of the Public Investment Corporation,
two executive directors and, in the case of the Government, three non-executive directors;
•  if either shareholder owns at least 10%, but less than 15% of the issued ordinary shares, it has
the right to appoint two directors, including, in the case of the Public Investment Corporation,
two executive directors and, in the case of the Government, two non-executive directors; and
•  if either shareholder owns at least 5%, but less than 10% of the issued ordinary shares, it has
the right to appoint one director, including, in the case of the Public Investment Corporation,
one executive director and, in the case of the Government, one non-executive director.
Neither the holder of the class A ordinary nor the holder of the class B ordinary share will have the
right to appoint more than five directors, regardless of their share ownership.
The remaining directors, if any, other than Telkom’s chief executive officer who is appointed
by Telkom’s board of directors, may be appointed by a general meeting. A general meeting is not
entitled to fill a vacancy of a director appointed by the Government or the Public Investment
Corporation, as holders of the Class A ordinary share and the Class B ordinary share, respectively.
background image
251
At each of Telkom’s annual general meetings, at least one third of Telkom’s directors appointed by
a general meeting, excluding executive directors, directors appointed by the holder of the class A
ordinary share and the holder of the class B ordinary share and any directors appointed by the
directors after the conclusion of Telkom’s preceding annual general meeting, are required to retire
from office but are eligible for re election. The directors to retire are those who have been longest in
office or, as between directors appointed by a general meeting who have been in office for an equal
length of time, in the absence of agreement, determined by lot. If, after such retirements, there would
remain in office any director appointed by a general meeting who would have held office for three
years since his last election, he shall also retire at such annual general meeting. In addition, those
directors appointed by a general meeting since the last annual general meeting are required to retire
from office. A retiring director is eligible for re election. Directors appointed by the holder of the class A
ordinary share or the holder of the class B ordinary share, as the case may be, can be removed and
replaced at any time upon receipt by Telkom of written notice from the holder of the class A ordinary
share or the holder of the class B ordinary share, as the case may be.
The remuneration of Telkom’s directors shall be determined from time to time by its directors,
taking into account the recommendations of the remuneration committee appointed by Telkom’s
directors. Telkom’s directors shall be paid all their travelling and other expenses properly incurred by
them in the execution of their duties in or about Telkom’s business, which are approved or ratified by
Telkom’s directors.
Any director who serves on any committee, devotes special attention to Telkom’s business, goes
or resides outside of the Republic of South Africa for any of Telkom’s purposes, or performs any
services that are outside the scope of ordinary duties of a director, may be paid such extra
remuneration or allowances as Telkom’s directors, excluding the director in question, may determine.
Telkom’s articles of association provide that a director shall not vote in respect of any contract or
arrangement or any other proposal whatsoever in which he or she has a material interest, other than
by virtue of his or her interest in securities in Telkom and in certain other limited circumstances.
A director may not be counted in the quorum of a meeting in relation to any resolution in which he
or she is not permitted to vote.
The directors are not obliged to hold any qualification shares.
Telkom’s articles of association grant a director appointed by the Government, as a significant
shareholder, the right, for so long as it is a significant shareholder, to nominate certain of the directors
that Telkom is entitled to appoint to the boards of directors of its subsidiaries and Vodacom.
The number of directors that the Government is entitled to nominate is based on the ratio of the
number of ordinary shares owned by the Government to the sum of the ordinary shares owned by the
Government and Black Ginger, a wholly owned subsidiary of the Public Investment Corporation, as
the class B shareholder.
If the class A ordinary share and/or class B ordinary share are converted into ordinary shares, the
rights of the Government and/or Black Ginger as beneficial holders of the class A ordinary share and
class B ordinary share, respectively, including their rights of appointment of directors to Telkom’s
board of directors and the boards of directors of Telkom’s subsidiaries and Vodacom, will be
terminated.
Borrowing powers
The directors may exercise all of Telkom’s powers to borrow money and to mortgage or encumber
Telkom’s property or any part thereof and to issue debentures, whether secured or unsecured,
whether outright or as security for any debt, liability or obligation of Telkom or of any third party. For
this purpose, the borrowing powers of the directors are unlimited. Telkom’s borrowing powers have not
background image
252
been exceeded during the past three years.
Non-South African shareholders
Other than as described under “Transfer of Shares,” there are no limitations in Telkom’s
memorandum or articles of association on the right of non-South African shareholders to hold or
exercise voting rights attaching to any of its ordinary shares.
Rights of minority shareholders and fiduciary duties
Majority shareholders of South African companies have no fiduciary obligations under South
African common law to minority shareholders. However, under provisions in the South African
Companies Act, 61 of 1973, a shareholder may, under certain circumstances, seek relief from the
court if the shareholder has been unfairly prejudiced. These provisions are designed to provide relief
for oppressed shareholders without necessarily overruling the majority’s decision. There may also be
common law and statutory personal actions available to a shareholder of a company.
The fiduciary obligations of directors may differ from those in the United States and certain other
countries. Under South African law, the directors of a company are required to adhere to and act in
accordance with two main fiduciary duties, the duty to act in the best interests of the company and the
duty to act with due care and skill. The fiduciary duty to act in the best interests of the company
includes a duty that the directors must avoid a conflict between their personal interests and the
interests of the company, prohibits the directors from using their fiduciary position for personal benefit,
prohibits the directors from exceeding the powers of the company and prohibits the directors from
exercising any power for an improper or collateral purpose. The fiduciary duty to act with due care and
skill includes the requirement that the directors must not act negligently, fraudulently or recklessly and
must exercise judgment as to what is in the best interests of the company. South African law provides
for personal liability of directors if they conduct the business of the company fraudulently or recklessly.
Under Delaware law, the fiduciary duties of directors consist of the duty of care, the duty of loyalty and
the duty of disclosure. The fiduciary duty of care requires directors to inform themselves of all material
information reasonably available to them prior to making a business decision. The fiduciary duty of
loyalty prohibits directors from using their position of trust and confidence to further their private
interests. The fiduciary duty of disclosure requires directors to disclose to stockholders all material
facts germane to a transaction involving stockholder approval.
The South African Corporate Laws Amendment Act, 24 of 2006
Introduction
The South African Corporate Laws Amendment Act, or Corporate Laws Amendment Act, became
effective on December 14, 2007. The principal provisions of the Corporate Laws Amendment Act
affect:
•  the auditing and accounting requirements for South African companies;
•  the prohibition on the provision by South African companies of financial assistance for the
acquisition of their own shares;
•  the requirements for a prospectus; and
•  the requirement for shareholder approval of disposals by South African companies of their
assets.
background image
253
Accounting and auditing requirements
For accounting and auditing purposes, all South African companies are classified as either “widely
held” or “limited interest” companies. A South African company is classified as a widely held
company if:
•  its articles of association provide for an unrestricted transfer of its shares;
•  it is permitted by its articles of association to offer its shares to the public;
•  it decides by special resolution to be a “widely held” company; or
•  it is a subsidiary of a widely held company.
Any South African company that does not fall within the category of a “widely held” company is
categorized as a “limited interest” company. The purpose behind the new classification is to apply
more stringent accounting and auditing requirements to “widely held” companies on the assumption
that the public has a greater interest in the affairs of such companies.
The Corporate Laws Amendment Act’s enhanced provisions on accounting and auditing
requirements applied to “widely held” companies include:
•  formalizing the role of audit committees and mandating the rotation of auditors;
•  providing new requirements for financial statements and other financial reports and establishing
a Financial Reporting Standards Council to set financial reporting standards and impose new
sanctions to false or misleading financial reports; and
•  establishing a Financial Reporting Investigations Panel to investigate non-compliance with the
financial reporting standards.
Audit committees and auditors
Every “widely held” company is now obliged to appoint an audit committee for each financial year,
unless it is a subsidiary and its holding company’s audit committee discharges the audit committee
function for the subsidiary, or it is exempted from this requirement by proclamation of the South
African Minister of Trade and Industry in the South African Government Gazette. The audit committee
is required to assume the functions of the board with respect to the appointment, fees and terms of
engagement of the auditor. The audit committee must also regulate the provision by the auditor of any
non-audit services to the company, report in the financial statements on its discharge of its functions
and on the independence of the auditor, deal with complaints about the accounting, auditing and
financial reporting functions within the company, and perform any other functions determined by the
board.
The audit committee must have at least two members and consist only “of non-executive
directors” who act “independently” (although others may be asked to attend a meeting). The auditor
must meet with the audit committee not more than one month before the board meets to approve the
company’s financial statements. A “non-executive director” is one who is not an individual “involved in
the day-to-day management of the business and has not in the past three financial years been a full-
time salaried employee of the company or its group” and is not a member of the immediate family of
an individual. A director only qualifies as “independent” if he/she “expresses opinions, exercises
judgement and makes decisions impartially” and “is not related to the company or any shareholder,
supplier, customer or other director of the company in a way that would lead a reasonable and
informed third party to conclude that the integrity, impartiality or objectivity of that director is
compromised by that relationship.”
The auditor appointed to each “widely held” company must be an individual or a firm in respect of
which an individual has been designated as the auditor, who may not hold that position for more than
five consecutive financial years. No appointment of an auditor will be effective unless the audit
background image
254
committee is satisfied with the independence of the auditor. The Independent Regulatory Board for
Auditors is obliged to prohibit an auditor from providing to a “widely held” company, among other
things, non-audit services that will be subject to his/her own auditing.
“Limited interest” companies are not affected by these requirements.
Financial reporting standards
The new Financial Reporting Standards Council is charged with establishing financial reporting
standards for “widely held” companies, which must be in accordance with IFRS, and developing
accounting standards for “limited interest” companies, which are intended to be less onerous than the
standards for “widely held” companies.
The publication of materially incomplete financial statements or financial statements which do not
comply with the South African Companies Act, as amended by the Corporate Laws Amendment Act,
constitute an offense by the company and every director or officer who is a party to that publication.
Any person who was a party to the preparation, approval, publication, issue or supply of materially
false or misleading financial statements or other financial reports will also be guilty of an offense if that
person knows or ought reasonably to suspect that it is false or misleading.
Investigations into non-compliance
The Corporate Laws Amendment Act also establishes a Financial Reporting Investigations Panel
to improve reliability of financial reports by investigating alleged non-compliance and recommending
appropriate measures for rectification or restitution. The Financial Reporting Investigations Panel is
entitled to determine whether companies should pay an administrative penalty, revise and republish
their financial reports or take any other remedial action. If a company does not agree with the South
African Minister of Trade and Industry to follow the Financial Reporting Investigation Panel’s
determination, then the South African Minister of Trade must refer the matter to the South African
National Director of Public Prosecutions.
Financial assistance
The Corporate Laws Amendment Act contains an exception to previous prohibitions contained in
the South African Companies Act to allow a South African company to provide financial assistance for
the purchase of or subscription for its own shares or those of its holding company if the company’s
board is satisfied that:
•  subsequent to the transaction, the consolidated assets of the company will, fairly valued, be
more than its consolidated liabilities; and
•  subsequent to providing the assistance and for the duration of the transaction, the company will
be able to pay its debts as they become due in the ordinary course of business.
In addition, the terms on which the assistance is given must be sanctioned by a special resolution
of the shareholders of the company.
Prospectus requirements
The Corporate Laws Amendment Act alters the requirements for a prospectus to accompany an
offer on shares to the public by providing that, in addition to the specifications of Schedule 3 to the
South African Companies Act, the prospectus must contain “all information that an investor may
reasonably require to assess (a) a company in which a right or interest is to be acquired, its assets
and liabilities, financial positions, profits and losses, cash flow and prospects and (b) the shares and
rights attached to them.
background image
255
This formulation is broader than the prior requirement for “a fair presentation of the state of the
affairs of the company”, but the Corporate Laws Amendment Act does allow the South African
Registrar to grant an exception to a company to omit information from the prospectus if the publication
thereof would be unnecessarily burdensome, seriously detrimental or against the public interest and
users will not be unduly prejudiced by the omission.
Disposals of assets
Prior to the implementation of the Corporate Laws Amendment Act, directors of a company could,
under section 228 of the South African Companies Act, dispose of the whole or substantially the whole
of the undertaking of a company or the whole or the greater part of the assets of a company only if
the shareholders authorized such disposal by way of an ordinary resolution. The Corporate Laws
Amendment Act affords greater protection to minority shareholders as it provides that the directors
have no power to dispose of the whole or the greater part of the assets or undertaking of a company
unless the shareholders have authorized such disposal by way of a special resolution.
If, in relation to the consolidated financial statements of a holding company, a disposal by any of
its subsidiaries would constitute a disposal of the whole or the greater part of the assets or
undertaking of the holding company, such disposal will require a special resolution of the holding
company.
This approval is not required for disposals between a wholly owned subsidiary and its holding
company or between two wholly owned subsidiaries of the same holding company.
Comparison of shareholders’ rights under South African and Delaware law
The following describes some of the material differences between the rights of shareholders under
South African and Delaware law.
Voting rights, generally
South Africa
Under South African law, every shareholder in a public company has a vote in respect of the
shares held by such shareholder in the issued share capital of the company. The number of votes
exercisable by that shareholder, if the share capital is divided into shares of par value as Telkom’s are,
is that proportion of the total votes in the company which the aggregate amount of the nominal value
of the shares held by that shareholder bears to the total amount of the nominal value of all the shares
in the company. If, however, the share capital is divided into shares of no par value, a shareholder is
entitled to one vote in respect to each share held. Any shareholder of a company entitled to attend
and vote at a meeting of the company is entitled to appoint another person or persons, whether a
member or not, to act for such shareholder by proxy.
Delaware
Under Delaware law, each stockholder is entitled to one vote for each share of capital stock
held by the stockholder, unless otherwise provided in the certificate of incorporation of the company.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or
persons to act for the stockholder by proxy for up to three years from its date, or for a longer period
if the proxy specifically provides.
background image
256
Pre-emptive rights
South Africa
Under South African law, no shareholder shall have preemptive rights to purchase additional
securities of a company unless the organizational documents of the company expressly grant
preemptive rights. However, the Listings Requirements of the JSE require that unissued ordinary
shares of a company listed on the JSE be offered first to existing shareholders in proportion to their
holdings of shares of that company unless the shares are issued for the acquisition of assets or the
shareholders waive their pre-emptive rights by way of approval of an issue for cash. See this Item
“Memorandum and Articles of Association – Issue of Additional Shares and Preemptive Rights”.
Delaware
Delaware law provides that no stockholder shall have preemptive rights to purchase additional
securities of the company unless the certificate of incorporation of the company expressly grants
these rights.
Cumulative voting
Cumulative voting is a system for electing directors whereby the number of votes a shareholder
is entitled to vote in an election of directors equals the number of shares held by the shareholder
multiplied by the number of open directorships. Under cumulative voting, a shareholder may cast
all or any number of the shareholder’s votes for a single candidate or for any number of candidates.
South Africa
Under South African law, shareholders do not have the right to elect directors by cumulative
voting. The number of votes that a shareholder may cast in respect of the appointment of each
individual director equals the number of votes generally exercisable by that shareholder. South African
law provides that at a general meeting of a company, a motion for the appointment of two or more
persons as directors of the company by a single resolution shall not be moved, unless a resolution
that it shall be so moved has first been agreed to by the meeting without any vote being given
against it.
Delaware
Under Delaware law, stockholders do not have the right to elect directors by cumulative vote
unless the right is granted in the company’s certificate of incorporation.
Shareholder approval of corporate matters by written consent
South Africa
Under South African law, any action required to be taken at any annual or other general meeting
of a company, other than actions requiring a special resolution, may be taken without a meeting,
without prior notice and without a formal vote, if the required written consent setting forth that action
to be taken and waiving the required prior notice is signed by all shareholders.
Delaware
Under Delaware law, any action required to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior written notice and without a vote, if a
written consent setting forth the action to be taken is signed by the number of holders of outstanding
stock that would be necessary to authorize or take the action at a meeting at which all shares entitled
to vote thereon were present and voted, unless otherwise provided in the certificate of incorporation
of the company. Prompt notice of the taking of any action by less than unanimous consent must be
given to shareholders who did not consent to the action.
background image
257
Anti-takeover provisions
South Africa
Under the South African Companies Act, 61 of 1973, the South African Securities Regulation
Panel, or SRP, regulates certain transactions and schemes aimed at the take-over of companies such
as Telkom in order to ensure the equal treatment of shareholders. For this purpose, the SRP has
promulgated a code, which is loosely based on the U.K. City Code on Take-Overs and Mergers,
setting out general principles and specific rules regulating take-overs and mergers. The SRP requires
that a mandatory offer be made to shareholders, at specified prices, in circumstances where:
•  the offeror acquires more than 35% of the votes exercisable at a general meeting of a
company, if the offeror, prior to the acquisition, held less than 35% of such votes; or
•  the offeror acquires more than 5% of such votes during any twelve month period, if the offeror,
prior to the acquisition, held more than 35%, but less than 50% of such votes; or
•  the transaction involves a disposal of the whole or the greater part of the undertaking of the
company, or the whole or the greater part of the assets of the company.
The SRP code also sets out comprehensive rules regulating the procedures to be followed and
the manner in which the offer should be made. In addition, under the JSE Listings Requirements, a
company listed on the JSE is required to obtain shareholder approval for any transaction between that
company and a “material” shareholder if the JSE considers that shareholder to have a significant
interest in or influence over the company. A “material” shareholder is any person who is or within
twelve months preceding the date of the transaction was entitled to exercise or controls the exercise
of 10% or more of the votes permitted to be cast at a general meeting of the company.
Delaware
Delaware law contains a business combination statute that protects Delaware companies from
hostile takeovers and from actions following the takeover by prohibiting some transactions once an
acquirer has gained a significant holding in the company.
Section 203 of the Delaware General Corporation Law prohibits “business combinations”,
including mergers, sales and leases of assets, issuances of securities and similar transactions by a
company or a subsidiary with an interested stockholder that beneficially owns 15% or more of a
company’s voting stock, within three years after the person becomes an interested stockholder,
unless:
•  the transaction that will cause the person to become an interested stockholder is approved
by the board of directors of the target prior to the transaction;
•  after the completion of the transaction in which the person becomes an interested stockholder,
the interested stockholder holds at least 85% of the voting stock of the company not including
shares owned by persons who are directors and also officers of interested stockholders and
shares owned by specified employee benefit plans; or
•  after the person becomes an interested stockholder, the business combination is approved
by the board of directors of the company and authorized at an annual, or special, meeting of
stockholders by the affirmation vote of the holders of at least 66.67% of the outstanding voting
stock, excluding shares held by the interested stockholder.
A Delaware company may elect not to be governed by Section 203 by a provision contained in the
original certificate of incorporation of the company or an amendment to the original certificate of
incorporation or to the bylaws of the company, which amendment must be approved by a majority of
the shares entitled to vote and may not be further amended by the board of directors of the company.
This amendment is not effective for companies with voting stock listed on a national securities
exchange until twelve months following its adoption.
background image
258
Shareholder access to and inspection of corporate records
South Africa
According to South African law, the register of members of a company is open to inspection by
any shareholder or his or her duly authorized agent. Any person may apply to a company for a copy
of or extract from the register of shareholders, and the company shall either furnish such copy or
extract or afford such person adequate facilities for making such copy or extract. If access to the
register of shareholders for the purpose of making any inspection or any copy or extract or facilities
for making any copy or extract is refused or not granted or furnished within fourteen days after a
written request to that effect has been delivered to the company, the company, and any director or
officer of the company who knowingly is a party to the refusal or default, shall be guilty of an offense.
The person denied access may apply to court for relief.
In addition, the minute book of a company, recording the proceeds at meetings of the company,
must be open to inspection by members of the company at the registered office of the company. Any
member of a company shall be entitled to be furnished, within seven days after making a written
request therefore to the company, with a copy of the minutes of the proceedings at any general
meeting of the company, certified by the secretary or a director of the company as correct, at a
nominal charge.
Delaware
Delaware law allows any stockholder to inspect and make copies of the stock ledger and the
other books and records of a Delaware company for a purpose reasonably related to that person’s
interest as a stockholder. If the company refuses to permit an inspection or does not reply to the
demand within five business days, the stockholder may apply to the Delaware Court of Chancery for
an order to compel the inspection.
Duties of directors and officers
South Africa
According to South African law, the business and affairs of every company are managed by the
board of directors as provided in the company’s organizational documents. The board of directors of a
public company shall consist of at least two members, each of whom shall be a natural person. The
JSE listing requirements require that the minimum number of directors of a listed company shall be
four. The actual number of directors shall be fixed by the company’s organizational documents.
Directors need not be shareholders unless required by the organizational documents. The
organizational documents may prescribe other qualifications for directors as well.
According to South African law, a public company such as Telkom is required to appoint a
company secretary and a public officer. In addition, a public company may appoint further officers in
accordance with its organizational documents with such titles and duties as may be set out in the
organizational documents or as may be determined by the company. Any share certificates signed by
two directors of the company, or one director and one other officer of the company authorized by the
directors for such purpose, evidences title to the shares concerned. The duties of the company
secretary of a company include ensuring that minutes of all shareholders’ meetings, directors’
meetings and meetings of any board committees are properly recorded.
Delaware
According to Delaware law, the business and affairs of every company are managed by or under
the direction of the board of directors as provided in the company’s certificate of incorporation. The
board of directors consists of one or more members, each of whom is a natural person. The actual
number of directors shall be fixed by the company’s bylaws or in its certificate of incorporation.
Directors need not be stockholders unless required by the bylaws or certificate of incorporation. The
bylaws or certificate of incorporation may prescribe other qualifications for directors as well.
background image
259
Delaware law also requires every company to have officers with titles and duties as are stated in
the bylaws or in a resolution of the board of directors, which is not inconsistent with the bylaws and as
may be necessary to enable the company to sign instruments and stock certificates. One of the
officers shall have the duty to record the proceedings of the meetings of the stockholders and
directors. Officers are chosen in the manner and hold their offices for the terms prescribed by the
bylaws or determined by the board of directors or other governing body.
Meetings
South Africa
South African law requires every company to hold an annual general meeting not more than nine
months after the end of every financial year of the company and within not more than fifteen months
after the date of the last annual general meeting of the company. If for any reason an annual general
meeting of the company is not or cannot be held in this manner, the South African Registrar of
Companies may, on application by the company or any shareholder or its legal representative, call or
direct the calling of a general meeting of the company which shall be deemed to be an annual general
meeting. South African law requires that the annual financial statements of the company as well as
group financial statements be considered at the annual general meeting. Furthermore, the company’s
auditor must be appointed at the annual general meeting and the meeting must address the business
which is required to be dealt with pursuant to the organizational documents of the company. Directors
are appointed by a general meeting, unless otherwise provided in the organizational documents of the
company. The JSE Listings Requirements require that the appointment of a director to fill a casual
vacancy or as an addition to the board must be confirmed at the next annual general meeting of the
company.
General meetings of the company may, except insofar as is otherwise provided in the
organizational documents of the company, be called by the board of directors in accordance with the
organizational documents of the company or by two or more shareholders holding not less than one
tenth of its issued share capital.
Delaware
Under Delaware law, unless directors are elected by written consent in lieu of an annual meeting,
an annual meeting of the stockholders shall be held for the election of directors on a date and at a
time designated by the company’s bylaws. Stockholders may, unless the certificate of incorporation
provides otherwise, act by written consent to elect directors; provided, however, that, if such consent
is less than unanimous, such action by written consent may be in lieu of holding an annual meeting
only if all of the directorships to which directors could be elected at an annual meeting held at the
effective time of such action are vacant and are filled by such action. In addition, any other proper
business may be transacted at the annual meeting. If an annual meeting is not held within 30 days of
the date designated for such a meeting, or is not held for a period of 13 months after the last annual
meeting, the Delaware Court of Chancery may summarily order a meeting to be held upon the
application of any shareholder or director.
Delaware law also permits special meetings of shareholders to be called by the board of directors
and by other persons authorized to do so by the company’s certificate of incorporation or bylaws.
Dividends
South Africa
Under South African law, a company may make payments to its shareholders if authorized thereto
by its organizational documents. A company may not, however, make any payment, in whatever form,
to its shareholders if there are reasonable grounds for believing that:
background image
260
•  the company is or would, after the payment, be unable to pay its debts as they become due in
the ordinary course of business; or
•  the consolidated assets of the company fairly valued, after the payment, would be less than the
consolidated liabilities of the company.
Delaware
Under Delaware law, the directors of a company may declare and pay dividends out of surplus or,
when no surplus exists, out of net profits for the fiscal year in which the dividend is declared or the
preceding fiscal year, subject to any restrictions in the company’s certificate of incorporation.
Dividends may not be paid out of net profits if, after payment of the dividend, the capital of the
company would be less than the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
Repurchase or redemption of shares
South Africa
South African law provides that a company may, by special resolution, if authorized by its
memorandum and articles of association, repurchase or redeem its shares; provided that a company
shall not make any payment to repurchase any shares issued by the company if there are reasonable
grounds for believing that the company is or would, after the payment, be unable to pay its debts or if
the consolidated assets of the company would, after the payment, be less than the consolidated
liabilities of the company. A company listed on the JSE is required to comply with any requirements
set out in the JSE listings requirements in addition to the requirements listed above.
Delaware
Delaware law permits a company to repurchase or redeem its shares, provided, however, that no
company shall do so when the capital of the company is impaired or when the purchase or
redemption would cause any impairment of the capital of the company, except that a company may
purchase or redeem out of its capital any of its own shares which are entitled upon any distribution of
the company’s assets, whether by dividend or liquidation, to a preference over another class or series
of its stock, or, if no shares entitled to such a preference are outstanding, any of its own shares, if the
shares will be retired upon their acquisition and the capital of the company reduced in accordance
with Delaware law.
Limitations of liability of directors
South Africa
Under South African law, any provision, whether contained in the organizational documents of a
company or in any contract with a company, that purports to exempt any director or officer of the
company from any liability which by law would otherwise attach to such person in respect of any
negligence, default, breach of duty or breach of trust of which the person may be guilty in relation to
the company or to indemnify the person against any such liability is void. A company may, however,
indemnify a director or officer as described in this Item “Indemnification of officers and directors
–South Africa”. If, in any proceedings for negligence, default, breach of duty or breach of trust against
any director or officer of a company, it appears to the court that the person concerned is or may be
liable, but that the person has acted honestly and reasonably, and that, considering all facts and
circumstances of the case, including those concerned with the person’s appointment, the person
ought fairly to be excused for the wrongdoing, the court may relieve the person, either wholly or partly,
from liability on terms determined by the court.
background image
261
Delaware
Delaware law permits a company to include a provision in its certificate of incorporation
eliminating or limiting the personal liability of a director to the company or its shareholders for
damages for breach of the director’s fiduciary duty, provided that a director’s liability shall not be
limited:
•  for any breach of the director’s duty of loyalty to the company or its shareholders;
•  for acts or omissions not in good faith or which involve intentional misconduct or a knowing
violation of law;
•  under Section 174 of the Delaware General Corporation Law, which concerns unlawful
payments of dividends, stock purchases or redemption; or
•  for any transaction from which the director derived an improper personal benefit.
Indemnification of officers and directors
South Africa
Under South African law, the organizational documents of a company may contain a provision
indemnifying any director or officer or auditor in respect of any liability incurred by such person in
defending any proceedings, whether civil or criminal, in which judgment is given in the person’s
favour, or in which the person is acquitted or the proceedings are abandoned or in connection with
any application in which the court relieves the person from liability on the basis that the person acted
honestly and reasonably and that the person ought fairly to be excused for negligence, default, breach
of duty or breach of trust.
Delaware
Delaware law provides that, subject to certain limitations in the case of derivative suits brought by
a company’s stockholders in its name, a company may indemnify any individual who is made a party
to any third party suit or proceeding on account of being a director, officer, employee or agent of the
company against expenses, including attorneys’ fees, judgments, fines and amounts paid in
settlement reasonably incurred by the officer or director in connection with the action, through, among
other things, a majority vote of the directors who were not parties to the suit or proceeding, even if
less than a quorum, if the individual:
•  acted in good faith and in a manner the officer or director reasonably believed to be in or not
opposed to the best interests of the company or, in some circumstances, at least not opposed
to its best interests; and
•  in a criminal proceeding, had no reasonable cause to believe the officer’s or director’s conduct
was unlawful.
To the extent a director, officer, employee or agent is successful in the defense of the action, suit
or proceeding, the company is required by Delaware law to indemnify the individual for reasonable
expenses incurred thereby.
Material contracts
See Item 4. “Information on the Company – Business Overview – Fixed-line Communications –
Fees and tariffs – Interconnection tariffs” and Item 7. “Major Shareholders and Related Party
Transactions” for certain material agreements we have entered into.
background image
262
EXCHANGE CONTROLS
The following is a summary of the relevant material South African exchange control measures,
which has been derived from publicly available documents. The following summary is not a
comprehensive description of all of the exchange control regulations and does not cover exchange
control consequences that depend upon your particular circumstances. We recommend that you
consult your own advisor about the exchange control consequences in your particular situation. The
discussion in this section is based on current South African laws and regulations. Changes in laws
may alter the exchange control provisions that apply to you, possibly on a retroactive basis.
Introduction
Dealing in foreign currency, the export of capital and/or revenue, incurring of liabilities by residents
to non-residents and various other exchange control matters in South Africa are regulated by the
South African exchange control regime and regulations. The South African exchange control regime
forms part of the general monetary policy of South Africa. The South African exchange control
regulations are issued pursuant to section 9 of the Currency and Exchanges Act, 9 of 1933. Pursuant
to the regulations, the control over South African capital and/or revenue reserves, as well as their
accruals and spending, is vested in the Minister of Finance.
The Minister of Finance has delegated the administration of exchange controls to the Financial
Surveillance Department, or FSD, formerly known as the Exchange Control Department of the South
African Reserve Bank, or Excon, which is responsible for the day to day administration and
functioning of exchange controls. The FSD has wide discretion but exercises its powers within certain
policy guidelines and issues circulars and rulings from time to time. Within prescribed limits,
authorized dealers in foreign exchange, generally commercial and merchant banks, are permitted to
deal in foreign exchange in accordance with the provisions and requirements of the rulings and
circulars, which contain certain administrative measures, as well as conditions and limits applicable to
transactions in foreign exchange, which may be undertaken by authorized dealers. Non-residents
have been granted general approval to deal in South African assets and to invest and disinvest in
South Africa in terms of the rulings and circulars.
The Republic of South Africa’s exchange control regulations provide for restrictions on exporting
capital from the Common Monetary Area, consisting of the Republic of South Africa, the Republic of
Namibia, and the Kingdoms of Lesotho and Swaziland. Transactions between residents of the
Common Monetary Area, on the one hand, including companies, and non-residents of the Common
Monetary Area, on the other hand, are subject to these exchange control regulations.
There are many inherent disadvantages of exchange controls including the distortion of the price
mechanism, the problems encountered in the application of monetary policy, the detrimental effects on
inward foreign investment and the administrative costs associated therewith. The South African
Minister of Finance has indicated that all remaining exchange controls are likely to be dismantled as
soon as circumstances permit. There has, since 1996, been a gradual relaxation of exchange
controls. The gradual approach to the abolition of exchange controls adopted by the Government of
South Africa is designed to allow the economy to adjust more smoothly to the removal of controls that
have been in place for a considerable period of time. The stated objective of the authorities is equality
of treatment between residents and non-residents with respect to inflows and outflows of capital. The
focus of regulation, subsequent to the abolition of exchange controls, is expected to favour the
positive aspects of prudential financial supervision.
The present exchange control regime in South Africa is used principally to control cross border
capital movements. South African companies are not permitted to maintain foreign bank accounts
and, without the approval of the FSD or authorized dealers, as appropriate, are generally not
permitted to export capital from South Africa or to hold foreign currency. In addition, South African
background image
263
companies are required to obtain the approval from the FSD or authorized dealers, as appropriate,
prior to raising foreign funding on the strength of their South African balance sheets, which would
permit recourse to South Africa in the event of defaults. Where 75% or more of a South African
company’s capital, voting power, power of control or earnings is directly or indirectly controlled by non-
residents, such a company is designated an “affected person” and certain restrictions are placed on
its ability to obtain local financial assistance. Telkom is not, and has never been, designated an
affected person.
Foreign investment and outward loans by South African companies are also restricted. South
African companies are generally not required to repatriate to South Africa profits of foreign operations,
but are limited in their ability to utilize profits of one foreign business to finance operations of a
different foreign business. However, all dividends received from foreign subsidiaries since October 27,
2004 may be retained abroad and used for any purpose. South African companies establishing
subsidiaries, branches, offices or joint ventures abroad are generally required to submit financial
statements on these operations to the FSD on an annual basis. As a result, a South African
company’s ability to raise and deploy capital outside the Common Monetary Area is restricted.
Although exchange controls have been gradually relaxed since 1996, unlimited outward transfers
of capital are not permitted at this stage. The Government has announced its intention to remain
committed to a gradual approach to exchange control liberalization. Part of this process of gradual
exchange control liberalization and financial sector strengthening is the shift to a system of prudential
regulation. Prudential regulations are applied internationally to protect policyholders and pensioners
from excessive risk, and typically include restrictions on foreign asset holdings. It is not possible to
predict when existing exchange controls will be abolished or modified by the South African
Government in the future, although some of the more salient changes to the South African exchange
control provisions over the past few years have been as follows:
As an interim step towards prudential regulation, institutional investors comprised of retirement
funds, long term insurers, collective investment scheme management companies and investment
managers are allowed to transfer funds from South Africa for investment abroad, subject to certain
limitations as follows:
•  The exchange control limit on foreign portfolio investment by institutional investors is applied to
an institution’s total retail assets.
•  The foreign exposure of retail assets may not exceed 20% in the case of retirement funds and
long term insurers and 30% in the case of collective investment scheme management
companies and investment managers registered as institutional investors for exchange control
purposes.
•   Institutional investors will, on application, be allowed to invest an additional 5% of their total
retail assets by acquiring foreign currency denominated portfolio assets in Africa through
foreign currency transfers from South Africa or by acquiring inward listed instruments based on
foreign reference assets or issued by foreign entities, listed on the JSE Limited or the Bond
Exchange of South Africa.
•  Companies wishing to establish new overseas ventures or new ventures in Africa are now
permitted to transfer unlimited amounts abroad in order to finance approved investments.
However, the approval by the FSD is required in advance and companies will need to comply
with the FSD’s investment criteria in establishing such new ventures, which investment criteria
include, among other things, demonstrating benefit to South Africa and control of the foreign
entity. The FSD has, however, reserved the right to stagger capital outflows relating to very
large foreign investments in order to manage the potential impact on the foreign exchange
market.
background image
264
•  Dividends repatriated from abroad by South African companies during the period February 26,
2003 to October 26, 2004 (dividend credits) automatically form part of domestic funds and may
be allowed to be retransferred abroad for the financing of approved foreign direct investments
or approved expansions, but may not be transferred abroad for any other purpose.
•  A company planning to make new foreign investments not exceeding R50,000,000 per
company per calendar year may, subject to certain criteria being met, do so without FSD
approval if it obtains approval of an authorized dealer.
•  Since October 7, 2004, a South African holding company may retain dividends declared by
their offshore subsidiaries offshore, which may be used for any purpose, without any recourse
to South Africa. Foreign dividends repatriated to South Africa after October 26, 2004 may be
retransferred abroad at any time and used for any purpose, provided there is no recourse to
South Africa. Such funds may, however, under no circumstances be utilized to fund
investments/loans into the Common Monetary Area for any purpose whatsoever via a
roundtripping structure, except if invested in approved inward listed instruments, such as
foreign inward listed securities issued on the JSE.
•  Remittance of directors’ fees payable to persons permanently resident outside the Common
Monetary Area may be approved by authorized dealers, pursuant to the rulings.
Authorized dealers in foreign exchange may, against the production of suitable documentary
evidence, provide forward cover to South African residents in respect of fixed and ascertained future
foreign exchange commitments covering the movement of goods.
A system of exchange control allowances for the export of funds when persons emigrate has been
in place in South Africa for a number of decades. Persons who emigrate from South Africa are entitled
to take limited amounts of money out of South Africa by way of a cash allowance of R500,000 per
person which is equal to a travel allowance of R500,000 per adult and R160,000 per child under 18 in
a family and a foreign capital allowance (R2,000,000 per person with a limit of R4,000,000 per family
unit) and may export certain items. The balance of the emigrant’s funds are blocked and held under
the control of an authorized dealer. These blocked funds may only invested in prescribed investments
including:
•  blocked current, savings, interest bearing deposit accounts in the books of an authorized dealer
in the banking sector;
•  securities listed on the JSE and financial instruments listed on the Bond Exchange of South
Africa which are deposited with an authorized dealer and not released except temporarily for
switching purposes, without the approval of the FSD. Authorized dealers must at all times be
able to demonstrate that listed securities or financial instruments which are dematerialized or
immobilized in a central securities depositary are being held subject to the control of the
authorized dealer concerned;
•  collective investment schemes; or
•  the South African Futures Exchange.
Aside from the investments referred to above, blocked Rands may only be utilized for very limited
purposes. Capitalization shares and dividends declared out of capital gains or out of income earned
prior to emigration remain subject to the blocking procedure. Emigrants’ blocked assets may be
unwound and such emigrants are entitled, on application to the FSD and subject to an exiting
schedule and an exit levy of 10%, to exit such blocked assets from South Africa.
Sales of shares
Under present regulations, our ordinary shares and ADSs are freely transferable outside the
Common Monetary Area between non-residents of the Common Monetary Area. In addition, the
background image
265
proceeds from the sale of ordinary shares on the JSE on behalf of shareholders who are not residents
of the Common Monetary Area are freely remittable to such shareholders. Share certificates held by
non-residents will be endorsed with the words “non-resident”.
Dividends
Other than non-cash dividends and dividends of a capital nature, which require specific FSD
approval, dividends declared in respect of shares held by a non-resident in a company whose shares
are listed on the JSE are freely remittable.
Any cash dividends paid by us are expected to be paid in Rands. Holders of ADSs on the relevant
record date will be entitled to receive any dividends payable in respect of the shares underlying the
ADSs, subject to the terms of the deposit agreement. Subject to exceptions provided in the deposit
agreement, cash dividends paid in Rands will be converted by the depositary to Dollars and paid by
the depositary to holders of ADSs, net of conversion expenses of the depositary, in accordance with
the deposit agreement. The depositary will charge holders of ADSs, to the extent applicable, taxes
and other governmental charges and specified fees and other expenses. See Item 3. “Key Information
– Dividends and Dividend Policy”.
Shareholders who are not residents of the Common Monetary Area who are in receipt of scrip
dividends and who elect to dispose of the relevant shares, may remit the proceeds arising from the
sale of the relevant shares.
background image
266
TAXATION
The following is a summary of the material South African and US tax consequences in connection
with the acquisition, ownership and disposition of Telkom’s ordinary shares and ADSs. The following
summary is not a comprehensive description of all of the tax considerations that may be relevant to a
decision to purchase, own or dispose of Telkom’s shares or ADSs and does not cover tax
consequences that depend upon your particular tax circumstances. This discussion is only a general
discussion; it is not a substitute for tax advice.
We recommend that you consult your own tax advisor about the consequences of holding
Telkom’s ordinary shares or ADSs, as applicable, in your particular situation. The discussion in this
section is based on current law. Changes in laws may alter the tax treatment of Telkom’s ordinary
shares or ADSs, as applicable, possibly on a retroactive basis.
South African tax matters
Withholding tax on dividends
Currently, the Republic of South Africa does not impose withholding tax on dividends. Accordingly,
we are not obliged to withhold any tax on dividends paid by us to our shareholders whether or not
such shareholder is resident in the Republic of South Africa. The decision to impose a withholding tax
on dividends declared by South African residents to non-resident shareholders is generally
permissible under the terms of a reciprocal tax treaty entered into between the Republic of South
Africa and the United States in 1997. That treaty, however, provides that any withholding tax
introduced in the future shall be limited to:
•  5% of the gross amount of the dividends declared, provided that the beneficial owner of the
shares on which the relevant dividends are declared is a company holding at least 10% of the
voting stock of the relevant company declaring such dividend; and
•  15% of the gross amount of the dividends declared by the relevant company in all other cases.
Although no withholding tax is payable on dividends declared by a South African resident, South
Africa has a secondary tax on companies, or STC, which is imposed at the rate of 10% (12.5% prior
to October 1, 2007) of the net amount of the dividend. Although the STC is the liability of the South
African resident company which declares the dividend, it would reduce the amount available for
distribution. See “Secondary tax on companies”.
Secondary tax on companies (STC)
Secondary tax on companies, or STC, is payable in the Republic of South Africa by companies
resident in the Republic of South Africa at a rate of 10% based on the net amount of dividends
declared by a company during any dividend cycle. The net amount of dividends declared by a
company is the excess of the dividends declared by the company over the amount of certain
dividends accruing to the company during the relevant dividend cycle. A dividend cycle runs from the
date of accrual of a dividend to the shareholders to the next shareholder accrual date. Any excess of
dividends accruing to a company in a relevant dividend cycle, excluding most foreign dividends, over
the dividends paid in such cycle are carried forward by the company to the succeeding dividend cycle
as an STC credit.
The imposition of STC, together with the corporate income tax discussed below, effectively
imposes a dual corporate tax system in the Republic of South Africa with the liability for each of STC
and normal corporate income tax being separately determined. Accordingly, a company without a
normal tax liability may have a liability for STC, and vice versa, and may be liable for both normal tax
and STC on profits distributed. STC creates a maximum effective tax rate on companies of 34.0%
(35.45% prior to April, 2008). Capitalization shares awarded and distributed in lieu of cash dividends
background image
267
do not incur STC and listed South African companies often offer capitalization shares in lieu of cash
dividends. No South African tax, including withholding tax, is payable in respect of the receipt of these
shares by the recipients thereof. However, STC will arise to the extent capitalized profits used to
award the capitalization shares are subsequently paid to shareholders whether in connection with a
liquidation or reconstruction of the company or a repayment of capital, including a share buy-back.
The Government announced that it intends to abolish secondary tax on companies in the 2009
financial year and replace it with a withholding tax at the rate of 10%, applicable to both residents who
are individuals, trusts or nominee companies and non-residents, subject to any relevant double tax
agreement.
Income taxes relating to shareholders
In principle, South African residents are taxed on their worldwide income regardless of the source
thereof. Non-residents are, subject to certain exemptions, taxed in relation to income derived from a
source within or deemed to be within the Republic of South Africa. These exemptions include normal
dividends received from South African companies, such as Telkom; interest received from sources in
the Republic of South Africa, including on stocks or securities issued by the government, provided the
non-resident is (a) a natural person who was not physically present in South Africa for more than
183 days in the aggregate during the particular tax year or (b) at any time in that tax year did not
carry on business through a permanent establishment in South Africa (subject to the provisions
of any relevant double tax agreement).
Under South African tax law, a natural person is a resident if the person is ordinarily resident in
the Republic of South Africa or, if not ordinarily resident during any particular year of assessment for
tax purposes, the person was physically present in the Republic of South Africa for certain prescribed
periods in the five years prior to and during the tax year in question. Non-natural persons, including
companies and trusts, are deemed to be resident in the Republic of South Africa for tax purposes if
they were incorporated or formed in the Republic of South Africa or have their place of effective
management in the Republic of South Africa. However, a person, natural or non-natural, is not a
resident of the Republic of South Africa if that person is deemed to be exclusively a resident of
another country in terms of a double taxation agreement entered into between the Republic of South
Africa and that other country.
Generally, income tax is payable on the profits derived from the disposal of shares in a South
African company by residents of the Republic of South Africa if the profits derived from such disposal
are of a revenue nature as opposed to a capital nature. Essentially, a profit is viewed as being of a
revenue nature if it is made pursuant to the operation of a business or scheme of profit making and
not incidentally or as a result of a mere realization of a share held for long-term investment purposes.
In determining whether the income derived from the disposal of such shares is of a capital or revenue
nature, the South African tax authorities and courts look at, among other things, the intention of the
holder of the shares to determine whether the disposal gave rise to a capital or a revenue profit.
Subject to certain exceptions, the proceeds on disposal of any share held for more than three years is
deemed to be of a capital nature. Currently profits derived from the disposal of South African shares
held as long-term investments are generally regarded to be profits of a capital nature and are not
subject to South African income tax, but may be subject to capital gains tax. See “Capital gains tax”
for a discussion of the imposition of capital gains tax. Generally, the distribution of profits by way of
dividends paid by a South African resident company, such as Telkom, in the ordinary course, is not
deductible by the company and is exempt from South African taxation for the recipient.
If a non-resident shareholder trades in South African shares, such non-resident shareholder would
be subject to South African income tax if the proceeds from the disposal would be seen as being from
a South African source, which would generally be the case where the trading activities take place in
South Africa.
background image
268
To the extent that any share is acquired at a discount to market price, or any other benefit is
derived from the acquisition of the share, there is a risk that the relevant discount benefit could be
regarded as an income tax taxable benefit in the hands of the relevant shareholder if that shareholder
is an employee or director of Telkom and that share was acquired from Telkom, its associated
institutions or a third party by arrangement with it, or if that shareholder is an employee of the
Government of the Republic of South Africa and that share was acquired from the Government, its
associated institutions or a third party by arrangement with it.
Should a resident of the United States be subject to South African income tax pursuant to the
South African legislation, the tax treaty between South Africa and the United States may provide such
US resident with tax relief. The tax treaty between South Africa and the United States provides that
profits of an enterprise of a US resident may be taxed in South Africa only if such US resident carries
on a business in South Africa through a permanent establishment situated in South Africa. Thus if
South Africa has taxing rights to any profits generated by the disposal of shares by a US resident to
the extent that such US resident carries on business through a permanent establishment in South
Africa and the share dealing activities form part of such permanent establishment’s business, the
US resident will, in principle, be taxed on the profits of the disposal to the extent that such profits are
from a source within or deemed to be within South Africa. If the profit is capital in nature and the
shares do not form part of the business property of a permanent establishment of the US resident in
South Africa, the treaty gives only the United States the right to tax.
Income taxes
As discussed above, income tax is levied in the Republic of South Africa only on income which is
classified to be of a revenue nature. South African resident companies are subject to corporate
income tax of 28% (29% prior to April 1, 2008) of their taxable income. Non-resident companies are,
subject to any relevant double tax agreement, subject to tax in South Africa on their South African
source income at the rate of 33% (34% prior to April 1, 2008), but they are exempt from secondary tax
on companies. See “Secondary tax on companies”.
Capital gains tax
Capital gains tax was introduced into the South African taxation system with effect from
October 1, 2001. Capital gains tax was introduced by way of an amendment to the South African
Income Tax Act, 58 of 1962, to incorporate therein a substantive new schedule known as the
Eighth Schedule. The relevant capital gains tax rates are summarized in the table below.
Capital gains tax is imposed on certain capital gains arising from the disposal or deemed disposal
of an asset and a prescribed portion of the capital gain, as set out in the table below, will be included
in a taxpayer’s taxable income. An asset is very broadly defined in the legislation and includes shares
in a South African company. If, however, the profits of the disposal were subject to income tax, no
capital gains tax liability would arise.
Capital gains or losses are calculated separately with respect to each asset disposed of during
the tax year and then aggregated to ultimately calculate the taxpayer’s total taxable capital gain or
loss. Each capital gain is determined by deducting from the proceeds accruing to the taxpayer from
the relevant disposal, the base cost of the asset and any portion of the proceeds already subject to
income tax. The base cost includes all direct costs in respect of the acquisition, permanent
improvements and disposal of the asset. The net capital gain for the tax year, in the case of natural
persons and certain special trusts only, is reduced by an annual exclusion of R16,000 (R120,000 in
the year of death).
background image
269
The following table sets out the prescribed portion of a capital gain that would be included in a
taxpayer’s taxable income, the normal tax rates applicable to taxpayers and, consequently, the
effective rate at which capital gains are taxed as of March 31, 2008:
Prescribed portion
of the capital gain
included in taxable
Statutory
income expressed
income
Effective
Type of taxpayer
   as a percentage   
 tax rate 
rate
(%)
(%)
(%)
Individuals . . . . . . . . . . . . . . . . . . . . . .
25
0 – 40
0 – 10
Retirement funds . . . . . . . . . . . . . . . . . .
n/a
n/a
n/a
Trusts
Special . . . . . . . . . . . . . . . . . . . . . . . .
25
0 – 40
0 – 10
Other . . . . . . . . . . . . . . . . . . . . . . . . .
50
40
20
Life assurers
Individual policyholder fund . . . . . . . . . . . . .
25
30
7.5
Company policyholder fund . . . . . . . . . . . . .
50
29
(1)
14.5
(2)
Corporate fund . . . . . . . . . . . . . . . . . . . .
50
29
(1)
14.5
(2)
Untaxed policyholder fund . . . . . . . . . . . . . .
–
–
–
Resident companies . . . . . . . . . . . . . . . . .
50
29
(1)
14.5
(2)
Non-resident companies . . . . . . . . . . . . . . .
50
34
(3)
17
(4)
Small business corporations . . . . . . . . . . . .
50
0 – 29
(1)
0 – 14.5
(2)
Employment companies . . . . . . . . . . . . . . .
50
34
(3)
17
(4)
Collective investment schemes . . . . . . . . . . .
n/a
n/a
n/a
Notes:
(1) From April 1, 2008 the statutory income tax rate will be 28%.
(2) From April 1, 2008 the effective rate will be 14%.
(3) From April 1, 2008 the statutory income tax rate will be 33%.
(4) From April 1, 2008 the effective rate will be 16.5%.
The legislation makes provision, in certain circumstances, for a set-off of capital losses against capital
gains and a carry forward of capital losses.
To the extent a non-resident makes a capital gain on the disposal of shares, such gain will be
taxed in South Africa only if: (a) the shares form part of the assets of a permanent establishment
through which trade is carried on in South Africa or (b) the shares held by the non-resident, alone or
with any connected person, represent at least 20% of the equity of a company and 80% or more of
the net value of the non-trading assets of such company, such as Telkom, comprise immovable (real)
property located in South Africa. However, pursuant to the tax treaty between South Africa and the
United States, South Africa only has taxing rights to the extent that the shares disposed of form part of
the business property of a permanent establishment in South Africa or represents an interest in
immovable (real) property in South Africa equivalent to a United States real property interest.
Stamp duty
South African stamp duty, or uncertificated securities tax in an electronic environment, is payable
on the registration of transfer of shares, or a change in their beneficial ownership, in a South African
company. South African stamp duty is generally payable where shares are not listed on a securities
exchange in the Republic of South Africa at the rate of 0.25% of the arm’s length consideration
payable for the shares concerned or their market value, whichever is greater. In respect of
transactions involving shares listed on a securities exchange in South Africa, uncertificated securities
tax is payable at the same rates as set out above on every change in beneficial ownership thereof
pursuant to the Uncertificated Securities Tax Act, 31 of 1998.
background image
270
South African stamp duty or uncertificated securities tax is generally payable on the registration of
the transfer or change in beneficial ownership of the shares in the records of a South African company
regardless of whether the transfer is executed within or outside South Africa. There are certain
exceptions to the payment of stamp duty where, for example, the instrument of transfer is executed
outside South Africa and registration of transfer is effected in any branch register kept by the relevant
company outside of South Africa, subject to certain provisions set forth in the South African Stamp
Duties Act, 77 of 1968. Transfers of ADSs are not subject to South African stamp duty or
uncertificated securities tax; however, if shares are withdrawn from the deposit facility, stamp duty or
uncertificated securities tax is payable on the subsequent transfer of the shares. An acquisition of
shares from the depositary by an investor in exchange for ADSs representing the shares, including an
acquisition upon termination of a deposit arrangement, may render an investor liable to South African
stamp duty or uncertificated securities tax at the same rate as stamp duty or uncertificated securities
tax on a subsequent transfer of shares, upon the registration of the investor as the holder or new
beneficial owner of shares.
The stamp duty on shares and the uncertificated securities tax was abolished with effect from
July 1, 2008 and was replaced with a securities transfer tax in terms of the Securities Transfer Tax
Act, 25 of 2007, which is in essence a consolidation of the stamp duty and uncertified securities taxes
with certain amendments.
United States tax matters
The following discussion sets forth the material US federal income tax consequences of the
ownership and disposition of our ordinary shares or ADSs relevant to US holders, and in certain
circumstances, non-US holders, as of the date of this annual report. This discussion is based on the
US Internal Revenue Code of 1986, as amended, referred to herein as the Code, and existing final,
temporary and proposed Treasury Regulations, rulings and judicial decisions, all as of the date hereof
and all of which are subject to prospective or retroactive changes, which could affect the tax
consequences as described below.
This discussion does not purport to address all US federal income tax consequences that may be
relevant to a particular investor. This discussion applies to you only if you hold our ordinary shares or
ADSs, as applicable, as a capital asset for US federal income tax purposes, generally, assets held for
investment, within the meaning of Section 1221 of the Code. This discussion does not address the tax
consequences that may be relevant to you if you are a member of a class of holders subject to
special rules, including:
•  dealers in securities or currencies;
•  traders in securities that elect to use a mark-to-market method of accounting for securities
holdings;
•  banks or other financial institutions;
•  insurance companies;
•  tax-exempt organizations;
•  persons that hold our ordinary shares or ADSs as part of a straddle or a hedging, integrated,
constructive sale or conversion transaction for US federal income tax purposes;
•  persons whose functional currency for US federal income tax purposes, as defined
in Section 985 of the Code is not the US Dollar;
•  persons resident or ordinarily resident in South Africa;
•  persons liable for alternative minimum tax;
•  persons that own, or are treated as owning, directly, indirectly or constructively, ten percent or
more of the total combined voting power of our ordinary shares or ADSs;
•  a US expatriate or former long-term resident of the US;
background image
271
•  a person who acquired our ordinary shares or ADSs as compensation;
•  a regulated investment company; or
•  a real estate investment trust.
Further, this discussion does not address the indirect consequences to holders of equity interests
in entities, for instance, partnerships, that own our ordinary shares or ADSs. In addition, this
discussion does not address any aspect of US federal gift or estate tax, or the state, local or non-US
tax consequences of an investment in our ordinary shares or ADSs.
For purposes of the discussion below, you are a US holder if you are a beneficial owner of our
ordinary shares or ADSs who or which is:
•  a citizen or resident of the United States;
•  a corporation, or entity taxable as a corporation, that was created or organized in or under the
laws of the United States or any state of the United States, including the District of Columbia;
•  an estate, the income of which is subject to US federal income tax regardless of its source; or
•  a trust if: (a) a court within the United States is able to exercise primary supervision over its
administration and one or more US persons, as defined in Section 7701(a)(30) of the Code,
have the authority to control all substantial decisions of the trust or (b) the trust was in
existence on August 20, 1996, and on August 19, 1996 was treated as a domestic trust and
has elected to be treated as a US person.
A non-US holder is a beneficial owner of our ordinary shares or ADSs who is not a US holder.
Tax consequences to US holders
For US federal income tax purposes, if you are the beneficial owner of ADSs you will be treated
as the beneficial owner of the underlying ordinary shares represented by the ADSs.
Distributions
Subject to the passive foreign investment company discussion below, any distributions, other than
pro rata distributions payable only in ordinary shares to a US holder with respect to our ordinary
shares or ADSs will be a dividend to such US holder to the extent those distributions are made out of
our current and accumulated earnings and profits, as determined for US federal income tax purposes.
Any such dividend generally will be included in your gross income as foreign source dividend income
on the date the distribution is received or, in the case of a US holder of ADSs, on the date of receipt
by the depositary. Distributions in excess of our current and accumulated earnings and profits will be
treated first as a nontaxable return of capital, reducing your tax basis in the ordinary shares or ADSs.
Any such distribution in excess of your tax basis in the ordinary shares or ADSs will be treated as
capital gain and will be either long-term or short-term depending upon whether you have held the
ordinary shares or ADSs for more than one year. Generally, the maximum tax rate on qualified
dividends is 15% for individuals for tax years 2003 through 2010. We expect our dividends to be
qualified dividends as long as our ordinary shares or ADSs continue to be readily tradable on the New
York Stock Exchange, you have held our ordinary shares or ADSs for more than 60 days during the
121-day period beginning 60 days before the ex-dividend date, and we are not a passive foreign
investment company, or a PFIC, for US federal income tax purposes in the taxable year in which we
pay a dividend and were not a PFIC in the preceding taxable year, provided certain other
requirements are met. Each individual US holder is urged to consult his or her own tax advisor
regarding the availability to him or her of the reduced dividend tax rate in light of his or her own
particular situation.
background image
272
Dividends paid by us will not be eligible for the dividends received deduction available to certain
US corporate shareholders. Because we do not calculate our earnings and profits under US rules, you
will not be able to demonstrate that a distribution is not out of earnings and profits.
We expect to pay distributions on the ordinary shares and ADSs in South African Rands.
Dividends paid in South African Rands generally will be included in your gross income in a US Dollar
amount calculated by reference to the exchange rate in effect on the day you, in the case of ordinary
shares, or the depositary, in the case of ADSs, receive the dividend, regardless of whether the
payment is converted into US Dollars at that time. Any foreign currency gain or loss that you
recognize on a subsequent conversion of Rands into US Dollars will be US source ordinary income
or loss.
Dispositions
Subject to the passive foreign investment company discussion below, you generally will realize
capital gain or loss upon the sale or other disposition of our ordinary shares or ADSs measured by the
difference between the amount realized on the sale or other disposition and your tax basis in the
ordinary shares or ADSs, which is generally your cost of the ordinary shares or ADSs reduced by any
previous distributions that are not characterized as dividends. Any recognized gain or loss will be
long-term capital gain or loss if the ordinary shares or ADSs have been held for more than one year
on the date of the sale or other disposition. In general, any capital gain or loss recognized will be
treated as US source income or loss, as the case may be, for US foreign tax credit purposes. Your
ability to deduct capital losses may be subject to limitations. Currently, there is a maximum tax rate of
15% on net long-term capital gains of non-corporate taxpayers with respect to such gains recognized
in tax years ending after May 5, 2003 and beginning before January 1, 2011.
If you receive Rands upon the sale or other disposition of our shares or ADSs, you will realize an
amount equal to the US Dollar value of the Rands on the date of the sale or other disposition, or in
the case of cash basis and electing accrual basis taxpayers, the settlement date. You will have a tax
basis in the Rands received equal to the US Dollar amount of the Rands received. Any foreign
currency gain or loss you recognize on a subsequent conversion of Rands into US Dollars generally
will be US source ordinary income or loss.
Because the stamp duty on shares and the uncertificated securities tax was abolished with effect
from July 1, 2008 and was replaced with a securities transfer tax in terms of the Securities Transfer
Tax Act, 25 of 2007, the South African stamp duty should not apply in connection with a subsequent
registration or transfer of Telkom’s ordinary shares (see Item 10. “Additional information – Taxation –
South African Tax Matters – Stamp duty”) and the securities transfer tax under the Securities Transfer
Tax Act, 25 of 2007, should apply. In all events, the stamp duty or securities transfer tax, as
applicable, will not be a creditable tax for US foreign tax credit purposes.
Passive foreign investment company
We do not believe that we are a PFIC for US federal tax purposes and expect to continue our
operations in such a manner that we will not become a PFIC. A determination of whether a non-US
company is a PFIC must be made on an annual basis, and our status could change depending
among other things upon changes in our activities and assets and the activities and assets of
corporations in which we own, directly or indirectly, a 25 percent or more interest. If we were to
become a PFIC, US holders would generally be subject to US federal income taxes at the highest
ordinary income tax rate on any excess distributions received and any gain realized from the sale or
other disposition of the ordinary shares or ADSs plus an interest charge on certain taxes treated as
having been deferred by US holders under the PFIC rules, regardless of whether we continue to
be a PFIC.
background image
273
US holders should consult their own tax advisors concerning the United States federal income tax
consequences of holding ordinary shares or ADSs if we are considered a PFIC in any taxable year,
including the advisability and availability of making certain elections that may alleviate the tax
consequences referred to above.
Tax consequences for non-US holders
You generally will not be subject to US federal income tax or withholding tax on dividends
received from us with respect to our ordinary shares or ADSs unless that income is considered
effectively connected with the conduct of a US trade or business and, if an applicable income tax
treaty so requires as a condition for you to be subject to US federal income tax on a net income basis
in respect of income from our ordinary shares or ADSs, as applicable, such dividends are attributable
to a permanent establishment that you maintain in the United States.
You generally will not be subject to US federal income tax on any gain recognized upon the sale
or exchange of our ordinary shares or ADSs, unless:
that gain is effectively connected with the conduct of a US trade or business and, if an applicable
income tax treaty so requires as a condition for you to be subject to US federal income tax on a net
income basis in respect of gain from the sale or other disposition of our ordinary shares or ADSs, as
applicable, such gain is attributable to a permanent establishment maintained by you in the United
States; or
you are an individual and are present in the United States for at least 183 days in the taxable year
of the sale or other disposition, and either your gain is attributable to an office or other fixed place of
business that you maintain in the United States or you have a tax home in the United States.
If you are engaged in a US trade or business, the income from our ordinary shares or ADSs,
including dividends and the gain from the disposition of our ordinary shares or ADSs, that is effectively
connected with the conduct of that trade or business generally will be subject to regular US federal
income tax in the same manner as income of a US holder, as discussed above. In addition, if you are
a corporation, your earnings and profits that are attributable to that effectively connected income,
subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or
any lower rate as may be specified by an applicable tax treaty.
Information reporting and backup withholding
Backup withholding and information reporting requirements may apply to payments within the
United States on our ordinary shares or ADS, including certain payments on the proceeds of a sale or
redemption of our ordinary shares or ADSs, to US holders. We, our agent, a broker, the trustee or any
paying agent, as the case may be, may be required to withhold tax from any payment that is subject
to backup withholding if the US holder fails to furnish the US holder’s taxpayer identification number,
to certify that such US holder is not subject to backup withholding, or to otherwise comply with the
applicable requirements of the backup withholding rules. The backup withholding rate is currently
28%, and will be 31% for amounts paid after December 31, 2010 unless Congress enacts legislation
providing otherwise. US holders required to establish their exempt status must generally provide such
certification on IRS Form W-9, entitled Request for Taxpayer Identification Number. Certain US
holders, including, among others, corporations, are not subject to the backup withholding and
information reporting requirements.
Non-US holders generally are not subject to information reporting or back-up withholding with
respect to dividends paid on, or upon the disposition of, our ordinary shares or ADSs, provided that
such a non-US holder provides a taxpayer identification number, certifies to its foreign status, or
otherwise establishes an exemption. Non-US holders required to establish their exempt status must
generally provide such certification on IRS Form W8-BEN, entitled Certificate of Foreign Status.
background image
274
The amount of any back-up withholding will be allowed as a credit against a holder’s US federal
income tax liability and may entitle such holder to a refund, provided that certain information is
furnished to the IRS.
HOLDERS AND PROSPECTIVE PURCHASERS OF OUR ORDINARY SHARES OR ADSs
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF
THE SOUTH AFRICAN AND US FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS TO ANY ADDITIONAL TAX CONSEQUENCES RESULTING FROM
PURCHASING, HOLDING OR DISPOSING OF SHARES, INCLUDING THE APPLICABILITY AND
EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR NON SOUTH AFRICAN OR NON-US
JURISDICTION, AND ESTATE, GIFT, AND INHERITANCE LAWS.
DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, as they apply to foreign private issuers, and file reports and other
information with the SEC. As a foreign private issuer, we are exempt from Exchange Act rules
regarding the content and furnishing of proxy statements to shareholders and rules relating to short
swing profit reporting and liability.
Our SEC filings are available to the public over the internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file at the public reference facilities
of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, United States.
You may obtain more information concerning the operation of the public reference section of the
SEC by calling the SEC at 1-800-SEC-0330. In addition, the reports and other information we file with
the SEC are also available for reading and copying at the offices of the New York Stock Exchange,
11 Wall Street, New York, New York 10005, United States. We also maintain an internet site at
http://www.telkom.co.za. Our website and the information contained therein or connected thereto shall
not be deemed to be incorporated into or a part of this annual report.
background image
275
Item 11.
Quantitative and qualitative disclosures about market risk
Financial instruments and financial risk management
Exposure to continuously changing market conditions has made management of financial risk
critical for Telkom. Treasury policies, risk limits and control procedures are continuously monitored by
Telkom’s board of directors through its audit and risk management committee.
We hold or issue financial instruments to finance our operations, for the temporary investment of
short-term funds and to manage currency and interest rate risks. In addition, certain financial
instruments, for example trade receivables and trade payables, arise directly from our operations.
We finance our operations primarily with a mixture of issued share capital, retained earnings and
long-term and short-term loans. We use derivative financial instruments to manage our exposure to
market risks from changes in interest and foreign exchange rates. The derivatives used for this
purpose are principally interest rate swaps, currency swaps and forward exchange contracts. We do
not speculate in derivative instruments.
Market sensitive instruments – other than for trading purposes
Interest rate risk management
Interest rate risk arises from the repricing of our forward cover and floating rate debt as well as
incremental funding or new borrowings and the refinancing of existing borrowings.
Our policy is to manage interest cost through the utilization of a mix of fixed and floating rate debt.
In order to manage this mix in a cost efficient manner and to hedge specific exposure in the interest
rate repricing profile of existing borrowings and anticipated peak additional borrowings, we make use
of interest rate derivatives as approved pursuant to our group policy limits. Fixed rate debt
represented 51.9%, 90.4% and 92.0% of our total consolidated debt as of March 31, 2008, 2007 and
2006, respectively. There were no material changes in the policies and processes for managing and
measuring interest rate risk in the 2008 financial year.
background image
276
The following table shows our fixed and variable rate debt for the periods indicated.
At March 31, 2008
2009
2010
2011
2012
2013
Thereafter Total
Fair value
(in ZAR millions, except percentages)
Long term debt
Telkom
Fixed rate (ZAR
denominated)
Long term debt, including
current portion . . . . . .
(3,483)
(900)
(1,780)
–
–
(2,500)    (8,663)
(7,235)
Average interest rate
(1)(2) .
11.54%
12.38%
14.98%
15.00% 13.33%
Finance leases . . . . .
(26)
(11)
–
(17)
(36)
(766)
(856)
(856)
Variable rate (ZAR
denominated)
Variable rate . . . . . . .
(2,600)    (3,000)
–
–
–
–     (5,600)
(5,645)
Average interest rate
(2)
.
11.58%
12.22%
–
–
–
–
11.92%
–
Variable rate (EURO
denominated)
Variable rate . . . . . . .
–
–
(21)
(13)
(9)
(98)
(141)
(141)
Average interest rate
(2)(3)
.
–
–
0.10%       0.10%
0.10%
0.14%
0.13%
Vodacom
(4)
Fixed (ZAR
denominated)
Finance leases and other
short term debt . . . . .
(101)
(71)
(103)
(42)
(39)
–
(356)
(363)
Variable rate (ZAR
denominated)
Long term debt, including
current portion . . . . . .
–
–
(500)
–
–
(3)
(503)
(494)
Fixed rate (USD
denominated)
Long term debt, including
current portion . . . . . .
(4)
–
–
–
–
–
(4)
(4)
Variable rate (USD
denominated)
Long term debt, including
current portion . . . . . .
(150)
(731)
–
–
–
(71)
(952)
(976)
Other
Fixed rate (ZAR
denominated)
Finance leases and other
debt (ZAR) . . . . . . . .
(1)
(6)
(2)
(2)
–
–
(11)
(11)
Fixed rate (Naira
denominated)
Long term debt, including
current portion (ZAR) . .
–
(70)
(17)
–
–
–
(87)
(87)
Fixed rate (Euro
denominated)
Long term debt, including
current portion (ZAR) . .
(1)
–
–
–
–
–
(1)
(1)
Variable rate (USD
denominated)
Long term debt, including
current portion (ZAR) . .
(47)
(6)
(321)
(1)
–
(82)
(457)
(457)
background image
277
Notes:
(1)
Weighted average yield to maturity.
(2)
Weighted average interest rate.
(3)
Variable rate equals the current reset rate applicable on reporting date.
(4)
Represents Telkom’s 50% share of Vodacom’s interest bearing indebtedness.
The following table shows our interest rate swaps for the periods indicated.
At March 31, 2008
2009
2010
2011
2012
2013
Thereafter Total
Fair value
(in ZAR millions, except percentages)
Telkom
ZAR Pay fixed,
receive floating . . . . .
–
–
–
–
–
–
–
–
Average pay rate
(1)(3)
. . .
–
–
–
–
–
–
–
–
Average receive
rate
(1)(3)
. . . . . . . . . .
–
–
–
–
–
–
–
–
Vodacom
(2)
ZAR Receive fixed,
pay floating . . . . . . .
27
–
–
–
58
–
85
9
Average pay rate
(1)(3) . . . .
13.62%
–
–
–
13.30%
–
13.40%
Average receive rate
(1)
. . . .
14.90%
–
–
–
15.04%
–
15.00%
Notes:
(1)
Weighted average interest rate.
(2)
Represents Telkom’s 50% share of Vodacom’s indebtedness.
(3)
Variable rate calculated as of March 31, 2008.
Foreign currency exchange rate risk
In respect of South African operations, we manage our foreign exchange rate risk by hedging all
identifiable exposures via various financial instruments suitable to our risk exposure.
Forward foreign exchange contracts have been entered into to reduce the foreign currency
exposure on our operations and our liabilities. We also enter into forward foreign exchange contracts
to hedge interest expense and purchase and sale commitments denominated in foreign currencies,
principally US Dollars and Euros. The purpose of our foreign currency hedging activities is to protect
us from the risk that the eventual net flows will be adversely affected by changes in exchange rates.
We make use of foreign debt funding when the opportunity exists to fund at a lower than local
cost of funding, or for strategic reasons.
There were no material changes in the exposure to foreign currency exchange rate risk and its
objectives, policies and processes for managing and measuring this risk in the 2008 financial year.
background image
278
The following table sets forth our liabilities and related derivative instruments subject to foreign
exchange risk for the periods indicated.
At March 31, 2008
2009
2010
2011
2012
2013
Thereafter Total
Fair value
(in ZAR millions, except percentages)
Telkom
Long term debt
Variable rate
(EURO denominated)
(2)
.
–
–
21
13
9
98
141
141
Average interest
rate
(1)
. . . . . . . . . . .
–
–
0.10%     0.10%
0.10%
0.14%
0.13%
Vodacom
Fixed rate
(USD denominated)
(3)
. .
4
–
–
–
–
–
4
4
Variable rate
(USD denominated)
(3)
. .
150
731
–
–
–
71
952
976
Other
Variable rate (USD
denominated)
(3)
. . . . .
47
6
321
1
–
82
457
457
Fixed rate (Euro
denominated)
(2)
. . . . .
1
–
–
–
–
–
1
1
Fixed rate (Naira
denominated)
(4)
. . . . .
–
70
17
–
–
–
87
87
Notes:
(1)
Weighted average interest rate.
(2)
EURO converted at the spot rate quoted on Reuters of R12.854 per EURO on March 31, 2008.
(3)
USD converted at the spot rate quoted on Reuters of R8.132 per USD on March 31, 2008.
(4)
NAIRA converted at the spot rate of R0.07 per NAIRA on March 31, 2008.
background image
279
The following tables set forth our foreign currency forward exchange contracts for the periods
indicated.
Forward contracts to buy foreign currencies and sell ZAR
At March 31, 2008
2009
2010
2011
2012
2013
Thereafter Total
Fair value
(in ZAR millions, except exchange rates)
Telkom
US Dollars
Notional amount (millions).
915
915
107
Average contractual
exchange rate . . . . . . .
7.41
7.41
EURO
Notional amount (millions).
1,924
1,924
319
Average contractual
exchange rate . . . . . . .
11.15
11.15
Pound Sterling
Notional amount
(millions). . . . . . . . . . .
137
137
11
Average contractual
exchange rate . . . . . . .
15.11
15.11
Swedish Krona
Notional amount (millions).
28
28
6
Average contractual
exchange rate . . . . . . .
1.13
1.13
Japanese Yen
Notional amount (millions).
1
1
0.01
Average contractual
exchange rate . . . . . . .
0.09
0.09
Vodacom
US Dollars
Notional amount (millions).
127
127
1
Average contractual
exchange rate . . . . . . .
8.09
8.09
EURO
Notional amount (millions).
853
50
903
125
Average contractual
exchange rate . . . . . . .
11.39
13.66
11.50
Pound Sterling
Notional amount (millions).
144
144
19
Average contractual
exchange rate . . . . . . .
14.50
14.50
Swiss Franc
Notional amount (millions).
0.70
0.70
–
Average contractual
exchange rate . . . . . . .
8.10
8.10
Australian Dollars
Notional amount (millions).
2
2
–
Average contractual
exchange rate . . . . . . .
7.41
7.41
background image
280
Forward contracts to sell foreign currencies and buy ZAR
At March 31, 2008
2009
2010
2011
2012
2013
Thereafter Total
Fair value
(in ZAR millions, except percentages)
Telkom
US Dollars
Notional amount (millions). .
593
593
(67)
Average contractual
exchange rate . . . . . . .
7.60
7.60
EURO
Notional amount (millions). .
803
803
(99)
Average contractual
exchange rate . . . . . . .
11.70
11.70
Pound Sterling
Notional amount (millions). .
84
84
(1)
Average contractual
exchange rate . . . . . . .
16.25
16.25
Swedish Krona
Notional amount (millions). .
21
21
(1)
Average contractual
exchange rate . . . . . . .
1.37
1.37
Japanese Yen
Notional amount (millions). .
0.2
0.2
(0.03)
Average contractual
exchange rate . . . . . . .
0.07
0.07
Vodacom
US Dollars
Notional amount (millions). .
3
3
–
Average contractual
exchange rate . . . . . . .
8.07
8.07
EURO
Notional amount (millions). .
45
45
(5)
Average contractual
exchange rate . . . . . . .
11.54
11.54
Pound Sterling
Notional amount (millions). .
5
5
(0.1)
Average contractual
exchange rate . . . . . . .
15.99
15.99
Australian Dollar
Notional amount (millions). .
1
1
–
Average contractual
exchange rate . . . . . . .
7.51
7.51
background image
281
Other market risks
Credit risk management
Credit risk arises from derivative contracts entered into with international financial institutions with
a rating of A1 or better. We do not believe we are exposed to significant concentrations of credit risk.
Credit limits are set on an individual basis. The maximum exposure to the Telkom Group from
counterparties was a net favorable position of R438 million as of March 31, 2008 compared to
R144 million as of March 31, 2007 and R158 million as of March 31, 2006. No collateral is generally
required when entering into derivative contracts. Credit limits are reviewed on an annual basis or
when information becomes available in the market. We seek to limit our exposure to any counterparty
and these exposures are monitored daily. We currently expect that all counterparties will meet their
obligations.
With respect to credit risk arising from other financial assets of the group, which comprises held-
to-maturity investments, financial assets held at fair value through profit or loss, loans and receivables
and available-for-sale assets, our exposure to credit risk arises from a potential default by a
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Our exposure to credit risk is influenced mainly by the individual characteristics of each type of
customer. Management seeks to reduce the risk of irrecoverable debt by improving credit
management through credit checks and limits. To reduce the risk of counterparty failure, limits are set
based on the individual ratings of counterparties by well-known ratings agencies.
Trade receivables comprise a large and widespread customer base, covering residential, business
consisting of government, wholesale and global and corporate customer profiles.
Credit checks are performed on all customers, other than prepaid customers, on application for
new services and on an ongoing basis where appropriate.
We establish an allowance for impairment that represents our estimate of incurred losses in
respect of trade and other receivables and investments. The collective loss allowance is determined
based on historical data of payment statistics for similar financial assets as well as expected future
cash flows.
We have provided a financial guarantee to Africa Online for bank loans. As of March 31, 2008,
there was R23 million outstanding under this loan.
There were no material changes in the exposure to credit risk and its objectives, policies and
processes for managing and measuring this risk during the 2008 financial year.
Liquidity risk management
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due.
We are exposed to liquidity risk as a result of uncertain trade receivable related cash flows and capital
commitments.
Liquidity risk is managed by our corporate finance division in accordance with policies and
guidelines formulated by Telkom’s executive committee. Pursuant to our borrowing requirements, we
seek to ensure that sufficient facilities exist to meet our immediate obligations. Telkom believes it
maintains a reasonable balance between the period over which assets generate funds and the period
over which the respective assets are funded in order to manage long-term liquidity risk. Short-term
liquidity gaps may be funded through repurchase agreements and commercial paper bills.
There were no material changes in the exposure to liquidity risk and its objectives, policies and
processes for managing and measuring this risk during the 2008 financial year.
We had available credit facilities not utilized of R7.6 billion as of March 31, 2008.
background image
282
Fair value of financial instruments
Fair value of all financial instruments noted in our balance sheet approximate carrying value.
The estimated net fair values as of March 31, 2008 have been determined using available market
information and appropriate valuation methodologies as outlined below. This value is not necessarily
indicative of the amounts that we could realize in the normal course of business.
Derivatives are recognized at fair value. The fair value of receivables, bank balances, repurchase
agreements and other liquid funds, payables and accruals, approximate their carrying amount due to
the short-term maturities of these instruments. The fair values of the borrowings disclosed herein are
based on quoted prices or, where such prices are not available, the expected future payments
discounted at market interest rates. The fair values of listed investments are based on quoted market
prices.
For detailed information on our financial instruments and risk management, refer to note 12 of the
Telkom Group’s consolidated annual financial statements included herein.
Item 12. Description of securities other than equity securities
Not applicable.
background image
283
PART II
Item 13. Defaults, dividend arrearages and delinquencies
None.
Item 14. Material modifications to the rights of security holders and use of proceeds
None.
Item 15. Controls and procedures
Disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the effectiveness, as of March 31,
2008, the end of the period covered by this annual report, of our disclosure controls and procedures
within the meaning of Rule 13a-15(e) of the U.S. Securities Exchange Act of 1934, as amended,
which we refer to as the Exchange Act. Based on this evaluation, our chief executive officer and our
chief financial officer concluded that, as of such date, our disclosure controls and procedures were
effective for recording, processing, summarizing and reporting the material information we are
required to disclose in the reports we file or submit under the Exchange Act, within the time periods
specified in the rules and forms of the SEC and to ensure that information required to be disclosed in
the reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, to allow timely decisions
regarding required disclosure. Telkom’s management, including its chief executive officer and chief
financial officer, recognize that any set of controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving management’s control objective.
Telkom’s management, including its chief executive officer and chief financial officer, believe that, as
of March 31, 2008, Telkom’s disclosure controls and procedures were effective to provide reasonable
assurance of achieving management’s control objectives.
Management’s report on internal control over financial reporting
Telkom’s management is responsible for establishing and maintaining adequate “internal control
over financial reporting” as such term is defined under Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in conformity with International Financial Reporting Standards, or IFRS.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentations. Also, the effectiveness of internal control over
financial reporting may deteriorate in future periods due to either changes in conditions or declining
levels of compliance with policies or procedures.
In accordance with IFRS, the audited consolidated financial statements of the Telkom group
include the proportionately-consolidated results of our Vodacom Group (Proprietary) Limited joint
venture. As provided by the SEC in “Management’s Report on Internal Control over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic Reports Frequently Asked
Questions”, revised September 24, 2007 (SEC Section 404 FAQs) and supported by the International
Practices Task Force (IPTF) of the SEC Regulations Committee, management’s assessment does not
include an assessment of the internal control over financial reporting of this joint venture as
background image
284
management does not have the ability to dictate or modify the controls of this joint venture and does
not have the ability, in practice, to assess these controls. Accordingly, management’s conclusion
regarding the effectiveness of its internal control over financial reporting does not extend to the
internal controls of this entity. The total assets, net assets, total revenues and net income of this joint
venture represent approximately 24%, 18%, 43% and 49%, respectively, of the Telkom Group’s
related consolidated financial statements as of and for the year ended March 31, 2008.
The audited consolidated financial statements of the Telkom Group for the 2008 financial year
include the results of the business acquisition of Multi-Links Telecommunications Ltd acquired
effective May 1, 2007. As permitted by the SEC’s June 23, 2004 implementation guidance to issuers
relating to the SEC’s final rules on internal control over financial reporting, Management’s assessment
does not include an assessment of the internal control over financial reporting of this acquisition. The
total assets, net assets, total revenues and net income of the acquisition represent approximately 3%,
1%, 2% and 1%, respectively, of the Telkom Group’s related consolidated financial statement totals
and of and for the year ended March 31, 2008.
Management has assessed the effectiveness of internal control over financial reporting as of
March 31, 2008. In making its assessment, management has based its assessment on the criteria set
forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in
Internal Control – Integrated Framework. Management concluded, and hereby reports that based on
its assessment, Telkom’s internal control over financial reporting was effective as of March 31, 2008.
The independent registered public accounting firm Ernst & Young has issued an audit report on the
effectiveness of the Telkom Group’s internal control over financial reporting as of March 31, 2008. This
report is included herein.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Telkom SA Limited
We have audited Telkom SA Limited’s (“Telkom” or the “Company”) internal control over financial
reporting as of March, 31 2008, based on criteria established in Internal Control– Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). Telkom’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying “Management’s report on internal control over financial
reporting.” Our responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
background image
285
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying “Management’s report on internal control over financial
reporting” appearing under item 15 of the Company’s Form 20-F, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Vodacom Group (Proprietary) Limited, an entity that is under joint control of the Company,
which is included in the March 31, 2008 consolidated financial statements of Telkom SA Limited and
constituted R17,088 million and R5,903 million of total and net assets, respectively, as of March 31,
2008 and R24,089 million and R3,979 million of revenues and net income, respectively, for the year
then ended. Our audit of internal control over financial reporting of March 31, 2008 also did not
include an evaluation of the internal control over financial reporting of Vodacom Group (Proprietary)
Limited.
As also indicated in the accompanying “Management’s report on internal control over financial
reporting” appearing under item 15 of the Company Form 20-F, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Multi-Links Telecommunications Ltd, an entity that was acquired effective May 1, 2007,
which is included in the March 31, 2008 consolidated financial statements of Telkom SA Limited and
constituted R2,206 million and R313 million of total and net assets, respectively, as of March 31, 2008
and R845 million and R49 million of revenues and net loss, respectively, for the year then ended. Our
audit of internal control over financial reporting of March 31, 2008 also did not include an evaluation of
the internal control over financial reporting of Multi-Links Telecommunications Ltd.
In our opinion, Telkom maintained, in all material respects, effective internal control over financial
reporting as of March 31, 2008, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as at March 31, 2008, 2007 and
2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for
each of the three years in the period ended March 31, 2008 of Telkom and our report dated
July 11, 2008 expressed an unqualified opinion thereon.
ERNST & YOUNG Inc.
Pretoria
Republic of South Africa
July 11, 2008
Changes in Internal Control Over Financial Reporting
There have been no changes in Telkom’s internal controls over financial reporting during the fiscal
year ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect,
Telkom’s internal control over financial reporting.
background image
286
Item 16A. Audit committee financial expert
Our board of directors has determined that the chairman of our audit committee, Mr. Sibusiso
Luthuli, is an audit committee financial expert within the meaning of Item 16A. (b) and (c) of the
requirements of Form 20-F of the SEC. The SEC has determined that the audit committee financial
expert designation does not impose on the person with that designation, any duties, obligations or
liability that are greater than the duties, obligations or liabilities imposed on such person as a member
of the audit committee of the board of directors in the absence of such designation. Mr. Luthuli is a
qualified Chartered Accountant (SA).
Item 16B. Code of ethics
Telkom has adopted a business code of ethics and a disclosure of information policy that apply to
all of our employees, including our chief executive officer, chief of finance and principal accounting
officer or controller. Telkom’s business code of ethics, taken together with its disclosure of information
policy, are designed to comply with the requirements of Item 16B of Form 20-F. Telkom’s business
code of ethics seeks to instill in its employees the spirit of fairness, respect and ethical standards in
dealing with Telkom’s stakeholders. In business dealings on behalf of Telkom, employees are
expected to avoid activities that might give rise to conflicts of interest. Employees are expected to act
in the exclusive interest of Telkom. Procedures have been put in place to deal with conflicts of interest
where these arise in the course of employees’ day-to-day activities.
Telkom is committed to promoting the highest standards of behavior and compliance with laws
and regulations. Therefore its business code of ethics is reviewed regularly to ensure that it keeps up
with developments both inside and outside Telkom.
We have incorporated by reference our business code of ethics and disclosure policy as exhibits
to this annual report.
Item 16C. Principal accountant fees and services
The following table sets forth the aggregate audit fees, audit related fees, tax fees of our principal
accountants and all other fees billed for products and services provided by our principal accountants
other than audit fees, audit related fees and tax fees for each of the 2007 and 2008 financial years:
Audit
All other
Audit fees
related fees
Tax fees
fees
(1)
Total
(ZAR millions)
2007 . . . . . . . . . . . . . .
48
–
–
1
49
2008 . . . . . . . . . . . . . .
51
–
–
51
Note:
(1) All other fees mainly include engagements for factual findings and the issuance of related certifications.
Audit committee pre-approval policy
In accordance with our audit committee pre-approval policy, all audit and non-audit services
performed for us by our independent accountants were pre-approved by the audit committee of our
board of directors, which concluded that the provision of such services by the independent
accountants was compatible with the maintenance of that firm’s independence in the conduct of its
auditing functions.
background image
287
The pre-approval policy provides for categorical pre-approval of permissible non-audit services
and requires the specific pre-approval by the audit committee, prior to engagement, of such services,
other than audit services covered by the annual engagement letter, that are individually estimated to
result in an amount of fees less than 10% of the independent accountant’s total audit engagement fee
for individual services; provided that all such fees must be less than 50% of the total audit fees for
Telkom’s annual audit engagement. In addition, services to be provided by the independent
accountants that are not within the category of pre-approved services must be approved by the audit
committee prior to engagement, regardless of the service being requested and the amount, but
subject to the restrictions above.
Requests or applications for services that require specific separate approval by the audit
committee are required to be submitted to the audit committee by both management and the
independent accountants, and must include a detailed description of the services to be provided and a
joint statement confirming that the provision of the proposed services does not impair the
independence of the independent accountants.
The audit committee may delegate pre-approval authority to one or more of its members. The
member or members to whom such authority is delegated shall report any pre-approval decisions to
the audit committee at its next scheduled meeting. The audit committee does not delegate to
management its responsibilities to pre-approve services to be performed by the independent
accountants.
Item 16D. Exemptions from the listing standards for audit committees
Rule 10A-3(b)(1)(i) of the Exchange Act requires that each member of the audit committee of a
listed issuer must be a member of the board of directors of the listed issuer, and must otherwise be
independent. Rule 10A-3(b)(1)(ii) of the Exchange Act provides that in order to be considered to be
independent, a member of an audit committee of a listed issuer may not, other than in his or her
capacity as a member of the audit committee, the board of directors, or any other board committee:
•  accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer
or any subsidiary thereof; or
•  be an affiliated person of the issuer or any subsidiary thereof.
An affiliated person of an issuer is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with, the issuer.
One member of Telkom’s Audit and Risk Management Committee (the “ARMC”), Ms. RJ Hultley, is
a representative of the Government of the Republic of South Africa. The Government of the Republic
of South Africa owned 39.8% of Telkom’s issued and 41.5% of Telkom’s outstanding ordinary shares
and had additional approval rights as the holder of Telkom’s class A ordinary share, as of June 30,
2008.
Rule 10A-3(b)(1)(iv)(E) of the Exchange Act provides an exemption from the prohibition on being
an affiliated person of the issuer for an audit committee member of a foreign private issuer, who is a
representative or designee of a foreign government or foreign governmental entity that is an affiliate of
the foreign private issuer if the member is not an executive officer of the foreign private issuer.
Ms Huntley is not an executive officer of Telkom and is exempt from the prohibition on being
affiliated persons of the issuer contained in Rule 10A-3(b)(1)(ii)(B) under the Exchange Act pursuant
to Rule 10A-3(b)(1)(iv)(E) thereunder as representatives of the Government of the Republic of South
Africa, a foreign government. Telkom does not believe that its reliance on this exemption would
materially adversely affect the ability of its ARMC to act independently and satisfy the other
requirements of Rule 10A-3 of the Exchange Act.
background image
288
As indicated above, Telkom’s audit and risk management committee is to consist of not less than
three non-executive directors. As a result of the resignations of MJ Lamberti on June 3, 2008 and
AG Rhoda on July 3, 2008 from the Telkom board of directors and all committees thereof, Telkom’s
audit and risk management committee currently consists of two non-executive directors, one of whom
is a representative of the Government of South Africa. The board of directors is currently assessing
the composition and membership of all the committees of its board of directors, including the audit
and risk management committee, and intends to address any instances of non-compliance with their
charters by the end of the 2008 calendar year. Telkom’s current articles of association requires
shareholders to approve the appointment of any members of Telkom’s board of directors, other than
the directors nominated by the class A and class B shareholders, and Telkom’s class A and class B
shareholding rights granted in its current shareholders agreement that will expire in March 2011
restricts the board's ability to appoint independent members. Telkom’s board of directors expects to
request a special general meeting in which it intends to propose an amendment to its current articles
of association to permit the board of directors to appoint independent directors when a casual
vacancy occurs, whom can then be retired and made available for re-election at the first annual
general meeting following their appointment.
In addition, AG Rhoda, who served on the Telkom audit and risk management committee from
March 5, 2008 to July 3, 2008 was a representative of the Public Investment Corporation, an
investment management company wholly owned by the South African Government. Because the
Public Investment Corporation directly beneficially owned 6.6% of Telkom’s issued and 6.8% of
Telkom’s outstanding shares and Black Ginger, a wholly owned subsidiary of the Public Investment
Corporation owned 9.0% of Telkom’s issued and 9.3% of Telkom’s outstanding ordinary shares and
the class B ordinary share, AG Rhoda’s appointment to the Telkom audit and risk management
committee may have violated the New York Stock Exchange rules and Rule 10A-3(b)(1) of the
Exchange Act that require that each member of the audit committee of a listed issuer to be
independent. Any such violation was corrected by AG Rhoda’s resignation on July 3, 2008.
background image
289
Item 16E. Purchases of equity securities by the issuer and affiliated purchasers
Ordinary shares
In 2004 Telkom embarked on a share repurchase program to acquire shares to be used for the
Telkom conditional share plan, and to facilitate share repurchase activities for purposes other than for
the Telkom conditional share plan. The following table sets forth information with respect to Telkom’s
share repurchases in the 2008 financial year.
(c) Total
(d) Maximum
number of
number of
shares
shares
purchased
that may
(b) Average
as part of
yet be
(a) Total
price
publicly
purchased
number of
paid per
announced
under the
shares
share
plans or
plans or
purchased         
ZAR          
programs      
programs  
(1)
For the year ended March 31, 2008
January 22 to January 31, 2008 . . . . . . . . .
2,284,900
139.29
2,284,900
61,378,924
February 1 to February 29, 2008 . . . . . . . .
8,236,444
135.35
8,236,444
53,142,480
March 3 to March 6, 2008 . . . . . . . . . . . .
1,550,000
138.25
1,550,000
51,592,480
Note:
(1) The shareholders of Telkom provided general approval for the share repurchase program at the Annual General Meeting
held on October 20, 2006. This approval was valid until the next Annual General Meeting or for 15 months from date of the
resolution, whichever period is shorter. The shareholders of Telkom again provided general approval for the share
repurchase program at the Annual General Meeting held on October 26, 2007. This approval is valid until the next Annual
General Meeting or for 15 months from date of the resolution, whichever period is shorter. The repurchases are subject to
the provisions of the Companies Act, 61 of 1973, as amended, and the Listing Requirements of the JSE. In terms of the
South African Companies Act, 61 of 1973, as amended, a subsidiary company may not acquire more than 10% of the
shares in its holding company and if the holding company acquires its own shares directly, such shares must be cancelled.
Telkom plans on continuing its share buy back strategy based on certain criteria.
background image
290
PART III
Item 17. Consolidated financial statements
The registrant has responded to Item 18 in lieu of responding to this item.
Item 18. Consolidated financial statements
See Index to consolidated annual financial statements for a list of all financial statements filed as
part of this annual report.
background image
291
Item 19. Exhibits
Documents filed as exhibits to this annual report:
Exhibits
Description
1.1
Memorandum and Articles of Association of Telkom S.A. Limited (“Telkom”)
(2)
1.2
Special Resolution passed on January 16, 2003, to change the Memorandum and
Articles of Association of Telkom
(1)
1.3
Special Resolution passed on October 20, 2006, to change the Memorandum and
Articles of Association of Telkom
(1)
1.4
Special Resolution passed on October 26, 2007, to change the Memorandum and
Articles of Association of Telkom
(1)
2.1
Form of Ordinary Share Certificate (Incorporated by reference to Exhibit 4.1 to the
Form F-1)
(2)
2.2
Deposit Agreement, dated as of March 3, 2003, among Telkom, the Bank of New
York, as Depositary, and Owners and Beneficial Owners of American Depositary
Receipts issued thereunder, including the form of American Depositary Receipt
(Incorporated by reference to Exhibit 4.2 to the F-1)
(2)
4.1
Agreement, dated July 31, 2000, between Telkom and Total Facilities Management
Company (Pty) Limited (Incorporated by reference to Exhibit 10.3 to the F-1)
(2)
4.2
Exclusive Facilities Management Services Agreement, dated March 31, 2001,
between Telkom and systems Applications Project (Africa) (Pty) Limited (Incorporated
by reference to Exhibit 10.4 to the F-1)
(2)
4.3
Multiparty Implementation Agreement, dated September 30, 1993, among Telkom,
Vodacom Group (Pty) Limited, Mobile Telephone Network (Pty) Limited, the
Postmaster General and the Government of the Republic of South Africa
(Incorporated by reference to Exhibit 10.5 to the F-1)
(2)
4.4
Interconnection Agreement, dated February 16, 1994, among Telkom and Vodacom
Group (Pty) Limited, as amended by agreements among Telkom, Vodacom Group
(Pty) Limited and MTN on August 22, 1996, January 12, 1998, July 21, 1998 and
September 4, 2001 (Incorporated by reference to Exhibit 10.6 to the F-1)
(2)
4.5
Interconnection Agreement, dated February 16, 1994, among Telkom and MTN, as
amended by agreements among Telkom, Vodacom Group (Pty) Limited and MTN on
August 22, 1996, January 12, 1998, July 21, 1998, and September 14, 2001
(Incorporated by reference to Exhibit 10.7 to the F-1)
(2)
4.6
Interconnection Agreement, dated August 31, 2001, between Telkom SA Limited and
Cell C, as amended by agreement among Telkom, Vodacom Group (Pty) Limited and
Cell C, dated September 18, 2001 (Incorporated by reference to Exhibit 10.8 to
the F-1)
(2)
4.7
Joint Venture Agreement, dated March 31, 1995, between Telkom, Vodafone Group
plc, Rembrandt Group Limited, Vodacom Group, Vodacom, Vodac and Vodafone
Holdings (SA) (Pty) Limited (Incorporated by reference to Exhibit 10.9 to the F-1)
(2)
background image
292
4.8
Registration Rights Agreement, dated January 16, 2003, among the Minister of
Communications of the Government of the Republic of South Africa, Thintana
Communications LLC and Telkom SA Limited (Incorporated by reference
to Exhibit 10.11 to the F-1)
(2)
4.9
Telkom Conditional Share Plan (Incorporated by reference to Exhibit 4.11 to Telkom’s
Annual Report on Form 20-F for the year ended March 31, 2004 (the “20-F”))
(2)
4.10
Service Agreement between Telkom SA Limited and Papi Molotsane (Incorporated by
reference to Exhibit 4.10 of Telkom’s Annual Report on Form 20-F for the year ended
March 31, 2006)
(2)
4.11
Service Agreement between Telkom SA Limited and Reuben September
(1)
4.12
Interconnection Agreement, dated February 6, 2007, between Telkom and Neotel
(Pty) Limited on January 25, 2007 and February 6, 2007.
(1)
8.1
Subsidiaries of Telkom
(2)
11.1
Telkom SA Limited Business Code of Ethics (Incorporated by reference to Exhibit 11.1
to the 20-F)
(2)
11.2
Telkom SA Limited Disclosure of Information Policy (Incorporated by reference to
Exhibit 11.2 to the 20-F)
(2)
12.1
Certification of chief executive officer pursuant to 17 CFR 240.13a 14(a), promulgated
under Section 302 of the Sarbanes Oxley Act of 2002
(1)
12.2
Certification of chief financial officer pursuant to 17 CFR 240.13a 14(a), promulgated
under Section 302 of the Sarbanes Oxley Act of 2002
(1)
13.1
Certification of chief executive officer and chief financial officer furnished pursuant
to Rule 13a 14(b) (17 CFR 240.13a 14(b)) or Rule 15d 14(b) (17 CFR 240.15d 14(b))
and Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C.1350), promulgated under Section 906 of the Sarbanes Oxley Act
of 2002
(1)
Notes:
(1) Filed herewith.
(2) Incorporated by reference.
background image
Ernst & Young Inc.
Wanderers Office Park
52 Corlett Drive, Illovo
Private Bag X14
Northlands 2116
Tel:
00 27 (0)11 772-3000
Fax:
00 27 (0)11 772-4000
Docex
123 Randburg
Website
www.ey.com/za

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TELKOM SA LIMITED
We have audited the accompanying consolidated balance sheets of Telkom SA Limited (‘Telkom’) and its
subsidiaries (together ‘the Group’) as of March 31, 2008, 2007 and 2006, and the related consolidated statements of
income, shareholders' equity, and cash flows for the years then ended set out on pages F3 to F98. These financial
statements are the responsibility of the Group’s directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits. 

We did not audit the financial statements of Vodacom Group (Proprietary) Limited, a 50% joint venture proportionally
consolidated, which statements reflect total assets constituting 24%, 24% and 22% at March 31, 2008, 2007 and
2006, respectively, and total revenues constituting 43%, 40% and 36% for the years ended March 31, 2008, 2007
and 2006, respectively of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Vodacom Group (Proprietary) Limited, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, and the report of the other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred
to above presen fairly, in all material respects, the consolidated financial position of Telkom SA Limited and its
subsidiaries at March 31, 2008, 2007 and 2006, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with International Financial Reporting Standards. 

As described in Note 2 to the consolidated annual financial statements, in 2008 the Group adopted new and
amended accounting standards, IAS 1 Presentation of Financial Statements (Revised) and IFRS 7 Financial Instruments: Disclosures.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of Telkom SA Limited’s internal control over financial reporting as of March 31, 2008,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated July 11, 2008 expressed an unqualified opinion thereon.

ERNST & YOUNG Inc.
Pretoria
Republic of South Africa
July 11, 2008
background image
Consolidated income statement
for the three years ended March 31, 2008
Total revenue
3.1
48,260
52,157
56,865
Operating revenue
3.2
47,625
51,619
56,285
Other income
4
480
384
534
Operating expenses
33,428
37,533
42,337
Employee expenses
5.1
7,489
8,454
9,220
Payments to other operators
5.2
6,826
7,590
9,169
Selling, general and administrative expenses
5.3
10,273
12,902
14,409
Service fees
5.4
2,114
2,291
2,571
Operating leases
5.5
850
981
838
Depreciation, amortisation, impairment and write-offs
5.6
5,876
5,315
6,130
Operating profit
14,677
14,470
14,482
Investment income
6
397
235
197
Finance charges and fair value movements
7
1,223
1,125
1,803
Interest
1,346
1,327
1,885
Foreign exchange and fair value movement
(123)
(202)
(82)
Profit before taxation
13,851
13,580
12,876
Taxation
8
4,523
4,731
4,704
Profit for the year
9,328
8,849
8,172
Attributable to:
Equity holders of Telkom
9,189
8,646
7,975
Minority interest
139
203
197
9,328
8,849
8,172
Basic earnings per share (cents)
9
1,746.1
1,681.0
1,565.0
Diluted earnings per share (cents)
9
1,736.6
1,676.3
1,546.9
Dividend per share (cents)
9
900.0
900.0
1,100.0
2006
2007
2008
Notes
Rm
Rm
Rm
F-3
background image
Consolidated balance sheet
at March 31, 2008
Assets
Non-current assets
44,813
48,770
57,763
Property, plant and equipment
10
37,274
41,254
46,815
Intangible assets
11
3,910
5,111
8,468
Investments
13
2,894
1,384
1,448
Deferred expenses
14
254
270
221
Finance lease receivables
15
–
158
206
Deferred taxation
16
481
593
605
Current assets
12,731
10,376
12,609
Short-term investments
13
69
77
51
Inventories
17
814
1,093
1,287
Income tax receivable
33
–
520
9
Current portion of deferred expenses
14
226
287
362
Current portion of finance lease receivables
15
–
88
166
Trade and other receivables
18
6,399
7,303
8,986
Other financial assets
19
275
259
614
Cash and cash equivalents
20
4,948
749
1,134
Total assets
57,544
59,146
70,372
Equity and liabilities
Equity attributable to equity holders of Telkom
29,165
31,724
32,815
Share capital and premium
21
6,791
5,329
5,208
Treasury shares
22
(1,809)
(1,774)
(1,638)
Share-based compensation reserve
23
151
257
643
Non-distributable reserves
24
1,128
1,413
1,292
Retained earnings
25
22,904
26,499
27,310
Minority interest
26
301
284
522
Total equity
29,466
32,008
33,337
Non-current liabilities
12,391
8,554
15,104
Interest-bearing debt
27
7,655
4,338
9,403
Other financial liabilities
19
–
36
919
Provisions
28
2,677
1,443
1,675
Deferred revenue
14
991
1,021
1,128
Deferred taxation
16
1,068
1,716
1,979
Current liabilities
15,687
18,584
21,931
Trade and other payables
30
6,103
7,237
8,771
F-4
Shareholders for dividend
34
4
15
20
Current portion of interest-bearing debt
27
3,468
6,026
6,330
Current portion of provisions
28
1,660
2,095
2,181
Current portion of deferred revenue
14
1,975
1,983
2,593
Income tax payable
33
1,549
594
323
Other financial liabilities
19
235
193
371
Credit facilities utilised
20
693
441
1,342
Total liabilities
28,078
27,138
37,035
Total equity and liabilities
57,544
59,146
70,372
2006
2007
2008
Notes
Rm
Rm
Rm
background image
Consolidated statement of changes in equity
for the three years ended March 31, 2008
Balance at April 1, 2005
5,570
2,723
(1,812)
68
360     19,232    26,141
220     26,361
Total income and expense for the year
52
9,189
9,241
132
9,373
Profit for the year
9,189
9,189
139
9,328
Foreign currency translation reserve (net of
tax of RNil) (refer to note 24)
52
52
(7)
45
Dividend declared (refer to note 34)
(4,801)    (4,801)
(78)    (4,879)
Transfer to non-distributable reserves
(refer to note 24)
716
(716)
–
–
Shares vested and re-issued (refer to note 23)
3
(3)
–
–
Increase in share-based compensation reserve
(refer to note 23)
86
86
86
Acquisition of subsidiaries and minorities
(refer to note 35)
–
27
27
Shares bought back and cancelled (refer to note 21)
(121)   (1,381)
(1,502)
(1,502)
Balance at March 31, 2006
5,449
1,342
(1,809)
151
1,128     22,904     29,165
301     29,466
Total income and expense for the year
46
8,646
8,692
217
8,909
Profit for the year
8,646
8,646
203
8,849
Foreign currency translation reserve (net of tax
of R4 million) (refer to note 24)
46
46
14
60
Dividend declared (refer to note 34)
(4,678)    (4,678)
(166)     (4,844)
Transfer to non-distributable reserves
(refer to note 24)
239
(239)
–
–
Increase in share-based compensation reserve
(refer to note 23)
141
141
141
Shares vested and re-issued (refer to note 23)
35
(35)
–
–
Acquisition of subsidiaries and minorities
(refer to note 35)
–
(68)
(68)
Shares bought back and cancelled (refer to note 21)
(120)     (1,342)
(134)     (1,596)
(1,596)
Balance at March 31, 2007
5,329
–
(1,774)
257
1,413     26,499     31,724
284     32,008
Total income and expense for the year
529
7,975
8,504
226
8,730
Profit for the year
7,975
7,975
197
8,172
Revaluation of available-for-sale investment
(net of tax of R1 million)
8
8
8
Foreign currency translation reserve (net of
tax of R6 million) (refer to note 24)
521
521
29
550
Dividend declared (refer to note 34)
(5,627)   (5,627)
(65)    (5,692)
Transfer to non-distributable reserves
(refer to note 24)
11
(11)
–
–
Increase in share-based compensation reserve
(refer to note 23)
522
522
522
Shares vested and re-issued (refer to note 23)
136
(136)
–
–
Acquisition of subsidiaries and minorities
(refer to note 35)
–
77
77
Shares bought back and cancelled (refer to note 21)
(121)
(1,526)    (1,647)
(1,647)
Minority put option (refer to notes 19 and 24)
(661)
(661)
(661)
Balance at March 31, 2008
5,208
–
(1,638)
643
1,292      27,310    32,815
522     33,337
F-5
Attributable to equity holders of Telkom
Share-
based
Non-
compen-
distri-
Share
Share  Treasury
sation
butable  Retained
Minority
Total
capital   premium
shares
reserve reserves   earnings
Total
interest
equity
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
background image
Consolidated cash flow statement
for the three years ended March 31, 2008
Cash flows from operating activities
9,506
9,356
10,603
Cash receipts from customers
46,958
50,979
55,627
Cash paid to suppliers and employees
(27,234)
(30,459)
(34,371)
Cash generated from operations
31
19,724
20,520
21,256
Interest received
482
422
433
Dividends received
6
50
3
–
Finance charges paid
32
(1,316)
(1,115)
(1,077)
Taxation paid
33
(4,550)
(5,690)
(4,277)
Cash generated from operations before dividend paid
14,390
14,140
16,335
Dividend paid
34
(4,884)
(4,784)
(5,732)
Cash flows from investing activities
(7,286)
(10,412)
(14,106)
Proceeds on disposal of property, plant and equipment and intangible assets
92
54
169
Proceeds on disposal of investments
493
77
8
Additions to property, plant and equipment and intangible assets
(7,396)
(10,037)
(11,657)
Acquisition of subsidiaries and minorities
35
–
(445)
(2,462)
Additions to other investments
(475)
(61)
(164)
Cash flows from financing activities
(258)
(2,920)
2,943
Loans raised
4,123
5,624
23,877
Loans repaid
(7,399)
(6,922)
(19,315)
Shares bought back and cancelled
(1,502)
(1,596)
(1,647)
Finance lease obligation repaid
(24)
(37)
(61)
Decrease in net financial assets
4,544
11
89
Net increase/(decrease) in cash and cash equivalents
1,962
(3,976)
(560)
Net cash and cash equivalents at beginning of the year
2,301
4,255
308
Effect of foreign exchange rate differences
(8)
29
44
Net cash and cash equivalents at end of the year
20
4,255
308
(208)
2006
2007
2008
Notes
Rm
Rm
Rm
F-6
background image
Notes to the consolidated annual financial statements
for the three years ended March 31, 2008
1.
Corporate information
Telkom SA Limited (‘Telkom’) is a company incorporated and
domiciled in the Republic of South Africa (‘South Africa’) whose
shares are publicly traded. The main objective of Telkom, its
subsidiaries and joint ventures (‘the Group’) is to supply
telecommunication, broadcasting, multimedia, technology,
information and other related information technology services to
the general public, as well as mobile communication services
through the Vodacom Group (Proprietary) Limited (‘Vodacom’) in
South Africa and certain other African countries. The Group’s
services and products include:
•   fixed-line subscription and connection services to postpaid,
    prepaid and private payphone customers using PSTN lines,
    including ISDN lines, and the sale of subscription based value-
    added voice services and customer premises equipment rental
    and sales;
•   fixed-line traffic services to postpaid, prepaid and payphone
customers, including local, long distance, fixed-to-mobile,
international outgoing and international voice-over-internet
protocol traffic services;
•   interconnection services, including terminating and transiting
traffic from South African mobile operators, as well as from
international operators and transiting traffic from mobile to
international destinations;
•   fixed-line data services, including domestic and international
data transmission services, such as point-to-point leased lines,
ADSL services, packet-based services, managed data
networking services and internet access and related information
technology services;
•   e-commerce, including internet access service provider,
application service provider, hosting, data storage, e-mail and
security services;
•   mobile communications services, including voice services, data
services, value-added services and handset sales through
Vodacom; and
•   other services including directory services, through our TDS
Directory Operations Group, wireless data services, through our
Swiftnet (Proprietary) Limited subsidiary, television media
services through our Telkom Media Group, internet services
outside South Africa, through our Africa Online Limited
subsidiary and information, communication and
telecommunication operating services in Nigeria, through our
newly acquired Multi-Links Telecommunications Limited subsidiary.
2.
Significant accounting policies
Basis of preparation
The consolidated annual financial statements comply with
International Financial Reporting Standards (‘IFRS’) of the
International Accounting Standards Board (‘IASB’) and the
Companies Act of South Africa, 1973.
The financial statements are prepared on the historical cost basis,
with the exception of certain financial instruments and share-based
payments which are measured at grant date fair value.
Details of the Group’s significant accounting policies are set out
below, and are consistent with those applied in the previous
financial year except for the following:
•   adoption of amendment to IAS1;
•   adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10, IFRIC11 and
Circular 8/2007; and
•   identification of a new segment.
The principal effects of these changes are discussed below.
Adoption of amendments to standards and new
interpretations
The following revised standards and interpretations have been
adopted during the year under review:
Amendment to IAS1 Presentation of Financial Statements
This amendment is effective for annual periods beginning on or
after January 1, 2007. As a result of the pronouncement of IFRS7
Financial Instruments: Disclosures, IAS1 has been amended to
require the disclosure of the entity’s objective, policies and
processes for managing capital, quantitative data about what the
entity regards as capital, whether the entity has complied with
any capital requirements and if it has not complied, the
consequences of such non-compliance. The impact of this
amendment has been disclosed under note 12.
IFRS7 Financial Instruments: Disclosures
This standard is effective for annual periods beginning on or after
January 1, 2007. IFRS7 supersedes disclosure in IAS32. All
financial instruments disclosures will now be provided in terms of
IFRS7. One of the main disclosure requirements added by IFRS7
is that an entity must group its financial instruments into classes
of similar instruments, and when disclosures are required, make
disclosures by class. IFRS7 also requires information about the
significance of financial instruments and information about the
nature and extent of risks arising from financial instruments. The
impact of this standard is to expand on certain disclosures relating
to financial instruments and requires certain additional disclosures
(refer to note 12).
IFRIC8 Scope of IFRS2
The interpretation is effective for annual periods beginning on or
after May 1, 2006. The interpretation clarifies that IFRS2 applies
to transactions in which an entity receives goods or services as
consideration for equity instruments of the entity. This includes
transactions in which the entity cannot identify specifically some or
all of the goods or services received. The impact of the interpretation
on the consolidated annual financial statements is not material
since the Group has not transacted with other parties using equity
as a purchase consideration for the transaction, other than those
paid to employees in share-based payment transactions.
IFRIC9 Reassessment of Embedded Derivatives
The interpretation is effective for annual periods beginning on or
after June 1, 2006. The interpretation clarifies that an entity
should assess whether an embedded derivative is required to be
separated from the host contract and accounted for as a derivative
when the entity first becomes a party to the contract. It further
clarifies that reassessment is only allowed when there is a change
in the terms of the contract which significantly modifies the cash
flows that would otherwise be required under the contract. The
interpretation does not have a material impact on the consolidated
annual financial statements.
F-7
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-8
2.
Significant accounting policies
(continued)
Adoption of amendments to standards and 
new interpretations (continued)
IFRIC10 Interim Financial Reporting and Impairment
The interpretation is effective for annual periods beginning on or
after November 1, 2006. The interpretation clarifies that an entity
should not reverse an impairment loss recognised in a previous
interim period in respect of goodwill or an investment in either
an equity instrument classified as available-for-sale or financial
asset carried at cost. The interpretation does not have a material
impact on the consolidated annual financial statements.
IFRIC11 IFRS2 – Group and Treasury Share Transactions
The interpretation is effective for annual periods beginning on or
after March 1, 2007. The interpretation clarifies that regardless
of whether the entity chooses or is required to buy equity
instruments from another party to satisfy its obligations to its
employees under the share-based payment arrangement by
delivery of its own shares, the transaction should be accounted for
as equity settled. This interpretation also applies regardless of
whether the employee’s rights to the equity instruments were
granted by the entity itself or by its shareholders or was settled
by the entity itself or its shareholders. Share-based payments
involving the Group’s own equity instruments in which the Group
chooses or is required to buy its own equity instruments to settle
the share-based payment obligation are currently accounted for as
equity-settled share-based payment transactions under IFRS2. The
interpretation has had no impact on the consolidated annual
financial statements.
Circular 8/2007 Headline earnings
The circular was issued by the South African Institute of Chartered
Accountants (SAICA) and is applicable for financial periods ending
on or after August 31, 2007. Circular 8/2007 supersedes Circular
7/2002 and it defines rules for calculating headline earnings per
share, which is an additional per share measure permitted by
IAS33 Earnings per Share. It further requires a disclosure of a
detailed reconciliation of headline earnings to the earnings
numbers used in the calculation of basic earnings per share in
accordance with the requirements of IAS33. The Group adopted
the provisions of Circular 8/2007 in the reporting period
beginning on April 1, 2007 and the adoption has had no impact
other than additional disclosure as required by the Circular.
Accounting pronouncements not yet adopted
The Group has not early adopted the following standards,
interpretations and amendments that have been issued and are
not yet effective:
IFRS2 Vesting Conditions and Cancellations.
This amendment is effective for annual periods beginning on or
after January 1, 2009. The amendments to IFRS2 Share-based
Payment clarifies the definition of vesting conditions and the
accounting treatment of cancellations by the counterparty to a
share-based arrangement. All features of a share-based payment
arrangement other than service conditions and performance
conditions will be considered to be non-vesting conditions. IFRS2
(as revised) specifies that, when estimating the fair value of equity
instruments granted, an entity shall take into account all non-vesting
conditions (i.e. all conditions other than service and performance
conditions) and vesting conditions that are market conditions (i.e.
conditions that are related to the market price of the entity’s equity
instruments – for example, attaining a specified share price). The
impact of this amendment is currently being evaluated.
IFRS3 Business Combinations-comprehensive revision on
applying the acquisition method
The revised standard is effective for annual periods beginning on
or after July 1, 2009. The revised IFRS3 requires the consideration
for the acquisition, including the fair value of any contingent
consideration payable to be measured at fair value at the
acquisition date. The revised standard only permits subsequent
changes to the measurement of contingent consideration as a
result of additional information about facts and circumstances that
existed at the acquisition date. All other changes (e.g. changes
resulting from events after the acquisition date such as the
acquiree meeting an earnings target, reaching a specified share
price, or meeting a milestone on a research and development
project) are recognised in profit or loss.
Acquisition-related costs are now required to be expensed.
Business combinations involving only mutual entities and business
combinations achieved by contract alone have also been included
in IFRS3.
Consequential amendments arising from revisions to IFRS3
on IAS27 Consolidated and separate financial statements
The revised IAS27 specifies that changes in a parent’s ownership
interest in a subsidiary that do not result in the loss of control
must be accounted for as equity transactions. No gain or loss is
recognised on such transactions and goodwill is not re-
measured. Any difference between the change in the Non
Controlling Interest and the fair value of the consideration paid
or received is recognised directly in equity and attributed to the
owners of the parent.
Consequential amendments arising from revisions to IFRS3
on IAS28 Investments in Associates; IAS31 Interests in
Joint Ventures
Amendments to IAS28 and IAS31 extend the treatment required
for loss of control to these standards. For partial disposals of
associates and joint ventures, the amended standards stipulate
that if an investor loses significant influence over an associate, it
derecognises that associate and recognises in profit or loss the
difference between the sum of the proceeds received and any
retained interest, and the carrying amount of the investment in the
associate at the date significant influence is lost. A similar
treatment is required when an investor loses joint control over a
jointly controlled entity. The possible impact of this standard is
currently being evaluated.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Accounting pronouncements not yet adopted (continued)
IFRS8 Operating Segments
This standard is effective for annual periods beginning on or after
January 1, 2009. The significant change to the standard is that
it requires segments to be disclosed based on the information that
management uses to make decisions about operating matters.
IFRS8 sets out the requirements for disclosure of information
about an entity’s operating segments and also about the entity’s
products and services, the geographical areas in which it operates,
and its major customers. IFRS8 further requires the entity to
disclose factors used to identify the entity’s operating segments
and type of products and services from which each operating
segment derives its revenues. The impact of this standard is
currently being evaluated.
IAS1 Presentation of Financial Statements (revised)
The revised standard is effective for annual periods beginning on
or after January 1, 2009. The changes made to IAS1 require
information in financial statements to be aggregated on the basis
of shared characteristics and to introduce a statement of
comprehensive income. This will enable users to analyse changes
in a Group’s equity resulting from transactions with owners in their
capacity as owners (such as dividends and share repurchases)
separately from ‘non-owner’ changes (such as transactions with
third parties). The revised standard gives preparers of financial
statements the option of presenting items of income and expense
and components of other comprehensive income either in a single
statement of comprehensive income with subtotals, or in two
separate statements.
The revisions include changes in the titles of some of the financial
statements to reflect their function more clearly. The new titles
will be used in accounting standards, but are not mandatory for
use in financial statements. The impact of this standard will be that
the presentation of the financial statements will change.
IAS23 Borrowing Costs
The revised standard requires all borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset to be capitalised. The revised Standard applies to
borrowing costs relating to qualifying assets for which the
commencement date for capitalisation is on or after January 1,
2009. The Group does not expect the adoption of the standard
to have a material impact since the Group has always applied the
allowed alternative of capitalising borrowing costs under the
current standard.
Amendment to IAS32 Financial Instruments Presentation
and IAS1 Presentation of Financial Statements, puttable
financial instruments
The amendment is effective for annual periods beginning on or
after January 1, 2009. In January 2008, the IASB amended
IAS32 and IAS1 Presentation of Financial Statements with respect
to the balance sheet classification of puttable financial instruments
and obligations arising only on liquidation. As a result of the
amendments, some financial instruments that currently meet the
definition of a financial liability will be classified as equity because
they represent the residual interest in the net assets of the entity.
The impact of this amended standard is currently being evaluated.
IFRIC12 Service Concession Arrangements
The interpretation is effective for annual periods beginning on or
after January 1, 2008. The interpretation clarifies that contractual
service arrangements do not convey the right to control the use
of the public service infrastructure to the operator, instead the
operator acts as a service provider. The infrastructure under these
arrangements shall therefore not be recognised as the property,
plant and equipment of the operator. The operator shall recognise
and measure revenue in accordance with IAS11 and IAS18 for the
services it performs. The operator should recognise the asset as
an intangible asset for the right (or licence) it receives to charge
the users of the public service or as a financial asset when it has
the right to receive cash from the grantor for construction services.
The interpretation provides guidance on the recognition and
measurement of the various aspects of service concession
arrangements from an operator’s perspective. The impact of this
interpretation is currently being evaluated.
IFRIC13 Customer Loyalty Programmes
The interpretation is effective for annual periods beginning on or
after July 1, 2008. The interpretation addresses accounting by
entities that grant loyalty award credits (such as ‘points’ or travel
miles) to customers who buy other goods or services. It specifically
requires these entities to recognise the obligation to provide free
or discounted goods or services (‘awards’) to customers who
redeem award credits. The interpretation requires companies to
estimate the value of the points to the customer and defer this
amount of revenue and recognise a liability until they have fulfilled
their obligations to supply awards. In effect, the award is
accounted for as a separate component of the sale transaction. The
possible impact of this interpretation is currently being evaluated.
IFRIC14 The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
The interpretation is effective for annual periods beginning on or
after January 1, 2008. The interpretation addresses the interaction
between a minimum funding requirement and the limit placed by
paragraph 58 of IAS19 on the measurement of the defined
benefit asset. When determining the limit on a defined benefit
asset in accordance with IAS19.58, IFRIC14 requires an entity to
measure any economic benefits available to them in the form of
refunds or reductions in future contributions at the maximum
amount that is consistent with the terms and conditions of the
plan and any statutory requirements in the jurisdiction of the plan.
The interpretation states that the employer only needs to have
an unconditional right to use the surplus at some point during the
life of the plan or on its wind up in order for a surplus to be
recognised. The Group is currently evaluating the potential impact
that the interpretation will have on the financial position or results
of operations.
Significant accounting judgements and estimates
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods.
Although these estimates are based on management’s best
knowledge of current events and actions that the Group may
undertake in the future, actual results may ultimately differ from
those estimates.
F-9
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-10
2.
Significant accounting policies (continued)
Significant accounting judgements and
estimates (continued)
The presentation of the results of operations, financial position
and cash flows in the financial statements of the Group is
dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the
preparation of these financial statements. Management has made
certain judgements in the process of applying the Group’s
accounting policies. These, together with the key assumptions
concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, are as follows:
Revenue recognition
To reflect the substance of each transaction, revenue recognition
criteria are applied to each separately identifiable component of
a transaction. In order to account for multiple-element revenue
arrangements in developing its accounting policies, the Group
considered the guidance contained in the United States Financial
Accounting Standards Board (‘FASB’) Emerging Issues Task Force
No 00-21 Revenue Arrangements with Multiple Deliverables.
Judgement is required to separate those revenue arrangements
that contain the delivery of bundled products or services into
individual units of accounting, each with its own earnings process,
when the delivered item has stand-alone value and the undelivered
item has fair value. Further judgement is required to determine the
relative fair values of each separate unit of accounting to be
allocated to the total arrangement consideration. Changes in the
relative fair values could affect the allocation of arrangement
consideration between the various revenue streams.
Judgement is also required to determine the expected customer
relationship period. Any changes in these assessments may have
a significant impact on revenue and deferred revenue.
Property, plant and equipment and intangible assets
The useful lives of assets are based on management’s estimation.
Management considers the impact of changes in technology,
customer service requirements, availability of capital funding and
required return on assets and equity to determine the optimum
useful life expectation for each of the individual categories of
property, plant, equipment and intangible assets. Due to the rapid
technological advancement in the telecommunications industry as
well as Telkom’s plan to migrate to a next generation network
over the next few years, the estimation of useful lives could differ
significantly on an annual basis due to unexpected changes in the
roll-out strategy. The impact of the change in the expected useful
life of property, plant and equipment is described more fully in
note 5.6. The estimation of residual values of assets is also based
on management’s judgement whether the assets will be sold or
used to the end of their useful lives and what their condition will
be like at that time.
For intangible assets that incorporate both a tangible and
intangible portion, management uses judgement to assess which
element is more significant to determine whether it should be
treated as property, plant and equipment or intangible assets.
Asset retirement obligations
Management judgement is exercised when determining whether
an asset retirement obligation exists, and in determining the
present value of expected future cash flows and discount rate
when the obligation to dismantle or restore the site arises, as well
as the estimated useful life of the related asset.
Impairments of property, plant and equipment and
intangible assets
Management is required to make judgements concerning the
cause, timing and amount of impairment. In the identification of
impairment indicators, management considers the impact of
changes in current competitive conditions, cost of capital,
availability of funding, technological obsolescence, discontinuance
of services and other circumstances that could indicate that an
impairment exists. The Group applies the impairment assessment
to its separate cash-generating units. This requires management
to make significant judgements concerning the existence of
impairment indicators, identification of separate cash-generating
units, remaining useful lives of assets and estimates of projected
cash flows and fair value less costs to sell. Management
judgement is also required when assessing whether a previously
recognised impairment loss should be reversed.
Where impairment indicators exist, the determination of the
recoverable amount of a cash-generating unit requires management
to make assumptions to determine the fair value less costs to sell
and value in use. Key assumptions on which management has
based its determination of fair value less costs to sell include the
existence of binding sale agreements, and for the determination
of value in use include projected revenues, gross margins, average
revenue per asset component, capital expenditure, expected
customer bases and market share. The judgements, assumptions
and methodologies used can have a material impact on the fair
value and ultimately the amount of any impairment.
Impairment of other financial assets
At each balance sheet date management assesses whether there
are indicators of impairment of financial assets, including equity
investments. If such evidence exists, the estimated present value
of the future cash flows of that asset is determined. Management
judgement is required when determining the expected future cash
flows. To determine whether the decline in fair value is prolonged,
reliance is placed on an assessment by management regarding the
future prospects of the investee. In measuring impairments,
quoted market prices are used, if available, or projected business
plan information from the investee is used for those financial
assets not carried at fair value.
Impairment of receivables
An impairment is recognised on trade receivables that are assessed
to be impaired. The impairment is based on an assessment of the
extent to which customers have defaulted on payments already
due and an assessment on their ability to make payments based
on their credit worthiness and historical write-offs experience.
Should the assumptions regarding the financial condition of the
customer change, actual write-offs could differ significantly from
the impaired amount.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Significant accounting judgements and
estimates (continued)
Leases
The determination of whether an arrangement is, or contains a
lease is based on whether, at the date of inception, the fulfilment
of the arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease. A
lease is classified as a finance lease if it transfers substantially all
the risks and rewards incident to ownership.
Deferred taxation asset
Management judgement is exercised when determining the
probability of future taxable profits which will determine whether
deferred tax assets should be recognised or derecognised. The
realisation of deferred tax assets will depend on whether it is
possible to generate sufficient taxable income, taking into account
any legal restrictions on the length and nature of the taxation
asset. When deciding whether to recognise unutilised taxation
credits, management needs to determine the extent that future
payments are likely to be available for set-off. In the event that
the assessment of future payments and future utilisation changes,
the change in the recognised deferred tax asset must be
recognised in profit or loss.
Taxation
The tax rules and regulations in South Africa as well as the other
African countries within which the Group operates are highly
complex and subject to interpretation. Additionally, for the
foreseeable future, management expects South African tax laws
to further develop through changes in South Africa’s existing tax
structure as well as clarification of the existing tax laws through
published interpretations and the resolution of actual tax cases.
Management has made a judgement that all outstanding tax
credits will be available for utilisation before the tax regime change
is effective, despite the change of “secondary tax on companies”
to withholding tax.
The growth of the Group, following its geographical expansion
into other African countries over the past few years, has made
the estimation and judgement required in recognising and
measuring deferred taxation balances more challenging. The
resolution of taxation issues is not always within the control of the
Group and it is often dependent on the efficiency of the legal
processes in the relevant taxation jurisdictions in which the Group
operates. Issues can, and often do, take many years to resolve.
Payments in respect of taxation liabilities for an accounting period
result from payments on account and on the final resolution of
open items. As a result there can be substantial differences
between the taxation charge in the consolidated income statement
and the current taxation payments.
Group entities are regularly subject to evaluation, by the relevant
tax authorities, of its historical tax filings and in connection with
such reviews, disputes can arise with the taxing authorities over
the interpretation or application of certain tax rules to the
business of the relevant Group entities. These disputes may not
necessarily be resolved in a manner that is favourable for the
Group. Additionally the resolution of the disputes could result in
an obligation for the Group that exceeds management’s estimate.
The Group has historically filed, and continues to file, all required
income tax returns. Management believes that the principles
applied in determining the Group’s tax obligations are consistent
with the principles and interpretations of the relevant countries’
tax laws.

Deferred taxation rate

Management makes judgements on the tax rate applicable based
on the Group’s expectations at balance sheet date on how the asset
is expected to be recovered or the liability is expected to be settled.

Employee benefits

The Group provides defined benefit plans for certain post-
employment benefits. The Group’s net obligation in respect of
defined benefits is calculated separately for each plan by estimating
the amount of future benefits earned in return for services rendered.
The obligation and assets related to each of the post-retirement
benefits are determined through an actuarial valuation. The
actuarial valuation relies heavily on assumptions as disclosed in
note 29. The assumptions determined by management make use
of information obtained from the Group’s employment agreements
with staff and pensioners, market related returns on similar
investments, market related discount rates and other available
information. The assumptions concerning the expected return on
assets and expected change in liabilities are determined on a
uniform basis, considering long-term historical returns and future
estimates of returns and medical inflation expectations. In the event
that further changes in assumptions are required, the future
amounts of post-retirement benefits may be affected materially.

The discount rate reflects the average timing of the estimated defined benefit payments. The discount rate is based on long term South African government bonds with the longest maturity period as reported by the Bond Exchange of South Africa. The discount rate is expected to follow the trend of inflation.

The overall expected rate of return on assets is determined based
on the market prices prevailing at that date, applicable to the
period over which the obligation is to be settled.

Telkom provides equity compensation in the form of the Telkom
Conditional Share Plan to its employees. The related expense and
reserve are determined through an actuarial valuation which relies
heavily on assumptions. The assumptions include employee
turnover percentages and whether specified performance criteria
will be met. Changes to these assumptions could affect the amount
of expense ultimately recognised in the financial statements.
F-11
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-12
2.
Significant accounting policies (continued)
Significant accounting judgements and
estimates (continued)
Provisions and Contingent liabilities
Management judgement is required when recognising and
measuring provisions and when measuring contingent liabilities
as set out in notes 28 and 38 respectively. The probability that
an outflow of economic resources will be required to settle the
obligation must be assessed and a reliable estimate must be made
of the amount of the obligation. Provisions are discounted where
the effect of discounting is material based on management’s
judgement. The discount rate used is the rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability, all of which requires
management judgement. The Group is required to recognise
provisions for claims arising from litigation when the occurrence
of the claim is probable and the amount of the loss can be
reasonably estimated. Liabilities provided for legal matters require
judgements regarding projected outcomes and ranges of losses
based on historical experience and recommendations of legal
counsel. Litigation is however unpredictable and actual costs
incurred could differ materially from those estimated at the
balance sheet date.

Held-to-maturity financial assets

Management have reviewed the Group’s held-to-maturity financial
assets in the light of its capital management and liquidity
requirements and have confirmed the Group’s positive intention
and ability to hold those assets to maturity.

Summary of significant accounting policies

Basis of consolidation

The consolidated financial statements include those of Telkom, its
foreign and domestic subsidiaries and joint ventures. Subsidiaries
are those entities over which financial and operating policies the
Group has the ability to exercise control, so as to obtain majority
of the benefits from their activities. Joint ventures are those
enterprises over which the group exercises joint control in terms
of a contractual agreement. Joint ventures are accounted for using
the proportionate consolidation method on a line by line basis.
Intra-group balances and transactions, and any unrealised gains
and losses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. Transactions with
jointly controlled entities together with related unrealised gains
and losses and resulting balances are eliminated to the extent of
the Group’s interest in the entities. Consolidation commences from
the date that effective control passes to the Group.

Business combinations

On acquisition of a subsidiary or joint venture, any excess of the
purchase price over the fair value of the Group’s interest in the net
assets is recognised as goodwill. Minority interests are calculated
on the fair value of assets and liabilities. Where there is loss of
control of a subsidiary, the consolidated financial statements
include the results for the part of the reporting year during which
the Group has control.
Minority shareholders are treated as equity participants and,
therefore, all acquisitions of minority interest by the Group in
subsidiary companies are accounted for using the parent entity
extension method. Under this method, the assets and liabilities of
the subsidiary are not restated to reflect their fair values at the
date of the acquisition. The difference between the purchase price
and the minority interest’s share of the assets and liabilities
reflected within the consolidated balance sheet at the date of the
acquisition is therefore reflected as goodwill. Minority interests
are separately presented in the consolidated financial statements.

Operating revenue

The Group provides fixed-line communication services, mobile
communication services and other services. Other includes data
services, directory services and communication related products.
The Group provides such services to business, residential,
payphone and mobile customers. Revenue represents the fair
value of fixed or determinable consideration that has been
received or is receivable.

Revenue for services is measured at amounts invoiced to
customers and excludes Value Added Tax.

Revenue is recognised when there is evidence of an arrangement,
collectability is reasonably assured, and the delivery of the product
or service has occurred. In certain circumstances revenue is split
into separately identifiable components and recognised when the
related components are delivered in order to reflect the substance
of the transaction. The value of components is determined using
verifiable objective evidence. The Group does not provide
customers with the right to a refund.

Fixed-line and Other

Subscriptions, connections and other usage

The Group provides telephone and data communication services
under post paid and prepaid payment arrangements. Revenue
includes fees for installation and activation, which are deferred
over the expected customer relationship period. Costs incurred on
first time installations that form an integral part of the network are
capitalised and depreciated over the expected average customer
relationship period. All other installation and activation costs are
expensed as incurred.

Post paid and prepaid service arrangements include subscription
fees, typically monthly fees, which are recognised over the
subscription period.

Revenue related to sale of communication equipment, products
and value-added services is recognised upon delivery and
acceptance of the product or service by the customer.

Traffic (Domestic, Fixed-to-mobile and International)

Prepaid

Prepaid traffic service revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of the
usage period, whichever comes first. The terms and conditions of
certain prepaid products allow the carry over of unused minutes.
Revenue related to the carry over of unused minutes is deferred
until usage or expiration.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Operating revenue (continued)
Fixed-line and Other (continued)
Traffic (Domestic, Fixed-to-mobile and
International) (continued)
Payphones
Payphone service coin revenue is recognised when the service
is provided.
Payphone service card revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of the
usage period, whichever comes first.
Telkom provides incentives to its retail payphone card distributors
as trade discounts. Revenue for retail payphone cards is recorded
as traffic revenue, net of these discounts as the cards are used.
Postpaid
Revenue related to local, long distance, network-to-network,
roaming and international call connection services is recognised
when the call is placed or the connection provided.
Interconnection
Interconnection revenue for call termination, call transit, and
network usage is recognised as the traffic flow occurs.
Data
The Group provides data communication services under post paid
and prepaid payment arrangements. Revenue includes fees for
installation and activation, which are deferred over the expected
average customer relationship period. Costs incurred on first time
installations that form an integral part of the network are
capitalised and depreciated over the life of the expected average
customer relationship period. All other installation and activation
costs are expensed as incurred. Post paid and prepaid service
arrangements include subscription fees, typically monthly fees,
which are recognised over the subscription period.
Directory services
Included in other are directory services. Revenue is recognised
when paper directories are released for distribution, as the
significant risks and rewards of ownership have been transferred
to the buyer. Electronic directories’ revenue is recognised on a
monthly basis, as earned.
Sundry revenue
Sundry revenue is recognised when the economic benefit flows to
the Group and the earnings process is complete.
Dealer incentives
Telkom provides incentives to its retail payphone card distributors
as trade discounts. Incentives are based on sales volume and
value. Revenue for retail payphone cards is recorded as traffic
revenue, net of these discounts as the cards are used.
Mobile
The Vodacom Group invoices its independent service providers for
the revenue billed by them on behalf of the Group. The Group,
within its contractual arrangements with its agents, pays them
administrative fees. The Group receives in cash, the net amount
equal to the gross revenue earned less the administrative fees
payable to the agents.
Contract products
Contract products that may include deliverables such as a handset
and 24-month service are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to each
deliverable, based on the fair value of each deliverable on a stand
alone basis as a percentage of the aggregated fair value of the
individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost applicable
to these identified deliverables are recognised based on the same
recognition criteria of the individual deliverable at the time the
product or service is delivered.
Vodacom revenue from the handset is recognised when the
product is delivered limited to the amount of cash received.
Monthly service revenue received from the customer is recognised
in the period in which the service is delivered. Airtime revenue is
recognised on the usage basis. The terms and conditions of the
bundled airtime products, where applicable, allow the carry over
of unused airtime. The unused airtime is deferred in full. Deferred
revenue related to unused airtime is recognised when utilised by
the customer. Upon termination of the customer contract, all
deferred revenue for unused airtime is recognised in revenue.
Prepaid products
Prepaid products that may include deliverables such as a SIM-card
and airtime are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to each
deliverable, based on the fair value of each deliverable on a stand
alone basis as a percentage of the aggregated fair value of the
individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost applicable
to these identified deliverables are recognised based on the same
recognition criteria of the individual deliverable at the time the
product or service is delivered.
•  Revenue from the SIM-card representing activation fees is
recognised over the average useful life of a prepaid customer.
•  Airtime revenue is recognised on the usage basis. Unused
airtime is deferred in full.
•  Deferred revenue related to unused airtime is recognised when
   utilised by the customer. Upon termination of the customer
   relationship, all deferred revenue for unused airtime is
   recognised in revenue.
Upon purchase of an airtime voucher the customer receives the
right to make outgoing voice and data calls to the value of the
airtime voucher. Revenue is recognised as the customer utilises the
voucher.
Deferred revenue and costs related to unactivated starter packs
which do not contain any expiry date, is recognised in the period
when the probability of these starter packs being activated by a
customer becomes remote. In this regard the Group applies a
period of 36 months before these revenue and costs are released
to the consolidated income statement.
F-13
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-14
2.
Significant accounting policies (continued)
Operating revenue (continued)
Mobile (continued)
Data
Revenue, net of discounts, from data services is recognised when
the Group has performed the related service and depending on the
nature of the service, is recognised either at the gross amounts
billed to the customer or the amount receivable by the Group as
commission for facilitating the service.
Equipment sales
All equipment sales are recognised only when delivery and
acceptance has taken place. Equipment sales to third party service
providers are recognised when delivery is accepted. No rights of
return exist on sales to third party service providers.
Mobile number portability
Revenue transactions from mobile number portability are
accounted for in terms of current business rules and revenue
recognition policies above.
Interest on debtors’ accounts
Interest is raised on overdue accounts on an effective interest rate
method and recognised in the income statement.
Marketing
Marketing costs are recognised as an expense as incurred.
Incentives
Incentives paid to service providers and dealers for products
delivered to the customer are expensed as incurred. Incentives
paid to service providers and dealers for services delivered are
expensed in the period that the related revenue is recognised.
Distribution incentives paid to service providers and dealers for
exclusivity are deferred and expensed over the contractual
relationship period.
Investment income
Dividends from investments are recognised on the date that the
Group is entitled to the dividend. Interest is recognised on a time
proportionate basis taking into account the principal amount
outstanding and the effective interest rate.
Taxation
Current taxation
The charge for current taxation is based on the results for the year
and is adjusted for non-taxable income and non-deductible
expenditure. Current taxation is measured at the amount expected
to be paid to the taxation authorities, using taxation rates and
laws that have been enacted or substantively enacted by the
balance sheet date.
Deferred taxation
Deferred taxation is accounted for using the balance sheet liability
method on all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred tax is not provided on the initial recognition of goodwill
or initial recognition of assets or liabilities which is not a business
combination and at the time of the transaction affects neither
accounting nor taxable profit or loss.
A deferred tax asset is recognised to the extent that it is probable
that future taxable profits will be available against which the
associated unused tax losses, unused tax credits and deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at each balance sheet date and is
reduced to the extent that it is no longer probable that the related
tax benefit will be realised, except in respect of deductible
temporary differences associated with investments in subsidiaries,
associates and interest in joint ventures. Deferred income tax
assets are recognised only to the extent that it is probable that
temporary differences will reverse in the foreseeable future and
taxable profit will be available against which temporary differences
can be utilised.
Deferred tax relating to items recognised directly in equity are
recognised in equity and not in the income statement.
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Exchange differences arising from the translation of foreign
deferred taxation assets and liabilities of foreign entities where the
functional currency is different to the local currency, are classified
as a deferred taxation expense or income.
Secondary taxation on companies
Secondary taxation on companies (‘STC’) is provided for at a rate
of 10% (12.5% before October 1, 2007) on the amount by
which dividends declared by the Group exceeds dividends received.
Deferred tax on unutilised STC credits is recognised to the extent
that STC payable on future dividend payments is likely to be
available for set-off.
Property, plant and equipment
At initial recognition acquired property, plant and equipment are
recognised at their purchase price, including import duties and
non-refundable purchase taxes, after deducting trade discounts
and rebates. The recognised cost includes any directly attributable
costs for preparing the asset for its intended use. The cost of an
item of property, plant and equipment is recognised as an asset
if it is probable that the future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably.
Property, plant and equipment is stated at historical cost less
accumulated depreciation and any accumulated impairment losses.
Each component of an item of property, plant and equipment with
a cost that is significant in relation to the total cost of the item is
depreciated separately. Depreciation is charged from the date the
asset is available for use on a straight-line basis over the estimated
useful life and ceases at the earlier of the date that the asset is
classified as held for sale and the date the asset is derecognised.
Idle assets continue to attract depreciation.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Property, plant and equipment (continued)
The estimated useful life of individual assets and the depreciation
method thereof are reviewed on an annual basis at balance sheet
date. The depreciable amount is determined after taking into
account the residual value of the asset. The residual value is the
estimated amount that the Group would currently obtain from the
disposal of the asset, after deducting the estimated cost of
disposal, if the asset were already of the age and in the condition
expected at the end of its useful life. The residual values of assets
are reviewed on an annual basis at balance sheet date.
Assets under construction represents freehold buildings, integral
operating software, network and support equipment and includes
all direct expenditure as well as related borrowing costs capitalised,
but excludes the costs of abnormal amounts of waste material,
labour, or other resources incurred in the production of self-
constructed assets.
Freehold land is stated at cost and is not depreciated. Amounts
paid by the Group on improvements to assets which are held in
terms of operating lease agreements are depreciated on a straight-
line basis over the shorter of the remaining useful life of the
applicable asset or the remainder of the lease period. Where it is
reasonably certain that the lease agreement will be renewed, the
lease period equals the period of the initial agreement plus the
renewal periods.
The estimated useful lives assigned to groups of property, plant
and equipment are:
Years
Freehold buildings
15 to 40
Leasehold buildings
7 to 25
Network equipment
Cables
20 to 40
Switching equipment
2 to 18
Transmission equipment
5 to 18
Other
1 to 20
Support equipment
5 to 13
Furniture and office equipment
2 to 15
Data processing equipment and software
3 to 10
Other
2 to 15
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the
income statement in the year the asset is derecognised.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease if there is no reasonable
certainty that the Group will obtain ownership by the end of the
lease term.
Intangible assets
Goodwill
Goodwill on acquisition is initially measured as being the excess
of the cost of the business combination over the Group’s interest
in the net fair value of the identifiable assets, liabilities and
contingent liabilities, allocated to cash-generating units where
relevant. Goodwill on the acquisition of subsidiaries and joint
ventures is included in intangible assets. Following initial
recognition, goodwill is measured at cost less any accumulated
impairment losses, once the impairment is recognised it is not
reversed. Goodwill is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the
carrying value may be impaired. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the
entity sold.

Licences, software, trademarks, copyrights and other

At initial recognition acquired intangible assets are recognised at
their purchase price, including import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates. The
recognised cost includes any directly attributable costs for preparing
the asset for its intended use. Internally generated intangible assets
are recognised at cost comprising all directly attributable costs
necessary to create and prepare the asset to be capable of operating
in the manner intended by management. Licences, software,
trademarks, copyrights and other intangible assets are carried at
cost less accumulated amortisation and any accumulated impairmentlosses. Amortisation commences when the intangible assets are available for their intended use and is recognised on a straight-line
basis over the assets’ expected useful lives. Amortisation ceases at
the earlier of the date that the asset is classified as held for sale and
the date that the asset is derecognised.

The residual value of intangible assets is the estimated amount
that the Group would currently obtain from the disposal of the
asset, after deducting the estimated cost of disposal, if the asset
were already of the age and in the condition expected at the end
of its useful life. Due to the nature of the asset the residual value
is assumed to be zero unless there is a commitment by a third
party to purchase the asset at the end of its useful life or when
there is an active market that is likely to exist at the end of the
asset’s useful life, which can be used to estimate the residual
values. The residual values of intangible assets, amortisation
methods and their useful lives are reviewed on an annual basis at
balance sheet date.

Intangible assets with indefinite useful lives and intangible assets
not yet available for use, are tested for impairment annually either
individually or at the cash-generating unit level. Such intangible
assets are not amortised. The useful life of an intangible asset
with an indefinite life is reviewed annually to determine whether
indefinite life assessment continues to be supportable. If not, the
change in the useful life assessment from indefinite to finite is
made on a prospective basis.
F-15
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-16
2.
Significant accounting policies (continued)
Intangible assets (continued)
Licences, software, trademarks, copyrights and
other (continued)
Assets under construction represent application and other non
integral software and includes all direct expenditure as well as
related borrowing costs capitalised, but excludes the costs of
abnormal amounts of waste material, labour, or other resources
incurred in the production of self-constructed assets.
Intangible assets are derecognised when they have been disposed
of or when the asset is permanently withdrawn from use and no
future economic benefit is expected from its disposal. Any gains
or losses on the retirement or disposal of assets are recognised in
the income statement in the year in which they arise.
The expected useful lives assigned to intangible assets are:
Years
Licences
5 to 30
Software
2 to 10
Trademarks, copyrights and other
3 to 15
Asset retirement obligations
Asset retirement obligations related to property, plant and
equipment and intangible assets are recognised at the present
value of expected future cash flows when the obligation to
dismantle or restore the site arises. The increase in the related
asset’s carrying value is depreciated over its estimated useful life.
The unwinding of the discount is included in finance charges and
fair value movements. Changes in the measurement of an existing
liability that result from changes in the estimated timing or amount
of the outflow of resources required to settle the liability, or a
change in the discount rate are accounted for as increases or
decreases to the original cost of the recognised assets. If the
amount deducted exceeds the carrying amount of the asset, the
excess is recognised immediately in profit or loss.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for
sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the
asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale,
which should be expected to qualify for recognition as a complete
sale within one year from the date of classification. Assets are no
longer depreciated when they are classified into the category.
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of the assets’ previous carrying
amount and fair value less cost to sell.
Impairment of property, plant and equipment and
intangible assets
The Group regularly reviews its assets, other than financial
instruments, and cash-generating units for any indication of
impairment. When indicators, including changes in technology,
market, economic, legal and operating environments occur and
could result in changes of the asset’s or cash-generating unit’s
estimated recoverable amount, an impairment test is performed.
The recoverable amount of assets or cash-generating units is
measured using the higher of the fair value less costs to sell and
its value in use, which is the present value of projected cash flows
covering the remaining useful lives of the assets. Impairment
losses are recognised when the asset’s carrying value exceeds its
estimated recoverable amount. Where applicable, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.
Previously recognised impairment losses, other than goodwill, are
reviewed annually for any indication that it may no longer exist
or may have decreased. If any such indication exists, the
recoverable amount of the asset is estimated. Such impairment
losses are reversed through the income statement if the
recoverable amount has increased as a result of a change in the
estimates used to determine the recoverable amount, but not to
an amount higher than the carrying amount that would have been
determined (net of depreciation or amortisation) had no
impairment loss been recognised in prior years. Impairment on
goodwill is not reversed.
Repairs and maintenance
The Group expenses all costs associated with repairs and
maintenance, unless it is probable that such costs would result in
increased future economic benefits flowing to the Group, and the
costs can be reliably measured.
Borrowing costs
Financing costs directly associated with the acquisition or construction
of assets that require more than three months to complete and place
in service are capitalised at interest rates relating to loans specifically
raised for that purpose, or at the weighted average borrowing rate
where the general pool of Group borrowings was utilised. Other
borrowing costs are expensed as incurred.
Deferred revenue and expenses
Activation revenue and costs are recognised in accordance with
the principles contained in Emerging Issues Task Force Issue No
00-21, Revenue Arrangements with Multiple Deliverables (‘EITF
00-21’), issued in the United States. This results in activation
revenue and costs up to the amount of the deferred revenue being
deferred and recognised systematically over the expected duration
of the customer relationship because it is considered to be part of
the customers’ ongoing rights to telecommunication services and
the operator’s continuing involvement. The excess of the costs
over revenues is expensed immediately.
Inventories
Installation material, maintenance and network equipment
inventories are stated at the lower of cost, determined on a
weighted average basis, or estimated net realisable value.
Merchandise inventories are stated at the lower of cost,
determined on a first-in first-out (‘FIFO’) basis, or estimated net
realisable value. Write-down of inventories arises when, for
example, goods are damaged or when net realisable value is
lower than carrying value.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Financial instruments
Recognition and initial measurement
All financial instruments are initially recognised at fair value, plus,
in the case of financial assets and liabilities not at fair value
through profit or loss, transaction costs that are directly attributable
to the acquisition or issue. Financial instruments are recognised
when the Group becomes a party to their contractual arrangements.
All regular way transactions are accounted for on settlement date.
Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.
Subsequent measurement
Subsequent to initial recognition, the Group classifies financial
assets as ‘at fair value through profit or loss’, ‘held-to-maturity
investments’, ‘loans and receivables’, or ‘available-for-sale’. The
measurement of each is set out below and presented in a table
in note 12.
The fair value of financial assets and liabilities that are actively
traded in financial markets is determined by reference to quoted
market prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques such as discounted cash flow analysis.
Financial assets at fair value through profit or loss
The Group classifies financial assets that are held for trading in
the category ‘financial assets at fair value through profit or loss’.
This category includes bills of exchange and promissory notes.
Financial assets are classified as held for trading if they are
acquired for the purpose of selling in the future. Derivatives not
designated as hedges are also classified as held for trading. On
remeasurement to fair value the gains or losses on held for trading
financial assets are recognised in net finance charges and fair
value movements for the year.
Gains and losses arising from changes in the fair value of the
‘financial assets at fair value through profit or loss’ category are
presented in the income statement within ‘finance charges and fair
value movements’ in the period which they arise. Dividend income
from financial assets at fair value through profit or loss is
recognised in the income statement as part of other income when
the Group’s right to receive payment is established.
Held-to-maturity financial assets
The Group classifies non-derivative financial assets with fixed or
determinable payments and fixed maturity dates as held-to-
maturity when the Group has the positive intention and ability to
hold to maturity. This category includes bills of exchange and
promissory notes. These assets are subsequently measured at
amortised cost. Amortised cost is computed as the amount initially
recognised minus principal repayments, plus or minus the
cumulative amortisation using the effective interest rate method.
This calculation includes all fees paid or received between parties
to the contract. For investments carried at amortised cost, gains
and losses are recognised in net profit or loss when the
investments are sold or impaired.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
Such assets are carried at amortised cost using the effective
interest rate method. Trade receivables are subsequently measured
at the original invoice amount where the effect of discounting is
not material.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative assets
that are designated as available-for-sale, or are not classified in any
of the three preceding categories. Equity instruments are all
treated as available-for-sale financial instruments. After initial
recognition, available-for-sale financial assets are measured at fair
value, with gains and losses being recognised as a separate
component of equity.
Changes in the fair value of monetary securities denominated in
a foreign currency and classified as available-for-sale are analysed
between translation differences resulting from changes in
amortised cost of the security and other changes in carrying
amount of the security. The translation differences on monetary
securities are recognised in profit or loss, while translation
differences on non-monetary securities are recognised in equity.
Changes in the fair value of monetary and non-monetary securities
classified as available-for-sale are recognised directly in equity.
When an investment is derecognised or determined to be
impaired, the cumulative gain or loss previously recorded in equity
is recognised in profit or loss.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as at fair value through profit or
loss (‘FVTPL’) where the financial liability is either held for trading
or it is designated as at FVTPL.
A financial liability is classified as held for trading:
•  if it is acquired for the purpose of settling in the near term; or
•  if it is a derivative that is not designated and effective as a
hedging instrument.
Financial liabilities at a FVTPL are stated at fair value, with any
resultant gains or losses recognised in profit or loss. The net gain
or loss recognised in profit or loss incorporates any interest paid
on the financial liability.
Other financial liabilities
Other financial liabilities are subsequently measured at amortised
cost using the effective interest rate method, with interest expense
recognised in finance charges and fair value movements, on an
effective yield basis.
The effective interest rate is the rate that accurately discounts
estimated future cash payments through the expected life of the
financial liability, or, where appropriate, a shorter period.
Financial guarantee contracts
Financial guarantee contracts are subsequently measured at the
higher of the amount determined in accordance with IAS37
Provisions, Contingent Liabilities and Contingent Assets or the
amount initially recognised less, when appropriate, cumulative
amortisation, recognised in accordance with IAS18 Revenue.
F-17
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-18
2.
Significant accounting policies (continued)
Financial instruments (continued)
Put option
A contract that contains an obligation for the Group to purchase
its own equity instruments for cash or another financial asset gives
rise to a financial liability and is accounted for at the present value
of the redemption amount. On initial recognition its fair value is
reclassified directly from equity. Subsequent changes in the liability
are included in profit or loss. On expiry or exercise of the option
the carrying value of the liability is reclassified directly to equity.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost. This
comprise cash on hand, deposits held on call and term deposits with
an initial maturity of less than three months when entered into.
For the purpose of the cash flow statement, cash and cash
equivalents consist of cash and cash equivalents defined above,
net of credit facilities utilised.
Capital and money market transactions
New bonds and commercial paper bills issued are subsequently
measured at amortised cost using the effective interest rate method.
Bonds issued where Telkom is a buyer and seller of last resort are
carried at fair value. The Group does not actively trade in bonds.
Derecognition
A financial instrument or a portion of a financial instrument will be
derecognised and a gain or loss recognised when the Group’s
contractual rights expire, financial assets are transferred or
financial liabilities are extinguished. On derecognition of a financial
asset or liability, the difference between the consideration and the
carrying amount on the settlement date is included in finance
charges and fair value movements for the year. For available-for-
sale assets, the fair value adjustment relating to prior revaluations
of assets is transferred from equity and recognised in finance
charges and fair value movements for the year.
Bonds and commercial paper bills are derecognised when the
obligation specified in the contract is discharged. The difference
between the carrying value of the bond and the amount paid to
extinguish the obligation is included in finance charges and fair
value movements for the year.
Impairment of financial assets
At each balance sheet date an assessment is made of whether
there are any indicators of impairment of a financial asset or a
group of financial assets based on observable data about one or
more loss events that occurred after the initial recognition of the
asset or the group of assets. In the case of equity securities
classified as available-for-sale, a significant or prolonged decline
in the fair value of the security below its cost is considered as an
indicator that the securities are impaired. If any such evidence
exists for available-for-sale assets, the cumulative loss – measured
as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously
recognised in profit or loss – is removed from equity and
recognised in the income statement. Impairment losses recognised
in the income statement on equity instruments are not reversed
through the income statement. The recoverable amount of
financial assets carries at amortised cost is calculated as the
present value of expected future cash flows discounted at the
original effective interest rate of the asset.
If, in a subsequent period, the amount of the impairment loss for
financial assets decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is reversed
except for those financial assets classified as available-for-sale and
carried at cost that are not reversed. Any subsequent reversal of
an impairment loss is recognised in the income statement, to the
extent that the carrying value of the asset does not exceed its
amortised cost at the reversal date. Reversals in respect of equity
instruments classified as available-for-sale are not recognised.
Reversals of impairment losses on debt instruments classified as
available-for-sale are reversed through the income statement, if the
increase in fair value of the instrument can be objectively related
to an event occurring after the impairment loss was recognised
through the income statement.
Foreign currencies
Each entity within the Group determines its functional currency. The
Group’s presentation currency is the South African Rand (‘ZAR’).
Transactions denominated in foreign currencies are measured at
the rate of exchange at transaction date. Monetary items
denominated in foreign currencies are remeasured at the rate of
exchange at settlement date or balance sheet date whichever
occurs first. Exchange differences on the settlement or translation
of monetary assets and liabilities are included in finance charges
and fair value movements in the period in which they arise.
The annual financial statements of foreign operations are translated
into South African Rand, the Group’s presentation currency, for
incorporation into the consolidated annual financial statements.
Assets and liabilities are translated at the foreign exchange rates
ruling at the balance sheet date. Income, expenditure and cash
flow items are measured at the actual foreign exchange rate or
average foreign exchange rates for the period. All resulting unrealised
exchange differences are classified as equity. On disposal, the
cumulative amounts of unrealised exchange differences that have
been deferred are recognised in the consolidated income statement
as part of the gain or loss on disposal.
All gains and losses on the translation of equity loans to foreign
operations that are intended to be permanent whether they are
denominated in one of the entities functional currencies or in a
third currency, are recognised in equity.
Goodwill and intangible assets arising on the acquisition of a foreign
operation are treated as assets of the foreign operation and
translated at the foreign exchange rates ruling at balance sheet date.
Treasury shares
Where the Group acquires, or in substance acquires, Telkom
shares, such shares are measured at cost and disclosed as a
reduction of equity. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Group’s own
equity instruments. Such shares are not remeasured for changes
in fair value.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
2.
Significant accounting policies (continued)
Insurance contracts
Premiums written comprise the premiums on insurance contracts
entered into during the year, irrespective of whether they relate
in whole or in part to a later accounting period. Premiums are
disclosed gross of commission to intermediaries and exclude Value
Added Tax. Premiums written include adjustments to premiums
written in prior accounting periods. Outward reinsurance premiums
are accounted for in the same accounting period as the premiums
for the related direct insurance business assumed. The net earned
portion of premiums received is recognised as revenue. Premiums
are earned from the date of attachment of risk, over the indemnity
period, based on the pattern of risks underwritten. Outward
reinsurance premiums are recognised as an expense in accordance
with the pattern of indemnity received.
The provision for unearned premiums comprises the proportion of
premiums written which is estimated to be earned in subsequent
financial years, computed separately for each insurance contract
using a time proportionate basis or another suitable basis for
uneven risk contracts.
Claims incurred consist of claims and claims handling expenses
paid during the financial year together with the movement in the
provision for outstanding claims. Claims outstanding comprise
provisions for the Group’s estimate of the ultimate cost of settling
all claims incurred but unpaid at the balance sheet date whether
reported or not, and an appropriate risk margin.
A reserve in equity is made for the full amount of the contingency
reserve as required by the regulatory authorities in South Africa.
Transfers to and from this reserve are treated as appropriations of
retained earnings.
Leases
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership. All other leases
are classified as operating leases.
Where the Group enters into a service agreement as a supplier or
a customer that depends on the use of a specific asset, and conveys
the right to control the use of the specific asset, the arrangement
is assessed to determine whether it contains a lease. Once it has
been concluded that an arrangement contains a lease, it is assessed
against the criteria in IAS17 to determine if the arrangement should
be recognised as a finance lease or operating lease.
The land and buildings elements of a lease of land and buildings
are considered separately for the purposes of lease classification
unless it is impracticable to do so.
Lessee
Operating lease payments are recognised in the income statement
on a straight-line basis over the lease term.
Assets acquired in terms of finance leases are capitalised at the
lower of fair value or the present value of the minimum lease
payments at inception of the lease and depreciated over the lesser
of the useful life of the asset or the lease term. The capital element
of future obligations under the leases is included as a liability in
the balance sheet. Lease finance costs are amortised in the income
statement over the lease term using a constant periodic rate of interest.
Where a sale and leaseback transaction results in a
finance lease, any excess of sale proceeds over the carrying
amount is deferred and recognised in the income statement over
the term of the lease.
Lessor
Operating lease revenue is recognised in the income statement on
a straight-line basis over the lease term.
Assets held under a finance lease are recognised in the balance
sheet and presented as a receivable at an amount equal to the net
investment in the lease. The recognition of finance income is based
on a pattern reflecting a constant periodic rate of return on the net
investment in the finance lease.
Employee benefits
Post-employment benefits
The Group provides defined benefit and defined contribution plans
for the benefit of employees. These plans are funded by the
employees and the Group, taking into account recommendations
of the independent actuaries. The post-retirement telephone rebate
liability is unfunded.
Defined contribution plans
The Group’s funding of the defined contribution plans is charged
to employee expenses in the same year as the related service
is provided.
Defined benefit plans
The Group provides defined benefit plans for pension, retirement,
post-retirement medical aid benefits and telephone rebates to
qualifying employees. The Group’s net obligation in respect of
defined benefits is calculated separately for each plan by
estimating the amount of future benefits earned in return for
services rendered.
The amount recognised in the balance sheet represents the present
value of the defined benefit obligations, calculated by using the
projected unit credit method, as adjusted for unrecognised actuarial
gains and losses, unrecognised past service costs and reduced by
the fair value of the related plan assets. The amount of any surplus
recognised and reflected as deferred expenses is limited to
unrecognised actuarial losses and past service costs plus the present
value of available refunds and reductions in future contributions to
the plan. To the extent that there is uncertainty as to the
entitlement to the surplus, no asset is recognised. No gain is
recognised solely as a result of an actuarial loss or past service cost
in the current period and no loss is recognised solely as a result of
an actuarial gain or past service cost in the current period.
Actuarial gains and losses are recognised as employee expenses
when the cumulative unrecognised gains and losses for each
individual plan exceed 10% of the greater of the present value of
the Group’s obligation and the fair value of plan assets at the
beginning of the year. These gains or losses are amortised on a
straight-line basis over ten years for all the defined benefit plans,
except gains or losses related to the pensioners in the Telkom
Retirement Fund or unless the standard required faster recognition.
For the Telkom Retirement Fund pensioners, the cumulative
unrecognised actuarial gains and losses in excess of the 10%
corridor at the beginning of the year are recognised immediately.
F-19
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
F-20
2.
Significant accounting policies (continued)
Employee benefits (continued)
Defined benefit plans (continued)
Past service costs are recognised immediately to the extent that the
benefits are vested, otherwise they are recognised on a straight-line
basis over the average period the benefits become vested.
Leave benefits
Annual leave is provided for over the period that the leave accrues
and is subject to a cap of 22 days.
Workforce reduction
Workforce reduction expenses are payable when employment is
terminated before the normal retirement age or when an
employee accepts voluntary redundancy in exchange for benefits.
Workforce reduction benefits are recognised when the entity is
demonstrably committed and it is probable that the expenses will
be incurred. In the case of an offer made to encourage voluntary
redundancy, the measurement of termination benefits is based
on the number of employees expected to accept the offer.
Deferred bonus incentives
Employees of the wholly owned subsidiaries of Vodacom, including
executive directors, are eligible for compensation benefits in the
form of a Deferred Bonus Incentive Scheme. The benefit is
recorded at the present value of the expected future cash outflows.
Share-based compensation
The grants of equity instruments, made to employees in terms of
the Telkom Conditional Share Plan, are classified as equity-settled
share-based payment transactions. The expense relating to the
services rendered by the employees, and the corresponding
increase in equity, is measured at the fair value of the equity
instruments at their date of grant based on the market price at
grant date, adjusted for the lack of entitlement to dividends during
the vesting period. This compensation cost is recognised over the
vesting period, based on the best available estimate at each
balance sheet date of the number of equity instruments that are
expected to vest.
Short-term employee benefits
The cost of all short-term employee benefits is recognised during
the year the employees render services, unless the Group uses
the services of employees in the construction of an asset and the
benefits received meet the recognition criteria of an asset, at which
stage it is included as part of the related property, plant and
equipment or intangible asset item.
Long-term incentive provision
The Vodacom Group provides long-term incentives to eligible
employees payable on termination or retirement. The Group’s
liability is based on an actuarial valuation. Actuarial gains and
losses are recognised as employee expenses.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation. Provisions are reviewed at each balance sheet date
and adjusted to reflect the current best estimate. Where the effect
of the time value of money is material, the amount of the
provision is the present value of the expenditures expected to be
required to settle the obligation.
Segmental reporting
As of the beginning of the year the Group identified a new
segment called ‘Other’, and is now managed in three business
segments, which form the primary segment reporting basis: Fixed-
line, Mobile and Other. The Other business segment includes newly
acquired Multi-Links Telecommunications Limited and Africa Online 
Limited, as well as the Telkom Media Group. It also includes
TDS Directory Operations Group and Swiftnet (Proprietary)
Limited, which were previously included in the Fixed-line segment.
The corporate information has also been updated to reflect the
above changes.
The Group’s three segments operate in South Africa, and other
African countries. The geographical location of the Group’s customers
has been identified as the secondary basis for segment reporting.
The Fixed-line business segment provides local telephony and
data, domestic and international long-distance services as well as
leased lines, data transmission and internet access.
The Mobile business segment provides mobile telephony services
as well as the sale of mobile equipment.
The Other business segment provides directory services, fixed,
mobile, data and international telecommunication services
throughout other African countries.
Inter-segment transactions are accounted for in the same way as
transactions to third parties at current market prices.
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
3.
Revenue
3.1   Total revenue
48,260
52,157
56,865
Operating revenue
47,625
51,619
56,285
Other income (excluding profit on disposal of property, plant and
equipment, intangible assets and investments, refer to note 4)
238
303
383
Investment income (refer to note 6)
397
235
197
3.2   Operating revenue
47,625
51,619
56,285
Fixed-line
31,832
32,345
32,572
Mobile
17,021
20,573
24,089
Other
952
979
1,993
Eliminations
(2,180)
(2,278)
(2,369)
Fixed-line
31,832
32,345
32,572
Subscriptions, connections and other usage
5,803
6,286
6,330
Traffic
17,563
16,740
15,950
Domestic (local and long distance)
8,915
7,563
6,328
Fixed-to-mobile
7,647
7,646
7,557
International (outgoing)
1,001
988
986
Subscription based calling plans *
–
543
1,079
Interconnection
1,654
1,639
1,757
Data
6,674
7,489
8,308
Sundry revenue
138
191
227
Mobile
17,021
20,573
24,089
Airtime and access
10,043
11,854
13,548
Data revenue
1,019
1,671
2,501
Interconnect revenue
3,348
3,918
4,443
Equipment sales
1,993
2,350
2,526
International airtime
486
653
918
Other
132
127
153
*The Group has reclassified calling plans from domestic traffic into a separate
revenue line item to disclose revenue earned from subscription based calling
plans. Amounts for the year ended March 31, 2006 were not restated as they
were considered to be immaterial.
Fixed-line revenue has been restated as a result of changes in the segment structure.
4.
Other income
480
384
534
Other income (included in Total revenue, refer to note 3)
238
303
383
Interest received from trade receivables
136
190
257
Sundry income
102
113
126
Profit on disposal of property, plant and equipment and intangible assets
79
29
147
Profit on disposal of investment and subsidiary
163
52
4
The increase in profit on disposal of property, plant and equipment and intangible assets is due to the increased volumes and values on the
sale of Telkom properties in alignment with Telkom’s strategy of disposing of non-core assets.
2006
2007
2008
Rm
Rm
Rm
F-21
background image
5.
Operating expenses
Operating expenses comprise:
5.1     Employee expenses
7,489
8,454
9,220
Salaries and wages
5,566
6,362
7,144
Medical aid contributions
371
385
417
Retirement contributions
435
496
598
Post-retirement pension and retirement fund (refer to note 29)
(58)
33
5
Current service cost
4
5
5
Interest cost
364
329
509
Expected return on plan assets
(454)
(508)
(713)
Actuarial loss/(gain)
78
(136)
(16)
Settlement loss
–
21
(2)
Asset limitation
(50)
322
222
Post-retirement medical aid (refer to note 28 and 29)
361
330
278
Current service cost
48
83
84
Interest cost
249
286
322
Expected return on plan asset
–
(188)
(257)
Actuarial loss
63
149
129
Settlement loss
7
–
–
Curtailment gain
(6)
–
–
Telephone rebates (refer to note 28 and 29)
19
104
27
Current service cost
3
4
3
Interest cost
16
19
22
Past service cost
–
76
2
Actuarial loss
–
5
–
Share-based compensation expense (refer to note 23)
127
141
522
Other benefits*
1,288
1,299
1,015
Employee expenses capitalised
(620)
(696)
(786)
*Other benefits
Other benefits include skills development, annual leave, performance incentive
and service bonuses.
5.2     Payments to other operators
6,826
7,590
9,169
Payments to other network operators consist of expenses in respect of
interconnection with other network operators.
5.3     Selling, general and administrative expenses
10,273
12,902
14,409
Selling and administrative expenses
7,240
9,248
10,352
Maintenance
1,928
2,286
2,508
Marketing
899
1,215
1,249
Bad debts (refer to note 18)
206
153
300
2006
2007
2008
Rm
Rm
Rm
F-22
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
5.
Operating expenses (continued)
5.4     Service fees
2,114
2,291
2,571
Facilities and property management
1,110
1,142
1,228
Consultancy services
182
266
291
Security and other
772
821
982
Auditors’ remuneration
50
62
70
Audit services
38
61
69
Company auditors
28
48
46
Current year
26
47
43
Prior year underprovision
2
1
3
Other auditors – current year
10
13
23
Audit related services
9
–
1
Company auditors – current year
6
–
–
Other auditors
3
–
1
Other services
3
1
–
The increase in security costs is mainly attributable to Telkom’s drive to
minimise cable theft.
5.5     Operating leases
850
981
838
Land and buildings
221
284
170
Transmission and data lines
42
63
187
Equipment
78
80
50
Vehicles
509
554
431
5.6    Depreciation, amortisation, impairment and write-offs
5,876
5,315
6,130
Depreciation of property, plant and equipment (refer to note 10)
5,154
4,483
4,855
Amortisation of intangible assets (refer to note 11)
560
536
746
Impairment of property, plant and equipment and intangible assets
(refer to note 10 and 11)
–
12
244
Reversal of impairment of property, plant and equipment (refer to
note 10)
(26)
–
–
Write-offs of property, plant and equipment and intangible assets (refer
to note 10 and 11)
188
284
285
In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Group reviewed their
remaining useful lives as at March 31. The assets affected were certain items included in Network equipment, Support equipment, Furniture
and office equipment, Data processing equipment and software and Intangible assets. The revised estimated useful lives of these assets as set
out below, resulted in a decrease of the current year depreciation and amortisation charges of R198 million (2007: R983 million).
2006
2007
2008
Rm
Rm
Rm
F-23
background image
5.
Operating expenses (continued)
5.6     Depreciation, amortisation, impairment and write-offs (continued)
Property, plant and equipment
Network equipment
Switching equipment
5 – 18
2 – 18
Other
2 – 20
1 – 20
Support equipment
8 – 13
5 – 13
Furniture and office equipment
4 – 15
2 – 15
Data processing equipment and software
5 – 10
3 – 10
Intangible assets
Subscriber bases
3 – 8
4 – 10
Software
5 –10
2 – 10
2006
2007
2008
Rm
Rm
Rm
6.
Investment income
397
235
197
Interest received
347
232
197
Dividends received from investments
50
3
–
Included in investment income is an amount of R169 million (2007:
R222 million; 2006: R347 million) which relates to interest earned from
financial assets not measured at fair value through profit or loss.
7.
Finance charges and fair value movements
1,223
1,125
1,803
Finance charges on interest-bearing debt
1,346
1,327
1,885
Local debt
1,506
1,488
2,041
Foreign debt
9
–
19
Less: Finance costs capitalised
(169)
(161)
(175)
Foreign exchange gains and losses and fair value movement
                (123)                     
        (202)                       
 (82)   
Foreign exchange losses
47
246
114
Fair value adjustments on derivative instruments
(170)
(448)
(196)
Capitalisation rate
13.91%
14.77%
12.60%
During the year gains of R8 million (2007: RNil; 2006: RNil) from available-for-sale instruments were recognised directly in equity.
Included in finance charges is an amount of R1,831 million (2007: R1,321 million; 2006: R1,341 million) which relates to interest paid on
financial liabilities not measured at fair value through profit or loss.
Previous life
Revised life
Years
Years
F-24
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
8.
Taxation
4,523
4,731
4,704
South African normal company taxation
3,763
3,528
3,756
Current tax
3,754
3,564
3,764
Underprovision/(overprovision) for prior year
9
(36)
(8)
Deferred taxation
173
516
219
Temporary differences – normal company taxation
229
584
141
Temporary difference – Secondary Taxation on Companies (‘STC’) tax
credits utilised/(raised)
51
(69)
190
Change in tax rate
–
–
(59)
(Overprovision)/underprovision for prior year
(107)
1
(53)
Secondary Taxation on Companies
585
670
678
Foreign taxation
2
17
51
The net deferred taxation expense results mainly from the extension of
useful lives, offset slightly by an increase in the STC tax credits.
The STC expense was provided for at a rate of 10% (12.5% before
October 1, 2007) on the amount by which dividends declared exceeded
dividends received. Deferred tax expense relating to STC credits are
provided for at a rate of 10%.
%                         %                          %
Reconciliation of taxation rate  
Effective rate
32.7
34.9
36.5
South African normal rate of taxation
29.0
29.0
29.0
Adjusted for:
3.7
5.8
7.5
Change in tax rate
–
–
(0.5)
Exempt income
(1.3)
(0.2)
(0.5)
Disallowable expenditure
0.9
1.2
2.9
Tax losses not utilised
0.6
–
(0.7)
STC tax credits utilised/(raised)
0.4
(0.3)
1.5
STC tax charge
4.2
4.9
5.3
Capital gains tax
–
0.8
–
Net overprovision for prior year
(1.1)
(0.5)
(0.5)
Utilisation of assessed loss
–
(0.1)
–
Where required, provisions have been made or adjusted for anticipated obligations related to various ongoing investigations by tax authorities
on indirect taxes. The provisions made include estimates of anticipated interest and penalties where appropriate. As of March 31, 2008, the
Group has accrued for tax obligations in the amount of RNil million (2007: RNil; 2006: R199 million). These amounts represent what
management believes will be the probable outcome of such disputes for all tax years for which additional taxes can be assessed.
F-25
2006
2007
2008
Rm
Rm
Rm
background image
9.
Earnings per share
Basic earnings per share (cents)
1,746.1
1,681.0
1,565.0
The calculation of earnings per share is based on profit attributable to
equity holders of Telkom for the year of R7,975 million (2007: R8,646
million; 2006: R9,189 million) and 509,595,092 (2007:
514,341,284; 2006: 526,271,095) weighted average number of
ordinary shares in issue.
Diluted earnings per share (cents)
1,736.6
1,676.3
1,546.9
The calculation of diluted earnings per share is based on earnings for the
year of R7,975 million (2007: R8,646 million; 2006: R9,189 million)
and 515,541,968 diluted weighted average number of ordinary shares
(2007: 515,763,581; 2006: 529,152,320). The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.
Headline earnings per share (cents)*
1,728.6
1,710.7
1,634.8
The calculation of headline earnings per share is based on headline
earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million)
and 509,595,092 (2007: 514,341,284; 2006: 526,271,095)
weighted average number of ordinary shares in issue.
Diluted headline earnings per share (cents)*
1,719.2
1,706.0
1,616.0
The calculation of diluted headline earnings per share is based on headline
earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million)
and 515,541,968 (2007: 515,763,581; 2006: 529,152,320)
diluted weighted average number of ordinary shares in issue. The
adjustment in the weighted average number of shares is as a result of
the expected future vesting of shares already allocated to employees
under the Telkom Conditional Share Plan.
Reconciliation of weighted average number of ordinary shares:
Ordinary shares in issue (refer to note 21)
557,031,821
544,944,901
532,855,530
Weighted average number of shares bought back
(7,211,710)
(7,442,253)
(1,594,241)
Weighted average number of treasury shares
(23,549,016)
(23,161,364)
(21,666,197)
Weighted average number of shares outstanding
526,271,095
514,341,284
509,595,092
*The disclosure of headline earnings is a requirement of the JSE Limited and is not a recognised measure under IFRS. It has been calculated in accordance with the South African Institute of Chartered Accountants’ circular issued in this regard.

The effect of the increase in the interest expense as a result of the increase in borrowings is a reduction in the basic earnings per share of 63.4 cents and a reduction in headline earnings per share of 62.7 cents.
2006
2007
2008
F-26
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
9.
Earnings per share (continued)
2008
Reconciliation between earnings and headline earnings:
Earnings as reported
7,975
Profit on disposal of investments (Available-for-sale)
(4)
(3)
Profit on disposal of property, plant and equipment and intangible assets
(147)
(104)
Impairment loss on property, plant and equipment and intangible assets
248
244
Write-offs of property, plant and equipment and intangible assets
285
219
Headline earnings
8,331
2007
Reconciliation between earnings and headline earnings:
Earnings as reported
8,646
Profit on disposal of investments (Available-for-sale)
(52)
(37)
Profit on disposal of property, plant and equipment and intangible assets
(29)
(21)
Impairment loss on property, plant and equipment and intangible assets
12
9
Write-offs of property, plant and equipment and intangible assets
284
202
Headline earnings
8,799
2006
Reconciliation between earnings and headline earnings:
Earnings as reported
9,189
Profit on disposal of investments (Available-for-sale)
(163)
(116)
Profit on disposal of property, plant and equipment and intangible assets
(79)
(56)
Reversal of impairment loss on property, plant and equipment and intangible assets
(26)
(18)
Write-offs of property, plant and equipment and intangible assets
188
133
Acquisition of subsidiary
(35)
(35)
Headline earnings
9,097
*These are the gross amounts, before deducting taxation and minority interests.
2006
2007
2008
Reconciliation of diluted weighted average number
of ordinary shares:
Weighted average number of share outstanding
526,271,095
514,341,284
509,595,092
Expected future vesting of shares
2,881,225
1,422,297
5,946,876
Dilluted weighted average number of shares outstanding
529,152,320
515,763,581
515,541,968
Dividend per share (cents)
900.0
900.0
1,100.0
The calculation of dividend per share is based on dividends of R5,627 million (2007: R4,678 million; 2006: R4,801 million) declared on
June 8, 2007 and 511,513,239 (2007: 519,711,238; 2006: 533,465,573) number of ordinary shares outstanding on the date of
dividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment.
F-27
Gross*
Rm
Rm
Net
background image
2006
2007
2008
Accumulated
Carrying                   Accumulated
Carrying
Accumulated
Carrying
Cost   depreciation
value
Cost  depreciation
value
Cost depreciation
value
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
10.     Property, plant and
equipment
Freehold land and buildings
4,510
(1,811)
2,699
4,594
(1,837)
2,757
4,931
(2,010)
2,921
Leasehold buildings
940
(322)
618
926
(362)
564
1,052
(418)
634
Network equipment
59,418
(30,477)      28,941
63,003
(31,820)      31,183
69,572
(35,214)      34,358
Support equipment
3,740
(2,419)
1,321
4,045
(2,436)
1,609
4,355
(2,635)
1,720
Furniture and office
equipment
469
(335)
134
536
(366)
170
568
(377)
191
Data processing equipment
and software
5,612
(3,530)
2,082
5,836
(3,707)
2,129
6,279
(3,904)
2,375
Under construction
1,320
–
1,320
2,536
–
2,536
4,200
–
4,200
Other
552
(393)
159
860
(554)
306
1,046
(630)
416
76,561
(39,287)     37,274
82,336
(41,082)     41,254
92,003
(45,188)     46,815
A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build program with focus
on Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continue
over the next few years.
Fully depreciated assets with a cost of R498 million (2007: R1,225 million; 2006: R3,724 million) were derecognised in the 2008 financial
year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment.
Property, plant and equipment with a carrying value of R681 million (2007: R575 million; 2006: R624 million) are pledged as security. Details
of the loans are disclosed in note 27.
The carrying amounts of property, plant and equipment can be reconciled as follows:
Impair-
Carrying                                                        Foreign
ment,
Carrying
value at
Business
currency  write-offs
value at
beginning                        combi-
trans-
and
Depre-
end
of
of year
Additions
nations
Transfers
lation
reversals
Disposals
ciation
year
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2008
Freehold land and buildings
2,757
300
22
27
2
(3)
(8)
(176)
2,921
Leasehold buildings
564
136
26
32
1
(67)
(1)
(57)
634
Network equipment
31,183
5,167
404
1,301
272
(136)
(107)
(3,726)     34,358
Support equipment
1,609
316
1
116
3
(8)
–
(317)
1,720
Furniture and office equipment
170
78
3
1
1
(8)
(1)
(53)
191
Data processing equipment and
software
2,129
525
31
150
6
(19)
(2)
(445)
2,375
Under construction
2,536
3,416
135
(1,737)
2
(152)
–
–
4,200
Other
306
170
8
11
7
(2)
(3)
(81)
416
41,254
10,108
630
(99)
294
(395)
(122)
(4,855)     46,815
F-28
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
10.     Property, plant and
equipment (continued)
2007
Freehold land and buildings
2,699
209
–
–
2
17
(1)
(169)
2,757
Leasehold buildings
618
–
–
1
–
–
(14)
(41)
564
Network equipment
28,941
5,154
1
849
240
(199)
(270)
(3,533)     31,183
Support equipment
1,321
442
–
109
2
(15)
–
(250)
1,609
Furniture and office equipment
134
51
3
8
1
–
–
(27)
170
Data processing equipment
and software
2,082
466
12
(36)
8
(10)
(2)
(391)
2,129
Under construction
1,320
2,165
–
(912)
–
(37)
–
–
2,536
Other
159
161
–
58
4
(1)
(3)
(72)
306
37,274
8,648
16
77
257
(245)
(290)
(4,483)     41,254
2006
Freehold land and buildings
2,665
105
–
174
–
(22)
(21)
(202)
2,699
Leasehold buildings
618
75
–
(1)
–
–
–
(74)
618
Network equipment
28,336
2,622
–
2,228
(122)
(49)
(21)
(4,053)     28,941
Support equipment
1,355
130
–
106
(1)
(6)
(5)
(258)
1,321
Furniture and office equipment
155
19
–
4
–
–
–
(44)
134
Data processing equipment
and software
2,035
381
1
153
(2)
(10)
(1)
(475)
2,082
Under construction
1,084
2,933
–
(2,622)
–
(75)
–
–
1,320
Other
200
45
–
(29)
(1)
–
(8)
(48)
159
36,448
6,310
1
13
(126)
(162)
(56)
(5,154)     37,274
Full details of land and buildings are available for inspection at the registered offices of the Group.
In March 2006 the Group started a process of determining whether an asset which incorporates both a tangible and an intangible element, should
be recognised as tangible or intangible assets, based on management judgement and on facts available and the significance of each element to
the total value of the asset. This ongoing process has resulted in further assets with a carrying value to the net amount of R99 million (2007:
R77 million ; 2006: R13 million) being reclassified between intangible assets and property, plant and equipment in the current year.
The Group does not have temporary idle property, plant and equipment.
During the current year, the Group recognised an impairment loss relating to Telkom Media assets. The recoverable amount for certain items
of property, plant and equipment and intangible assets were estimated, and an impairment loss of R217 million was recognised in order
to reduce the carrying amount of those assets to their recoverable amount. The impairment has been included in impairment, write-offs
and reversals.
Impair-
Carrying
Foreign
ment,
Carrying
value at
Business
currency  write-offs
value at
beginning                        combi-
trans-
and
Depre-
end
of
of year
Additions
nations
Transfers
lation
reversals
Disposals
ciation
year
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
F-29
background image
11.     Intangible assets
Goodwill
305
–
305
673
–
673
3,255
–
3,255
Trademarks, copyrights
and other
685
(472)
213
761
(521)
240
1,127
(633)
494
Licences
155
(95)
60
222
(116)
106
311
(140)
171
Software
5,607
(3,338)
2,269
6,720
(3,737)
2,983
8,106
(4,298)
3,808
Under construction
1,063
–
1,063
1,109
–
1,109
740
–
740
7,815
(3,905)
3,910
9,485
(4,374)
5,111
13,539
(5,071)
8,468
The carrying amounts of intangible assets can be reconciled as follows:
Carrying
Foreign
Impair-
Carrying
value at
Business
currency
ment
value at
beginning                      combi-
trans-
and
Dis-
Amorti-
end
of
of year  Additions
nations
Transfers
lation  write-offs
posals
sation
year
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2008
Goodwill
673
492
1,727
–
375
(12)
–
–
3,255
Trademarks, copyrights and other
240
174
165
–
20
–
–
(105)
494
Licences
106
32
36
–
15
(3)
–
(15)
171
Software
2,983
739
–
713
9
(10)
–
(626)
3,808
Under construction
1,109
354
–
(614)
–
(109)
–
–
740
5,111
1,791
1,928
99
419
(134)
–
(746)
8,468
2007
Goodwill
305
186
173
–
9
–
–
–
673
Trademarks, copyrights and other
213
8
69
–
–
–
–
(50)
240
Licences
60
47
1
–
8
–
–
(10)
106
Software
2,269
628
–
559
7
(4)
–
(476)
2,983
Under construction
1,063
729
–
(636)
–
(47)
–
–
1,109
3,910
1,598
243
(77)
24
(51)
–
(536)
5,111
2006
Goodwill
269
–
37
–
(1)
–
–
–
305
Trademarks, copyrights and other
199
2
91
2
–
–
–
(81)
213
Licences
64
1
–
–
(1)
–
–
(4)
60
Software
1,745
219
–
801
(2)
–
(19)
(475)
2,269
Under construction
905
974
–
(816)
–
–
–
–
1,063
3,182
1,196
128
(13)
(4)
–
(19)
(560)
3,910
Intangible assets that are material to the Group consist of Software and Goodwill. The average remaining amortisation period for Software is
between 2 and 10 years.
Telkom
Goodwill has been allocated for impairment testing purposes to twelve cash-generating units of which one in South Africa, one in Nigeria being
Multi-Links Telecommunications Limited and ten being Africa Online Limited in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland,
Tanzania, Uganda, Zambia, operations (Mauritius) and Zimbabwe.
2006
2007
2008
Accumulated
Carrying                 Accumulated
Carrying
Accumulated
Carrying
Cost   amortisation
value
Cost  amortisation
value
Cost  amortisation
value
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
F-30
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
11.     Intangible assets (continued)
Nigeria
The carrying amount of goodwill is R2,072 million.
The recoverable amount for Multi-Links Telecommunications Limited ('Multi-Links') has been determined on the basis of a value in use calculation. The value in use calculation uses cash flow projections and a discount rate of 18.43%. It was concluded that Multi-Links is not impaired. The valuation was based on cash flow projections based on financial budgets approved by management covering a ten year period and a 1% terminal growth rate was used. A ten year period was used as the expected growth rates are in excess of the long-term average growth rates beyond a five year period.
Kenya
The carrying amount of goodwill is R155 million.
The recoverable amounts of goodwill relating to Africa Online Limited have been determined on the basis of value in use calculations. Goodwill
was only tested against the three cash-generating units namely; Kenya, Tanzania and Ghana, which amongst them share 82% of the total
goodwill per the allocation. The value in use calculations use cash flow projections and a discount at a rate of 11.59% in US Dollar terms. It
was determined that goodwill associated with two cash-generating units; Tanzania and Ghana was impaired. The value in use calculations use
cash flow projections based on financial budgets covering a three year period and a terminal growth rate of 0% was used.
By the Group’s 50% joint venture, Vodacom
Goodwill has been allocated for impairment testing purposes to six cash-generating units of which four are in South Africa, one in the Democratic
Republic of the Congo and one in Tanzania.
South Africa
The carrying amount of goodwill is R1,739 million (Group share: R870 million).
The recoverable amounts of goodwill relating to Vodacom Service Provider Company (Proprietary) Limited, Smartphone SP (Proprietary)
Limited, Smartcom (Proprietary) Limited and Cointel VAS (Proprietary) Limited have been determined on the basis of value in use calculations.
These companies operate in the same economic environment for which the same key assumptions were used. These value in use calculations
use cash flow projections based on financial budgets approved by management covering a ten year period and discount rates of between
12.0% and 15.0% in South African Rand terms. The terminal growth rate applicable is between 4.0% and 6.0%. Management believes that
any reasonable change in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed the
aggregate recoverable amount of these units.
Democratic Republic of Congo
The carrying amount of goodwill is R148 million (Group share: R74 million).
The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Congo (RDC) s.p.r.l. The calculation
uses cash flow projections based on financial budgets approved by management covering a ten year period and a discount rate which ranged
between 16.0% and 19.0% in US Dollar terms. Cash flows beyond this period have been extrapolated using annual nominal growth rates which
ranged between 2.0% and 5.0%. A ten year period is used where expected growth rates are in excess of the long-term average growth rates
beyond an initial five year period, for the markets in which they operate. Management believes that any reasonable possible change in the
key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount.
Key assumptions used in the testing of goodwill for impairment:
Applicable to all cash-generating units
Expected customer base: The basis for determining value(s) assigned to key assumptions is based on the closing customer base in the period
immediately preceding the budget period and increased for expected growth. The value assigned to key assumptions reflects past experience,
and has an element of potential growth. The growth is based on market assumptions.
Gross Margin: The basis for determining value(s) assigned to key assumptions is based on the average gross margin achieved in the
period immediately before the budget period and increased to expected efficiencies. The value assigned reflects past experience and
efficiency improvements.
Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achieved
in the period immediately before the budget period and adjusted for expected network coverage roll out. The value assigned is based on
management’s expected network coverage roll out.
Applicable to all cash-generating units except for the Africa Online cash-generating units
ARPU: The basis for determining value(s) assigned to key assumptions is based on past experience and expected growth which is based on
market forces and external sources of information.
Applicable to all non South African cash-generating units
Exchange rates: The basis for determining value(s) assigned to key assumptions is based on the average market forward exchange rate over
the budget period in respect of the ZAR/USD. The value assigned to the key assumption is consistent with external sources of information.
F-31
background image
12.     Financial instruments and risk management
Exposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limits
and control procedures are continuously monitored by the Board of Directors through its audit and risk management committee.
The Group holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage currency
and interest rate risks. In addition, financial instruments for example trade receivables and payables arise directly from the Group’s operations.
The Group finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The Group
uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The derivatives
used for this purpose are principally interest rate swaps, currency swaps and forward exchange contracts. The Group does not speculate in
derivative instruments.
The table below sets out the Group’s classification of financial assets and liabilities
At fair value
Financial
through profit
liabilities
or loss
at
Total
held for    amortised
Held-to-
Available-
Loans and
carrying
Fair
trading
cost
maturity
for-sale  receivables
value
value
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2008
Classes of financial instruments
per Balance Sheet
Assets
1,991
–
372
55
9,783
12,201
12,201
Investments
13
1,377                –                –
55
67
1,499
1,499
Trade and other receivables*
18               –                 –                –                –
8,582
8,582
8,582
Other financial assets
19
614
–
–
–
–
614
614
Interest rate swaps
Other financial assets                         19              16                –                –                –                –              16               16
19
9                –                –                –                –
9
9
Forward exchange contracts
19
589                –                –                –                –
589
589
Finance lease receivables
15                –                –
372                –                –
372
372
Cash and cash equivalents
20                –                –                –                –
1,134
1,134
1,134
Liabilities
(1,290)
(25,846)
–
–
–
(27,136)
(27,672)
Interest-bearing debt
27                –
(15,733)                –                –                –
(15,733)
(16,296)
Trade and other payables
30                –
(8,771)                –                –                –
(8,771)
(8,771)
Other financial liabilities
19
(1,290)
–
–
–
–
(1,290)
(1,290)
Put option (Multi-Links)
19
(919)               –                –                 –               –
(919)
(919)
Put option (Vodacom DRC)
19
(198)               –                –                 –               –
(198)
(198)
Forward exchange contracts
19
(173)               –                –                 –               –
(173)
(173)
Credit facilities utilised
20                –
(1,342)               –                  –              –
(1,342)
(1,342)
F-32
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and
risk management (continued)
2007
Classes of financial instruments
per Balance Sheet
Assets
1,608
–
246
47
7,861
9,762
9,762
Investments
13
1,349                –                –
47
65
1,461
1,461
Trade and other receivables*
18
7,047
7,047
7,047
Other financial assets
19
259
–
–
–
–
259
259
Bills of exchange
19
98                –                –                –                –
98
98
Interest rate swaps
19
16                –                –                –                –
16
16
Forward exchange contracts
19
145                –                –                –                –
145
145
Finance lease receivables
15                –                –
246                –                –
246
246
Cash and cash equivalents
20
749
749
749
Liabilities
(327)
(17,944)
–
–
–
(18,271)
(19,661)
Interest-bearing debt
27
(98)
(10,266)                –                –                 –
(10,364)
(11,754)
Trade and other payables
30                –
(7,237)                –                –                 –
(7,237)
(7,237)
Other financial liabilities
19
(229)
–
–
–
–
(229)
(229)
Put option (Vodacom DRC)
19
(125)                –                –                –                –
(125)
(125)
Other financial liabilities
19
(36)                –                –                –                –
(36)
(36)
Forward exchange contracts
19
(42)                –                –                –                –
(42)
(42)
Interest rate swaps
19
(26)                –                –                –                –
(26)
(26)
Credit facilities utilised
20                –
(441)                –                 –                –
(441)
(441)
2006
Classes of financial instruments
per Balance Sheet
Assets
3,149
–
–
–
11,269
14,418
14,418
Investments
13
2,874                 –               –
–
89
2,963
2,963
Trade and other receivables*
18               –                 –                –                –
6,232
6,232
6,232
Other financial assets
19
275
–
–
–
–
275
275
Bills of exchange
19
107                –                –                –                –
107
107
Interest rate swaps
19
19                –                –                –                –
19
19
Forward exchange contracts
19
149                –                –                –                –
149
149
Cash and cash equivalents
20                –                –                –                –
4,948
4,948
4,948
Liabilities
(343)
(17,811)
–
–
–
(18,154)
(20,180)
Interest-bearing debt
27
(108)
(11,015)                 –               –                 –
(11,123)
(13,149)
Trade and other payables
30                –
(6,103)                –                –                –
(6,103)
(6,103)
Other financial liabilities
19
(235)
–
–
–
–
(235)
(235)
Forward exchange contracts
19
(130)                –                –                –                –
(130)
(130)
Interest rate swaps
19
(105)                –                –                –                –
(105)
(105)
Credit facilities utilised
20               –
(693)                –                –                ––
(693)
(693)
* Trade and other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million).
F-33
At fair value
Financial
through profit
liabilities
or loss
at
Total
held for    amortised
Held-to-
Available-
Loans and
carrying
Fair
trading
cost
maturity
for-sale   receivables
value
value
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Rm
background image
12.     Financial instruments and risk management (continued)
12.1   Fair value of financial instruments
Fair value of all financial instruments noted in the balance sheet approximates carrying value except as disclosed below.
The estimated net fair values as at March 31, 2008, have been determined using available market information and appropriate valuation
methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course of
business.
Derivates are recognised at fair value. The fair value of derivatives approximate their carrying amounts.
The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying
amount due to the short-term maturities of these instruments.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments
discounted at market interest rates.
The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is used.
These amounts reflect the approximate values of the net derivative position at the balance sheet date. The fair values of listed investments
are based on quoted market prices.
12.2   Interest rate risk management
Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new borrowings
and the refinancing of existing borrowings.
The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in a
cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak
additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt
represents approximately 51.88% (2007: 90.37%; 2006: 92.04%) of the total debt. There were no material changes in the policies and processes
for managing and measuring interest rate risk in the 2008 financial year.
The table below summarises the interest rate swaps outstanding as at March 31:
Notional
Weighted
Average
amount
average
maturity
Currency
Rm
coupon rate
2008
Interest rate swaps outstanding
Receive fixed
<1 year
ZAR
27
13.62%
1-5 years
ZAR
58
13.30%
>5 years
ZAR
–
–
2007
Interest rate swaps outstanding
Pay fixed
< 1 year
ZAR
1,000
14.67%
Receive fixed
1-5 years
ZAR
38
11.45%
>5 years
ZAR
61
11.44%
2006
Interest rate swaps outstanding
Pay fixed
< 1 year
ZAR
1,000
14.67%
Receive fixed
1-5 years
ZAR
47
9.15%
>5 years
ZAR
62
9.43%
Pay fixed
The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest
rate risk on debt instruments.
Receive fixed
The Group swapped its fixed rate for a floating rate linked to the BA (Banker’s Acceptance) rate plus a margin of between 2% and 2.25%.
F-34
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and risk management (continued)
12.3   Credit risk management
Credit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Group is not exposed to
significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterparties
is a net favourable position of R438 million (2007:R144 million; 2006: R158 million). No collateral is required when entering into derivative
contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits the exposure
to any counterparty and exposures are monitored daily. The Group expects that all counterparties will meet their obligations.
With respect to credit risk arising from other financial assets of the Group, which comprises held-to-maturity investments, financial assets held
at fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a potential
default by counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management seeks to reduce the
risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counter party failure, limits
are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large widespread customer
base, covering residential, business, government, wholesale, global and corporate customer profiles.
Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where appropriate.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well as expected future
cash flows.
The Group has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2008 there was R23 million (2007: RNil)
outstanding. For Vodacom’s exposure to guarantees refer to note 36.
Telkom guarantees a certain portion of employees’s housing loans. The amount guaranteed differs depending on facts such as employment
period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before any
pension payout can be made to the employee. There is no provsision outstanding in respect of these contingencies. The fair value of the
guarantee at March 31, 2008 was RNil (2007: RNil; 2006: RNil).
There were no material changes in the exposure to credit risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year.
The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was:
* Other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million)
Carrying                   amount
2006
2007
2008
Rm
Rm
Rm
Business and residential
1,955
1,924
1,824
Global, corporate and wholesale
1,381
1,643
1,875
Government
369
318
368
Other customers
35
41
334
Fixed-line
3,740
3,926
4,401
Mobile
1,834
2,299
2,880
Other
514
567
704
Impairment of trade receivables
(290)
(235)
(290)
Subtotal for trade receivables
5,798
6,557
7,695
Other receivables*
434
490
887
Investments and loans receivable
2,963
1,461
1,499
Other financial assets
275
259
614
9,470
8,767
10,695
The ageing of trade receivables at the reporting date was:
Not past due/current
5,342
5,829
6,840
Ageing of past due but not impaired
21 to 60 days
217
331
384
61 to 90 days
42
80
110
91 to 120 days
24
59
71
120+ days
173
258
290
5,798
6,557
7,695
F-35
background image
12.    Financial instruments and risk management (continued)
12.3   Credit risk management (continued)
The ageing in the allowance for the impairment of trade receivables at
reporting date was:
Fixed-line and Other
Current defaulted trade
25
24
53
21 to 60 days
43
21
25
61 to 90 days
23
19
31
91 to 120 days
19
15
19
120+ days
138
118
121
248
197
249
Mobile
42
38
41
290
235
290
The average credit period for March 2008, 2007 and 2006 on sales of goods and services is between 30 and 60 days from date of invoice
for the South African operations and between 20 and 75 days from the date of invoice for the non-South African operations. Generally no interest
is charged on trade receivables. Mobile operations have provided fully for all receivables over 120 days due for their South African operations
and 90 days due for their non-South African operations because historical experience is such that receivables that are due beyond these days
are generally not recoverable. Trade receivables of the South African operations due between 60 and 120 days are provided for based on
estimated irrecoverable amounts, determined by reference to past default experience.
The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 18.
Included in the allowance for doubtful debts, for fixed-line are individually impaired receivables with a balance of R32 million (2007: R49 million;
2006: R55 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the
difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does
not hold any collateral over these balances except for Mobile which holds collateral for financial assets past due but not impared to the value
of R1,086 million (2007: R796 million; 2006: R433 million) (Group share: R543 million; 2007: R398 million; 2006: R217 million).
12.4   Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity risk
as a result of uncertain trade receivable related to cash flows as well as capital commitments of the Group. Liquidity risk is managed by the
Group’s various Corporate Finance divisions in accordance with policies and guidelines formulated by the Group’s Executive Committees. In terms
of its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term
liquidity risk, the Group maintains a reasonable balance between the period over which assets generate funds and the period over which the
respective assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.
There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring the risk 
during the 2008 financial year.
2006
2007
2008
Rm
Rm
Rm
F-36
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and risk management (continued)
12.4    Liquidity risk management (continued)
The table below analyses the Group’s financial liabilities which will be settled on a gross basis into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual
undiscounted cash flows.
Carrying Contractual
0 – 12
1 – 2
2 – 5
> 5
Note
amount   cash flows
months
years
years
years
Rm
Rm
Rm
Rm
Rm
Rm
2008
Non-derivative financial liabilities
Finance lease liabilities*
27
1,167
2,198
165
294
589
1,150
Interest -bearing debt (excluding finance leases)
27
14,566
16,672
6,350
4,835
2,733
2,754
Trade and other payables
30
8,771
8,771
8,771               –               –               –
Bank borrowings
20
1,342
1,342
1,342               –               –               –
Derivative financial liabilities
Put option (Multi-Links)
19
919
919              –
919               –               –
Put option (Vodacom DRC)
19
198
198
198               –               –               –
Forward exchange contracts
19
173
173
173               –               –               –
27,136
30,273
16,999
6,048
3,322
3,904
2007
Non-derivative financial liabilities
Finance lease liabilities*
27
1,220
2,424
231
276
585
1,332
Interest -bearing debt (excluding finance leases)
27
9,144
11,329
6,133
1
2,551
2,644
Trade and other payables
30
7,237
7,237
7,237               –               –               –
Bank borrowings
20
441
441
441               –               –               –
Derivative financial liabilities
Put option (Vodacom DRC)
19
125
125
125                –              –               –
Interest rate swaps
19
26
26
26                –              –               –
Forward exchange contracts
19
42
42
42                –              –               –
Other financial liability
19
36
36
36                –              –               –
18,271
21,660
14,271
277
3,136
3,976
2006
Non-derivative financial liabilities
Finance lease liabilities*
27
1,272
2,644
217
236
672
1,519
Interest -bearing debt (excluding finance leases)
27
9,851
12,415
3,425
4,581
1,792
2,617
Trade and other payables
30
6,103
6,103
6,103               –               –              –
Bank borrowings
20
693
693
693               –               –              –
Derivative financial liabilities
Forward exchange contracts
19
130
130
130               –               –              –
Interest rate swaps
19 
105
105
–
105               –              –
18,154
22,090
10,568
4,922
2,464
4,136
*For details on minimum lease payments refer to note 37
F-37
background image
12.     Financial instruments and risk management (continued)
12.4    Liquidity risk management continued)
Put and call options
In terms of various shareholders’ agreements, put and call options exist for the acquisition of shares in the following companies:
Call options
Period
VM, S.A.R.L call option
Four years from August 23, 2003. Replaced with a new option for a period of 5 years after April 1, 2007.
The Somnium Family Trust
The Trust granted Vodacom Ventures (Proprietary) Limited a call option to purchase such number of
shares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issued
share capital of the company on the date upon which the option is exercised. The option will lapse
after 36 months following the month in which the triggering events, as stipulated in the option
agreement, occurs. The option price is specified in the option agreement.
WBS Holdings (Proprietary) Limited
Until February 27, 2009, subject to fulfilment of conditions, which will result in the Group holding and
beneficially owning in aggregate 25.5% of the total issued ordinary share capital.
G-Mobile Holdings Limited
Irrevocable call option to subscribe for such number of further shares as specified in the agreement.
The option was exercised on September 20, 2007.
Put Options
Multi-Links Telecommunications
The minorities have been granted a put option that requires Telkom to purchase all of the minorities’
Limited
shares. The put option is exercisable within 90 days of the second anniversary of signing of the sale
agreement, being May 1, 2009. A liability of R919 million has been recognised in this regard and is
included in other non-current financial liabilities. R661 million was initially recognised in equity and
R258 million subsequent re-measurement through finance charges and fair value movements.
Smartphone SP (Proprietary) Limited
This put option was cancelled with the acquisition of the minorities of Smartphone SP (Proprietary) Limited.
Smartcom (Proprietary) Limited
This put option was cancelled with the acquisition of the minorities of Smartcom (Proprietary) Limited.
Congolese Wireless Network s.p.r.l.
Maximum 8 years after December 1, 2001. The option liability had a value of R397 million (2007:
R249 million; 2006: RNil) (Group share: R198 million; 2007: R125 million; 2006: RNil) as at
March 31, 2008.
Except as separately disclosed, none of the above put and call options have any value at any of the periods presented.
12.5   Insurance risk management
Vodacom is exposed to insurance risk as a result of its asset base as well as its customer commitments. In terms of its insurance risk profile
the company ensures that there is adequate insurance cover through the utilisation of a special purpose insurance vehicle.
F-38
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and risk management (continued)
12.6   Foreign currency exchange rate risk management
The Group manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial instruments
suitable to the Group’s risk exposure.
Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Group’s operations and liabilities. The Group
also enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitments denominated
in foreign currencies (primarily United States Dollars and Euros). The purpose of the Group’s foreign currency hedging activities is to protect
the Group from the risk that the eventual net flows will be adversely affected by changes in exchange rates.
There were no material changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and
measuring the risk during the 2008 financial year.
The following table details the foreign exchange forward contracts outstanding at year end:
Foreign contract value
Forward value
Fair value
To buy
m
Rm
Rm
2008
Currency
USD
139
1,042
109
Euro
252
2,826
444
Pound Sterling
19
281
30
Other
31
32
6
4,181
2007
Currency
USD
181
1,329
(1)
Euro
196
1,899
23
Pound Sterling
19
261
6
Other                                                                                                                        66                        49                          (1)
3,538
2006
Currency
USD
178
1,157
(51)
Euro
156
1,235
(46)
Pound Sterling
28
321
(21)
Other
89
48
(1)
2,761
F-39
background image
F-40
Foreign contract value
Forward value
Fair value
To sell
m
Rm
Rm
12.     Financial instruments and risk management (continued)
12.6   Foreign currency exchange rate risk management (continued)
2008
Currency
USD
78
596
(68)
Euro
73
848
(103)
Pound Sterling
5
89
(1)
Other                                                                                                                        17                         22                         (1)
1,555
2007
Currency
USD
122
994
88
Euro
52
505
(5)
Pound Sterling
4
51
(1)
Other
29
17
–
1,567
2006
Currency
USD
128
954
140
Euro
41
309
(3)
Pound Sterling
5
56
2
Other
54
23
–
1,342
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and risk management (continued)
12.6   Foreign currency exchange rate risk management (continued)
The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table represents
the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the different
foreign currencies.
South
United
African
Pound
States
Rand
Euro
Sterling
Dollar
Other
Rm
Rm
Rm
Rm
Rm
2008
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
ZAR
–
481
(133)
224
(13)
USD
–
8
–
–
(17)
Naira
–
–
–
(446)
–
2007
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
ZAR
–
475
(166)
159
32
USD
26
(25)
–
–
(17)
2006
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
ZAR
–
376
(165)
42
99
USD
(28)
(13)
–
–
13
Currency swaps
There were no currency swaps in place at March 31, 2008, 2007 and 2006.
12.7   Sensitivity analysis
Interest rate risk
The sensitivity analyses below have been determined based on the exposure to interest rates for derivatives and other financial liabilities at
the balance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s
assessment of the reasonably possible change in interest rates.
If interest rates had been 100 basis points higher/lower and all other variables were held constant, Telkom’s profit for the year ended March
31, 2008 would decrease/increase by R3 million (2007: decrease/increase by RNil; 2006: decrease/increase by R9 million). This is
attributable to the fixed-line’s segment exposure to interest rates on its derivative and floating rate debt portfolio.
F-41
background image
12.     Financial instruments and risk management (continued)
12.7   Sensitivity analysis (continued)
Interest rate risk (continued)
The table below illustrates Mobile’s sensitivity (Group share) to a 100 basis point increase/decrease in the interest rate.
2006
2007
2008
RSA prime rates, JIBAR rates, Money market rates, and RSA BA rates
Basis points increase
100
100
100
Profit/(loss) before tax (Rm)
37
24
(12)
LIBOR
Basis points increase
100
100
100
Profit/(loss) before tax (Rm)
0
0
(5)
EURIBOR
Basis points increase
100
100
100
Profit/(loss) before tax (Rm)
0
0
1
Lesotho prime rates
Basis points increase
100
100
100
Profit/(loss) before tax (Rm)
0
0
1
Foreign exchange currency risk
The following table illustrates the sensitivity to a reasonably possible change in the foreign exchange rate, with all other variables held constant,
to the Group’s profit before tax (excluding the Mobile segment).
 
Increase/decrease
Effect on profit
 
in foreign
before tax
 
exchange currency
increase/(decrease)
 
%
Rm
2008
Rand appreciates
USD
 
+10
(25)
EURO
 
+10
(42)
Rand depreciates
USD
 
–10
25
EURO
 
–10
42
2007
Rand appreciates
USD
 
+10
(18)
EURO
 
+10
(27)
Rand depreciates
USD
 
–10
18
EURO
 
–10
27
2006
Rand appreciates
USD
 
+10
(11)
EURO
 
+10
(17)
Rand depreciates
USD
 
–10
11
EURO
 
–10
17
F-42
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
12.     Financial instruments and risk management (continued)
12.7   Sensitivity analysis (continued)
Foreign exchange currency risk (continued)
The following table details Mobile’s sensitivity to the below-mentioned percentage strengthening and weakening in the functional currency against
the relevant foreign currencies.
A positive number indicates an increase in profit before taxation where the functional currency is expected to strengthen against the relevant
currency in a net financial liability position. A negative number indicates a decrease in profit before taxation where the functional currency is
expected to strengthen against the relevant currency in a net financial asset position.
The Group is exposed to 50% of the following:
South
United
African
Pound
States
Rand
Euro
Sterling
Dollar
%
%
%
%
2008
South African Rands
–
7.6
6.5
9.5
United States Dollar
9.5
5.1
2.6
–
Tanzanian Shilling
11
7.5
5
2.5
Mozambican Meticals
0.1
3.8
6.5
9.4
Profit before tax (Rm)
2
(54.4)
(1.0)
(7.7)
2007
South African Rands
–
31.9
13.1
11.5
United States Dollar
11.5
18.3
1.4
–
Tanzanian Shilling
11
17.4
0.6
0.8
Mozambican Meticals
17.7
8.6
6.9
8.2
Profit before tax (Rm)
6.3
(36.8)
(2.6)
2.1
2006
South African Rands
–
29.3
32.5
17.7
United States Dollar
17.7
9.8
12.5
–
Tanzanian Shilling
13.7
11.5
14.3
1.5
Mozambican Meticals
17
7.4
10
2.2
Profit before tax (Rm)
3.2
(16.9)
(38.3)
4.1
F-43
background image
12.     Financial instruments and risk management (continued)
12.7   Sensitivity analysis (continued)
Exchange rate table (closing rate)
USD
6.180
7.248
8.132
Euro
7.482
9.649
12.854
Pound Sterling
10.737
14.189
16.166
Swedish Krona
0.793
1.033
1.370
Japanese Yen
0.052
0.061
0.082
Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Group monitors capital using net debt to equity ratio. Telkom’s policy is to keep the net debt to equity ratio
between 50% and 70%. Vodacom’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. Included in net debt are interest
bearing loans and borrowings, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.
Telkom plans on continuing its share buy back strategy based on certain criteria, including market conditions, availability of cash and other
investments opportunities and needs.
All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for
dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declared
to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their investment,
while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from time to time.
The determination to pay dividends, and the amount of the dividends, will depend upon, among other things the earnings, financial position,
capital requirements, general business conditions, cash flows, net debt levels and share buy back plans.
The Group has access to financing facilities, the total unused amount which is R7,565 million at the balance sheet date. Capital comprises equity
attributable to equity holders of Telkom.
There were no changes in the Group’s approach to capital management during the year.
Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements.
The net debt to equity ratio at year end was as follows:
2006
2007
2008
Rm
Rm
Rm
Non-current portion of interest-bearing debt
7,655
4,338
9,403
Current portion of interest -bearing debt
3,468
6,026
6,330
Credit facilities utilised
Non-curremt portion of other financial liabilities 
693
441
1,342
  
Current portion of other financial liabilities                                                                   235                       193                        371
   _
36
919
Less: Cash and cash equivalents
(4,948)
(749)
(1,134)
Less: Other financial assets
(275)
(259)
(614)
Net debt
6,828
10,026
16,617
Equity attributable to equity holders of Telkom
29,165
31,724
32,815
Net debt to equity ratio
23.4%
31.6%
50.6%
2006
2007
2008
Rm
Rm
Rm
F-44
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
13.     Investments
2,894
1,384
1,448
Available-for-sale
–
47
55
Unlisted investments
Rascom
–
–
–
0.69% (2007: 0.69%, 2006: 0.70%) interest in Regional African
Satellite Communications Organisation, headquartered in Abidjan, Ivory
Coast, at cost.
Cost
1
1
1
Impairment
(1)
(1)
(1)
The fair value of this unlisted investment cannot be practicably
determined. The directors’ valuation is based on the Group’s interest in
the entity’s net asset value converted at year-end exchange rates. The
directors’ valuation of the above unlisted investment is RNil (2007: RNil;
2006: RNil).
WBS Holdings (Proprietary) Limited
–
40
23
2,500 ordinary shares at R0.01 each
The directors’ valuation of this unlisted investment is not materially
different from the carrying amount as it is recognised at fair value. The
investee company also granted the Group an option to subscribe for
additional shares (refer to note 12) from the 10% currently held up to
an aggregate of 25.5%.
Other investments
–
7
32
The Group purchased a 10% equity stake in G-Mobile Holdings Limited
and a 25.93% equity stake in Gogga Tracking Solutions (Proprietary)
Limited. The investee companies also granted the Group an option to
increase the investments (refer to note 27). During 2008 the Group
purchased a 50% equity stake in Waterberg Lodge (Proprietary) Limited,
a 35% equity stake in X-Link Communications (Proprietary) Limited and
increased its interest in G-Mobile Holdings Limited from 10% to 26% by
exercising the call option granted in 2007.
Loans and receivables
89
65
67
Mirambo Limited
–
–
60
Mirambo Limited bought the 16% and 19% equity stake of Planetel
Communications Limited and Caspian Limited respectively in Vodacom
Tanzania Limited on November 30, 2007. The shareholder loans with a
combined nominal value of USD14.9 million, were transferred to
Mirambo Limited in order to meet its obligations to Vodacom Tanzania
Limited in respect of shareholder contributions. The loan bears interest at
LIBOR plus 5% and shall be repaid from any cash distributions by
Vodacom Tanzania Limited to Mirambo Limited. The loan and capitalised
interest are collateralised by cession over all shareholder distributions
and a pledge over the shares of Vodacom Tanzania Limited.
2006
2007
2008
Rm
Rm
Rm
F-45
background image
13.     Investments (continued)
Loans and receivables (continued)
Planetel Communications Limited
21
25
–
The loan with a nominal value of USD7 million (Group share: USD3,5
million) issued during the 2003 year, bore interest at LIBOR plus 5%.
Planetel Communications Limited utilised this loan to ensure sufficient
shareholder loan funding by itself as a shareholder of Vodacom Tanzania
Limited. The loans and capitalised interest were collateralised by cession
over all shareholder distributions and a pledge over their shares of Vodacom
Tanzania Limited. All the shareholders subordinated their loans to Vodacom
Tanzania Limited for the duration of the project finance funding period,
which expired at the end of the current financial year (refer to note 27).
On November 30, 2007, Planetel Communications sold it’s 16%
shareholding in Vodacom Tanzania Limited to Mirambo Limited.
Caspian Limited
25
29
–
The loan with a nominal value of USD8 million (Group share: USD4
million) issued during the 2003 year, bore interest at LIBOR plus 5%.
Caspian Limited utilised this loan to ensure sufficient shareholder loan
funding by itself as a shareholder of Vodacom Tanzania Limited. The
loans and capitalised interest were collateralised by cession over all
shareholder distributions and a pledge over the shares of Vodacom
Tanzania Limited. All the shareholders subordinated their loans to
Vodacom Tanzania Limited for the duration of the project finance funding
period, which expired at the end of the current financial year (refer to
note 27). On November 30, 2007, Caspian sold its 19% shareholding
in Vodacom Tanzania Limited to Mirambo Limited.
Number Portability Company (Proprietary) Limited
–
3
3
The shareholder loan made to Number Portability Company (Proprietary)
Limited (‘NPC’) for an amount of R6 million (Group share: R3 million)
at March 2007, is subordinated and ranks behind the claims of all
creditors of NPC for repayment until such time as the assets of NPC fairly
valued exceed its liabilities and in such case, the loan shall cease to be
subordinated to the extent that the assets of NPC exceed its liabilities
from time to time. The shareholder loan bears no interest and has no
fixed repayment terms.
Sekha-Metsi Investment Consortium Limited
–
8
–
The loan was advanced to Sekha-Metsi Investment Consortium Limited
and bore interest at South African overdraft interest rates plus a margin
of 2%. Interest was payable monthly in arrears. The loan was repayable
on demand, should Sekha-Metsi Investment Consortium Limited be able
to obtain a loan externally. Sekha-Metsi Investment Consortium Limited
pledged their shares in Sekha-Metsi Enterprises (Proprietary) Limited as
security for the loan. During the current financial year the loan was repaid.
2006
2007
2008
Rm
Rm
Rm
F-46
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
13.     Investments (continued)
Loans and receivables (continued)
Empresa Moçambicana de Telecommuniç˜acoes S.A.R.L.
(‘Emotel’)
–
–
4
The loan with a nominal value of USD0.9 million issued during the 2008
financial year bears interest at LIBOR plus 2%. Interest is capitalised on
a monthly basis. The loan and capitalised interest are repayable upon
the expiry of 5 years following the advance date, being March 31, 2012.
Emotel utilised this loan to meet its obligations to V.M, S.A.R.L. in respect
of its 2% shareholding in V.M, S.A.R.L. The loan and capitalised interest
are collateralised by cession over all cash distributions and a pledge over
their shares in V.M, S.A.R.L.
Tel.One (Pvt) Limited
32
–
–
The loan to Tel.One (Pvt) Limited was unsecured, interest-free and was
repayable through traffic revenue from June 2004 over 5 years. R41 million
traffic was set off against the loan in the 2007 financial year, hence
settling the full amount of the loan in advance.
Other receivables
11
–
–
Held for trading
2,874
1,349
1,377
Linked insurance policies – Coronation
1,182
1,280
1,291
Linked insurance policies – Investec
24
–
–
Ordinary shares – listed
1,059
–
–
Cash
229
–
–
Other money market investments
284
69
51
Government stock
44
–
–
Other unlisted investments
52
–
35
Less: Short-term investments
(69)
(77)
(51)
Tel.One (Pvt) Limited
(13)
–
–
Sekha-Metsi Investment Consortium Limited
–
(8)
–
WBS Holdings (Proprietary) Limited (included in Other unlisted investments)
–
–
(13)
Other money market investments
(56)
(69)
(38)
Included in held for trading investments is R1,290 million (2007: R1,279 million, 2006: R2,819 million) that will be used to fund the post-
retirement medical aid liability. These investments are made through a cell captive, in which Telkom holds 100% of the preference shares of the
cell captive, and represent the fair value of the underlying investments of the cell captive. The initial cost of the investment amounts to R535 million
(2007: R535 million; 2006: R1,891 million). Telkom bears all the risks and rewards of the investment, as the returns/losses on the preference
shares are dependant on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preference
shareholder, receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of the
risks and rewards. The cell captive has been consolidated in full.
The cell captive has an investment in a sinking fund and an annuity policy. In the financial year ended March 31, 2007 an addendum to the cell captive
annuity policy was signed, which resulted in the annuity policy qualifying as a plan asset. This resulted in a reduction in the investment of R1,961 million
in the financial year ended March 31, 2007 (refer to note 29).
2006
2007
2008
Rm
Rm
Rm
F-47
background image
14.     Deferred revenue and Deferred expenses
Deferred expenses
480
557
583
Deferred expenses
254
270
221
Current portion of deferred expenses
226
287
362
Included in long-term deferred expenses and revenue is Vodacom
unactivated starter packs.
The current portion of deferred expenses represents the deferral of
connection costs.
Deferred revenue
2,966
3,004
3,721
Deferred revenue
991
1,021
1,128
Current portion of deferred revenue
1,975
1,983
2,593
Included in deferred revenue is profit on the sale and lease-back of certain Telkom buildings of R118 million, consisting of a long-term portion of
R107 million and a short-term portion of R11 million (2007: R129 million; 2006: R140 million). A profit of R11 million per annum is recognised
in income on a straight-line basis, over the period of the lease ending 2019 (refer to note 37).
15.     Finance lease receivables
Total
< 1 year
1 – 5 years
> 5 years
Rm
Rm
Rm
Rm
The Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to specific
customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms of IAS17.
2008
Minimum lease payments
Lease payments receivable
452
196
256
–
Unearned finance income
(80)
(30)
(50)
–
Present value of minimum lease payments
372
166
206
–
Lease receivables
372
166
206
–
2007
Minimum lease payments
Lease payments receivable
312
110
202
–
Unearned finance income
(66)
(22)
(44)
–
Present value of minimum lease payments
246
88
158
–
Lease receivables
246
88
158
–
2006
2007
2008
Rm
Rm
Rm
F-48
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
16.     Deferred taxation
(587)
(1,123)
(1,374)
Opening balance
(435)
(587)
(1,123)
Income statement movements
(173)
(516)
(219)
Temporary differences
(280)
(515)
(331)
Over provision/(under provision) prior year
107
(1)
53
Change in tax rate
–
–
59
Business combinations
21
(16)
(65)
Foreign currency translation reserve and foreign equity revaluation
–
(4)
33
The balance comprises:
(587)
(1,123)
(1,374)
Capital allowances
(2,682)
(3,325)
(3,841)
Provisions and other allowances
1,682
1,719
2,008
Tax losses
112
113
276
STC tax credits
301
370
183
Deferred tax balance is made up as follows:
(587)
(1,123)
(1,374)
Deferred tax assets
481
593
605
Deferred tax liabilities
(1,068)
(1,716)
(1,979)
Unutilised STC credits
2,393
2,958
1,830
Under South African tax legislation, tax losses for companies continuing to do business do not expire. The unused taxation losses available to
reduce the net deferred taxation liability is R1,615 million of which R1,456 relates to Vodacom (2007: R1,134 million; 2006: R876 million)
(Group share: R728 million; 2007: R567 million; 2006: R438 million). The full effect of this would be a R511 million of which R466 million
relates to Vodacom (2007: R363 million; 2006: R279 million) (Group share: R233 million; 2007: R182 million; 2006: R140 million)
reduction in the net deferred taxation liability.
The deferred tax asset represents amongst other items STC credits on past dividends received. The deferred tax asset for the current period is
calculated using the revised STC rate of 10% (previously 12,5%) as announced by the Minister of Finance. The deferred tax asset is recognised
as it is considered probable that it will be utilised in the future, given Telkom’s dividend policy. The asset will be released as a tax expense
when dividends are declared.
The deferred tax liability increased mainly due to the increase in the difference between the carrying value and tax base of assets, resulting from
the change in the estimate of useful lives of the assets as well as from the acquisition of Multi-Links Telecommunications (Proprietary) Limited.
2006
2007
2008
Rm
Rm
Rm
F-49
background image
17.     Inventories
814
1,093
1,287
Gross inventories
916
1,275
1,535
Write-down of inventories to net realisable value
(102)
(182)
(248)
Inventories consist of the following categories:
814
1,093
1,287
Installation material, maintenance material and network equipment
487
811
895
Merchandise
327
282
392
Write-down of inventories to net realisable value
102
182
248
Opening balance
67
102
182
Charged to selling, general and administrative expenses
64
154
164
Inventories written-off
(29)
(74)
(98)
Inventory levels as at March 31, 2008 and 2007 have increased due
to the roll-out of the Next Generation Network and increased inventory
levels, required to improve customer service.
The increase in merchandise in the current year is due to the accelerated
acquisition of merchandise to limit the Group’s exposure to foreign
currency fluctuations.
18.     Trade and other receivables
6,399
7,303
8,986
Trade receivables
5,798
6,557
7,695
Gross trade receivables
6,088
6,792
7,985
Impairment of receivables
(290)
(235)
(290)
Prepayments and other receivables
601
746
1,291
Impairment of receivables
290
235
290
Opening balance
285
290
235
Charged to selling, general and administrative expenses
206
153
300
Receivables written-off
(201)
(208)
(245)
Refer to note 12 for detailed credit risk analysis.
The increase in the charged to selling, general and administrative expenses is as a result of increased revenues which resulted in a higher provision
for doubtful debts.
2006
2007
2008
Rm
Rm
Rm
F-50
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
19.     Other financial assets and liabilities
Other financial assets consist of:
At fair value through profit or loss
275
259
614
Bills of exchange
107
98
–
Interest rate swaps 
Other financial assets                                                                                               –                          –                          16
19                         16                          9
Forward exchange contracts                                                                                    149                       145                       589
Bills of exchange
The fair value of bills of exchange has been derived at with reference to
BESA quoted prices.
Other financial liabilities consist of:
(235)
(229)
(1,290)
Long-term portion of other financial liabilities
Other (refer to note 12)
–
(36)
–
Put option at fair value through profit or loss (refer to note 12)
–
–
(919)
Current portion of other financial liabilities
At fair value through profit or loss
(235)
(193)
(371)
Put option at fair value through profit or loss (refer to note 12)
–
(125)
(198)
Forward exchange contracts
(130)
(42)
(173)
Interest rate swaps
(105)
(26)
–
Change in comparative
Derivative instruments in other financial liabilities category increased by R125 million in 2007 (2006: RNil) due to the reclassification of the
Vodacom DRC put option from trade and other payables.
2006
2007
2008
Rm
Rm
Rm
F-51
background image
20.     Net cash and cash equivalents
4,255
308
(208)
Cash shown as current assets
4,948
749
1,134
Cash and bank balances
1,853
649
664
Short-term deposits
3,095
100
470
Credit facilities utilised
(693)
(441)
(1,342)
Undrawn borrowing facilities
9,519
8,658
7,565
The undrawn borrowing facilities are unsecured, when drawn bear interest
at a rate that will be mutually agreed between the borrower and lender
at the time of drawdown, have no specific maturity date and are subject
to annual review. The facilities are in place to ensure liquidity. At March 31,
2008, R2,000 million of these undrawn facilities were committed.
Borrowing powers
To borrow money, Telkom’s directors may mortgage or encumber
Telkom’s property or any part thereof and issue debentures, whether
secured or unsecured, whether outright or as security for debt, liability or
obligation of Telkom or any third party. For this purpose the borrowing
powers of Telkom are unlimited, but are subject to the restrictive financial
covenants of the TL20 loan and the conditions, and covenants of the 
Bridge Loan facility indicated on note 27.
21.     Share capital and premium
Authorised and issued share capital and share premium are made up
as follows:
Authorised
10,000
10,000
10,000
999,999,998 ordinary shares of R10 each
10,000
10,000
10,000
1 Class A ordinary share of R10
–
–
–
1 Class B ordinary share of R10
–
–
–
Issued and fully paid
6,791
5,329
5,208
520,784,184 (2007: 532,855,528; 2006: 544,944,899)
ordinary shares of R10 each
5,449
5,329
5,208
1 (2007: 1; 2006: 1) Class A ordinary share of R10
–
–
–
1 (2007: 1; 2006: 1) Class B ordinary share of R10
–
–
–
Share premium
1,342
–
–
The following table illustrates the movement in the number of shares issued:
Number of
Number of
Number of
shares
shares
shares
Shares in issue at beginning of year
557,031,821
544,944,901
532,855,530
Shares bought back and cancelled*
(12,086,920)
(12,089,371)
(12,071,344)
Shares in issue at end of year
544,944,901
532,855,530
520,784,186
Full details of the voting rights of ordinary, class A and class B shares are documented in the Articles of Association of Telkom.

* As of March 31, 2008, 4,444,138 of these shares had not yet been cancelled from the issued share capital by the Registrar of Companies.
2006
2007
2008
Rm
Rm
Rm
F-52
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
2006
2007
2008
Rm
Rm
Rm
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
21.     Share capital and premium (continued)
Share buy-back
During the financial year Telkom bought back 12,071,344 ordinary
shares at a total consideration of R1,647 million. This reduced Share
capital by R121 million and Retained earnings by R1,526 million.
During the financial year ended March 31, 2007, Telkom bought back
12,089,371 ordinary shares at a total consideration of R1,596 million.
This reduced Share capital by R120 million, Share premium by
R1,342 million and Retained earnings by R134 million.
During the financial year ended March 31, 2006, Telkom bought back
12,086,920 ordinary shares at a total consideration of R1,502 million.
This reduced the Share capital by R121 million and Share premium by
R1,381 million.
Capital Management
Refer to note 12 for a detailed capital management disclosure.
22.     Treasury shares
(1,809)
(1,774)
(1,638)
At March 31, 2008, 10,493,141 (2007: 12,237,016; 2006:
12,687,521) and 10,849,058 (2007: 10,849,058; 2006:
10,849,058) ordinary shares in Telkom, with a fair value of R1,377 million
(2007: R2,031 million; 2006: R2,038 million) and R1,423 million
(2007: R1,801 million; 2006: R1,743 million) are held as treasury
shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou
Investments (Proprietary) Limited, respectively.
The shares held by Rossal No 65 (Proprietary) Limited are reserved for
issue in terms of the Telkom Conditional Share Plan (‘TCSP’). In addition,
the Board of directors agreed that, subject to the JSE Listing requirements,
the treasury shares held by Acajou Investments (Proprietary) Limited be
made available to the TCSP to make up for the current shortfall in the
share scheme after the additional grants made in the current year (refer
to note 23).
The reduction in the number of treasury shares is due to 1,743,785 shares
(2007: 450,505; 2006: 29,669) shares that vested in terms of the
TCSP during the year.
The fair value of these shares at the date of vesting was R301 million
(2007: R63 million; 2006: R4 million).
F-53
background image
23.     Share-based compensation reserve
This reserve represents the cumulative fair value of the equity-settled
share-based payment transactions recognised in employee expenses
over the vesting period of the equity instruments granted to employees
in terms of the Telkom Conditional Share Plan (refer to note 29).
The Telkom Board approved the fourth enhanced allocation of shares to
employees on September 4, 2007, with a grant date of September 27,
2007, the day that the employees and Telkom shared a common
understanding of the terms and conditions of this grant. A total of
6,089,810 shares were granted.
The Board has also approved an enhanced allocation for the November
2006 grant on September 4, 2007, with a grant date of September
27, 2007. The number of additional shares granted with respect to the
2006 allocation is 4,966,860.
No consideration is payable on the shares issued to employees, but
performance criteria will have to be met in order for the granted shares
to vest. The ultimate number of shares that will vest may differ based on
certain individual and Telkom performance conditions being met. The
related compensation expense is recognised over the vesting period of
shares granted, commencing on the grant date.
The following table illustrates the movement within the Share-based
compensation reserve:
Balance at beginning of year
68
151
257
Net increase in equity
83
106
386
Employee cost*
120
141
522
Accelerated vesting of shares
(37)
–
–
Vesting and transfer of shares
–
(35)
(136)
Balance at end of year
151
257
643
At March 31, 2008 the estimated total compensation expense to be recognised over the vesting period was R2,151 million (2007:
R580 million; 2006: R381 million), of which R522 million (2007: R141 million; 2006: R120 million) was recognised in employee expenses
for the year.
*The increase in the employee costs in the current financial year is mainly as a result of the additional share allocations (refer to note 29).
2006
2007
2008
Rm
Rm
Rm
F-54
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
24.     Non-distributable reserves
1,128
1,413
1,292
Opening balance
360
1,128
1,413
Movement during the year
768
285
(121)
Foreign currency translation reserve (net of tax of R6 million;
2007: R4 million; 2006: RNil)
52
46
521
Minority put option (refer to note 12)
–
–
(661)
Revaluation of an available-for-sale investment (net of tax of R1 million)
–
–
8
Available-for-sale financial asset
  Life fund reserve (Cell captive)
716
239
11
The balance comprises:
1,128
1,413
1,292
Foreign currency translation reserve
(104)
(58)
463
Cell Captive reserve
1,232
1,471
1,482
Available-for-sale investment
–
–
8
Minority put option
–
–
(661)
The Group has two consolidated cell captives, one used as an investment
to fund Telkom’s post-retirement medical aid liability and the other is for
Vodacom’s short-term insurance obligation in respect of handsets.
In terms of the Short-term Insurance Act, 1998, the Vodacom Group’s cell
captive partner, Nova Risk Partners Limited is required to recognise a
contingency reserve equal to 10% of premiums written less approved
reinsurance (as defined in the Act). This reserve can be utilised only with
the prior permission of the Registrar of Short-term Insurance.
The earnings from the cell captives are recognised in the income
statement and then transferred to Non-distributable reserves.
Gains and losses from changes in the fair value of available-for-sale
investments are recognised directly in equity until the financial asset is
disposed of.
25.     Retained earnings
22,904
26,499
27,310
Opening balance
19,232
22,904
26,499
Movement during year
3,672
3,729
2,337
Net profit for the year
9,189
8,646
7,975
Transfer to non-distributable reserves (refer to note 24)
(716)
(239)
(11)
Dividend declared (refer to note 34)
(4,801)
(4,678)
(5,627)
Shares bought back (refer to note 21)
–
(134)
(1,526)
The balance comprises:
22,904
26,499
27,310
Company
18,534
21,906
22,484
Joint venture
4,293
4,762
5,697
Subsidiaries
568
786
428
Eliminations
(491)
(955)
(1,299)
2006
2007
2008
Rm
Rm
Rm
F-55
background image
26.     Minority interest
301
284
522
Opening balance
220
301
284
Movement during the year
81
(17)
238
Reconciliation:
301
284
522
Balance at beginning of year
220
301
284
Share of earnings
139
203
197
Acquisition of subsidiaries and minorities
27
(68)
77
Foreign currency translation reserves
(7)
14
29
Dividend declared
(78)
(166)
(65)
27.     Interest-bearing debt
Long-term interest-bearing debt
7,655
4,338
9,403
Total interest-bearing debt
11,123
10,364
15,733
Gross interest-bearing debt
13,686
12,549
17,839
Discount on debt instruments issued
(2,563)
(2,185)
(2,106)
Less: Current portion of interest-bearing debt
(3,468)
(6,026)
(6,330)
Local debt
(2,642)
(5,772)
(6,001)
Locally registered Telkom debt instruments
(2,211)
(4,432)
–
Commercial paper bills
(429)
(1,339)
(3,401)
Short-term interest-free loans
(2)
(1)                          –
Call borrowings
–                           –                  (2,600)
Foreign debt
(786)
(193)
(202)
Finance leases
(40)
(61)
(124)
Licence obligation
–
–
(3)
Total interest-bearing debt is made up as follows:
11,123
10,364
15,733
(a) Local debt
8,938
8,131
12,923
Locally registered Telkom debt instruments
8,507
6,786
8,164
Name, maturity, rate p.a., nominal value
TK01, 2008, 10%, RNil (2007: R4,680 million; 2006: R4,689 million)
4,230
4,432
–
TL06, 2006, 10.5%, RNil (2007: RNil; 2006: R2,100 million)
2,103
–
–
TL20, 2020, 6%, R2,500 million (2007: R2,500 million;
2006: R2,500 million)
1,214
1,246
1,283
PP02, 2010, 0%, R430 million (2007: R430 million; 2006: R430 million)
230
264
304
PP03, 2010, 0%, R1,350 million (2007: R1,350 million;
2006: R1,350 million)
730
844
977
Call borrowings, 2009, 11.58%, R2,600 million (2007: RNil; 2006: RNil)
–
–
2,600
Term loans, 2010, 12.22%, R3,000 million (2007: RNil; 2006: RNil)
–
–
3,000
Local bonds
The local Telkom bonds are unsecured, but a side letter to the subscription
agreement (as amended) of the TL20 bond, and the R1,600 million Bridge 
Loan facility, included in call borrowings contain a number of restrictive
financial covenants to be maintained by the Group at the following ratios:
EBITDA to net interest expense ratio of no less than 3.5:1 and net interest
bearing debt to EBITDA ratio of no greater than 3.0:1 which, if not met,
could result in the early redemption of the loan. The R1,600 million Bridge
Loan facility and R2,000 million Term loan agreement agreements limit
the Group’s ability to encumber, cede, assign, sell or otherwise dispose of
a material portion of its assets without the prior written consent of the
Lenders, which will not be unreasonably withheld. The TL20, PP02, and
PP03 local bonds limit Telkom’s ability to create encumbrances on revenues
or assets, and secure any indebtedness without securing the outstanding
bonds equally and rateably with such indebtedness.
2006
2007
2008
Rm
Rm
Rm
F-56
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
27.     Interest-bearing debt (continued)
(a) Local debt (continued)
Commercial paper bills
429
1,339
4,202
Rate p.a., nominal value
2008, 11.71% (2007: 9.04%; 2006: 7%), R4,383 million (2007:
R1,350 million; 2006: R430 million)
Asset Backed Arbitraged Securities (Proprietary) Limited
–
–
500
On December 5, 2007 Vodacom (Proprietary) Limited entered into a
subscription agreement with Asset Backed Arbitraged Securities (Proprietary)
Limited (‘ABACAS’). In terms of the agreement Vodacom (Proprietary)
Limited issued debt instruments in the form of two promissory notes with
a nominal value of R500 million (Group shares: R250 million) each to
which ABACAS subscribed. The debt instrument will bear interest based on
JIBAR plus credit margin and funding margin. The repayment term is three
years with interest being paid quarterly. The credit margin is 0.4% and the
funding margin is 0.18% and 0.15% respectively.
Licence Obligation
–
–
47
On December 9, 2004, ICASA amended the Vodacom South Africa licence
to allow for access to the 1800 Megahertz frequency spectrum band and
the 3G radio spectrum band. The costs to the Group for the 1800 Megahertz
frequency band obligations is estimated at R68.8 million (Group share
R34.4 million). The net present value, at a discount rate of 8%, over three
years amounts to R64 million (Group share: R32 million). The cost to the
Group for the 3G radio sprectrum band obligation is estimated at
R36.8 million (Group share: R18.4 million). The net present value, at a
discount rate of 8%, over three year amounts to R32.2 million (Group
share: R16.1 million).
Other debt
2
6
10
Other debt includes Vodacom Group shareholders’ loans with variable
payment terms. Group share is 50% on the respective balances.
(b) Foreign debt
   913    
   1,013    
   1,643    
Maturity, rate p.a., nominal value
85
106
141
Euro: 2010 – 2025, 0.1% – 0.14% (2007: 0.10% – 0.14%; 2006:
0.10% – 6.81%),
€ 11 million (2007: € 11 million; 2006: € 11 million)
Mirambo Limited
–
–
72
Mirambo Limited bought the 16% and 19% equity stake of Planetel
Communications Limited and Caspian Limited respectively in Vodacom Tanzania Limited on November 30, 2007. The shareholder loans with a combined nominal value of USD18 million (Group share: USD9 million), were transferred to Mirambo Limited in order to meet its obligations to Vodacom Tanzania Limited in respect of shareholder contributions. The loan bears interest at LIBOR plus 5% and shall be repaid by approval of at least 60% of the shareholders of Vodacom Tanzania Limited. The loan and capitalised interest are unsecured and surbordinated.
2006
2007
2008
Rm
Rm
Rm
F-57
background image
27.     Interest-bearing debt  (continued)
(b) Foreign debt (continued)
Planetel Communications Limited
21
27
–
The shareholder loan of USD8 million (2007: USD8 million; 2006: USD8
million) (Group share: USD4 million; 2007: USD4 million; 2006: USD4
million) was subordinated for the duration of the project finance funding
period of Vodacom Tanzania Limited, which expired at the end of the current
financial year, bore no interest from April 1, 2002, and was thereafter
available for repayment, by approval of at least 60% of the shareholders
of Vodacom Tanzania Limited. The loan became non-interest bearing and
was remeasured at amortised cost at an effective interest rate of LIBOR
plus 5%. The gain on remeasurement was included in equity. On November
30, 2007 Planetel Communications Limited sold its 16% shareholding in
Vodacom Tanzania Limited to Mirambo Limited.
Caspian Limited
25
32
–
The shareholder loan of USD10 million (2007: USD10 million; 2006:
USD10 million) (Group share: USD5 million; 2007: USD5 million; 2006:
USD5 million) was subordinated for the duration of the project finance
funding period of Vodacom Tanzania Limited, bears no interest from April
1, 2002, and was thereafter available for repayment, by approval of at least
60% of the shareholders of Vodacom Tanzania Limited. The loan became
non-interest bearing and was remeasured at amortised cost at an effective
interest rate of LIBOR plus 5%. The gain on remeasurement was included
in equity. On November 30, 2007 Caspian Limited sold its 19%
shareholding in Vodacom Tanzania Limited to Mirambo LImited.
Loan to Vodacom International Limited
557
655
731
The loan provided by Standard Bank Plc and RMB International (Dublin)
Limited that amounts to USD180 million (2007: USD180 million; 2006:
USD180 million) (Group share: USD90 million; 2007: USD90 million 2006;
USD90 million)) is collateralised by guarantees provided by the Vodacom
Group. The loan originally repayable on July 19, 2006, was refinanced
during the 2007 financial year. The loan is now repayable on July 26,
2009 and bears interest at an effective interest rate of LIBOR plus 0.35%.
Project finance funding for Vodacom Tanzania Limited
92
47
–
The drawn down portions of the project finance funding from external parties
include the following:
(a)  Netherlands Development Finance Company USDNil (2007: USD4
million; 2006: USD8 million) (Group share: USDNil; 2007: USD2
million; 2006: USD4 million)
(b)  Deutsche Investitions – und Entwicklungsgesellschaft mbH
€ Nil
(2007: € 4 million; 2006: € 8 million) (Group share: € Nil; 2007: € 2
million; 2006:
€ 4 million)
(c)  Standard Corporate and Merchant Bank USDNil (2007: USD4 million;
2006: USD8 million) (Group share: USDNil; 2007: USD2 million;
2006: USD4 million)
(d)  Barclays Bank (Local Syndicate Tanzania) TSHNil (2007: TSHNil;
2006: TSH5,704 million) (Group share: TSHNil; 2007: TSHNil; 2006:
TSH2,852 million).
The funding was collateralised by a charge over 51% of the shares, the
license and Vodacom Tanzania Limited’s tangible assets and intangible
assets. The loans bore interest based upon the foreign currency
denomination of the project financing between 6% and 14.4% per annum
and was fully repaid in the 2008 financial year.
2006
2007
2008
Rm
Rm
Rm
F-58
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
27.     Interest-bearing debt (continued)
(b) Foreign debt
(continued)
Vodacom Congo (RDC) s.p.r.l.
19
11
4
Vodacom’s share of the short-term facilities amount to USD1 million (2007:
USD3 million; 2006: USD6 million) (Group share: USD1 million; 2007:
USD2 million; 2006: USD3 million) bears interest at 18% per annum with
no fixed repayment terms. USD2 million (Group share: USD1 million) of
these facilities was repaid on June 30, 2007 and bore interest at LIBOR plus
6% per annum.
Preference shares issued by Vodacom Congo (RDC) s.p.r.l.
114
135
150
The preference shares of USD37 million (2007: USD37 million; 2006:
USD37 million) (Group share: USD19 million; 2007: USD19 million;
2006: USD19 million) bear interest at a rate of 4% per annum. The
preference shares are redeemable at the discretion of the shareholders and
on the basis that the shareholders are repaid simultaneously and in
proportion to their shareholding.
Zenith Bank
–
–
45
Multi-Links Telecommunications Limited has taken out a loan
from Zenith Bank. The original loan amounted to USD14 million against which
repayments amounting to USD8.4 million have already been made. The loan
bears interest at LIBOR plus 3.5% and will be repaid during 2008.
FCMB Loan
–
–
87
Multi-Links Telecommunications Limited has taken out a FCMB
loan.The original loan amounted to Naira 1,500 million against which
repayments amounting to Naira 250 million have already been made. The
loan bears interest at 13% and will be fully repaid during 2010. This loan is
secured by a charge of assets valued at N520 million.
Export Development Bank of Canada
–
–
82
Multi-Links Telecommunications Limited has a long-term
funding facility in place with Export Development Bank of Canada (EDC),
through First Bank of Nigeria Plc. The original funding amounted to
USD18 million against which USD8 million repayments have already been
made. The loan bears interest at LIBOR plus 2.5%, and will be fully repaid
during 2014.
Huawei Vendor Financing Facility VFF
–
–
319
Multi-Links Telecommunications Limited entered into a Bridge
Financing agreement with Huawei Tech Investment Co. Limited for the
supply of telecommunications equipment and services. The original funding
amounted to USD41.6 million against which repayments of USD2 million
have already been made. The loan bears interest at LIBOR plus 2% and will
be repaid by 2010. The above arrangement is temporary until financing
facilities are obtained from China Development Bank.
PTA Bank and Barclays Bank
–
–
12
Africa Online Group has taken out a loan from PTA Bank and Barclays
Bank that in total amounts to USD1,5 million. Of this amount
USD0.8 million bears interest at LIBOR plus 6% and the remaining
USD0.4 million bears interest at 11.5%.
(c) Finance leases
1,272
1,220
1,167
The finance leases are secured by buildings with a carrying value of R634
million (2007: R564 million; 2006: R618 million) and office equipment
with a book value of R14 million (2007: R10 million; 2006: R6 million)
(refer to note 10). These amounts are repayable within periods ranging
from 1 to 12 years. Interest rates vary between 13% and 38%.
2006
2007
2008
Rm
Rm
Rm
F-59
background image
27.     Interest-bearing debt (continued)
Included in long-term and short-term debt is:
Debt guaranteed by the South African Government
4,315
4,537
141
A major portion of the guaranteed debt for the years ended March 31, 2007
and 2006 relates to the TK01 debt instrument, however, this instrument
has been redeemed in full during the year ended March 31, 2008.
Telkom may issue or re-issue locally registered debt instruments in terms of
the Post Office Amendment Act 85 of 1991. The borrowing powers of
Telkom are set out as per note 20.
Repayments/refinancing of current portion of interest-bearing debt
The repayment/refinancing of R6,330 million of the current portion of
interest-bearing debt will depend on the market circumstances at the time
of repayment.
Management believes that sufficient funding facilities will be available at the
date of repayment/refinancing.
Loans raised and loans repaid on the cash flow statement increased due
to raising and redemption of the Commercial Paper Bills in Telkom, as well
as newly acquired Asset Backing finance in Vodacom.
28.     Provisions
2,677
1,443
1,675
Employee related
4,293
3,005
3,186
Annual leave
356
413
438
Balance at beginning of year
337
356
413
Charged to employee expenses
88
66
44
Leave paid
(69)
(9)
(19)
Post-retirement medical aid (refer to note 29)
2,607
1,139
1,356
Balance at beginning of year
2,430
2,607
1,139
Interest cost
249
286
322
Current service cost
48
83
84
Expected return on plan asset
–
(188)
(257)
Actuarial loss
63
149
129
Curtailment gain
(8)
–
–
Settlement loss
7
–
–
Termination settlement
(29)
–
–
Plan asset – initial recognition
–
(1,720)
–
Contributions paid
(153)
(78)
(61)
Telephone rebates (refer to note 29)
198
282
287
Balance at beginning of year
179
198
282
Interest cost
16
19
22
Current service cost
3
4
3
Past service cost
–
76
2
Actuarial loss
–
5
–
Benefits paid
–
(20)
(22)
Bonus
1,071
1,090
992
Balance at beginning of year
826
1,071
1,090
Charged to employee expenses
965
965
797
Payments made
(720)
(946)
(895)
Long-term incentive provision*
61
81
113
Balance at beginning of year
–
61
81
Charged to employee expenses
69
21
41
Payment
(8)
(1)
(9)
2006
2007
2008
Rm
Rm
Rm
F-60
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
28.     Provisions
Non-employee related
44
533
670
Supplier dispute (refer to note 38)
–
527
569
Balance at beginning of year
–
–
527
Net movements
–
527
42
Warranty provision
16
–
–
Balance at beginning of year
14
16
–
Charged to expenses
20
–
–
Provision utilised
(18)
(16)
–
Other
28
6
101
Less: Current portion of provisions
(1,660)
(2,095)
(2,181)
Annual leave
(356)
(402)
(417)
Post-retirement medical aid
(159)
(186)
(186)
Telephone rebates
(17)
(26)
(26)
Bonus
(1,071)
(911)
(921)
Supplier dispute
–
(527)
(569)
Warranty provision
(16)
–
–
Other
(41)
(43)
(62)
Annual leave
In terms of Telkom’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of 22 days
(previously 25 days) which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.
Bonus
The Telkom bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets.
The bonus is payable bi-annually to all qualifying employees after Telkom’s results have been made public.
Vodacom’s bonus provision consists of a performance bonus based on the achievement of the predetermined financial targets payable to all
levels of staff.
Deferred bonus incentive
Vodacom’s deferred bonus incentive provision represents the present value of the expected future cash outflows of the entitlement value at
the balance sheet date less the value at which the entitlements were issued, multiplied by the number of entitlements allocated to a participant.
Periodically, a number of entitlements are issued to employees, the value of which depends on the seniority of the employee. The participating
rights of employees vest at different stages and employees are entitled to cash in their entitlements within one year after the participating rights
have vested. The provision is utilised when eligible employees receive the value of vested entitlements.
Supplier dispute
Telkom provided R569 million (2007: R527 million; 2006: RNil) for its estimate of the probable liability as discussed in note 38. The net
movement in the provision of R42 million (2007: R17 million; 2006: R Nil) consists of Finance charges and fair value movements offset by
provisional payments made during the current year.
Warranty provision
The warranty provision in Vodacom covers manufacturing defects in the second year of warranty on handsets sold to customers. The estimate
is based on claims notified and past experience. The suppliers of the various handsets assumed responsibility for the second year warranty
subsequent to March 31, 2007 and accordingly there is no remaining provision.
Other
Included in other provisions is an amount provided for asset retirement obligations.
Other provisions also include advertising received from suppliers of handsets and various other smaller provisions.
*In the previous year the long-term incentive provision was included in other provisions.
2006
2007
2008
Rm
Rm
Rm
F-61
background image
29.     Employee benefits
The Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund and the
Vodacom Group Pension Fund. Membership of one of the funds is compulsory. In addition, certain retired employees receive medical aid
benefits and a telephone rebate. The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements
each year. In addition, statutory funding valuations for the retirement and pension funds are performed at intervals not exceeding three years.
At March 31, 2008, the Group employed 33,616 employees (2007: 33,047; 2006: 31,458).
Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension and
retirement funds for each of the financial periods presented.
The Telkom Pension Fund
The latest actuarial valuation performed at March 31, 2008 indicates that the pension fund is in a surplus position of R84 million after
unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).
The last statutory funding valuation of the fund performed in March 2007, indicated that the fund is fully funded. The current contributions
(plus an annual top-up lump sum if necessary) are based on that valuation. Management expects to complete the next statutory valuation in
November 2008.
With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007, a
settlement event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund.
The funded status of the Telkom Pension Fund is disclosed below.
2006
2007
2008
Rm
Rm
Rm
The Telkom Pension Fund
The net periodic pension costs includes the following components:
Interest and service cost on projected benefit obligations
22
22
21
Expected return on plan assets
(24)
(19)
(27)
Recognised actuarial loss/(gain)
78
9
(16)
Settlement loss/(gain)
–
21
(2)
Asset Limitation
–
–
29
Net periodic pension expense recognised
76
33
5
Pension fund contributions (refer to note 5.1)
22
8
5
The status of the pension plan obligation is as follows:
At beginning of year
186
281
205
Interest and service cost
22
22
21
Employee contributions
4
2
2
Benefits paid
(20)
(2)
(3)
Settlements
–
(70)
(15)
Actuarial loss/(gain)
89
(28)
(6)
Benefit obligation at end of year
281
205
204
Plan assets at fair value:
At beginning of year
231
243
284
Expected return on plan assets
24
19
27
Benefits paid
(20)
(2)
(3)
Contributions
26
10
8
Settlements
–
(61)
(15)
Actuarial (loss)/gain
(18)
75
10
Plan assets at end of year
243
284
311
F-62
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
29.     Employee benefits (continued)
The Telkom Pension Fund (continued)
Present value of funded obligation
281
205
204
Fair value of plan assets
(243)
(284)
(311)
Fund status
38
(79)
(107)
Unrecognised net actuarial (loss)/gain
(118)
25
23
Net surplus
(80)
(54)
(84)
Asset Limitation
–
–
29
Recognised net asset
(80)
(54)
(55)
Expected return on plan assets
24
19
27
Actuarial (loss)/return on plan assets
(18)
75
10
Actual return on plan assets
6
94
37
Principal actuarial assumptions were as follows:
Discount rate (%)
7.5
7.5
9.0
Yield on government bonds (%)
7.5
7.5
9.0
Long-term return on equities (%)
10.5
10.5
11.0
Long-term return on cash (%)
5.5
5.5
7.0
Expected return on plan assets (%)
9.5
9.7
9.8
Salary inflation rate (%)
6.0
6.0
7.5
Pension increase allowance (%)
2.9
2.9
4.3
The overall long-term expected rate of return on assets is 9.75%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Telkom pension fund and expected long-term return
of these assets, of which South African equities and foreign investments
are the largest contributors.
The assumed rates of mortality are determined by reference to the SA85-
90 (Light) ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.
Funding level per statutory actuarial valuation (%)
99.8
100.0
100.0
The number of employees registered under the Telkom Pension Fund
255
153
146
The fund portfolio consists of the following:
Equities (%)
84
74
54
Bonds (%)
9
5
5
Cash (%)
7
3
23
Foreign Investments (%)*
–
16
18
Insurance policies (%)
–
2
–
The total expected contributions payable to the pension fund for the next
financial year are R7 million.
*Includes offshore unit trusts.
2006
2007
2008
 
 
 
Rm
Rm
Rm
F-63
background image
29.     Employee benefits (continued)
The Telkom Retirement Fund
The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees were
given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the Telkom
Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Government
ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees occurred.
The Telkom Retirement Fund is a defined contribution fund with regards to in-service members. On retirement, an employee is transferred from
the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom Retirement
Fund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. Telkom is unable to benefit
from the excess in the form of future reduced contributions.
Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the
retirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding position
of R1,368 million after unrecognised losses.
The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits payable
to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan assets, Telkom
would be required to fund the statutory deficit.
The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that
Telkom has a potential asset with regards to this Fund.
The funded status of the Telkom Retirement Fund is disclosed below:
2006
2007
2008
Rm
Rm
Rm
The Telkom Retirement Fund
The net periodic retirement costs include the following components:
Interest and service cost on projected benefit obligations
346
312
493
Expected return on plan assets
(430)
(489)
(686)
Recognised actuarial gain
–
(145)
–
Net periodic pension expense not recognised (Asset limitation)
(84)
(322)
(193)
Retirement fund contributions (refer to note 5.1)
383
439
460
Benefit obligation:
At beginning of year
4,020
4,377
6,581
Interest and service cost
346
312
493
Benefits paid
(377)
(486)
(488)
Liability for new pensioners
–
44
14
Actuarial loss
388
2,334
501
Benefit obligation at end of year
4,377
6,581
7,101
Plan assets at fair value:
At beginning of year
4,477
5,973
7,661
Expected return on plan assets
431
489
686
Benefits paid
(377)
(486)
(488)
Asset backing new pensioners’ liabilities
–
44
14
Actuarial gain
1,442
1,641
118
Plan assets at end of year
5,973
7,661
7,991
F-64
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
29.     Employee benefits (continued)
The Telkom Retirement Fund (continued)
Present value of funded obligation
4,377
6,581
7,101
Fair value of plan assets
(5,973)
(7,661)
(7,991)
Fund Status
(1,596)
(1,080)
(890)
Unrecognised net actuarial gain/(loss)
742
(96)
(478)
Unrecognised net asset
(854)
(1,176)
(1,368)
Expected return on plan assets
430
489
686
Actuarial gain on plan assets
1,442
1,641
118
Actual return on plan assets
1,872
2,130
804
Included in the fair value of plan assets is:
Office buildings occupied by Telkom
274
371
596
Telkom bonds
56
21
10
Telkom shares
287
284
141
The Telkom Retirement Fund invests its funds in South Africa and
internationally. Twelve fund managers invests in South Africa and five of
these managers specialise in trades with bonds on behalf of the
Retirement Fund. The international investment portfolio consists of global
equity and hedged funds.
Principal actuarial assumptions were as follows:
Discount rate (%)
7.5
7.5
9.0
Yield on government bonds (%)
7.5
7.5
9.0
Long-term return on equities (%)
10.5
10.5
11.0
Long-term return on cash (%)
5.5
5.5
7.0
Expected return on plan assets (%)
8.5
9.3
10.3
Pension increase allowance (%)
2.9
4.5
6.0
The overall long-term expected rate of return on assets is 10.3%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Retirement Fund and expected long-term return on
these assets, of which South African equities, foreign investments and SA
fixed interest bonds are the largest contributors.
Experience adjustment
During the March 31, 2007 year end Telkom actuaries have performed a full valuation
while for the March 31, 2006 year end a roll forward method was used, as permitted under 
IAS 19, to determine the present value of the benefit obligation and the fair value of the plan 
assets using the March 31, 2005 statutory valuation as a base applying the relevant
assumptions determined by management to arrive at the present value of the benefit obligation,
and the fair value of plan assets.
This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair
value of the plan assets of R350 million in the respect of the 31 March 2007 estimates. The remaining
R1,291 million is a result of the actual investment returns exceeding the expected return for the
March 31, 2007 year end.
The assumed rates of mortality are determined by reference to the SA85-
90 (Light) ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.
Funding level per statutory actuarial valuation (%)
100
100
100
The number of pensioners registered under the Telkom Retirement Fund
14,323
14,451
14,255
The number of in-service employees registered under the Telkom
Retirement Fund
25,320
25,766
24,939
2006
2007
2008
 
 
 
Rm
Rm
Rm
F-65
background image
29.     Employee benefits (continued)
The Telkom Retirement Fund (continued)
The fund portfolio consists of the following:
Equities (%)
72
59
70
Property (%)
4
2
2
Bonds (%)
21
19
11
Cash (%)
3
7
1
Foreign investments (%)
–
13
16
The total expected contributions payable to the Retirement Fund for the
next financial year are R514 million.
Vodacom Group Pension Fund
All eligible employees of the Vodacom Group are members of the Vodacom Group Pension Fund, a defined contribution pension scheme. Certain executive employees of the Group are also members of the Vodacom Executive Provident Fund, a defined contribution provident scheme. Both schemes are administered by ABSA Consultants and Actuaries (Proprietary) Limited. The Group’s share of the current contributions to the pension fund amounted to R57 million (2007: R42 million; 2006: R38 million). The Group’s share of the current contributions to the provident fund
amounted to R7 million (2007: R6 million; 2006: R6 milllion). South African funds are governed in terms of the Pension Fund Act of 1956.
Medical benefits
Telkom makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit plan. The
expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical benefits
to current and retired employees have been actuarially determined and provided for as set out in note 29. Telkom has terminated future post-
retirement medical benefits in respect of employees joining after July 1, 2000.
There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (‘Pre-94’);
those who retired after 1994 (‘Post-94’); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand
cap, which increases annually with the average salary increase.
Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent
actuarial valuation of the benefit was performed as at March 31, 2008.
Telkom has allocated certain investments to fund this liability as set out in note 13. The cell captive annuity policy qualified as a plan asset in
terms of IAS19, effective June 1, 2006.
2006
2007
2008
F-66
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
29.     Employee benefits (continued)
Medical benefits (continued)
Medical aid
Benefit obligation:
At beginning of year
3,079
3,904
4,384
Interest cost
249
286
322
Current service cost
48
83
84
Actuarial loss
712
283
246
Settlement gain
(2)
–
–
Termination settlement
(29)
–
–
Benefits paid from plan assets
–
(94)
(125)
Contributions paid by Telkom
(153)
(78)
(61)
Benefit obligation at end of year
3,904
4,384
4,850
Plan assets at fair value:
At beginning of year
–
–
1,961
Plan asset – initial recognition
–
1,720
–
Expected return on plan assets
–
188
257
Benefits paid from plan assets
–
(94)
(125)
Actuarial gain/(loss)
–
147
(164)
Plan assets at end of year
–
1,961
1,929
Present value of funded obligation
3,904
4,384
4,850
Fair value of plan assets
–
(1,961)
(1,929)
Funded status
3,904
2,423
2,921
Unrecognised net actuarial loss
(1,297)
(1,284)
(1,565)
Liability as disclosed in the balance sheet (refer to note 28)
2,607
1,139
1,356
Expected return on plan asstes
–
188
257
Actuarial return on plan assets
–
147
(164)
Actual return on plan assets
–
335
93
Principal actuarial assumptions were as follows:
Discount rate (%)
7.5
7.5
9.0
Expected return on plan assets (%)
–
13.5
12.0
Salary inflation rate (%)
6.0
6.0
7.5
Medical inflation rate (%)
6.5
6.5
8.0
The assumed rates of mortality are determined by reference to the SA85-
90 (Light) ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.
Contractual retirement age
65
65
65
Average retirement age
60
60
60
Number of members
17,872
17,119
15,526
Number of pensioners
8,665
8,494
8,430
The valuation results are extremely sensitive to changes in the underlying assumptions. The following table provides an indication of the impact
of changing some of the valuation assumptions above:
2006
2007
2008
Rm
Rm
Rm
F-67
background image
29.     Employee benefits (continued)
Medical benefits (continued)
The TDS benefit obligation of R19 million has been excluded from the sensitivity analysis below.
Current assumption
Decrease
Increase
Rm
Rm
Rm
Medical cost inflation rate
8.0%
(1.0%)
1.0%
Benefit obligation
4,831
(672)
845
Percentage change
(13.9%)
17.5%
Service cost and interest cost 2008/2009
521
(76)
97
Percentage change
(14.6%)
18.6%
Discount rate
9.0%
(1.0%)
1.0%
Benefit obligation
4,831
855
(670)
Percentage change
17.7%
(13.9%)
Service cost and interest cost 2008/2009
521
41
(35)
Percentage change
7.9%
(6.7%)
PA(90)
Post-retirement mortality rate
Ultimate-1
(10.0%)
10.0%
Benefit obligation
4,831
196
(173)
Percentage change
4.1%
(3.6%)
Service cost and interest cost 2008/2009
521
19
(17)
Percentage change
3.6%
(3.3%)
The fund portfolio consists of the following:
Equities (%)
59
56
Bonds (%)
3
2
Cash and money markets investments (%)
21
33
Foreign investments (%)
9
9
Insurance policies (%)
8
–
Telephone rebates
Telkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2008. Eligible
employees must be employed by Telkom until retirement age to qualify for the telephone rebates. The scheme is a defined benefit plan.
The status of the telephone rebate liability is disclosed below:
2006
2007
2008
 
 
Rm
Rm
Rm
Present value of unfunded obligation
251
307
443
Unrecognised net actuarial loss*
(53)
(25)
(156)
Liability as disclosed in the balance sheet (refer to note 28)
198
282
287
Principal actuarial assumptions were as follows:
Discount rate (%)
7.5
7.5
9.0
Rebate inflation rate (%)
0.0
0.0
4.0
Contractual retirement age
65
65
65
Average retirement age
60
60
60
*The major increase is attributable to the change in the Rebate inflation rate.
The assumed rates of mortality are determined by reference to the SA85-
90 (Light) Ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.
Number of members
19,164
19,515
18,766
Number of pensioners
11,148
10,918
10,680
F-68
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
29.     Employee benefits (continued)
Telkom Conditional Share Plan
Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both
operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the vesting
period. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of the 3 years
thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after 3 years. Although the number of
shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may differ based on certain
performance conditions being met (Refer note 22).
The weighted average remaining vesting period for the shares outstanding as at March 31, 2008 is 1.25 years (2007: 1.75 years; 2006:
1.75 years).
2006
2007
2008
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the August 2004 grant:
Outstanding at beginning of the year
2,943,124
2,414,207
1,883,991
Granted during the year
90
1,212
252
Forfeited during the year
(67,573)
(80,923)
(43,790)
Vested during the year
(17,341)
(450,505)
(1,419,863)
Settled during the year
(444,093)
–
–
Outstanding at end of the year
2,414,207
1,883,991
420,590
The following table illustrates the movement of the maximum number of
shares that will vest to employees for the June 2005 grant:
Outstanding at beginning of the year
–
1,930,687
1,864,041
Granted during the year
2,024,465
1,005
3,469
Forfeited during the year
(62,354)
(67,651)
(108,177)
Vested during the year
(12,328)
–
(323,946)
Settled during the year
(19,096)
–
–
Outstanding at end of the year
1,930,687
1,864,041
1,435,387
The following table illustrates the movement of the maximum number of
shares that will vest to employees for the November 2006 grant:
Outstanding at beginning of the year
–
–
1,773,361
Granted during the year
–
1,825,488
833
Forfeited during the year
–
(52,127)
(133,214)
Outstanding at end of the year
–
1,773,361
1,640,980
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the additional November
2006 grant:
Outstanding at beginning of the year
–
–
–
Granted during the year
–
–
4,984,693
Forfeited during the year
–
–
(172,388)
Outstanding at end of the year
–
–
4,812,305
The following table illustrates the movement of the maximum number of
shares that will vest to employees for the September 2007 grant:
Outstanding at beginning of the year
–
–
–
Granted during the year
–
–
6,117,163
Forfeited during the year
–
–
(270,527)
Outstanding at end of the year
–
–
5,846,636
F-69
background image
29.     Employee benefits (continued)
Telkom Conditional Share Plan
The fair value of the shares granted have been calculated by an actuary using
the Black-Scholes-Merton model and the following values at grant date:
August 8,
June 23,
November 2,
September 4,
2004 Grant
2005 Grant
2006 Grant
2007 Grant*
Market share price ( R)
77.50
111.00
141.25
173.00
Dividend yield (%)
2.60
3.60
3.50
3.50
*The same information was used for the November 2006 additional grant.
2006
2007
2008
The principal assumptions used in calculating the expected number of
shares that will vest are as follows:
Employee turnover (%)
5
5
5
Meeting specified performance criteria (%)
100
100
100
2006
2007
2008
Rm
Rm
Rm
Long-term incentive provision
The long-term incentive provision represents the present value of the
expected future cash outflows to eligible employees that qualify. The
amount of the liability is based on an actuarial valuation. The provision
is utilised when eligible employees of the Vodacom Group receive the
value of vested benefits.
The Group exposure is 50% of the following items:
Net liability at beginning of year
–
122
161
Interest cost
7
10
15
Current service cost
9
18
20
Past service and interest costs
76
–
–
Actuarial loss
47
13
62
Net cost
139
163
258
Total benefit payments
(17)
(2)
(33)
Net liability at end of year
122
161
225
The amounts for the current and previous four years are as follows:
2004
2005
2006
2007
2008
Rm
Rm
Rm
Rm
Rm
Telkom Pension Fund
Defined benefit obligation
(190)
(186)
(281)
(205)
(204)
Plan assets
219
231
243
284
311
Surplus/(deficit)
29
45
(38)
79
107
Asset limitation
–
–
–
–
(29)
Unrecognised actuarial loss/(gain)
100
89
118
(25)
(23)
Unrecognised/recognised net asset
129
134
80
54
55
Experience adjustment on assets
75
10
Experience adjustment on liabilities
25
(6)
F-70
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
29.     Employee benefits (continued)
Telkom Retirement Fund
Defined benefit obligation
(3,162)
(4,020)
(4,377)
(6,581)
(7,101)
Plan assets
3,540
4,477
5,973
7,661
7,991
Surplus
378
457
1,596
1,080
890
Unrecognised actuarial gain/(loss)
382
312
(742)
96
478
Unrecognised net asset
760
769
854
1,176
1,368
Experience adjustment on assets
1,641
118
Experience adjustment on liabilities
1,234
485
Medical benefits
Defined benefit obligation
(2,378)
(3,079)
(3,904)
(4,384)
(4,850)
Plan assets
–
–
–
1,961
1,929
Deficit
(2,378)
(3,079)
(3,904)
(2,423)
(2,921)
Unrecognised actuarial (gain)/loss
(42)
649
1,297
1,284
1,565
Liability recognised
(2,420)
(2,430)
(2,607)
(1,139)
(1,356)
Experience adjustment on assets
147
(164)
Experience adjustment on liabilities
28
193
Telephone rebates
Defined benefit obligation
(164)
(177)
(251)
(307)
(443)
Unrecognised actuarial (gain)/loss
–
(2)
53
25
156
Liability recognised
(164)
(179)
(198)
(282)
(287)
Experience adjustment on liabilities
(25)
2
2006
2007
2008
Rm
Rm
Rm
30.    Trade and other payables
6,103
7,237
8,771
Trade payables
4,371
5,511
6,768
Finance cost accrued
141
22
39
Accruals and other payables
1,591
1,704
1,964
Accruals and other payables mainly represent amounts payable for goods received, net of Value-added Tax obligations and licence fees.
Change in comparatives
Trade payables have decreased by R125 million in 2007 (2006: Rnil) due to the reclassification of the Vodacom DRC put option from trade
and other payables to other financial liabilities.
2004
2005
2006
2007
2008
Rm
Rm
Rm
Rm
Rm
F-71
background image
31.    Reconciliation of profit for the year
to cash generated from operations
19,724
20,520
21,256
Profit for the year
9,328
8,849
8,172
Finance charges and fair value movements
1,223
1,125
1,803
Taxation
4,523
4,731
4,704
Investment income
(397)
(235)
(197)
Interest received from debtors
(136)
(190)
(257)
Non-cash items
6,206
6,582
6,930
Depreciation, amortisation, impairment and write-offs
5,876
5,315
6,130
Cost of equipment disposed when recognising finance leases
–
240
88
Increase in provisions
554
1,107
857
Profit on disposal of property, plant and equipment and intangible assets
(79)
(29)
(147)
Profit on disposal of investment and subsidiaries
(163)
(52)
–
Loss on disposal of property, plant and equipment and intangible assets
18
1
2
(Increase)/decrease in working capital
(1,023)
(342)
101
Inventories
(198)
(393)
(354)
Accounts receivable
(667)
(758)
(784)
Accounts payable
(158)
809
1,239
32.     Finance charges paid
(1,316)
(1,115)
(1,077)
Finance charges per income statement
(1,223)
(1,125)
(1,803)
Non-cash items
(93)
10
726
Movements in interest accruals
(276)
(119)
101
Net discount amortised
423
409
568
Fair value adjustment
(312)
(338)
(243)
Unrealised gain
72
58
300
33.     Taxation paid
(4,550)
(5,690)
(4,277)
Net liability at beginning of year
(1,711)
(1,549)
(74)
Current taxation (excluding deferred taxation)
(3,795)
(3,545)
(3,807)
Foreign currency translation reserve
–
–
(32)
Business combinations
(8)
–
–
Secondary Taxation on Companies
(585)
(670)
(678)
Net taxation liability at end of year
1,549
74
314
Reconciliation of net taxation liability at end of year
(1,549)
(74)
(314)
Income tax receivable
–
520
9
Income tax payable
(1,549)
(594)
(323)
2006
2007
2008
Rm
Rm
Rm
F-72
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
34.    Dividend paid
(4,884)
(4,784)
(5,732)
Dividend payable at beginning of year
(7)
(4)
(15)
Declared during the year – Dividend on ordinary shares:
(4,801)
(4,678)
(5,627)
Final dividend for 2005: 400 cents
(2,134)
–
–
Special dividend for 2005: 500 cents
(2,667)
–
–
Final dividend for 2006: 500 cents
–
(2,599)
–
Special dividend for 2006: 400 cents
–
(2,079)
–
Final dividend for 2007: 600 cents
–
–
(3,069)
Special dividend for 2007: 500 cents
–
–
(2,558)
Dividends paid to minorities
(80)
(117)
(110)
Dividend payable at end of year
4
15
20
35.     Acquisition and disposals of subsidiaries, joint
ventures and minority shareholders’ interests
35.1   Acquisitions
By Telkom
Africa Online Limited (‘Africa Online’)
On February 23, 2007 Telkom acquired a 100% shareholding of Africa
Online from African Lakes Corporation for a total cost of R150 million,
with a resulting goodwill of R145 million.
Africa Online is an internet service provider active in Cote d’Ivoire, Ghana,
Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
Africa Online is incorporated in the Republic of Mauritius.
At acquisition date the company was not IFRS compliant and thus no
fair value information based on IFRS was available.
The process of calculating a fair value of the identified assets, liabilities
and contingent liabilities continued after the preceding year end and has
now been finalised.
The fair value of the assets and liabilities acquired were determined
as follows:
Fair value of intangible assets (Licences R1 million, Brand R42 million)
43
Less: Deferred taxation raised on intangible assets
(12)
Less: Net liabilities acquired (excluding fair value of intangible assets)
(26)
Fair value of net assets acquired
5
Goodwill
145
Purchase price
150
The goodwill has been allocated to the various cash-generating units (‘CGU’) representative of the countries in which Africa Online Limited
operates. An impairment loss of R12 million was recognised relating to the Tanzanian and Ghana cash generating units in 2008 in order to
write down goodwill to the recoverable amount. The recoverable amount represents the value in use of the CGU’s and has been determined
using 11.6% discount rate.
2006
2007
2008
Rm
Rm
Rm
F-73
background image
35.     Acquisition and disposals of subsidiaries, joint
ventures and minority shareholders’ interests (continued)
35.1    Acquisitions (continued)
By the Group’s 50% joint venture, Vodacom
Smartphone SP (Proprietary) Limited and subsidiaries
(‘Smartphone SP’)
On August 30, 2006 the Vodacom Group acquired a further 19% interest.
On August 31, 2007 the Vodacom Group increased its interest in the equity
of Smartphone SP from 70% to 100%. The acquisition was accounted for
using the parent entity extenstion method.
Minority interest acquired
11
3
Goodwill
157
466
Purchase price (including capitalised cost)
168
469
Less: Capitalised costs payable
–
(1)
Purchase price
168
468
Smartcom (Proprietary) Limited (‘Smartcom’)
On September 13, 2006 the Vodacom Group increased its interest to 88%.
On September 1, 2007 the Vodacom Group increased its interest in the
equity of Smartcom from 88% to 100%. The acquisition was accounted for
using the parent entity extension method.
Minority interest acquired (<R1 million)
–
–
Goodwill
4
9
Purchase price
4
9
The purchase price of R18 million (Group’s share: R9 million) was paid on
September 6, 2007.
Africell Cellular Services (Proprietary) Limited
Effective October 1, 2006 the Vodacom Group acquired the cellular business
of Africell Cellular Services (Proprietary) Limited. The fair value of the assets
and liabilities acquired were determined as follows:
Fair value of assets acquired
25
Less: Deferred taxation liability (including taxation effect on intangible assets)
(7)
Fair value of net assets acquired
18
Goodwill
22
Purchase price
40
The customer base was not previously recorded in the accounting records of Africell Cellular Services (Proprietary) Limited as it was an internally
generated intangible asset. The goodwill related to the acquisition represents future synergies and the ability to directly control Vodacom
Group’s customers in South Africa.
2006
2007
2008
Rm
Rm
Rm
F-74
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
35.     Acquisition and disposals of subsidiaries, joint
ventures and minority shareholders’ interests (continued)
35.1   Acquisitions (continued)
By the Group's 50% joint venture, Vodacom
InterConnect s.p.r.l
Effective November 1, 2006 the Vodacom Group acquired the internet
service provider business of InterConnect s.p.r.l. The fair values of the assets
and liabilities acquired were determined as follows:
Fair value of assets acquired
6
Less: Deferred taxation liability
(2)
Fair value of net assets acquired
4
Goodwill
6
Purchase price
10
The initial purchase price of R21 million (USD3 million) (Group share:
R10 million) excluding capitalised costs was paid on November 1, 2006.
The goodwill related to the acquisition represents future synergies and are
allocated to the Democratic Republic of Congo cash-generating unit.
Cointel V.A.S. (Proprietary) Limited
On August 1, 2005 the Vodacom Group acquired a 51% interest in the
equity of Cointel V.A.S. (Proprietary) Limited.
On October 4, 2006 the Vodacom Group increased its interest to 100% by
acquiring 49% from the minority shareholders. The acquisition was
accounted for using the parent entity extention method. The goodwill related
to the acquisition represents future synergies and are allocated to the mobile
South African cash-generating unit.
Fair value of net assets acquired
47
–
Minority interest
(23)
28
Goodwill
18
45
Purchase price (including capitalised costs)
42
73
Cash and cash equivalents
(42)
–
Cash consideration
–
73
On October 9, 2006 Smartphone SP (Proprietary) Limited, acquired a 100% shareholding of Cointel V.A.S. (Proprietary) Limited from Vodacom
Group (Proprietary) Limited for R300 million (Group share: R150 million).
As a result of the sale of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited to Smartphone SP (Proprietary)
Limited, R38 million (Group share: R19 million) goodwill was realised, which resulted in the realisation of R17.4 million profit (Group share:
R8.7 million) on consolidation.
2006
2007
2008
Rm
Rm
Rm
F-75
background image
35.     Acquisition and disposals of subsidiaries, joint
ventures and minority shareholders’ interests (continued)
35.1   Acquisitions (continued)
By the Group’s subsidiaries
One Africa Television (Proprietary) Limited (‘One Africa Television’)
and Downlink (Proprietary) Limited (‘Downlink’)
On August 13, 2007 Telkom Media acquired a 49% shareholding in One
Africa Television and Downlink respectively, two companies registered in
the Republic of Namibia, for a total cost of R18 million. Telkom Media has
management control and therefore the entities are consolidated into Telkom
Media Group.
Purchase price
18
The purchase price allocation will be completed in the 2009 financial year
as not all the information was available at year end to finalise it. Goodwill
has not been tested for impairment as the accounting is provisional and
has not been allocated to the various cash-generating units.
Multi-Links Telecommunications Limited (‘Multi-Links Telecommunications’)
On May 1, 2007 Telkom acquired a 75% shareholding in Multi-Links
Telecommunications through Telkom International, a wholly owned South
African subsidiary, for a total cost of R1,985 million.
Multi-Links Telecommunications is a Nigerian Private Telecommunications
Operator with a Unified Access License providing fixed, mobile, data, long
distance and international telecommunications services throughout Nigeria.
Multi-Links is domiciled and incorporated in Nigeria.
At this stage Telkom has not taken a decision to dispose of any operations
as a result of the combination.
At acquisition date the company was not IFRS compliant and thus no fair
value information based on IFRS was available.
The purchase price allocation has been completed during the current year
under review, and has resulted in goodwill being adjusted since the interim
results has been released.
The following intangible assets were identified and valued at the end of
the year:
Customer relationship
61
Licence
36
Brand

Fair value of intangible assets
105
202
2006
2007
2008
Rm
Rm
Rm
F-76
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
35.     Acquisition and disposals of subsidiaries, joint
ventures and minority shareholders’ interests (continued)
35.1   Acquisitions (continued)
By the Group’s subsidiaries (continued)
Multi-Links Telecommunications Limited (‘Multi-Links
Telecommunications’) (continued)
The fair value of the assets and liabilities acquired were determined
as follows:
Net assets acquired (excluding fair value of intangible assets)
236
Fair value of intangible assets
202
Less: Contingencies recognised
(35)
Less: Deferred taxation raised on intangible assets
(65)
Fair value of net assets acquired
338
Less: Minority interest
(80)
Goodwill
1,727
Purchase price*
1,985
*The purchase price was settled in cash.
Revenue amounting to R845 million and a profit of R23 million are included
in the consolidated annual financial statements, since acquisition date.
The factors that lead to goodwill recognised is a combination of premium
paid and intangible assets not separately identifiable at acquisition.
35.2   Disposals of Subsidiaries
By the Group’s 50% joint venture, Vodacom
Ithuba Smartcall (Proprietary) Limited (‘Ithuba Smartcall’)
On September 3, 2007 the Group disposed of its 52% interest in Ithuba
Smartcall. The fair value of the assets and liabilities disposed of was less
than R1 million.
Stand 13 Eastwood Road Dunkeld (Proprietary) Limited
On September 3, 2007 the Group disposed of its 100% interest in Stand
13 Eastwood Road Dunkeld (Proprietary) Limited. The fair value of the
assets and liabilities disposed were as follows:
Carrying amount of net assets disposed of:
4
Gain on disposal
4
Selling price
8
The consideration was received on September 6, 2007.
2006
2007
2008
Rm
Rm
Rm
F-77
background image
36.     Undrawn borrowing facilities and guarantees
36.1   Rand denominated facilities and guarantees
Telkom has general banking facilities of R5,935 million with R41 million utilised at March 31, 2008. The facilities are unsecured. When
drawn bear interest at a rate linked to prime, have no specific maturity date and are subject to annual review. R2,000 million of these undrawn 
facilities were committed
The Group exposure is 50% of the following items:
Vodacom has Rand denominated credit facilities totalling R5,788 million with R2,456 million utilised as at March 31, 2008. The facilities that
are uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an annual basis).
Certain of the facilities are still subject to the Group’s final acceptance.
2006
2007
2008
Guarantor
Details
Beneficiary
Currency
Rm
Rm
Rm
Vodacom (Proprietary) Limited
All guarantees individually
Various
3
3
2
less than R2 million.
Vodacom Service Provider
All guarantees individually
Various
3
3
3
Company (Proprietary) Limited
less than R2 million.
Vodacom Service Provider
Guarantee in respect of receipt
SA Insurance Association
21
27
32
Company (Proprietary) Limited
of independent intermediaries
for benefit of insurers
of premiums on behalf of short-
term insurers and Lloyd’s under-
writers, and relating to short-term
insurance business carried on in
RSA. Renewable annually.
Smartcom (Proprietary) Limited
Guarantees for salary bank
Various
3
3
–
account and debit orders.
Cointel VAS (Proprietary) Limited
Guarantees for operating lease
Various
–
1
–
and debit orders.
Vodacom (Proprietary) Limited
Letter of undertaking
Attorneys
–
7
17
in respect of land.
30
44
54
36.2   Foreign denominated facilities
and guarantees
Telkom SA Limited
Punctual payment and
Various
USD3 million
–
–
23
performance by Africa Online
under the Trade Finance Facility.
Agreement to various banks.
First Bank of Nigeria Plc
Guarantee on lending facility
Nortel Networks
USD18 million
–
–
147
(on behalf of Mutli-links
from Export Bank of Canada to
Canada
Telecommunications
Nortel Networks for the purchase
Limited)
of Telecommunications equipment
phases – 9a, 9b, 9c and 9d.
Zenith Bank Plc
Guarantee payment to Gilat
Gilat Satcom
USD0.1 million
–
–
1
(on behalf of Mutli-links
Satcom Limited in respect of
Limited
Telecommunications
interconnect service (standby
Limited)
letter of credit).
Zenith Bank Plc
Support the bid award of the
(on behalf of Mutli-links
contract for the submission of
Telecommunications
the proposal to provide wire
Limited)
Nigerian Telecommunications
Services.
NCC
USD0.1 million
–
–
1
Zenith Bank Plc
Issued in favour of Huawei
Huawei Technology USD31 million
–
–
250
(on behalf of Mutli-links
Technology Investment Company Investment Company
Telecommunications
Limited for the supply of core
Limited
Limited)
telecommunications services.
Zenith Bank Plc
Issued in favour of Huawei
Huawei Technology USD11 million
–
–
88
(on behalf of Mutli-links
Technology Investment Company Investment Company
Telecommunications
Limited for the supply of core
Limited
Limited)
telecommunications services.
–
–
510
F-78
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
36.     Undrawn borrowing facilities and guarantees (continued)
36.2   Foreign denominated facilities and guarantees (continued)
The Group exposure is 50% of the following items:
Vodacom Congo (RDC) s.p.r.l. has various facilities of USD19 million of which USD9 million was fully utilised as at March 31, 2008. Vodacom
International Limited has a revolving term loan of USD180 million which was fully utilised at March 31, 2008. Vodacom Lesotho (Proprietary)
Limited has overdraft facilities with various banks of M40 million of which MNil was utilised at March 31, 2008. VM, S.A.R.L. has an overdraft
facility of USD0.5 million of which USDNil million was utilised at March 31, 2008. Foreign currency term facilities are predominantly US Dollar
based, at various maturities and are utilised for bridging and short-term working capital needs.
2006
2007
2008
Guarantor
Details
Beneficiary
Currency
Rm
Rm
Rm
Nedbank on behalf of
Unsecured standby
Alcatel CIT
€Nil
86
–
–
Vodacom
letters of credit
(2007: Nil;
(Proprietary) Limited
2006: €11 million)
Vodacom Group
Guarantees issued for
Standard Bank Plc
USD180 million
1,114
1,312
1,463
(Proprietary)Limited
the obligation of Vodacom  and RMB
(2007: USD180 million;
International Limited’s
International
2006: USD180 million)
term loan facility*#
(Dublin) Limited
Vodacom International
Guarantees issued for the  Alcatel CIT
€Nil
38
–
–
Limited
obligation of Vodacom
(2007: €Nil;
Congo (RDC) s.p.r.l.*
2006: €5 million)
1,238
1,312
1,463
* Foreign denominated guarantees amounting to R1,463 million (2007: R1,312 million; 2006: R1,152 million) issued in support of Vodacom Congo (RDC)
s.p.r.l. are included as liabilities in the consolidated balance sheet.
# The Group is in compliance with the covenants attached to the term loan facility.
Companies within the Group have provided the following guarantees:
Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group (Proprietary) Limited.
2006
2007
2008
Rm
Rm
Rm
37.     Commitments
Capital commitments authorised
10,265
11,167
15,198
Fixed-line
6,500
7,000
7,000
Mobile
3,746
4,159
5,211
Other
19
8
2,987
Commitments against authorised capital expenditure
842
1,099
3,504
Fixed-line
197
506
652
Mobile
642
591
800
Other
3
2
2,052
Authorised capital expenditure not yet contracted
9,423
10,068
11,694
Fixed-line
6,302
6,494
6,348
Mobile
3,104
3,568
4,411
Other
17
6
935
Capital commitments comprise of commitments for property, plant and equipment and software included in Intangible assets.
Management expects these commitments to be financed from internally generated cash and other borrowings.
F-79
background image
37.     Commitments (continued)
2010 FIFA World Cup Commitments
The FIFA World Cup commitments is an executory contract which requires Telkom to develop the fixed-line components of the necessary
telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-line
telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning,
management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services.
Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional and marketing
rights that are exercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amounted
to USD35 million.
Total
<1 year
1 – 5 years
>5 years
Rm
Rm
Rm
Rm
Operating lease commitments and receivables
2008
Buildings
2,061
341
913
807
Rental receivable on buildings
(266)
(94)
(169)
(3)
Transmission and data lines
709
134
490
85
Vehicles
1,444
233
1,211
–
Equipment
13
10
3
–
Sport and marketing contracts
680
282
395
3
Customer premises equipment receivables
(84)
(45)
(39)
–
Total
4,557
861
2,804
892
Customer premises equipment receivable
The disclosed information relates to those arrangements which were
assessed to be operating leases in terms of IAS17.

The comparative information for 2006 is not disclosed as it was not considered to be material.
2007
Buildings
1,465
289
771
405
Rental receivable on buildings
(269)
(91)
(174)
(4)
Transmission and data lines
262
68
159
35
Vehicles
573
568
5
–
Equipment
23
6
17
–
Sport and marketing contracts
441
164
275
2
Customer premises equipment receivables
(57)
(30)
(27)
–
Total
2,438
974
1,026
438
2006
Buildings
890
240
640
10
Rental receivable on buildings
(180)
(56)
(122)
(2)
Transmission and data lines
131
28
102
1
Vehicles
996
498
498
–
Equipment
35
20
15
–
Sport and marketing contracts
567
149
418
–
Total
2,439
879
1,551
9
F-80
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
37.     Commitments (continued)
Operating leases
The Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are ten years
with other leases signed for five and three years. The bulk of non-equipment related premises are for leases of three years to ten years. The majority
of the leases normally contain an option clause entitling Telkom to renew the lease agreements for a period usually equal to the main lease term.
The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.
Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the lease agreement
prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of the premises.
Future minimum lease payments under operating leases are included in the above note. Onerous leases for buildings, of which Telkom has no
further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions.
The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in the
lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating lease
commitments for vehicles are based on the new agreement which expires on March 31, 2013. In accordance with this agreement Telkom is
not allowed to lease any similar vehicle as specified in the contract from any other service provider during the five year period except for the
rentals at airport which are utilised in cases of subsistence and travel as well as vehicles which are not part of the agreement.
The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however, replaced
by a new similar vehicle, the lease costs of the newest vehicle, will increase by the Consumer Price Index. All leased vehicles are, however,
subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South African Reserve
Bank. The leases of individual vehicles are renewed annually.
The increase in the current year transmission and data line is attributable to Vodacom increasing their operating leases.
The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25, 2005.
In terms of these agreements the leases of individual equipment shall be valid for 36 months at a fixed fee for the entire period.
Total
<1 year
1 – 5 years
>5 years
Rm
Rm
Rm
Rm
Finance lease commitments
2008
Building
Minimum lease payments
2,182
161
871
1,150
Finance charges
(1,029)
(43)
(603)
(383)
Finance lease obligation
1,153
118
268
767
Equipment
Minimum lease payments
16
4
12
–
Finance charges
(2)
–
(2)
–
Finance lease obligation
14
4
10
–
Vehicles*
Minimum lease payments
242
48
194
–
Finance charges
(59)
(20)
(39)
–
Finance lease obligation
183
28
155
–
2007
Building
Minimum lease payments
2,412
227
853
1,332
Finance charges
(1,198)
(166)
(540)
(492)
Finance lease obligation
1,214
61
313
840
Equipment
Minimum lease payments
6
–
6
–
Finance charges
–
–
–
–
Finance lease obligation
6
–
6
–
* The finance lease commitments disclosed above are future commitments commencing April 1, 2008. Thus not recognised as interest-bearing debt.
F-81
background image
37.     Commitments (continued)
Finance lease commitments (continued)
2006
Building
Minimum lease payments
2,644
217
908
1,519
Finance charges
(1,372)
(172)
(587)
(613)
Finance lease obligation
1,272
45
321
906
Finance leases

Swap bodies are detactable parts of the vehicle designed according to Telkom specifications, which are used as mobile storage.
Finance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies which have been classified as finance leases
and vehicles which have been classified as operating leases has been renewed from April 2008 to April 2013.
A major portion of the finance leases relates to the sale and lease-back of the Group’s office buildings. The lease term negotiated for the
buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkom has
the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claim damages.
Finance charges accruing on one of the Group’s building leases exceed the lease payments for the next three years. Minimum lease payments
for the next five years do not result in any income accruing to the Group.
Finance leases on equipment relates to the reclassification of operating leases as the result of Telkom adopting IFRIC4, which requires assessment
of whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfer significant risks
and rewards of ownership to Telkom.
Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for a period of 3 years
ending in 2011.
Other
The group exposure is 50% of the following items:
Global Alliance fees
The Vodacom Group pays annual fees from February 18, 2005 for the services provided by Vodafone Group Plc. The fee is calculated as
a percentage of revenue and amounts to R304 million (2007: R250 million; 2006: R175 million).
Retention incentives
The Vodacom Group has committed a maximum of R1,317 million (2007: R652 million; 2006: R456 million) in respect of customers already
beyond their normal 24 month contract period, but who have not yet upgraded to new contracts, and therefore have not utilised the incentive
available for such upgrades. The Group has not recognised the liability, as no legal obligation exists, since the customers have not yet entered
into new contracts.
Activation bonuses
The Vodacom Group has a potential liability in respect of activation bonuses payable related to starter packs sold which have not yet been
validated. The exposure is estimated at approximately R14 million (2007: R8 million; 2006: R9 million).
Activation commissions
The Vodacom Group has a commitment to a maximum of R119 million (2007: R116 milllion; 2006: R142 million) in terms of activation
commissions on gross prepaid connections in excess of the legal liability recorded in the financial statements.
F-82
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
Total
<1 year
1 – 5 years
>5 years
Rm
Rm
Rm
Rm
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
38.     Contingencies
Third parties
35
28
27
Fixed-line
27
19
18
Mobile
3
4
4
Other
5
5
5
Third parties
These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle.
Supplier dispute
Expenditure of R594 million was incurred up to March 31, 2002 for the development and installation of an integrated end-to-end customer
assurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and in
that year, Telkom wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of the Telcordia
investment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia was seeking
approximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plus interest
at a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised by Telcordia 
to USD128 million.
The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Following
the ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was
held in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator setting
out a consolidated list of proposals and issues to form part of the quantum hearing.
In the second hearing in London at the IDRC on June 25 and 26, 2007 the arbitrator set out a list of issues for determination of the damages.
At a subsequent hearing during July 2007 in London the arbitrator ruled that the rate in terms of the Prescribed Rate of Interest will apply on
both damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’s
claim, where applicable, and set out an agreed timetable for the future conduct of proceedings. 
A mediation took place, without success, during February and April 2008. 
In the interim the parties have agreed to the appointment by the arbitrator of a third party expert to deal with the technical issues in relation 
to the software that was required to be provided by Telcardia, who will make a recommendation to the arbitrator in dealing with the amount of 
the claims.
The arbitrator confirmed certain dates for the compliance of precedural steps to be taken by all the parties before 
final dates could be agreed upon for a hearing of the evidence on the quantum.
A provision has been raised based on management’s best estimate of the probable payments in this regard.
2006
2007
2008
Rm
Rm
Rm
Supplier dispute liability included in current portion of provisions                                       _
527
569*
For the net increase in the provision refer to note 28.
* USD70 million.
Competition Commission
If found guilty Telkom could be required to cease these practices, divest these businesses and a maximum administrative penalty of up to 
10%, calculated with reference to Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for the financial year 
prior to the complaint date, may be imposed if it is found that Telkom has committed a prohibited practice as set out in the Competition Act, 
1998 (as amended). The Competition Commissions has to date not imposed the maximum penalty on any offender.
F-83
2006
2007
2008
Rm
Rm
Rm
background image
38.     Contingencies (continued)
Competition Commission (continued)
This applies to the following cases:
Independent Cellular Service Provider Association of South Africa ('ICSPA')
This is a complaint in terms of the Competition Act, which was brought in 2002. ICSPA alleged that Telkom had entered into contracts
with large corporations, providing large discounts with the effect of the discouraging the corporates from using the ‘premicell’ device installed
by their members. ICSPA alleged various contraventions of the Act. Telkom provided the Competition Commission with certain information
requested. Telkom also referred the Competition Commission to it's High Court application in respect of utilisation of the 'premicell' device.
The Competition Commission declined to refer the matter to the Competition Tribunal. ICSPA  then referred the matter to the
Competition Tribunal on September 18, 2003 but has done nothing since, notwithstanding that Telkom filed its answering affidavit on
November 28, 2003. ICSPA has taken no further action since then.
The South African Value Added Network Services (‘SAVA’)
On May 7, 2002 SAVA, an association of Value Added Network Services (VANS) providers, filed complaints against Telkom at the Competition
Commission Competition Act, 89 of 1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of
the Competition Act, 89 of 1998, and that it was engaged in price discrimination. The Competition Commission determined, among other things,
that several aspects of Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the
Competition Tribunal for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain
VANS providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised
competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with certain
VANS providers.
Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the High Court, in respect of
the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the Competition
Tribunal does not have jurisdiction to adjudicate these matters and argued that the Independant Communications Authority of South Africa ('ICASA')
has the requisite jurisdiction. Only the Competition Commission opposed the application and filed an answering affidavit.
 
The application for review was heard on April 24 and 25, 2008. The High Court Judge agreed with Telkom’s arguments and set aside the decision
of the Competition Commission to refer the SAVA complaints (and the Omnilink complaint against Telkom discussed below) to the Competition
Tribunal. The decision was made based on three grounds:
•  The Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the Competition
Commission and ICASA;
•  The referral was out of time; 
•  The Competition Commission’s reliance on a report by the Link Centre created a reasonable apprehension of bias, since some of the
complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in the
SAVA complaints.
The Judge did not make a decision on the matter of jurisdiction (whether ICASA or the Competition Tribunal has the right to rule on the
competition matters in the communications industry). To date, the Competition Commission has not appealed the High Court ruling.
Omnilink
Omnilink alleged that Telkom was abusing its dominance by discriminating in its price for Diginet services as against those charged to VANS
and the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequently
referred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with
together with the SAVA matter discussed above.
Orion/Telkom (Standard Bank and Edcon): Competition Tribunal
In April 2003, Orion filed a complaint against Telkom, Standard Bank, and Edcon at the Competition Commission concerning Telkom offering
discounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, the
Competition Commission, who acts as an investigator, has one year to investigate the complaint. Orion simultaneously with the filing of the
complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting and
restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver discount plan.
F-84
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
38.     Contingencies (continued)
Competition Commission (continued)
Orion/Telkom (Standard Bank and Edcon): Competition Tribunal (continued)
The Competition Commission completed its investigation and decided that there was no prima facie evidence on any contravention of the
Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows
for parties to refer matters to the Competition Tribunal themselves.
Telkom has not yet filed its answering affidavit in the main complaint before the Competition Tribunal. To date there has been no further
developments on this matter.
The Internet Service Providers Association (‘ISPA’)
In December 2005, ISPA, an association of Internet Service Providers (‘ISPs’), filed complaints against Telkom at the Competition Commission
regarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South African Internet
Exchange (‘SAIX’), the prices offered by Telkom
Internet, the alleged delay in provision of facilities to ISP’s and the alleged favourable installation
timelines offered to Telkom
Internet customers.
The Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt
to first investigate the latter aspects of the complaint. Telkom has provided the Competition Commission with the information and is awaiting
the Commissions’ response.
M-Web and Internet Solutions (‘IS’)
On June 29, 2005 M-Web and IS jointly lodged a complaint with the Competition Commission against Telkom and also requested interim relief
at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and its
IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users of
other ISP’s, the architecture of the ADSL access route and the manner in which ISP’s can only connect to the ESR via IP Connect as well as
alleged excessive pricing for bandwidth on the international undersea cable.
The application for interim relief at the Competition Tribunal dealt with allegations that Telkom should maintain the peering link between IS
and Telkom in terms of the current peering agreement, and demanded that Telkom treat traffic generated by the ADSL customers of M-Web
as traffic destined for the peering link and that Telkom upgrades the peering link to accommodate the increased ADSL traffic emanating from
M-Web and maintain a maximum of 65% utilisation.
Telkom filed its answering affidavit, and is awaiting IS/M-Web’s replying affidavit. Since then Telkom has entered into a new peering agreement 
with IS and has responded to numerous documentation and information requests. To date there has been no further movement on this matter, 
either in the filing of a replying affidavit by IS/M-Web in the interim relief application or in the investigation of the matter by the Competition 
Commission.
M-Web
On June 5, 2007 M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner in which
Telkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief against
Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not higher than the lowest retail price.
M-Web further applied for an order that Telkom implement the migration of end customers from Telkom PSTS (ADSL access) to M-Web without
interruption of the service. Although Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter in
its answering affidavit filed at the Competition Tribunal. Telkom still had to ‘plead over’ as to the merits of the matter. Telkom also filed an
application in the Transvaal Provincial Division of the High Court on July 3, 2007 for an order declaring that the Competition Tribunal does not
have jurisdiction to hear the application made to it by M-Web.
This application has been set down for hearing during the first quarter of the 2009 financial year. The parties have entered into settlement 
negotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as the withdrawal of the jurisdictional challenge 
by Telkom. The parties are in further negotiations.
Salary negotiations
Telkom is a party to a collective agreement on substantive matters covering the terms and conditions of employment of its fixed-line unionised
employees and other non-management employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006 to
March 31, 2009. The long term substantive agreement provides for the re-opening of negotiations in the event the consumer price index varies
from the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations in
December 2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade Union
Federations especially COSATU have requested a double-digit increase. If Telkom’s unable to implement workforce reductions as necessary or
outsourcing as planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increased
employee expenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted and our net
profit could be reduced.
F-85
background image
38.     Contingencies (continued)
Negative working capital ratio
At each of the financial periods ended March 31, 2008, 2007 and 2006 Telkom had a negative working capital ratio. A negative working
capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cash
flows, new borrowings and borrowings available under existing credit facilities.
The Group’s exposure is 50% of the following items:
Equity investment
The Vodacom Group through Vodacom Ventures (Proprietary) Limited has acquired a 35% equity stake in a X-Link Communications (Proprietary) Limited
R12 million, which is subject to Competition Commission approval. The Board of Vodacom Group (Proprietary) Limited has also approved the exercise
of the option to acquire a further 15.5% equity investment in WBS Holdings (Proprietary) Limited should certain suspensive conditions be fulfilled.
Customer registration
The telecommunications industry in the Democratic Republic of the Congo is subject to a recently promulgated ministerial decree requiring the
registration of the entire customer base of all network operators. This decree requires prescribed particulars of all customers to be obtained and
maintained by June 30, 2008. The sanction for non-compliance by any operator who has not identified its customers in accordance with the
requirements of this decree within three months from March 28, 2008 could result in:
•  a fine equivalent to between USD5 thousand and USD10 thousand per customer; and
•  suspension of the licence for a period not exceeding three months in the event of repetition; and
•  suspension of the licence in the event of a likely disturbance of law and order/safety.
The Group is making every effort to obtain the required information but management believes it is unlikely that the Group will meet all the
requirements as prescribed in this decree by June 30, 2008. Management is engaging with the relevant ministries on this matter and are
presently unable to reliably assess the potential impact on the Group in the event of non-compliance with this decree.
The Group would be entitled to 50% of the following item:
Contingent Asset
Litigation is being instituted for the recovery of certain fees paid by the Vodacom Group. The information usually required by IAS37 Provisions,
Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the
litigation. The directors are of the opinion that a claim may be successful and that the amount recovered could be significant.
39.     Directors’ interest
DD Tabata, one of Telkom’s Board members is a director and shareholder of Vuwa Investments (Proprietary) Limited which acquired a 40%
interest in SAIL Group Limited, with effect from October 1, 2006. SAIL Group Limited is a sports marketing company that does business with
Telkom. Telkom paid R17,094,884 for the financial year for these goods and services (2007: R18,682,568). The outstanding creditor’s balance
in Telkom at March 31, 2008 was R855,000 (2007: R151,924). Vodacom paid R592,474,403 for goods and services from the SAIL
Group (2007: R599,958,860). The outstanding creditor’s balance in Vodacom as at March 31, 2008 was R21,260,584 (2007:
R18,951,705). Vuwa Investments is a consortium member of Amandla Omoya, who has bid to acquire a 10% stake in Vodacom.
SL Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s board members, are the South African Government’s
representatives on Telkom’s Board of Directors. At March 31, 2008 the Government held 39.42% (2007: 38.83%; 2006: 37.99%) of
Telkom’s shares.
As at March 31, 2008 A Rhoda (B Molefe resigned March 5, 2008; T. Mahloele resigned on January 30, 2008) was the Public Investment 
Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2008 the PIC held 15.23% (2007: 15.27%; 2006: 15.73%) 
of Telkom’s shares. On July 3, 2008 A Rhoda resigned and was replaced by B Molefe.
Beneficial
Non-beneficial
Number of shares
Direct
Indirect
Direct
Indirect
Directors shareholding
2008
Executive
RJ September
7,155
–
–
–
Total
7,155
–
–
–
2007
Non-executive
TF Mosololi
455
–
–
–
Total
455
–
–
–
F-86
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
39.     Directors’ interest (continued)
Directors shareholding (continued)
2006
Non-executive
NE Mtshotshisa
–
–
–
88
TF Mosololi
455
–
–
–
Total
455
–
–
88
The directors’ shareholding did not change between the balance sheet date and the date of issue of the financial statements.
2006
2007
2008
Rm
Rm
Rm
Directors’ emoluments
15
7
36
Executive
For other services
12
4
31
Non-executive
For services as directors
3
3
5
Fringe
Performance
and other
Fees
Remuneration
bonus
benefits
Total
R
R
R
R
R
2008
Emoluments per director:
Non-executive
4,633,933
–
–
–
4,633,933
SL Arnold
1,124,373
–
–
–
1,124,373
B du Plessis
393,967
–
–
–
393,967
MJ Lamberti
–
–
–
–
–
PSC Luthuli
502,117
–
–
–
502,117
TD Mahloele
357,684
–
–
–
357,684
KST Matthews
501,217
–
–
–
501,217
TF Mosololi
174,960
–
–
–
174,960
M Mostert
#
229,433
–
–
–
229,433
DD Tabata
250,583
–
–
–
250,583
YR Tenza
305,633
–
–
–
305,633
PL Zim
5,333
–
–
–
5,333
B Molefe
20,497
–
–
–
20,497
A Rhoda
14,286
–
–
–
14,286
RJ Huntley
193,833
–
–
–
193,833
E Spio-Garbrah**
273,841
–
–
–
273,841
Dr. VB Lawrence**
286,176
–
–
–
286,176
Executive
–
14,489,833
3,436,308
13,244,896
31,171,037
RJ September*
–
2,453,757
3,436,308
13,218,772
19,108,837
CEO
1,016,524
3,436,308
10,438,538
14,891,370
Acting CEO
1,437,233
–
2,780,234
4,217,467
LRR Molotsane*
–
12,036,076
–
26,124
12,062,200
Total emoluments – paid by Telkom
4,633,933
14,489,833
3,436,308
13,244,896
35,804,970
Beneficial
Non-beneficial
Number of shares
Direct
Indirect
Direct
Indirect
F-87
background image
Fringe
Performance
and other
Fees
Remuneration
bonus
benefits
Total
R
R
R
R
R
39.     Directors’ interest (continued)
Directors’ emoluments
2007
Emoluments per director:
Non-executive
2,641,168
–
–
–
2,641,168
NE Mtshotshisa
463,050
–
–
–
463,050
SL Arnold
353,719
–
–
–
353,719
TCP Chikane
32,670
–
–
–
32,670
B du Plessis
213,367
–
–
–
213,367
PSC Luthuli
205,417
–
–
–
205,417
TD Mahloele
166,667
–
–
–
166,667
KST Matthews
109,643
–
–
–
109,643
TF Mosololi
214,417
–
–
–
214,417
M Mostert
232,417
–
–
–
232,417
DD Tabata
175,367
–
–
–
175,367
YR Tenza
321,767
–
–
–
321,767
PL Zim
152,667
–
–
–
152,667
Executive
–
2,272,785
–
1,653,202
3,925,987
LRR Molotsane*
–
2,272,785
–
1,653,202
3,925,987
Total emoluments – paid by Telkom
2,641,168
2,272,785
–
1,653,202
6,567,155
2006
Emoluments per director:
Non-executive
2,969,158
–
–
–
2,969,158
NE Mtshotshisa
759,500
–
–
–
759,500
TCP Chikane
181,022
–
–
–
181,022
B du Plessis
254,391
–
–
–
254,391
PSC Luthuli
168,357
–
–
–
168,357
TD Mahloele
223,227
–
–
–
223,227
TF Mosololi
230,809
–
–
–
230,809
M Mostert
308,272
–
–
–
308,272
A Ngwezi
47,727
–
–
–
47,727
DD Tabata
323,022
–
–
–
323,022
YR Tenza
349,022
–
–
–
349,022
PL Zim
123,809
–
–
–
123,809
Executive
–
2,186,460
7,070,262
2,990,865
12,247,587
LRR Molotsane*
–
1,250,747
3,442,573
909,675
5,602,995
SE Nxasana
–
935,713
3,627,689
2,081,190
6,644,592
Total emoluments – paid by Telkom
2,969,158
2,186,460
7,070,262
2,990,865
15,216,745
*
Included in fringe and other benefits is a pension contribution for LRR Molotsane of R4,690 (2007: R295,462; 2006: R162,597), as well as a pension contribution for RJ September of R280,261 paid to the Telkom Retirement Fund, and a payment made in terms of a restraint of trade agreement. Included in remuneration for LRR Molotsane is a payment pursuant to a settlement agreement with Telkom. 
LRR Molotsane resigned from Telkom in April 2007 and RJ September was appointed CEO during November 2007.
** 
Foreign Directors.
#
In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the best interest of the company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make recommendations to the Board on major transactions.

During the year M Mostert led all efforts in this regard and was remunerated accordingly. Moreover in compliance with the principles of good governance, the Board took legal advice and established that there was not conflict of interest arising out of his involvement in the transaction evaluated.
F-88
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
40.     Segment information
Eliminations represent the inter-segmental transactions that have been
eliminated against segment results.
Business Segment
Consolidated operating revenue
47,625
51,619
56,285
Fixed-line
31,832
32,345
32,572
Elimination
(737)
(772)
(830)
Mobile
17,021
20,573
24,089
Elimination
(1,435)
(1,494)
(1,519)
Other
952
979
1,993
Elimination
(8)
(12)
(20)
Consolidated other income
480
384
534
Fixed-line
465
334
497
Elimination
(45)
(46)
(86)
Mobile
50
42
56
Elimination
–
–
–
Other
10
54
67
Elimination
–
–
–
Consolidated operating expenses
33,428
37,533
42,337
Fixed-line
22,454
24,083
24,962
Elimination
(1,443)
(1,495)
(1,709)
Mobile
12,635
15,185
17,898
Elimination
(710)
(755)
(805)
Other*
564
589
2,115
Elimination
(72)
(74)
(124)
Consolidated operating profit
14,677
14,470
14,482
Fixed-line
9,843
8,596
8,107
Elimination
661
677
793
Mobile
4,436
5,430
6,247
Elimination
(725)
(739)
(714)
Other
398
444
(55)
Elimination
64
62
104
Consolidated investment income
397
235
197
Fixed-line
2,720
3,041
3,975
Elimination
(2,398)
(2,850)
(3,832)
Mobile
64
36
27
Other
11
8
27
Consolidated finance charges
1,223
1,125
1,803
Fixed-line
839
856
1,277
Mobile
384
269
240
Other
–
–
320
Elimination
–
–
(34)
Consolidated taxation
4,523
4,731
4,704
Fixed-line
2,836
2,652
2,630
Mobile
1,542
1,918
2,055
Other
145
161
19
2006
2007
2008
Rm
Rm
Rm
F-89
background image
40.     Segment information (continued)
Business Segment (continued)
Minority interests
139
203
197
Mobile
58
109
73
Other
81
94
124
Profit attributable to equity holders of Telkom
9,189
8,646
7,975
Fixed-line
8,888
8,129
8,175
Elimination
(1,737)
(2,173)
(3,039)
Mobile
2,516
3,170
3,906
Elimination
(725)
(739)
(714)
Other
183
197
(491)
Elimination
                      64                     
62                         
 138    
Operating expenses
Other
   2,115  
Prior to consolidation adjustments
1,830
Consolidation adjustments
285
Consolidated assets
54,306
57,426
68,259
Fixed-line
43,121
44,224
47,829
Elimination
(1,598)
(1,547)
(1,604)
Mobile
12,263
14,026
16,743
Elimination
(258)
(353)
(278)
Other
905
1,188
5,734
Elimination
(127)
(112)
(165)
Investments
2,963
1,461
1,499
Fixed-line
3,093
1,621
4,917
Elimination
(232)
(341)
(3,607)
Mobile
102
181
176
Other
–
–
13
Other financial assets
275
259
614
Fixed-line
256
230
445
Mobile
19
28
169
Other
–
1
–
Total assets
57,544
59,146
70,372
Consolidated liabilities
15,171
15,951
19,689
Fixed-line
10,285
10,154
11,892
Elimination
(351)
(458)
(495)
Mobile
6,466
7,416
8,871
Elimination
(1,441)
(1,468)
(1,542)
Other
319
374
971
Elimination
(107)
(67)
(8)
Interest-bearing debt
11,123
10,364
15,733
Fixed-line
9,888
9,082
13,362
Mobile
1,234
1,278
1,815
Other
1
4
556
Other financial liabilities
235
229
1,290
Fixed-line
205
58
167
Mobile
30
158
204
Other
–
13
919
2006
2007
2008
Rm
Rm
Rm
F-90
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
40.     Segment information (continued)
Business Segment (continued)
Tax liabilities
1,549
594
323
Fixed-line
1,186
–
7
Mobile
315
556
290
Other
48
38
26
Total liabilities
28,078
27,138
37,035
Other segment information
Capital expenditure for property, plant and equipment
6,310
8,648
10,108
Fixed-line
3,926
5,545
6,044
Mobile
2,350
3,069
2,475
Other
34
34
1,589
Capital expenditure for intangible assets
1,196
1,598
1,792
Fixed-line
974
1,049
750
Mobile
221
539
985
Other
1
10
57
Depreciation and amortisation
5,714
5,019
5,601
Fixed-line
4,176
3,298
3,470
Mobile
1,498
1,681
1,955
Other
40
40
176
Impairment and asset write-offs
162
296
529
Fixed-line
187
284
262
Mobile
(26)
12
15
Other
1
–
252
Workforce reduction expense – Fixed-line
88
24
3
Geographical segment
Consolidated operating revenue
47,625
51,619
56,285
South Africa
46,154
49,558
52,668
Other African countries
1,487
2,099
3,653
Eliminations
(16)
(38)
(36)
Consolidated operating profit
14,677
14,470
14,482
South Africa
14,665
14,366
14,343
Other African countries
131
294
245
Eliminations
(119)
(190)
(106)
Consolidated assets
57,544
59,146
70,372
South Africa
56,479
56,797
63,772
Other African countries
2,015
3,489
8,785
Eliminations
(950)
(1,140)
(2,185)
Capital expenditure for property, plant and equipment and intangible assets*
7,506
10,246
11,900
South Africa
7,135
9,459
9,781
Other African countries
371
787
2,119
‘South Africa’, which is also the country of domicile for Telkom, comprises the segment information relating to Telkom and its South African
subsidiaries as well as Vodacom’s South African-based mobile communications network, the segment information of its service providers.
Other African countries’ comprises Telkom’s subsidiaries Africa Online Limited and Multi-Links Telecommunications Limited as well
as Vodacom’s mobile communications network in Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique.
* The Geographical segment capital expenditure has been restated to include capital expenditure on intangible assets.
2006
2007
2008
Rm
Rm
Rm
F-91
background image
41.    Related parties
Details of material transactions and balances with related parties not
disclosed separately in the consolidated annual financial statements were
as follows:
With joint venture:
Vodacom Group (Proprietary) Limited
Related party balances
Trade receivables
48
61
51
Trade payables
(256)
(353)
(346)
Related party transactions
Revenue
(710)
(755)
(816)
Expenses
1,435
1,494
1,525
Audit fees
3
3
3
Revenue includes interconnect fees and lease and installation of
transmission lines
Expenses mostly represent interconnect expenses
With shareholders:
Government
Related party balances
Trade receivables
247
271
326
Related party transactions
Revenue
(2,304)
(2,458)
(2,623)
With entities under common control:
Major public entities
Related party balances
Trade receivables
39
59
28
Trade payables
(2)
(6)
(25)
The outstanding balances are unsecured and will be settled in cash in
the ordinary course of business
Related party transactions
Revenue
(370)
(435)
(486)
Expenses
172
238
243
Rent received
(17)
(29)
(21)
Rent paid
56
27
22
2006
2007
2008
Rm
Rm
Rm
F-92
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
41.     Related parties (continued)
Key management personnel compensation:
(Including directors’ emoluments)
Related party transactions
Short-term employee benefits
157
176
231
Post-employment benefits
7
14
12
Termination benefits
12
–
27
Equity compensation benefits
6
8
29
Other long-term benefits
16
27
16
The fair value of the shares that vested in the current year is R12 million
(2007: RNil; 2006: R3 million).
Terms and conditions of transactions with related parties
The sales to and purchases from related parties of telecommunication services are made at arms length prices. Except as indicated above,
outstanding balances at the year-end are unsecured, interest free (except for interest charged on overdue telephone accounts) and settlement
occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there have
been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year ended March 31,
2008 the Group has not made any impairment of amounts owed by related parties (2007: RNil; 2006: RNil). This assessment is undertaken
each financial year through examining the financial position of the related party and the market in which the related party operates.
42.     Investments in joint ventures
Vodacom Group (Proprietary) Limited (‘Vodacom’)
Telkom owns 5,000 shares of 1c each at cost. This amounts to a 50% shareholding in Vodacom. Vodacom is an entity that is jointly controlled
by its venturers, Telkom and Vodafone Plc through a contractual agreement. Telkom applies joint venture accounting in recognising its investment
in Vodacom since it shares control of Vodacom with Vodafone, as set out in the joint venture agreement between the two parties, and has
chosen to proportionately consolidate Vodacom on a line-by-line basis. Some of the provisions in the joint venture agreement that indicate how
the venturers jointly control the activities of Vodacom are as follows:
•  The venturers have the right to appoint the 8 non-executive directors of Vodacom. A further 4 executive directors are appointed to the
Board;
•  A Directing committee has been established that holds all powers, functions and authority of the directors to act for and on behalf of the
Company. This Directing committee constitutes only the directors as appointed by the venturers;
•  All decisions made by the Directing committee are mandatorily ratified by the Board of Directors as the ultimate decision lies with the
Directing committee; and
•  The Directing committee, which is composed entirely of venturer appointed directors, is the ultimate oversight committee of, and controls
the activities of, Vodacom.
2006
2007
2008
Rm
Rm
Rm
F-93
background image
42.     Investments in joint ventures (continued)
Total assets
12,384
14,235
17,087
Non-current assets
8,040
10,422
12,234
Current assets
4,344
3,813
4,853
Total liabilities and reserves
(12,384)
(14,235)
(17,087)
Reserves
(4,196)
(4,713)
(5,703)
Minority interests
(142)
(110)
(202)
Non-current liabilities
(932)
(1,906)
(2,394)
Current liabilities
(7,114)
(7,506)
(8,788)
The Group’s proportionate share of revenue and expense is as follows:
Revenue
17,021
20,573
24,089
Net operating expenses
(12,586)
(15,142)
(17,844)
Profit before net finance charges
4,435
5,431
6,245
Net finance charges
(320)
(233)
(212)
Net income before taxation
4,115
5,198
6,033
Taxation
(1,542)
(1,918)
(2,055)
Profit after taxation
2,573
3,280
3,978
Minority interest
(58)
(109)
(73)
Net profit for the year
2,515
3,171
3,905
The Group’s proportionate share of cash flow is as follows:
Cash flow from operating activities
2,251
2,429
2,562
Cash flow from investing activities
(2,395)
(3,292)
(3,751)
Cash flow from financing activities
(53)
(100)
1,617
Net (decrease)/increase in cash and cash equivalents
(197)
(963)
428
Effect of exchange rate on cash and cash equivalents
(8)
29
44
Cash and cash equivalent at beginning of year
1,085
880
(54)
Cash and cash equivalents at end of year
880
(54)
418
2006
2007
2008
Rm
Rm
Rm
F-94
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
43.     Interest in subsidiaries
Country of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republic of
Congo; MAU – Mauritius; NIG – Nigeria
Nature of business: C – Cellular; S – Satellite; MSC – Management services company; PROP – Property company; OTH – Other.
*Dormant at March 31, 2008.
Interest in issued
Issued share capital
ordinary share    capital
Country of
2006
2007
2008
2006
2007
2008
incorporation
%
%
%
Directory advertising (OTH)
TDS Directory Operations (Proprietary) Limited
RSA
R100,000
R100,000
R100,000
64.9
64.9
64.9
Data application services (OTH)
Swiftnet (Proprietary) Limited
RSA
R25,000,000
R5,000,000
R5,000,000
100
100
100
Other (OTH)
Q-Trunk (Proprietary) Limited
RSA
R10,001,000
R10,001,000
R10,001,000
100
100
100
Intekom (Proprietary) Limited
RSA
R10,001,000
R10,001,000
R10,001,000
100
100
100
Rossal No 65 (Proprietary) Limited
RSA
R100
R100
R100
100
100
100
Acajou Investments (Proprietary) Limited
RSA
R100
R100
R100
100
100
100
Telkom Media (Proprietary) Limited
RSA
–
R100
R100
–
75
75
Africa Online Limited
MAU
–
USD1,000
USD1,000
–
100
100
Multi-Links Telecommunications
Limited
NIG
–
–
N300,000,000
–
–
75
Telkom International (Proprietary) Limited (MSC)
RSA
R100
R100
R100
100
100
100
The aggregate net (loss)/profit of the subsidiaries
is (R186) million (2007: R564 million; 2006:
R471 million)
Vodacom has an interest in the following companies
(Group Share: 50% of the interest in ordinary share
capital as indicated):
Cellular network operators
Vodacom (Proprietary) Limited (C)
RSA
R100
R100
R100
100
100
100
Vodacom Lesotho (Proprietary) Limited (C)
LES
M4,180
M4,180
M4,180
88.3
88.3
88.3
Vodacom Tanzania Limited (C)
TZN
TZS10,000
TZS10,000
TZS10,000
65
65
65
VM, S.A.R.L. (C)
MZ  USD60,000,000  USD60,000,000  
USD60,000,000
98
98
90
Vodacom Congo (RDC) s.p.r.l. (C)
DRC
USD1,000,000
USD1,000,000
USD1,000,000
51
51
51
Service providers
Vodacom Service Provider Company (Proprietary)
Limited (C)
RSA
R20
R20
R20
100
100
100
Smartphone SP (Proprietary) Limited (C)*
RSA
R20,000
R20,000
R 20,000
51
70
100
Smartcom (Proprietary) Limited (C)*
RSA
R1,000
R1,000
R 1,000
43.7
61.7
100
Cointel VAS (Proprietary) Limited (C)*
RSA
R10,204
R10,204
R 10,204
51
70
100
F-95
background image
F-96
Interest in issued
Issued share capital
ordinary share capital
Country of
2006
2007
2008
2006
2007
2008
incorporation
%
%
%
43.     Interest in subsidiaries (continued)
Other subsidiaries ofthe Group’s
Joint Venture
Vodacom Service Provider Holdings Company
(Proprietary) Limited (MSC)*
RSA
R1,020
R1,020
R1,023
100
100
100
Vodacom Satellite Services (Proprietary) Limited (OTH)* RSA
R100
R100
R100
100
100
100
GSM Cellular (Proprietary) Limited (OTH)*
RSA
R1,200
R1,200
R1,200
100
100
100
Vodacom Venture No.1 (Proprietary) Limited (OTH)*
RSA
R810
R810
R810
100
100
100
Vodacom Equipment Company (Proprietary)
Limited (OTH)*
RSA
R100
R100
R100
100
100
100
Vodacare (Proprietary) Limited (OTH)*
RSA
R100
R100
R100
100
100
100
Vodacom International Holdings
(Proprietary) Limited (MSC)
RSA
R100
R100
R100
100
100
100
Vodacom International Limited (MSC)
MAU
USD100
USD100
USD100
100
100
100
Vodacom Properties No.1 (Proprietary)
Limited (PROP)
RSA
R100
R100
R100
100
100
100
Vodacom Properties No.2 (Proprietary)
Limited (PROP)
RSA
R1,000
R1,000
R1,000
100
100
100
Stand 13 Eastwood Road Dunkeld West
(Proprietary) Limited (PROP)
RSA
R100
R100
–
51
70
–
Ithuba Smartcall (Proprietary) Limited (OTH)
RSA
R100
R100
–
26.5
36.4
–
Smartcall Smartlife (Proprietary) Limited (OTH)
RSA
–
R100
–
–
63
–
Vodacom Tanzania Limited (Zanzibar) (OTH)*
TZN
TZS10,000
TZS10,000
TZS10,000
99
99
99
Joycell Shops (Proprietary) Limited (OTH)*
RSA
R100
R100
R100
100
100
100
Marble Gold Investments (Proprietary)
Limited (OTH) *
RSA
R100
R100
R100
100
100
100
Vodacom Ventures (Proprietary) Limited (OTH)
RSA
R120
R120
R120
100
100
100
Skyprops 134 (Proprietary) Limited (PROP)
RSA
–
R100
R100
–
100
100
Indebtness of Telkom subsidiary companies
Rm
Rm
Rm
Swiftnet (Proprietary) Limited
RSA
2
–
–
Intekom (Proprietary) Limited
RSA
3
–
–
Q-Trunk (Proprietary) Limited
RSA
34
30
26
Rossal No 65 (Proprietary) Limited
RSA
–
–
30
Acajou Investments (Proprietary) Limited
RSA
–
–
–
Africa Online Limited
MAU
–
–
74
Multi-Links Telecommunications
Limited
NIG
–
–
841
Telkom Media (Proprietary) Limited
RSA
–
–
326
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
44.     Significant events
Swiftnet (Proprietary) Limited
Swiftnet is in breach of its license that requires it to have at least 30% of its shares held by black economic empowerment individuals or entities. 
ICASA has required Switfnet  to remedy the breach of its license, which expired on August 24, 2006. On February 14, 2007 Telkom announced that 
it had entered into an agreement to sell a 30% stakein Swiftnet to the Radio Surveillance Consortium, a group of empowerment investors, for 
R55 million following a competitive process run by an independent adviser. The transction would not have required any financial support or facilitation 
from Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not approved by ICASA. Swiftnet is currently 
seeking black economic empowered individuals or entitied who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to 
discuss its specific license terms and conditions. Swiftnet has submitted its comments on the draft license terms and conditions to ICASA that 
ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkon as its sole shareholder, has had a further meeting with ICASA on 
February 27, 2008. It was decided that the draft amended license that ICASA sent to Swiftnet during October 2007 would not form the basis of the conversion process, but instead the original license issued to Swiftnet in August 1995 would be used as the basis for license conversion. 
The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there is currently no 
agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholding issue for 
the Swiftnet license would need to be in line with BEE values applicable to other similar licensees.
 
Telkom Media (Proprietary) Limited
On August 31, 2006 Telkom created a new subsidiary, Telkom Media (Proprietary) Limited with a Black Economic Empowerement (‘BEE’)
shareholding. ICASA awarded Telkom Media a commercial satelite and cable subscription broadcast license on September 12, 2007.
The BEE shareholders are Videovision Entertainment, MSG Afrika Media and WDB Investment Holdings (Proprietary) Limited. As at March 31,
2008 Telkom had a 75% shareholding in Telkom Media, however, in a recent clarification and refinement of its strategy the board has taken
the decision to substantially reduce its investment in Telkom Media (Proprietary) Limited and will be investigating all opportunities to do this
in the best interest of Telkom shareholders and all other stakeholders.
Vodacom BBBEE equity deal
Vodacom is in the process of finalising a R7.5 billion BBBEE (Broad-Based Black Economic Empowerment) equity deal whereby strategic
business partners, employees and the black public will have an opportunity to share in the success of Vodacom South Africa going forward.
Vodacom announced that transaction agreements were signed on June 20, 2008. Telkom is supportive of this transaction but is not in a
position to comment on the impact of the proposed transaction on Telkom as the details relating to the transaction are expected to be announced
by Vodacom in the third quarter of this calender year.
Global Telematics SA (Proprietary) Limited
On October 26, 2007 Vodacom Service Provider Company (Proprietary) Limited (‘VSPC’), entered into an agreement with Global Telematics
SA (Proprietary) Limited (‘Global Telematics’). In terms of the agreement Glocell Service Provider Company (Proprietary) Limited (‘GSPC’),
will cede, transfer and assign its agreements together with all of its obligations and its rights attaching to its customers connected to the
Vodacom Network to Global Telematics. GSPC connects all voice contract customers and sells pre-paid packs on behalf of Global Telematics.
VSCP will acquire the consolidated customers base from Global Telematics which will consist of active prepaid customers, active contract
customers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive conditions are met the transactions
will be effective.
F-97
background image
45.     Subsequent events
Dividends
The Telkom Board declared an annual dividend of R3,437 million or 660 cents per share on June 6, 2008 payable on July 7, 2008 for
shareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge of
R161 million.
Mobile strategy and unlocking shareholder value
Telkom informed the shareholders that on Friday, May 30, 2008, Telkom received a non-binding proposal from a wholly-owned subsidiary of
Vodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, inter
alia, the Company unbundling its remaining stake in Vodacom to Telkom shareholders.
Separately, on Friday, May 30, 2008 Telkom received a letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Limited,
affiliated funds of Och-Ziff Capital Management Group and other strategic funders (‘the Consortium’), which states that the Consortium is
considering making an offer for the entire issued share capital of Telkom. The letter makes it clear that the offer will only be made if a number
of pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacom
as part of the offer.
The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciary
duties, will evaluate allbona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisite
shareholder approvals.
Telkom will advise shareholders of further developments in this regard in due course.
VM, S.A.R.L. trading as Vodacom Mozambique
Effective May 12, 2008 Vodacom International Limited sold 5% of its 90% owned equity investment in Vodacom Mozambique, leaving
Vodacom International Limited with an 85% equity investment in Vodacom Mozambique. Certain suspensive conditions are to be met before
the transaction will be effective.
Capability Management
Telkom will seek to manage costs by realigning its structure, employees and resources to better match its transforming information,
communications and technology business and to improve customer service. The transformation of the communications industry and increasing
market and competitive pressure has put communications companies such as Telkom under increasing revenue and expense constraints
while being required to improve customer service. As a result a capability management initiative has been launched which is designed to
ensure that the capabilities needed to succeed in a converged communications market are established through the optimal utilisation of external
as well as internal capabilities, extracting effiencencies, where possible, through scale of a rapidly maturing retail and wholesale market and
better organised functional areas in a more deregulated and liberalised communications market. The capability management initiative includes
the internal consolidation of certain functional areas and the selection of strategic long-term partners with proven performance for other
functional areas.
The areas which are expected to be impacted are the call centers, operations, ancillary services, network service providers, network field
operations, network core operations, information technology operations and retail outlets.

Telkom Management Services
On July 2, 2008, Telkom received confirmation from the Companies and Intellectual Property Registration Office for the approval and 
reservation of a newly set-up company. The approved and reserved name is 'Telkom Management Services'.
Union action
Telkom has recieved a notice from CWU advising Telkom of its intention to embark on some unspecified industrial action.

 

Other matters
The directors are not aware of any other matters or circumstances since the consolidated annual financial statements for the financial year ended
March 31, 2008 and the date of this report, or otherwise dealt with in the consolidated annual financial statements, which significantly affects
the financial position of the Group and the results of it operations.
F-98
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2008
background image
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Telkom Group Limited

We have audited the accompanying consolidated balance sheets of Vodacom Group
(Proprietary) Limited and subsidiaries (the “Group”) as at March 31, 2008, 2007 and
2006, and the related consolidated income statements, consolidated statements of
changes in equity,
and consolidated cash flow statements for each of the three years in
the period then ended as set out in pages F-101 to F-203.
 
These consolidated annual
financial statements are the responsibility of the Group’s directors. Our responsibility
is to express an opinion on these consolidated annual financial statements based on
our audits.
We conducted our audits in accordance with International Standards on Auditing and
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
The Group is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on
the Group’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated annual financial statements present fairly, in all
material respects, the financial position of Vodacom Group (Proprietary) Limited and
subsidiaries at March 31, 2008, 2007 and 2006, and the results of its operations and its
cash flows for each of the three years then ended in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and in the manner required by the Companies Act of South
Africa.


Deloitte & Touche
Registered Auditors
Per Patrick Smit
Johannesburg, South Africa
10 July 2008
F-100
background image
F-101
CONSOLIDATED INCOME STATEMENTS
2006
2007
2008
Notes
Rm
Rm
Rm
Revenue
1
34,042.5
41,146.4
48,177.8
Other operating income
125.1
119.8
155.6
Direct network operating cost
2
(18,297.2)
(22,439.8)
(26,299.5)
Depreciation
10
(2,651.6)
(2,901.8)
(3,366.0)
Staff expenses
(2,042.1)
(2,372.5)
(2,975.4)
Marketing and advertising expenses
(976.9)
(1,146.4)
(1,264.3)
Other operating expenses
(1,042.7)
(1,063.6)
(1,362.4)
Amortisation of intangible assets
11
(344.2)
(459.4)
(545.2)
Impairment of assets
3
52.8
(22.9)
(29.9)
Profit from operations
4
8,865.7
10,859.8
12,490.7
Finance income
5
129.9
74.5
72.3
Finance costs
6
(246.0)
(369.3)
(681.3)
Gains/(Losses) on remeasurement and disposal of
financial instruments
7
(523.1)
(169.0)
185.1
Profit before taxation
8,226.5
10,396.0
12,066.8
Taxation
9
(3,083.7)
(3,836.0)
(4,109.2)
Net profit
5,142.8
6,560.0
7,957.6
Attributable to:
Equity shareholders
5,026.1
6,342.4
7,811.4
Minority interests
116.7
217.6
146.2
2006
2007
2008
R
R
R
Basic and diluted earnings per share
35
502,610
634,240
781,140
Dividend per share
35
450,000
540,000
594,000
for the three years ended March 31, 2008
background image
F-102
2006
2007
2008
Notes
Rm
Rm
Rm
ASSETS
Non-current assets
16,079.2
20,844.3
24,468.3
Property, plant and equipment
10
13,386.6
17,073.2
19,119.6
Intangible assets
11
1,954.9
2,700.3
4,224.1
Financial assets
12
92.1
209.5
244.2
Deferred taxation
13
297.6
386.1
455.1
Deferred cost
311.2
396.4
333.3
Lease assets
16
36.8
78.8
92.0
Current assets
8,688.6
7,625.9
9,706.9
Deferred cost
451.8
574.8
705.9
Financial assets
12
149.3
207.5
444.9
Inventory
14
454.3
364.3
636.9
Trade and other receivables
15
4,474.0
5,675.0
6,801.1
Lease assets
16
13.1
32.9
140.5
Cash and cash equivalents
34
3,146.1
771.4
977.6
Total assets
24,767.8
28,470.2
34,175.2
EQUITY AND LIABILITIES
Ordinary share capital
17
*
*
*
Retained earnings
8,583.0
9,523.2
11,392.9
Non-distributable reserves
18
(194.0)
(97.4)
8.8
Equity attributable to equity holders of the parent
8,389.0
9,425.8
11,401.7
Minority interests
19
283.3
221.2
403.6
Total equity
8,672.3
9,647.0
11,805.3
Non-current liabilities
2,236.6
3,812.1
4,788.2
Interest bearing debt
21
819.2
2,051.4
3,025.8
Non-interest bearing debt
22
-
3.0
6.0
Deferred taxation
13
602.3
757.3
776.5
Deferred revenue
320.3
412.3
358.8
Provisions
23
372.3
377.5
373.7
Other non-current liabilities
24
122.5
210.6
247.4
Current liabilities
13,858.9
15,011.1
17,581.7
Trade and other payables
25
5,104.7
6,874.4
7,561.3
Deferred revenue
1,604.5
1,904.8
2,229.9
Taxation payable
630.2
1,112.7
580.5
Non-interest bearing debt
22
4.3
-
-
Interest bearing debt
21
1,645.5
501.0
502.9
Provisions
23
623.0
741.8
909.5
Dividends payable
2,800.0
2,990.0
3,190.0
Derivative financial liabilities
42
60.9
7.2
10.8
Bank borrowings
34
1,385.8
879.2
2,596.8
Total equity and liabilities
24,767.8
28,470.2
34,175.2
* Share capital R100
CONSOLIDATED BALANCE SHEETS
as at March 31, 2008
background image
F-103
Attributable to equity shareholders
Share
Retained
Non-
Total       Minority
Total
capital
earnings         distributable
interests
equity
reserves
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Balance at March 31, 2005
*
8,059.1
(299.9)        7,759.2
128.7
7,887.9
Net profit for the period
-         5,026.1
-
5,026.1
116.7
5,142.8
Dividends declared
19,35
-       (4,500.0)
-      (4,500.0)
(0.9)      (4,500.9)
Business combinations and other acquisitions           19,32
-
-
-
-
46.5
46.5
Minority shares of VM, S.A.R.L.
-
-
-
-
8.0
8.0
Contingency reserve
18
-
(2.2)
2.2
-
-
-
Net gains and losses not recognised in the
income statement
Foreign currency translation reserve
-
-
103.9
103.9
(15.6)
88.3
Revaluation of available-for-sale investments          18,19
-
-
(0.2)
(0.2)
(0.1)
(0.3)
Balance at March 31, 2006
*
8,583.0
(194.0)        8,389.0
283.3
8,672.3
Net profit for the period
-
6,342.4
-
6,342.4
217.6
6,560.0
Dividends declared
19,35
-       (5,400.0)
-        (5,400.0)
(170.8)        (5,570.8)
Business combinations and other acquisitions           19,32
-
-
-
-
(136.4)
(136.4)
Contingency reserve
18
-
(2.2)
2.2
-
-
-
Net gains and losses not recognised in the
income statement
Foreign currency translation reserve
-
-
94.4
94.4
27.5
121.9
Balance at March 31, 2007
*
9,523.2
(97.4)
9,425.8
221.2
9,647.0
Net profit for the period
-
7,811.4
-
7,811.4
146.2
7,957.6
Dividends declared
19,35
-       (5,940.0)
-
(5,940.0)
(0.6)
(5,940.6)
Business combinations and other acquisitions           19,32
-
-
-
-
(6.1)
(6.1)
Disposal of subsidiaries
19,33
-
-
-
-
(0.3)
(0.3)
Minority shares of VM, S.A.R.L.
-
-
-
-
0.8
0.8
Contingency reserve
18
-
(1.7)
1.7
-
-
-
Net gains and losses not recognised in the
income statement
Foreign currency translation reserve
-
-
87.7
87.7
42.4
130.1
Revaluation of available-for-sale investments          18,19
-
-
16.8
16.8
-
16.8
Balance at March 31, 2008
*       11,392.9
8.8       11,401.7
403.6
11,805.3
* Share capital R100
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
for the three years ended March 31, 2008
background image
F-104
CONSOLIDATED CASH FLOW STATEMENTS
for the three years ended March 31, 2008
2006
2007
2008
Notes
Rm
Rm
Rm
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts from customers
33,132.7
40,380.0
47,409.6
Cash paid to suppliers and employees
(22,042.4)
(26,513.9)
(31,076.1)
Cash generated from operations
26
11,090.3
13,866.1
16,333.5
Finance costs paid
27
(214.3)
(326.6)
(669.6)
Finance income received
28
124.1
41.7
74.3
Realised net losses on remeasurement and disposal of
financial instruments
29
(17.6)
(38.8)
(151.0)
Taxation paid
30
(2,980.3)
(3,303.3)
(4,721.5)
Dividends paid – equity shareholders
(3,500.0)
(5,300.0)
(5,650.0)
Dividends paid – minority shareholders
(0.9)
(80.8)
(90.6)
Net cash flows from operating activities
4,501.3
4,858.3
5,125.1
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and equipment and intangible assets
31
(4,788.4)
(5,955.3)
(6,540.6)
Proceeds on disposal of property, plant and equipment and
intangible assets
31.2
98.3
10.2
Business combinations and other acquisitions
32
(0.1)
(591.2)
(956.5)
Disposal of subsidiaries
33
-
-
15.7
Other investing activities
(33.5)
(135.7)
(31.0)
Net cash flows utilised in investing activities
(4,790.8)
(6,583.9)
(7,502.2)
CASH FLOW FROM FINANCING ACTIVITIES
Non-interest bearing debt incurred
-
3.0
-
Non-interest bearing debt repaid
-
-
(3.0)
Interest bearing debt incurred
32.3
6.0
1,000.0
Interest bearing debt repaid
(89.7)
(141.3)
(117.5)
Finance lease capital repaid
(50.2)
(67.7)
(108.9)
Bank borrowings
-
-
2,456.0
Share capital and premium movement of minority shareholders
-
-
7.2
Net cash flows from/(utilised) in financing activities
(107.6)
(200.0)
3,233.8
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(397.1)
(1,925.6)
856.7
(Bank borrowings)/cash and cash equivalents at the
beginning of the year
2,173.0
1,760.3
(107.8)
Effect of foreign exchange rate changes
(15.6)
57.5
87.9
CASH AND CASH EQUIVALENTS/(BANK BORROWINGS)
AT THE END OF THE YEAR
34
1,760.3
(107.8)
836.8
background image
March 31, 2008
BASIS OF PREPARATION
These consolidated annual financial statements of Vodacom Group (Proprietary) Limited (“the Group”) have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) and have been prepared on the historical cost basis,
except for financial assets and financial liabilities (including derivative instruments) recorded at fair value or at amortised cost.
The consolidated annual financial statements have been presented in South African Rands, as this is the currency in which the
majority of the Group’s transactions are denominated.
The principal accounting policies are consistent in all material respects with those applied in the previous period, except where
disclosed elsewhere.
The following are the principal accounting policies adopted by the Group in the preparation of these consolidated annual
financial statements:
ACCOUNTING POLICIES
A.
CONSOLIDATION
A.1  Basis of consolidation
The consolidated annual financial statements include the consolidated financial position, results of operations and cash
flows of Vodacom Group (Proprietary) Limited and both foreign and domestic entities (subsidiaries, special purpose entities
and joint ventures) controlled and jointly controlled by Vodacom Group (Proprietary) Limited, up to March 31, 2008.
Minority interests are separately presented in the consolidated balance sheets and income statements.
Goodwill on the acquisition of subsidiaries and joint ventures is accounted for in accordance with the Group’s accounting
policy for intangible assets set out below.
A.2   Business combinations
Acquisition of a business
Business combination acquisitions are accounted for using the purchase method of accounting, whereby the acquisition is
accounted for at its cost plus any costs directly attributable to the acquisition. Cost represents the cash or cash equivalents
paid or the fair value or other consideration given, at the date of the acquisition, measured as the aggregate of the fair
values, at the date of the exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the
acquirer, in exchange for control of the acquiree. Business combinations include the acquisition of subsidiaries and joint
ventures.
On acquisition, the identifiable assets, liabilities and contingent liabilities of the relevant subsidiaries or joint ventures
that meet the recognition criteria, are measured based upon the Group’s interest in their fair value at the date
of acquisition, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (“IFRS 5”), which are recognised and measured
at fair value less costs to sell. The interest of minority shareholders is recorded at the minority’s share of the net fair value
of the identifiable assets, liabilities and contingent liabilities that meet the recognition criteria. Subsequently, any losses
attributable to minority shareholders in excess of their interest, is allocated against the interest of the Group, except to
the extent that the minority shareholder has a binding obligation and is able to make an additional investment to cover
the losses.
Disposals
On subsequent disposal, the profit or loss on disposal is the difference between the selling price and the carrying value
of net assets and liabilities disposed of, adjusted for any related carrying amount of goodwill in accordance with the
Group’s accounting policies.
A.3  Subsidiaries
Subsidiaries are those entities controlled by the Group. Control is presumed to exist where the Group has an interest of
more than one half of the voting rights and the power to control the financial and operating activities of an entity so as
to obtain benefits from its activities. All subsidiaries are consolidated.
Inter-company balances and transactions, and resulting unrealised profits between Group companies, are eliminated in
full on consolidation.
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
F-105
background image
A.    CONSOLIDATION (CONTINUED)
A.3  Subsidiaries (continued)
Where necessary, accounting policies of subsidiaries are adjusted to ensure that the consolidated annual financial
statements are prepared using uniform accounting policies.
Investments in subsidiaries are consolidated from the date on which the Group has power to exercise control, up to the
date on which power to exercise control ceases.
Minority shareholders are treated as equity participants and, therefore, all subsequent acquisitions of minority interest
by the Group in subsidiary companies are accounted for using the parent entity extension method. Under this method,
the assets and liabilities of the subsidiary are not restated to reflect their fair values at the date of the acquisition. The
difference between the purchase price and the minority interest’s share of the assets and liabilities reflected within the
consolidated balance sheet at the date of the acquisition is therefore reflected as goodwill.
A.4  Joint Ventures
Joint ventures, for the purpose of these consolidated annual financial statements, are those entities in which the Group has
joint control through a contractual arrangement with one or more other venturers. Joint control exists when the strategic
financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the
parties sharing control.
Investments in joint ventures are proportionately consolidated from the date on which the Group has power to exercise
joint control, up to the date on which power to exercise joint control ceases.
The Group’s share of the assets, liabilities, income, expenses and cash flows of joint ventures are combined on a
line by line basis with similar items in the consolidated annual financial statements.
The Group’s proportionate share of inter-company balances and transactions, and resulting unrealised profit or losses,
between Group companies and jointly controlled entities are eliminated on consolidation.
Joint ventures are included using the proportionate consolidation method, except when the investment is classified as held
for sale, in which case it is accounted for under IFRS 5.
B.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if
any. Land is not depreciated and is recorded at cost less accumulated impairment losses, if any.
The cost of property, plant and equipment includes all directly attributable expenditure incurred in the acquisition,
establishment and installation of such assets so as to bring them to the location and condition necessary for it to be
capable of operating in the manner intended by management. Interest costs are not capitalised.
Depreciation is calculated so as to write off the cost of property, plant and equipment on a straight-line basis, over the
estimated useful lives to the estimated residual value. Useful lives, residual values and depreciation methods are reviewed
on an annual basis with the effect of any changes in estimate accounted for on a prospective basis. Residual values are
measured as the estimated amount currently receivable for an asset if the asset were already of the age and condition
expected at the end of its useful life. Each significant component included in an item of property, plant and equipment is
separately recorded and depreciated.
Depreciation commences when the asset is ready for its intended use (in the case of infrastructure assets this is deemed
to be the date of acceptance). Depreciation of an asset ceases at the earlier of the date the asset is classified as
held for sale in accordance with IFRS 5 or the date the asset is derecognised. Depreciation is not ceased when assets
are idle.
F-106
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
B.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
General purpose buildings and special purpose buildings are generally classified as owner-occupied. They are therefore
held at cost and depreciated as property, plant and equipment and not regarded as investment properties.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined,
are carried at cost, less any recognised impairment loss. Depreciation commences when the assets are ready for their
intended use.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, the term of the relevant lease if there is no reasonable certainty that the Group will obtain ownership by
the end of the lease term.
Maintenance and repairs, which neither materially add to the value of the assets nor appreciably prolong their useful
lives, are recognised as an expense in the period incurred. Minor plant and equipment items are also recognised as an
expense during the period incurred.
Profits or losses on the retirement or disposal of property, plant and equipment, determined as the difference between the
actual proceeds and the carrying amount of the assets, are recognised in profit or loss in the period in which they occur.
The date of disposal is determined as the date on which the Group has transferred to the buyer the significant risks and
rewards of ownership of the goods, the Group retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold, the proceeds on the sale can be measured reliably,
it is probable that the economic benefits associated with the transaction will flow to the Group and the costs incurred or
to be incurred in respect of the transaction can be measured reliably.
Property, plant and equipment acquired in exchange for a non-monetary asset or assets is measured at fair value unless
the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given
up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount
of the asset given up.
Where a network infrastructure site lease contains a restoration clause, or where historical experience indicates that
restoration costs will be incurred, a liability for the site restoration costs is recorded. The liability recorded is measured at
the present value of the estimated future restoration costs to be incurred. The present value of the liability is capitalised
to the underlying infrastructure asset to which the restorations costs relate at the inception of the restoration obligation.
These amounts are amortised over the estimated useful life of the related infrastructure asset. The restoration liability is
accredited to its future value over the lease period.
Changes in the measurement of an existing liability that result from changes in the estimated timing or amount of the
outflow of resources required to settle the liability, or a change in the discount rate, are accounted for as follows:
· changes in the liability are added, or deducted from, the cost of the reflected asset. If the amount deducted exceeds
  the carrying amount of the asset, the excess is recognised immediately in profit and loss.
· adjustments that result in additions to the cost of assets are tested for impairment if it is considered that the new
  carrying value of the asset is not fully recoverable.
C.
INVESTMENT PROPERTIES
Investment properties, which are properties held to earn rentals and/or for capital appreciation, are stated at cost less
accumulated depreciation and accumulated impairment losses, if any.
Depreciation is calculated so as to write off the cost of the investment property on a straight-line basis, over its estimated
useful life to its estimated residual value. Depreciation commences when the property is ready for its intended use. The
estimated useful lives of depreciable properties are disclosed under property, plant and equipment and can be general
purpose buildings or special purpose buildings.
F-107
background image
D.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses, if any.
The following are the main categories of intangible assets:
D.1   Intangible assets with an indefinite useful life
Intangible assets with an indefinite useful life are not amortised but instead are tested for impairment on an annual
basis.
Goodwill
Goodwill represents the excess of the cost of an acquisition of a subsidiary or joint venture, over the Group’s interest
in the fair value of the identifiable assets, liabilities and contingent liabilities recognised at the date of acquisition.
Goodwill on the acquisition of subsidiaries and joint ventures is included in intangible assets. If the Group’s interest
in the fair value of identifiable assets, liabilities and contingent liabilities recognised at the date of acquisition of a
subsidiary or joint venture exceed the cost of the business combination, the excess is recognised immediately in profit
or loss. Goodwill is tested annually for impairment, or more frequently when there is an indication that the goodwill
may be impaired and carried at cost less accumulated impairment losses, if any. Impairment losses previously
recognised cannot be reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
D.2   Intangible assets with a finite useful life
Intangible assets with finite useful lives are amortised to profit or loss on a straight-line basis over their estimated useful
lives. Useful lives and amortisation methods are reviewed at the end of each annual reporting period, or more frequently
when there is an indication that the intangible asset may be impaired, with the effect of any changes accounted for
on a prospective basis. Amortisation commences when the intangible asset is available for use. The residual values of
intangible assets are assumed to be zero.
Licences
Licences, which are acquired, other than through a business combination, to yield an enduring benefit, are capitalised
at cost and amortised from the date of commencement of usage rights over the shorter of the economic life or the
duration of the licence agreement.
Customer bases
Cost of contract customer bases, prepaid customer bases and internet service provider customer bases acquired, other
than through a business combination, represents the fair value at the acquisition date of the customer bases. Customer
bases are amortised on a straight-line basis over their estimated useful lives.
Trademarks, patents and other
Purchased trademarks, patents and other acquired, other than through business combinations, are capitalised at
cost and amortised over their estimated useful lives. Expenditure incurred to develop, maintain and renew internally
generated trademarks and patents is recognised as an expense in the period incurred.
Computer software
Computer software that is not considered to form an integral part of any hardware equipment is recorded as intangible
assets. The software is capitalised at cost and amortised over its estimated useful life.
D.3   Intangible assets not available for use
Intangible assets not available for use are not amortised but tested for impairment on an annual basis, or more frequently
when there is an indication that the intangible asset may be impaired.
F-108
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
E.
INVENTORY
Inventory is stated at the lower of cost and net realisable value. Cost is determined by the first-in-first-out method and
comprises all costs of purchase, costs of conversion and other costs incurred in bringing it to its present location and
condition. Net realisable value represents the estimated selling price in the ordinary course of business less all estimated
costs to completion and the estimated costs necessary to make the sale.
The amount of any write-down of inventory to net realisable value and all losses of inventory are recognised as an
expense in the period that the write-down or loss occurs.
F.
FOREIGN CURRENCIES
F.1   Transactions and balances
Foreign currency transactions are translated, on initial recognition, at the foreign exchange rate ruling at the date of the
transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate ruling at
settlement date or balance sheet date, whichever occurs first. Exchange differences on the settlement or translation of
monetary assets or liabilities are included in gains or losses on remeasurement and disposal of financial instruments in
profit or loss in the period in which they arise.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing
on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in
foreign currency are not retranslated. When a gain or loss on a non-monetary item is recognised directly in equity, any
exchange component of that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item
is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.
F.2   Foreign operations
The annual financial statements of foreign operations are translated into South African Rands for incorporation into the
consolidated annual financial statements. Assets and liabilities are translated at the foreign exchange rates ruling at
balance sheet date. Income, expenditure and cash flow items are translated at the actual foreign exchange rate at the
date of the transaction or average foreign exchange rates for the period.
All resulting unrealised exchange differences are classified as equity and recognised in the foreign currency translation
reserve. On disposal, the cumulative amounts of unrealised exchange differences that have been deferred are recognised
in profit or loss as part of the gain or loss on disposal.
All gains and losses on the translation of equity loans to foreign entities that are intended to be permanent, whether they
are denominated in one of the entities functional currencies or in a third currency, are recognised in equity.
Goodwill and fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and translated at the foreign exchange rates ruling
at the balance sheet date. The resulting exchange differences are classified as equity and recognised in the foreign
currency translation reserve.
F-109
background image
G.
TAXATION
G.1   Current taxation
The charge for current taxation is based on the results for the period and is adjusted for items that are non-assessable or
disallowed. Current taxation is measured at the amount expected to be paid, using taxation rates and laws that have
been enacted or substantively enacted by the balance sheet date.
G.2   Deferred taxation balances
Deferred taxation is provided using the balance sheet liability method for all temporary differences arising between the
carrying amounts of assets and liabilities, on the consolidated balance sheet, and their respective taxation bases.
Deferred taxation is not provided on differences relating to goodwill for which amortisation is not deductible for taxation
purposes or on the initial recognition of assets or liabilities, which is not a business combination and, at the time of the
transaction, affects neither accounting nor taxable profit or loss.
Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries
and joint ventures, except where the Group is able to control the timing of the reversal of the temporary differences and
it is probable that it will not reverse in the foreseeable future.
Deferred taxation assets are recognised to the extent that it is probable that future taxable profits will be available against
which the associated unused taxation losses or credits and deductible temporary differences can be utilised.
The carrying amount of deferred taxation assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all, or part of the asset to be recovered.
Deferred taxation assets and liabilities are offset when there is a legally enforceable right to set off current taxation assets
against current taxation liabilities and when they relate to income taxes levied by the same taxation authority and the
Group has the intention to settle its current taxation assets and liabilities on a net basis.
Deferred taxation assets and liabilities are measured at the taxation rates that are expected to apply in the period in
which the asset is realised or the liability is settled, based on taxation rates (and taxation laws) that have been enacted or
substantively enacted by the balance sheet date. The measurement of deferred taxation assets and liabilities reflects the
taxation consequences that would follow from the manner in which the Group expects, at the reporting date, to recover
or settle the carrying amount of its assets and liabilities.
Exchange differences arising from the translation of foreign taxation assets and liabilities of foreign entities where the
functional currency is different to the local currency are classified as a deferred taxation expense or income.
G.3   Current and deferred taxation for the period
Current and deferred taxation are recognised as an expense or income in profit or loss, except when they relate to items
credited or debited directly to equity, in which case the taxation is also recognised directly in equity, or where deferred
taxation arises from the initial accounting for a business combination. In the case of a business combination, the deferred
taxation asset or liability affects goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination.
G.4   Secondary taxation on companies
Secondary Taxation on Companies (“STC”) is provided for at the prevailing rate on the amount of the net dividend
declared by Vodacom Group (Proprietary) Limited. It is recorded as a taxation expense when dividends are declared.
STC credits on dividends received are recorded as assets in the period that they arise, limited to the amount recoverable
based on the reserves available for distribution.
F-110
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
H.
EMPLOYEE BENEFITS
H.1   Post-employment benefits
The Group provides defined contribution funds for the benefit of employees, the assets of which are held in separate
funds. The funds are funded by payments from employees and the Group. Contributions to the funds are recognised as
an expense in the period in which the employee renders the related service.
The Group has no liability for contributions to the medical aid of retired employees.
H.2   Short-term and long-term benefits
The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid
and other contributions, are recognised during the period in which the employee renders the related service. The Group
recognises the expected cost of bonuses only when the Group has a present legal or constructive obligation to make
such payment and a reliable estimate can be made.

The Group provides long-term incentives to eligible employees payable on termination or retirement. The Group’s liability
is based on an actuarial valuation. Actuarial gains and losses on the long-term incentives are accounted for through profit
and loss in the year in which they arise.
H.3   Accumulative termination benefits

Accumulative termination benefits are payable whenever:
· an employee’s employment is terminated before the normal retirement date, or
· an employee accepts voluntary redundancy.

The Group recognises termination benefits when it is constructively obliged to either terminate the employment of current
employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a
result of an offer made to encourage voluntary redundancy. If the benefits fall due more than 12 months after balance
sheet date, they are discounted to present value. If the amount can be reasonably estimated, the measurement of
termination benefits is based on the number of employees expected to accept the offer.
H.4  Compensation benefits

Employees of wholly owned subsidiaries, including executive directors, are eligible for compensation benefits in the
form of a deferred bonus incentive scheme. The benefit is recorded at the present value of the expected future cash
outflows.
I.
REVENUE RECOGNITION
Revenue net of discounts, which excludes Value Added Taxation and sales between Group companies, represents
the invoiced value of goods and services supplied by the Group. The Group measures revenue at the fair value of
the consideration received or receivable. Revenue is recognised only when it is probable that the economic benefits
associated with a transaction will flow to the Group and the amount of revenue, and associated costs incurred or to be
incurred, can be measured reliably. If applicable, revenue is split into separately identifiable components.

The Group invoices its independent service providers for the revenue billed by them on behalf of the Group. The Group,
within its contractual arrangements with its agents, pays them administrative fees. The Group receives in cash, the net
amount equal to the gross revenue earned less the administrative fees payable to the agents.

The recognition of revenue involves estimates and assumptions with regards to the useful life of the customer base. The
estimates and assumptions are based on past experience.
F-111
background image
I.
REVENUE RECOGNITION (CONTINUED)
The main categories of revenue and bases of recognition for the Group are:
I.1    Contract products
Contract products that may include deliverables such as a handset and 24-month service are defined as arrangements
with multiple deliverables. The arrangement consideration is allocated to each deliverable, based on the fair value of
each deliverable on a stand alone basis as a percentage of the aggregated fair value of the individual deliverables.
Revenue allocated to the identified deliverables in each revenue arrangement and the cost applicable to these identified
deliverables are recognised based on the same recognition criteria of the individual deliverable at the time the product
or service is delivered.
· Revenue from the handset is recognised when the product is delivered, limited to the amount of cash received.
· Monthly service revenue received from the customer is recognised in the period in which the service is delivered.
· Airtime revenue is recognised on the usage basis. The terms and conditions of the bundled airtime products,
  where applicable, allow the carry over of unused airtime. The unused airtime is deferred in full.
· Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the
  customer contract, all deferred revenue for unused airtime is recognised in revenue.
I.2    Prepaid products
Prepaid products that may include deliverables such as a SIM-card and airtime are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to each deliverable, based on the fair value of each deliverable
on a stand alone basis as a percentage of the aggregated fair value of the individual deliverables.
Revenue allocated to the identified deliverables in each revenue arrangement and the cost applicable to these identified
deliverables are recognised based on the same recognition criteria of the individual deliverable at the time the product
or service is delivered.
· Revenue from the activated SIM-card, representing activation fees, is recognised over the average useful life of a
  prepaid customer.
· Airtime revenue is recognised on the usage basis. Unused airtime is deferred in full.
· Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the
  customer relationship, all deferred revenue for unused airtime is recognised in revenue.
Upon purchase of an airtime voucher the customer receives the right to make outgoing voice and data calls to the value
of the airtime voucher. Revenue is recognised as the customer utilises the voucher.
Deferred revenue and costs related to unactivated starter packs which do not contain any expiry date, is recognised in
the period when the probability of these starter packs being activated by a customer becomes remote. In this regard the
Group applies a period of 36 months before these revenue and costs are released to profit or loss.
I.3    Data revenue
Revenue net of discounts, from data services is recognised when the Group has performed the related service and
depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount
receivable by the Group as commission for facilitating the service.
I.4    Equipment sales
Revenue from equipment sales is recognised only when the Group has transferred to the buyer the significant risks and
rewards of ownership of the goods and the Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold. This is normally achieved with acceptance
of the goods on the delivery thereof.
Equipment sales to third party service providers are recognised when delivery is accepted. No rights of return exist on
sale to third party service providers.
I.5    Mobile number portability
Revenue transactions from mobile number portability are accounted for in terms of current business rules and revenue
recognition policies above.
F-112
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
I.
REVENUE RECOGNITION (CONTINUED)
I.6     Other revenue and income
· Interconnect and international revenue
Interconnect and international revenue is recognised on the usage basis.
· Dividends
Dividends from investments or subsidiaries are recognised when the shareholder’s right to receive payment has been
established.
· Interest
Interest is recognised on a time proportion basis with reference to the principal amount receivable and the effective
interest rate applicable.
J.
LEASES
J.1    Lease classification
Leases involving property, plant and equipment whereby the lessor provides finance to the lessee with the asset as
security, and where the lessee assumes the significant risks and rewards of ownership of those leased assets, are
classified as finance leases.
Leases of property, plant and equipment to the lessee, under which the lessor effectively retains the significant risks and
rewards of ownership of those leased assets, are classified as operating leases.
A lease of land and buildings is classified by considering the land and buildings elements separately. Minimum lease
payments are allocated between the land and buildings elements in proportion to the relative fair values of the land and
leasehold buildings elements of the lease.
J.2    Group as lessee
· Finance leases
Lessee finance leases are capitalised, as property, plant and equipment, at their cash equivalent cost and a
corresponding finance lease liability is raised. The cash equivalent cost is the lower of fair value of the asset or the
present value of the minimum lease payments, at inception of the lease. Such assets are depreciated in accordance
with the accounting policy on property, plant and equipment stated above.
Lease payments are allocated between lease finance costs and a capital reduction of the finance lease liability. Lease
finance costs are allocated to profit or loss over the term of the lease using the effective interest rate method, so as to
produce a constant periodic rate of return on the remaining balance of the liability for each period.
· Operating leases
Lessee operating lease rental payments are expensed in profit or loss on a straight-line basis over the lease term.
When an operating lease is terminated before the lease term has expired any payment to the lessor that is required,
by way of penalty, is recognised as an expense in the period in which termination takes place.
J.3    Group as lessor
· Finance leases
Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment
in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return
on the Group’s net investment outstanding in respect of the leases.
· Operating leases
Lessor operating lease rental income is recognised in profit or loss on a straight-line basis over the lease term. Such
leased assets are included under property, plant and equipment and depreciated in accordance with the accounting
policy stated above.
F-113
background image
K.
FINANCIAL INSTRUMENTS
Financial instruments include all financial assets, financial liabilities and equity instruments including derivative
instruments.
Financial assets and financial liabilities, in respect of financial instruments, are recognised on the Group's balance sheet
when the Group becomes party to the contractual provisions of the instrument.
· Fair value methods and assumptions
The fair value of financial assets and financial liabilities are determined as follows:
The fair value of financial instruments with standard terms and conditions and traded in active, liquid and organised
financial markets are determined with reference to the applicable quoted market prices.
The fair values of derivative instruments are determined using quoted prices or where such prices are not available,
discounted cash flow methods using the applicable yield curve for the duration of the instruments for non-optional
derivatives and option pricing models for optional derivatives. These amounts reflect the approximate values of the net
derivative position at the balance sheet date. The quoted market prices used for interest rate derivatives is at the effective
yield basis, while the quoted market prices used for foreign exchange derivatives is at the mid or mid forward rate.
The fair value of other financial instruments, excluding derivative instruments, not traded in active, liquid and organised
financial markets is determined by using a variety of methods and assumptions that are based on market conditions
and risks existing at balance sheet date, including independent appraisals and discounted cash flow methods.
· Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of financial assets and financial
liabilities and of allocating interest income and interest expense over the relevant period. The effective interest rate is
the rate that discounts estimated future cash receipts and future cash payments through the expected life of the financial
asset and financial liability, or where appropriate a shorter period, to the net carrying amount of the financial asset or
financial liability.
· Amortised cost
Amortised cost is the amount at which the financial asset and financial liability is measured at initial recognition less
principal repayments, cumulative amortisation and accumulated impairment losses. The cumulative amortisation of any
difference between the initial amount and the maturity amount of the financial asset and financial liability is calculated
by using the effective interest rate method and recognised in profit or loss as interest income or interest expense over
the period of the investment or debt.
K.1   Financial assets
Financial assets are classified into the following categories: financial assets at fair value through profit or loss, held-to-
maturity investments, available-for-sale financial assets and loans and receivables. The classification depends on the
nature and purpose of the financial assets and is determined at the time of initial recognition.

The Group’s principal financial assets, other than derivatives which are dealt with below, are investments, loans and
other receivables, finance lease assets, trade and other receivables (excluding Value Added Taxation, prepayments and
operating lease receivables) and cash and cash equivalents.
Financial assets are recognised and derecognised on a trade date where the purchase or sale of the financial asset
is under a contract whose terms require delivery of the instrument within the timeframe established by the market
concerned.
All financial assets are initially measured at fair value, including transaction costs, except for those financial assets
classified as at fair value through profit or loss which are initially measured at fair value, excluding transaction costs.
F-114
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
K.
FINANCIAL INSTRUMENTS (CONTINUED)
K.1   Financial assets (continued)
The fair value of a financial instrument on initial recognition is normally the transaction price unless the fair value is evident
from observable market data.
Subsequent to initial measurement, these instruments are measured as set out below.
· Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss where the financial asset is either held for trading
or the financial asset is designated at fair value through profit or loss upon initial recognition.
A financial asset is classified as held for trading if:
· it has been acquired principally for the purpose of selling it in the near term;
· it is part of a portfolio of identified financial instruments that the Group manages together and for which there is
   evidence of a recent actual pattern of short-term profit-taking; or
· it is a derivative that it is not designated as an effective hedging instrument or a derivative that is a financial
   guarantee contract.
Financial assets are designated upon initial recognition at fair value through profit or loss when:
· such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
   arise;
· the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its
   performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or
   investment strategy and information about the grouping is provided internally on that basis; or
· it forms part of a contract containing one or more embedded derivatives which do not significantly modify cash flows
   and can be separated from the hybrid contract.
Financial assets at fair value through profit or loss are subsequently measured at fair value, with any resultant
remeasurement gains and losses recognised in gains or losses on remeasurement and disposal of financial instruments
in profit or loss. The net gain or loss recognised in profit or loss incorporates any gains or losses on remeasurement,
dividends and interest income on the financial asset.
These financial assets are classified as current assets if they are either held for trading or expected to be realised within
twelve months of the balance sheet date.
· Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities
that the Group has the positive intent and ability to hold to maturity.
Held-to-maturity investments are subsequently measured at amortised cost using the effective interest rate method less
any impairment loss. Interest income is recognised in profit or loss by applying the effective interest rate.
· Available-for-sale financial assets
Investments in equity instruments, excluding those in subsidiaries, joint ventures and those acquired principally for the
purpose of generating a profit from the short-term fluctuations in price, are classified as available-for-sale investments and
are subsequently measured at fair value. Gains and losses from changes in fair value of available-for-sale investments
are recognised directly in equity until the financial asset is disposed of or it is determined to be impaired, at which
time the cumulative gain or loss previously recognised in equity is recognised in gains or losses on remeasurement and
disposal of financial instruments in profit or loss.
The net gain or loss recognised in profit or loss incorporates any gains or losses on remeasurement transferred from
equity to profit or loss, dividends and interest income on the financial asset.
These investments are classified as non-current assets unless management intends to dispose of the investments within
twelve months of the balance sheet date.
F-115
background image
K.
FINANCIAL INSTRUMENTS (CONTINUED)
K.1   Financial assets (continued)
· Loans and receivables
        Trade and other receivables (excluding Value Added Taxation, prepayments and operating lease receivables), loans,
finance lease assets and cash and cash equivalents that have fixed or determinable payments that are not quoted in
an active market are classified as loans and receivables.
        Loans and receivables are subsequently measured at amortised cost using the effective interest rate method less
any impairment loss. Interest income is recognised in profit or loss by applying the effective interest rate, except for
short-term trade receivables where the recognition of interest would be immaterial. Trade receivables are carried at
original invoice amount less any impairment loss.
The terms of loans granted are renegotiated on a case by case basis if circumstances require renegotiation.
The accounting policy for bank and cash balances is dealt with under cash and cash equivalents set out below.
· Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired and impairment losses are incurred where there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the
estimated future cash flows of the financial asset has been impacted and the Group will not be able to collect all
amounts due according to the original terms of the financial asset.
Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the
attention of the holder of the asset about the following loss events:
· significant financial difficulty of the issuer or obligor;
· a breach of contract, such as default or delinquency in interest or principal payments;
· it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
· the disappearance of an active market for the financial asset because of financial difficulties; or
· observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
   financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the
   individual financial assets in the Group.
· Financial assets carried at amortised cost
For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original
effective interest rate.

The carrying amount of financial assets carried at amortised cost is reduced directly by the impairment loss with
the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.
The amount of the allowance account is the difference between the carrying amount and the recoverable amount.
When management deems a trade receivable to be uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profit or loss. Changes in the carrying amount
of the allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed,
either directly or by adjusting the allowance account, through profit or loss. The carrying amount of the financial
asset at the date the impairment is reversed will not exceed what the amortised cost would have been had the
impairment not been recognised.
F-116
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
K.
FINANCIAL INSTRUMENTS (CONTINUED)
K.1   Financial assets (continued)
· Available-for-sale financial assets
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and
there is objective evidence that the asset is impaired, the cumulative loss recognised directly in equity is removed
from equity and recognised in profit or loss. The amount of the cumulative loss removed from equity to profit or loss
is the difference between the acquisition cost and current fair value, less any impairment loss previously recognised
in profit or loss.
Reversal of impairment losses on available-for-sale equity investments is recognised directly in equity, while the
reversal of impairment losses on available-for-sale debt instruments is recognised in profit or loss.
K.2   Financial liabilities and equity instruments
· Classification as equity, debt or compound instruments
Financial liabilities and equity instruments issued by the Group are classified on initial recognition as debt or equity
or compound instruments in accordance with the substance of the contractual arrangement and the definitions of a
financial liability and an equity instrument.
· Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of
its liabilities.
The Group’s principal equity instrument is ordinary share capital, which is recorded at the proceeds received, net of
any direct issue costs.
· Financial liabilities
Financial liabilities are classified into the following categories: financial liabilities at fair value through profit or loss,
financial liabilities held at amortised cost and financial guarantee contract liabilities. The classification depends on the
nature and purpose of the financial liabilities and is determined at the time of initial recognition.
The Group’s principal financial liabilities, other than derivatives which are dealt with below, are interest bearing debt,
non-interest bearing debt, trade and other payables (Value Added Taxation, revenue charged in advance and reduced
subscriptions excluded), dividends payable, bank borrowings and other short-term debt.
All financial liabilities are initially measured at fair value, including transaction costs, except for those financial liabilities
classified as at fair value through profit or loss, which are initially measured at fair value, excluding transaction costs.
The fair value of a financial instrument on initial recognition is normally the transaction price unless the fair value is
evident from observable market data.
F-117
background image
K.
FINANCIAL INSTRUMENTS (CONTINUED)
K.2   Financial liabilities and equity instruments (continued)
Subsequent to initial measurement, these instruments are measured as set out below.
· Financial liabilities at fair value through profit or loss
Financial liabilities are classified at fair value through profit or loss where the financial liability is either held for trading
or the financial liability is designated at fair value through profit or loss upon initial recognition.
A financial liability is classified as held for trading if:
· it has been incurred principally for the purpose of repurchasing it in the near term;
· it is part of a portfolio of identified financial instruments that the Group manages together and for which there is
  evidence of a recent actual pattern of short-term profit-taking; or
· it is a derivative that is not designated as an effective hedging instrument or a derivative that is a financial guarantee
  contract.
Financial liabilities are designated upon initial recognition at fair value through profit or loss when:
· such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
   arise;
· the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and
   its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or
   investment strategy, and information about the groupings is provided internally on that basis; or
· it forms part of any contract containing one or more embedded derivatives.
Financial liabilities at fair value through profit or loss are subsequently measured at fair value, with any resultant
remeasurement gains and losses recognised in gains or losses on remeasurement and disposal of financial instruments
in profit or loss. The net gain or loss recognised in profit or loss incorporates any gains or losses on remeasurement
and interest paid on the financial liability.
These financial liabilities are classified as current liabilities if they are either held for trading or expected to be settled
within twelve months of the balance sheet date.
· Financial liabilities held at amortised cost
Interest bearing debt, including finance lease obligations, non-interest bearing debt, bank borrowings and other
short-term debt are subsequently measured at amortised cost using the effective interest rate method. Interest expense
is recognised in profit or loss by applying the effective interest rate.
The terms of loans received are renegotiated on a case by case basis if circumstances require renegotiation.
Interest bearing debt and non-interest bearing debt are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Trade and other payables are carried at the original invoice amount.
Dividends payable are stated at amounts declared.
Preference shares, which are mandatory redeemable on a specific date, are classified as liabilities. The dividends on
these preference shares are recognised in profit or loss as interest expense.
A contract that contains an obligation for the Group to purchase its own equity instrument for cash or another financial
asset gives rise to a financial liability and is accounted for at the present value of the redemption amount. On initial
recognition its fair value is reclassified directly from equity. Subsequent changes in the liability are included in profit
and loss. On expiry or exercise of the option the carrying value of the liability is reclassified directly to equity.
The accounting policy for bank borrowings and other short-term debt is dealt with under cash and cash equivalents set
out below, while the accounting policy for finance lease obligations is dealt with under leases set out above.
F-118
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
K
FINANCIAL INSTRUMENTS (CONTINUED)
K.2   Financial liabilities and equity instruments (continued)
· Financial guarantee contract liabilities
Financial guarantee contracts represent contracts that require the issuer to make specified payments to reimburse
the holder of the instrument for a loss it incurs because a specified debtor fails to make payments when they are
contractually due.
Financial guarantee contract liabilities are measured initially at fair value and subsequently at the higher of the amount
determined in accordance with the Group’s policy on provisions as set out below, or the amount initially recognised
less, when appropriate, cumulative amortisation.
K.3   Derivative financial instruments
The Group’s principal derivative financial instruments are option contracts, interest rate swaps and foreign exchange
forward contracts.
The Group recognises all derivative instruments on the consolidated balance sheet at fair value, including certain
derivative instruments embedded in other contracts. Derivatives are initially measured at fair value on the contract date
and are subsequently remeasured to fair value at each reporting date. Changes in the fair value of derivative instruments
are recorded in profit or loss as they arise.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives unless the
risks and characteristics are closely related to those host contracts and the host contracts are carried at fair value.
The Group does not use derivatives for trading or speculative purposes. Derivatives are not designated into an effective
hedge relationship and are classified as current assets or a current liability.
K.4   Derecognition
Financial assets, or a portion thereof, are derecognised when the Group’s rights to the cash flow expire or when the
Group transfers substantially all the risks and rewards related to the financial asset or when the entity loses control of
the financial asset. On derecognition, the difference between the carrying amount of the financial asset and proceeds
receivable and any prior adjustment to reflect fair value that had been reported in equity are included in profit or loss.
Financial liabilities, or a portion thereof, are derecognised when the obligation specified in the contract is discharged,
cancelled or expired. On derecognition, the difference between the carrying amount of the financial liability, including
related unamortised costs, and settlement amounts paid are included in profit or loss.
K.5  Offset
Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an
intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects
are offset.
L.
PROVISIONS
Provisions are recognised when the Group has a present legal or constructive obligation resulting from past events, for
which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate of the amount of the obligation can be made. A past event is deemed to give rise to a present
obligation if, taking into account all of the available evidence, it is more likely than not that a present obligation exists at
balance sheet date.
The amount recognised, as a provision is the best estimate of the expenditure required to settle the present obligation
at balance sheet date, taking into account risks and uncertainties surrounding the provision. Long-term provisions are
discounted to net present value.
F-119
background image
M.     IMPAIRMENT OF ASSETS
Goodwill and other assets that have an indefinite useful life and intangible assets not available for use are tested
annually for impairment and when events or changes in circumstances indicate that the carrying amount may not be
recoverable.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised if the recoverable amount of an asset is less than its carrying amount. The impairment
loss is recognised as an expense in profit or loss immediately. The recoverable amount of an asset is the higher of the
asset’s fair value less cost of disposal and its value in use.
The fair value represents the amount obtainable from the sale of an asset in an arm’s length transaction between
knowledgeable, willing parties.
The value in use of an asset represents the expected future cash flows, from continuing use and disposal that are
discounted to their present value using an appropriate pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount
is determined for the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable
group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups
of assets. For the purpose of impairment testing, goodwill is allocated to the cash-generating units expected to benefit
from the synergies of the combination. An impairment loss is recognised whenever the recoverable amount of a cash-
generating unit is less than its carrying amount.
The impairment loss is allocated to reduce the carrying amount of the assets of the cash-generating unit, first to goodwill
in respect of the cash generating unit, if any, and then to the other assets on a pro-rata basis based on their carrying
amounts. The carrying amount of individual assets are not reduced below the higher of its value in use, zero or fair value
less cost of disposal.
A previously recognised impairment loss related to assets is reversed if there has been a change in the estimates used
to determine the recoverable amount, however not to an amount higher than the carrying amount that would have been
determined had no impairment loss been recognised in prior periods. No goodwill impairment losses are reversed.
After the recognition of an impairment loss, any depreciation or amortisation charge for the asset is adjusted for future
periods to allocate the asset’s revised carrying amount, less its estimated residual value, on a systematic basis over its
remaining useful life.
 
F-120
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
N.     INSURANCE CONTRACTS
N.1   Premiums
Premiums written comprise the premiums on insurance contracts entered into during the year, irrespective of whether they
relate in whole or in part to a later accounting period. Premiums are disclosed gross of commission to intermediaries and
exclude Value Added Taxation. Premiums written include adjustments to premiums written in prior accounting periods.
Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct
insurance business assumed.
The net earned portion of premiums received is recognised as revenue. Premiums are earned from the date of attachment of
risk, over the indemnity period, based on the pattern of risks underwritten. Outward reinsurance premiums are recognised as
an expense in accordance with the pattern of indemnity received.
N.2   Unearned premium income
Unearned premium income comprises the proportion of premiums written which is estimated to be earned in subsequent
financial years, computed separately for each insurance contract using a time proportionate basis or another suitable basis for
uneven risk contracts.
N.3   Claims incurred
Claims incurred consist of claims and claims handling expenses paid during the financial year together with the movement in
the provision for outstanding claims. Claims outstanding comprise provisions for the Group’s estimate of the ultimate cost of
settling all claims incurred but unpaid at the balance sheet date whether reported or not, and an appropriate risk margin.
N.4   Contingency reserve
A reserve in equity is made for the full amount of the contingency reserve as required by the regulatory authorities in South
Africa. Transfers to and from this reserve are treated as appropriations of retained earnings.
O.    CASH AND CASH EQUIVALENTS
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on
call, net of bank borrowings, all of which are available for use by the Group unless otherwise stated.
Cash on hand is initially recognised at fair value and subsequently measured at its face value.
Deposits held on call are classified as loans and receivables by the Group and carried at amortised cost. Due to the short-term
nature of these, the amortised cost normally approximates its fair value.
Bank borrowings, consisting of interest-bearing short-term bank loans, repayable on demand and overdrafts are recorded at
the proceeds received, net of direct issue costs. Finance costs, including premiums payable on settlement or redemption, are
accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled
in the period in which they arise.
P.
BORROWING COSTS
Borrowing costs are expensed as they are incurred.
Q.    EXPENSES
Marketing and advertising costs are expensed as they are incurred. Prepaid costs related to annual events sponsorships are
expensed over the duration of the event. Restraint of trade payments are made to limit an executive’s post employment activities
and are expensed as incurred.
F-121
background image
F-122
R.
INCENTIVES
Incentives paid to service providers and dealers for products delivered to the customer are expensed as incurred. Incentives paid
to service providers and dealers for services delivered are expensed over the period that the related revenue is recognised.
Distribution incentives paid to service providers and dealers for exclusivity are deferred and expensed over the contractual
relationship period.
S.     NON-CURRENT ASSETS HELD FOR SALE
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through
a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a complete sale within one year from the
date of classification.
Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets’ previous
carrying amount and fair value less cost to sell.
T.
USE OF ESTIMATES
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also
requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
financial statements are disclosed in the relevant sections of the financial statements. Although these estimates are based
on management’s best knowledge of current events and actions they may undertake in the future, actual results ultimately
may differ from those estimates.
U.
COMPARATIVES
Certain comparative figures have been reclassified, where required or necessary, in accordance with current period
classifications and presentation.
V.
OPERATING SEGMENTS
The Group discloses its operating segments according to the entity components regularly reviewed by the chief operating
decision maker. The components comprise of geographical operating segments located in South Africa and non-South
African countries.
Segment information is prepared in conformity with the measure that is reported to the chief operating decision maker.
These values have been reconciled to the consolidated financial statements. The measure reported by the Group is in
accordance with the accounting policies adopted for preparing and presenting the consolidated financial statements.
Segment revenue excludes Value Added Taxation and includes intergroup revenue. Net revenue represents segment
revenue from which intergroup revenue has been eliminated. Sales between segments are made on a commercial basis.
Segment profit or loss from operations represents segment revenue less segment operating expenses. Segment expenses
include direct and operating expenses. Impairments, depreciation and amortisation have been allocated to the segments
to which they relate.
The segment assets and liabilities comprise all assets and liabilities of the different segments that are employed by the
segment and that either are directly attributable to the segment, or can be allocated to the segment on a reasonable
basis.
Capital expenditure in property, plant and equipment and intangible assets has been allocated to the segments to which
it relates.
background image
F-123
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
1.    REVENUE
Airtime and access
20,085.8
23,707.5
27,095.2
Data revenue
2,037.6
3,341.7
5,002.2
Interconnect revenue
6,696.8
7,835.6
8,887.1
Equipment sales
3,985.6
4,699.1
5,051.4
International airtime
971.2
1,305.8
1,835.9
Other
265.5
256.7
306.0
34,042.5
41,146.4
48,177.8
2.    DIRECT NETWORK OPERATING COST
Airtime and access
(5,596.0)
(6,929.0)
(7,838.6)
Data expenditure
(320.0)
(531.3)
(757.0)
Interconnect cost
(4,312.2)
(5,179.9)
(6,039.2)
Equipment cost
(4,173.9)
(5,022.8)
(5,519.1)
International airtime cost
(322.1)
(456.2)
(518.1)
Regulatory fees
(812.1)
(979.7)
(1,054.9)
Network operational expenses *
(1,781.0)
(2,248.1)
(2,778.7)
Other
(979.9)
(1,092.8)
(1,793.9)
(18,297.2)
(22,439.8)
(26,299.5)
* Network operational expenses include transmission
  rental, site costs and site maintenance.
3.    IMPAIRMENT OF ASSETS
Intangible asset
(0.1)
(0.3)
-
Goodwill
-
(0.2)
-
Computer software
(0.1)
(0.1)
-
Property, plant and equipment
52.9
(22.6)
(29.9)
Infrastructure
59.9
(17.9)
(23.9)
Information services
(5.6)
(3.7)
(3.2)
Motor vehicles
(0.3)
(0.3)
(0.8)
Furniture and office equipment
(0.5)
(0.3)
(0.6)
Leasehold improvements
(0.3)
(0.1)
(0.7)
Other assets
(0.3)
(0.3)
(0.7)
(Impairment recognised)/impairment reversed
52.8
(22.9)
(29.9)
Due to the competitive and economic environment in which VM, S.A.R.L. operates in Mozambique, the Group assessed the
assets for impairment in accordance with the requirements of IAS 36: Impairment of Assets (“IAS 36”). The recoverable amount
of these assets was based on the fair value less cost of disposal at March 31, 2008, 2007 and 2006. The amount with which
the carrying amount exceeded the recoverable amount is recognised as an impairment loss. The reversal of the impairment loss
in the 2006 financial year related to an increase in the fair value of infrastructure assets due to exchange rate fluctuations.
background image
F-124
2006
2007
2008
Rm
Rm
Rm
4.    PROFIT FROM OPERATIONS
The profit from operations is arrived at after taking the following
income/(expenditure) into account:
Net (loss)/profit on disposal of property, plant and equipment
and intangible assets
(26.8)
26.9
(39.3)
Loss on disposal of property, plant and equipment
and intangible assets
(27.5)
(30.3)
(42.2)
Profit on disposal of property, plant and equipment
and intangible assets
0.7
57.2
2.9
Profit on disposal of shares in subsidiary
-
17.4
8.0
Auditor's remuneration - audit fees
(14.9)
(16.6)
(23.3)
Current year audit fees
(14.0)
(16.2)
(21.1)
Prior year under-provision of audit fees
(0.8)
(0.2)
(1.4)
Telkom costs
(4.8)
(6.1)
(5.1)
Telkom recovery
4.8
6.1
5.1
Expenses
(0.1)
(0.2)
(0.8)
Auditor’s remuneration - other services
(2.1)
(0.6)
(3.0)
Professional fees for consultancy services
(112.2)
(147.1)
(203.7)

Operating lease rentals
(870.7)
(1,259.1)
(1,550.3)
GSM transmission and data lines
(787.9)
(965.8)
(1,224.7)
Office
accommodation
(47.6)
(65.1)
(94.0)
Other
accommodation
(33.0)
(223.4)
(225.6)
Office
equipment
(1.1)
(0.2)
(0.2)
Motor
vehicles
(1.1)
(4.6)
(5.8)

Staff expenses - pension and provident fund contributions
(89.3)
(97.4)
(126.9)
Pension fund contributions
(76.4)
(84.7)
(113.4)
Provident fund contributions
(12.9)
(12.7)
(13.5)

Increase in provision for obsolete inventory (Note 14)
(15.9)
(18.3)
(0.2)
background image
F-125
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
4.    PROFIT FROM OPERATIONS (CONTINUED)
The profit from operations is arrived at after taking the
following income/(expenditure) into account:
(Increase)/Decrease in provision for doubtful
receivables (Note 15)
8.9
9.7
(5.8)
Decrease/(Increase) in provision for doubtful receivables -
South Africa (Note 15)
1.0
(6.8)
12.6
(Increase)/Decrease in provision for doubtful receivables -
non-South African (Note 15)
7.9
16.5
(18.4)
Marketing and advertising expenses include broadcasting, branding, publications and sponsorship expenditure.
Other operating expenses include accommodation costs, auditor’s remuneration, consultancy fees, information technology
costs, insurance, office administration costs, sales and distribution costs, social economic investment costs, subsistence and
travel costs and transport costs.
Insurance activities
The Group offers a range of insurance contracts to its customers providing protection against specified risks associated
with the ownership of a cell phone. These products are offered through a cell captive facility maintained with Centriq
Insurance Company Limited, a South African registered short-term insurance company. The cell captive facility is further
used to issue insurance contracts to Group companies to provide cover against a variety of insurable risks including
assets own risk. The extended warranty provided to customers is no longer provided by the Group as the suppliers
assumed responsibility for the second year warranty. Inter-company transactions are eliminated on consolidation of the
cell captive.
In terms of the shareholders' agreement, the Group carries all the risks and rewards related to the business underwritten in
the cell captive facility. The risks are closely monitored by the Group through the ongoing review of the performance of
the underlying insurance products. Premium rate adjustments are used to mitigate the associated insurance risks.
Provided below is a summarised underwriting account giving details of the R38.7 million (2007: R28.8 million;
2006: R52.5 million) underwriting profit included in profit from operations:
2006
2007
2008
Rm
Rm
Rm
Net earned premiums
112.7
131.6
146.6
Gross claims incurred
(51.7)
(67.4)
(76.1)
Net reinsurance (expense)/income
10.7
(11.6)
(4.9)
Net operating expenses
(19.2)
(23.8)
(26.9)
Underwriting profit
52.5
28.8
38.7
background image
F-126
2006
2007
2008
Rm
Rm
Rm
5.    FINANCE INCOME
Interest on financial instruments not at fair value
through profit or loss
93.7
52.8
54.6
Banks
89.4
30.6
33.0
Loans
-
20.7
17.7
Other interest income
4.3
1.5
3.9
Interest on financial assets at fair value through profit or loss
20.8
20.6
17.7
Interest rate swap interest
13.0
10.2
5.1
Interest on money market investments
7.8
10.4
12.6
Interest on non-financial instruments
15.4
1.1
-
Interest received from taxation authorities
15.4
1.1
-
129.9
74.5
72.3
During the year the Group reclassified gains on
remeasurement and disposal of financial instruments from
finance income to gains or losses on remeasurement and
disposal of financial instruments.
6.    FINANCE COSTS
Finance costs on financial liabilities not at fair value
through profit or loss
(237.8)
(358.9)
(666.5)
Bank overdraft
(12.4)
(131.4)
(399.1)
Debt *
(92.0)
(113.9)
(168.8)
Finance leases
(121.6)
(112.3)
(98.2)
Other finance costs
(11.8)
(1.3)
(0.4)
Finance costs on non-financial instruments
(8.2)
(10.4)
(14.8)
Long-term incentive interest
(6.5)
(9.6)
(14.4)
Interest paid to taxation authorities
(1.7)
(0.8)
(0.4)
(246.0)
(369.3)
(681.3)
*  Included in debt is an amount of R11.0 million (2007: R10.0 million; 2006: R8.1 million) which relates to notional
interest on the loans from Caspian Limited, Planetel Communications Limited and Mirambo Limited that was remeasured
at amortised cost, at an effective interest rate of LIBOR plus 5% and the loan from Sekha-Metsi Investment Consortium
Limited that was remeasured at amortised cost, at an effective interest rate of 13.7%, for which no consideration has
been recorded.
During the year the Group reclassified losses on remeasurement and disposal of financial instruments from finance costs
to gains or losses on remeasurement and disposal of financial instruments.
background image
F-127
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
7.    GAINS/(LOSSES) ON REMEASUREMENT AND DISPOSAL
OF FINANCIAL INSTRUMENTS
Gain/(Loss) on foreign exchange forward
contract revaluation
(260.6)
467.7
345.8
Loss on interest rate swap revaluation
(6.6)
(9.9)
(10.3)
Gain on revaluation of foreign denominated
cash and cash equivalents
-
6.2
24.3
(Loss)/Gain on revaluation of foreign denominated assets
(27.4)
9.7
(15.2)
Gain/(Loss) on sale of investments
(3.3)
(0.7)
2.2
Loss on revaluation of foreign denominated liabilities
(225.2)
(642.0)
(161.7)
(523.1)
(169.0)
185.1
8.    NET GAINS/(LOSSES)
Net gains/(losses) on financial instruments analysed
by category, are as follows:
Financial assets and financial liabilities at fair value
through profit or loss, classified as held for trading
(246.4)
478.4
353.2
Available-for-sale investments
(3.3)
(0.7)
2.2
Loans and receivables (including cash and bank deposits)
66.3
62.5
63.7
Financial liabilities held at amortised cost
(341.4)
(882.4)
(730.0)
Finance leases
(121.6)
(112.3)
(98.2)
Net losses attributable to financial instruments
(646.4)
(454.5)
(409.1)
Net (losses)/gains attributable to non-financial instruments
7.2
(9.3)
(14.8)
(639.2)
(463.8)
(423.9)
background image
F-128
2006
2007
2008
Rm
Rm
Rm
9.
TAXATION
South African normal taxation
(2,375.6)
(3,058.7)
(3,472.8)
Current year
(2,337.9)
(3,063.7)
(3,487.2)
Prior year over/(under) provision
(37.7)
5.0
14.4
Deferred taxation
(136.2)
44.0
99.5
Current year
(177.0)
45.3
94.4
Prior year (under)/over provision
40.8
(1.3)
(4.6)
Taxation rate change*
-
-
9.7
Secondary taxation on companies - current year
(562.5)
(692.7)
(594.0)
Foreign taxation
(29.8)
(34.3)
(114.3)
Current year
(29.4)
(34.0)
(113.0)
Prior year under provision
(0.4)
(0.3)
(1.3)
Foreign deferred taxation
20.4
(94.3)
(27.6)
Current year
43.5
(135.4)
(134.0)
Prior year over/(under) over provision
(22.0)
41.1
106.4
Taxation rate change #
(1.1)
-
-
(3,083.7)
(3,836.0)
(4,109.2)
*  Deferred taxation was calculated at 28% for all South African entities at March 31, 2008 following a change in the
corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the 2009 financial
year.
#  Deferred taxation was calculated at 25% for Vodacom Lesotho (Proprietary) Limited at March 31, 2006 following a
change in the corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the
2007 financial year.
background image
F-129
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2006
2007
2007
2008
2008
Rm
%
Rm
%
Rm
%
9.
TAXATION (CONTINUED)
Reconciliation of rate of taxation
Normal taxation on profit before taxation      (2,385.7)
(29.0)
(3,014.9)
(29.0)
(3,499.4)
(29.0)
Adjusted for:
Disallowed expenditure
(135.6)
(1.7)
(205.8)
(2.0)
(125.8)
(1.0)
Unrecognised taxation asset
(149.9)
(1.8)
(86.5)
(0.9)
(31.9)
(0.3)
Functional vs local reporting currency
(45.3)
(0.6)
226.8
2.2
23.8
0.2
Revaluation of tax base of qualifying assets     181.6
2.2
(98.6)
(0.9)
(26.6)
(0.2)
Translation of deferred taxation to US$
16.8
0.2
(95.7)
(0.9)
(6.0)
(0.1)
Secondary taxation on companies
(562.5)
(6.9)
(692.7)
(6.7)
(594.0)
(5.0)
Secondary taxation on companies credits
-
-
(3.8)
-
-
-
Prior year over/(under) provision
(19.3)
(0.2)
44.5
0.4
114.8
1.0
Foreign taxation rate differences
15.6
0.2
48.6
0.5
(7.6)
(0.1)
Taxation rate change * #
(1.1)
-
-
-
9.7
0.1
Foreign
taxation
(8.7)
(0.1)
(10.4)
(0.1)
(20.6)
(0.2)
Taxation not payable due to tax
concession
-
-
81.2
0.8
67.7
0.6
Foreign controlled entity passive
income imputed
(17.8)
(0.2)
(27.9)
(0.3)
(21.9)
(0.2)
Exempt income
1.1
-
(0.2)
-
-
-
Other adjustments
(0.4)
-
(0.6)
-
8.0
0.1
Business combination contingent
purchase consideration
20.6
0.3
-
-
-
-
Utilisation of taxation losses
6.9
0.1
-
-
0.6
-
(3,083.7)
(37.5)
(3,836.0)
(36.9)
(4,109.2)
(34.1)
*  Deferred taxation was calculated at 28% for all South African entities at March 31, 2008 following a change in the
corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the 2009 financial
year.
#  Deferred taxation was calculated at 25% for Vodacom Lesotho (Proprietary) Limited at March 31, 2006 following a
change in the corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the
2007 financial year.
background image
F-130
Cost
Accumulated
Net book value
depreciation and
impairment
Rm
Rm
Rm
10.   PROPERTY, PLANT AND EQUIPMENT
2006
Land and buildings
1,033.9
(105.0)
928.9
Infrastructure
22,556.3
(10,925.7)
11,630.6
Information services
1,623.9
(1,100.4)
523.5
Community services
107.8
(65.9)
41.9
Motor vehicles
154.4
(90.8)
63.6
Furniture and office equipment
251.3
(203.0)
48.3
Leasehold improvements
361.4
(214.9)
146.5
Other assets
33.2
(29.9)
3.3
26,122.2
(12,735.6)
13,386.6
2007
Land and buildings
1,277.9
(135.4)
1,142.5
Infrastructure
26,788.9
(12,084.6)
14,704.3
Information services
1,924.0
(1,248.5)
675.5
Community services
127.2
(72.3)
54.9
Motor vehicles
192.7
(103.6)
89.1
Furniture and office equipment
335.9
(233.0)
102.9
Leasehold improvements
538.2
(276.5)
261.7
Other assets
74.3
(32.0)
42.3
31,259.1
(14,185.9)
17,073.2
2008
Land and buildings
1,470.2
(163.5)
1,306.7
Infrastructure
31,398.2
(15,131.2)
16,267.0
Information services
2,165.0
(1,426.8)
738.2
Community services
131.6
(76.9)
54.7
Motor vehicles
252.0
(121.2)
130.8
Furniture and office equipment
327.3
(183.4)
143.9
Leasehold improvements
763.4
(320.4)
443.0
Other assets
83.3
(48.0)
35.3
36,591.0
(17,471.4)
19,119.6
background image
F-131
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Land and
Infra- Information   Community
Motor   Furniture &
Leasehold
Other
Total
buildings
structure
services
services
vehicles
office improvements
assets
equipment
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
10.   PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Reconciliation 2006
Opening balance
848.8       9,889.7
572.0
18.9
64.4
54.2
102.0
26.9     11,576.9
Reclassified to finance
lease receivables
-
-
-
-
(12.0)
-
-
-
(12.0)
Additions
98.2      4,237.9
237.2
16.1
27.1
23.0
55.3
4.6       4,699.4
Disposals
-
(51.0)
(1.7)
-
(0.2)
(0.4)
(0.1)
(3.0)
(56.4)
Foreign currency translation    (0.5)
(246.0)
(3.8)
-
(1.8)
(0.9)
(0.9)
-
(253.9)
Depreciation
(17.6)    (2,530.0)
(41.9)
6.9
(13.6)
(24.9)
(22.0)
(8.5)      (2,651.6)
Business combinations
(Note 32)
-
-
1.7
-
-
-
-
-
1.7
Impairments (Note 3)
-
59.9
(5.6)
-
(0.3)
(0.5)
(0.3)
(0.3)
52.9
Transfer from intangible
assets/Asset category
transfer (Note 11)
-
270.1     (234.4)
-
-
(2.2)
12.5       (16.4)
29.6
Closing balance
928.9     11,630.6
523.5
41.9
63.6
48.3
146.5
3.3     13,386.6
Reconciliation 2007
Opening balance
928.9    11,630.6
523.5
41.9
63.6
48.3
146.5
3.3     13,386.6
Additions
214.3      5,239.2
302.3
19.6
41.3
71.9
208.3
40.2       6,137.1
Disposals
(1.3)
(60.5)
(4.0)
(0.1)
(5.1)
(0.2)
-
-
(71.2)
Foreign currency translation
4.0
479.9
12.8
-
3.2
2.0
4.0
0.6
506.5
Depreciation
(21.5)   (2,580.0)
(181.2)
(6.5)
(13.6)
(29.8)
(67.6)
(1.6)    (2,901.8)
Business combinations
(Note 32)
-
2.4
-
-
0.2
3.0
-
-
5.6
Impairments (Note 3)
-
(17.9)
(3.7)
-
(0.3)
(0.3)
(0.1)
(0.3)
(22.6)
Transfer from intangible
assets/Asset category
transfer (Note 11)
18.1
10.6
25.8
-
(0.2)
8.0
(29.4)
0.1
33.0
Closing balance
1,142.5   14,704.3
675.5
54.9
89.1
102.9
261.7
42.3      17,073.2
Reconciliation 2008
Opening balance
1,142.5     14,704.3
675.5
54.9
89.1
102.9
261.7
42.3       17,073.2
Additions
184.2      4,047.6
309.9
7.9
62.6
83.0
252.5
4.5        4,952.2
Disposals
(1.1)
(37.4)
(4.7)
(0.1)
(3.6)
(2.0)
(0.6)
0.9
(48.6)
Foreign currency translation
5.8
563.7
13.2
-
5.0
2.4
8.0
1.9
600.0
Depreciation
(29.3)    (2,953.0)
(220.3)
(8.0)
(21.2)
(42.0)
(79.1)
(13.1)      (3,366.0)
Disposal of subsidiaries
(Note 33)
(13.8)
-
-
-
-
-
-
-
(13.8)
Impairments (Note 3)
-
(23.9)
(3.2)
-
(0.8)
(0.6)
(0.7)
(0.7)
(29.9)
Transfer between property,
plant and equipment and
finance lease receivables
(Note 16)
-
-
-
-
2.0
-
-
-
2.0
Transfer to intangible
assets/Asset category
transfer (Note 11)
18.4
(34.3)
(32.2)
-
(2.3)
0.2
1.2
(0.5)
(49.5)
Closing balance
1,306.7    16,267.0
738.2
54.7
130.8
143.9
443.0
35.3     19,119.6
background image
F-132
10.   PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Debt is collateralised over leasehold land and buildings and the fair value of the lease liability is R629.0 million
(2007: R786.3 million; 2006: R911.5 million) (Note 21). A register with details of the cost price, cost of improvements
and date of acquisition of all land and buildings is available for inspection at the registered office.
Land and buildings in which the Group occupies more than 25% of the floor space or when the primary purpose is the
service and connection of Vodacom customers are classified as property, plant and equipment.
The estimated useful lives of depreciable property, plant and equipment are as follows:
2006
2007
2008
years
years
years
General purpose buildings
50
50
50
Special purpose buildings
15
15
15 - 17
Infrastructure
- Radio
1 - 10
1 - 10
1 - 10
- Intelligent Networks
5 - 8
5 - 8
4 - 8
- Switching
5 - 10
5 - 10
2 - 15
- Transmission
8
8
8 - 12
- Billing
5 - 6
5 - 6
3 - 8
- Value added services equipment
3 - 8
3 - 8
3 - 8
Community services
2 - 10
2 - 10
2 - 15
Information services
3 - 5
3 - 5
3 - 6
SIM centre
3 - 8
3 - 8
6 - 8
Office automation
3 - 5
3 - 5
3 - 5
Other assets
- Motor vehicles
4
4
3 - 5
- Furniture and fittings
5
4 - 5
4 - 5
- Office equipment
4
4
2 - 6
The Group is required to measure the residual value of every item of property, plant and equipment. Management has
determined that radio, transmission, switching, sim centres and community services categories of property, plant and
equipment have no active market and the value of the asset at the end of its life would therefore be nil or insignificant.
The above categories are not exhaustive and will depend on the existence of an active market for the asset. The Group
ensures that proper documentation exists to support the non-existence of an active market. For assets with an active
market, confirmation of the residual values is received from third parties where the residuals are more than 10%. For
residuals less than 10% the Group uses historical sales and management’s best estimate.
During the current financial year the Group reviewed the estimated useful lives and residual values of property, plant
and equipment. The review resulted in a increase of R6.7 million (2007: R14.7 million decrease) in the current year's
depreciation charge.
The Group uses the following indicators to determine useful lives:
- Expected usage of the asset
- Expected physical wear and tear
- Technical or commercial obsolescence
background image
F-133
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Cost
Accumulated
Net book
amortisation and
value
impairment
Rm
Rm
Rm
11.   INTANGIBLE ASSETS
2006
Goodwill
1,002.0
(518.1)
483.9
Licences
306.3
(186.6)
119.7
Trademark and patents
390.4
(132.5)
257.9
Customer bases
863.2
(700.3)
162.9
Computer software
2,375.6
(1,445.1)
930.5
4,937.5
(2,982.6)
1,954.9
2007
Goodwill
1,455.8
(524.6)
931.2
Licences
439.0
(229.2)
209.8
Trademark and patents
390.4
(169.8)
220.6
Customer bases
919.3
(760.3)
159.0
Computer software
2,827.5
(1,647.8)
1,179.7
6,032.0
(3,331.7)
2,700.3
2008
Goodwill
2,426.0
(529.4)
1,896.6
Licences
478.9
(269.3)
209.6
Trademark, patents and other*
445.3
(195.7)
249.6
Customer bases
920.4
(816.0)
104.4
Computer software
3,734.6
(1,970.7)
1,763.9
8,005.2
(3,781.1)
4,224.1
* Other includes future benefits from provisioning of infrastructure and supply of non-mobile services.
background image
F-134
Goodwill
Licences Trademark,
Customer
Computer
Total
patents
and
bases
software
other*
Rm
Rm
Rm
Rm
Rm
Rm
11.  INTANGIBLE ASSETS (CONTINUED)
Reconciliation 2006
Opening balance
413.5
126.6
130.9
269.8
   703.5        1,644.3
Contingent purchase consideration
36.2
-
-
-
-
36.2
Additions
-
3.3
-
-
438.8
442.1
Disposals
-
-
-
-
(1.6)
(1.6)
Foreign currency translation
(1.4)
(1.7)
-
-
(4.0)
(7.1)
Amortisation
-
(8.5)
(52.3)
(106.9)
(176.5)
(344.2)
Business combinations
35.6
-
179.3
-
-
214.9
Impairment of assets (Note 3)
-
-
-
-
(0.1)
(0.1)
Transfer to property, plant and
equipment (Note 10)
-
-
-
-
(29.6)
(29.6)
Closing balance
483.9
119.7
257.9
162.9
930.5          1,954.9
Reconciliation 2007
Opening balance
483.9
119.7
257.9
162.9
930.5         1,954.9
Additions
372.2
93.9
-
-
611.2         1,077.3
Disposals
-
-
-
-
(0.2)
(0.2)
Foreign currency translation
19.0
16.6
-
(0.4)
13.0
48.2
Amortisation
-
(20.4)
(37.3)
(60.0)
(341.7)
(459.4)
Business combinations
56.3
-
-
56.5
-
112.8
Impairment of assets (Note 3)
(0.2)
-
-
-
(0.1)
(0.3)
Transfer to property, plant and
equipment (Note 10)
-
-
-
-
(33.0)
(33.0)
Closing balance
931.2
209.8
220.6
159.0        1,179.7          2,700.3
Reconciliation 2008
Opening balance
931.2
209.8
220.6
159.0       1,179.7           2,700.3
Additions
949.2
3.0
54.9
-
963.9           1,971.0
Disposals
-
-
-
-
(0.9)
(0.9)
Foreign currency translation
16.2
11.1
-
1.0
21.1
49.4
Amortisation
-
(14.3)
(25.9)
(55.6)
(449.4)
(545.2)
Transfer from property, plant and
equipment (Note 10)
-
-
-
-
49.5
49.5
Closing balance
1,896.6
209.6
249.6
104.4       1,763.9          4,224.1
* Other includes future benefits from provisioning of infrastructure and supply of non-mobile services.
background image
F-135
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
years
years
years
11.  INTANGIBLE ASSETS (CONTINUED)
The estimated useful lives of intangible assets are currently as follows:
- Mobile licences
5 - 30
5 - 30
8 - 30
- Trademarks, patents and other
5 - 15
10 - 15
10 - 14
- Computer software
2 - 8
2 - 8
2 - 8
- Internet service provider customers
-
3
8
2006
2007
2008
months
months
months
- Contract and prepaid mobile customers
36 - 60
36 - 96
53 - 119
The company uses the following indicators to determine useful lives:
- Expected usage of the asset
- Expected physical wear and tear
- Technical or commercial obsolescence
The largest components of individual material intangibles relates to licences and trademarks and patents of the Group that have
estimated remaining useful lives of between 11 to 16 (2007: 12 to 17) years and 8 to 10 (2007: 9 to 11) years respectively
as at March 31, 2008. The licence and other intangible assets of Vodacom Tanzania Limited were pledged as security for the
project finance funding obtained which expired at the end of the financial year (Note 21).
During the current financial year the Group reviewed the estimated useful lives of intangible assets. The review resulted in
a decrease of R10.6 million (2007: R66.5 million decrease) in the current year's amortisation charge.
2006
2006
2006
2007
2007
2007
Short-term
Long-term
Total
Short-term
Long-Term
Total
portion
portion
portion
portion
Rm
Rm
Rm
Rm
Rm
Rm
12.   FINANCIAL ASSETS
Loans and receivables (Note 12.1)
-
92.1
92.1
16.2
114.4
130.6
Financial assets at fair value through
profit or loss (Note 12.2)
149.3
-
149.3
191.3
-
191.3
Available-for-sale investments (Note 12.3)
-
-
-
-
95.1
95.1
149.3
92.1
241.4
207.5
209.5
417.0
2008
2008
2008
Short-term
Long-term
Total
portion
portion
Rm
Rm
Rm
Loans and receivables (Note 12.1)
29.7
134.2
163.9
Financial assets at fair value through profit or loss (Note 12.2)
415.2
-
415.2
Available-for-sale investments (Note 12.3)
-
110.0
110.0
444.9
244.2
689.1
background image
F-136
2006
2007
2008
Rm
Rm
Rm
12.
FINANCIAL ASSETS (CONTINUED)
12.1
Loans and receivables
Planetel Communications Limited
42.1
49.6
-
The loan with a nominal value of US$6.8 million issued
during the 2003 year bore interest at LIBOR plus 5%.
Planetel Communications Limited utilised this loan to ensure
sufficient shareholder loan funding by itself as a shareholder
of Vodacom Tanzania Limited. The loans and capitalised
interest were collateralised by cession over all shareholder
distributions and a pledge over their shares of Vodacom
Tanzania Limited. All the shareholders subordinated their
loans to Vodacom Tanzania Limited for the duration of the
project finance funding, which expired at the end of the
current financial year (Note 21). On November 30, 2007
Planetel Communications Limited sold its 16% shareholding
in Vodacom Tanzania Limited to Mirambo Limited.
Caspian Limited
50.0
58.8
-
The loan with a nominal value of US$8.1 million issued
during the 2003 year bore interest at LIBOR plus 5%. Caspian
Limited utilised this loan to ensure sufficient shareholder loan
funding by itself as a shareholder of Vodacom Tanzania
Limited. The loans and capitalised interest were collateralised
by cession over all shareholder distributions and a pledge
over their shares of Vodacom Tanzania Limited. All the
shareholders subordinated their loans to Vodacom Tanzania
Limited for the duration of the project finance funding, which
expired at the end of the current financial year (Note 21).
On November 30, 2007 Caspian Limited sold its 19%
shareholding in Vodacom Tanzania Limited to Mirambo
Limited.
Sekha-Metsi Investment Consortium Limited
-
16.2
-
The loan was advanced to Sekha-Metsi Investment Consortium
Limited and bore interest at South African overdraft interest
rates plus a margin of 2%. Interest was payable monthly
in arrears. The loan was repayable on demand, should
Sekha-Metsi Investment Consortium be able to obtain a
loan externally. Sekha-Metsi Investment Consortium Limited
pledged their shares in Sekha-Metsi Enterprises (Proprietary)
Limited as security for the loan. During the current financial
year the loan was repaid.
Other
-
-
3.9
Balance carried forward
92.1
124.6
3.9
background image
F-137
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
12.
FINANCIAL ASSETS (CONTINUED)
12.1
Loans and receivables (continued)
Balance brought forward
92.1
124.6
3.9
Number Portability Company (Proprietary) Limited
-
6.0
6.0
The shareholders loan made to Number Portability Company
(Proprietary) Limited (“NPC”), during the 2007 year, for an
amount of R6.0 million, is subordinated and ranks behind all
the claims of all creditors of NPC for repayment until such
time as the assets of NPC fairly valued exceed its liabilities.
In such case, the loan shall cease to be subordinated to the
extent that the assets of NPC exceed its liabilities from time
to time. The shareholder loan bears no interest and has no
fixed repayment terms.
Mirambo Limited
-
-
120.9
Mirambo Limited bought the 16% and 19% equity
stake of Planetel Communications Limited and Caspian
Limited respectively in Vodacom Tanzania Limited on
November 30, 2007. The shareholder loans with a combined
nominal value of US$14.9 million, were transferred to
Mirambo Limited in order to meet its obligations to Vodacom
Tanzania Limited in respect of shareholder contributions. The
loan bears interest at LIBOR plus 5% and shall be repaid
from any cash distributions by Vodacom Tanzania Limited
to Mirambo Limited. The loan and capitalised interest are
collateralised by cession over all shareholder distributions and
a pledge over the shares of Vodacom Tanzania Limited.
WBS Holdings (Proprietary) Limited
-
-
25.8
The loan with a nominal value of R25.5 million issued during
the 2008 financial year bears interest at RSA prime minus
0.5%. The loan with capitalised interest is repayable from
pre-determined cash flows of WBS Holdings (Proprietary)
Limited pro rata to the shareholder’s respective claims on loan
account at the relevant time. WBS Holdings (Proprietary)
Limited may not declare and/or pay any dividend or make
any capital distribution to shareholders without the prior
written consent of the existing shareholders.
Balance carried forward
92.1
130.6
156.6
background image
F-138
2006
2007
2008
Rm
Rm
Rm
12.
FINANCIAL ASSETS (CONTINUED)
12.1
Loans and receivables (continued)
Balance brought forward
92.1
130.6
156.6
Empresa Moçambicana de Telecommuniçãcoes S.A.R.L.
(“Emotel”)
-
-
7.3
The loan with a nominal value of US$0.9 million issued
during the 2008 financial year bears interest at LIBOR plus
2%. Interest is capitalised on a monthly basis. The loan and
capitalised interest are repayable upon the expiry of 5 years
following the advance date, being March 31, 2012. Emotel
utilised this loan to meet its obligations to V.M, S.A.R.L. in
respect of its 2% shareholding in VM, S.A.R.L. The loan and
capitalised interest are collateralised by cession over all cash
distributions and a pledge over their shares in V.M, S.A.R.L.
92.1
130.6
163.9
Less: Short-term portion of loans and receivables
Sekha-Metsi Investment Consortium Limited
-
(16.2)
-
WBS Holdings (Proprietary) Limited
-
-
(25.8)
Other
-
-
(3.9)
Short-term portion of loans and receivables
-
(16.2)
(29.7)
Long-term portion of loans and receivables
92.1
114.4
134.2
The fair value of the short-term portion of loans and receivables are R29.7 million (2007: R16.2 million;
2006: Rnil million). The fair value of the long-term portion of loans and receivables are not determinable due to the
lack of repayment dates and/or market prices.
background image
F-139
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
12.
FINANCIAL ASSETS (CONTINUED)
12.2
Financial assets at fair value through profit or loss
12.2.1    Financial assets held for trading
12.2.1.1 Money market investments
111.7
135.7
107.9
The fair value of money market investments are derived from
quoted market prices of identical assets.
12.2.1.2 Derivative financial assets
37.6
55.6
307.3
Interest rate swap asset (Note 42)
37.6
27.7
17.4
Foreign exchange forward contracts assets
-
27.9
289.9
The fair value is determined using quoted market prices. The
quoted market prices used to fair value foreign exchange
forward contracts are the mid or mid forward rates at year end
based on quoted market prices applicable to similar assets.
Interest rate swaps are fair valued according to forward rates
and discount rates determined from a yield curve derived from
similar market traded instruments.
Total financial assets held for trading
149.3
191.3
415.2
12.3
Available-for-sale investments
12.3.1    Unlisted investments carried at fair value
WBS Holdings (Proprietary) Limited
-
80.8
45.4
2,500 ordinary shares of R0.01 each
The fair value was determined by applying the discounted
cash flow method. The discount rates and terminal
growth rates used ranged between 16.0% and 18.0%
(2007: 15.0% and 17.0%) and 3.0% and 5.0%
(2007: nil% and 3.0%), respectively.
During the current financial year, R54.9 million was
reclassified to intangible assets (Note 11).
12.3.2    Unlisted investments carried at cost
-
14.3
64.6
During 2007 the Group purchased a 10% equity stake in
G-Mobile Holdings Limited and a 25.93% equity stake in
Gogga Tracking Solutions (Proprietary) Limited. The investee
companies also granted the Group an option to increase these
investments (Note 42). During 2008 the Group purchased a
50% equity stake in Waterberg Lodge (Proprietary) Limited, a
35% equity stake in XLink Communications (Proprietary) Limited
and increased its interest in G-Mobile Holdings Limited from
10% to 26% by exercising the call option granted in 2007
(Note 42).
Total available-for-sale investments
-
95.1
110.0
The carrying value of unlisted investments carried at cost approximate their fair value.
background image
F-140
2006
2007
2008
Rm
Rm
Rm
13.         DEFERRED TAXATION
Deferred taxation assets
297.6
386.1
455.1
Deferred taxation liabilities
(602.3)
(757.3)
(776.5)
(304.7)
(371.2)
(321.4)
13.1
Components
Capital allowances
(1,243.6)
(1,418.8)
(1,809.0)
Fair value adjustment of available-for-sale investments
-
-
(2.7)
Fair value adjustment of customer bases
(46.7)
(53.4)
(30.2)
Fair value adjustment of trademarks and patents
(56.4)
(47.9)
(41.8)
Fair value adjustment of properties
(2.0)
(2.0)
-
Foreign 
exchange
(22.9)
180.9
296.8
Foreign equity revaluation reserve
12.6
4.5
(12.3)
Prepayments and other allowances
10.8
(84.9)
(137.4)
Provisions and deferred income
797.2
1,006.0
1,194.4
Remeasurement of shareholders loans assets
32.5
29.5
3.4
Remeasurement of shareholders loans liabilities
(19.5)
(16.8)
(6.1)
Secondary taxation on companies credits
3.8
-
-
Taxation losses
223.1
25.1
223.5
Other
6.4
6.6
-
(304.7)
(371.2)
(321.4)
13.2
Reconciliation
Balance at the beginning of the year
(164.0)
(304.7)
(371.2)
Deferred taxation - income statement expense (Note 9)
(115.8)
(50.3)
71.9
Foreign equity revaluation reserve
0.7
(8.1)
(12.7)
Business combinations
Acquisition of customer base
-
(17.5)
-
Acquisition of trademark and patents
(35.8)
-
-
Disposal of subsidiaries
-
-
1.8
Fair value adjustment of available-for-sale investments
-
-
(2.7)
Foreign exchange differences on consolidation
of foreign subsidiaries
10.2
9.3
(8.6)
Other
-
0.1
0.1
Balance at the end of the year
(304.7)
(371.2)
(321.4)
Provision for taxation which could arise if undistributed retained profits of certain subsidiaries are remitted, is only
made where a decision has been taken to remit such retained profits. The Group did not provide for Secondary
Taxation on Companies (“STC”) on its undistributed earnings which is payable when it declares dividends to its
shareholders, as the taxation will only be payable once the dividends are declared.
Deferred tax is not raised at a rate other than the normal taxation rate as the intention of the Group is to hold assets
for use and not for resale.
background image
F-141
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
13.
DEFERRED TAXATION (CONTINUED)
13.3
Utilisation of taxation losses
Opening taxation loss
1,194.8
1,538.7
1,212.7
Foreign exchange movement on opening taxation loss
(142.3)
104.5
260.0
Prior year under/(over) statement
24.3
(129.7)
693.6
Current year taxation loss created/(utilised)
461.9
(300.8)
107.8
Closing taxation loss
1,538.7
1,212.7
2,274.1
Utilised to reduce net temporary differences
(662.3)
(78.4)
(818.3)
Vodacom Congo (taxation rate of 40%)
(244.1)
-
-
Vodacom Mozambique (taxation rate of 32%)
-
(78.4)
(73.4)
Vodacom Tanzania (taxation rate of 30%)
(418.2)
-
(744.9)
Taxation losses available to reduce deferred taxation
876.4
1,134.3
1,455.8
Taxation credit
-
-
268.1
There are estimated unused taxation losses to the value of R1,455.8 million (2007: R1,134.3 million;
2006: R876.4 million) available to reduce the net deferred taxation liability. If applied, the available
R465.9 million (2007: R363.0 million; 2006: R279.4 million) would result in a full reduction of the current year's
R318.6 million (2007: reduced to R8.2 million; 2006: reduced to R25.3 million) net deferred taxation liability. The
unused taxation losses of Vodacom Mozambique are available for utilisation for a period of five years, after which
they expire.
The R268.1 million taxation credit relating to Vodacom Mozambique expires in 2014.
The growth of the Group following its geographical expansion into non-South African countries over the past few
years has made the estimation and judgment required in recognising and measuring deferred taxation balances
more challenging. The resolution of taxation issues is not always within the control of the Group and it is often
dependant on the efficiency of the legal processes in the relevant taxation jurisdictions in which the Group operates.
Issues can, and often do, take many years to resolve. Payments in respect of taxation liabilities for an accounting
period result from payments on account and on the final resolution of open items. As a result there can be substantial
differences between the taxation charge in the consolidated income statement and current taxation payments.
2006
2007
2008
Rm
Rm
Rm
14.        INVENTORY
Merchandise
397.5
287.3
507.1
Other inventory
56.8
77.0
129.8
454.3
364.3
636.9
Inventory carried at net realisable value
215.1
163.1
224.6
background image
F-142
2006
2007
2008
Rm
Rm
Rm
14.        INVENTORY (CONTINUED)
14.1
Inventory valuation allowance included above
Balance at the beginning of the year
(62.8)
(78.0)
(97.6)
Foreign exchange movement on opening balance
0.7
(1.3)
(0.9)
Charged to cost and expenses
(15.9)
(18.3)
(0.2)
Balance at the end of the year
(78.0)
(97.6)
(98.7)
The cost of inventories recognised as an expense during the period is reflected as equipment cost (Note 2).
The cost of inventories recognised as an expense includes R0.3 million (2007: R35.7 million; 2006: R6.9 million)
in respect of write downs of inventory to net realisable value, which has not been reduced (2007: R18.6 million;
2006: R2.3 million) in respect of the reversal of such write downs. Previous write downs have been reversed as a
result of increased sale prices in certain markets.
2006
2007
2008
Rm
Rm
Rm
15.
TRADE AND OTHER RECEIVABLES
Trade receivables
4,097.2
5,211.5
6,234.2
Prepayments
205.2
192.3
244.1
Value Added Taxation
88.1
147.7
200.3
Interest income receivable
41.5
51.3
76.1
Other
42.0
72.2
46.4
4,474.0
5,675.0
6,801.1
The average credit period for March 2008, 2007 and 2006 on sales of goods and services is between 30 and
60 days (2007: 30 and 60 days; 2006: 30 and 60 days) from date of invoice for the South African operations
and between 20 and 75 days (2007: 20 and 75 days; 2006: 20 and 75 days) from date of invoice for the
non-South African operations. Generally no interest is charged on trade receivables. The Group has provided fully
for all receivables over 120 days due (2007: 120 days due; 2006: 120 days due) for its South African operations
and 90 days due (2007: 90 days due; 2006: 90 days due) for its non-South African operations because historical
experience is such that receivables that are due beyond these days are generally not recoverable. Trade receivables
of the South African operations due between 60 and 120 days (2007: 60 and 120 days; 2006: 60 and
120 days) are provided for based on estimated irrecoverable amounts, determined by reference to past default
experience.
Before accepting any new individual customer, the Group uses an internal and external credit scoring system to
assess the potential customer's credit quality and defines credit limits by customer. The Group manually assesses the
credit of corporate customers, using credit bureaus, financial standing as well as an internal grading system. Before
accepting any new network operator customers, the Group enters into a contractual arrangement. The contractual
arrangement is determined by regulatory requirements and industry norms. Of the trade receivable balance at the
end of the year R1.3 billion (2007: R0.9 billion; 2006: R0.6 billion) is due from the Group's largest customer.
There is no customer who represents more than 21.2% (2007: 17.6%; 2006: 15.7%) of the total balance of trade
receivables.
The Group does not have any significant exposure to any individual customer or counter-party, except commercially
to Telkom SA Limited, the Group's largest shareholder, Mobile Telecommunications Networks (Proprietary) Limited,
the Group's largest competitor, Cell C (Proprietary) Limited, the country's third network operator and Vo-Call Cellular
(Proprietary) Limited, the Group's largest dealer.
Trade receivables are stated at their cost which normally approximate their fair value due to short-term maturity.
background image
F-143
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
15.
TRADE AND OTHER RECEIVABLES (CONTINUED)
15.1
Doubtful receivable allowance
The Group’s South African trade receivables are stated
after allowances for doubtful debts based on management’s
assessment of creditworthiness, an analysis of which is as
follows:
Balance at the beginning of the year
(44.7)
(43.7)
(50.5)
Reversed from/(Charged to) profit and loss
1.0
(6.8)
12.6
Balance at the end of the year
(43.7)
(50.5)
(37.9)
The Group’s non-South African trade receivables are stated
after allowances for doubtful debts based on management’s
assessment of creditworthiness, an analysis of which is as
follows:
Balance at the beginning of the year
(49.3)
(41.4)
(24.9)
Foreign exchange movement
2.9
(6.1)
(5.2)
(Charged to)/Reversed from profit and loss
5.0
22.6
(13.2)
Balance at the end of the year
(41.4)
(24.9)
(43.3)
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the
trade receivable from the date the credit was initially granted up to the reporting date. The concentration of credit risk
is limited due to the customer base being large and unrelated.
2006
2007
2008
Rm
Rm
Rm
16.         LEASE ASSETS
Operating leases
30.6
35.1
20.1
Finance lease receivables
19.3
76.6
212.4
49.9
111.7
232.5
Less: Short-term portion *
Operating leases (Note 16.1)
-
-
(17.6)
Finance lease receivables (Note 16.2)
(13.1)
(32.9)
(122.9)
Short-term portion
(13.1)
(32.9)
(140.5)
Long-term portion of lease assets
36.8
78.8
92.0
* Short-term lease assets were included under trade and other receivables in prior years.
16.1
Operating leases
Operating lease payments are expensed in profit or loss on a straight-line basis over the lease term and results in the
recognition of an operating lease asset.
background image
F-144
Within one
Between one
After five
Total
year
and five years
years
Rm
Rm
Rm
Rm
16.
LEASE ASSETS (CONTINUED)
16.2
Finance lease receivables
Staff benefits
3.9
7.5
-
11.4
Computers
119.0
82.0
-
201.0
Present value of minimum lease payments
122.9
89.5
-
212.4
The Group provides motor vehicles to certain of its executives. These executives may retain these assets at the end of
the lease period, normally between three and four years. In terms of IAS 17: Leases (“IAS 17”), these arrangements
are regarded as finance leases and the cost of the assets are capitalised as finance lease receivables and amortised
on a straight-line basis over the period of the agreement to employee cost. The implicit interest rate is zero.
The Group provides laptop or desktop computers to certain customers who enter into contract agreements. The
customers retain these computers at the end of the contract period. In terms of IAS 17, these arrangements are
regarded as finance leases and accounted for using the effective interest rate method. The interest rate inherent in
these leases is currently between nil% and 0.08% per annum.
The long-term portion of R89.5 million (2007: R43.7 million; 2006: R6.2 million) is reflected as part of non-current
lease assets on the consolidated balance sheet.
All leases are denominated in South African Rand.
The fair value of the electronic equipment finance lease receivables approximate their carrying value.
2006
2007
2008
R
R
R
17.
ORDINARY SHARE CAPITAL
Authorised
100,000 ordinary shares of R0.01 each
1,000
1,000
1,000
Issued
10,000 ordinary shares of R0.01 each
100
100
100
The unissued share capital is under the control of the current shareholders.
background image
F-145
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
18.        NON-DISTRIBUTABLE RESERVES
Foreign currency translations (Note 18.1)
(225.5)
(123.0)
(22.6)
Taxation on foreign currency translation reserve (Note 18.1)
18.0
9.9
(2.8)
Contingency reserve (Note 18.2)
13.5
15.7
17.4
Revaluation of available-for-sale investments (Note 18.3)
-
-
16.8
(194.0)
(97.4)
8.8
Reconciliation
Balance at the beginning of the year
(299.9)
(194.0)
(97.4)
Foreign currency translation reserve
103.9
94.4
87.7
Foreign currency translation for the year
98.2
102.5
100.4
Taxation for the year
5.7
(8.1)
(12.7)
Other non-distributable reserves
Transferred from distributable reserves – contingency reserve
2.2
2.2
1.7
Revaluation of available-for-sale investments
(0.2)
-
16.8
Revaluation of available-for-sale investments for the year
(0.2)
-
19.5
Taxation for the year
-
-
(2.7)
Balance at the end of the year
(194.0)
(97.4)
8.8
18.1
Foreign currency translation reserve and taxation
The financial results of foreign operations are translated into South African Rands for incorporation into the consolidated
results. Assets and liabilities are translated at the foreign exchange rates ruling at balance sheet date. Income,
expenditure and cash flow items are translated at the actual foreign exchange rate or average foreign exchange rates
for the period. All resulting unrealised foreign exchange differences are classified as equity.
This reserve also includes gains and losses on the translation of equity loans to foreign entities that are intended to be
permanent.
Deferred taxation and normal taxation on the foreign currency translation reserve relates only to the translation of
equity loans advanced to foreign subsidiaries.
18.2
Contingency reserve
In terms of the Short-term Insurance Act (“the Act”) of 1998 the Group’s cell captive partner, Centriq Insurance
Company Limited is required to recognise a contingency reserve equal to 10% of premiums written less approved
reinsurance, as defined in the Act. This reserve can be utilised only with the prior permission of the Registrar of
Short-term Insurance.
18.3
Revaluation of available-for-sale investments
Gains and losses from changes in the fair value of available-for-sale investments are recognised directly in equity until
the financial asset is disposed of (Note 12).
background image
F-146
2006
2007
2008
Rm
Rm
Rm
19.         MINORITY INTERESTS
Distributable reserves
358.1
268.5
408.5
Non-distributable reserves
(74.8)
(47.3)
(4.9)
283.3
221.2
403.6
Reconciliation
Balance at the beginning of the year
128.7
283.3
221.2
Profit allocated to minority interest
116.7
217.6
146.2
Foreign currency translation reserve
(15.6)
27.5
42.4
Revaluation of available-for-sale investments
(0.1)
-
-
Business combinations and other acquisitions
46.5
(136.4)
(6.1)
Minority shares of VM, S.A.R.L.
8.0
-
0.8
Disposal of subsidiaries
-
-
(0.3)
Dividend to minority shareholders
(0.9)
(170.8)
(0.6)
Balance at the end of the year
283.3
221.2
403.6
20.
ANALYSIS OF RECOGNISED INCOME AND EXPENSES
Gain/(Loss) on revaluation of available-for-sale investment
(0.3)
-
16.8
Foreign currency translation reserve
88.3
121.9
130.1
Net profit/(loss) recognised directly in equity
88.0
121.9
146.9
Net profit for the year
5,142.8
6,560.0
7,957.6
Total recognised income and expense for the year
5,230.8
6,681.9
8,104.5
Attributable to:
Equity shareholders
5,129.8
6,436.8
7,915.9
Minority interests
101.0
245.1
188.6
2006
2006
2006
2007
2007
2007
Short-term
Long-term
Total   Short-term
Long-term
Total
portion
portion
portion
portion
Rm
Rm
Rm
Rm
Rm
Rm
21.
INTEREST BEARING DEBT
Finance leases (Note 21.1)
79.2
728.3            807.5
113.6
615.0
728.6
Funding loans (Note 21.2)
1,527.3
90.9         1,618.2
365.5         1,436.4        1,801.9
Other short-term loans (Note 21.3)
39.0
-
39.0
21.9
-
21.9
1,645.5
819.2         2,464.7
501.0         2,051.4        2,552.4
background image
F-147
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2008
2008
2008
Short-term
Long-term
Total
portion
portion
Rm
Rm
Rm
21.
INTEREST BEARING DEBT (CONTINUED)
Finance leases (Note 21.1)
194.3
420.7
615.0
Funding loans (Note 21.2)
300.5
2,605.1
2,905.6
Other short-term loans (Note 21.3)
8.1
-
8.1
502.9
3,025.8
3,528.7
2006
2007
2008
Rm
Rm
Rm
21.1
Finance leases
Vodacom (Proprietary) Limited
537.7
479.7
396.7
The finance leases are collateralised by various land
and buildings with a book value of R464.2 million
(2007: R477.3 million; 2006: R489.1 million), bearing
interest at fixed effective interest rates of between 12.1%
and 16.9% per annum and are repayable between one and
five years. The residual payment on settlement date is
R144.4 million.
Vodacom Service Provider Company (Proprietary) Limited
269.8
248.9
218.3
The finance lease is collateralised by land and buildings
with a book value of R245.5 million (2007: R251.1 million;
2006: R256.8 million), bearing interest at a fixed effective
interest rate of 14.8% per annum. Payments are made every
six months in arrears and commenced on March 1, 2002.
The finance lease expires on September 1, 2011.
807.5
728.6
615.0
Less: Short-term portion of finance leases
Vodacom (Proprietary) Limited
(58.3)
(83.0)
(151.7)
Vodacom Service Provider Company (Proprietary) Limited
(20.9)
(30.6)
(42.6)
Short-term portion of finance leases
(79.2)
(113.6)
(194.3)
Long-term portion of finance leases
728.3
615.0
420.7
All leases are denominated in South African Rand and are held with Rand Merchant Bank and Standard Bank.
The fair value of the Group’s finance lease liability is R629.0 million (2007: R786.3 million;
2006: R911.5 million).
The fair value of finance leases are determined as the present value of all future cash flows discounted using
market related interest rates. The discount rate used varied between 13.5% and 14.9% (2007: 11.3% and 13.3%;
2006: 10.0% and 13.3%).
The Vodaworld Retail Park is sub-leased to various Telecommunications retail companies. Sublease payments expected
to be received under non-cancellable subleases at the balance sheet date amount to R4.0 million.
background image
F-148
2009
2010
2011
2012
2013
2014
Total
onwards
Rm
Rm
Rm
Rm
Rm
Rm
Rm
21.        INTEREST BEARING DEBT (CONTINUED)
21.1
Finance Leases (continued)
Repayment of finance leases
Future minimum lease payments*     271.2
153.6
200.6
98.7
82.1
-
806.2
Finance costs
(76.9)
(55.1)
(39.0)
(15.2)
(5.0)
-
(191.2)
Net present value
194.3
98.5
161.6
83.5
77.1
-
615.0
* Future minimum lease payments include residual payments at the end of the lease term.
2006
2007
2008
Rm
Rm
Rm
21.2
Funding Loans
Planetel Communications Limited
41.6
53.5
-
The shareholder loan of US$8.4 million (2007: US$8.4 million;
2006: US$8.4 million) was subordinated for the duration of the
project finance funding period of Vodacom Tanzania Limited,
which expired at the end of the current financial year, bore no
interest from April 1, 2002 and was thereafter available for
repayment, by approval of at least 60% of the shareholders
of Vodacom Tanzania Limited. The loan became non-interest
bearing and was remeasured at amortised cost at an effective
interest rate of LIBOR plus 5% (Note 12) during the 2003
financial year. The gain on remeasurement was included in
equity. On November 30, 2007 Planetel Communications
Limited sold its 16% shareholding in Vodacom Tanzania
Limited to Mirambo Limited.
Caspian Limited
49.3
63.6
-
The shareholder loan of US$10.0 million (2007: US$10.0 million;
2006: US$10.0 million) was subordinated for the duration
of the project finance funding period of Vodacom Tanzania
Limited, bore no interest from April 1, 2002 and was thereafter
available for repayment, by approval of at least 60% of the
shareholders of Vodacom Tanzania Limited. This loan became
non-interest bearing and was remeasured at amortised cost at
an effective interest rate of LIBOR plus 5% (Note 12) during
the 2003 financial year. The gain on remeasurement was
included in equity. On November 30, 2007 Caspian Limited
sold its 19% shareholding in Vodacom Tanzania Limited to
Mirambo Limited.
Balance carried forward
90.9
117.1
-
background image
F-149
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
21.
INTEREST BEARING DEBT (CONTINUED)
21.2
Funding loans (continued)
Balance brought forward
90.9
117.1
-
Project finance funding to Vodacom Tanzania Limited
184.0
94.9
-
The funding was collateralised by a charge over 51% of the
shares, the licence and Vodacom Tanzania Limited’s tangible
and intangible assets. The loans bore interest based upon
the foreign currency denomination of the project financing
between 6.0% and 14.4% per annum and was fully repaid
by March 2008.
The drawn down portions of the project finance funding from
external parties included the following:
(a)  Netherlands Development Finance Company of US$nil
(2007: US$3.8 million; 2006: US$7.6 million);
(b)  Deutsche Investitions- und Entwicklungsgesellschaft mbH of
€nil (2007: €3.9 million; 2006: €7.8 million);
(c)  Standard Corporate and Merchant Bank of US$nil
(2007: US$4.0 million; 2006: US$8.0 million);
(d)  Barclays Bank (Local Syndicate Tanzania) TSHnil
(2007: TSHnil; 2006: TSH5,703.8 million).
Term loan to Vodacom International Limited
1,114.4
1,311.9
1,462.5
The loan provided by Standard Bank Plc and RMB
International (Dublin) Limited that amounts to US$180.0 million
(2007: US$180.0 million; 2006: US$180.0 million) is
collateralised by guarantees provided by the Group. The
loan, originally repayable on July 19, 2006, was refinanced
during the 2007 financial year. The loan is now repayable
on July 26, 2009 and bears interest at an effective interest
rate of LIBOR plus 0.35%.
Balance carried forward
1,389.3
1,523.9
1,462.5
background image
F-150
2006
2007
2008
Rm
Rm
Rm
21.
INTEREST BEARING DEBT (CONTINUED)
21.2
Funding loans (continued)
Balance brought forward
1,389.3
1,523.9
1,462.5
Mirambo Limited
-
-
142.6
Mirambo Limited bought the 16% and 19% equity stake
of Planetel Communications Limited and Caspian Limited
respectively in Vodacom Tanzania Limited on November 30, 2007.
The shareholder loans with a combined nominal value of
US$18.4 million, were transferred to Mirambo Limited in
order to meet its obligations to Vodacom Tanzania Limited in
respect of shareholder contributions. The loan bears interest at
LIBOR + 5% and shall be repaid by approval of at least 60%
of the shareholders of Vodacom Tanzania Limited. The loan
and capitalised interest are unsecured and subordinated.
Asset Backed Arbitraged Securities (Proprietary) Limited
-
-
1,000.0
On December 5, 2007 Vodacom (Proprietary) Limited
entered into a subscription agreement with Asset Backed
Arbitraged Securities (Proprietary) Limited (“ABACAS”). In
terms of the agreement Vodacom (Proprietary) Limited issued
debt instruments in the form of two promissory notes with a
nominal value of R500.0 million each to which ABACAS
subscribed. The debt instrument will bear interest based on
JIBAR plus a credit margin and funding margin. The repayment
term is three years with interest being paid quarterly. The
credit margin is 0.4% and the funding margin is 0.18% and
0.15% respectively.
Preference shares issued by Vodacom Congo (RDC) s.p.r.l.
228.9
269.5
300.5
The preference shares of US$37.0 million (2007: US$37.0 million;
2006: US$37.0 million) bear interest at a rate of 4% per annum.
The preference shares are redeemable at the discretion of the
shareholders and on the basis that the shareholders are repaid
simultaneously and in proportion to their shareholding.
Balance carried forward
1,618.2
1,793.4
2,905.6
background image
F-151
21.3
Other short-term loans
Vodacom Congo (RDC) s.p.r.l.
37.1
21.9
8.1
The short-term facilities amount to US$1 million
(2007: US$3.0 million; 2006: US$6.0 million) bears
interest at 18% per annum with no fixed repayment terms.
US$2.0 million of these facilities was repaid on June 30,
2007 and bore interest at LIBOR plus 6% per annum.
Other
1.9
-
-
39.0
21.9
8.1
The fair value of other short-term loans approximate their carrying value.
2006
2007
2008
Rm
Rm
Rm
21.
INTEREST BEARING DEBT (CONTINUED)
21.2
Funding loans (continued)
Balance brought forward
1,618.2
1,793.4
2,905.6
Sekha-Metsi Investment Consortium Limited
-
2.5
-
The shareholder loan bore no interest, was repayable
in ten equal six monthly instalments commencing on
September 30, 2006. Effective April 1, 2007 the repayment
terms changed to four equal six monthly instalments. The loan
was remeasured at amortised cost at a fixed effective interest
rate of 13.7% during the 2007 financial year. The gain on
remeasurement was included in equity.
Number Portability Company (Proprietary) Limited
-
6.0
-
The Group’s share of the shareholders loan provided,
amounted to R6.0 million at March 31, 2007. The
subordinated shareholder loan bore interest at the
maximum rate of the prevailing South African prime rate or
a lesser rate determined by the board of Number Portability
Company (Proprietary) Limited. During the current period the
loan became non-interest bearing (Note 22).
1,618.2
1,801.9
2,905.6
Less: Short-term portion of funding loans
Project finance funding to Vodacom Tanzania Limited
(184.0)
(94.9)
-
Term loan to Vodacom International Limited
(1,114.4)
-
-
Preference shares issued by Vodacom Congo (RDC) s.p.r.l.
(228.9)
(269.5)
(300.5)
Sekha-Metsi Investment Consortium Limited
-
(1.1)
-
Short-term portion of funding loans
(1,527.3)
(365.5)
(300.5)
Long-term portion of funding loans
90.9
1,436.4
2,605.1
The fair value of funding loans are R2,933.2 million. The
fair value of funding loans were determined by applying the
discounted cash flow method, where applicable. A discount
rate which varied between 12.2% and 12.3% were applied to
ZAR denominated debt and 2.8% to US$ denominated debt.
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
background image
F-152
2006
2007
2008
Rm
Rm
Rm
22.
NON-INTEREST BEARING DEBT
Sekha-Metsi Investment Consortium Limited
4.3
-
-
The minority shareholder’s loan was previously
uncollateralised and no repayment terms were determined.
During the 2007 financial year repayment terms were
agreed and the loan was reclassified to interest bearing debt
(Note 21).
Minority shareholders of Smartcom (Proprietary) Limited
-
3.0
-
The minority shareholder’s loan was repaid during the current
financial year. The loan was unsecured and bore no interest.
Number Portability Company (Proprietary) Limited
-
-
6.0
The Group’s share of the shareholders loan provided,
amounted to R6.0 million at March 31, 2007. The
subordinated shareholder loan bore interest at the
maximum rate of the prevailing South African prime rate or a lesser
rate determined by the board of Number Portability Company
(Proprietary) Limited and was classified as interest bearing debt
(Note 21). During the current year the loan became non-interest
bearing.
4.3
3.0
6.0
Less: Short-term portion of non-interest bearing debt
Sekha-Metsi Investment Consortium Limited
(4.3)
-
-
Long-term portion of non-interest bearing debt
-
3.0
6.0
The fair value of non-interest bearing debt is not determinable
as no repayment terms are set.
23.         PROVISIONS
Deferred bonus incentive provision (Note 23.1)
452.4
500.7
497.4
Bonus provision (Note 23.2)
279.8
330.6
426.0
Leave pay provision (Note 23.3)
70.8
90.9
119.7
Warranty provision (Note 23.4)
32.8
-
-
Long-term incentive provision (Note 23.5)
122.1
161.2
225.2
Other (Note 23.6)
37.4
35.9
14.9
995.3
1,119.3
1,283.2
Timing of Provisions
Within one year
623.0
741.8
909.5
After one year
372.3
377.5
373.7
995.3
1,119.3
1,283.2
background image
F-153
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Deferred
Bonus
Leave pay
Warranty
Long-term
Other
bonus
provision
provision
provision
incentive
incentive
provision
provision
Rm
Rm
Rm
Rm
Rm
Rm
23.
PROVISIONS (CONTINUED)
Reconciliation 2006
Balance at the beginning of the year
423.9
203.1
58.3
28.2
-
65.9
Provision created
188.0
321.1
25.1
38.5
139.0
25.3
Provision utilised
(159.5)
(244.4)
(12.6)
(33.9)
(16.9)
(53.8)
Balance at the end of the year
452.4
279.8
70.8
32.8
122.1
37.4
Reconciliation 2007
Balance at the beginning of the year
452.4
279.8
70.8
32.8
122.1
37.4
Provision created
191.6
380.2
24.7
-
39.1
29.2
Provision utilised
(143.3)
(329.4)
(4.6)
(32.8)
-
(30.7)
Balance at the end of the year
500.7
330.6
90.9
-
161.2
35.9
Reconciliation 2008
Balance at the beginning of the year
500.7
330.6
90.9
-
161.2
35.9
Provision created
181.0
474.6
48.9
-
81.4
5.3
Provision utilised
(184.3)
(379.2)
(20.1)
-
(17.4)
(26.3)
Balance at the end of the year
497.4
426.0
119.7
-
225.2
14.9
Provisions are required to be recorded when the Group has a present legal or constructive obligation as a result of
past events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate
can be made of the amount of the obligation.
Best estimates, being the amount that the Group would rationally pay to settle the obligation, are recognised as
provisions at balance sheet date. Risks, uncertainties and future events are taken into account by management in
determining the best estimates. Provisions are discounted where the effect of discounting is material. The discount
rate used is the rate that reflects current market assessments of the time value of money and, where appropriate,
the risks specific to the liability, all of which requires management judgement. All provisions are reviewed at each
balance sheet date.
Various uncertainties can result in obligations not being considered probable or estimable for significant periods
of time. As a consequence, potentially material obligations may have no provisions and a change in facts or
circumstances that result in an obligation becoming probable or estimable can lead to a need for the establishment
of material provisions. In addition, where estimated amounts vary from initial estimates the provisions may be revised
materially, up or down.
The Group records provisions for legal contingencies when the contingency is probable of occurring and the amount
of the loss can be reasonably estimated. Liabilities provided for legal matters require judgements regarding projected
outcomes and ranges of losses based on historical experience and recommendations of legal counsel. Litigation is
however unpredictable and actual costs incurred could differ materially from those estimated at the balance sheet
date.
background image
F-154
23.        PROVISIONS (CONTINUED)
23.1
Deferred bonus incentive provision
The deferred bonus incentive provision represents the present value of the expected future cash outflows of the
entitlement value at the balance sheet date less the value at which the entitlements were issued, multiplied by the
number of entitlements allocated to a participant.
The value of the bonus entitlements are determined based upon the audited consolidated annual financial statements
of the Group. Periodically, a number of entitlements are issued to employees, the value of which depends on the
seniority of the employee. The participating rights of employees vest at different stages and employees are entitled
to cash in their entitlements within one year after the participating rights have vested. The provision is utilised when
eligible employees receive the value of vested entitlements.
23.2
Bonus provision
The bonus provision consists of a performance bonus based on the achievement of predetermined financial targets,
payable to all levels of staff.
23.3
Leave pay provision
The leave pay provision relates to vested leave pay to which employees may become entitled upon leaving the
employment of the Group. The provision arises as employees render a service that increases their entitlement to future
compensated leave. The provision is utilised when employees who are entitled to leave pay, leave the employment
of the Group or when the accrued leave due to an employee is utilised.
23.4
Warranty provision
The warranty provision covered manufacturing defects in the second year of warranty on handsets sold to
customers. The estimate was based on claims notified and past experience. The suppliers of the various handsets
assumed responsibility for the second year warranty subsequent to March 31, 2007 and accordingly there is no
remaining provision.
23.5
Long-term incentive provision
The long-term incentive provision represents the present value of the expected future cash outflows to eligible
employees that qualify. The amount of the liability is based on an actuarial valuation. The provision is utilised when
eligible employees receive the value of vested benefits.
2006
2007
2008
Rm
Rm
Rm
Net liability at beginning of the year
-
122.1
161.2
Interest cost
6.5
9.6
14.4
Current service cost
9.1
17.6
20.0
Recognised actuarial losses
123.4
13.3
62.3
Net cost
139.0
162.6
257.9
Total benefit payments
(16.9)
(1.4)
(32.7)
Net liability at end of the year
122.1
161.2
225.2
Key assumptions:
General inflation rate (%)
4.7
5.1
6.6
Discount rate (%)
7.4
8.0
9.5
Salary inflation (%)
5.7
6.1
7.6
Valuation date
March 31, 2006
March 31, 2007
March 31, 2008
background image
F-155
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
23.         PROVISIONS (CONTINUED)
23.6
Other
Other provisions for the Group include provisions for advertising support payments received from suppliers of handsets
and various other smaller provisions. The advertising provision represents the advertising expenditure not yet incurred
or claimed by the Group or external service providers.
2006
2007
2008
Rm
Rm
Rm
24.
OTHER NON-CURRENT LIABILITIES
Operating lease liability (Note 24.1)
122.5
150.4
165.0
Licence obligation (Note 24.2)
-
90.7
96.2
122.5
241.1
261.2
24.1
Operating lease liability
122.5
150.4
165.0
The value of the Group’s operating lease liability is
R165.0 million (2007: R150.4 million; 2006: R122.5 million).
The liability is due to the recognition of the operating lease
expense on a straight-line basis over the lease term (Note 37).
24.2
Licence obligation
-
90.7
96.2
On December 9, 2004, ICASA amended the Vodacom South
Africa licence to allow for access to the 1800 Megahertz
frequency spectrum band and the 3G radio spectrum band.
The costs to the Group for the 1800 Megahertz frequency
spectrum band obligations is estimated at R68.8 million. The
net present value, at a discount rate of 8%, over three years,
amounts to R64.0 million (2007: R59.1 million; 2006: Rnil).
The cost to the Group for the 3G radio spectrum band
obligations is estimated at R36.8 million. The net present
value, at a discount rate of 8%, over three years amounts to
R32.2 million. (2007: R31.6 million; 2006: Rnil).
122.5
241.1
261.2
Less: Short-term portion of other non-current liabilities
Operating lease liability
-
(0.3)
(7.1)
Licence obligation
-
(30.2)
(6.7)
Short-term portion of other non-current liabilities*
-
(30.5)
(13.8)
Long-term portion of other non-current liabilities
122.5
210.6
247.4
* The short-term portion of other non-current liabilities is included in trade payables (Note 25).
background image
F-156
2006
2007
2008
Rm
Rm
Rm
25.
TRADE AND OTHER PAYABLES
Trade payables*
3,315.4
4,021.3
4,876.5
Capital expenditure creditors
1,478.7
2,274.9
1,718.9
Value Added Taxation
100.3
121.9
82.7
Sundry accruals
89.4
110.8
359.9
Revenue charged in advance
64.2
34.2
28.6
Interest accrual
56.7
62.0
98.2
Put option liability #
-
249.3
396.5
5,104.7
6,874.4
7,561.3
Trade payables are stated at their cost which normally approximate their fair value due to their short-term maturity.
The average credit period is between 30 and 60 days for the South African operations and between 45 and 105
days for the non-South African operations. No interest is charged on trade payables for the first 30 to 60 days from
the date of invoice. The Group has financial risk management policies in place to ensure that all payables are paid
within the credit timeframe.
* Trade payables include the short-term portion of other non-current liabilities of R13,8 million (2007: R30,5 million)
(Note 24).
# The obligation to settle the Congolese Wireless Networks s.p.r.l. put option (Note 42) in cash gives rise to an
obligation which represents a financial liability. The value of the liability amounted to Rnil as at March 31, 2006.
During the current and previous financial years the liability was remeasured through the consolidated income
statement.
2006
2007
2008
Rm
Rm
Rm
26.
CASH GENERATED FROM OPERATIONS
Profit from operations
8,865.7
10,859.8
12,490.7
Adjusted for:
Depreciation of property, plant and equipment and
amortisation of intangible assets (Note 10 and Note 11)
2,995.8
3,361.2
3,911.2
Net loss/(profit) on disposal of property, plant and
equipment and intangible assets
26.8
(26.9)
39.3
Net impairment recognised/(reversed) (Note 3)
(52.8)
22.9
29.9
Net profit on disposal of subsidiary
-
(17.4)
(8.0)
Other non-cash flow items
42.3
97.0
49.1
Cash flow from operations before working capital changes
11,877.8
14,296.6
16,512.2
Increase in trade and other receivables
(1,035.0)
(838.8)
(915.5)
(Increase)/Decrease in inventory
16.8
84.8
(259.3)
Increase in trade and other payables and provisions
230.7
323.5
996.1
Cash generated from operations
11,090.3
13,866.1
16,333.5
27.
FINANCE COSTS PAID
Finance costs as per the income statement
(246.0)
(369.3)
(681.3)
Interest accrual at the beginning of the year
(39.9)
(56.7)
(62.0)
Interest accrual at the end of the year
56.7
62.0
98.2
Other non-cash flow items
14.9
37.4
(24.5)
(214.3)
(326.6)
(669.6)

4

background image
F-157
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
28.
FINANCE INCOME RECEIVED
Finance income per the income statement
129.9
74.5
72.3
Interest income receivable at the beginning of the year
35.7
41.5
51.3
Interest income receivable at the end of the year
(41.5)
(51.3)
(76.1)
Other non-cash flow items
-
(23.0)
26.8
124.1
41.7
74.3
29.
REALISED NET LOSSES ON REMEASUREMENT AND
DISPOSAL OF FINANCIAL INSTRUMENTS
Gains/(losses) on remeasurement and disposal of financial
instruments as per the income statement
(523.1)
(169.0)
185.1
Unrealised (losses)/gains on foreign exchange forward contracts
294.6
(20.6)
(258.4)
Unrealised (losses)/gains on foreign liability and asset revaluation
204.3
(108.4)
(191.9)
Unrealised gains on interest rate swap revaluation
6.6
9.9
10.3
Unrealised put option liability revaluation
-
249.3
103.9
(17.6)
(38.8)
(151.0)
30.         TAXATION PAID
Taxation per the income statement
(3,083.7)
(3,836.0)
(4,109.2)
Taxation payable at the beginning of the year
(632.6)
(630.2)
(1,112.7)
Taxation payable at the end of the year
630.2
1,112.7
580.5
Deferred taxation at the beginning of the year
(164.0)
(304.7)
(371.2)
Deferred taxation at the end of the year
304.7
371.2
321.4
Disposal of subsidiary – deferred taxation
-
-
1.8
Disposal of subsidiary – taxation payable
-
-
0.1
Business combination – deferred taxation
(35.8)
(17.5)
-
Business combination – taxation payable
(15.2)
-
-
Exchange difference on consolidation of foreign subsidiary
10.4
9.3
(17.1)
Movement due to foreign equity revaluation reserve
5.7
(8.1)
(12.9)
Fair value adjustment for available-for-sale investments
-
-
(2.7)
Remeasurement of shareholders loans
-
-
0.5
(2,980.3)
(3,303.3)
(4,721.5)
31.
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLE ASSETS
Additions to property, plant and equipment and intangible
assets (Note 10 and Note 11)
(5,141.5)
(7,214.4)
(6,923.2)
(Decrease)/Increase in capital expenditure related creditors
353.1
796.2
(591.5)
Licence obligation
-
90.7
5.5
Licence reallocation
-
-
46.9
Other non-cash flow items
-
-
(27.5)
Less: Goodwill acquired through increase in shareholding
of existing subsidiaries
Smartphone SP (Proprietary) Limited (Note 32.2.1)
-
313.2
931.2
Smartcom (Proprietary) Limited (Note 32.2.2)
-
8.2
18.0
Cointel V.A.S. (Proprietary) Limited (Note 32.2.3)
-
90.9
-
Goodwill allocated to Smartphone SP (Proprietary) Limited’s
minority shareholders
-
(40.1)
-
(4,788.4)
(5,955.3)
(6,540.6)
background image
F-158
2006
2007
2008
Rm
Rm
Rm
32.
BUSINESS COMBINATIONS AND OTHER ACQUISITIONS
Business combinations (Note 32.1)
(0.1)
(101.2)
-
Other acquisitions (Note 32.2)
-
(490.0)
(956.5)
(0.1)
(591.2)
(956.5)
32.1
Business combinations
InterConnect s.p.r.l. (Note 32.1.1)
-
(21.2)
-
Africell Cellular Services (Proprietary) Limited (Note 32.1.2)
-
(80.0)
-
Tiscali (Proprietary) Limited (Note 32.1.3)
0.3
-
-
Cointel V.A.S. (Proprietary) Limited (Note 32.1.4)
(0.4)
-
-
(0.1)
(101.2)
-
32.1.1   InterConnect s.p.r.l.
Effective November 1, 2006 the Group acquired the
internet service provider business of InterConnect s.p.r.l. The fair
values of the assets and liabilities acquired were determined as
follows:
Fair value of net assets acquired
-
(8.6)
-
Property, plant and equipment
-
2.5
-
Intangible assets
-
9.7
-
Inventory
-
0.3
-
Deferred taxation liability
-
(3.9)
-
Goodwill
-
(12.6)
-
Purchase price
-
(21.2)
-
The purchase price of R21.2 million (US$2.8 million) (excluding capitalised costs) was paid on
November 1, 2006.
Revenue amounting to R8.2 million (US$1.2 million) and net profit of R2.8 million (US$0.4 million) are included in
the prior year results. It was impracticable to disclose the impact of the consolidated revenue and consolidated net
profit for the full year ended March 31, 2007.
The goodwill related to the acquisition represents future synergies and is allocated to the Democratic Republic of
Congo’s cash-generating unit.
background image
F-159
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
32.
BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)
32.1
Business combinations (continued)
32.1.2   Africell Cellular Services (Proprietary) Limited
Effective October 1, 2006 the Group acquired the cellular
business of Africell Cellular Services (Proprietary) Limited. The
fair value of the assets and liabilities acquired were preliminary
determined as follows:
Fair value of net assets acquired
-
(36.3)
-
Property, plant and equipment
-
3.1
-
Intangible assets
-
46.8
-
Deferred taxation liability (including taxation effect on
intangible assets)
-
(13.6)
-
Goodwill
-
(43.7)
-
Purchase price
-
(80.0)
-
The customer base was not previously recorded in the
accounting records of Africell Cellular Services (Proprietary)
Limited as it was an internally generated intangible asset. The
goodwill related to the acquisition represents future synergies
and the ability to directly control the Group’s customers in South
Africa. It is impracticable to disclose the revenue and profit of
the business that is included in the prior year’s results as the
customer base was integrated into Vodacom Service Provider
Company (Proprietary) Limited. The profit and revenue related
to these customers were not separately recorded. For this reason
it would not be practicable to determine the impact on revenue
and profits of the Group for a full year.
32.1.3   Tiscali (Proprietary) Limited
Effective February 1, 2005 the Group acquired the cellular
business of Tiscali (Proprietary) Limited. The fair value of the
assets and liabilities acquired were determined as follows:
Fair value of net assets acquired
-
-
-
Contract customer base
-
-
-
Deferred taxation liability
-
-
-
Goodwill
0.3
-
-
Purchase price
0.3
-
-
The customer base was not previously recorded in the accounting records of Tiscali (Proprietary) Limited as it was an
internally generated intangible asset. The goodwill related to the acquisition represents future synergies and the ability
to directly control the Group’s customers in South Africa. It is impracticable to disclose the revenue and profit of the
business that is included in the prior years results as the customer base was integrated into Vodacom Service Provider
Company (Proprietary) Limited. The profit and revenue related to these customers were not separately recorded. For
this reason it would not be practicable to determine the impact on revenue and profits of the Group for a full year.
background image
F-160
2006
2007
2008
Rm
Rm
Rm
32.
BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)
32.1
Business combinations (continued)
32.1.4   Cointel V.A.S. (Proprietary) Limited
On August 1, 2005, the Group acquired a 51% interest in the
equity of Cointel V.A.S. (Proprietary) Limited. The fair value of the
assets and liabilities acquired were determined by the Group
as follows:
Fair value of net assets acquired
(94.9)
-
-
Property, plant and equipment
1.7
-
-
Intangible assets
179.3
-
-
Trade and other receivables
7.4
-
-
Cash and cash equivalents
83.9
-
-
Deferred taxation liability (including taxation effect
on intangible assets)
(35.8)
-
-
Trade and other payables
(114.2)
-
-
Taxation payable
(15.2)
-
-
Provisions
(1.2)
-
-
Dividends payable
(11.0)
-
-
Minority interest
46.5
-
-
Goodwill
(35.9)
-
-
Purchase price (including capitalised costs)
(84.3)
-
-
Cash and cash equivalents
83.9
-
-
Cash consideration
(0.4)
-
-
The carrying value of the assets and liabilities at
acquisition was as follows:
6.3
-
-
Non-current assets
56.7
-
-
Current assets
91.3
-
-
Non-current liabilities
(1.2)
-
-
Current liabilities
(140.5)
-
-
The purchase price of R83.6 million (excluding capitalised costs) was paid on August 23, 2005.
Revenue amounting to R89.9 million and net profit of R17.8 million were included in the 2006 year results. Restated
consolidated revenue would have amounted to R34,062.5 million and restated consolidated net profit to R5,153.2
million if the entity had been consolidated for the full year ended March 31, 2006.
The goodwill related to the acquisition represents future synergies and is allocated to the South African
cash-generating unit.
background image
F-161
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
32.
BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)
32.2
Other acquisitions
Smartphone SP (Proprietary) Limited and subsidiaries
(Note 32.2.1)
-
(333.9)
(938.1)
Smartcom (Proprietary) Limited (Note 32.2.2)
-
(9.1)
(18.0)
Cointel V.A.S. (Proprietary) Limited (Note 32.2.3)
-
(147.0)
(0.4)
-
(490.0)
(956.5)
32.2.1   Smartphone SP (Proprietary) Limited and subsidiaries
On August 31, 2007 the Group increased its interest in the
equity of Smartphone SP (Proprietary) Limited from 70%
to 100%, which at that time had a 88% shareholding in
Smartcom (Proprietary) Limited, a 100% shareholding in Stand 13
Eastwood Road Dunkeld (Proprietary) Limited, a 52%
shareholding in Ithuba Smartcall (Proprietary) Limited, a 100%
shareholding in Cointel V.A.S. (Proprietary) Limited and a 90%
shareholding in Smartcall Smartlife (Proprietary) Limited. The
acquisition was accounted for using the parent entity extension
method.
Minority interest
-
-
(6.1)
Goodwill
-
-
(931.2)
Purchase price (including capitalised cost)
-
-
(937.3)
The purchase price of R935.0 million was paid on
September 3, 2007 and the capitalised costs of R2.3 million
was paid on March 26, 2008.
On August 30, 2006, the Group acquired a further 19%
interest in the equity of Smartphone SP (Proprietary) Limited,
which had a 85.75% shareholding in Smartcom (Proprietary)
Limited at the time, 100% shareholding in Stand 13 Eastwood
Road Dunkeld (Proprietary) Limited and 52% shareholding
in Ithuba Smartcall (Proprietary) Limited. The acquisition was
accounted for using the parent entity extension method.
Minority interest acquired
-
(21.5)
-
Goodwill
-
(313.2)
-
Purchase price (including capitalised costs)
-
(334.7)
-
Capitalised cost (paid)/payable
-
0.8
(0.8)
Cash consideration
-
(333.9)
(0.8)
The purchase price of R333.9 million was paid in three tranches on October 3, 2006, January 16, 2007 and
March 26, 2007. Capitalised costs of R0.8 million was paid on November 2, 2007. The outstanding amount
accrued interest at 7.6% per annum from September 21, 2006 up to the date of payment.
background image
F-162
2006
2007
2008
Rm
Rm
Rm
32.
BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)
32.2
Other acquisitions (continued)
32.2.2    Smartcom (Proprietary) Limited
On September 1, 2007 the Group increased its interest in the
equity of Smartcom (Proprietary) Limited from 88% to 100%.
The acquisition was accounted for using the parent entity
extension method.
Minority interest
-
-
-
Goodwill
-
-
(18.0)
Purchase price
-
-
(18.0)
The purchase price of R18.0 million was paid on September 6,
2007.
On September 13, 2006, the Group increased its interest
in Smartcom (Proprietary) Limited to 88% by acquiring an
additional 2.25% interest through its 70% owned subsidiary,
Smartphone SP (Proprietary) Limited. The acquisition was
accounted for using the parent entity extension method.
Minority interest
-
(0.9)
-
Goodwill
-
(8.2)
-
Purchase price
-
(9.1)
-
The purchase price of R9.1 million was paid in two
instalments on February 21, 2007 and March 26, 2007.
32.2.3   Cointel V.A.S. (Proprietary) Limited
On October 4, 2006 the Group increased its interest to 100%
by acquiring 49% from the minority shareholders. The purchase
price of R147.0 million was paid on October 18, 2006 while
the capitalised cost was paid on November 2, 2007. The
acquisition was accounted for using the parent entity extension
method.
Minority interest
-
(56.5)
-
Goodwill
-
(90.9)
-
Purchase price (including capitalised costs)
-
(147.4)
-
Capitalised cost (paid)/payable
-
0.4
(0.4)
Cash consideration
-
(147.0)
(0.4)
On October 9, 2006, Smartphone SP (Proprietary) Limited, acquired 100% shareholding of Cointel V.A.S.
(Proprietary) Limited from Vodacom Group (Proprietary) Limited for R300.0 million.
As a result of the sale of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited to Smartphone
SP (Proprietary) Limited, R38.0 million goodwill was realised, which resulted in the realisation of R17.4 million profit
on consolidation.
background image
F-163
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
33.
DISPOSAL OF SUBSIDIARIES
Ithuba Smartcall (Proprietary) Limited (Note 33.1)
-
-
-
Stand 13 Eastwood Road Dunkeld (Proprietary) Limited (Note 33.2)
-
-
15.7
Smartcall Smartlife (Proprietary) Limited *
-
-
-
-
-
15.7
33.1
Ithuba Smartcall (Proprietary) Limited
On September 3, 2007, the Group disposed of its 52%
interest in Ithuba Smartcall (Proprietary) Limited. The carrying
value of the assets and liabilities disposed of were as follows:
Carrying amount of net assets disposed of
-
-
0.1
Trade and other receivables
-
-
-
Cash and cash equivalents
-
-
0.1
Minority interest
-
-
(0.3)
Capital gain on disposal
-
-
0.3
Selling price
-
-
0.1
Cash and cash equivalents
-
-
(0.1)
Cash consideration
-
-
-
Selling price satisfied by:
Cash
-
-
0.1
The consideration was received on September 6, 2007.
33.2
Stand 13 Eastwood Road Dunkeld (Proprietary) Limited
On September 3, 2007, the Group disposed of its 100%
interest in Stand 13 Eastwood Road Dunkeld (Proprietary)
Limited. The carrying value of the assets and liabilities disposed
of were as follows:
Carrying amount of net assets disposed of
-
-
8.4
Property, plant and equipment
-
-
13.8
Deferred taxation
-
-
(1.8)
Cash and cash equivalents
-
-
0.4
Interest bearing debt
-
-
(3.9)
Taxation payable
-
-
(0.1)
Minority interest
-
-
-
Capital gain on disposal
-
-
7.7
Selling price
-
-
16.1
Cash and cash equivalents
-
-
(0.4)
Cash consideration
-
-
15.7
Selling price satisfied by:
Cash
-
-
16.1
The consideration was received on September 6, 2007.
*  On October 1, 2007, the Group disposed of its 90% interest in Smartcall Smartlife (Proprietary) Limited for R90.
The carrying value of the assets and liabilities disposed amounted to R1,000.
background image
F-164
2006
2007
2008
Rm
Rm
Rm
34.
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
Bank and cash balances
3,146.1
771.4
977.6
Bank borrowings *
(1,385.8)
(879.2)
(2,596.8)
Bank borrowings classified as financing activities
-
-
2,456.0
1,760.3
(107.8)
836.8
*  Bank borrowings, excluding those used for financing activities, are regarded as part of the Group’s integral cash
management system.
The fair value of cash and cash equivalents normally approximate their carrying amount due to short-term maturity.
2006
2007
2008
R
R
R
35.
EARNINGS AND DIVIDEND PER SHARE
35.1
Basic and diluted earnings per share
The calculation of basic earnings per ordinary share is based
on earnings of R7,811.4 million (2007: R6,342.4 million;
2006: R5,026.1 million) and 10,000 issued ordinary shares
(2007: 10,000; 2006: 10,000).
502,610
634,240
781,140
Due to no dilution factors being present, basic earnings per
share equals diluted earnings per share.
35.2
Dividend per share
The calculation of the dividend per ordinary share is based
on a declared ordinary dividend of R5,940.0 million
(2007: R5,400.0 million; 2006: R4,500.0 million) and 10,000
issued ordinary shares (2007: 10,000; 2006: 10,000).
The dividends were declared as follows:
Declared March 6, 2008 to shareholders registered on
April 1,
2008 and paid on April 3, 2008 (Final)
-
-
319,000
Declared October 1, 2007 to shareholders registered on
October 1, 2007 and paid on October 4, 2008 (Interim)
-
-
275,000
Declared March 14, 2007 to shareholders registered on
April 2, 2007 and paid on April 4, 2007 (Final)
-
290,000
-
Declared September 7, 2006 to shareholders registered on
October 2, 2006 and paid on October 4, 2006 (Interim)
-
250,000
-
Declared March 9, 2006 to shareholders registered on
April 3, 2006 and paid on April 5, 2006 (Final)
280,000
-
-
Declared September 9, 2005 to all shareholders registered on
October 1, 2005 and paid on October 3, 2005 (Interim)
170,000
-
-
450,000
540,000
594,000
background image
F-165
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
36.        CAPITAL COMMITMENTS
Capital expenditure contracted for at the balance sheet date
but not yet incurred is as follows:
  Vodacom (Proprietary) Limited
709.1
747.6
997.4
  Vodacom Congo (RDC) s.p.r.l.
99.5
209.7
251.1
  Vodacom Tanzania Limited
201.2
56.7
212.9
  VM, S.A.R.L.
34.2
32.0
66.3
  Vodacom Service Provider Company (Proprietary) Limited
16.9
14.8
48.4
  Vodacom Group (Proprietary) Limited
222.9
120.7
23.4
1,283.8
1,181.5
1,599.5
Capital expenditure commitments approved by the Board of
Directors but not yet contracted for at the balance sheet date
are as follows:
  Vodacom (Proprietary) Limited
4,872.3
4,916.7
5,509.7
  Vodacom Tanzania Limited
650.6
889.3
1,743.6
  Vodacom Congo (RDC) s.p.r.l.
293.4
660.0
876.4
Vodacom Service Provider Company (Proprietary) Limited
164.7
277.7
254.0
Vodacom Lesotho (Proprietary) Limited
24.9
48.5
129.3
Vodacom Group (Proprietary) Limited
111.7
50.7
10.2
VM, S.A.R.L.
71.7
259.4
299.0
Vodacom International Limited (Mauritius)
-
-
0.2
Smartphone SP (Proprietary) Limited
15.2
12.2
-
Cointel V.A.S. (Proprietary) Limited
2.2
4.1
-
Skyprops 134 (Proprietary) Limited
-
16.6
-
6,206.7
7,135.2
8,822.4
The capital expenditure of the Group will be financed through internal cash generation, extended supplier credit and
bank credit.
background image
F-166
2006
2007
2008
Rm
Rm
Rm
37.        OTHER COMMITMENTS
Operating leases (Note 37.1)
6,845.6
2,765.2
4,570.9
Sport and marketing contracts (Note 37.2)
1,133.7
881.7
1,359.5
Other (Note 37.10)
-
-
94.0
7,979.3
3,646.9
6,024.4
Within one
Between one
After five
Total
year
and five years
years
Rm
Rm
Rm
Rm
37.1
Operating leases
Transmission and data lines GSM
385.0
1,055.1
172.8
1,612.9
Accommodation
149.6
620.3
903.0
1,672.9
Site rentals
186.0
560.0
510.0
1,256.0
Other operating leases
14.9
14.1
0.1
29.1
735.5
2,249.5
1,585.9
4,570.9
The remaining lease term for transmission and data lines is between 1 and 5 years with a fixed price
escalation clause per annum and various options to renew. The remaining lease term and escalation rate for office
accommodation is between 1 and 15 years and between 3% and 13% per annum respectively with an option to
renew for a further period. The remaining lease term and escalation rate for other accommodation is between
1 month and 18 years and between 6% and 12% per annum respectively with a option to renew. The remaining
average lease term for site rentals is 5 years and the lease escalates annually on the anniversary date using fixed or
consumer price index rates with an option to renew on the same terms and conditions.
Within one
Between one
After five
Total
year
and five years
years
Rm
Rm
Rm
Rm
37.2
Sport and marketing contracts
563.6
789.4
6.5
1,359.5
37.3
Service providers
Service provider agreements with the Group’s independent service providers were extended for a further period of
five years during the 2006 financial year.
37.4
Cellular licence fees
Network operators in the Group pay monthly licence fees based on their net operational income as defined in
the licence agreement. Net operational income is defined as the total invoiced revenue of the licensee excluding
discounts, Value Added Taxation and other direct taxes derived from customers of the licensee for the provision to them
of the service, less net interconnect fees and bad debts actually incurred.
background image
F-167
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
37.
OTHER COMMITMENTS (CONTINUED)
37.5
Global Alliance fees
The Group pays annual fees from February 18, 2005 for services provided to the Group by Vodafone Group
Plc. The fee is calculated as a percentage of revenue and amounted to R303.9 million (2007: R249.8 million;
2006: R175.2 million).
37.6
Retention incentives
The Group has committed a maximum of R1,316.6 million (2007: R651.9 million; 2006: R456.0 million) in
respect of customers already beyond their normal 24 month contract period, but who have not yet upgraded into new
contracts, and therefore have not utilised the incentives available for such upgrades. The Group has not recognised
the liability, as no legal obligation exists, since the customers have not yet entered into new contracts.
37.7
Activation bonuses
The Group has a potential liability in respect of activation bonuses payable related to starter packs sold which
have not yet been validated. The exposure is estimated at approximately R14.4 million (2007: R7.8 million;
2006: R8.9 million).
37.8
Activation commissions
The Group has a commitment to a maximum of R119.3 million (2007: R115.6 million; 2006: R141.7 million) in
terms of activation commissions on gross prepaid connections in excess of the legal liability recorded in the financial
statements.
37.9
Transmission and data lines
Effective April 1, 2006 most transmission and data line links were migrated to new BTS and Broadband agreements.
The Group’s commitment to Telkom SA Limited in respect of transmission line rentals of R914.9 million per annum may
be adjusted downwards in the future depending on the Group’s self-provisioning capabilities and the availability of
alternative transmission players in the market place from whom the Group may source transmission on a competitive
basis and as a result no future commitments are disclosed in Note 37.1.
Within one
Between one
After five
Total
year
and five years
years
Rm
Rm
Rm
Rm
37.10 Other
14.9
79.1
-
94.0
Included above are various other accommodation commitments.
background image
F-168
2006
2007
2008
Rm
Rm
Rm
38.        CONTINGENCIES
Various other legal matters
5.0
7.6
7.0
38.1
Negative working capital ratio
For the financial years ended March 31, 2008, 2007 and 2006 the Group had a negative working capital ratio.
A negative working capital ratio arises when the Group’s current liabilities are greater than the current assets. The
Group’s management believes that based on its operating cash flow, it will be able to meet liabilities as they arise
and that it is in compliance with all covenants contained in the borrowing agreements.
38.2
Universal Service Obligation
The Group has a potential liability in respect of the 1800 MHz Universal Service Obligation in terms of the
distribution costs relating to 2.5 million SIM cards.
38.3
Unresolved taxation matters
The Group is regularly subject to an evaluation, by the taxation authorities, of its direct and indirect taxation filings.
The consequence of such reviews is that disputes can arise with the taxation authorities over the interpretation or
application of certain taxation rules applicable to the Group’s business. These disputes may not necessarily be
resolved in a manner that is favourable for the Group. Additionally the resolution of the disputes could result in an
obligation for the Group.
The Group has discussions with relevant taxation authorities on specific matters regarding the application and
interpretation of taxation legislation affecting the Group and the industry in which it operates. No reliable assessment
can be made at this time of any exposure, if any, that the Group may incur.
The Group has considered all matters in dispute with the taxation authorities and has assessed the deductibility of
expenses initially disallowed for taxation purposes. Deferred taxation assets have only been recognised in this regard
if it is probable that the Group will succeed in its disagreements with the taxation authorities.
38.4
Various legal contingencies
The Group is currently involved in various legal proceedings against it. Certain of these proceedings are long
outstanding and many of these are employee related matters. The Group in consultation with its legal counsel has
assessed the outcome of these proceedings and the likelihood that certain of these cases are not likely to be in the
Group’s favour. Following this assessment, the Group’s management has determined that no provision is required in
respect of these legal proceedings as at March 31, 2008.
38.5
Contingent asset
Litigation is being instituted for the recovery of certain fees paid by the Group. The information usually required
by IAS 37: Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be
expected to prejudice seriously the outcome of the litigation. The directors are of the opinion that a claim may be
successful and that the amount recovered could be significant.
background image
F-169
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
38.        CONTINGENCIES (CONTINUED)
38.6
Customer registration
The telecommunications industry in the Democratic Republic of the Congo is subject to a recently promulgated
ministerial decree requiring the registration of the entire customer base of all network operators. This decree
requires prescribed particulars of all customers to be obtained and maintained by June 30, 2008. The sanction for
non-compliance by any operator who has not identified its customers in accordance with the requirements of this
decree within three months from March 28, 2008 could result in:
·  a fine equivalent to between US$5 thousand and US$10 thousand per customer; and
·  suspension of the licence for a period not exceeding three months in the event of repetition; and
·  suspension of the licence in the event of a likely disturbance of law and order/safety.
The Group is making every effort to obtain the required information but management believes it is unlikely that the
Group will meet all the requirements as prescribed in this decree by June 30, 2008. Management is engaging with
the relevant ministries on this matter and is presently unable to reliably assess the potential impact on the Group in the
event of non-compliance with this decree.
39.        RETIREMENT BENEFITS
All eligible employees of the Group are members of the Vodacom Group Pension Fund, a defined contribution
pension scheme. Certain executive employees of the Group are also members of the Vodacom Executive Provident
Fund, a defined contribution provident scheme. Both schemes are administered by ABSA Consultants and Actuaries
(Proprietary) Limited. Current contributions to the pension fund amounted to R113.4 million (2007: R84.7 million;
2006: R76.4 million). Current contributions to the provident fund amounted to R13.5 million (2007: R12.7 million;
2006: R12.9 million). South African funds are governed in terms of the Pension Funds Act of 1956.
40.
EVENTS SUBSEQUENT TO YEAR END
The Directors are not aware of any matter or circumstance arising since the end of the financial year, not otherwise
dealt with in the consolidated annual financial statements, which significantly affects the financial position of the
company as at March 31, 2008 or the results of its operations or cash flows for the year ended, other than the
following:
40.1
Broad Based Black Economic Empowerment ("BBBEE")
The Group is in the process of finalising a R7.5 billion BBBEE equity deal whereby strategic business partners,
employees and the black public will have the opportunity to share in the success of Vodacom South Africa going
forward.
40.2
Global Telematics SA (Proprietary) Limited
On October 26, 2007 Vodacom Service Provider Company (Proprietary) Limited ("VSPC"), entered into an agreement
with Global Telematics SA (Proprietary) Limited ("Global Telematics"). In terms of the agreement Glocell Service
Provider Company (Proprietary) Limited ("GSPC"), will cede, transfer and assign its agreements together with all of its
obligations and its rights attaching to its customers connected to the Vodacom Network to Global Telematics. GSPC
connects all voice contract customers and sells pre-paid starter packs on behalf of Global Telematics. VSPC will
acquire the consolidated customer base from Global Telematics which will consist of active prepaid customers, active
contract customers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive
conditions are met the transaction would be effective.
40.3
VM, S.A.R.L. trading as Vodacom Mozambique
Effective May 12, 2008 Vodacom International Limited sold 5% of its 90% owned equity investment in Vodacom
Mozambique, leaving Vodacom International Limited with an 85% equity investment in Vodacom Mozambique.
Certain suspensive conditions are to be met before the transaction will be effective.
background image
F-170
2006
2007
2008
Rm
Rm
Rm
41.
RELATED PARTY TRANSACTIONS
41.1
Balances with related parties
Related party transactions occur within the Group. Details of
transactions entered into are as follows:
Included in accounts receivable
Telkom SA Limited – Interconnect
509.7
699.3
761.7
Telkom SA Limited – Other
6.3
6.9
16.2
Vodafone Group Plc and subsidiaries
12.7
20.9
13.4
Transactions with entities in which related parties
have an interest
-
-
37.1
Included in accounts payable
Telkom SA Limited – Interconnect
(85.3)
(80.1)
(83.9)
Telkom SA Limited – Other
(16.5)
(41.3)
(23.2)
Vodafone Group Plc and subsidiaries
(4.7)
(6.4)
(328.1)
Transactions with entities in which related parties
have an interest
-
(8.0)
(3.4)
Dividends payable
Telkom SA Limited
(1,400.0)
(1,450.0)
(1,595.0)
Vodafone Holdings (SA) (Proprietary) Limited
(980.0)
(867.1)
(641.2)
Vodafone Telecommunications Investments 
(SA) (Propietary) Limited                                                                (420.0)                     (582.9)                    (953.8)
These outstanding balances are unsecured and will be settled in cash in the ordinary course of business. No
guarantees or provision for doubtful debts have been recognised.
41.2
Transactions with related parties
Telkom SA Limited and subsidiaries
(Entity with joint control over the Group)
(798.5)
(1,221.3)
(1,436.1)
Audit fees recovered
4.8
6.1
5.9
Cellular usage
37.0
45.6
54.0
Installation of transmission lines
(93.4)
(67.6)
(100.2)
Interconnect expense
(464.3)
(468.2)
(468.1)
Interconnect income
2,817.8
2,908.4
2,963.4
Interest paid – commercial
(0.1)
(0.1)
(0.2)
Lease of transmission lines
(752.1)
(839.0)
(928.2)
Other
4.8
(75.4)
41.1
Site costs
(26.3)
(30.9)
(40.0)
Telephone landline usage
(26.7)
(14.9)
(10.7)
Site rental income
10.8
14.7
16.9
Telkom prepaid vouchers
(60.8)
-
-
Dividend payable
(1,400.0)
(1,450.0)
(1,595.0)
Dividend paid
(850.0)
(1,250.0)
(1,375.0)
background image
F-171
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
2006
2007
2008
Rm
Rm
Rm
41.
RELATED PARTY TRANSACTIONS (CONTINUED)
41.2
Transactions with related parties (continued)
Vodafone Group Plc and subsidiaries
(192.0)
(338.2)
(417.9)
Roaming income
73.6
108.4
141.0
Roaming expense
(90.6)
(188.9)
(256.9)
Global alliance agreement
(175.2)
(249.8)
(303.9)
Other
0.2
(7.9)
1.9
Vodafone Holdings (SA) (Proprietary) Limited
(Entity with joint control over the Group)
(1,575.0)
(1,614.6)
(1,194.0)
Dividend payable
(980.0)
(867.1)
(641.2)
Dividend paid
(595.0)
(747.5)
(552.8)
Vodafone Telecommunications Investments (SA) (Proprietary) Limited
(679.8)
(1,085.4)
(1,776.1)
Dividend payable
(420.0)
(582.9)
(953.8)
Dividend paid
(255.0)
(502.5)
(822.3)
Interest payments
(1.9)
-
-
Facility fees
(0.9)
-
-
Aircraft charter fees
(2.0)
-
-
Gogga Tracking Solutions (Proprietary) Limited
-
-
(4.8)
Prepaid contracts activations and upgrades
-
-
(4.8)
XLink Communications (Proprietary) Limited
-
-
(5.9)
Prepaid contracts activations and upgrades
-
-
(5.9)
Transactions with entities in which related parties have an interest
(20.3)
(40.6)
53.0
During the previous year the Group acquired a 10%
shareholding in WBS Holdings (Proprietary) Limited for R80.8
million, a company in which a family member of a Group
director has significant influence.
41.3
Key management personnel compensation
(excluding directors’ emoluments)
Key management personnel remuneration
(56.0)
(83.1)
(112.7)
Salaries and restraint of trade payments
(17.1)
(32.7)
(32.0)
Fringe benefits
(0.6)
(0.8)
(1.2)
Bonuses and incentives
(30.6)
(37.6)
(61.1)
Long-term benefits
(7.6)
(12.0)
(18.4)
Other
(0.1)
-
-
Included in key management personnel’s remuneration
(2.2)
(3.8)
(8.6)
Pension fund employer contributions
(1.2)
(1.7)
(4.3)
Provident fund employer contributions
(0.6)
(1.7)
(3.5)
Medical aid employer contributions
(0.4)
(0.4)
(0.8)
Key management include Chief Officers and Group Executives.
background image
F-172
2006
2007
2008
Rm
Rm
Rm
41.
RELATED PARTY TRANSACTIONS (CONTINUED)
41.4
Directors’ emoluments
Directors’ remuneration
(96.7)
(76.7)
(86.5)
Executive directors – fees as directors: salaries and
restraint of trade payments
(35.6)
(16.3)
(18.7)
Executive directors – fees as directors: fringe benefits
(0.7)
(1.2)
(0.6)
Executive directors – fees as directors: bonuses and
incentives
(46.2)
(48.5)
(52.2)
Executive directors – long-term benefits
(13.6)
(8.5)
(13.6)
Non-executive directors – fees as directors
(0.6)
(2.2)
(1.4)
Included in directors’ remuneration
(4.2)
(15.8)
(7.5)
Pension fund employer contributions
(0.5)
(8.3)
(2.5)
Provident fund employer contributions
(3.5)
(7.3)
(4.8)
Medical aid employer contributions
(0.2)
(0.2)
(0.2)
Directors’ remuneration and emoluments paid and accrued by:
(96.7)
(76.7)
(86.5)
Vodacom Group (Proprietary) Limited
(77.1)
(64.8)
(71.2)
Subsidiaries
(19.6)
(11.9)
(15.3)
background image
F-173
42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
42.1 Categories of financial instruments
Total         At fair value      Loans and     Available-for-
Financial     Finance lease
Equity and
through profit     receivables      sale financial    liabilities at
receivables     non financial
or loss: Held
assets
amortised     and payables
assets and
for trading
cost
liabilities
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2006
Assets
Non-current assets
Property, plant
and equipment
10     13,386.6
-
-
-
-
-
13,386.6
Intangible assets
11       1,954.9
-
-
-
-
-
1,954.9
Financial assets
12
92.1
-
92.1
-
-
-
-
Deferred taxation
13
297.6
-
-
-
-
-
297.6
Deferred cost
311.2
-
-
-
-
-
311.2
Lease assets
16
36.8
-
-
-
-
6.2
30.6
Current assets
Deferred cost
451.8
-
-
-
-
-
451.8
Financial assets
12
149.3
149.3
-
-
-
-
-
Inventory
14
454.3
-
-
-
-
-
454.3
Trade and other
receivables
15      4,474.0
-
4,180.7
-
-
-
293.3
Lease assets
16
13.1
-
-
-
-
13.1
-
Cash and cash
equivalents
34      3,146.1
-
3,146.1
-
-
-
-
Total assets
24,767.8
149.3          7,418.9
-
-
19.3          17,180.3
Equity
Ordinary share
capital
17
*
-
-
-
-
-
*
Retained earnings
8,583.0
-
-
-
-
-
8,583.0
Non-distributable
reserves
18
(194.0)
-
-
-
-
-
(194.0)
Equity attributable
to equity
holders of the parent
8,389.0
-
-
-
-
-
8,389.0
Minority interests
19
283.3
-
-
-
-
-
283.3
Total equity
8,672.3
-
-
-
-
-
8,672.3
Non-current liabilities
Interest bearing debt       21
819.2
-
-
-
90.9
728.3
-
Deferred taxation
13
602.3
-
-
-
-
-
602.3
Deferred revenue
320.3
-
-
-
-
-
320.3
Provisions
23
372.3
-
-
-
-
-
372.3
Other non-current
liabilities
24
122.5
-
-
-
-
-
122.5
Current liabilties
Trade and other
payables
25     5,104.7
-
-
-
4,940.2
-
164.5
Deferred revenue
1,604.5
-
-
-
-
-
1,604.5
Taxation payable
630.2
-
-
-
-
-
630.2
Non-interest bearing
debt
22
4.3
-
-
-
4.3
-
-
Interest bearing debt       21      1,645.5
-
-
-
1,566.3
79.2
-
Provisions
23
623.0
-
-
-
-
-
623.0
Dividends payable
2,800.0
-
-
-
2,800.0
-
-
Derivative financial
liabilities
42
60.9
60.9
-
-
-
-
-
Bank borrowings
34      1,385.8
-
-
-
1,385.8
-
-
Total liabilities
16,095.5
60.9
-
-        10,787.5
807.5
4,439.6
Total equity and
liabilities
24,767.8
60.9
-
-        10,787.5
807.5       13,111.9
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
background image
F-174
42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.1 Categories of financial instruments (continued)
Total           At fair value     Loans and     Available-for-
Financial   Finance lease
Equity and
through profit    receivables      sale financial      liabilities at
receivables     non financial
or loss: Held
assets
amortised    and payables
assets and
for trading
cost
liabilities
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2007
Assets
Non-current assets
Property, plant and
equipment
10   17,073.2
-
-
-
-
-
17,073.2
Intangible assets
11     2,700.3
-
-
-
-
-
2,700.3
Financial assets
12
209.5
-
114.4
95.1
-
-
-
Deferred taxation
13
386.1
-
-
-
-
-
386.1
Deferred cost
396.4
-
-
-
-
-
396.4
Lease assets
16
78.8
-
-
-
-
43.7
35.1
Current assets
Deferred cost
574.8
-
-
-
-
-
574.8
Financial assets
12
207.5
191.3
16.2
-
-
-
-
Inventory
14
364.3
-
-
-
-
-
364.3
Trade and other
receivables
15     5,675.0
-
5,334.9
-
-
-
340.1
Lease assets
16
32.9
-
-
-
-
32.9
-
Cash and cash
equivalents
34
771.4
-
771.4
-
-
-
-
Total assets
28,470.2
191.3          6,236.9
95.1
-
76.6
21,870.3
Equity
Ordinary share
capital
17
*
-
-
-
-
-
*
Retained earnings
9,523.2
-
-
-
-
-
9,523.2
Non-distributable
reserves
18
(97.4)
-
-
-
-
-
(97.4)
Equity attributable
to equity
holders of the parent
9,425.8
-
-
-
-
-
9,425.8
Minority interests
19
221.2
-
-
-
-
-
221.2
Total equity
9,647.0
-
-
-
-
-
9,647.0
Non-current liabilities
Interest bearing debt       21     2,051.4
-
-
-
1,436.4
615.0
-
Non-interest bearing
debt
22
3.0
-
-
-
3.0
-
-
Deferred taxation
13
757.3
-
-
-
-
-
757.3
Deferred revenue
412.3
-
-
-
-
-
412.3
Provisions
23
377.5
-
-
-
-
-
377.5
Other non-current
liabilities
24
210.6
-
-
-
-
-
210.6
Current liabilties
Trade and other
payables
25    6,874.4
-
-
-
6,688.0
-
186.4
Deferred revenue
1,904.8
-
-
-
-
-
1,904.8
Taxation payable
1,112.7
-
-
-
-
-
1,112.7
Interest bearing debt        21
501.0
-
-
-
387.4
113.6
-
Provisions
23
741.8
-
-
-
-
-
741.8
Dividends payable
2,990.0
-
-
-
2,990.0
-
-
Derivative financial
liabilities
42
7.2
7.2
-
-
-
-
-
Bank borrowings
34
879.2
-
-
-
879.2
-
-
Total liabilities

18,823.2
7.2
-
-         12,384.0
728.6
5,703.4
Total equity and
liabilities
28,470.2
7.2
-
-         12,384.0
728.6
15,350.4
background image
F-175
42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.1 Categories of financial instruments (continued)
Total      At fair value      Loans and    Available-for-
Financial   Finance lease
Equity and
through profit    receivables     sale financial       liabilities at
receivables     non financial
or loss: Held
assets
amortised    and payables
assets and
for trading
cost
liabilities
Notes
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2008
Assets
Non-current assets
Property, plant
and equipment
10    19,119.6
-
-
-
-
-
19,119.6
Intangible assets
11
4,224.1
-
-
-
-
-
4,224.1
Financial assets
12
244.2
-
134.2
110.0
-
-
-
Deferred taxation
13
455.1
-
-
-
-
-
455.1
Deferred cost
333.3
-
-
-
-
-
333.3
Lease assets
16
92.0
-
-
-
-
89.5
2.5
Current assets
Deferred cost
705.9
-
-
-
-
-
705.9
Financial assets
12
444.9
415.2
29.7
-
-
-
-
Inventory
14
636.9
-
-
-
-
-
636.9
Trade and other
receivables
15
6,801.1
-
6,356.7
-
-
-
444.4
Lease assets
16
140.5
-
-
-
-
122.9
17.6
Cash and cash
equivalents
34
977.6
-
977.6
-
-
-
-
Total assets
34,175.2
415.2
7,498.2
110.0
-
212.4
25,939.4
Equity
Ordinary share
capital
17
*
-
-
-
-
-
*
Retained earnings
11,392.9
-
-
-
-
-
11,392.9
Non-distributable
reserves
18
8.8
-
-
-
-
-
8.8
Equity attributable
to equity
holders of the parent
11,401.7
-
-
-
-
-
11,401.7
Minority interests
19
403.6
-
-
-
-
-
403.6
Total equity
11,805.3
-
-
-
-
-
11,805.3
Non-current liabilities
Interest bearing debt       21
3,025.8
-
-
-
2,605.1
420.7
-
Non-interest bearing
debt
22
6.0
-
-
-
6.0
-
-
Deferred taxation
13
776.5
-
-
-
-
-
776.5
Deferred revenue
358.8
-
-
-
-
-
358.8
Provisions
23
373.7
-
-
-
-
-
373.7
Other non-current
liabilities
24
247.4
-
-
-
-
-
247.4
Current liabilties
Trade and other
payables
25
7,561.3
-
-
-
7,443.3
-
118.0
Deferred revenue
2,229.9
-
-
-
-
-
2,229.9
Taxation payable
580.5
-
-
-
-
-
580.5
Interest bearing debt       21
502.9
-
-
-
308.6
194.3
-
Provisions
23
909.5
-
-
-
-
-
909.5
Dividends payable
3,190.0
-
-
-
3,190.0
-
-
Derivative financial
liabilities
42
10.8
10.8
-
-
-
-
-
Bank borrowings
34
2,596.8
-
-
-
2,596.8
-
-
Total liabilities
22,369.9
10.8
-
-        16,149.8
615.0
5,594.3
Total equity and
liabilities
34,175.2
10.8
-
-        16,149.8
615.0
17,399.6
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
background image
F-176
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT
The Group purchases or issues financial instruments in order to finance its operations and to manage market risks
(foreign currency risk, interest rate risk and price risk) that arise from its operations and sources of finances. Various
financial assets and liabilities for example trade and other receivables and trade and other payables, arise directly
from the Group’s operations. Changing market conditions expose the Group to various financial risks and have
highlighted the importance of financial risk management as an element of control for the Group. Principal financial risk
faced in the normal course of the Group’s business are market risks (foreign currency risk, interest rate risk and price
risk), credit risk, liquidity risk and insurance risk.
A treasury function within Vodacom Group (Proprietary) Limited provides treasury and related services to the Group,
including co-ordinating access to domestic and international financial markets, and the managing of various risks
relating to the Group’s operations.
Treasury operations are conducted within a framework of approved policies and guidelines that are
continuously monitored by management and the Board of Directors, through the audit committee, the objective being to
minimise exposure to market risks (foreign currency risk, interest rate risk and price risk) and liquidity risk. These risks are
managed, subject to the limitation of the local markets in which the various Group companies operate in and the
South African Reserve Bank Regulations.
The Group uses a number of derivative instruments that are transacted for risk management purposes only. The Group
does not trade in financial instruments for speculative purposes.
The Group finances its operations through a mixture of retained profits, bank borrowings and long-term loans.
Long-term financing is arranged locally by the South African entities.
There has been no significant change during the financial year, or since the end of the financial year, to the types of
financial risks faced by the Group, the approach to the measurement of these financial risks or the objectives, policies
and processes for managing these financial risks.
42.2.1   Market risk management
The Group’s activities expose it primarily to the risks of fluctuations in foreign currency exchange rates (Note 42.2.1.1),
interest rates (Note 42.2.1.2) and equity prices (Note 42.2.1.3).
Foreign currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
Interest rate risk refers to the risk that the fair value of future cash flows of a financial instrument will fluctuate because
of changes in market interest rates.
Price risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices other than those arising from interest rate risk or currency risk.
The Group enters into various derivative financial instruments to manage its exposure to interest rate risk and foreign
currency risk, including:
· foreign exchange forward contracts to manage the exchange rate risk arising on foreign denominated
  transactions; and
· interest rate swaps to manage the risk of rising interest rates on borrowings.
Market risk exposures are measured using sensitivity analysis. A sensitivity analysis shows how profit before taxation
and equity would have been affected by changes in the relevant risk variable that were reasonably possible at the
reporting date.
background image
F-177
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1    Market risk management (continued)
42.2.1.1 Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence the Group has a policy to
hedge foreign exchange risks on transactions denominated in other currencies above certain de minimis levels.
It is the Group's policy to enter into foreign exchange forward contracts to buy and/or sell specified amounts
of foreign currencies in the future at a predetermined exchange rate. The contracts are entered into to manage
the Group’s exposure to fluctuations in foreign currency exchange rates on specific transactions. The contracts are
matched with anticipated future cash flows in foreign currencies primarily from purchase of capital equipment and to
a lesser extent operating expenditure.
The Group has entered into numerous foreign exchange forward contracts to cover foreign capital commitments in
respect of future imports of infrastructure.
The total fair value for foreign exchange forward contracts at year end was:
2006
2007
2008
Rm
Rm
Rm
Foreign currency asset
To buy
-
27.8
289.9
To sell
-
0.1
-
-
27.9
289.9
Foreign currency liability
To buy
(60.9)
(6.9)
-
To sell
-
(0.3)
(10.8)
(60.9)
(7.2)
(10.8)
The following table details the foreign exchange forward contracts outstanding at year end:
Foreign contract
Forward value
Fair value
value
Mil
Rm
Rm
Forward contracts to buy foreign currency
2006
United States Dollars
7.1
45.0
(0.7)
Euro
154.8
1,208.6
(34.5)
Pound Sterling
41.7
477.8
(25.7)
Swiss Franc
*
0.1
*
1,731.5
(60.9)
2007
United States Dollars
32.0
240.5
(6.9)
Euro
187.2
1,815.0
21.2
Pound  
Sterling
32.3
457.3
6.6
Swiss Franc
0.2
1.3
*
Australian Dollar
*
0.3
*
2,514.4
20.9
Forward value represents the foreign contract value multiplied by the contract forward exchange rate.
*  Amount less than 50 000 of the currency.
background image
F-178
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1    Market risk management (continued)
42.2.1.1 Foreign currency risk management (continued)
Foreign contract
Forward value
Fair value
value
Mil
Rm
Rm
Forward contracts to buy foreign currency (continued)
2008
United States Dollars
31.3
253.0
2.9
Euro
157.1
1,806.4
249.5
Pound Sterling
19.9
288.0
37.5
Swiss Franc
0.2
1.4
*
Australian Dollar
0.6
4.5
*
2,353.3
289.9
Forward contracts to sell foreign currency
2006
United States Dollars
0.1
0.8
*
Euro
4.0
30.3
*
Pound Sterling
0.3
3.2
*
Swiss Franc
*
0.1
*
34.4
*
2007
United States Dollars
*
0.2
*
Euro
4.4
43.2
0.1
Pound Sterling
3.9
55.7
(0.3)
99.1
(0.2)
2008
United States Dollars
0.6
5.0
*
Euro
7.7
89.3
(10.6)
Pound Sterling
0.7
10.7
(0.2)
Australian Dollar
0.3
2.1
*
107.1
(10.8)
Forward value represents the foreign contract value multiplied by the contract forward exchange rate.
*  Amount less than 50 000 of the currency.
background image
F-179
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.        FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1   Market risk management (continued)
42.2.1.1 Foreign currency risk management (continued)
The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The
following table represents the net currency exposure (net carrying amount of foreign denominated monetary assets
and liabilities) of the Group according to the different functional currencies of each entity within the Group.
South
Euro
Pound
United   Congolese
Swiss
Other
African
Sterling
States
Franc
Franc
Rand
Dollar
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2006
Net foreign currency monetary
assets/(liabilities)
Functional currency of company
operation
South African Rand
-
(850.5)
(330.4)
45.0
-
(0.2)
(0.8)
United States Dollar
(55.9)
(26.2)
-
-
(11.4)
(0.1)
38.0
Tanzanian Shilling
4.7
(13.6)
-
106.9
-
-
-
Mozambican Meticals
(0.2)
-
-
-
-
-
-
(51.4)
(890.3)
(330.4)
151.9
(11.4)
(0.3)
37.2
2007
Net foreign currency monetary
assets/(liabilities)
Functional currency of company
operation
South African Rand
-
(1,387.0)
(331.4)
(102.2)
-
(0.3)
2.4
United States Dollar
51.5
(49.9)
0.1
-
(3.2)
(0.4)
(30.8)
Tanzanian
Shilling
3.4
10.9
-
21.0
-
-
-
Mozambican Meticals
(33.7)
(0.3)
-
2.2
-
-
-
21.2
(1,426.3)
(331.3)
(79.0)
(3.2)
(0.7)
(28.4)
2008
Net foreign currency monetary
assets/(liabilities)
Functional currency of company
operation
South African Rand
-
(1,191.5)
(265.2)
(205.9)
-
(3.5)
(3.4)
United States Dollar
-
15.2
-
-
(34.1)
(0.3)
(0.1)
Tanzanian
Shilling
7.1
38.3
-
67.4
-
-
-
Mozambican Meticals
(27.2)
(0.1)
-
(14.5)
-
-
-
(20.1)    (1,138.1)
(265.2)
(153.0)
(34.1)
(3.8)
(3.5)
In terms of the Group’s policy the net currency exposure is managed in terms of foreign exchange forward contracts
to buy and sell specified amounts of various foreign currencies in the future at pre-determined exchange rates.
background image
F-180
42.        FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1   Market risk management (continued)
42.2.1.1Foreign currency risk management (continued)
Foreign currency sensitivity analysis:
The Group is mainly exposed to the currencies mentioned below and to a lesser extent exposed to the following
currencies: Australian Dollar, Tanzanian Shilling, Mozambican Meticals, Mauritian Rupee and Lesotho Maloti which
have been combined as "Other" in the table below.
The following tables detail the Group's sensitivity to the below-mentioned percentage strenghtening and weakening
in the functional currency against the relevant foreign currencies. This percentage is the sensitivity rate used when
reporting foreign currency risk internally to key management personnel and represents management's assessment of
the reasonably possible change in foreign exchange rates. A reasonable possible change in prevailing African and
non-African foreign currency exchange rates are based upon 12 month forward mid rates as published by Reuters
and 12 month forward mid rates as published by Standard Bank respectively.
The sensitivity analysis includes only outstanding foreign-denominated monetary items and adjusts their translations at
the period end for the specified percentage change in foreign currency rates.
A positive number below indicates an increase in profit before taxation where the functional currency is expected to
strengthen against the relevant currency in a net financial liability position.
A negative number below indicates an decrease in profit before taxation where the functional currency is expected to
strengthen against the relevant currency in a net financial asset position.
For the same percentage weakening of the functional currency against the relevant currency, there would be an equal
and opposite impact on the profit before taxation.
There were no changes in the methods and assumptions used in preparing the foreign currency sensitivity analysis.
South
Euro
Pound
United
Congolese
Swiss
Other
African
Sterling
States
Franc
Franc
Rand
Dollar
%
%
%
%
%
%
%
2006
Functional currency
South African Rands
-
29.3
32.5
17.7
11.8
20.4     13.7 - 24.6
United States Dollar
17.7
9.8
12.5
-
31.6
6.3
1.5 - 11.3
Tanzanian
Shilling
13.7
11.5
14.3
1.5
22.8
8.4
3.9
Mozambican Meticals
17.0
7.4
10.0
2.2
34.6
4.4
3.9
Profit before taxation (Rm)
3.2
(16.9)
(38.3)
4.1
(2.8)
(0.2)
(1.0)
2007
Functional
currency
South African Rands
-
31.9
13.1
11.5
12.8
26.6     11.0 - 21.0
United States Dollar
11.5
18.3
1.4
-
2.7
18.1
0.8 - 19.8
Tanzanian
Shilling
11.0
17.4
0.6
0.8
2.0
21.2
8.1
Mozambican
Meticals
17.7
8.6
6.9
8.2
6.0
12.1
8.1
Profit before taxation (Rm)
6.3
(36.8)
(2.6)
2.1
0.1
-
0.2
2008
Functional
currency
South African Rands
-
7.6
6.5
9.5
-
8.3
0.1 - 11.0
United States Dollar
9.5
5.1
2.6
-
10.0
5.5
5.0 - 10.0
Tanzanian
Shilling
11.0
7.5
5.0
2.5
-
-
-
Mozambican
Meticals
0.1
3.8
6.5
9.4
-
-
-
Profit before taxation (Rm)
0.2
(54.4)
(1.0)
(7.7)
2.7
-
(0.6)
The closing exchange rates against the South African Rand in the current and prior years are as follows:
2006
2007
2008
United States Dollar
6.2
7.3
8.1
Tanzanian
Shilling
198.0
170.8
152.0
Mozambican
Meticals
4.4
3.6
3.0
background image
F-181
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1   Market risk management (continued)
42.2.1.2 Interest rate risk management
The Group’s interest rate profile consists of fixed and floating rate loans and bank balances which exposes the Group
to fair value interest rate risk and cash flow interest rate risk and can be summarised as follows:
2006
2007
2008
Rm
Rm
Rm
Financial liabilities
Loans received and bank borrowings at fixed rates of interest
(1,134.5)
(1,184.5)
(934.8)
Loans received and bank borrowings linked to South African
prime rates
(1,361.8)
(823.5)
(40.1)
Loans received and bank borrowings linked to Lesotho prime
rates
(7.5)
(3.0)
(24.4)
Loans received and bank borrowings linked to LIBOR
(1,286.2)
(1,382.8)
(1,670.2)
Loans received and bank borrowings linked to EURIBOR
(58.6)
(37.9)
-
Loans received and bank borrowings linked to RSA
money market rates
-
-
(2,456.0)
Loans received and bank borrowings linked to JIBAR
-
-
(1,000.0)
Finance leases linked to fixed rates
(807.5)
(728.6)
(615.0)
(4,656.1)
(4,160.3)
(6,740.5)
Financial assets
Loans granted and bank deposits at fixed rates of interest
168.1
194.2
496.1
Loans granted and bank deposits linked to money market
rates
471.0
537.0
421.5
Loans granted and bank deposits linked to South African
prime rates
2,603.1
180.5
74.1
Interest rate swaps linked to RSA BA rate
37.6
27.7
17.4
Loans granted and bank deposits linked to LIBOR
94.2
126.0
128.2
Loans granted and bank deposits linked to Lesotho prime
rates
13.5
-
116.3
Loans granted and bank deposits linked to RSA BA rate
-
-
18.4
Finance leases linked to fixed rates
19.3
76.6
212.4
3,406.8
1,142.0
1,484.4
The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings
and by the use of interest rate swap contracts.
Interest rate swap contracts
The Group has entered into interest rate swap contracts that entitle, or oblige it to receive interest at a fixed rate on
notional principal amounts and entitle, or oblige it to pay interest at floating rates on the same notional principal
amounts. The interest rate swaps allow the Group to swap long-term debt from fixed rates into floating rates that are
lower, or higher, than those available if it had borrowed at floating rates directly. Under the interest rate swaps, the
Group agrees with other parties to exchange, at specified quarterly intervals, the difference between fixed rates and
floating rate interest amounts calculated by reference to the agreed notional principal amounts.
background image
F-182
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1    Market risk management (continued)
42.2.1.2 Interest rate risk management (continued)
At March 31, 2008 the Group had three interest rate swaps:
Vodacom Group (Proprietary) Limited - the Company swapped its fixed interest rate of 14.9% Nominal Annual
Compounded Quarterly ("NACQ") for a floating rate, linked to the Bankers Acceptance ("BA") rate plus margin of
2.0%. The termination date of the agreement is January 30, 2009.
Vodacom (Proprietary) Limited - the Company swapped its fixed interest rate of 20.1% NACQ for a floating rate
linked to the BA rate plus margin of 2.25%. The termination date of the agreement is August 24, 2012.
Vodacom (Proprietary) Limited - the Company swapped its fixed interest rate of 13.3% NACS (Nominal Annual
Compounded Semi-annually) for a floating rate linked to the BA rate plus margin 2.0%. The termination date of the
agreement is December 1, 2012.
2006
2007
2008
Rm
Rm
Rm
Fair value of interest rate swap asset
37.6
27.7
17.4
The fair value of the interest rate swap assets is represented by a notional principal amount of R170.5 million
(2007: R198.5 million; 2006: R217.7 million) at a weighted average floating interest rate of 13.4% NACM
(2007: 11.45% NACM; 2006: 9.3% NACM) and a weighted average fixed interest rate of 15.1% NACM.
Interest rate sensitivity analysis:
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and
non-derivative instruments at the balance sheet date. For floating rate instruments, the analysis is prepared assuming
the amount of the instrument outstanding at the balance sheet date was outstanding for the whole year.
The basis points increases or decreases, as detailed in the table below, are used when reporting interest rate risk
internally to key management personnel and represents management's assessment of the reasonably possible change
in interest rates. Changes in prevailing market interest rates are based on economic forecasts as published by
Reuters.
A positive number below indicates an increase in profit before taxation if interest rates were higher by the basis points
indicated below in a net financial asset position.
A negative number below indicates a decrease in profit before taxation if interest rates were higher by the basis points
indicated below in a net financial liability position.
If interest rates were lower by the basis points indicated above, there would be an equal and opposite impact on
the profit before taxation.
The sensitivity analysis is representative of the Group’s exposure to interest rate risk with exception of dividends
and taxation that are payable at the end of the financial year and other interest bearing debt acquired
December 5, 2007. There were no changes in the methods and assumptions used in preparing the sensitivity
analysis.
2006
2007
2008
Rm
Rm
Rm
RSA prime rates, JIBAR rates, Money market rates and
RSA BA rates
Basis point increase
200
200
100
Profit before taxation
147.8
94.5
(24.7)
LIBOR
Basis point increase
50
260
20
Profit before taxation
(0.3)
(1.6)
(1.8)
EURIBOR
Basis point increase
120
50
35
Profit before taxation
1.0
0.2
-
Lesotho prime rates
Basis point increase
200
200
100
Profit before taxation
0.4
0.7
1.3
background image
F-183
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.1    Market risk management (continued)
42.2.1.3 Price risk
The Group is exposed to equity price risk arising from equity investments. Equity investments are held for strategic
rather than trading purposes. The Group does not actively trade these investments.
Equity price risk sensitivity analysis:
The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting
date.
The Group's available-for-sale financial assets are valued using the discounted cash flow method. Assuming a constant
growth rate, a 1.0% increase in the discount rate would decrease the valuation of the investment by R6.6 million
(2007: R 7.0 million) and a 1.0% decrease in the discount rate would increase the valuation by R7.7 million
(2007: R8.6 million).
There were no changes in the methods and assumptions used in preparing the equity price sensitivity analysis.
42.2.2   Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining
sufficient collateral, where appropriate, as means of mitigating the risk of financial loss from defaults. The Group
only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied
by independent rating agencies where available, if not available, the Group uses other publicly available financial
information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of
its counterparties are continuously monitored and the aggregate values of transactions concluded is spread amongst
approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the
credit risk department.
Financial assets, which potentially subject the Group to concentrations of credit risk, consists principally of cash and
cash equivalents, short-term deposits, derivative contracts including foreign exchange forward contracts and interest
rate swaps, loans and receivables, investments and trade and other receivables, including finance lease receivables.
Financial guarantees granted also subject the Group to credit risk.
The Group’s cash and cash equivalents and short-term deposits are placed with high credit quality financial institutions.
Credit risk with respect to trade and finance lease receivables is limited due to large number of customers comprising
the Group’s customer base and stringent credit approval processes for contracted subscribers.
With respect to the foreign exchange forward contracts, the Group’s exposure is on the full amount of the foreign
currency payable on settlement. The Group minimises credit risk relating to foreign exchange forward contracts and
interest rate swaps by limiting the counterparties to major local and international banks, and does not expect to incur
any losses as a result of non-performance by these counterparties. The positions in respect of these counterparties are
closely monitored.
The Group’s exposure to credit risk with regards to loans and receivables are limited due to collateral held (Note 12).
The carrying amounts of financial assets, excluding foreign exchange forward contracts and interest rate swaps,
included in the consolidated balance sheets represent the Group’s maximum exposure to credit risk in relation to these
assets.
background image
F-184
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.2   Credit risk management (continued)
The maximum credit exposure of forward exchange contracts and interest rate swaps is represented by the fair value
of these contracts.
The maximum credit exposure of financial guarantee contracts granted is the maximum amount the Group could be
required to pay, or fund, without consideration of the probability of the actual outcome.
The Group holds collateral over certain trade and other receivables. The collateral is made up of demand
guarantees from financial institutions and can be exercised on overdue invoices. The collateral held amounted to
R1,086.1 million (2007: R795.8 million; 2006: R432.9 million).
There has been no significant change during the financial year, or since the end of the financial year, to the Group’s
exposure to credit risk, the approach to the measurement or the objectives, policies and processes for managing
this risk.
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements,
which is net of impairment losses, represents the Group’s maximum exposure to credit risk without taking into account
the value of any collateral obtained:
2006
2007
2008
Rm
Rm
Rm
Loans and receivables - South Africa
-
22.2
31.8
Loans and receivables - non-South African
92.1
108.4
132.1
Trade and other receivables - South Africa
3,823.2
4,546.0
5,576.6
Trade and other receivables - non-South African
376.8
865.4
992.5
Financial guarantee contracts granted *
1,152.0
1,311.9
1,484.5
5,444.1
6,853.9
8,217.5
*  Financial guarantees issued in support of Vodacom Congo (RDC) s.p.r.l are included as liabilities in the
    consolidated balance sheet.
No terms of financial assets were renegotiated.
The following represents information on the credit quality of South African trade receivables that are neither past due
nor impaired:
2006
2007
2008
%
%
%
High
-
-
-
Medium
1
1
1
Low
99
99
99
100
100
100
Definitions:
High: the probability exists that the debtor has defaulted in payments and entered into a delinquency
scenario.
Medium: the probability exists that the debtor is experiencing financial difficulties and is in arrears. The debtor is
being managed closely to collect all overdue accounts.
Low: no default in payment has occurred or is anticipated by the debtor.
background image
F-185
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.        FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.2  Credit risk management (continued)
The following represents an analysis of the age of financial assets that are past due but not impaired:
1 - 30 days
31 - 60 days
61 - 90 days
91 - 120 days
Total
past due
past due
past due
past due
Rm
Rm
Rm
Rm
Rm
2006
Trade and other receivables -
South
Africa
7.6
4.4
12.1
10.3
34.4
Trade and other receivables -
non-South African
7.7
11.0
-
-
18.7
15.3
15.4
12.1
10.3
53.1
2007
Trade and other receivables -
South
Africa
13.0
6.6
6.3
28.9
54.8
Trade and other receivables -
non-South African
19.6
27.6
-
-
47.2
32.6
34.2
6.3
28.9
102.0
2008
Trade and other receivables -
South
Africa
22.0
12.4
12.7
13.9
61.0
Trade and other receivables -
non-South African
8.4
19.4
-
-
27.8
30.4
31.8
12.7
13.9
88.8
background image
F-186
42.       FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.3   Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
In terms of its borrowing requirements, the Group ensures that adequate funds are available to meet its expected
and unexpected financial commitments through undrawn borrowing facilities. In terms of its long-term liquidity risk, a
reasonable balance is maintained between the period over which assets generate funds and the period over which
the respective assets are funded.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The
tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest
date on which the Group can be required to pay. The table includes both estimated interest and principal cash
flows. Estimated interest of floating interest rate financial liabilities is calculated using the applicable yield curves at
March 31, 2008, 2007 and 2006.
0 - 1 year
2 years
3 years   4 years   5 years   5+ years
Not
Total
determined
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2006
Finance
leases
190.7
211.7
269.2
153.6
200.6
180.4
-
1,206.2
Funding
loans
1,527.3
-
-
-
-
-
90.9
1,618.2
Other short-term loans
39.0
-
-
-
-
-
-
39.0
Non-interest bearing debt
-
-
-
-
-
-
4.3
4.3
Trade and other payables
7,804.4
-
-
-
-
-
-     7,804.4
Bank
borrowings
1,385.8
-
-
-
-
-
-
1,385.8
10,947.2
211.7
269.2
153.6
200.6
180.4
95.2  12,057.9
2007
Finance
leases
211.7
271.2
153.6
200.6
98.7
82.1
-
1,017.9
Funding
loans
365.5
1.4     1,489.7
-
-
-
123.1
1,979.7
Other short-term loans
21.9
-
-
-
-
-
-
21.9
Non-interest bearing debt
-
-
-
-
-
-
3.0
3.0
Trade and other payables
9,742.5
-
-
-
-
-
-
9,742.5
Bank
borrowings
879.2
-
-
-
-
-
-
879.2
11,220.8
272.6    1,643.3
200.6
98.7
82.1
126.1    13,644.2
2008
Finance
leases
271.2
153.6
200.6
98.7
82.1
-
-
806.2
Funding
loans
421.1       1,665.3    1,089.0
-
-
-
142.6
3,318.0
Other short-term loans
8.1
-
-
-
-
-
-
8.1
Non-interest bearing debt
-
-
-
-
-
-
6.0
6.0
Trade and other payables
10,634.0
-
-
-
-
-
-     10,634.0
Bank
borrowings
2,596.8
-
-
-
-
-
-
2,596.8
13,931.2       1,818.9    1,289.6
98.7
82.1
-
148.6     17,369.1
background image
F-187
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.        FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.3   Liquidity risk management (continued)
The following tables detail the Group’s liquidity analysis for its derivative financial instruments. The tables have been
drawn up based on the undiscounted net cash inflows/outflows on the derivative instruments that settle on a net basis
and the undiscounted gross outflows on those derivatives that requires gross settlement. When the amount payable or
receivable is not fixed, the amount disclosed has been determined by reference to projected interest rates as illustrated
by the yield curves existing at the reporting date.
0 - 1 year
2 years
3 years   4 years   5 years   5+ years
Not
Total
determined
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
2006
Net
settled:
Interest rate swaps
7.3
-
-
-
-
-
-
7.3
Foreign exchange
forward contracts
3.0
-
-
-
-
-
-
3.0
Gross settled:
Foreign exchange
forward contracts
1,650.6
-
-
-
-
-
-
1,650.6
1,660.9
-
-
-
-
-
-
1,660.9
2007
Net
settled:
Interest rate swaps
6.2
-
-
-
-
-
-
6.2
Foreign exchange
forward contracts
0.3
-
-
-
-
-
-
0.3
Gross settled:
Foreign exchange
forward contracts
2,322.5
-
-
-
-
-
-
2,322.5
2,329.0
-
-
-
-
-
-
2,329.0
2008
Net
settled:
Interest rate swaps
3.4
-
-
-
-
-
-
3.4
Foreign exchange
forward contracts
11.0
-
-
-
-
-
-
11.0
Gross settled:
Foreign exchange
forward contracts
2,134.8
100.4
-
-
-
-
-
2,235.2
2,149.2
100.4
-
-
-
-
-
2,249.6
42.2.4    Insurance risk management
The Group is exposed to insurance risk as a result of its asset base as well as its customer commitments. In terms of its
insurance risk profile the company ensures that there is adequate insurance cover through the utilisation of a special
purpose insurance vehicle (Note 4).
background image
F-188
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2
RISK MANAGEMENT (CONTINUED)
42.2.5   Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising return to shareholders.
The capital structure of the Group consists of debt, cash and cash equivalents and adjusted equity.
The Group monitors capital on the basis of debt to equity. The ratio is calculated as net debt (as defined below) to
adjusted equity (as defined below).
Net debt comprises interest bearing debt, shareholder’s loans, outside shareholder’s loans, any other long-term
liabilities, shareholder for dividends, secondary taxation payable on shareholders for dividends and cash and cash
equivalents.
Adjusted equity comprises share capital, distributable reserves, non-distributable reserves less minority interest,
trademarks and goodwill.
The Group’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. The Group reviews its
objectives on a semi-annual basis to ensure objectives are being met.
The net debt to equity ratio at year end was as follows:
2006
2007
2008
Rm
Rm
Rm
Debt
(5,619.0)
(5,919.1)
(7,043.6)
Cash and cash equivalents
1,760.3
(107.8)
(1,619.2)
Net debt
(3,858.7)
(6,026.9)
(8,662.8)
Adjusted equity
(7,647.2)
(8,274.0)
(9,308.0)
Net debt to adjusted equity ratio
50%
73%
93%
There were no changes in the Group’s objective, policies or processes for managing capital from the previous
financial year.
The Group is not subject to externally imposed capital requirements.
42.3
VM, S.A.R.L. call option
In terms of the new shareholders’ agreement, effective April 1, 2007, the Group’s minority shareholders in VM,
S.A.R.L., Empresa Moçambicana de Telecommuniçãcoes S.A.R.L. (“Emotel”) and Intelec Holdings Limitada (“Intelec”)
have a option for a period of five years following the commencement date, April 1, 2007. In terms of the option,
Emotel and Intelec shall be entitled to acquire such numbers of further shares in and proportionate claims in and
against VM, S.A.R.L. as will result in Emotel and Intelec each holding and beneficially owning, in aggregate together
with their shareholding in VM, S.A.R.L. as at April 1, 2007, 10% of the issued share capital, after the exercise of the
option. The option can only be exercised in a single transaction and after all obligations to Vodacom International
Limited have been fully discharged. The method of determining the option price is specified in the shareholders’
agreement. The call option had a nil value at March 31, 2008.
background image
F-189
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
42.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.4
Smartphone SP (Proprietary) Limited put option
In terms of the shareholders’ agreement amended during the previous financial year, the then minority shareholders of
Smartphone SP (Proprietary) Limited had a put option against Vodacom Group (Proprietary) Limited, should the Group
or the company had terminated or failed to renew the Service Provider Agreement for any reason other than the expiry
or cancellation of the Group’s South African licence. The previous put options had a nil value at March 31, 2007
and 2006 as the conditions set out in the agreement were not met. This put option was cancelled during the current
year with the acquisition of the minority shareholders of Smartphone SP (Proprietary) Limited (Note 32).
42.5
Smartcom (Proprietary) Limited put option
In terms of the amended agreement between Vodacom Group (Proprietary) Limited (“the Group”), Smartphone SP
(Proprietary) Limited (“Smartphone”) and the minority shareholders of Smartcom (Proprietary) Limited (“Smartcom”),
the then minority shareholders of Smartcom had a put option against the Group, should the Group had reduced the
standard service provider discount below the average service provider discount provided by Vodacom (Proprietary)
Limited to its other service providers. The previous put options had a nil value at March 31, 2007 and 2006 as the
conditions set out in the agreement were not met. This put option was cancelled with the acquisition of the minority
shareholders of Smartcom (Proprietary) Limited (Note 32).
42.6
Congolese Wireless Network s.p.r.l. (“CWN”) put option
In terms of a shareholders agreement, the minority shareholder in Vodacom Congo (RDC) s.p.r.l., Congolese
Wireless Network s.p.r.l. (“CWN”) has a put option which comes into effect three years after the commencement
date, December 1, 2001, and for a maximum of five years thereafter. In terms of the option, CWN shall be entitled
to put to Vodacom International Limited such number of shares in and claims on loan account against Vodacom
Congo (RDC) s.p.r.l. as constitute 19% of the entire issued share capital of that company. CWN can exercise this
option in a maximum of three tranches and each tranche must consist of at least 5% of the entire issued share capital
of Vodacom Congo (RDC) s.p.r.l. The option price will be the fair market value of the related shares at the date the
put option is exercised. The put option has a nil value as at March 31, 2008, 2007 and 2006. The option liability
had a value of R396.5 million (2007: R249.3 million; 2006: Rnil) as at March 31, 2008 (Note 25).
42.7
The Somnium Family Trust (“the Trust”) call option
The Somnium Family Trust (“the Trust”) granted Vodacom Ventures (Proprietary) Limited a call option to purchase
such number of shares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issued
share capital of the company on the date upon which the option is exercised. The option will lapse after 36 months
following the month in which the triggering events, as stipulated in the option agreement, occurs. The option price is
specified in the option agreement. The call option had a nil value at March 31, 2008 and 2007.
42.8
WBS Holdings (Proprietary) Limited call option
The Group has purchased a 10% equity stake in WBS Holdings (Proprietary) Limited effective January 31, 2007.
WBS Holdings (Proprietary) Limited has on the same date granted the Group an option to subscribe in such number
of further shares as will result in the Group holding and beneficially owning, in aggregate 25.5% of the total issued
ordinary share capital of the company after the exercise of the option. The option can be exercised by the Group until
February 27, 2009, subject to the fulfilment of the conditions precedent as set out in the sales of shares and option
agreement. The call option had a nil value at March 31, 2008 and 2007.
42.9
G-Mobile Holdings Limited call option
G-Mobile Holdings Limited granted to Vodacom Ventures (Proprietary) Limited an irrevocable call option to subscribe
for such number of further shares as would result in Vodacom Ventures (Proprietary) Limited holding and beneficially
owning, in aggregate together with the subscription shares 26% of the total issued share capital of G-Mobile
Holdings Limited after the exercise of the option at a specified price. The option had a nil value at March 31, 2007.
This call option was exercised during the current year.
background image
F-190
43.
GOODWILL IMPAIRMENT TEST
The Group periodically evaluates its non-current assets for impairment, whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The Group’s judgements regarding the
existence of impairment indicators are based on market conditions and operational performance of the business.
Future events could cause management to conclude that impairment indicators exist.
Goodwill impairment tests are performed annually in terms of IFRS 3: Business Combinations (“IFRS 3”) to compare
the fair value of each of the cash-generating units to its carrying amount. Goodwill impairment testing is conducted at
cash-generating unit levels of the business and is based on a cash flow-based valuation model to determine the fair
value of the cash-generating unit. The assumptions used in estimating future cash flows were based upon the business
forecasts and incorporated external information from industry sources, where applicable. Changes in certain of
these estimates could have an effect on the estimated fair value of the cash-generating unit. Judgements in estimating
discounted cash flows also include the selection of the pre-tax discount rate (weighted average cost of capital) to be
used in the valuation model. The discount rate used in the valuation model considered a targeted debt and equity
mix, a market risk premium, and other factors considered with valuation methodologies.
Based on the results of the impairment evaluation described above, the recorded goodwill was not impaired as
the fair value of each reporting unit exceeded the carrying value. Minor changes to the valuation model would not
significantly impact the results of the valuation; however, if future cash flows were materially different to the forecasts,
then the assessment of the potential impairment of the carrying value may be impacted.
Goodwill has been allocated for impairment testing purposes to six cash-generating units of which four are in South
Africa, one in the Democratic Republic of the Congo and one in Tanzania.
South Africa
The recoverable amounts of goodwill relating to Vodacom (Proprietary) Limited and Vodacom Service Provider
Company (Proprietary) Limited, which now includes the operations of Smartphone SP (Proprietary) Limited, Smartcom
(Proprietary) Limited and Cointel V.A.S. (Proprietary) Limited, has been determined on the basis of value in use
calculations. These companies operate in the same economic environment for which the same key assumptions
were used. These values in use calculations use cash flow projections based on financial budgets approved by
management covering a ten year period and discount rates of between 12.0% and 15.0% in Rand terms. Ten year
management accounts were used as expectations of strong revenue growth throughout the ten year period exists.
The implied terminal growth rate is between 4.0% and 6.0%. Management believes that any reasonable change
in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed the
aggregate recoverable amount of these units.
background image
F-191
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
43.      GOODWILL IMPAIRMENT TEST (CONTINUED)
Democratic Republic of Congo
The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Congo (RDC) s.p.r.l.
The calculation uses cash flow projections based on financial budgets approved by management covering a ten year period
and a discount rate which ranged between 16.0% and 19.0% in US Dollar terms. Ten year management accounts were used
as expectations of strong revenue growth throughout the ten year period exists. Cash flows beyond this period have been
extrapolated using annual nominal growth rates which ranged between 2.0% and 5.0%. Management believes that these
growth rates do not exceed the long-term average growth rate for the market in which this company operates. Management
believes that any reasonable possible change in the key assumptions on which the recoverable amount is based would not
cause the carrying amount to exceed its recoverable amount.
Tanzania
The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Tanzania Limited.
The calculation uses cash flow projections based on financial budgets approved by management covering a ten year period
and a discount rate which ranged between 16.0% and 19.0% in Tanzanian Shilling terms. Ten year management accounts
were used as expectations of strong revenue growth throughout the ten year period exists. The terminal growth rate applicable
ranged between 7.0% and 11.0%, relative to a long-term inflation target of 7.0%. Management believes that any reasonable
possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to
exceed its recoverable amount.
Tanzania
Rm
9.2
Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.
Democratic Republic of Congo
Rm
148.1
Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.
South Africa
Rm
1,739.3
Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.
ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.
March 31, 2008
Carrying amount of
goodwill
Key assumption
Basis for determining
value(s) assigned to key
assumptions
Basis for determining
value(s) assigned to key
assumptions
Key assumption
background image
F-192
43.      GOODWILL IMPAIRMENT TEST (CONTINUED)
Tanzania
Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.
Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.
Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.
Value assigned based
on management’s expected
network coverage roll out.
ZAR/TZS and USD/TZS
exchange rates during the
budget period.
Average market forward
exchange rate over the budget
period.
Value assigned to key
assumption is consistent with
external sources of information.
Democratic Republic of
Congo
Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.
Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.
Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.
Value assigned based
on management’s expected
network coverage roll out.
ZAR/USD exchange rate
during the budget period.
Average market forward
exchange rate over the budget
period.
Value assigned to key
assumption is consistent with
external sources of information.
South Africa
Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.
Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.
Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.
Value assigned based
on management’s expected
network coverage roll out.
March 31, 2008
Key assumption
Basis for determining
value(s) assigned to key
assumptions
Key assumption
Basis for determining
value(s) assigned to key
assumptions
Basis for determining
value(s) assigned to key
assumptions
Key assumption
background image
F-193
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
44.
UNDRAWN BORROWING FACILITIES AND GUARANTEES
44.1
Rand denominated facilities and guarantees
The Group has Rand denominated credit facilities totalling R5,788 million (2007: R4,989.0 million; 2006: R7,083.0
million) with R2,456 million (2007: R816.0 million; 2006: R1,114.0 million) utilised at March 31, 2008. The
facilities that are uncommitted, can also be utilised for loans to foreign entities and are subject to review at various
dates (usually on an annual basis). Certain of the facilities are still subject to the Group’s final acceptance.
Guarantor
Details
Beneficiary
2006
2007
2008
Rm
Rm
Rm
Vodacom (Proprietary)
All guarantees less than R2.0 million.
Various
2.6
2.7
2.4
Limited
Vodacom Service Provider    All guarantees less than R2.0 million.
Various
2.8
2.6
2.9
Company (Proprietary)
Limited
Vodacom Service Provider    Guarantee in respect of receipt by
SA Insurance
21.1
27.0
32.0
Company (Proprietary)
independent intermediaries of premiums       Association for
Limited
on
behalf of short-term insurers and Lloyds  benefit of
underwriters, and relating to short-term
insurers
insurance business carried on in South
Africa. Renewable annually.
Vodacom (Proprietary)
Letter of undertaking in respect of land.       Attorneys
-
6.8
16.9
Limited
Smartcom (Proprietary)
Guarantees for salary bank account
Various
2.9
3.2
-
Limited
and debit orders.
Cointel V.A.S. (Proprietary)   Guarantees for operating lease
Limited
and debit orders.
Various
-
1.5
-
29.4
43.8
54.2
44.2
Foreign denominated facilities and guarantees
The following foreign denominated facilities are in place:
Company
Details
As at
As at
March 31,
March 31,
2008
2008
Million
Million
Total facility
Utilised
Vodacom International
Revolving term loan
US$180.0
US$180.0
Limited
Vodacom Congo (RDC)
Various
US$18.5
US$9.4
s.p.r.l.
Vodacom Lesotho
Overdraft facilities with various banks
M40.0
M0.0
(Proprietary) Limited
VM, S.A.R.L.
Overdraft facility
US$0.5
US$0.0
background image
F-194
44.
UNDRAWN BORROWING FACILITIES AND GUARANTEES (CONTINUED)
44.2
Foreign denominated facilities and guarantees (continued)
The following foreign denominated guarantees have been issued:
Guarantor/Issuer
Details
Beneficiary
Currency
2006
2007
2008
Rm
Rm
Rm
Vodacom Group
Guarantees issued for
Standard Bank
US$180.0 million    1,114.4
1,311.9
1,462.6
(Proprietary)
the obligations of
Plc and RMB
(2007:
Limited
Vodacom
International       International
US$180.0 million
Limited’s term loan
(Dublin) Limited
(2006:
facility * #
US$180.0 million)
Nedbank Limited
Unsecured standby
Alcatel CIT
€
nil (2007:
85.7
-
-
on behalf of
letters of credit
€
nil; 2006:
Vodacom
€
11.4 million)
(Proprietary) Limited
Vodacom
Guarantees issued
Alcatel CIT
€
nil (2007:
37.6
-
-
International
for the obligations of
€
nil (2006:
Limited
Vodacom
Congo
€
5.0 million)
(RDC) s.p.r.l. *
1,237.7
1,311.9
1,462.6
*   Foreign denominated guarantees amounting to R1,462.6 million (2007: R1,311.9 million; 2006: R1,152.0
million issued in support of Vodacom Congo (RDC) s.p.r.l. are included as liabilities in the consolidated balance
sheets.
#  The Group is in compliance with the covenants attached to the term loan facility.
Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group
(Proprietary) Limited.
background image
F-195
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
45.
SEGMENTAL INFORMATION
Vodacom’s reportable segments are geographical business units that offer comparable business products and services
however they are separately managed because the mobile telecommunication and data communication businesses
are located in South Africa and non-South African countries.
Vodacom has six reportable segments: South Africa, Tanzania, Mozambique, Lesotho, Democratic Republic of the
Congo, and Other. The segments offer a variety of telecommunication and data communication services as well as
equipment sales.
“Other” comprises of the holding companies of the Group.
“South Africa”, which is also the home country of the parent, comprises the segment information relating to the South
African based cellular network as well as all the segment information of the service providers and other business
segments.
“Tanzania”, “Mozambique”, “Lesotho”, and “DRC” comprise the segment information relating to the non-South African
based cellular networks.
2006
2007
2008
Rm
Rm
Rm
Reconciliations of reportable segments
Segment results
Management operating profit for reportable segments
8,980.6
11,000.4*
12,616.4
Amortisation of licences, trademarks and patents and
customer bases
(167.7)
(117.7)
(95.8)
Impairment of assets
52.8
(22.9)
(29.9)
Profit from operations
8,865.7
10,859.8
12,490.7
Net finance cost
(639.2)
(463.8)
(423.9)
Finance income
129.9
74.5
72.3
Finance costs
(246.0)
(369.3)
(681.3)
Gains/(Losses) on remeasurement and disposal of
financial instruments
(523.1)
(169.0)
185.1
Profit before taxation
8,226.5
10,396.0
12,066.8
Taxation
(3,083.7)
(3,836.0)
(4,109.2)
Net profit
5,142.8
6,560.0
7,957.6
*  Management operating profit for reportable segments includes profit on sale of shares in subsidiary.
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
F-196
Other
South Africa
Tanzania
Mozambique
Lesotho
DRC
Eliminations
Total
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
45.
SEGMENTAL INFORMATION (CONTINUED)
2006
Segment revenue
274.2
31,089.8
1,311.8
158.3
170.1
1,334.2
-
34,338.4
Inter-segment revenue
(274.2)
(8.5)
(5.2)
(5.3)
(1.6)
(1.1)
-
(295.9)
External customers segment revenue
-
31,081.3
1,306.6
153.0
168.5
1,333.1
-
34,042.5
Airtime and access
-
18,169.2
988.9
71.8
120.9
735.0
-
20,085.8
Data revenue
-
1,884.8
108.0
3.5
15.8
25.5
-
2,037.6
Interconnect revenue
-
6,141.6
188.0
57.5
26.5
283.2
-
6,696.8
Equipment sales
-
3,902.4
5.4
0.4
4.2
73.2
-
3,985.6
International airtime
-
720.8
14.3
19.5
0.7
215.9
-
971.2
Other
-
262.5
2.0
0.3
0.4
0.3
-
265.5
Management operating profit/(loss)
(23.3)
8,762.9
263.6
(196.8)
50.9
123.3
-
8,980.6
Net finance income/(cost)
8,306.0
(357.7)
(86.1)
(364.4)
(0.1)
(237.4)
(7,899.5)
(639.2)
Taxation
(679.8)
(2,403.4)
(31.5)
-
(18.3)
49.3
-
(3,083.7)
Net profit/(loss)
7,226.3
5,842.0
140.6
(508.5)
32.4
(71.4)
(7,518.6)
5,142.8
Other material non-cash items included in
segment profit/(loss):
     Depreciation and amortisation
(2.8)
(2,451.5)
(201.5)
(68.2)
(16.0)
(255.8)
-
(2,995.8)
Impairments of assets reversed
-
-
-
52.8
-
-
-
52.8
Assets
Reportable segment assets
14,391.1
20,642.0
1,348.6
527.2
136.8
1,992.9
(14,270.8)
24,767.8
Included in reportable segment assets:
     Additions to property, plant and equipment
     and intangible assets
16.5
4,383.0
321.5
121.4
25.9
273.2
-
5,141.5
     Non-current assets other than financial instruments
     and deferred taxation
55.7
11,902.1
950.1
396.4
101.4
1,563.4
720.4
15,689.5
Liabilities
Reportable segment liabilities
(6,108.1)
(17,292.4)
(613.1)
(1,030.3)
(52.1)
(2,527.9)
11,528.4
(16,095.5)
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
F-197
Other
South Africa
Tanzania
Mozambique
Lesotho
DRC
Eliminations
Total
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
45.
SEGMENTAL INFORMATION (CONTINUED)
2007
Segment revenue
388.4
37,050.2
1,729.3
269.0
227.5
1,914.4
-
41,578.8
Inter-segment revenue
(388.4)
(11.6)
(7.4)
(10.0)
(2.1)
(12.9)
-
(432.4)
External customers segment revenue
-
37,038.6
1,721.9
259.0
225.4
1,901.5
-
41,146.4
Airtime and access
-
21,045.3
1,282.4
131.6
165.3
1,082.9
-
23,707.5
Data revenue
-
3,112.9
146.5
8.1
22.5
51.7
-
3,341.7
Interconnect revenue
-
7,058.0
257.8
80.1
31.7
408.0
-
7,835.6
Equipment sales
-
4,604.9
19.4
4.4
4.2
66.2
-
4,699.1
International airtime
-
961.8
15.4
34.6
1.3
292.7
-
1,305.8
Other
-
255.7
0.4
0.2
0.4
-
-
256.7
Management operating profit/(loss)
64.2
10,383.6
347.0
(154.1)
74.9
284.8
-
11,000.4
Net finance income/(cost)
3,346.4
(475.3)
(43.6)
34.5
(0.8)
(287.8)
(3,037.2)
(463.8)
Taxation
(799.2)
(2,922.0)
(112.1)
(42.0)
(18.9)
58.2
-
(3,836.0)
Net profit/(loss)
2,102.9
6,870.4
190.7
(184.4)
55.2
47.4
(2,522.2)
6,560.0
Other material non-cash items included in
segment profit/(loss):
Depreciation and amortisation
(2.2)
(2,688.6)
(237.8)
(84.8)
(22.1)
(325.7)
-
(3,361.2)
Impairments of assets
-
-
-
(22.9)
-
-
-
(22.9)
Assets
Reportable segment assets
13,183.2
23,207.0
2,424.4
690.9
169.5
2,692.0
(13,896.8)
28,470.2
Included in reportable segment assets:
Additions to property, plant and
equipment and intangible assets
182.3
5,458.3
957.6
85.2
25.0
506.0
-
7,214.4
Non-current assets other than financial
instruments and deferred taxation
230.1
14,949.8
1,864.9
459.4
104.3
2,036.1
604.1
20,248.7
Liabilities
Reportable segment liabilities
(7,693.4)
(16,746.1)
(1,123.0)
(1,261.2)
(66.2)
(3,272.7)
11,339.4
(18,823.2)
background image
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
March 31, 2008
F-198
Other
South Africa
Tanzania
Mozambique
Lesotho
DRC
Eliminations
Total
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
45.
SEGMENTAL INFORMATION (CONTINUED)
2008
Segment revenue
-
43,180.3
2,354.5
433.9
308.9
2,296.6
-
48,574.2
Inter-segment revenue
-
(355.4)
(9.7)
(26.0)
(2.6)
(2.7)
-
(396.4)
External customers segment revenue
-
42,824.9
2,344.8
407.9
306.3
2,293.9
-
48,177.8
Airtime and access
-
23,596.4
1,704.7
220.5
186.6
1,387.0
-
27,095.2
Data revenue
-
4,669.8
206.8
15.7
31.3
78.6
-
5,002.2
Interconnect revenue
-
7,938.3
360.4
110.8
40.7
436.9
-
8,887.1
Equipment sales
-
4,931.0
45.6
8.2
8.9
57.7
-
5,051.4
International airtime
-
1,386.7
26.7
52.6
38.2
331.7
-
1,835.9
Other
-
302.7
0.6
0.1
0.6
2.0
-
306.0
Management operating profit/(loss)
34.0
11,754.3
460.0
(127.0)
122.8
372.3
-
12,616.4
Net finance income/(cost)
7,885.4
(537.7)
(24.4)
56.2
2.5
(274.9)
(7,531.0)
(423.9)
Taxation
(739.6)
(3,250.9)
(121.2)
43.9
(32.5)
(8.9)
-
(4,109.2)
Net profit/(loss)
6,675.9
7,916.3
314.5
(56.5)
94.0
80.2
(7,066.8)
7,957.6
Other material non-cash items included in
segment profit/(loss):
   Depreciation and amortisation
(56.7)
(3,056.5)
(305.5)
(94.6)
(16.1)
(381.7)
-
(3,911.1)
   Impairments of assets
-
-
-
(29.9)
-
-
-
(29.9)
Assets
Reportable segment assets
16,015.4
24,597.8
3,430.7
892.0
277.5
3,431.3
(14,469.5)
34,175.2
Included in reportable segment assets:
   Additions to property, plant and equipment
   and intangible assets
1,132.0
4,270.0
712.6
111.3
38.7
658.6
-
6,923.2
   Non-current assets other than financial instruments
   and deferred taxation
421.1
16,046.6
2,546.3
546.8
129.1
2,590.3
1,488.7
23,768.9
Liabilities
Reportable segment liabilities
(9,489.4)
(17,776.7)
(2,335.7)
(1,924.6)
(104.8)
(3,987.2)
13,248.5
(22,369.9)
background image
F-199
46.
INTEREST IN SUBSIDIARIES
The information discloses interests in subsidiaries material to the financial position of the Group. The interest in the ordinary share
capital is representative of the voting power.
RSA – Republic of South Africa; LES – Lesotho; TZN – Tanzania; MZ – Mozambique; DRC – Democratic Republic of the Congo;
MAU – Mauritius; C – Cellular; MSC – Management services company; PROP – Property company; OTH - Other.
Country of                           Issued share capital                              Interest in issued
incorporation
ordinary share capital
2006
2007
2008      2006
2007
2008
%
%
%
Cellular network operators
Vodacom (Proprietary) Limited (C)
RSA
R100
R100
R100
100
100
100
Vodacom Lesotho (Proprietary) Limited (C)
LES
M4,180
M4,180
M4,180      88.3
88.3
88.3
Vodacom Tanzania Limited (C)
TZN
TZS10,000
TZS10,000
TZS10,000
65
65
65
VM, S.A.R.L. (C)
MZ  US$60,000,000    US$60,000,000
US$60,000,000
98
98
90
Vodacom Congo (RDC) s.p.r.l. (C)
DRC
US$1,000,000
US$1,000,000
US$1,000,000
51
51
51
Service providers
Vodacom Service Provider Company
(Proprietary) Limited (C)
RSA
R20
R20
R20
100
100
100
Smartphone SP (Proprietary) Limited (C) *
RSA
R20,000
R20,000
R20,000
51
70
100
Smartcom (Proprietary) Limited (C) *
RSA
R1,000
R1,000
R1,000     43.7
61.7
100
Cointel V.A.S. (Proprietary) Limited (C) *
RSA
-
R10,204
R10,204
51
70
100
Other
VSP Holdings (Proprietary) Limited (MSC) *
RSA
R1,023
R1,023
R1,023
100
100
100
Vodacom Satellite Services (Proprietary)
Limited (OTH) *
RSA
R100
R100
R100
100
100
100
GSM Cellular (Proprietary) Limited (OTH) *
RSA
R1,200
R1,200
R1,200
100
100
100
Vodacom Venture No. 1 (Proprietary)
Limited (OTH) *
RSA
R810
R810
R810
100
100
100
Vodacom Equipment Company
(Proprietary) Limited (OTH) *
RSA
R100
R100
R100
100
100
100
Vodacare (Proprietary) Limited (OTH) *
RSA
R100
R100
R100
100
100
100
Vodacom International Holdings
(Proprietary) Limited (MSC)
RSA
R100
R100
R100
100
100
100
Vodacom International Limited (MSC)
MAU
US$100
US$100
US$100
100
100
100
Vodacom Properties No.1 (Proprietary)
Limited (PROP)
RSA
R100
R100
R100
100
100
100
Vodacom Properties No.2 (Proprietary)
Limited (PROP)
RSA
R1,000
R1,000
R1,000
100
100
100
Stand 13 Eastwood Road Dunkeld West
(Proprietary) Limited (PROP)
RSA
R100
R100
-
51
70
-
Ithuba Smartcall (Proprietary) Limited (OTH)
RSA
R100
R100
-     26.5
36.4
-
Smartcall Smartlife (Proprietary)
Limited (OTH)
RSA
-
R100
-
-
63
-
Vodacom Tanzania Limited
(Zanzibar) (OTH) *
TZN
TZS10,000
TZS10,000
TZS10,000
99
99
99
Joycell Shops (Proprietary) Limited (OTH) *
RSA
R100
R100
R100
100
100
100
Marble Gold Investments (Proprietary)
Limited (OTH) *
RSA
R100
R100
R100
100
100
100
Vodacom Ventures (Proprietary) Limited (OTH)
RSA
R120
R120
R120
100
100
100
Skyprops 134 (Proprietary) Limited (PROP)
RSA
-
R100
R100
-
100
100
* Dormant as at March 31, 2008.
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
background image
F-200
47.
INTERESTS IN JOINT VENTURES
47.1
Number Portability Company (Proprietary) Limited
In response to the introduction of Mobile Number Portability (“MNP”) it was necessary for the formation of a company
to provide all the services necessary to allow the existing three incumbent mobile operators to offer MNP.
Number Portability Company (Proprietary) Limited was formed for the express purpose of providing all the necessary
services required for MNP by Vodacom, MTN and Cell C.
Number Portability Company (Proprietary) Limited is owned equally by all three operators and they contributed the required
necessary financial resources directly proportional to their shareholding. MNP was officially launched on November
10, 2006.
Effective September 20, 2006, Vodacom (Proprietary) Limited acquired a 33.3% stake in Number Portability
Company (Proprietary) Limited by acquiring 100 shares for R1. Each shareholder advanced to Number Portability
Company (Proprietary) Limited funding by way of shareholders loans. As a March 31, 2008 the shareholder loan
balance was R6.0 million (2007: R6.0 million) (Note 21).
2007
2008
Rm
Rm
Interest held
33.3%
33.3%
The Group’s proportionate share of assets and liabilities:
Property, plant and equipment
*
*
Intangible assets
6.3
6.3
Current assets
2.2
3.0
Total assets
8.5
9.3
Long-term liabilities
(6.0)
(6.0)
Inter company creditors
(3.0)
(3.0)
Current liabilities
(0.6)
(0.4)
Net liabilities
(1.1)
(0.1)
The Group’s proportionate share of revenue and expenditure:
Revenue
0.4
5.7
Profit/(Loss) before taxation
(1.1)
1.1
Taxation
-
(0.1)
Net profit/(loss)
(1.1)
1.0
The Group’s proportionate share of cash flows:
Net cash flows from operating activities
(1.0)
0.2
Net cash flows utilised in investing activities
(7.0)
(1.8)
Net cash flows from financing activities
9.0
3.0
Net cash flow
1.0
1.4
NPC had no contingent liabilities or capital commitments at March 31, 2007 and 2008.
* Amounts less than R50 000
background image
F-201
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
48.
NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS
Accounting pronouncements adopted at March 31, 2008
The Group adopted the following revised and new International Financial Reporting Standards in accordance with
their effective dates during the current financial year:
IAS 1 (revised August 2005)
Presentation of Financial Statements (capital disclosures)
IFRS 7
Financial Instruments: Disclosures
IFRIC 9
Reassessment of Embedded Derivatives
IFRIC 10
Interim Financial Reporting and Impairment
IFRIC 11
IFRS 2 Group and Treasury Share Transactions
AC 503
Accounting for BEE transactions
The adoption of the above mentioned accounting pronouncements had no impact on the Group’s results or cash flow
information for the year ended March 31, 2008.
Accounting pronouncements not adopted at March 31, 2008
In November 2006 the IASB issued IFRIC 12: Service Concession Arrangements (“IFRIC 12”) effective for annual
periods beginning on or after January 1, 2008. The interpretation addresses the accounting by private sector
operators involved in the provision of public sector infrastructure assets and services, such as schools and roads. The
interpretation states that for arrangements falling within its scope (essentially those where the infrastructure assets are
not controlled by the operator), the infrastructure assets are not recognised as property, plant and equipment of the
operator. Rather, depending on the terms of the arrangement, the operator will recognise:
· a financial asset where the operator has an unconditional right to receive a specified amount of cash or other
  financial asset over the life of the arrangement; or
· an intangible asset where the operator’s future cash flows are not specified – e.g. where they will vary according
  to usage of the infrastructure asset; or
· both a financial asset and an intangible asset where the operator’s return is provided partially by a financial asset
  and partially by an intangible asset.
The Group will adopt IFRIC 12 during the 2009 financial year and is currently evaluating the effects of the
interpretation.
In March 2007 the IASB issued a revision to IAS 23: Borrowing Costs (“IAS 23”) effective for annual periods
beginning on or after January 1, 2009. The revised standard removes the option of recognising immediately as
an expense those borrowing costs that relate to assets that take a substantial period of time to get ready for use or
sale. The revised standard does not apply to borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets measured at fair value or inventories that are manufactured, or otherwise produced,
in large quantities on a repetitive basis.
The Group will adopt the revised IAS 23 during the 2010 financial year and is currently evaluating the effects of the
standard.
In June 2007 the IASB issued IFRIC 13: Customer Loyalty Programmes (“IFRIC 13”) effective for annual periods
beginning on or after July 1, 2008. The interpretation addresses accounting by entities that grant loyalty award
credits (such as points or travel miles) to customers who buy other goods or services. Specifically, it explains how such
entities should account for their obligations to provide free or discounted goods or services (awards) to customers
who redeem award credits. IFRIC 13 states that an entity that grants loyalty award credits shall allocate some of
the proceeds of the initial sale to the award credits as a liability (its obligation to provide the awards). The entity shall
recognise the deferred portion of the proceeds as revenue only when it has fulfilled its obligations.
The Group will adopt IFRIC 13 during the 2010 financial year and is currently evaluating the effect of the
interpretation and based on current indications do not believe that it will have a material impact on the Group's
numbers.
background image
F-202
48.
NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
Accounting pronouncements not adopted at March 31, 2008 (continued)
In July 2007 the IASB issued IFRIC 14: IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction (“IFRIC 14”) effective for annual periods beginning on or after January 1, 2008. The interpretation
addresses the interaction between a minimum funding requirement and the limit placed by paragraph 58 of IAS 19
on the measurement of the defined benefit asset or liability. When determining the limit on a defined benefit asset in
accordance with IAS 19.58 entities are required, under IFRIC 14, to measure any economic benefits available to
them in the form of refunds or reductions in future contributions at the maximum amount that is consistent with the terms
and conditions of the plan and any statutory requirements in the jurisdiction of the plan.
The Group will adopt IFRIC 14 during the 2009 financial year and is currently evaluating the effects of the
interpretation.
In September 2007 the IASB issued a revision to IAS 1: Presentation of Financial Statements (“IAS 1”) effective for
annual periods beginning on or after January 1, 2009. The revised standard requires an entity to:
· present all non-owner changes in equity either in one statement of comprehensive income or in two statements, a
  separate income statement and a statement of comprehensive income;
· present a statement of financial position as at the beginning of the earliest comparative period in a complete
  set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective
  adjustment; and
· disclose income tax relating to each component of other comprehensive income and to disclose reclassification
  adjustments relating to components of other comprehensive income.
In addition the revision includes changes in the titles of some of the financial statements. The new titles will be used
in International Financial Reporting Standards, but are not mandatory for use in financial statements.
The Group will adopt the revised IAS 1 during the 2010 financial year and is currently evaluating the effect of the
revised standard.
In January 2008 the IASB issued a revision to IFRS 2: Share-based Payment (“IFRS 2”) effective for annual periods
beginning on or after January 1, 2009. The revised standard clarifies:
· vesting and non-vesting conditions;
· the estimation of the fair value of equity instruments granted;
· the accounting treatment of cancellations by counterparties to a share-based arrangement; and
· the definition of performance conditions.
The Group will adopt the revised IFRS 2 during the 2010 financial year and is currently evaluating the effect of the
revised standard.
In February 2008 the IASB issued a revision to IAS 32: Financial instruments: Presentation (“IAS 32”) effective for
annual periods beginning on or after January 1, 2009. The revision requires:
· puttable instruments and instruments or components of instruments that impose on the entity an obligation to deliver
  to another party a pro-rata share of the net assets of the entity only on liquidation to be classified as equity if all
  the conditions specified in the standard are met;
· reclassification from or to equity when the specified criteria are no longer met or are subsequently met; and
· that derivatives over the aforementioned instruments may not be classified as equity.
The Group will adopt the revised IAS 32 during the 2010 financial year and is currently evaluating the effect of the
revised standard.
background image
F-203
March 31, 2008
NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
48.
NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
Accounting pronouncements not adopted at March 31, 2008 (continued)
In January 2008 the IASB issued a revision to IFRS 3: Business Combinations (“IFRS 3”) effective for business
combinations in annual periods beginning on or after July 1, 2009, which consequentially amended IAS 27:
Consolidated and Separate Financial Statements (“IAS 27”), IAS 28: Investments in Associates (“IAS 28”) and
IAS 31: Interest in Joint Ventures (“IAS 31”) effective for annual periods beginning on or after July 1, 2009.
Revisions to IFRS 3:
· require all acquisition costs to be expensed;
· require acquirers, with step acquisitions achieving control, to remeasure its previously held equity interest to fair
  value at the acquisition date and recognise any gain or loss in profit or loss;
· require non-controlling interests to be measured at either fair value or at the non-controlling interest’s proportionate
  share of net identifiable assets of the entity acquired;
· require considerations for acquisitions to be measured at fair value at the acquisition date including the fair value of
  any contingent consideration payable. Subsequent changes are only allowed as a result of additional information
  on facts and circumstances that existed at the acquisition date, all other changes are recognised in profit or loss;
· require goodwill to be measured as the difference between the aggregate of the acquisition date fair value of
  the consideration transferred; the amount of any non-controlling interest acquired and in a business combination
  achieved in stages, the acquisition date fair value of the acquirers’ previously held equity interest and the net of
  the acquisition date amounts of identifiable assets acquired and liabilities assumed; and
· clarifies that all contractual arrangements at the acquisition date must be classified and designated with the
  exception of leases and insurance contracts. Thus the acquirer applies its accounting policies as if it has acquired
  those contractual relationships outside of the business combination.
Revisions to IAS 27:
· require that changes in a parent’s ownership interest in a subsidiary that do no result in a loss of control are equity
  transactions, no gain or loss is recognised and goodwill is not remeasured. The difference between the change in
  the non-controlling interest and the fair value of the consideration paid or received is recognised in equity;
· require that with the loss of control all assets, liabilities and non-controlling interest should be derecognised at
  carrying amount and any retained non-controlling interest should be remeasured to fair value on the date control is
  lost. The difference between the sum of the proceeds received and any retained interest and the carrying amount
  of assets, liabilities and non-controlling interests at the date control is lost, should be recognised in profit or loss;
  and
· require losses to be allocated to non-controlling interests even if they exceed the non-controlling interest’s share of
  equity in the subsidiary.
Revisions to IAS 28:
· require derecognition of an associate with the loss of significant influence; and
· recognition in profit or loss of the difference between the sum of the proceeds received and any retained interest,
  and the carrying amount of the investment in the associate at the date significant influence is lost.
Revisions to IAS 31:
· similar treatment as for associate investments is required when an investor loses joint control over a jointly controlled
  entity.
The Group will adopt the revised IFRS 3, IAS 27, IAS 28 and IAS 31 during the 2011 financial year and is currently
evaluating the effect of the revised standards.
In February 2008 the IASB issued a revision to IAS 1: Presentation of financial statements (“IAS 1”) effective for annual
periods beginning on or after January 1, 2009. The revision requires disclosures for puttable instruments classified
as equity which include quantative data about the amount classified as equity; the entity’s objectives, policies and
processes for managing its obligation to repurchase or redeem the instruments including any changes from the
previous period; the expected cash outflow on redemption or repurchase of that class of financial instruments, how
the expected cash outflow was determined and if an instrument is reclassified into and out of financial liabilities and
equity the amount, timing and reason for reclassification.
The Group will adopt the revised IAS 1 during the 2010 financial year and is currently evaluating the effect of the
revised standard.
background image
REPUBLIC OF SOUTH AFRICA
COMPANIES ACT, 1973
FORM CM26
Special resolution
(Section 200)
(To be lodged in duplicate)
Registration No. of Company
1991/005476/06
Revenue stamp or
revenue franking machine
impression of R80
Name of company
Telkom SA Limited
Date notice given to members 16/01/2003
Date resolution passed
16/01/2003

Copy of notice convening meeting attached.
Consent to waive period ofnotice of meeting (CM 25) attached/* not attached.
________________________________________________________________________________________________
CONTENTS OF RESOLUTION (Use reverse side if necessary)
Resolved:
See attached
Rubber stamp of company, if any, or of secretaries
Date
16/01/2003
Signature _______________________
Name (in block capitals)
* Delete whichever not applicable.
To be completed by company
Herewith copy of special resolution as registered



Name of company
Telkom SA Limited
Postal address
Private Bag X881
Pretoria, 0001
Not valid unless stamped by Registrar of Companies
Registration No. of Company
1991/005476/06
Special resolution
registered this day
REGlSTRATEUR VAN MAATSKAPPYE
EN VAN BESLOTE KORPORASIES
Date stamp of Companies
Registration Office
2003-01-17
Special resolution passed in terms of section
62/75
of the Act/*paragraph ____________________ of the memorandum/
*article___________________________of the articles.
Director/Secretary/Manager
VV Mashale
background image
The following resolutions were hereby APPROVED as SPECIAL RESOLUTIONS
SPECIAL RESOLUTION NUMBER 1
"Resolved that, subject to -
the passing and registration of special resolutions number 1 to 3 inclusive and
such resolutions becoming unconditional in accordance with their terms;
the Minister of Communications of the Government of the Republic of South
Africa ("Minister") consenting in writing to the adoption by the company of a
new memorandum of association in terms of this special resolution and new
articles of association in terms of special resolution number 2;
a new written strategic services agreement ("strategic services agreement"),
which is substantially in accordance with the draft strategic services agreement
tabled at this meeting and signed by the chairman to identify it, being entered
into between the company and its strategic equity investors, and such
agreement becoming unconditional and taking effect in accordance with its
terms; and
the entire issued ordinary share capital of the company being listed on the JSE
Securities Exchange, South Africa ("JSE") on or after the date on which the
strategic services agreement becomes unconditional and takes effect in
accordance with its terms, as evidenced by a certificate signed by a director of
the company to that effect, which certificate shall be lodged with the Registrar
of Companies,
the company adopt, with effect from the date of the listing of the entire issued
ordinary share capital on the JSE ("listing date"), the new memorandum of
association tabled at this meeting and signed by the chairman to identify it, in place
of the company's existing memorandum of association."
The effect of special resolution number 1 is to adopt a new memorandum of
association for the company, which differs from the memorandum of association it
will replace by changes to the special conditions in clause 6 and the company's
authorised share capital in clause 8. The reason for this special resolution is that,
together with special resolutions numbers 2 and 3, it is required to enable the
company's major shareholder, the Government of South Africa, to make a listed initial
public offering of its shares in the company, pursuant to and in accordance with the
terms of the existing shareholders' agreement dated 14 May 1997 among the Minister,
Thintana Communications LLC and the company itself.
background image
SPECIAL RESOLUTION NUMBER 2
"Resolved that, subject to the passing and registration of special resolution number 1
and such resolution becoming unconditional in accordance with its terms, the company
adopt, with effect from the listing date, the new articles of association tabled at this
meeting and signed by the chairman to identify them, in place of the company’s existing
articles of association.”
The effect of special resolution number 2 is to adopt new articles of association for the
company which will differ from the articles of association they will replace in the
respects and to the extent required to transform them from those of a closely held
company to those of a publicly held company so as to enable the company’s shares to be
listed pursuant to an initial public offering, for the reason set out for special resolution
number 1.
SPECIAL RESOLUTION NUMBER 3
“Resolved that, subject to the passing and registration of special resolution number 1
and such resolution becoming unconditional in terms thereof, this company’s
authorised share capital of R10 000 000 000 divided into 1 000 000 000 ordinary par
value shares of R10 each (‘ordinary shares”) shall be altered to R10 000 000 000
divided into 999 999 998 ordinary shares, one Class A ordinary par value share of R10
(“Class A share”) and one Class B ordinary par value share of R10 (“Class B share”)
and its issued share capital shall accordingly be altered from R5 570 318 190 divided
into 557 031 819 ordinary shares to R5 570 318 190 divided into 557 031 817 ordinary
shares, one Class A ordinary share and one Class B ordinary share by converting –
−
one ordinary share held by the Minister into one Class A share, having the
special rights and being subject to the special conditions attached to that
share in terms of special resolution number 1 and 2, and which shall
accordingly be redesignated as a Class A share;
−
one ordinary share held by Thintana Communications LLC into one Class B
share, having the special rights and being subject to the special conditions
attached to that share in terms of the new articles of association adopted by
the company in terms of special resolution number 2, and which shall
accordingly be redesignated as a Class B share.”
background image
The effect of special resolution number 3 is to alter the company's authorised and
issued share capital by creating, through the conversion of two ordinary shares of R1
each, 1 Class A par value share and 1 Class B par value share, of R1 each, for the
reason set out for special resolution number 1.
background image
Client Ref:





Name of company Telkom SA Limited
__________________________________________
Date notice given to members       22 September 2006
Date resolution passed 20 October     2006
________________________________
Special resolution passed in terms of section          62
of the articles.
_________________________________________
of the Act/*paragraph-
of the memorandum/*article
Copy of notice convening meeting attached. 
Consent to waive period of notice of meeting (CM'35) attached/*not attached—
___________________________________________________________________________________ ____________________________________
CONTENTS OF RESOLUTION
(Use reverse side if necessary)
RESOLVED:
See Annexure
Rubber stamp of company, if any, or of secretaries
Date                      21 June 2007
Signature
Director'/Secretary/Manager
Name (in block capitals)
SF Linford
* Delete whichever not applicable
To be completed by company
Herewith copy of special resolution as registered.
Name of Company:
Telkom SA Limited
Attention: Ms Linford
Private Bag X881
PRETORIA
0001
Registration No. of Company
1991/005476/06
EN VAN BESLOTE
KORPORASIES
2007 -08- 2 3
Date stamp of Companies
•———Registration_Office__
REGISTRAR OF COMPANIES
AND OF CLOSE CORPORATIONS
Form CM 26
REPUBLIC OF SOUTH AFRICA
COMPANIES ACT, 1973
Special resolution
(Section 200) (To be
lodged in duplicate)
 
Registration No. Of Company
Postal address:       
Registrar of Companies
1991/005476/06
______________________________
___________________
____________
background image
ANNEXURE TO CM 26
RESOLVED THAT:
The Company's Articles of Association be and are hereby amended as follows:
1.
In article 1.1.1.9, in line 2, the words "and the Class B reserved matters" is deleted as
the Class B reserved matters have ceased to exist.
2.
Article 1.1.1.19 is deleted as the provisions thereof have become obsolete.
3.
Article 1.1.1.21 is deleted as the Class B reserved matters have ceased to exist.
4.
Article 1.1.1.24 is deleted as the provisions thereof have become obsolete.
5.
Article 1.1.1.25 is deleted as the provisions thereof have become obsolete.
6.
In article 1.1.1.34 the definition of "HRRC" is deleted and replaced with the
following: "HRRRC" means the Human Resources Review and Remuneration
Committee of the Board, established in accordance with the provisions of article
38;"
7.
In article 1.1.1.41 the definition of "management structure" is deleted and
replaced with the following to reflect the current management structure, namely:
"management structure" means the senior members of the company's manage ment
from time to time, from the level of a managing executive or group executive or its
equivalent and higher, including all executive directors, as determined by the board
from time to time as a board reserved matter;"
8.
In article 1.1.1.46 the definition of "operating committee" is deleted as this committee
no longer exists.
9.
In article 1.1.1.57 the definition of "strategic services agreement" is deleted as such
agreement no longer exists.
10.
Article 1.2 is amended in line 1 to delete the reference to clause 26 and to insert the
word "and" between the numbers "24" and "25", as clause 26 is deleted herein.
11.
Article 21.1 is amended to read as follows:
"Subject to the provisions of the Act, the number of directors shall not be less than 8
(eight) and not more than 11 (eleven)".
12.
Article 24.1.3 is deleted as the provisions thereof have become obsolete.
13.
Article 24.2 is deleted as the provisions thereof have become obsolete.
14.
Article 26 entitled "Class B reserved matters" and the sub articles numbered 26.1,
26.2, 26.3 and 26.4 are deleted as the provisions thereof have become obsolete.
15.
Article 27 is amended in line 1 to delete the reference to article 26 as article 26 is
deleted herein; in line 4 the word "applicable" is deleted as only one significant
shareholder exists.
background image
16.
Article 28 is amended as follows to reflect that the Class B Shareholder is not
a significant shareholder, namely:
a.     in article 28.1, line 1 the words "or the Class B shareholder" is deleted;
b.     in article 28.1.1 in line 3 the words "other than, in relation to the Class B
Shareholder, Vodacom," are deleted;
c.     in article 28.1.1 in line 9 the words "and the Class B Shareholder together"
are deleted;
d.     in article 28.1.2, in line 3 the words "or the Class B director as the case may be"
are deleted;
e.     articles 28.3, 28.4 and 28.5 are deleted; and
f.
article 28.6 is amended by deleting in line 2 the reference to article 28.5 and
substituting same with a reference to article 28.2.
17.
Article 33 is amended as follows to reflect that the Class B Shareholder is not a
significant shareholder, namely:
a.     in article 33.2 in line 5, the word "either" is deleted and in lines 5 and 6 the
words "or the Class B Shareholder, respectively", is deleted;
b.     in line 9 the words "each such significant shareholder" is deleted and
substituted with the words "the Class A Shareholder";
c.     in line 10 the word "any" is deleted and substituted with the word "a"; and
d.     in article 33.5 the semi-colon and the following sentence are deleted in lines 8
and 9 namely "and for as long as the Class B Shareholder is a significant
shareholder, the quorum shall include 1 (one) Class B director".
18.
Article 34 is amended by the deletion in line 6 of the words "remuneration committee"
and the substitution thereof of the words "HRRRC" to reflect that the remuneration
committee forms part of the HRRRC.
19.
In article 37 the second sentence beginning in line 3 is deleted and substituted with
the following:
"No person may serve at the same time as both the CEO and the chairperson of the
board unless otherwise determined by the approval of the Class A Shareholder for so
long as it remains a significant shareholder; provided that any such approval of the
Class A Shareholder may not be given so as to permit a dual appointment in those
two capacities for a period of more than 12 (twelve) months."
20.
Article 38 is amended as follows:
20.1
the heading "Human Resources Review Committee" is deleted and substituted
with the following:
"HUMAN RESOURCES REVIEW AND REMUNERATION COMMITTEE";
background image
20.2    all references in article 38 to "HRRC" is deleted and substituted with a
reference to "HRRRC";
20.3    article 38.1.1 is deleted and substituted with the following:
"The board shall establish and maintain, the HRRRC consisting of the
chairperson of the board, the CEO, the COO, the GE/HR and at least 3
(three) non-executive directors. The HRRRC shall also include the head of
training (being the most senior executive responsible for training) as an ex
officio non voting member. The non-executive directors shall be appointed to
the HRRRC by the board. All members of the HRRRC shall be entitled to vote
on HRRRC matters (excluding the head of training). A non-executive director,
appointed by the meeting, shall chair the meeting";
20.4    articles 38.1.3 and 38.1.4 are deleted as the provisions thereof have become
obsolete;
20.5    article 38.2 is amended by deleting the provision thereof from and including
the third sentence in line 5 beginning with the word "Notwithstanding....";
20.6    a new article 38.3.3 is inserted to read as follows:
"review the terms upon which the executive directors and the senior
managers of the company are employed and remunerated and upon which
non-executive and ordinary directors are remunerated and make
recommendations to the board."
21      in article 39.2 the following amendments are made to reflect that the Class B
Shareholder is no longer a significant shareholder, namely:
21.1   in line 1 the word "either" is deleted;
21.2   in line 1 the words "or the Class B Shareholder" is deleted; and
21.3   in line 1 the word "each" is deleted.
22.
Article 39.5 is deleted as the provisions thereof have become obsolete.
23.
Article 40 titled "CLASS B AUDIT RIGHTS" is deleted as the Class B Shareholder is
no longer a significant shareholder.
24.
Article 43 is deleted since no legislation was enacted to sanction the provisions of
article 43 as required in terms of article 43.19.
25.
Article 44 is deleted as the Class B Shareholder is no longer a significant
shareholder.
26.
In article 45 the reference to article 26 is deleted in clause 45.1, in the unnumbered
portion of article 45.1 and in article 45.2 as article 26 is deleted herein. The word
"articles" are to be changed to "article" in each instance;
27.
In article 50 the references in line 1 to "operating committee member" and "alternate
operating committee member" are deleted and substituted with a reference to
"executive committee member" and "alternate executive committee member",
respectively.
background image
Client Ref:
Special resolution
(Section 200)
(To be lodged in duplicate)
_
Registration No. Of Company
1991/005476/06
Name of company
TELKOM SA LIMITED
____________________________________________________

_________________________________________________________________________________________

_____________________________________________________________________________________________________________________

Copy of notice convening meeting attached.
Consent to waive period of notice of meeting (CM 25)         attached/*   not attached.
_________________________________________________________________________________________________________________________
CONTENTS OF RESOLUTION
(Use reverse side if necessary)
RESOLVED:
REGISTRATEUR VAN MAATSSKAPPE
EN VAN BESLOTE KORPORASIES
See Annexure
2007 -10- 2 9
REGISTRAR OF COMPANIES AND
OF CLOSE CORPORATIONS
Rubber stamp of company, if any, or of secretaries.
________________________________________________________________________________________________________________________
Date 29 OCTOBER 2007
Signature
Name (in block capitals)
 
* Delete whichever not applicable____________________________________________________________________________________________
To be completed by Company
Herewith copy of special resolution as registered.
Name of Company:        TELKOM SA LIMITED
Attn; Ms SF Linford
Postal address:               PRIVATE BAG X 881
PRETORIA
0001
Registration No. of Company
1991/005476/06
REPUBLIC OF SOUTH AFRICA
COMPANIES ACT, 1973
Date notice given to members            21 SEPTEMBER 2007

Date resolution passed
26 OCTOBER 2007
Special resolution passed in terms of section                    55       of the Act/*paragraph ___________ of the memorandum/*article ___________
of the articles.
Director/secretar
Sandra Felicity Linford
Agent Code: 005476
background image
ANNEXURE TO CM 26
Special resolution number 1

IT IS RESOLVED THAT the company's memorandum of association be
follows: the company's stated main object and main business is deleted and replaced with the following -
"To supply telecommunication, broadcasting, multimedia, technology, information and other related
information technology services to the general public."
REGISTRATtUR VAN MAATSSKAPPE
EN VAN BESLOTE KORPORASIES
REGISTRAR OF COMPANIES AND OF
CLOSE CORPORATIONS
REGISTRATEUR VAN MAATSSKAPPYE
EN VAN BESLOTE KORPORASIES
2007 -10- 3 0
REGISTRAR OF COMPANIES AND
OF CLOSE CORPORATIONS
background image
SERVICE AGREEMENT
between
TELKOM SA LIMITED
(Reg. No. 1991/005476/06)
and
REUBEN JOSEPH SEPTEMBER
(Identity No. 5709135127018)
(Salary reference no. 1855331)
("employee").
background image
2
WHEREBY IT IS AGREED AS FOLLOWS
1.     INTERPRETATION AND PRELIMINARY
The headings of the clauses in this agreement are for the purpose of convenience and
reference only and shall not be used in the interpretation of nor modify nor amplify the
terms of this agreement nor any clause hereof. Unless a contrary intention clearly
appears -
1.1
words importing -
1.1.1
any one gender include the other two genders;
1.1.2
the singular include the plural and vice versa; and
1.1.3
natural persons include created entities (corporate or uncorporate)
and the state and vice versa;
1.2
the following terms shall have the meanings assigned to them hereunder and
cognate expressions shall have corresponding meanings, namely -
1.2.1
"Act" means the Labour Relations Act, 1995;
1.2.2
"board" means the board of directors of the company from time to
time;
1.2.3
"company* means TELKOM SA LIMITED (Reg. No.
1991/005476/06);
1.2.4      "employee" means REUBEN JOSEPH SEPTEMBER (Identity No,
5709135127018)
1.2.5       "group" means collectively the company, any partnership in
which the company is a partner, any company which is a holding
or subsidiary company of the company and any other company
which is a subsidiary of or is controlled by such holding
company, and
background image
3
references to "the group' shall embrace each member thereof
individually;
1.2.6
"termination date" means the date upon which the employee's
employment by the company is terminated for any reason
whatsoever;
1.2
any reference in this agreement to "date of signature hereof shall be read
as meaning a reference to the date of the fast signature of this agreement;
1.3
any reference to an enactment is to that enactment as at the date of
signature hereof and as amended or re-enacted from time to time;
1.4
if any provision in a definition is a substantive provision conferring rights
or imposing obligations on any party, notwithstanding that it is only in the
definition clause, effect shall be given to it as if it were a substantive provision
in the body of the agreement;
1.5
when any number of days is prescribed in this agreement, same shall be
reckoned exclusively of the first and inclusively of the last day unless the last
day falls on a Saturday, Sunday or public holiday, in which case the last day
shall be the next succeeding day which is not a Saturday, Sunday or public
holiday;
1.6      where figures are referred to in numerals and in words, if there is any
conflict between the two, the words shall prevail;
1.7
where any item is defined within the context of any particular clause in this
agreement, the term so defined, unless it is clear from the clause in question
that the term so defined has limited application to the relevant clause, shall
bear the meaning ascribed to it for all purposes in terms of this agreement,
notwithstanding that that term has not been defined in this interpretation
clause;
1.8
the expiration or termination of this agreement shall not affect such of the
provisions of this agreement as expressly provide that they will operate after
any such expiration or termination or which of necessity must continue to have
background image
4
effect after such expiration or termination, notwithstanding that the clauses
themselves do not expressly provide for this,
2.     RECOROAL
It is recorded that -
2.2.
the employee is presently employed by the company;
2.3.
the employee's employment by the company is governed by an existing
agreement which will be substituted by this agreement with effect from 1
December 2007 notwithstanding the date of signature hereof.
3.      APPOINTMENT
The company hereby confirms the appointment of the employee as Chief Executive
Officer of the company and the employee accepts such appointment, subject to the
rights of shareholders at general meetings and the rights of the board.
Notwithstanding any change in the appointment contained herein, for so long as the
employee is an executive of the company, the terms and conditions contained herein
(particularly those relating to remuneration) shall remain of full force and effect.
4.
PERIOD OF EMPLOYMENT
4.1
The employee's employment will be governed by the terms of this agreement
from 1 December 2007 to 30 November 2010 (“Initial fixed term"),
thereafter this agreement may be renewed on an annual basis for one year,
subject to either party tendering notice of their intention to terminate the
agreement on or before the 30
m
June of the applicable year. For the sake
of clarity it is understood that other than in the case of termination by the
company as described below, the employee's service will only terminate,
following notice being served by either party on or before the prior 30*
June, on 30
t h
November 2010 and each subsequent year,
4.2
The company shall be entitled to terminate the employee's employment
summarily (or on such other basis as it considers appropriate) if the
background image
5
employee:
4.2.1
is guilty of conduct justifying summary dismissal according to the
common law; and/or
4.2.2      is guilty of conduct which is likely to bring the group into disrepute or is
convicted of an offence involving dishonesty; and/or
4.2.3      commits a material breach of any of the material terms of this
agreement; and/or
4.2.4      performs his duties and functions unsatisfactorily; and/or
4.2.5      is made redundant and/or retrenched for reasons based on the
company's operational requirements; and/or
4.2.6
becomes incapacitated, which shall mean that -
4.2.6.1
he is precluded in terms of any statute from holding
office as a director; or
4.2.6.2
he has suffered some illness or disability which has
precluded him from providing his services hereunder for a period in
excess of 240 (two hundred and forty) days in the determination of
which intermittent returns to work or service which do not constitute
a bona fide resumption of duties shall be disregarded.
4.3
If the company terminates the employees employment for any reason
other than the reasons set out in clauses 4.2.1 to 4.2.4, the employee
shall be entitled to receive termination remuneration calculated in
accordance with the following formula -
A = B/12 X C
background image
6
where-
A = the termination remuneration payable by the company to the
employee
B = the annual guaranteed package received by the employee in respect of
the year preceding such termination
C = a number equal to the greater of the number of completed years, as at
the termination date, during which the employee was employed by the
company (it being recorded that the employee's employment by the company
commenced on 9
th
February 1977) and the number of months remaining in
the initial fixed term set out in clause 4.1.
5.         EFFECT OF TERMINATION OF EMPLOYMENT
5.1
The termination of the employee's employment for any reason whatsoever
shall not affect the operation of any provisions of this agreement to the extent
to which they confer rights or impose obligations upon the parties which are
exercisable or enforceable after the termination date, and such provisions
shall to that extent continue to be of full force and effect. The termination of
the employee's employment shall furthermore not prejudice any rights which
have accrued to the parties as at the termination date.
5.2
On termination of employment the employee shall immediately deliver to the
company all assets, records, documents, accounts, letters, notes,
memoranda and papers of every description within the employee's
possession or control relating to the affairs and business of the group whether
or not they were originally supplied by the group.
background image
7
6.       SUSPENSION OF EMPLOYMENT
6.1
If the company suspects the employee is guilty of the conduct referred to
in clause 4.2.1 and/or 4.2.2 or any other conduct which may, if proved,
justify his dismissal, or has committed a breach of any of the terms of
this agreement, it may, pending a duly constituted enquiry into the
alleged conduct in question, but without prejudice to its right of summary
dismissal in terms of clause 4.2 and without giving rise to any claim for
damages or otherwise against it, suspend the employee for a period not
exceeding 30 days during which the employee shall -
•
not be entitled to attend work at the premises of the company
•
be entitled to his normal salary
7.       DUTIES OF EMPLOYEE
The employee shall -
7.1
devote the whole of his time and attention during the group's normal
business hours, and such reasonable amount of additional time as may be
necessary, having regard to the exigencies of the business of the group, to
the business and affairs of the group and shall not, during any period in
which he is employed by the company, without the company's prior written
consent, whether as proprietor, partner, director, shareholder, member,
employee, consultant, contractor, financier, agent, representative, assistant,
trustee or beneficiary of a trust otherwise, and whether for reward or not,
directly or indirectly be interested or engaged in or concerned with or
employed by any business, trade, undertaking or concern-
7.1.1
other than that of the group; or
7.1.2
which competes with any business carried on by the group,
background image
8
the undertakings in clauses 7.1.1 and 7.1.2 being separate, provided that he
shall not be deemed to have breached his undertakings by reason of-
7.1.3
his having bona fide financial interest in businesses, trades,
undertakings or concerns which do not directly or indirectly compete
with the group which have been disclosed to the group in writing
and/or after disclosing his intention to do so to the group in writing
his accepting appointment as a non-executive director of such
businesses, trades, undertakings or concerns and devoting a
reasonable amount of time to such financial interest and
directorships, provided that no such interest of or activities by the
employee are prejudicial to or adversely affect the performance of
his duties hereunder; and/or
7.1.4
his holding shares in any company the shares of which are listed on
a recognised stock exchange if the shares owned by him do not in
the aggregate constitute more than 5% (five per cent) of any class
of the issued share capital of such company; and/or
7.1.5
his being an officer of or holding shares in the group;
7.2
obey the orders and directions of the board and shall carry out such
functions and duties as are from time to time assigned to him and are
consistent with his status and use his utmost endeavours to protect
and promote the business and interest of the group and to preserve its
reputation and goodwill;
7.3
not, during the operation of this agreement or thereafter, regardless of
the reason for termination of his employment, use for his own benefit
or for the benefit of any other person or divulge or communicate to
any person or persons, except to those of the officials of the group
whose province it is to know the same, any of the group's secrets or
any other information which he may receive or obtain in relation to the
group's affairs or its customers or to the working of any process or
invention or to any marketing technique which is carried on or used by
the group;
background image
9
7.4
be true and faithful to the group in all dealings and transactions whatsoever
relating to its business and interests; and
7.5
submit to the board reports as may be required of him in connection with the
performance of his duties and the business of the group.
8.       REMUNERATION PARTICULARS
8.1 Fixed Remuneration
8.1.1
As remuneration for his services described above, the company
shall pay the employee a basic annual salary which shall be
payable in arrears on the 25
th
day of each month and which shall be
subject to review, but not reduction, by the company from time to
time, and the next review date will be the 1
st
April 2008.
8.1.2
The annual guaranteed package for the period 1
st
December 2007
to 31
st
March 2008 will be as follows:
Basic pensionable salary
R3,049,571
Retirement fund - Telkom
R396.444
contribution
Other benefits*
R910,515
Annual Guaranteed
R4,356,530
Package
* Other benefits consist of company contribution towards medical
aid, motorcar allowance, club fees and other cash benefits.
background image
10
8.2
Retirement Fund
Membership of the Telkom Retirement Fund is compulsory. The employee's
own contribution to the fund will be 7,5% (seven and a half percent) per
annum of basic pensionable salary while the employer contribution paid by
the company on the employee's behalf will be 13% (thirteen percent) per
annum of pensionable salary. The employer contribution is accordingly
indicated as such in the fixed remuneration package set out in paragraph
8.1.2. The employee's membership of the fund mil always be subject to the
rules of the fund,
8.3
Medical aid
8.3.1      The employee may join a medical aid scheme recognised by the
company.
8.3.2     The company contributions to the medical aid are included in the
flexible benefits portion of the fixed remuneration package. The
employee will be responsible for the full contribution to the Medical
Aid as part of the fixed remuneration package.
8.3.3      Where the cost of medical aid changes (e.g. marital status, number of
dependants, increased contributions, etc.) during any period
(annually), the car allowance or pay any other flexible portion of the
guaranteed package will be decreased/increased accordingly.
Therefore, all increases in medical aid tariffs will be borne by the
employee.
8.3.4     The employee will not qualify for post-retirement funding.
-
background image
11
8.4      Motor Vehicle
8.4.1
The motor vehicle allowance is included in the employee's total
fixed remuneration package as set out in paragraph 8.1. It is
expected of the employee to make available or purchase a vehicle
in order to be able to perform the employee's task. It is expected
from the employee to use the employee's own vehicle for business
purposes.
8.4.2
The employee will be reimbursed for business related travel based
on a fixed rate per kilometre. The fixed rate per kilometre is based
on the Oxbridge rates (previously Automobile Association) and is
reviewed from time to time depending on fluctuation in fuel price.
Kilometres travelled between home and workplace is not regarded
as business kilometers.
8.4.3
The company accepts liability for the comprehensive insurance of
the employee's vehicle in accordance with the general conditions
and provisions of the Telkom Motor Insurance Policy:
8.4.3.1
It is the employee's responsibility to arrange insurance
through Risk Management and any enquiries must be
forwarded directly to them.
8.4.3.2
The cost of the insurance of a vehicle is not included
in the fixed remuneration package. The insurance
premium will be included in the car allowance and
reflected on the employee's IRP 5 for tax purposes.
8.4.3.3
The company will not reimburse employees who
insure their vehicles with any other insurer outside the
Tefkom Insurance Scheme.
background image
12
8.4.4.4
This will also apply if the employee participation in
the Telkom Insurance Scheme is terminated for
any reason whatsoever. In such cases, the
employee will be liable to arrange and pay for own
insurance.
8.4.4
The company will provide a parking facility for the employee at its
premises or will lease/rent a parking facility for the employee. The cost of
the parking facility wi ll be borne by the company.
8.5     Club Membership
The company agrees to pay the annual club membership fees for the account of the
employee on an annual basis and for the duration of the Service Agreement. The
employee shall be responsible for any tax consequences arising therefrom.
8.6
Variable Remuneration
8.6.1    The company will pay the employee a bonus at the end of each
financial year equivalent to a fraction or a multiple of the basic
annual pensionable salary, as the case may be, depending on the
achievement of performance criteria established by the board
from time to time.
8.6.2
The bonus for the period 1
st
December 2007 to 31
st
March 2008
will be as determined by the employee's participation in the Top
Management Team Award Plan described in Addendum 1.
8.7
Wealth Creation
The employee is eligible to participate in the Telkom Conditional Share Plan and
the conditional shares allocated to the employee will remain in full force and effect in
accordance with the rules of the Telkom Conditional Share Plan.
background image
13
Future allocations will be made with regard to the employee's position,
performance and tenure, consistent with the rules prevailing at the time.
9.
RETENTION
The employee shall be entitled to a retention payment on signature of the Retention
Agreement (Addendum 2) which describes the terms and conditions attached
thereto.
10.
RESTRAINT OF TRADE
The employee shall be required to enter into a Restraint of Trade Agreement
(Addendum 3). In consideration for the restraints and obligations placed on the
employee in terms of this agreement, the company will allot, issue and transfer to the
employee a total of 52 919 (fifty two thousand nine hundred and nineteen) Tetkom
Conditional Shares which is based on the share price of R154.19 (one hundred and
fifty four rands and nineteen cents) as on the 5 December 2007, which is equal to the
value of R8,713,060 (2 x times annual guaranteed package) at the time of signature.
A portion of the shares will be sold to cover the employee's tax liability and the
remaining shares will be transferred to Computershare for future trading.
11.      TELEPHONE SERVICES
11.1
The company accepts responsibility for the installation, rental and usage for
one main telephone service for voice and an ADSL broadband connectivity
for data (up to 4Mbps) at the residence of the employee. The employee shall
be responsible for any tax consequences arising therefrom.
11.2
The employee is issued with a cell phone. The employee's limit (inclusive of
VAT and rental charges) for calls and the clip facility is unlimited. The cell
phone is regarded for business purposes and expenditure will not be taxed.
background image
14
12.      PERSONAL SECURITY
12.1
The company is desirous of ensuring the safety and security of the
employee's residence.
12.2    To this end, subject to approval by the board, the company will bear all costs
associated with:
12.2.1
The analysis of and recommendations on the security systems
and personnel required to secure the safety of the employee,
his family and their possessions.
12.2.2
The installation cost of any security systems,
12.2.3
Security guards/personnel
12.3    The capital cost of all equipment including associated improvements to the
employee's home will be borne by the employee
13.    TRAVEL AND ACCOMMODATION
It is recorded that, to fulfil his functions, the employee shall be required to undertake
two overseas business trips per year and three local business trips per year
accompanied by his wife, the costs, terms and conditions of which shall be in
accordance with the company's normal international travel and local travel practices,
such practices being the use of the Business Class airline category and four star
accommodation locally and First Class airline category and four or five star
accommodation internationally. The employee shall be responsible for any tax
consequences arising therefrom.
background image
15
14.
DEDUCTIONS
14.1   The employee agrees to the following deductions to be made by the company
from the employee's remuneration package:
14.1.2
medical aid subscription (if applicable)
14.1.3
retirement fund contribution
14.1.4
taxation
14.1.5    company or damages or losses negligently occasioned by the
employee.
14.2    The employee will be notified in writing of any amendments to be made to
  such deductions by the company from time to time which must, unless
required by operation of law, be approved in writing by the employee prior to
such deductions being made.
15.
HOURS OF WORK
15.1   Due to the seniority of the employee's position, flexibility of the employee's
working hours is an express term of this contract, The company's operational
requirements may, however, never be prejudiced by the employee's choice of
working hours.
15.2   The employee acknowledges that by virtue of the employee's position, the
employee may be required to work beyond the company's core working hours
from time to time, including on Saturdays, Sundays and Public Holidays.
15.3
The employee will not receive additional payment for working beyond the
company's normal core working hours or on Saturdays, Sundays and Public
Holidays.
background image
16
16.
LOCATION
16.1   The employee will be based in the company's Pretoria offices or at any other
location that the company may determine from time to time. The employee
may be required to render services at such other location as required by the
company from time to time to enable the company to exploit, expand or
consolidate its business interests and/or operations,
16.2   In the event of the company intending to transfer the employee permanently
to another location, or to second the employee to such location for an
extended period, the employee shall not unreasonably refuse to take up such
transfer or secondment. If the company was to transfer the employee to
another location, the company will pay the reasonable costs incurred with
such relocation.
17.
ANNUAL LEAVE
The employee will qualify for 26 (twenty six) working days' leave per annum which
will accrue at 2.17 (two point seventeen) working days per completed month of
service. Of the 26 (twenty six) working days, the employee will have to take at least
15 (fifteen) consecutive working days leave in order to comply with the requirements
of the Basic Conditions of Employment Act. The employee will be allowed to accrue
leave to a maximum of 25 (twenty five) working days per annum.
18.     SICK LEAVE
The employee will qualify for 36 (thirty six) working days' sick leave in a three-year
cycle. If the employee needs more than 36 (thirty six) working days in the three-year
cycle additional sick leave can in exceptional circumstances be allocated to the
employee (this will depend on the employee's sick leave records, etc.). Otherwise
this additional sick leave would be without pay. The company reserves the right to
request a medical certificate in respect of any period of sick leave.
background image
17
19.
SPECIAL LEAVE AND STUDY LEAVE
19.1
Special leave which includes family responsibility leave, study leave, etc., will
be granted in accordance with the company's policies and procedures.
19.2    It is recorded that the company is supportive of any efforts by the employee to
enhance his leadership, professional and technical skills. To this end the
board, on recommendation by the HRRRC, will approve the investment of
time and money so required provided it does not detract from the employee's
responsibilities as described above.
20.
MEDICAL EXAMINATIONS
If the employee is absent from work regu larly for medical reasons or if there is a
concern regarding the employee's health, the employee will consent to undergo a
medical examination at the cost of the company by a medical practitioner appointed
by the company.
21.
RETIREMENT
21.1
The employee may retire at any time after the age of 50 (fifty) years, but not
later than 65 (sixty five) years, except when the company requests in writing
that the employee remains in service, in which case the employee has to
retire when reaching the age of 70 (seventy) years.
21.2
The consent of the company is required if the employee wishes to retire
between the age of 50 (fifty) and 55 (fifty five) years.
background image
18
22    CONFIDENTIALITY
22.1 In performing his duties and functions with the company, the employee will have
access to non-public information or materials describing or relating to the
company, its clients and/or third parties to whom the company has a duty of
confidentiality (the "Third Parties”) including, but not limited to, materials
describing or relating to the business, affairs, processes, trade secrets, client
lists, trade connections, policies and/or procedures of the company, its clients
and/or the Third Parties; formulae, strategies, methods, processes, computer
materials (including but not limited to source or object codes, data files, computer
listings, computer programs and other computer materials regardless of the
medium in which they are stored), and/or other confidential information of the
Company, its clients and/or the Third Parties (the "Confidential Information").
22.2 With respect to such Confidential Information, the employee agrees that during
his employment by the company and thereafter in perpetuity, regardless of the
reason for the termination of his employment, he shall:
22.2.1 hold the Confidential Information in strict confidence and will not, nor
will he permit any other person to, copy, reproduce, sell, assign,
license, market, transfer or otherwise dispose of, give and/or disclose
the Confidential Information to any unauthorised person;
22.2.2 take ail reasonable steps to minimise the risk of disclosure of the
Confidential Information to unauthorised persons, and to ensure the
proper and secure storage of any such Confidential Information;
background image
19
22.2.3 not, during his employment by the company or thereafter, use for his
own benefit or for the benefit of any other person or divulge or
communicate to any person or persons, except to those officials of the
company whose province it is to know same, any of the company's
secrets or any other Confidential Information which he may receive or
obtain in relation to its affairs or its clients.
22.3    Upon the termination of his employment for any reason whatsoever, the
employee shall return to the company any documents, papers or other
materials relating to the company or obtained or developed in the course
of his employment by the company or containing or derived from the
Confidential Information in his possession, and all copies thereof.
23   INVENTIONS, DISCOVERIES, COPYRIGHT AND DOCUMENTS
23.1 Any discovery or invention or secret process or improvement in procedure or
novel concept relating to the business of the company made or discovered or
innovated by the employee in the course and scope of his employment by the
company in connection with or in any way affecting or relating to the business of
the company or capable of being used or adapted for use by the company or in
connection with its business shall be disclosed to the company and shall belong
to and be the absolute property of the company or any other company
nominated by it.
23.2The employee shall, if and when required by the company, apply or join with the
company concerned at its expense in applying for Letters Patent or other
equivalent protection in the Republic of South Africa or in any other part of the
world for such discovery, invention, process, improvement or novel concept and
shall at the expense of the company execute all instruments and do all things
necessary for vesting the said Letters Patent or other equivalent protection in the
background image
20
name of the company as sole beneficial owner or in the name of such other
company as the company may nominate.
23.3 lnsofar as may be necessary the employee hereby assigns to the company the
copyright in all present and future works eligible for copyright, including, without
limitation, literary works or software programmes of which he may be the author,
which works were or are created, compiled, devised or brought into being during
the course and scope of his employment by the company. No consideration
shall be payable by the company to the employee in respect of this assignment.
23.4 AII reports, manuals, financial statements, budgets, indices, research papers,
letters or other similar documents (the nature of which is not limited by the
specific reference to the aforegoing items) which are created, compiled or
devised or brought into being by the employee or come into the employee's
possession during the course and scope of his employment and all copies
thereof will be the property of the company and, on the termination date or earlier
if required by the company, such documents and all copies shall be returned to
the company.
24
BUSINESS CODE OF ETHICS
The Business Code of Ethics of the company will be applicable to the employee and
must be signed by the employee confirming that the employee has read and
understood the contents,
25
CONDITIONS OF SERVICE
All the conditions of service of the company, as may be amended from time to time,
will be applicable on the employee. It is expected of the employee to study the
conditions of service carefully.
background image
21
26      RESERVATION OF RIGHTS
The board reserves the right to reasonably amend or change, but not reduce the
remuneration and benefits of the employee, by mutual agreement.
27
CONFIDENTIALITY AGREEMENT
A confidentiality agreement which forms an integral part of this Agreement, must be
signed by the employee, covering a secrecy undertaking. This is a specific condition
of employment.
28
RULES AND REGULATIONS
The employee agrees that the employee shall conform to all policies, rules,
regulations and procedures in operation at the company from time to time. The rules,
regulations and procedures of the company shall form part of this contract of
employment and are obtainable from the personnel section,
29
ELECTRONIC AND OTHER COMMUNICATIONS
The employee hereby expressly gives the company permission to intercept, monitor,
read, block or act upon any of the employee's electronic and other communications
which shall include, but not be limited to, telephonic conversations, e-mails and any
stored flies.
30
DISPUTES
In the event of any dispute relating to the terms of this agreement or to the fairness of
the termination of the employee's employment, the dispute shall be finally resolved by
arbitration conducted in accordance with the appropriate rules of the Arbitration
Foundation of South Africa, by an arbitrator agreed to between the parties or, failing
such agreement, appointment by that Foundation.
background image
22
31
RESIGNATION AS A DIRECTOR
The employee shall ipso facto be deemed on the date on which his employment with
the company terminates to have resigned as a director of the company and any
company in the group of which he is a director, in which event the employee hereby
irrevocably appoints the then company secretary of the company and/or that
company in the group as his agent in rem suam to sign all such documents and to do
all such acts as may be necessary to effect and implement such resignation.
THUS DONE AND SIGNED AT…………………..ON THIS…………
DAY
OF……………...2008.
for and on behalf of:
the company
AS WITNESSES:

1. ……………………

2. ……………………
THUS DONE AND SIGNED AT………………..ON THIS ......... DAY
OF …………………..2008.
RJ SEPTEMBER
AS WITNESSES:

1. ……………………
2. ……………………
background image
23
ADDENDUM 1
TOP MANAGEMENT TEAM AWARD PLAN
1.  The Top Management Team Award Plan is based on the performance of the Telkom
Group excluding Vodacom (the Company).
2.  The annual Top Management Team Award Plan provides for the creation of a bonus pool
to be determined by the Company's earnings per share performance relative to budget
(see 3 below), to be distributed on the basis of participant's individual over or under
performance against specific quantitative and qualitative criteria (see 4; 5; 6 below),
subject to a minimum achievement (see 7 below) and restricted to a maximum payout
(see 8).
3.  At the Company's budgeted basic earnings per share, the bonus pool is equal to the sum
of each participant's maximum bonus. The bonus pool will increase by 4% for every 1%
increase m the company's basic earnings per share above budget, and decrease by 10%
for every 1% decrease in company's basic earnings per share below budget.
4.  Each participant will receive a pro rata share of the bonus pool equivalent to the
participant's Performance Rating as a percentage of the sum of all participants'
performance ratings subject to 7 below.
5.  The participants Performance Rating will be the sum of the ratings determined by over or
under performance against pre determined objectives in the following criteria, which will
each account for the designated percentage:
ii.  Basic Earnings per Share (BEPS) - 35%
iii.  Return on Assets (ROA) - 35%
iv.  Customer Centricity - 20%
v.  Human Resources -10%.
Notes:
The Basic Earnings per Share (BEPS) and Return on Assets (ROA) objectives will be
those contained in the annual budget of the Telkom Group excluding Vodacom.
background image
24
The Customer Centricity objectives wilt comprise various objectively determined
measures which reflect the company's performance in delivering satisfaction to
customers. The measures applicable for the 2008 financial year are the SA
Customer Satisfaction Index (SACSI) and the Annual Customer Satisfaction Measure
(CSM).
The Human Resources measure will comprise various objectively determined
measures which reflect the company's performance in human capital management.
The measures applicable for the 2008 financial year are employee engagement and
Employment Equity.
6.  The participants rating in each of the criteria will be calculated by doubling the percentage
achievement above/below the performance objective. (e.g. if actual achievement against
the objective is 105% the participants rating will be 110% and if actual achievement
against the objective is 90% the participants rating will be 80%)
7.  Employees whose individual performance is below 80% will not be eligible to participate
in the Top Management Team Award Plan and their portion of the bonus pool will be
divided between other participants.
8.  The bonus payments are restricted to a maximum of twice the guaranteed package.
background image
Page 1










INTERCONNECTION AGREEMENT

between


TELKOM SA LIMITED


and


NEOTEL (PROPRIETARY) LIMITED









background image
Page 2

CONTENTS


1.
PARTIES
2.
INTERPRETATION
3.
INTRODUCTION
PART I:    INTERCONNECTION OF THE PARTIES’ TELECOMMUNICATION SYSTEMS
4.
INTERCONNECTION
5.
NUMBER PORTABILITY

6.
INTERCONNECTION FEES
7.
CALLING LINE IDENTIFICATION (‘CLI’)
PART II:    POILs FOR THE INTERCONNECTION OF THE PARTIES’
                    TELECOMMUNICATION SYSTEMS

8.
PROVISION OF POILs
9.
INSTALLATION TIMES
10.       DELIVERY PROCESS FOR POILs
11.       SHARED POIL CHARGES
12.       DISCONTINUATION OF POILs
PART III:    BILLING PROCEDURES
13.       BILLING PROCEDURES
PART IV:    GENERAL
14.       PROTECTION OF THE PARTIES’ TELECOMMUNICATION SYSTEMS
15.       SAFETY
16.       FAULT REPORTING AND RESOLUTION
17.       NUMBERING
18.       TELECOMMUNICATION SYSTEM MODIFICATION
19.       TESTING
20.       OFFER OR REQUEST FOR NEW OR EXISTING SERVICES
background image
Page 3
21.       INTELLECTUAL PROPERTY RIGHTS
22.       OPERATIONAL LIAISON
23.       FORCE MAJEURE
24.       LIMITATIONS ON LIABILITY
25.       COMMENCEMENT
26.       TERMINATION, DURATION AND BREACH
27.       REVIEW
28.       CO-OPERATION
29.       RELATIONSHIP BETWEEN THE PARTIES
30.       SEVERABILITY
31.       CESSION
32.       DISPUTE RESOLUTION
33.       CONFIDENTIALITY
34.       VALUE-ADDED TAX
35.       NOTICES AND DOMICILIA
36.       WHOLE AGREEMENT
37.       VARIATION
38.       RELAXATION
39.       WARRANTIES
APPENDIX 1      TELKOM POINTS OF INTERCONNECTION
APPENDIX 2      NEOTEL POINTS OF PRESENCE
APPENDIX 3      INITIAL INTERCONNECTION AND CAPACITY
APPENDIX 4      TERMINATION RATES
APPENDIX 5      SPECIFICATIONS AND PROCEDURES FOR POINTS OF
                              INTERCONNECTION

APPENDIX 6      TECHNICAL SPECIFICATION FOR POILs
background image
Page 4
APPENDIX 7      OPERATION AND MAINTENANCE PROCEDURES FOR POILs
APPENDIX 8      OPERATION AND MAINTENANCE PROCEDURES FOR
                              INTERCONNECTION
APPENDIX 9      SERVICE LEVEL AGREEMENT FOR POILs
APPENDIX 10    TELKOM CHARGES AND DISCOUNTS FOR POILs

















background image
Page 5
INTERCONNECTION AGREEMENT


1.
PARTIES

1.1.
The Parties to this Agreement are:

1.1.1.
Telkom SA Limited; and

1.1.2.
Neotel (Proprietary) Limited.

1.2.
The Parties agree as set out below.


2.
INTERPRETATION
2.1.
In this Agreement, unless inconsistent with or otherwise indicated by the context, the
following words and terms shall have the meanings ascribed to them below:

2.1.1.
“Accommodating Party” means the Party providing accommodation, power, air
conditioning and any related facilities at its site which is necessary to house the
termination equipment of a POIL to be provided by the Providing Party;

2.1.2.
“Accounting Period” means a period of 1 (one) calendar month, terminating at 24:00
on the last day of each calendar month, the first such period commencing, unless
otherwise agreed between the Parties in writing, on the Commencement Date;

2.1.3.
“the Act” means the Electronic Communications Act, 36 of 2005;

2.1.4.
“Actual CICD” means the actual customer installation completion date, being the
date on which a POIL is made available by the Providing Party to the
Accommodating Party;

2.1.5.
“Actual RFO date” means the actual ready for occupation date being the date on
which the Accommodating Party actua lly makes accommodation and other facilities
available to the Providing Party, as it is required to do in terms of 10.1;

2.1.6.
“Agreement” means this agreement together with all appendices attached thereto;

2.1.7.
“Authority” means the Independent Communications Authority of South Africa,
established in terms of the Independent Communications Authority of South Africa
Act, 13 of 2000, or its successor in title;

2.1.8.
“BBZ rates/Beyond Billing Zone rates” means Interconnection Fees payable for
Calls handed over from one Party to the other at a POI or POP situated in a particular
Billing Zone for termination in a different Billing Zone;

2.1.9.
“Billing Information” means the information in respect of Calls handed over between
the Parties across a POI during a particular Account ing Period, comprising at least
the following details:
background image
Page 6
2.1.9.1.
the total duration of all Calls in seconds, separated into the various categories as
set out in 6.2 and 6.4;

2.1.9.2.
the applicable rate groups as set out in 6.2, 6.4 and Appendix 4;

2.1.9.3.
the Interconnection Fees payable by the Parties to one another as set out in 6.2,
6.4 and Appendix 4;

2.1.9.4.
information as to the point/s at which the Parties measured the information as set
out in 2.1.9.1, 2.1.9.2 and 2.1.9.3 above;
2.1.10.
“Billing Zone” means a billing area associated with a POI or POP and dialing codes
as set out in Appendices 1 and 2;

2.1.11.
“Business Day” means any day (between 07:30 and 16:30) other than a Saturday,
Sunday or official public holiday in the Territory;

2.1.12.
“calendar month” means a period from the first day to the last day of a month (e.g. 1
January to 31 January, both days inclusive);

2.1.13.
“Call” means a connection through a Telecommunication System, the object of
which is the carriage and successful delivery of a telephony Signal from a
Telecommunication System from which such telephony Signal emanates, to
communications equipment on a Telecommunication System by which such
telephony Signal is to be received, or to communications equipment which provides
an automatic response if connection cannot be effected;

2.1.14.
“Commencement Date” means the date on which this Agreement is filed with the
Authority;

2.1.15.
“Confidential Information” means all information, know-how, ideas, concepts,
technology, manufacturing processes, industrial, marketing and commercial
knowledge of a confidential nature (whether intangible or in tangible form) relating
to or developed in connection with or in support of the business of Telkom or Neotel,
as the case may be, and any matter concerned with or arising out of this Agreement ;

2.1.16.
“Distribution Frame” means a frame on which POILs provided in terms of this
Agreement terminate;

2.1.17.
“DPSU” means a digital primary switching unit in Telkom’s Telecommunication
System;

2.1.18.
“Emergency Organisation” means, in respect of any locality, the relevant public
police, fire, ambulance or traffic authority or coast guard services for that locality
and any other similar organisation providing assistance to the public in emergencies;

2.1.19.
“GTTI” means the guaranteed time to install a POIL, for a specified service level
option in terms of 9.1;

2.1.20.
“Interconnection” means the linking of the Parties’ Telecommunication Systems as
provided for in this Agreement ;
background image
Page 7
2.1.21.
“Interconnection Fees” means the fees and charges payable by the Parties to one
another in terms of 6 of this Agreement;

2.1.22.
“International Call” means a Call which:

2.1.22.1.
originates on a Telecommunication System in the Territory and terminates on a
Telecommunication System outside the Territory, or originates on a
Telecommunication System outside the Territory and terminates on a
Telecommunication System in the Territory; or

2.1.22.2.
originates and terminates on a Telecommunication System outside the Territory
but is conveyed on Telecommunication Systems in the Territory;

2.1.23.
“ITE” means an international telephone exchange in Telkom’s Telecommunication
System or an international point of presence in Neotel’s Telecommunication System
through which International Calls are routed;

2.1.24.
“ITU-T” means the Telecommunications Standardization sector of the International
Telecommunications Union;

2.1.25.
“Modification” means a change to a Party’s Telecommunication System (excluding
routine POIL reconfigurations and routing changes), which requires a change to be
made to the other Party’s Telecommunication System in order to allow the
continuance of the conveyance of Calls across a POI;

2.1.26.
“National Call” means a Call which originates on a Telecommunication System
located in the Territory and terminates on a Telecommunication System located in
the Territory;

2.1.27.
“Neotel” means Neotel (Proprietary) Limited, a private company duly incorporated
in the Republic of South Africa, with registration number 2004/004619/07, and with
its registered office at 21E Polo Crescent, Woodmead Office Park, Woodmead,
2052;

2.1.28.
“Number” means any numerical or alpha-numerical identifier of any end-user
device/terminal equipment in relation to any Telecommunication Service;

2.1.29.
“Number Portability” means a capability whereby a subscriber who so requests can
retain his or her Number when changing service from one public switched
telecommunication service licensee to another public switched telecommunication
service licensee;

2.1.30.
“Other Licensed Operator” means a person licensed within the Territory to provide
Telecommunication Services and such person has entered into an interconnection
agreement with either Telkom or Neotel;

2.1.31.
“Party/ the Parties” means a party to this Agreement or both of them, as the context
requires;
background image
Page 8
2.1.32.
“POIL Charges” means any amount payable by the Parties to each other in terms of
Part II of this Agreement, after any relevant discounts provided for in this Agreement
have been taken into account;

2.1.33.
“Point of Interconnection/POI” means a point on the Distribution Frame located at
Telkom’s relevant DPSUs, ITEs or any other point, as set out in Appendix 1, as
augmented from time to time;

2.1.34.
“Point of Interconnection Link/POIL” means a dedicated point-to-point transmission
link with a transmission speed of 2 Mbit/s complying with ITU-T recommendations
and provided by either Party for the conveyance of Signals between the Parties’
Telecommunication Systems, which shall be configured as a bothway transmission
link for traffic purposes and shall include signalling links;

2.1.35.
“POP” means a physical point of presence as set out in Appendix 2, as augmented
from time to time, in Neotel’s Telecommunication System which is used for
purposes of Interconnection to a POI;

2.1.36.
“Providing Party” means the Party providing a POIL as set out in Part II of this
Agreement;

2.1.37.
“Rand or R” means the lawful currency of the Territory;

2.1.38.
“Scheduled CICD” means the scheduled customer ins tallation completion date, being
the date on which the Providing Party anticipates making available a POIL to the
Accommodating Party;

2.1.39.
“Scheduled RFO date” means the scheduled ready for occupation date being the date
on which the Accommodating Party undertakes to make accommodation and
associated facilities available to the Providing Party, as it is required to do in terms of
10.1, to enable transmission equipment to be installed;

2.1.40.
“Signal” includes signs, sounds, writing or information of any kind;

2.1.41.
“Switch” means a node in Telkom’s Telecommunication System at which Signals are
switched from one Telecommunication System to the other or are capable of so being
switched;

2.1.42.
“Telecommunication Facility” includes any wire, cable, antenna, mast or other thing
which is or may be used for or in connection with communication;

2.1.43.
“Telecommunication Service” means any service provided by means of a
Telecommunication System;

2.1.44.
“Telecommunication System” means any system or series of Telecommunication
Facilities or radio, optical or other electromagnetic apparatus or any similar technical
system used for the purpose of communication, whether or not such communication
is subject to rearrangement, composition or other processes by any means in the
course of their transmissio n or emission or reception;
background image
Page 9
2.1.45.
“Telkom” means Telkom SA Limited, a public company duly incorporated in the
Republic of South Africa, with registration number 1991/05476/06 and with its
registered office at Telkom Towers North, 152 Proes Street, Pretoria;

2.1.46.
“Termination Rates” means WBZ rates or BBZ rates or both, as the context requires;

2.1.47.
“Territory” means the geographic area of the Republic of South Africa, as constituted
from time to time;

2.1.48.
“WBZ rates/Within Billing Zone rates” means Interconnection Fees payable for
Calls handed over from one Party to the other at a POI or POP situated in a particular
Billing Zone for termination in the same Billing Zone ;

2.1.49.
“year” means a period of 12 (twelve) calendar months.

2.2.
Any reference to an enactment is to that enactment as at the date of signature of this
Agreement and as amended or re-enacted from time to time.

2.3.
If any definition contains a substantive provision conferring rights or imposing
obligations on a Party, effect shall be given to it as if it were a substantive provision in
the body of this Agreement, notwithstanding that it is only in the definition clause.

2.4.
The clause headings in this Agreement and the Appendices to this Agreement have been
inserted for convenience only and shall not be taken into account in its interpretation.
2.5.
Where figures are referred to in numerals and in words, if there is any conflict between
the two, the words shall prevail.

2.6.
Words and expressions defined in any clause or sub-clause shall, for the purposes of
that clause or sub-clause, bear the meaning assigned to such words and expressions in
that clause or sub-clause.

2.7.
This Agreement shall be governed by and construed and interpreted in accordance with
the laws of the Republic of South Africa.
2.8.
In the event of a conflict between the provisions of the Appendices to this Agreement
and the main body of this Agreement, the provisions of the main body of this
Agreement shall prevail.
2.9.
Any reference to:

2.9.1.
the singular shall include the plural and vice versa;
2.9.2.
natural persons includes lega l persons and vice versa;
2.9.3.
a gender includes the other genders.

2.10.
The expiration or termination of this Agreement shall not affect such of the provisions
of this Agreement that expressly provide that they shall operate after any such
expiration or termination or which of necessity shall continue to have effect after such
expiration or termination, notwithstanding that the clauses themselves do not expressly
provide for this.
background image
Page 10
2.11.
Where any period of days or Business Days is to be calculated from a particular day in
terms of this Agreement, such period shall be calculated as excluding such particular
day and commencing on and including the day or Business Day thereafter. If the
aforesaid calculation pertains to days, and the last day falls on a day which is not a
Business Day, the last day shall be the next succeeding Business Day.

2.12.
No rule of construction shall be applied to the disadvantage of a Party because that
Party was responsible for or participated in the preparation of this Agreement or any
part of it.

2.13.
The words “include”, “including” and “in particular” shall be construed as being by way
of example or emphasis only and shall not be construed as, nor shall they take effect as,
limiting the generality of any preceding word/s.

2.14.
The words “other” and “otherwise” shall not be construed eiusdem generis with any
preceding words where a wider construction is possible.

2.15.
The provisions of Chapter III of the Electronic Communications and Transactions Act,
25 of 2002, are hereby excluded in the application, construction and interpretation of
this Agreement.

3.
INTRODUCTION

3.1.
Both Telkom and Neotel are holders of public switched telecommunication service
licenses granted to them in terms of the Telecommunications Act, 103 of 1996 and
validated in terms of the Act.

3.2.
The Parties wish to establish Interconnection in terms of the Act.

3.3.
The Parties shall provide POILs in terms of this Agreement, their public switched
telecommunication service licences and the Act.

3.4.
The Parties wish to record the terms and conditions of the ir agreement in relation to the
matters contemplated in 3.2 and 3.3 above and matters ancillary thereto.


PART I:        INTERCONNECTION OF THE PARTIES’ TELECOMMUNICATION
                         SYSTEMS


4.
INTERCONNECTION

4.1.
Each Party shall connect and keep connected its Telecommunication System to the other
Party’s Telecommunication System in accordance with the provisions of this
Agreement, so that Signals may be conveyed to and from each such Telecommunication
System.

4.2.
Telkom shall ensure that POIs exist and are available for Interconnection at the
localities set out in Appendix 1, and Neotel shall ensure that POPs exist and are
available for Interconnection at the localities set out in Appendix 2. Either Party may,
from time to time, add to the aforesaid POPs or POIs, as the case may be, at which it
background image
Page 11
offers or proposes to offer Interconnection, upon written notification to the other Party.
For the avoidance of doubt, an offer or proposed offer as aforesaid shall not affect
Interconnection Fees relating to Calls handed over at existing POIs or POPs, until such
time as agreement is reached, or resolution in terms of 32 has taken place, as
contemplated in 4.3.

4.3.
Where an offer or proposed offer as contemplated in 4.2 is made by one Party to the
other and the offering Party reasonably believes that a reciprocal POI or POP, as the
case may be, should be made available, the Parties shall promptly meet and negotiate in
good faith to reach agreement in writing to establish Interconnection between the
offered or proposed to be offered POI or POP, as the case may be, and the proposed
new POI or POP of the other Party. The Parties shall, in the negotiations as aforesaid,
take into account, inter alia, factors such as, reasonableness of the offering Party’s
request for a reciprocal POI or POP, as the case may be, date of commissioning,
capacity, mapping of the new POI and POP into the national numbering plan and
Interconnection Fees. A request for a reciprocal POI or POP, as the case may be, shall
be deemed to be reasonable if the implementation of the request:

4.3.1.
is technically and financially feasible; and

4.3.2.
will promote the efficient use of both Parties’ Telecommunication Systems; and

4.3.3.
can be implemented on a reciprocal basis between the Parties; and

4.3.4.
is not in conflict with either Party’s network architecture and routing structures; and

4.3.5.
will not constitute Interconnection at a level lower than the 0NN code of the national
number format as contemplated in the Numbering Plan Regulations published in
Government Gazette No 28839 of 15 May 2006 (Notice R.455 of 2006).
Should the Parties fail to reach agreement as aforesaid, the matter shall be deemed to be
a dispute to be dealt with and resolved in terms of 32.

4.4.
The Parties shall establish Interconnection between the POIs and POPs on the dates and
at the places set out in Appendix 3.

4.5.
Should either Party wish to establish Interconnection to POIs or POPs contemplated in
Appendices 1 and 2, in addition to those provided for in Appendix 3, the requesting
Party shall indicate in writing the capacity required and give the other Party at least 45
(forty five) days notice and the other Party shall ensure that the necessary capacity is
available. Should the other Party disagree with the capacity requested, then the Parties
shall negotiate in good faith to reach agreement on the capacity to be provided. If the
Parties cannot reach agreement as aforesaid, then the lower of the two proposed
capacity figures shall be provided and the service quality at the POI shall be monitored
by the Parties for a period of 14 (fourteen) days. If necessary, the capacity shall then be
increased to achieve the requisite service quality as set out in Appendix 5.

4.6.
Should either Party wish to increase or decrease the interconnection capacity between a
POI and a POP, it shall give to the other Party notice in writing of such intention setting
out in detail the proposals and reasons for the proposed change and give the other Party
at least 45 (forty five) days notice and the other Party shall ensure that the necessary
capacity is available in case of an increase of capacity. Should the other Party disagree
background image
Page 12
with the capacity adjustment requested, then the Parties shall negotiate in good faith to
reach agreement on the capacity adjustment. If the Parties cannot reach agreement as
aforesaid, then the capacity in use shall be adjusted in increments whilst monitoring the
service quality at the POI until such time as the requisite service quality as set out in
Appendix 5 has been reached.

4.7.
Should either Party wish to terminate the Interconnection between a POI and a POP, it
shall give to the other Party notice in writing of such request setting out in detail the
reasons for the proposed termination. The Parties shall negotiate in good faith to reach
agreement on the termination. If the Parties cannot reach agreement as aforesaid, then
Interconnection shall remain, and at the current capacity.

4.8.
Each Party shall provide to the other Party, in writing, on a 6 (six) monthly basis, for
purposes of facilitating each Party’s planning and budgeting, a rolling forecast of its
expected requirement for capacity between POIs and POPs relating to Interconnection
over the coming 2 (two) years.

4.9.
Each of the Parties undertakes that the POIs or POPs provided for in this 4 shall be
operated and maintained in accordance with the operation and maintenance procedures
set out in Appendices 7 and 8.

4.10.
Each Party undertakes to the other that the fulfillment of such Party’s obligations in
terms of this 4 shall be in accordance with the technical standards, specifications and
procedures more fully set out in Appendices 5 and 6.

4.11.        Each Party shall, at its own cost and expense, provide, maintain and be responsible in all
respects, for whatever communications equipment is necessary on its side of a POI, to
ensure the conveyance of Calls within and between the Parties’ Telecommunication
Systems. The aforegoing obligation shall exclude POILs which are dealt with in Part II
of this Agreement.

4.12.
For purposes of 6.2, each Party shall, by means of its own Telecommunication System,
convey Calls originating on or transiting its Telecommunication System and destined
for the other Party’s Telecommunication System to POIs and shall convey Calls
originating on or transiting the other Party’s Telecommunication System and destined
for its own Telecommunication System from such POIs to the communications
equipment by means of which such Calls are to be received or to any other
communications equipment which provides an automatic response if connection cannot
be effected.

4.13.        Neither Party shall make nor permit to be made any alteration, adjustment or addition to
any POIs or POPs or any element of its Telecommunication System in such a way as to
adversely affect or impair the operation of the Telecommunication System of the other
Party or so as to otherwise adversely affect or impair the conveyance of Signals pursuant
to Interconnection. Each Party undertakes to take whatever steps are reasonably
necessary to minimise service failures and congestion and signaling disturbances which
would affect the ability of the other Party to convey Calls on its Telecommunication
System.

4.14.
If Interconnection is interrupted for any reason whatsoever, the Party within whose
Telecommunication System such interruption arose shall, at its own cost and expense,
background image
Page 13
procure a restoration of the service levels in accordance with the operation and
maintenance procedures set out in Appendices 7, 8 and 9.

4.15.
If a Party reasonably believes the other Party to be in breach of any of its obligations in
terms of this 4, such Party shall be entitled to require the other Party, from time to time,
upon at least 20 (twenty) Business Days written notice to such other Party, to provide it
with whatever information and material may reasonably be necessary to enable it to
satisfy itself that such other Party is not in breach of any of its obligations in terms of
this 4, provided that:

4.15.1.
such process shall not interfere with the conduct of such other Party’s business or the
provision of Telecommunication Services to subscribers of such other Party; and

4.15.2.
such notice shall specify the nature of the breach alleged.

4.16.
Each Party shall be responsible for all costs and expenses incurred by it in fulfilling its
Interconnection obligations in terms of this 4.


5.
NUMBER PORTABILITY

5.1.
The Parties shall offer Number Portability to their subscribers.

5.2.
The Parties shall treat all Calls to ported Numbers no less favourably than the Parties
treat calls on their own Telecommunication Systems. Interconnection Fees as
contemplated in 6 shall apply in respect of Calls to ported Numbers.


6.
INTERCONNECTION FEES

6.1.
Introduction

6.1.1.
In consideration for Interconnection and conveyance of Calls between their
respective Telecommunication Systems, the Parties shall pay to one another
Interconnection Fees provided for in this 6.

6.1.2.
Interconnection Fees payable by the Parties to one another in respect of all Calls
shall be calculated in accordance with the provisions of this 6, on a per second basis.

6.1.3.
The measuring of a Call’s duration shall commence when an answer signal is
received across the relevant POI and shall terminate when the Call is cleared down.

6.1.4.
Telkom shall measure and record telecommunication traffic and Billing Information
at its DPSUs, ITEs or any other point, as set out in Appendix 1, as augmented from
time to time, to which Neotel’s Telecommunication System is interconnected.
Neotel shall measure and record telecommunication traffic and Billing Information at
its POPs or any other point, as set out in Appendix 2, as augmented from time to
time.

6.1.5.
The calculation of Interconnection Fees in respect of any Accounting Period shall be
based on Billing Information, for each of the categories of Calls given in 6.2 below.
background image
Page 14
6.1.6.
Within 30 (thirty) days of the Commencement Date each Party shall provide the
other with a written table (which shall form part of this Agreement) setting out the
per minute transit rates applicable to Calls to each Other Licensed Operator, which
shall also be applicable to Calls directly routed to ported numbers. The aforesaid
transit rate shall include the interconnection charges charged by the relevant Other
Licensed Operator to the Party providing the written table.

6.1.7.
As and when number portability is introduced, each Party shall promptly provide the
other with a table setting out the per minute trans it rates applicable to Calls to ported
Numbers which are indirectly routed. The aforesaid transit rate shall include the
routing charges payable to the donor operator as well as the interconnection charges
charged by the recipient operator.

6.1.8.
In the event of a Party negotiating an agreement with an Other Licensed Operator not
contained in the written table contemplated in 6.1.6 and 6.1.7, or the aforesaid
written table is amended as a result of a change to an agreement with an Other
Licensed Operator, the new or amended per minute transit rate/s shall be notified to
the other Party in the form of an amended written table. Any new or amended transit
rate/s shall be implemented on a date as agreed between the Parties in writing but not
more than 45 (forty five) days after provision of the amended written table.
Agreement in writing of the implementation date as aforesaid shall be deemed to be
an amendment to this Agreement.

6.1.9.
Within 30 (thirty) days of the Commencement Date each Party shall provide the
other, with a written table (which shall form part of this Agreement) setting out of its
per minute wholesale international rates per destination and, if applicable, per rate
group.

6.1.10.
In the event of a Party amending the written table contemplated in 6.1.9, the new or
amended per minute wholesale international rate/s shall be notified to the other Party
in the form of an amended written table. Any new or amended wholesale
international rate/s shall be implemented on a date as agreed between the Parties in
writing but not more than 45 (forty five) days after provision of the amended written
table. Agreement in writing of the implementation date as aforesaid shall be deemed
to be an amendment to this Agreement.

6.1.11.
Within 30 (thirty) days of the Commencement Date each Party shall provide the
other, with a written table (which shall form part of this Agreement) setting out the
per minute Termination Rate applicable to short-coded Numbers accessible on its
Telecommunication System.

6.1.12.
In the event of a Party implementing new short-coded Numbers accessible on its
Telecommunication System not contained in the written table contemplated in 6.1.11,
or the aforesaid written table is amended as a result of the discontinuation of a short-
coded Numbers on its Telecommunication System, the new or amended per minute
Termination Rate shall be notified to the other Party as an amended written table.
Any new or amended Termination Rate/s shall be implemented on a date as agreed
between the Parties in writing but not more than 45 (forty five) days after provision of
the amended written table. Agreement in writing of the implementation date as
aforesaid shall be deemed to be an amendment to this Agreement.
background image
Page 15
6.1.13.
Within 30 (thirty) days of the Commencement Date each Party shall provide the other
with a written table (which shall form part of this Agreement) setting out the per
minute Termination Rate applicable to non-geographic service Numbers (excluding
premium rated service Numbers) accessible on its Telecommunication System.

6.1.14.
In the event of a Party implementing new non-geographic service Numbers accessible
on its Telecommunication System not contained in the written table contemplated in
6.1.13, or the aforesaid written table is amended as a result of the discontinuation of
non-geographic service Numbers on its Telecommunication System, the new or
amended per minute Termination Rate shall be notified to the other Party as an
amended written table. Any new or amended Termination Rate/s shall be
implemented on a date as agreed between the Parties in writing but not more than 45
(forty five) days after provision of the amended written table. Agreement in writing
of the implementation date as aforesaid shall be deemed to be an amendment to this
Agreement.

6.1.15.
No Interconnection Fees shall be levied by any Party in respect of Calls made to:

6.1.15.1.
an invalid, defective or non-existent Number; or

6.1.15.2.
a Number which is engaged; or

6.1.15.3.
equipment within a Party’s Telecommunication System which provides a voice
announcement instead of a notification tone, in respect of Calls contemplated in
6.1.15.1 and 6.1.15.2.

6.2.
National, International and transit Calls

6.2.1.
For National and International Calls terminating on a Party’s Telecommunication
System handed over from the Telecommunication System of the other Party, where
WBZ rates are applicable, the other Party shall pay to the terminating Party, an
amount calculated in accordance with the following formula:
W = A x B
60
Where
W =    the amount in Rand to be paid to the terminating Party in respect of a particular
Accounting Period; and

A =     the total duration in seconds of all relevant Calls for a particular rate group as
specified in 2.1 or 3.1 of Appendix 4, as the case may be, and in respect of
such Accounting Period; and

B =     the applicable per minute WBZ rate for a particular rate group as specified in
2.1 or 3.1 of Appendix 4, as the case may be.
6.2.2.
For National and International Calls terminating on a Party’s Telecommunication
System handed over from the Telecommunication System of the other Party, where
BBZ rates are applicable, the other Party shall pay to the terminating Party, an
amount calculated in accordance with the following formula:
background image
Page 16
W = A x C
60
Where
W =    the amount in Rand to be paid to the terminating Party in respect of a particular
Accounting Period; and

A =     the total duration in seconds of all relevant Calls for a particular rate group as
specified in 2.2 or 3.2 of Appendix 4, as the case may be, and in respect of
such Accounting Period; and

C =     the applicable per minute BBZ rate for a particular rate group as specified in
2.2 or 3.2 of Appendix 4, as the case may be.
6.2.3.
For National and International Calls transiting a Party’s Telecommunication System,
handed over from the Telecommunication System of the other Party and terminating
on a Telecommunication System of an Other Licensed Operator, the other Party shall
pay to the transiting Party, an amount calculated in accordance with the following
formula:
X = A x D
60

Where
X =     the amount in Rand to be paid to the transiting Party in respect of a particular
Accounting Period; and

A =     the total duration in seconds of all relevant Calls for a particular rate group in
respect of such Accounting Period; and

D =     the applicable per minute transit rate as contemplated in 6.1.6, 6.1.7 and 6.1.8
for each particular rate group and Other Licensed Operator.
6.2.4.
For National and International Calls transiting a Party’s Telecommunication System,
handed over from the Telecommunication System of the other Party and terminating
on a Telecommunication System operated outside the Territory, the other Party shall
pay to the transiting Party, an amount calculated in accordance with the following
formula:
X = A x E
60
Where
X =     the amount in Rand to be paid to the transiting Party in respect of a particular
Accounting Period; and

A =     the total duration in seconds of all relevant Calls for a particular rate group, if
applicable, in respect of such Accounting Period; and
background image
Page 17
E =     the applicable per minute wholesale international rate as contemplated in 6.1.9
and 6.1.10 for each international destination and particular rate group, if
applicable.
6.3.
Non-discrimination
6.3.1.
Each Party hereby undertakes in favour of the other:
6.3.1.1.
that it will not discriminate against the other Party as far as the provision of
Interconnection is concerned; and/or
6.3.1.2.
to treat the other Party no less favourably, both in general and in particular, as far
as Termination Rates are concerned, than it treats any Third Party. For the
purpose of this clause 6.3.1.2, "Third Party" shall mean any person, other than the
Parties, who is licensed in terms of the Act to provide telephony services, or third
party resellers of either Party's voice traffic.
6.3.2.
For the avoidance of doubt, neither Party shall be obliged to charge any Third Party
the same Termination Rates as the Termination Rates charged by the other Party to
Third Parties.
6.3.3.
Notwithstanding the provisions of 6.2, and subject to the provisions of 6.3.4, neither
Party shall at any time after the Commencement Date be obliged to pay the
Termination Rates as provided for in 6.2, if such Termination Rates exceed the
Termination Rates provided by a Party to Third Parties (excluding any particular
type of Call as may be agreed to between the Parties in writing).

6.3.4.
In the event that either Party alleges that the other Party is providing Termination
Rates to any Third Party which are lower than the Termination Rates provided for in
6.2, the alleging Party shall deliver a notice (“the Notice”) in writing to the other
Party advising it of this alleged occurrence and setting out in reasonable detail the
basis for its allegations, whereafter the Parties shall forthwith meet and negotiate, in
good faith, with a view to adjusting the Termination Rates set out in 6.2. Should the
Parties fail, within 30 (thirty) days of receipt of the Notice, to reach agreement on
appropriate adjustments to be made to the Termination Rates or to otherwise resolve
the matter, same shall be considered a dispute for purposes of 32 of this Agreement
and shall be resolved in accordance with the provisions of 32. The alleging Party
shall, pending the final resolution of the dispute in terms of 32, be entitled to reduce,
with effect from the date of receipt of the Notice, the Termination Rates provided for
in 6.2, to be equal to the relevant Termination Rates provided by the other Party to
any Third Party, as alleged in the Notice, provided that should final resolution of the
dispute in accordance with 32 not favour the alleging Party, the alleging Party shall
forthwith pay to the other Party any sum found to be due and payable to the other
Party, together with interest thereon, if applicable, calculated at the prime overdraft
rate charged by The Standard Bank of South Africa Limited, from time to time, plus
4% (four percent), nominal annual compounded monthly, calculated with effect from
the date of the reduction of the Termination Rates until the date of actual payment.
background image
Page 18
6.4.
Other Interconnection services

6.4.1.
No Interconnection Fees shall be levied by either Party against the other in respect
of:

6.4.1.1.
Calls made to Emergency Organisations which may be accessed by dialling the
Number 107, the Number 112, the Number 10111, the Number 10177, or the
Number 10178; or

6.4.1.2.
Calls routed to Emergency Organisations via centres nominated in writing by
either Party to receive such Calls and agreed to in writing by the Parties
negotiating in good faith.

6.4.2.
No Interconnection Fees shall be levied by either Party against the other in respect of
Calls to “toll-free” Telecommunication Services offered on a Party’s
Telecommunication System.

6.4.3.
Directory services

6.4.3.1.
If required by Neotel, national directory enquiry Calls by subscribers of Neotel
shall be routed across the POIs to Telkom’s national directory enquiry centres
using the Number 1023. Telkom shall route such Calls to the national directory
enquiry centre of its choice. WBZ rates as set out in Appendix 4 shall apply.

6.4.3.2.
If required by Neotel, international directory enquiry Calls by subscribers of
Neotel shall be routed across the POIs to Telkom’s international directory enquiry
centre using the Number 0903 or 10903, as the case may be. WBZ rates as set out
in Appendix 4 shall apply.

6.4.3.3.
If required by Neotel, Telkom shall grant to Neotel direct online access to
Telkom’s national directory information database, subject to the following
conditions:

6.4.3.3.1.
access shall be subject to a separate commercial agreement between the
Parties; and

6.4.3.3.2.
in addition to any access amount payable by Neotel as contemplated in
6.4.3.3.1, Neotel shall pay to Telkom an amount of R10,000.00 (ten thousand
Rand) per calendar month (”the Directory Database Usage Charge”) ; and

6.4.3.3.3.
Neotel shall ensure that all information extracted from Telkom’s directory
information database shall be used solely for dealing with online enquires
made by its subscribers and that the said information shall not be used to
produce directories in any form, downloaded for sale to any other person, or
for any other purpose. Neotel shall not acquire any intellectual property rights
in any information contained in Telkom’s national directory information
database.

6.4.3.4.
The provisions of 6.4.3.1, 6.4.3.2 and 6.4.3.3 shall apply, mutatis mutandis, in
relation to Telkom’s access to the directory services of Neotel once such services
are operational, save that Neotel shall notify Telkom of the applicable Numbers
for access to such services.
background image
Page 19
6.4.4.
Interconnection of switchboard operator assisted Call services

6.4.4.1.
Each Party shall be responsible for rendering its own switchboard operator
assisted service, if such is offered to its own subscribers in respect of the booking
and establishment of switchboard operator assisted Calls to Numbers on other
Telecommunication Systems. Switchboard operators of the one Party’s
switchboard operator assisted service shall not assist the other Party’s switchboard
operators of that Party’s switchboard operator assisted service. In the case of any
switchboard operator assisted Call from one Party’s Telecommunication System,
terminated or carried on the other Party’s Telecommunication System,
Interconnection Fees as set out in 6.2 shall apply.

6.4.4.2.
The Parties shall not implement an inter-Telecommunication System “reverse
charge” Call or “collect” Call service across the POIs.

6.5.
Review of various fees

6.5.1.
Change to Termination Rates

6.5.1.1.
The Termination Rates provided for in 6.2, shall remain unchanged until 31
December 2007, whereafter:

6.5.1.1.1.
Telkom shall be entitled to increase its Termination Rates referred to in 6.2;
and

6.5.1.1.2.
Neotel shall be entitled to increase its Termination Rates referred to in 6.2,
once a year with effect from 1 January of each year, provided that notice of such
increase is furnished by the Party effecting the increase to the other Party no later
than 30 September of the preceding year. Such increase shall be limited to an
amount not exceeding the higher of CPI or R0.02 (two cents) and no carry-over of
increases not taken from one year to another shall be permissible. The Party
effecting the increase shall be responsible for obtaining all approvals and
authorizations as might be necessary to enable it to do so. For purposes hereof
CPI shall mean the official Consumer Price Index as calculated for the twelve-
month period ending on 31 August of the year preceding the increase.

6.5.2.
Notwithstanding the provisions of 6.5.1, any Party may decrease its Termination
Rates at any time.

6.6.
Payment
All Interconnection Fees owing by one Party to the other in terms of this Agreement
shall be paid in accordance with the provisions of 13.


7.
CALLING LINE IDENTIFICATION (‘CLI’)

7.1.
Subject to the remaining provisions of this 7, the Parties agree to forward CLI to each
other across any POI, irrespective of whether or not the CLI has been restricted for the
forwarding thereof to other end-users, provided that such forwarding is feasible,
technically or otherwise.
background image
Page 20
7.2.
Where CLI has been restricted by the subscriber, the forwarding thereof shall be:

7.2.1.
forwarded to the other Party in a restricted mode; and

7.2.2.
utilized by the other Party for internal technical purposes, forwarding thereof to
Other Licensed Operators and lawful interception purposes only.

7.3.
Where the forwarding of CLI has been restricted by the subscriber and this restriction
has been correctly communicated to the other Party, the Party receiving such CLI shall
under no circumstances permit or enable in any way such CLI to be forwarded and/or
presented on any terminal equipment within its Telecommunication System and shall, in
addition, not make available such CLI to any third party. “Third party” for the purposes
hereof includes, but is not limited to, subscribers, parties operating or providing services
on that Party’s Telecommunication System (e.g. value added- and information service
providers), agents, subcontractors and service providers, their employees and
representatives.

7.4.
Should either Party allow the forwarding of CLI contrary to the provisions of 7.2 and/or
7.3, and fail to terminate such practice within 2 (two) days of receipt or deemed receipt
from the other Party of a written demand for it to do so, the offending Party shall be in
breach of this Agreement.

7.5.
The Parties shall not amend/manipulate the CLI as presented to each other in respect of
any Calls crossing a POI.

7.6.
Neither Party can guarantee the integrity of any CLI in respect of Calls originating on a
Telecommunication System outside the Territory.


PART II: POILs FOR THE INTERCONNECTION OF THE PARTIES’
TELECOMMUNICATION SYSTEM S

8.
PROVISION OF POILs

8.1.
Accommodation Principles

8.1.1.
Unless otherwise agreed between the Parties, the following principles shall be
applied where the Accommodating Party provides accommodation for housing
transmission equipment belonging to the Providing Party and used for the provision
of POILs:

8.1.1.1.
transmission equipment of the Providing Party shall be housed in a separate
partitioned area in the Accommodating Party’s building with independent access
or in an external container on the property on which the Accommodating Party’s
building is located;

8.1.1.2.
adequate mast space if required, power (dc and ac), air-conditioning and earthing
shall be provided by the Accommodating Party;

8.1.1.3.
tie cable and ducting between the Parties’ equipment shall be provided by the
Accommodating Party;
background image
Page 21
8.1.1.4.
boundary access for underground cables and fibres shall be provided by the
Accommodating Party. Dual access shall be provided in cases where POILs need
to be provided with route diversity (platinum services);

8.1.2.
The items set out in 8.1.1 above shall be provided by the Accommodating Party free
of charge to the Providing Party provided that the transmission equipment so housed
is used solely and exclusively for purposes of Interconnection and provided further
that all transmission equipment shall remain the sole and exclusive property of the
Providing Property.

8.1.3.
In the event that the Providing Party wishes to utilize any of the transmission
equipment aforesaid for the provision of services to third parties from the
Accommodating Party’s site where POIL/s terminate, the Providing Party shall be
required to enter into a written site leasing agreement with the Accommodating Party
on commercial terms and conditions, in which case 8.1.2 shall cease to apply.

8.2.
Party providing POIL/s
8.2.1.
In respect of capacity as envisaged in 4.5 and Appendix 3 either Party may request
the establishment of POIL/s between a POI and POP.

8.2.2.
Any request as contemplated in 8.2.1 shall be directed in writing to the address or
telefax number of the person nominated in writing by either Telkom or Neotel, as the
case may be, from time to time during the term of this Agreement and shall contain
at least the following information:

8.2.2.1.
the detailed physical addresses of the relevant POIs and POPs, such addresses to
include the street and stand numbers as well as the longitude and latitude co-
ordinates of such points, indicated in degrees, minutes and seconds;
8.2.2.2.
the number of POILs required between the relevant POIs and POPs;

8.2.2.3.
the package options for the relevant POIL/s (e.g. T1, P3, etc.) required as set out
in 8.9 below;

8.2.2.4.
the date on which such POIL/s are required.

8.2.3.
Each request contemplated in 8.2.2 shall be signed by a duly authorized signatory of
the requesting Party and shall reflect the date on which it is submitted to other Party
and shall either be hand delivered or telefaxed to the person nominated by either
Party in terms of 8.2.2.

8.2.4.
Pricing shall be established to determine whether Telkom or Neotel will be the
Providing Party. The comparator shall be Telkom’s pricing as set out in Appendix
10, after all relevant discounts have been taken into account. Within 5 (five)
Business Days of the request for POIL/s as envisaged in 8.2.3 has been received or
deemed to have been received, Neotel shall provide Telkom in writing with
documentation setting out its lower pricing. The Parties shall then promptly meet to
determine whether the pricing provided by Neotel is in fact lower than Telkom’s
discounted pricing as set out in Appendix 10. Should Neotel fail to respond as
aforesaid Telkom shall provide the relevant POIL/s.
background image
Page 22
8.2.5.
The decision as to who shall be the Providing Party, shall be subject to the ability of
the other Party to provide the necessary accommodation as set out in 8.1. If the other
Party is unable to provide the necessary accommodation as aforesaid, the Parties
shall meet and negotiate, in good faith, with a view to agreeing on who should be the
Providing Party and the applicable terms and conditions.

8.2.6.
Should the Parties fail to reach agreement as to whether Neotel’s pricing is in fact
lower than Telkom’s pricing as set out in Appendix 10, after all relevant discounts
have been taken into account, the Parties shall then promptly meet and consult with
one another in order to try to resolve the dispute. Failing resolution of the dispute
within 5 (five) Business Days, the dispute may be referred by Telkom for
investigation and determination by a firm of auditors agreed to between the Parties
or, failing agreement, by a firm of auditors nominated by the President, for the time
being, of the South African Institute of Chartered Accountants. Such auditors shall,
in their determination of the dispute act as experts and not as arbitrators and their
decision shall be final and binding on the Parties. The Parties shall co-operate in any
such investigation. The independent auditor’s costs shall be paid by Telkom in the
event that Neotel’s pricing is found to be in fact lower than Telkom’s discounted
pricing as set out in Appendix 10, otherwise the independent auditor’s costs shall be
paid by Neotel.

8.3.
Once it has been established which Party will be the Providing Party, the
Accommodating Party shall place a written order for each relevant POIL on the
Providing Party. The order shall contain the following:

8.3.1.
the detailed physical addresses (POP and POI) of each relevant POIL, such addresses
to include the street and stand numbers as well as the longitude and latitude co-
ordinates of such points, indicated in degrees, minutes and seconds;

8.3.2.
a unique reference number for each POIL, in a format to be agreed upon between the
Parties in writing;
8.3.3.
the package option for each relevant POIL (e.g. T1, P3) required;

8.3.4.
the date on which each relevant POIL is required;

8.3.5.
a site plan for the Accommodating Party’s end of each POIL, indicating the exact
location where the POIL in question is required to terminate, as well as a physical
floor plan indicating the proposed location of the Providing Party’s equipment; and

8.3.6.
for the Accommodating Party’s end of each POIL, the Scheduled RFO date.

8.4.
The date of receipt or deemed receipt of the written order as set out in 8.3 shall be
deemed to be acceptance of the order and shall be the date upon which a separate
agreement between Telkom and Neotel comes into existence for the provision of each
relevant POIL, which agreement shall then be referred to as “an/the order” for the
purposes of this Agreement and such separate agreement shall be subject to the terms
and conditions of this Agreement.

8.5.
The Providing Party shall provide POIL/s in accordance with 9 and 10 below.
background image
Page 23
8.6.
Notwithstanding anything to the contrary contained in this 8, in respect of a change of
capacity as envisaged in 4.6, the Providing Party in terms of 4.5 and Appendix 3
between a relevant POI and POP, shall be the Party responsible for the provision of any
additional POIL/s.

8.7.
The Providing Party shall utilize the technology which it has available and which it, in
its reasonable discretion, considers to be the most suitable in each instance.

8.8.
POIL/s provided in terms of this Agreement shall be in compliance with the technical
specifications set out in Appendix 6, shall be operated and maintained in accordance
with the procedures set out in Appendix 7 and Service Levels shall apply as set out in
Appendix 9.
8.9.
POIL/s shall be either permanent POIL/s or temporary POIL/s and shall be as ordered in
terms of this 8. The package options are given in the table below.
Type of
POIL
Package
Option
Contract Period
(Years)
Service Level
Option
Temporary          T1
T2
Less than 1 year
Less than 1 year
Bronze
Silver
Permanent
P1
P2
P3
P4
P5
P6
1
3
4
5
4
5
Silver
Silver
Silver
Silver
Platinum
Platinum

8.10.
If it is foreseen that maintenance response times could be affected in individual
instances due to, but not limited to, travelling time from maintenance centres to remote
or inaccessible sites, the Providing Party may propose to Accommodating Party that
special conditions should apply to the POIL in question and this proposal shall be
negotiated in good faith between the Parties with a view to agreement in writing.


9.
INSTALLATION TIMES

9.1.
The applicable GTTI for the various service level options, as set out in Appendix 9,
shall be as set out in the following table.

Service Level
Option
GTTI (where required
infrastructure already exists)
GTTI (“Greenfield”
situation – see Note 1)
Bronze
45 days
60 days
Silver
45 days
60 days
Platinum
60 days
120 days
Note 1: A “Greenfield” situation means that new infrastructure, including, without
limitation, buildings, cables, associated switching nodes and/or transmission nodes
needs to be deployed to support the service.

9.2.
The Providing Party shall not be obliged to provide POILs in a shorter time than the
applicable GTTI. The Providing Party shall nevertheless attempt to comply with
delivery dates requested by the Accommodating Party.
background image
Page 24
9.3.
The Providing Party shall have a period of 30 (thirty) days from the Actual RFO date to
install, commission and test its transmission equipment and make available any
particular POIL. For the avoidance of doubt, any delays caused by the Accommodating
Party in meeting its obligations in terms of 10 shall result in the obligations of the
Providing Party in terms of 9.1 and 9.2 being extended by a period of equal duration,
without penalties as envisaged in 9.4 being incurred.

9.4.
Should the Providing Party fail to provide a POIL within the applicable GTTI, extended
as set out in 9.3, if applicable, then the Providing Party shall grant a rebate to the
Accommodating Party, on a linear sliding scale from GTTI to 2 (two) times GTTI, at
which point the rebate shall amount to 50% (fifty percent) of the installation fee.
The following formula details the calculation of the late delivery rebate:
Rebate =          (Actual installation in days) – GTTI       x (0.5 x ins tallation charge)
GTTI
to a maximum of 50% of the installation fee

9.5.
Applicable discounts on the installation charges, as set out in 11 and Appendix 10 (in
the case of Telkom), shall be taken into account prior to calculating the rebates
envisaged in 9.4. If Neotel offers discounting in its pricing, then these discounts shall
similarly be taken into account.

9.6.
The Accommodating Party shall provide the Providing Party with a summary detailing
the information and calculations in support of its claim for any late delivery rebate
applicable to a POIL. The Parties shall, within 15 (fifteen) Business Days of receipt or
deemed receipt by the Providing Party of such summary, resolve any discrepancies and
reconcile between themselves the value of the late delivery rebates owed to the
Accommodating Party. The provisions of 13.4 shall apply to late delivery rebates.


10.       DELIVERY PROCESS FOR POILs

10.1.
The Accommodating Party shall be responsible for making available, at no cost to the
Providing Party, accommodation, power, mast space, ducting and other facilities as
more fully set out in 8.1, for purposes of housing the transmission equipment of the
Providing Party. The Accommodating Party shall be responsible for obtaining all
necessary approvals and consents and the Accommodating Party indemnifies the
Providing Party against all or any losses or damages which the Providing Party may
suffer as a result of the failure to obtain the necessary approvals and consents.
10.2.
The Accommodating Party shall ensure that from the date of an order as envisaged in
8.4, the Accommodating Party’s site is immediately available for access by the
Providing Party for purposes of planning the transmission access. The Parties record
that the accommodation at the aforesaid site, at this stage of the process, may not
necessarily be in compliance with the accommodation requirements, and may in fact not
yet have been constructed.
10.3.
The Providing Party may in its discretion conduct a site visit. Whether or not a site visit
is conducted, the Providing Party shall within 10 (ten) days from the date of receipt or
deemed receipt of the order, provide to the Accommodating Party, in writing, details
regarding the transmission medium to be used to provide transmission access to the site,
background image
Page 25
access and ducting requirements, mast space and any other special requirements
pertaining to the site in question.
10.4.
The Accommodating Party shall, within 2 (two) days of receipt or deemed receipt of the
advice by the Providing Party in terms of 10.3, notify the Providing Party in writing of
any change to the Scheduled RFO date, failing which the Scheduled RFO date shall
remain unchanged.
10.5.
The Providing Party shall, within 3 (three) days of being notified by the
Accommodating Party in terms of 10.4, notify the Accommodating Party in writing of
the Scheduled CICD for the POIL. This Scheduled CICD shall be provided by the
Providing Party to the Accommodating Party for planning purposes only, and the
Providing Party reserves the right to amend the Scheduled CICD if the Providing Party
is unable by reason of circumstances beyond its control to meet the Scheduled CICD, or
if the Actual RFO date is later than the Scheduled RFO date.
10.6.
The Accommodating Party shall notify the Providing Party in writing as soon as the
necessary accommodation and facilities as required in terms of this 10 are available for
occupation by the Providing Party and the date so notified, or the date of receipt or
deemed receipt of the said notification, whichever is the later, shall constitute the Actual
RFO date.
10.7.
After installation of the POIL and testing by the Providing Party to confirm that the
POIL is functioning in accordance with the performance standards as laid down in
Appendix 6, the Accommodating Party shall be provided by the Providing Party with a
written completion certificate. The date of this completion certificate by the Providing
Party stating that the POIL is available for use by the Parties, shall be the Actual CICD,
subject to 10.8.
10.8.
After any tests which the Accommodating Party may wish to perform on the POIL, but
in any event no later than 5 (five) Business Days following the receipt or deemed
receipt of the completion certificate as set out in 10.7, the Accommodating Party shall
by way of facsimile forward to the Providing Party the signed completion certificate, or
alternatively by way of facsimile advise the Providing Party of any problems which may
have been detected during such testing, in which event the Providing Party shall
forthwith correct such faults and amend the Actual CICD accordingly. The
Accommodating Party shall by way of facsimile forward to the Providing Party the
signed completion certificate after the aforesaid faults have been corrected.

10.9.
The Parties shall only use a POIL for purposes of carrying live traffic after the signed
completion certificate has been forwarded to the Providing Party by the
Accommodating Party.

11.       SHARED POIL CHARGES

11.1.
All charges payable in terms of this Agreement (less any applicable discounts) in
consideration for the provision by any Party of POILs, shall be split between Telkom
and Neotel on a 50:50 basis. This ratio is based on the assumption that 50% (fifty
percent) of all telecommunications traffic (measured in minutes) between Telkom’s
Telecommunication System and Neotel’s Telecommunication System will flow from
Telkom’s Telecommunication System to Neotel’s Telecommunication System and 50%
background image
Page 26
(fifty percent) of all such traffic will flow from Neotel’s Telecommunication System to
Telkom’s Telecommunication System.

11.2.
Since traffic flows change over time, the Parties agree to annually determine (at the end
of the calendar month following the calendar month in which the Commencement Date
anniversary occurs), a traffic flow ratio for the preceding year based on total traffic
between the Parties’ Telecommunication Systems.

11.3.
The ratio as determined in accordance with 11.2, shall be agreed in writing and shall
apply as from the first day of the second calendar month following the calendar month
in which the determination is made. Agreement in writing as aforesaid shall be deemed
to be an amendment to this Agreement.


12.       DISCONTINUATION OF POILs
12.1.
After expiry of the initial contract period of a POIL, the POIL shall remain in service
and the POIL Charges shall remain the same as for the period initially contracted, until
such time as the POIL is discontinued.

12.2.
Any POIL may only be discontinued by mutual agreement as contemplated in 4.6 and
4.7.
12.3.
Save for any unbilled or arrear POIL Charges, the Parties shall have no other liability to
the each other whatsoever for the discontinuation of a POIL.


PART III:       BILLING PROCEDURES


13.       BILLING PROCEDURES

13.1.
Interconnection Fees

13.1.1.
Each Party undertakes to measure and record, at its own cost and expense, the
duration of Calls crossing the POIs.

13.1.2.
Each Party shall provide to the other, on an exchange basis, an accounting summary
containing the Billing Information relating to its measurements in both directions (as
contemplated in 13.1.1) applicable to the immediately preceding Accounting Period
no later than 10 (ten) Business Days after the expiry of each Accounting Period.

13.1.3.
Each Party shall submit a tax invoice to the other Party in respect of the
Interconnection Fees owed to it by the other Party, in respect of the immediately
preceding Accounting Period, by no later than 10 (ten) Business Days after it has
received the accounting summary referred to in 13.1.2, provided that prior to
submission of such tax invoices the Parties shall use their best endeavours to resolve
any discrepancies which may exist in the Billing Information contained in their
respective accounting summaries as exchanged. Unless otherwise agreed by the
Parties in respect of a particular Accounting Period, each Party shall base its tax
invoices on its own measurements and records pertaining to the duration of Calls it
receives from the Telecommunication System of the other Party.
background image
Page 27
13.2.
Directory Database Access Charge

13.2.1.
In consideration for the use of Telkom’s national directory enquiry database as set
out in 6.4.3.3.2, Telkom shall provide Neotel with tax invoices in respect of the
Directory Database Usage Charge due to it, monthly in advance, on or before the 10
th
(tenth) Business Day of the calendar month to which such invoice relates.

13.2.2.
The provisions of 13.2.1 shall apply equally to Telkom in relation to Telkom’s access
to the directory services of Neotel once such services are operational.

13.3.
POIL Charges

13.3.1.
In consideration for the provision, in accordance with the terms of this Agreement, of
POIL/s by the Providing Party, the Accommodating Party shall, subject to the
remaining provisions of this 13, pay to the Providing Party POIL Charges per POIL
in the amounts set out in Appendix 10, in the case of Telkom and in the case of
Neotel, the pricing as determined in terms of 8.2, as the case may be.

13.3.2.
Discounts in the proportions as set out in 11, Appendix 10 in the case of Telkom and
in the case of Neotel, any discounts provided for in the pricing as determined in
terms of 8.2, as the case may be, shall apply.

13.3.3.
The Providing Party shall provide the Accommodating Party with tax invoices in
respect of all POIL Charges due by the Accommodating Party on the following basis:

13.3.3.1.
for any installation charge and/or outstanding rentals not yet invoiced, in arrears;
and

13.3.3.2.
for any other charges monthly in advance;
on or before the 10
th
(tenth) Business Day of the Accounting Period to which such
invoice relates.

13.4.
Rebates in respect of service levels and late delivery for POILs

13.4.1.
Rebates for service levels (as set out in Appendix 9) and late delivery (as set out in
9.6) shall apply to POILs, subject to the remaining provisions of this 13.

13.4.2.
Each Party shall provide to the other tax invoices in respect of all rebates due to it
within 10 (ten) Business Days after expiry of the 10 (ten) Business Day period
allowed for the resolution and reconciliation of rebates as set out in 9.6 and
Appendix 9.

13.5.
After-hour repair fees, fault location fees and call-out fees

13.5.1.
After-hour repair fees, fault location fees and call-out fees as set out in Appendix 7
shall be payable by the Parties to each other, subject to the remaining provisions of
this 13.

13.5.2.
The Parties shall provide each other with tax invoices in respect of all fees as set out
in 13.5.1 due to them within 10 (ten) Business Days after expiry of the 10 (ten)
background image
Page 28
Business Day period allowed for the resolution and reconciliation of such fees owed
to and by each Party as set out in Appendix 7.

13.6.
Telecommunication System Modifications
The Parties shall provide each other with tax invoices in respect of all fees for
Modifications as contemplated in 18, subject to the remaining provisions of this 13.
13.7.
General billing and payment terms
13.7.1.
Amounts reflected in any tax invoice shall be payable to the invoicing Party by the
invoiced Party within 30 (thirty) days of receipt or deemed receipt of such tax
invoice. Notwithstanding 2.11, should payment be due on a Sunday then payment
shall be made on the preceding Saturday. Should payment be due on a public
holiday in the Territory, payment shall be made on the preceding Business Day or
Saturday, whiche ver is the later day, when commercial banks are open for business.
13.7.2.
If either Party fails to pay any amount due by it under this Agreement within the
period referred to in 13.7.1, the other Party shall be entitled to charge and receive
interest from such Party at the prime overdraft rate charged by The Standard Bank of
South Africa Limited, from time to time, plus 4% (four percent), nominal annual
compounded monthly, calculated from the date payment was due until the date of
actual payment in full.
13.7.3.
If either Party disputes the amount reflected as being payable by it in terms of any
tax invoice delivered to it by the other Party, such Party shall deliver a notice in
writing, before payment is due in terms of the invoice to which the dispute relates, to
the invoicing Party, containing details of such dispute and:

13.7.3.1.
within 5 (five) Business Days of receipt or deemed receipt of such notice, the
invoicing Party shall furnish the other Party with whatever documents and
material as may be reasonably required by such other Party to verify the amount
reflected as being payable by it in the relevant tax invoice; and
13.7.3.2.
the Parties shall then promptly meet and consult with one another in order to try to
resolve the dispute. Failing resolution of the dispute within 12 (twelve) Business
Days following receipt or deemed receipt of the notice referred to in this 13.7.3,
the dispute may be referred by the Party disputing such tax invoice for
investigation and determination by a firm of auditors agreed to between the
Parties or, failing agreement, by a firm of auditors nominated by the President, for
the time being, of the South African Institute of Chartered Accountants. Such
auditors shall, in their determination of the dispute act as experts and not as
arbitrators and their decision shall be final and binding on the Parties. The Parties
shall co-operate in any such investigation and any sum found to be due or
overpaid shall promptly be paid or refunded (together with any interest payable or
paid as the case may be, pursuant to 13.7.2), within 30 (thirty) days of the date of
such determination. The independent auditor’s costs shall be paid by the Party
disputing the tax invoice in question unless such tax invoice is established to have
been incorrect in which case the invoicing Party shall pay such costs.

13.7.4.
Notwithstanding the provisions of 13.7.3:
background image
Page 29
13.7.4.1.
if an amount in dispute represents less than 5% (five percent) of the total amount
(excluding VAT) of the tax invoice in question, the invoiced amount shall
nonetheless be payable in full by the invoiced Party;

13.7.4.2.
if the amount in dispute represents 5% (five percent) or more of the total amount
(excluding VAT) of the tax invoice in question, such disputed amount shall not be
payable;
pending determination by the auditors pursuant to 13.7.3.

13.7.5.
Each Party shall maintain, keep and retain, in an easily accessible form, for a period
of 5 (five) years from the submission by it to the other Party of any tax invoice,
accurate books of account and information contained in or on magnetic discs, tapes,
documents or such other records, as may reasonably be required to enable such other
Party to calculate or verify any amount payable by it in respect of such tax invoice.
13.7.6.
Should a Party (“the first Party”) be able to reasonably show that it believes that the
other Party (“the second Party”) is in breach of its obligations in terms of this 13, the
second Party shall from time to time permit the first Party during normal business
hours and at reasonable times, accompanied by an authorized representative of the
second Party, upon at least 30 (thirty) days written notice, to inspect the billing and
accounting equipment owned or controlled by the second Party to the extent
reasonably necessary to satisfy the first Party that the second Party is not in breach of
any of its obligations in terms of this 13, provided that:

13.7.6.1.
any such inspection shall be conducted in such a way as to cause a minimum of
inconvenience to the activities of the second Party and not to interfere with the
provision of Telecommunication Services to subscribers of the second Party;
13.7.6.2.
the first Party shall take whatever steps are reasonably necessary to facilitate the
conduct by the second Party of a thorough and speedy investigation.

13.7.7.
Notwithstanding any dispute between the Parties as to any payment, the Parties shall,
throughout the term of this Agreement, remain obliged to observe and perform their
respective obligations in terms of this Agreement.

13.7.8.
It is recorded that the failure of a Party to collect any amount owing to it by its
subscribers or any of its subscribers for any reason whatsoever, shall in no way affect
or undermine such Party’s payment obligations to the other Party in terms of this
Agreement.


PART IV:   GENERAL


14.       PROTECTION OF THE PARTIES’ TELECOMMUNICATION SYSTEM S

14.1.
Each Party undertakes not to do or permit to be done or omit or permit the omission of
anything in relation to its Telecommunication System which may reasonably be
expected to damage or materially interfere, in any way whatsoever, with the proper and
normal operation of the other Party’s Telecommunication System.
background image
Page 30
14.2.
Each Party (“the first Party”) shall, as soon as is reasonably practicable after receipt or
deemed receipt of a written request to this effect from the other Party (“the second
Party”), provide the second Party with whatever information and assistance is
reasonably necessary to enable the second Party to satisfy itself as to first Party’s
compliance with its obligations in terms of 14.1; provided that the second Party shall, in
the exercise of its rights in terms of this 14.2, act reasonably, and provided further that
the second Party shall not, in the exercise of such rights, do anything which may inhibit
or interfere with the proper and normal operation by the first Party of its
Telecommunication System.


15.    SAFETY
Telkom and Neotel shall each, at their own cost and expense, take whatever steps are
reasonably necessary to procure that the fulfillment of their respective obligations and
exercise of their respective rights in terms of this Agreement shall not endanger the health
and safety of any Party’s employees, agents, directors, sub-contractors and subscribers.


16.    FAULT REPORTING AND RESOLUTION
Telkom shall provide to Neotel and Neotel shall provide to Telkom the operations and
maintenance services set out more fully in Appendices 7 and 8 for the purpose of enabling
Telkom or Neotel, as the case may be, to report any Fault in respect of Interconnection or
POILs provided by either Party to the other Party. The Parties shall follow the Fault
reporting procedures as set out in Appendices 7 and 8.

17.    NUMBERING

17.1.
Each Party shall provide to the other Party a detailed list of approved numbering that
has been allocated to that Party by the Authority.

17.2.
Should either Party’s numbering be amended by the Authority, such Party shall provide
the other Party with written notice of such amendment no less than 30 (thirty) days or
any shorter period agreed to in writing by the Parties, prior to the date of the anticipated
implementation of the numbering.


18.    TELECOMMUNICATION SYSTEM MODIFICATION
18.1.
A Party intending to implement a Modification shall give to the other Party written
notice of such Modification not less than 180 (one hundred and eighty) days or any
shorter period agreed to in writing by the Parties, prior to the date of the anticipated
Modification. The notice shall specify the technical details and planned date of the
Modification. Following such notification each Party shall supply to the other such
information as the other may reasonably request including in the case of the Party
giving the notice, details of the potential impact on the other Party’s
Telecommunication System.

18.2.
The Party receiving the notice pursuant to 18.1 shall notify the other Party as soon as
practicable, but in any event not more than 30 (thirty) days after receipt of such notice,
background image
Page 31
of any changes required to that Party's Telecommunication System and if the provisions
in 18.6 do not apply, a quotation for the cost of such changes calculated on the basis of
the minimum cost consistent with good engineering practice.

18.3.
If the Party giving the notice pursuant to 18.1 agrees to the changes required to the other
Party’s Telecommunication System and agrees to the quotation (if any) in respect
thereof, the Parties shall use their best endeavours to agree to a plan within 60 (sixty)
days or such shorter period agreed to in writing by the Parties on receipt of the notice
referred to in 18.2, to implement the Modification. The Party requiring the
Modification shall carry out such Modification in accordanc e with the agreed plan.

18.4.
If the provisions in 18.6 do not apply, and if the Party giving the notice pursuant to 18.1
does not agree to the changes required to the other Party’s Telecommunication System
and/or to the quotation (if any) in respect thereof, that Party shall so notify the other
Party and the matter shall be treated as a dispute in terms of 32. The Party giving the
notice pursuant to 18.1 shall not implement the relevant Modification until the dispute is
resolved.

18.5.
On completion of the changes on its Telecommunication System and if the provisions of
18.6 do not apply, the Party receiving the notice pursuant to 18.1 shall invoice the other
Party for such changes on its Telecommunication System, for an amount not exceeding
the agreed quotation.

18.6.
Each Party shall pay its own costs arising out of the Modification if:-

18.6.1.
the Parties agree in writing to change their respective Telecommunication Systems
for their mutual benefit; or

18.6.2.
the Modification is lawfully directed by a competent court of law, government- or
regulatory body; or

18.6.3.
the Modification is a change to a Party’s numbering system, which change is
consistent with an upgrade path agreed to by the Authority or numbering changes
occasioned by notification from international operator/s.

18.7.
If a Party makes a Modification, it shall ensure that Calls handed to it by the other Party
are not adversely affected or impaired in a material way as a result of such Modification
and such Party shall use its best endeavours to minimise any adverse effect of such
Modification on the other Party.


19.    TESTING

19.1.
The Parties undertake to co-operate fully with one another in the development of
mutually acceptable procedures for the testing and clearance of Faults occurring on
POILs, or otherwise affecting the Telecommunication Systems of the Parties, these
procedures being set out in Appendices 7 and 8.

19.2.
The Parties agree that testing of POILs and the clearance of Faults for the other Party
shall be carried out by each Party according to procedures and standards applied by it
within its own Telecommunication System.
background image
Page 32
20.    OFFER OR REQUEST FOR NEW OR EXISTING SERVICES

20.1.
If either Party wishes to offer or acquire access to any new or existing service accessible
through Interconnection and not contemplated in this Agreement to or from the other
Party to which subscribers of any Party may enjoy access through Interconnection, it
shall notify such other Party in writing of its offer or request, as the case may be.

20.2.
The Parties shall then meet and negotiate in good faith in order to reach agreement in
writing as to the terms and conditions which will govern access to the offered or
requested new or existing service.

21.    INTELLECTUAL PROPERTY RIGHTS

21.1.
Nothing contained in this Agreement shall be construed to confer or be deemed to
confer on either Party any rights or licences in the intellectual property of the other
Party.
21.2.
For the purposes of this 21 “intellectual property” means whatever trademarks (whether
registered or not) inventions, patents (both registered and unregistered), copyrights,
registered and unregistered designs, know-how and other intellectual property vesting in
a Party by the operation of law.


22.    OPERATIONAL LIAISON

22.1.
The Parties shall consult together regarding the operation and implementation of this
Agreement and shall use their best endeavours to resolve any problems arising from
such consultation or otherwise encountered in relation to this Agreement.
22.2.
Without prejudice to the provisions of 22.1, the Parties shall each, within 3 (three)
Business Days of the Commencement Date appoint a representative and notify the other
Party in writing of the identity of such appointee. Any representatives appointed by the
Parties before the Commencement Date, shall be deemed to have been appointed
hereunder. Such representative shall, together with the representative of the other Party,
be responsible for overseeing the day-to-day practical implementation of this
Agreement including, without limitation, the following matters:

22.2.1.
numbering

22.2.2.
physical and electrical interface(s);
22.2.3.
provisioning (including commissioning);

22.2.4.
transmission;

22.2.5.
synchronization;

22.2.6.
signaling;

22.2.7.
call accounting;
background image
Page 33
22.2.8.
maintenance;
22.2.9.
augmentation of capacity;

22.2.10.
prevention of fraud;

22.2.11.
malicious call tracing;

22.2.12.
new or modified features and services including time scales for implementation; and
22.2.13.
any other technical and operational matters which may arise from time to time.

22.3.
Each of the representatives contemplated in 22.2 shall liaise with the other and report to
the Party appointing him on any problem which has not proved capable of resolution.
On receipt of such report, the Parties shall consult forthwith with one another with a
view to achieving a mutually acceptable solution to such problem.
22.4.
Unless otherwise provided for in this Agreement, each Party shall give the other at least
7 (seven) days notice in writing of any change which it intends to make in respect of the
identity of the person charged with operational liaison on its behalf.


23.    FORCE MAJEURE

23.1.
No Party to this Agreement shall be liable for any failure to fulfill its obligations
hereunder where such failure is caused by circumstances outside the reasonable control
of such Party, including, without limitation, any Act of God, insurrection or civil
disorder, war or military operations, national or local emergency, acts or omissions of
Government, labour disputes of any kind (whether or not involving the Party’s
employees), fire, lightning or explosion caused by circumstances outside the reasonable
control of such Party (each an “event of force majeure”).
23.2.
The Party affected by the event of force majeure shall within 1 (one) day or as soon as
possible notify the other Party in writing of the estimated extent and duration of such
inability to perform its obligations.

23.3.
Upon cessation of circumstances leading to the event of force majeure, the Party
affected by such event of force majeure shall within 1 (one) day or as soon as possible
notify the other of such cessation.
23.4.
If as a result of the event of force majeure, the performance by either Party of such
Party’s obligations under this Agreement is only partially affected, such Party shall
nevertheless remain liable for the performance of those obligations not affected by the
event of force majeure.
23.5.
If the event of force majeure continues for a period of 6 (six) months or less from the
date of any notification thereof in terms of 23.2, any and all obligations outstanding
shall be fulfilled by the Party who has been unable to perform due to the event of force
majeure as soon as possible after cessation of the event of force majeure, save to the
extent that such fulfillment is no longer practically possible or is not required by the
other Party.
background image
Page 34
23.6.
If the event of force majeure continues for more than 6 (six) months from the date of
any notification thereof in terms of 23.2 and notice of cessation in terms of 23.3 has not
been given and such event of force majeure prevents the affected Party from performing
its obligations in whole or in part during that period, the other Party shall be entitled
(but not obliged) to terminate this Agreement by giving not less than 30 (thirty) days
written notice to the affected Party after expiry of such 6 (six) month period to that
effect; provided that such notice shall be deemed not to have been given if a notice of
cessation given in terms of 23.3 of the event of force majeure is received or deemed to
be received by the unaffected party prior to the expiry of such 30 (thirty) days.
23.7.
If this Agreement is not terminated in terms of the provisions of 23.6, any obligations
outstanding shall be fulfilled by the party who is unable to perform due to the event of
force majeure as soon as reasonably practicable after the event of force majeure has
ended, save to the extent that such fulfillment is no longer possible or is not required by
the other party.


24.    LIMITATIONS ON LIABILITY

24.1.
Each Party (“the Indemnifying Party”) indemnifies the other (“the Innocent Party”)
against all liability or loss arising directly from (and any reasonable cost, charge or
expense incurred in connection with):

24.1.1.
damage to or loss of any equipment, facility or other property of the Innocent Party
caused by the intentional or negligent act or omission of the Indemnifying Party or
its employees, sub-contractors, directors or agents arising out of or in connection
with this Agreement; and

24.1.2.
any action, claim, suit or demand by any person against the Innocent Party in respect
of or arising out of any intentional or negligent act or omission of the Indemnifying
Party or its employees, sub-contractors, directors or agents arising out of or in
connection with this Agreement.

24.2.
Neither Party shall be obliged to indemnify the other Party in terms of the provisions of
this 24 to the extent that the loss, liability, cost, charge or expense suffered or sustained
by such other Party is the result of any breach by such other Party of any of its
obligations in terms of this Agreement.

24.3.
Save as otherwise provided for in this Agreement, neither Party shall be liable to the
other for any indirect or consequential loss, liability, damage or expense suffered by
such other Party and flowing from any cause of action arising out of this Agreement.


25.    COMMENCEMENT
This Agreement shall commence on the Commencement Date.

26.    TERMINATION, DURATION AND BREACH

26.1.
This Agreement shall, subject to the remaining provisions of this 26, endure throughout
the term of each Party’s public switched telecommunication service licence, or any
background image
Page 35
renewal thereof or the reissue of such licence in substantially the same form, whichever
terminates first.
26.2.
If a Party to this Agreement:

26.2.1.
fails to pay any amount due by it in terms of this Agreement by the due date, and
fails to remedy such breach within 90 (ninety) days of written notice to do so; or
26.2.2.
commits a material breach of any other provision of this Agreement and fails to
remedy such breach within 90 (ninety) days of written notice to do so; or
26.2.3.
takes steps to place itself, or is placed in liquidation, whether voluntary or
compulsory, or under judicial management, in either case whether provisionally or
finally; or
26.2.4.
take steps to deregister itself or is deregistered; or

26.2.5.
fails to satisfy a substantial judgment against that Party within 21 (twenty one) days
after that Party becomes aware of the judgment, except if that Party provides
evidence on an ongoing basis to the reasonable satisfaction of the other Party that
steps have been initiated within the 21 (twenty one) days to appeal, review or rescind
the judgment and to procure suspension of execution of that judgment and that such
steps are being expeditiously pursued. The period of 21 (twenty one) days shall run
from the date on which the judgment becomes final, or the date on which the
attempts to procure the suspension of the execution fail. A breach of this 26.2.5 shall
be regarded by the Parties as a fundamental breach of the Agreement.

26.3.
In the event of any breach as contemplated in 26.2, the breaching Party shall be in
default.

26.4.
If a Party is in default, the aggrieved Party shall be entitled, in addition to all other
remedies to which it may be entitled at law, or in terms of this Agreement, to cancel this
Agreement.
26.5.
Upon the termination for any reason whatsoever of this Agreement all amounts then
owing by one Party to the other Party shall become immediately due and payable.


27.    REVIEW

27.1.
A Party may seek to amend this Agreement by serving on the other Party a review
notice at any time during the currency of this Agreement. A review notice shall set out
in reasonable detail the issues to be discussed between the Parties. On service of a
review notice, the Parties shall forthwith negotiate in good faith the matters to be
resolved with a view to agreeing the relevant amendments to this Agreement, having
regard to the provisions of the Act.

27.2.
For the avoidance of doubt, the Parties agree that notwithstanding service of a review
notice, this Agreement shall remain in full force and effect.

background image
Page 36
28.    CO-OPERATION
The Parties shall co-operate and consult with each other in good faith regarding the
implementation of this Agreement, with a view to achieving the aims and objectives of this
Agreement.

29.    RELATIONSHIP BETWEEN THE PARTIES

29.1.
Nothing in this Agreement shall create any relationship of agency, partnership or joint
venture between Telkom and Neotel and no Party shall hold itself out as agent or
partner of the other or as being in a joint venture with the other.

29.2.
No Party is entitled to contract on behalf of the other Party, nor shall it hold itself out to
any Party as having the authority to contract on behalf of the other Party in any way.


30.    SEVERABILITY
If any term, condition, agreement, requireme nt or provision contained in this Agreement is
held by any court having jurisdiction to be unenforceable, illegal, void or contrary to public
policy, such term, condition, agreement, requirement or provision shall be of no effect
whatsoever upon the binding force or effectiveness of any of the remainder of this
Agreement, it being the intention and declaration of the Parties that had they or either of
them known of such unenforceability, illegality, invalidity or that the provision was
contrary to public policy, they would have entered into a contract, containing all the other
terms and conditions set out in this Agreement.

31.    CESSION
No Party shall cede, assign, transfer, encumber or delegate any of its rights or obligations
in terms of this Agreement witho ut the prior written consent of the other Party and such
other consents as may be necessary.


32.    DISPUTE RESOLUTION

32.1.
Should any dispute arise between the Parties, including, but not limited to:

32.1.1.
the formation or existence of; or

32.1.2.
the implementation of; or

32.1.3.
the interpretation or application of the provisions of; or

32.1.4.
the Parties’ respective rights and obligations in terms of or arising out of; or

32.1.5.
the breach or termination of; or

32.1.6.
the validity, enforceability, rectification, termination or cancellation, whether in
whole or in part of; or
background image
Page 37
32.1.7.
any documents furnished by the Parties pursuant to the provisions of,
this Agreement, or which relate in any way to any matter affecting the interests of the
Parties in terms of this Agreement, the Parties shall meet within 2 (two) days of written
notice of the dispute from one Party to the other (or such longer period as mutually
agreed by the Parties in writing) to negotiate in good faith in an effort to settle such
dispute.

32.2.
Should the Parties fail to resolve any dispute between themselves within 3 (three)
Business Days of the meeting referred to in 32.1 (or such longer period as mutually
agreed by the Parties in writing), the Parties undertake to meet promptly and consider
whether or not the dispute should be referred to arbitration. If the Parties agree in
writing that the dispute should be referred to arbitration, such dispute will be determined
by arbitration in accordance with the remaining provisions of this clause relating to
arbitration; provided that if the Parties fail to reach agreement in writing to refer the
dispute to arbitration within a period of 2 (two) Business Days of meeting in terms of
this 32.2, then either Party will be entitled to commence litigation proceedings against
the other Party, in a court of competent jurisdiction.

32.3.
Notwithstanding anything to the contrary contained in this 32, neither Party shall be
precluded from obtaining interim, injunctive or similar relief from a court of competent
jurisdiction.

32.4.
The arbitration shall be held:

32.4.1.
in accordance with the rules of the Arbitration Foundation of Southern Africa or its
successor in title (“the Foundation”);

32.4.2.
in Johannesburg, in the English language;

32.4.3.
it being the intention of the Parties that the arbitration shall be held and completed
within 21 (twenty one) days of its commencement.

32.5.
The arbitrator shall be, if the matter in dispute is principally:

32.5.1.
a legal matter, an impartial practicing advocate or impartial practicing attorney of at
least 10 (ten) years’ standing;

32.5.2.
an accounting matter, an impartial practicing chartered accountant of at least 10 (ten)
years’ standing;

32.5.3.
a technical matter, an impartial telecommunications expert in the relevant
telecommunications field of at least 10 (ten) years standing;

32.5.4.
any other matter, any independent person(s), agreed upon between the Parties to the
dispute.

32.6.
Should the Parties to the dispute fail to agree whether the dispute is principally a legal,
accounting, or other matter within 7 (seven) days after the Parties’ agreement to refer
the dispute to arbitration, the matter shall be deemed to be a legal matter.
background image
Page 38
32.7.
Should the Parties fail to agree on an arbitrator within 10 (ten) days after the matter was
referred in terms of 32.2 to arbitration, the arbitrator shall be appointed by the
Foundation at the request of either Party to the dispute, the Foundation to take into
account the provisions of 32.5.

32.8.
The decision of the arbitrator (including an award in respect of the costs of the
arbitration) shall be final and binding on the Parties after the expiry of a period of 30
(thirty) days from the date of the arbitrator’s ruling and may be made an order of a court
of competent jurisdiction at the instance of either of the Parties, subject to the Parties
rights of appeal in terms of 32.9.

32.9.
Either Party may appeal the decision of the arbitrator within a period of 30 (thirty) days
after the ruling has been handed down by the arbitrator by giving notice to that effect to
the other Party, such notice to be received before the expiry of the 30 (thirty) day
period. The appeal shall be submitted to arbitration in Johannesburg in accordance with
the rules of the Foundation by a panel of 3 (three) independent arbitrators appointed by
the Foundation.

32.10.       The decision of the panel of arbitrators on appeal and as provided for in 32.9 above,
shall, in the absence of manifest error, be final and binding on the Parties to the
arbitration and may be made an order of a court of competent jurisdiction at the instance
of any Party to the arbitration. The panel of arbitrators shall make an award of the costs
of the appeal.

32.11.       The Parties hereby consent to the non-exclusive jurisdiction of the High Court of South
Africa (Transvaal Provincial Division) for the purposes of this 32.

32.12.       The Parties agree to keep the arbitration, including the subject matter of the arbitration
and the evidence heard during the arbitration, confidential and not to disclose it to
anyone except for the purposes of an order to be made in terms of 32.8 and 32.10.

32.13.    The provisions of this clause:

32.13.1.
constitute an irrevocable consent by the parties to any proceedings in terms of this 32
and neither Party shall be entitled to withdraw there from or claim at any such
proceedings that it is not bound by such provisions;

32.13.2.
are severable from the rest of this agreement and shall remain in full force and effect
despite the termination of or invalidity for any reason of this agreement, or any part
of this agreement.

32.14.       The Parties shall continue to perform all undisputed obligations where possible whilst
any dispute is being resolved.

33.    CONFIDENTIALITY

33.1.
Subject to the provisions of 33.2, the Parties undertake to each other that they shall use
all reasonable endeavours to ensure that their directors, employees, agents and sub-
contractors shall keep secret all Confidential Information and shall not disclose such
Confidential Information to any third party.
background image
Page 39
33.2.
The provisions of 33.1 shall not apply to information which:

33.2.1.
is in or comes into the public domain other than by default of one of the Parties; or
33.2.2.
is or has already been independently generated by the Party disclosing such
information; or
33.2.3.
is disclosed to satisfy a lawful order by a competent court of law, government- or
regulatory body; or
33.2.4.
is in the possession of or is known by the receiving Party prior to its receipt from the
disclosing Party; or
33.2.5.
is authorized to be disclosed by the disclosing Party in writing but then only to the
extent of the authority given; or
33.2.6.
is properly disclosed pursuant to and in accordance with any telecommunication
service licence granted to Telkom or Neotel in terms of the Act, or in accordance
with any relevant statutory obligation or (with the prior written consent of the other
Party), in order for either Party to comply with the requirements of any recognized
Stock Exchange.

33.3.
Confidential Information which is the subject of the provisions of 33.1 shall be used
only for the purpose for which it was disclosed and/or for the purposes of performing
the obligations of the Parties in terms of this Agreement.
33.4.
Confidential Information which is the subject of the provisions of 33.1 may be disclosed
to sub-contractors of the parties; provided that all such sub-contractors shall, prior to
receiving any such information, enter into a confidentiality undertaking with the
disclosing Party, to give effect to the intention of this clause.
33.5.
The provisions of this clause shall apply with effect from the Commencement Date until
60 (sixty) months after the date of termination or expiry of this Agreement.


34.    VALUE-ADDED TAX
All of the prices referred to in this Agreement are exclusive of Value-Added Tax (“VAT”)
and any other tax, duty or charge payable thereon. Accordingly, any Party which renders a
service to the other Party in terms of this Agreement shall be entitled to add VAT, at the
prescribed rate, in terms of the Value-Added Tax Act, 1991, to the value of any supply
rendered by it to the other Party.

35.    NOTICES AND DOMICILIA

35.1.
The Parties choose as their domicilia citandi et executandi their respective addresses set
out in this clause for all purposes arising out of or in connection with this Agreement, at
which addresses all processes and notices arising out of or in connection with this
Agreement, its breach or termination, may validly be served upon or delivered to either
of the Parties.
background image
Page 40
35.2.
For the purposes of this Agreement the Parties’ respective addresses shall be –

35.2.1.
As regards Telkom:
Telkom Towers North
152 Proes Street
Pretoria
0001
For the attention of:
1.     the Managing Executive, Legal Services
in respect of any legal process.

Telefacsimile:
(012) 326-4493
2.     the Managing Executive, Wholesale Services
in respect of all other notices for the purposes
of this Agreement
Telefacsimile:
(012) 341-5228
35.2.2.
As regards Neotel:
21E Polo Crescent
Woodmead Office Park
Van Reenen Road
Woodmead
2052

For the attention of:
1.     Legal and Regulatory Affairs Group
in respect of any legal process.

Telefacsimile:
(011) 800-6162
2.     Product Management Group
in respect of all other notices for the purposes
of this Agreement
Telefacsimile:
(011) 800-6162
or at such other address, not being a post office box or poste restante, of which the
Party concerned may notify the other Party in writing.
35.3.
Any notice given or other document sent in terms of this Agreement shall be in writing
and shall –

35.3.1.
if delivered by hand be deemed to have been duly received by the addressee on the
date of delivery;
35.3.2.
if posted by prepaid registered post be deemed to have been received by the
addressee on the 10
th
(tenth) Business Day following the date of such posting;
35.3.3.
if transmitted by facsimile be deemed to have been received by the addressee on the
1
st
(first) Business Day after dispatch;

35.4.
Notwithstanding anything to the contrary contained in this Agreement, a written notice
or communication actually received by one of the Parties from another including by
background image
Page 41
way of facsimile transmission shall be adequate written notice or communication to
such Party.


36.      WHOLE AGREEMENT
This Agreement constitutes the whole Agreement between the Parties as to the subject
matter of this Agreement and no agreements, representations or warranties between the
Parties other than those set out herein shall be binding on the Parties.

37.      VARIATION
No addition to or variation, consensual cancellation or novation of this Agreement and no
waiver or release of any right arising from this Agreement or its breach or termination shall
be of any force or effect unless reduced to writing and signed by both the Parties or their
duly authorized representatives, or in the case of waiver or release, by the Party so waiving
or releasing.

38.      RELAXATION
No latitude, extension of time or other indulgence which may be given or allowed by either
Party to the other in respect of the performance of any obligation hereunder or the
enforcement of any right arising from this Agreement and no single or partial exercise of
any right by either Party shall under any circumstances be construed to be an implied
consent by such Party or operate as a waiver, release or a novation of, or otherwise affect
any of that Party’s rights in terms of or arising from this Agreement or estop such Party
from enforcing, at any time and without notice, strict and punctual compliance with each
and every provision or term of this Agreement.


39.      WARRANTIES
Each Party warrants to the other Party that it has the necessary rights, licences and
authorities to enter into and perform its obligations in terms of this Agreement.
background image
Page 42
Signed at
on
2007


As witness:

……………………………….
…………………………………
For Telkom
duly authorized




Signed at
on
2007


As witness:

……………………………….
…………………………………
For Neotel
duly authorized
background image
Page 1
APPENDIX 1






















TELKOM POINTS OF INTERCONNECTION

background image
Page 2
CONTENTS


1.
GENERAL

2.
POINTS OF INTERCONNECTION
background image
Page 3
TELKOM POINTS OF INTERCONNECTION


1.
GENERAL
This Appendix sets out a schedule of POIs offered by Telkom and may be augmented by Telkom
from time to time.

2.
POINTS OF INTERCONNECTION

2.1.
For National Calls between the Parties’ Telecommunication Systems as well as International Calls
from Neotel’s Telecommunication System terminating on Telkom’s Telecommunication System
POI
alpha
code
POI Name
(DPSU)
Billing
Zone
Dialing codes
directly served
by POI
Physical Address of POI
BCS
Bloemfontein -
Charles Street
Telkom Building, 57 Charles
Street, Bloemfontein
BCY        Bloemfontein -
City
1
05
Telkom Building, 57 Charles
Street, Bloemfontein
CBS
Cape Town -
Barrack Street
Telkom Building, 59 Commercial
Street, Cape Town
CTB
Cape Town -
Tygerberg
2
02
Telkom Building, 27 Teddington
Street, Belville
DNG        Durban - New
Germany
Telkom Building, 3 Regal Street,
Kloof
DTM       Durban - Taj Mahal
3
03
Centrex Building, 296 Pine Street,
Durban
JDF
Johannesburg -
New Doornfontein
Telkom Building, 80 Siemmert
Road, New Doornfontein
JGM
Johannesburg -
Germiston
Telkom Building, 1 Clark Street,
Germiston
JNL
Johannesburg -
Newlands
Telkom Building, Cnr Main and
Shortmarket Streets, Newlands
JRB
Johannesburg -
Rosebank
4
011
Telkom Building, 167 Oxford
Road, Rosebank
PDO        Port Elizabeth -
Donkin
High Tech Building, 1A Neil
Street, Sidwell
PLZ
Port Elizabeth –
Linton Grange
5
04
Telkom Building, 508 Cape Road,
Linton
PBN
Pretoria - Bronberg
Telkom Building, Cnr Plein and
Spuy Streets, Sunnyside
PPR
Pretoria - Proes
Street
6
012, 013, 014
and 015
PPR Building, 179 Proes Street,
Pretoria
VVE
Vereeniging
7
016, 017 and
018
Telkom Building, Cnr Merriman
and Lesly Streets, Vereeniging
background image
Page 4
VME          Meyerton
Telkom Building, Cnr Kruger and
Eeufees Streets, Meyerton
2.2.
For International Calls from Neotel transiting Telkom’s Telecommunication System to a foreign
destination or International Calls from Telkom transiting Neotel’s Telecommunication System to a
foreign destination
POI alpha
code
POI name (ITE)
Physical address of POI
JB
Johannesburg - New
Doornfontein
Telkom Building, 80 Siemmert
Road, New Doornfontein
JS
Johannesburg -
Hillbrow
Telkom Building, Goldreich Street,
Hillbrow

2.3.
For signaling purposes
STP
alpha code
STP node name
Physical address of STP node
JBZ
Johannesburg - New
Doornfontein
Telkom Building, 80 Siemmert
Road, New Doornfontein
JSZ
Johannesburg -
Hillbrow
Telkom Building, Goldreich Street,
Hillbrow
JNZ
Johannesburg -
Newlands
Telkom Building, Cnr Main and
Shortmarket Streets, Newlands
PRZ
Pretoria - Proes
Street
PPR Building, 179 Proes Street,
Pretoria


background image
Page 1
APPENDIX 2






















NEOTEL POINTS OF PRESENCE

background image
Page 2
CONTENTS


1.
GENERAL

2.
POINTS OF PRESENCE
background image
Page 3
NEOTEL POINTS OF PRESENCE


1.
GENERAL
This Appendix sets out a schedule of POPs offered by Neotel and may be augmented by Neotel
from time to time.

2.
POINTS OF PRESENCE

2.1.
For National Calls between the Parties’ Telecommunication Systems as well as International Calls
from Telkom’s Telecommunication System terminating on Neotel’s Telecommunication System
POP
alpha
code
POP name
Billing
Zone
Dialing codes
directly served
by POP
Physical address of POP
BFX
Bloemfontein
POP
1
05
Transtel Building, 1 Charles
Street, Bloemfontein
BLE
Bellville POP
2
02
Transtel Building, Caledon
West Street, Bellville
DNR
Durban Station
POP
3
03
CTC Building, Durban Station,
Umgeni Road, Durban
NST
North Station
POP
4
011
North Station Building, 96
Leyds Street, Johannesburg
NED
North End POP 5
04
Transtel Building, cnr Broad
and Paterson Roads, North
End, Port Elizabeth
PRY
NZASM POP
6
012, 013, 014 and
015
NZASM Building, Minnaar
Street, Pretoria
VER
Vereeniging
Metro POP
7
016, 017 and 018         Transtel Building, Reg Bodmer
Street, Vereeniging
2.2.
For International Calls from Neotel transiting Telkom’s Telecommunication System to a foreign
destination or International Calls from Telkom transiting Neotel’s Telecommunication System to a
foreign destination
POP alpha
code
POP name
Physical address of POP
NST
North Station POP
North Station Building, 96
Leyds Street, Johannesburg
background image
Page 4
2.3.
For signaling purposes


STP alpha
code
STP node name
Physical address of STP
node
NEJ
North Station POP
North Station Building, 96
Leyds Street, Johannesburg
NEC
Bellville POP
Transtel Building, Caledon
West Street, Bellville
background image
Page 1
APPENDIX 3






















INITIAL INTERCONNECTION AND CAPACITY

background image
Page 2
CONTENTS


1.
GENERAL

2.
INITIAL INTERCONNECTION AND CAPACITY
background image
Page 3
INITIAL INTERCONNECTION AND CAPACITY


1.
GENERAL
This Appendix sets out the initial capacity and POILs that shall be established between the Parties’
Telecommunication Systems for Interconnection. It details the routes, number of POILs, date
required, signalling type and the contracted service level.

2.
INITIAL INTERCONNECTION AND CAPACITY

2.1.
For National Calls between the Parties’ Telecommunication Systems, International Calls from
Neotel’s Telecommunication System terminating on Telkom’s Telecommunication System as well
as International Calls from Telkom’s Telecommunication System terminating on Neotel’s
Telecommunication System
Neotel POP
alpha code
Telkom POI
alpha code
Number Of
POILs
Signalling
System
Contracted Service
Level For POILs
RFS Date
BFX
BCS
4
SS7
Platinum
28
th
February
2007
BFX
BCY
4
SS7
Platinum
28
th
February
2007
BLE
CBS
8
SS7
Platinum
28
th
February
2007
BLE
CTB
8
SS7
Platinum
28
th
February
2007
DNR
DTM
8
SS7
Platinum
28
th
February
2007
DNR
DNG
8
SS7
Platinum
28
th
February
2007
NST
JGM
8
SS7
Platinum
28
th
February
2007
NST
JRB
8
SS7
Platinum
28
th
February
2007
NST
JNL
8
SS7
Platinum
28
th
February
2007
NST
JDF
8
SS7
Platinum
28
th
February
2007
NED
PDO
4
SS7
Platinum
28
th
February
2007
NED
PLZ
4
SS7
Platinum
28
th
February
2007
PRY
PPR
4
SS7
Platinum
28
th
February
2007
PRY
PBN
4
SS7
Platinum
28
th
February
2007
VER
VVE
2
SS7
Platinum
28
th
February
2007
VER
VME
2
SS7
Platinum
28
th
February
2007

background image
Page 4


2.2.
For International Calls from Neotel transiting Telkom’s Telecommunication System to a foreign
destination or International Calls from Telkom transiting Neotel’s Telecommunication System to a
foreign destination
Neotel POP
alpha code
Telkom POI
alpha code
Number Of
POILs
Signalling
System
Contracted Service
Level For POILs
RFS Date
NST
JB
2
SS7
Platinum
28
th
February
2007
NST
JS
2
SS7
Platinum
28
th
February
2007

2.3.
For signaling purposes
Neotel POP
alpha code
Telkom POI
alpha code
Number Of
POILs
Signalling
System
Contracted Service
Level For POILs
RFS Date
NEC
JNZ
1
SS7
Platinum
28
th
February
2007
NEC
PRZ
1
SS7
Platinum
28
th
February
2007
NEJ
JNZ
1
SS7
Platinum
28
th
February
2007
NEJ
PRZ
1
SS7
Platinum
28
th
February
2007
NEJ
JBZ
1
SS7
Platinum
28
th
February
2007
NEJ
JSZ
1
SS7
Platinum
28
th
February
2007

background image
Page 1
APPENDIX 4






















TERMINATION RATES

background image
Page 2
CONTENTS


1.
GENERAL

2.
TELKOM TERMINATION RATES FOR NATIONAL AND INTERNATIONAL CALLS

3.
NEOTEL TERMINATION RATES FOR NATIONAL AND INTERNATIONAL CALLS

background image
Page 3
TERMINATION RATES


1.
GENERAL
This Appendix sets out the Termination Rates payable by the Parties to one another.


2.
TELKOM TERMINATION RATES FOR NATIONAL AND INTERNATIONAL CALLS

2.1.
WBZ rates as contemplated in 6.2.1 of the main Agreement
Rate Group
Time Period
Termination rates
Peak
07:00 to 20:00 Monday to Friday
R0.23 per minute
Off-Peak
All other hours
R0.12 per minute

2.2.
BBZ rates as contemplated in 6.2.2 of the main Agreement
Rate Group
Time Period
Termination rates
Peak
07:00 to 20:00 Monday to Friday
R0.33 per minute
Off-Peak
All other hours
R0.19 per minute


3.
NEOTEL TERMINATION RATES FOR NATIONAL AND INTERNATIONAL CALLS

3.1.
WBZ rates as contemplated in 6.2.1 of the main Agreement
Rate Group
Time Period
Termination rates
All Day
All hours
R0.20 per minute

3.2.
BBZ rates as contemplated in 6.2.2 of the main Agreement
Rate Group
Time Period
Termination rates
All Day
All hours
R0.29 per minute

background image
Page 1
APPENDIX 5























SPECIFICATIONS AND PROCEDURES
FOR POINTS OF INTERCONNECTION
























background image
Page 2
CONTENTS


1.       INTRODUCTION

2.       ABBREVIATIONS

3.       TECHNICAL SPECIFICATIONS

4.       PROVISIONING PROCEDURE

5.       GRADE AND QUALITY OF SERVICE

6.       ROUTING PRINCIPLES

7.       NUMBERING





























background image
Page 3
SPECIFICATIONS AND PROCEDURES FOR POINTS OF INTERCONNECTION


1.
INTRODUCTION
This Appendix addresses the specifications and procedures for POIs.


2.
ABBREVIATIONS
2.1.
In this Appendix the following expressions bear the meanings assigned to them below
and cognate expressions bear corresponding meanings –

2.1.1.
“CRC4” means Cyclic Redundancy Check 4;

2.1.2.
“DPC” means Destination Point Codes;

2.1.3.
“INAT” means International Network Indicator;

2.1.4.
“ISDN” means Integrated Services Digital Network;

2.1.5.
“ISUP” means ISDN User Part;

2.1.6.
“MSB” means Most Significant Bit;

2.1.7.
“NAT” means National Network Indicator;

2.1.8.
“NI” means Network Indicator;

2.1.9.
“OPC” means Originating Point Code;

2.1.10.
“PAD” means Packet Assembler/Disassembler;

2.1.11.
“PDH” means Plesiochronous Digital Hierarchy;

2.1.12.
“PRC” means Primary Reference Clock;

2.1.13.
“SCCP” means Signalling Connection Control Point;

2.1.14.
“SIO” means Service Information Octet;

2.1.15.
“SNM” means Signalling Network Management ;

2.1.16.
“SNT” means Signalling Network Testing;

2.1.17.
“SPC” means Signalling Point Code;

2.1.18.
“SS7” means Signalling System Number 7;

2.1.19.
“SSF” means Sub-Service Field;

2.1.20.
“SSN” means Subsystem Number;
background image
Page 4
2.1.21.
“STP” means Signalling Transfer Point;

2.1.22.
“TGN” means Trunk Group Name ;

2.1.23.
“UTC” means Universal Time Clock.

2.2.
Any expression not defined herein shall bear the meaning assigned to it in the main
Agreement and cognate expressions shall bear corresponding meanings as in the main
Agreement.


3.
TECHNICAL SPECIFICATIONS

3.1.
General
The Recommendations by the ITU-T or as adapted in Telkom Specification Number 7
chapter 12 for interfacing between equipment types, chapter 20 and chapter 37 for SS7,
provide the framework for adherence to the standards contained herein. The Parties
shall conform wherever practicable to the ITU-T Recommendations and the Telkom
Specification Number 7 as amended and revised from time to time. The present form of
reference will be the ITU-T Recommendations as published in the ITU-T White Book.
Notwithstanding the above Recommendations for Calls that are originated/carried in
one Telecommunication System and terminated/further carried in another, the
originating Telecommunication System will be entitled to block backward signals that
modify the originating tariff structure. Such backward signals will be discarded and the
Call will be force released.
3.2.
Signalling
Chapter 5 of ITU-T Recommendation G.732 applies.

3.2.1.
Signalling protocol
The signalling protocol between the Parties’ Telecommunication Systems shall be
SS7 ISUP as defined in the ITU-T White Book Recommendations, clarified,
modified and completed as per Telkom Specification Number 7 chapter 20.

3.2.2.
General SS7 principles
The principle of minimum visibility in respect of the DPCs shall apply between the
Parties.

The SS7 interconnection network shall be implemented with quasi-associated mode
of signalling with a pair of STPs serving as signalling gateways to and from each
Party’s Telecommunication System. These gateways shall serve ISUP traffic (ISUP
v.97) between the Parties and other administrations.

CRC4 will only be used end-to-end over links after mutual agreement between the
Parties (switched off by default).
background image
Page 5
3.2.3.
Wander and jitter
Maximum jitter at output ports immediately preceding digital switching as per ITU-
T Recommendation G.823 (2003) paragraph 2 shall apply.

Jitter and wander tolerance at input ports will be as per ITU-T Recommendation
G.823 (2003) for 2 Mbit/s links on the PDH network and for links provided on
copper cables with regenerators. It should be noted that the ports should be able to
tolerate a frequency offset greater than 50ppm.
3.2.4.
Time slot zero
Chapter 2 of ITU-T Recommendation G.732 applies. However, the Party providing
a POIL requires access to any one of the spare five spare bits in the non-frame
alignment word as control signals for performance monitoring and alarm collection
equipment. It should be noted that the monitoring equipment of the Party providing
the POIL will insert CRC4 co-efficient into the appropriate bits if not provided by
the terminal multiplexers. CRC4 is transmitted transparently in accordance with
ITU-T Recommendation G.706. To allow these facilities a frame structure
complying with ITU-T Recommendation G.704 is required and the use of an
unframed 2 Mbit/s link will not be acceptable as it will prevent the previously
mentioned monitoring.
3.2.5.
Fault conditions and consequent actions
The provisions of ITU-T Recommendations G.732 and Q.501 shall be implemented
by the Parties.
3.2.6.
Channel time slot encoding

3.2.6.1.
Channel time slots
The 64 Kbit/s channel time slots comprising the 2048 Kbit/s stream shall carry
“A” law encoded information as defined in ITU-T Recommendation G.711.
3.2.6.2.
Idle channel bit pattern
The idle channel bit pattern in both directions shall be 01010100 (MSB at left
hand end) in accordance with paragraph 2.4.6 of ITU-T Recommendation Q.503
when the interface is between digital exchanges.
3.3.
Synchronisation
The synchronisation between the Parties’ Telecommunication Systems shall be
operated in pseudo-synchronous mode. In this mode each Party is responsible for its
own synchronisation and any Telecommunication System interfacing shall be at the
tributary level between the boundary network elements.

The synchronisation of Neotel’s POPs shall be achieved by Neotel providing its own
external PRC in accordance with ITU-T Recommendation G.811. Telkom shall be the
primary synchronisation source for all POILs.
background image
Page 6
Telkom shall operate a synchronised Telecommunication System in accordance with
ITU-T recommendation G.803.

Telkom’s Telecommunication System shall be synchronised to a PRC, as specified in
the ITU-T Recommendation G.811 (09/97) for quality and UTC traceability. In the
event of a Telecommunication System losing traceability to the PRC the
Telecommunication System in question shall be synchronised to a clock equal to or
better than the quality recommended in ITU-T Recommendation G.812 (06/98) type 1.
Telkom shall supply synchronisation to Neotel under the following conditions:

i.
The synchronisation clock shall have a quality not lower than and shall be
traceable to a PRC according to the synchronisation network reference chain
recommended in ITU-T Recommendation G.803 (06/97) paragraph 8.2.4.

ii.
The interface characteristic of the synchronisation clock shall be in accordance
with ITU-T Recommendation G.703 for 2 MHz signals with a 120 ohm balanced
termination.

iii.       Telkom shall guarantee the traceability of the synchronisation clock supplied.

iv.
Telkom shall not guarantee the synchronisation clock quality itself, and shall not
be liable for loss, damage or any incident in Neotel’s Telecommunication System
due to any incident and/or the degradation of the synchronisation clock supplied
by Telkom.

v.
Only one additional synchronisation output shall be provided at each POI between
DPSUs and Neotel’s POPs.

vi.
The distribution of the synchronisation clock beyond the POI shall rest with
Neotel.

vii.     The two E1 links, in which SS7 is to be provided to the Neotel’s POPs, may be
used for synchronisation purposes. As these tributaries are guaranteed to perform
within ITU-T Recommendation G.823 (2003) limits, there is no guarantee that
these tributaries will be acceptable as synchronisation clock references.

viii.     Telkom shall not be responsible for the continuous monitoring of the performance
of the synchronisation clock supplied to Neotel.

ix.
Telkom shall not provide any mechanism for the early detection of wander and
jitter of the synchronisation clock supplied to Neotel.

All E1 links in which SS7 will be provided, shall also be used for synchronisation
purposes since the E1s will be appropriately marked.

3.4.
SS7 signalling links
Signalling link pairs in a combined link set will be operated in a load share mode, with
no single signalling link operated at greater than 30% (thirty percent) of its theoretical
message capacity under normal conditions and 60% (sixty percent) under overload
conditions.
background image
Page 7
A 64 Kbit/s signalling link will be engineered to offer, in each direction, a normal
traffic load of up to 48 ISUP messages plus 8 SCCP messages per second for trunk and
roaming signalling and an overload traffic load of up to 96 ISUP messages and 16
SCCP messages, assuming that an average message length of 25 octets per ISUP
message and 150 octets per SCCP message shall apply.

It shall be possible to assign signalling links to any timeslot except 0 on any E1 system
between the Parties.

It will be up to the discretion of either Party, as the case may be, as to whether en block
or overlap signalling is used.

3.5.
Screening (National)
The screening that shall be implemented in the Telkom National Gateway STP pair
shall be according to the rules set out in 3.5.1 to 3.5.6 below which cover the normal
voice traffic (ISUP) that travels between the Parties’ Telecommunication Systems and
3.5.7 to 3.5.9 below which cover the roaming traffic (SCCP).

3.5.1.
If a Neotel POP (SSC1) has voice trunks connecting to a POI (DPSU1), ISUP
signalling traffic shall be allowed between SSC1 and DPSU1.
In the figure below, signalling via the Telkom STP will therefore be allowed
between SSC1 and DPSU1 but not between SSC1 and any of SSC2, DPSU2 or
DPSU3. (The voice trunk group between SSC1 and DPSU1 is the only trunk group
present.)















3.5.2.
SNM shall be allowed between the Neotel POP and the Telkom National Gateway
pair in respect of the ISUP connected to the POIs (DPSUs).

3.5.3.
SNM shall be allowed between the Telkom National Gateway pair and the Neotel
POP in respect of the ISUP connected to the Neotel POPs.

3.5.4.
SNM on a link basis, in respect of the Telkom National Gateway STP pair and the
Neotel POP or the Neotel Gateway STP pair, shall be allowed.

3.5.5.
SNT shall be allowed between the Neotel POP or the Neotel Gateway STP pair and
the Telkom National Gateway STP pair.
background image
Page 8
3.5.6.
No other traffic except for the above mentioned shall be passed.

3.5.7.
Only SCCP traffic with SSN equal to 6, 7 or 8 shall be allowed.

3.5.8.
SCCP traffic with an OPC of the Neotel Gateway STP pair and a DPC of the Telkom
National Gateway STP pair (NI=3), and adhering to 3.5.7 above, shall be allowed.

3.5.9.
SCCP traffic with an OPC of the Telkom National Gateway STP pair (NI=3) and a
DPC of the Neotel Gateway STP pair, adhering to point 3.5.7 above shall be
allowed.

3.6.
Screening (International)
The screening that shall be implemented in the Telkom International Gateway STP pair
shall be according to the rules set out in 3.6.1 to 3.6.6 below which cover the normal
voice traffic (ISUP) that travels between the Parties’ Telecommunication Systems and
3.6.7 to 3.6.9 below which cover the roaming traffic (SCCP).

3.6.1.
If a Neotel POP (SSC1) has voice trunks connected to a POI (ITE1), ISUP signalling
traffic shall be allowed between SSC1 and ITE1.
In the figure below, signalling via the Telkom STP will therefore be allowed
between SSC1 and ITE1 but not between SSC1 and any of SSC2 or ITE2. (The
voice trunk group between SSC1 and ITE1 is the only trunk group present.)
















3.6.2.
SNM shall be allowed between the Neotel POP and the Telkom International
Gateway pair in respect of the ISUP connected to the POIs (ITEs).

3.6.3.
SNM shall be allowed between the Telkom International Gateway STP pair and the
Neotel POP in respect of the ISUP connected to the Neotel POPs.

3.6.4.
SNM on a link basis, in respect of the Telkom International Gateway STP pair and
the Neotel POP or the Neotel Gateway STP pair, shall be allowed.

3.6.5.
SNT shall be allowed between the Neotel POP or the Neotel Gateway STP pair and
the Telkom International Gateway STP pair.
background image
Page 9
3.6.6.
No other traffic except for the above mentioned shall be passed.

3.6.7.
Only SCCP traffic with SSN equal to 6, 7 or 8 shall be allowed.

3.6.8.
SCCP traffic with an OPC of the Neotel Gateway STP pair and a DPC of the Telkom
International Gateway STP pair (NI=0), and adhering to 3.6.7 above, shall be
allowed.

3.6.9.
SCCP traffic with an OPC of the Telkom International Gateway STP pair (NI=0) and
a DPC of the Neotel Gateway STP pair, adhering to point 3.6.7 above shall be
allowed.


4.
PROVISIONING PROCEDURE

4.1.
Provisioning of POILs
The provisioning procedures for POILs are set out in Part II of the main Agreement.

4.2.
TGN - naming convention
Each Party shall use its own naming convention rules to allocate names to the POI or
POP trunk groups. Each Party shall allocate a unique three letter alphabetic code to its
Switches or POPs for identification and registration purposes. These codes should
differ from existing codes used by either Party.
4.3.
SPC allocation (national and international)
The Parties shall apply to the Authority for the allocation of an SPC.

5.
GRADE AND QUALITY OF SERVICE

5.1.
Grade and quality of service
To ensure system performance compatibility, the grade of service of both Parties’
Telecommunication Systems, as seen from the interface between the two
Telecommunication Systems, shall be planned so as to give an average probability
(over the working week) that not more than 3% (three percent) of Call attempts
encounter congestion.

Routes carrying traffic between the Parties’ Telecommunication Systems in one or both
directions, shall be designed to operate at a busy hour grade of service of 0.002, subject
to the route dimension giving a grade of service of 0.02 at 10% traffic overload and a
grade of service of 0.05 at 20% overload. Only under extreme failure conditions should
the Telecommunication Systems not process all of the Calls offered. Sequential circuit
selection mechanisms shall be employed on bothway routes. The direction of the
selection process at either end of the link shall be determined by mutual agreement.

The table below shows the agreed apportionment of overall grade and quality of service
objectives between the Parties’ Telecommunication Systems. The parameters in the
background image
Page 10
table are intended to be the objectives for circumstances where all circuits forming a
traffic route between the two Telecommunication Systems are available to carry traffic.
Performance
Parameter
Direction
Originating
Telecommunication
System
(info only)
Interconnection
Route
(agreed
objective)
Terminating
Telecommunication
System
(info only)
Mean busy hour
blocking probability
Telkom/ Neotel
0.002
0.002
0.002
Probability of call
failure due to
Telecommunication
System
malfunction
excluding
premature release
Telkom/ Neotel

Neotel /Telkom
0.002

0.002
0.002

0.002
Probability of call
failure due to
premature release
caused by
Telecommunication
System equipment
malfunction
Telkom/ Neotel

Neotel /Telkom
0.002

0.002
0.002

0.002
Note. Anything requiring terminal equipment approval for either Telecommunication
System is excluded.

6.
ROUTING PRINCIPLES

6.1.
National calls

6.1.1.
Routing from Telkom to Neotel
Calls from within the Telkom Telecommunication System shall be routed from POIs
(DPSUs) to the appropriate POPs in accordance with Neotel’s routing tables at not
less than the grade of service agreed to in 5 above. These routing tables shall define
routing for specified Neotel dial codes. (NAT1, NI=3 for ISUP traffic)

6.1.2.
Routing from Neotel to Telkom
Calls from within the Neotel Telecommunication System shall be routed from POPs
to the appropriate POI (DPSU) in accordance with Telkom’s routing tables at not
less than the grade of service agreed to in 5 above. These routing tables shall define
routing for specified Telkom dial codes. (NAT1, NI=3 for ISUP traffic)
6.2.
International calls

6.2.1.
Routing from Telkom to Neotel

6.2.1.1.
Calls originating on or conveyed on Telkom’s Telecommunication System,
handed to Neotel and terminating on a Telecommunication System operated
outside the Territory, shall be routed via the POIs (ITEs) to the appropriate POPs
at not less than the grade of service agreed to in 5 above. (INAT0, NI=0 for ISUP
traffic)

6.2.1.2.
Calls originating on a Telecommunication System operated outside the Territory,
conveyed on Telkom’s Telecommunication System, handed to Neotel for
background image
Page 11
termination on or conveyance on Neotel’s Telecommunication System, shall be
routed via the POIs (DPSUs) to the appropriate POP in accordance with Neotel’s
routing tables at not less than the grade of service agreed to in 5 above. These
routing tables shall define routing for specified Neotel dial codes. (NAT1, NI=3
for ISUP traffic)

6.2.2.
Routing from the Neotel to Telkom

6.2.2.1.
Calls originating on or conveyed on Neotel’s Telecommunication System, handed
to Telkom and terminating on a Telecommunication System operated outside the
Territory, shall be routed via the POPs to the appropriate POIs (ITEs) at not less
than the grade of service agreed to in 5 above. (INAT0, NI=0 for ISUP traffic)

6.2.2.2.
Calls originating on a Telecommunication System operated outside the Territory,
conveyed on Neotel’s Telecommunication System, handed to Telkom for
termination on or conveyance on Telkom’s Telecommunication System, shall be
routed via the POPs to the appropriate POIs (DPSUs) in accordance with
Telkom’s routing tables at not less than the grade of service agreed to in 5 above.
These routing tables shall define routing for specified Telkom dial codes. (NAT1,
NI=3 for ISUP traffic)

6.3.
Route diversity and security arrangements for Interconnection
For reliability, POILs shall be provisioned over physically diverse routes and/or
equipment where such exists (platinum service level). Any deviation from this rule
shall be negotiated in good faith and agreed to in writing between the Parties.

Interconnection between the Neotel POPs and Telkom’s POIs (DPSUs/ITEs ) shall be
dimensioned on a 50-50 load shared basis. Any deviation from this rule shall be
negotiated in good faith and agreed to in writing between the Parties.

6.4.
Route diversity and security arrangements for signalling
For reliability, signalling links shall be provisioned over physically diverse routes
and/or equipment where such exists. Any deviation from this rule shall be negotiated in
good faith and agreed to in writing between the Parties.

The minimum number of links per link set shall be 2 (two). Any number of links per
link set, however, exceeding 2 (two) shall be negotiated in good faith and agreed to in
writing between the Parties. All circuit conditioning equipment such as PADS and echo
cancellers shall be removed from the signalling links.


7.
NUMBERING

7.1.
National Calls
The Parties shall send the called Number in the format:
0 NN ABC XXXX
background image
Page 12
Where NN is the national destination code (e.g. 12 = Pretoria), ABC is the exchange
area code and XXXX is the number allocation range.

7.2.
International Calls
The Parties shall send the called Number in the format:
IDD CC NN SN
Where IDD is the international direct dial access code, CC is the country code, NN the
national destination code and SN is the subscriber’s number in accordance with ITU-T
Recommendations E.164.

7.3.
SS7 SPC numbering

7.3.1.
General
The numbering of the signalling points for the Telecommunication Systems are
inter-related by the SPC and the NI.

For purposes of convenience and security it is recommended that each
Telecommunication System have an independent SPC numbering scheme and one
single SPC numbering scheme where the interconnecting signalling points are
defined.

This will have the effect that each Telecommunication System is responsible for the
internal SPC numbering scheme of its Telecommunication System without being
subjected to demands by other Telecommunications Systems.
7.3.2.
Identification of Telecommunication Systems

7.3.2.1.
SSF or NI
The SSF or NI is part of the SIO.

The NI’s are defined in ITU-T as follows:

bits D and C
NI
0
0
International Network
-
INAT0
0
1
Spare
-
INAT1
1
0
National Network
-
NAT0
1
1
Reserved for National use
-
NAT1

where bits A and B are not presently used, i.e. spare.
7.3.2.2.
INAT0 (NI = 0)
INAT0, for the international network, will be used for signalling between Neotel
POPs and Telkom POIs, i.e. Neotel to Telkom, Telkom to Neotel and
international traffic as agreed by both Telkom and Neotel.
background image
Page 13
7.3.2.3.
NAT0 (NI = 2)
NAT0, for the national network, will be used for signalling between switching
units internal to the Telecommunications Systems themselves, i.e. Neotel to
Neotel and Telkom to Telkom.

7.3.2.4.
NAT1(NI = 3)
NAT1, which is reserved for national use, will be used for signalling between
signalling units of different operators, i.e. Neotel to Telkom.

7.3.2.5.
Effect on Switches/POPs
Interconnecting Switches/POPs will have two OPC/DPC’s, i.e. one for a Party’s
own Telecommunication System (NAT0) and one for Interconnection (NAT1).
background image
Page 1
APPENDIX 6





















TECHNICAL SPECIFICATION FOR POILs
background image
Page 2
CONTENTS


1.
INTRODUCTION

2.
ABBREVIATIONS

3.
TECHNICAL SPECIFICATIONS

4.
PROVISIONING PROCEDURES

5.
OPERATION AND MAINTENANCE PROCEDURES

6.
TESTING AND COMMISSIONING PROCEDURES




















background image
Page 3
TECHNICAL SPECIFICATION FOR POILs


1.
INTRODUCTION
This Appendix addresses the technical specification for POILs.


2.
ABBREVIATIONS
2.1.
In this Appendix the following expressions bear the meanings assigned to them
below and cognate expressions bear corresponding meanings –

2.1.1.
“BBE” means Backgound Block Error;

2.1.2.
“BBER” means Backgound Block Error Ratio;

2.1.3.
“BIS” means Bringing into Service;

2.1.4.
“BISL” means Bringing into Service Limits;

2.1.5.
“BISO” means Bringing into Service Objectives;

2.1.6.
“CRC4” means Cyclic Redundancy Check 4;

2.1.7.
“ES” means Errored Second;

2.1.8.
“ESR” means Errored Second Ratio ;

2.1.9.
“HRDL” means Hypotheretical Recommended Digital Link;

2.1.10.
“ISD” means Interconnection Service Desk;

2.1.11.
“MSB” means Most Significant Bit;

2.1.12.
“PDH” means Plesiochronous Digital Hierarchy;

2.1.13.
“PRBS” means Pseudo-Random Pattern Sequence;

2.1.14.
“RPO” means Reference Performance Objective ;

2.1.15.
“SDH” means Synchronous Digital Hierarchy;

2.1.16.
“SES ” means Severely Errored Second;

2.1.17.
“SESR” means Severely Errored Second Ratio ;

2.1.18.
“SS7” means Signalling System Number 7.

background image
Page 4
2.2.
Any expression not defined herein shall bear the meaning assigned to it in the main
Agreement and cognate expressions shall bear corresponding meanings as in the
main Agreement.


3.
TECHNICAL SPECIFICATIONS

3.1.
General
The Recommendations made by the ITU-T, or as adapted in Telkom Specification
Number 7 chapter 37 for SS7, provide the framework for adherence to the standards
contained herein. The Parties shall conform wherever practicable with the ITU-T
Recommendations and the Telkom Specification Number 7 as amended and revised
from time to time. The present form of reference will be the ITU-T
Recommendations as published in the ITU-T White Book.

3.2.
Safety (dangerous voltages)
For equipment which uses or generates excessive voltages, a barrier shall be
provided to protect the interface from those voltages.

3.3.
Electrical interface

3.3.1.
Input and output
The electrical interface shall conform to ITU-T Recommendation G.703 for
twisted pairs at 2048 Kbit/s. The input impedance of 120 ohm balanced is
required. The output impedance is approximately 120 ohms as specified in ITU-T
Recommendation G.703. This is necessary to meet the required pulse shape
masks.

3.3.2.
Attenuation
The attenuation of the interconnecting cable (including a digital distribution frame
or interconnecting equipment) shall not exceed 6dB at 1024 kHz.

3.3.3.
Interference
Both input ports shall tolerate, without error, interference from a non-synchronous
standard test signal (ITU-T Recommendation O.151) at a level 18dB lower than
the wanted signal.
3.3.4.
Multiplex characteristics
The multiplex structure shall be in accordance with ITU-T Recommendation
G.732, and ITU-T Recommendations G.704, G.705 and Q.501 to Q.517 for
operations involving digital exchanges.
background image
Page 5
3.4.
Signalling
Chapter 5 of ITU-T Recommendation G.732 applies.
3.4.1.
Wander and jitter

3.4.1.1.
Maximum jitter at output ports immediately preceding digital switching as per
ITU-T Recommendation G.823 (2003) paragraph 2 shall apply.

3.4.1.2.
Jitter and wander tolerance at input ports will be as per ITU-T
Recommendation G.823 (2003) for 2 Mbit/s links on the PDH network and for
links provided on copper cables with regenerators. It should be noted that the
ports should be able to tolerate a frequency offset of + or - 50ppm.

3.4.2.
Time slot zero
Chapter 2 of ITU-T Recommendation G.732 applies. However, the Party
providing a POIL requires access to any one of the five spare bits in the non-frame
alignment word as control signals for performance monitoring equipment and
alarm collection equipment. It should be noted that the monitoring equipment of
the Party providing a POIL will insert CRC4 co-efficient into the appropriate bits
if not provided by the terminal multiplexers. CRC4 is transmitted transparently in
accordance with ITU-T Recommendation G.706. To allow these facilities a frame
structure complying with ITU-T Recommendation G.704 is required and the use
of an unframed 2 Mbit/s link will not be acceptable as it will prevent the
previously mentioned monitoring.

3.4.3.
Fault conditions and consequent actions
The provisions of ITU-T Recommendations G.732 and Q.501 to Q.517 shall be
implemented by the Parties.

3.4.4.
Channel time slot encoding

3.4.4.1.
Channel time slots
The 64 Kbit/s channel time slots comprising the 2048 Kbit/s stream shall carry
“A” law encoded information as defined in ITU-T Recommendation G.711.
3.4.4.2.
Idle channel bit pattern
The idle channel bit pattern in both directions shall be 01010100 (MSB at left
hand end) in accordance with paragraph 2.4.6 of ITU-T Recommendation
Q.503 when the interface is between digital exchanges.


4.
PROVISIONING PROCEDURES
The provisioning procedures for POILs are set out in Part II of the main Agreement.
background image
Page 6
5.
OPERATION AND MAINTENANCE PROCEDURES

5.1.
Reporting of Faults
Service problems related to POILs shall be reported by either Party to the other
Party’s ISD as set out in Appendix 7.

5.2.
Operational standards for POILs
The Parties shall endeavour to adhere to the standards for the operation of
transmission links as specified by ITU-T Recommendation G.821 or subsequent
recommendations that may become relevant provided they are mutually agreed upon
in writing between the Parties acting in good faith (i.e. M.2100 series of ITU-T
Recommendations).

Adherence to these standards is intended to ensure the satisfactory quality of Signals
passing between the elements of the Parties’ Telecommunication Systems.


6.
TESTING AND COMMISSIONING PROCEDURES

6.1.
Introduction
This is a pre-service test program to ensure that the Parties agree on the acceptable
performance of POILs before commissioning. The aim of this program is to
determine the pre-service test points, types of tests to be performed and the duration
of the tests.

6.2.
Digital performance parameters
The analysis outlined below has been based on ITU-T Recommendations G.826 and
M.2100.

6.2.1.
Brief outline of the analysis used
According to ITU-T Recommendation G.826, the hypothetical reference circuit
given in ITU-T Recommendation G.801 applies. A fixed block allowance of
17.5% (seventeen point five percent) of the total international and national end-to-
end objective is allocated to the national portion plus an additional 1% (one
percent) is allowed for each 500 (five hundred) km integer.

The national path allocation is from a path-end-point to the international gateway.
The 17% (seventeen percent) is to be allocated to the PDH network and the 1%
(one percent) / 500 (five hundred) km to the SDH network. The SDH allocation
will be further subdivided into an allocation of 0.2% (point two percent) for each
100 (one hundred) km section or part thereof up to 500 (five hundred) km and
thereon integers of 250 (two hundred and fifty) km up to a maximum of 2750 (two
thousand seven hundred and fifty) km.
background image
Page 7
6.2.2.
The national allocation apportioned for SDH
For SDH circuits, an allowance of 0.2% (point two percent) for distance of up to
100 (one hundred) km is allocated. Above 100 (one hundred) km, an additional
allowance of 0.2% (point two percent) is allowed for each 100 (one hundred) km
integer. For sections of less than 100 (one hundred) km, an allowance of 0.2%
(point two percent) shall be used. Above 500 (five hundred) km, an allowance of
0.5% (point five percent) is allocated for each 500 (five hundred) km integer. The
actual route distance between terminals shall be calculated if known.
Hierarchy
PDH
SDH
Rate (Mbit/s)
2.048
2.24
Path Type
-
VC-12
ESR
0.04
0.04
SESR
0.002
0.002
BBER
0.0003
0.0002
Error Performance for sections up to 250 km (0.5%) 24 hr measuring period
ES Count
17
17
SES Count
1
1
BBE Count
130
172
6.2.3.
Out-of-service measurements
All measurements shall be performed out of service using a measuring instrument
with a PRBS 2
15
-1 for 2 Mbit/s data rates. CRC-4 measurements are only to be
used for in service measurements and not for out of service acceptance testing.
Testing will be performed initially over a 15 (fifteen) minute period and, if
successful, a 24 (twenty four) hour test period follows.
6.2.4.
Initial 15 (fifteen) minute test and 24 (twenty four) hour test
Initial measurements shall be performed over a 15 (fifteen) minute period. During
this period, there should be no error or unavailable time. If an event occurs, this
step may be repeated up to two more times. If, during the third test, an event
occurs, the fault must be localised and corrected and the above step repeated. If
the 15 (fifteen) minute test is successful, a 24 (twenty four) hour test shall be
conducted. This time shall include work periods to ensure detection of any
external disturbances. During the time period, there should be no unavailable
time. At the end of the test period, the results shall be compared to the BIS limits
S1 and S2. If the ES and SES are:
•
All less than or equal to their respective S1 values, the system, link or path
is accepted for service.
background image
Page 8
•
If one or more of the error parameters is greater than or equal to their
respective S2 values, the circuit is rejected and the cause of the fault shall be
localised and rectified.
•
If either one or all error parameters fall in between the S1 and S2 limits, the
circuit can be re-tested for a further 24 (twenty four) hour period. If still >
S1 and < S2, the circuit shall be rejected and the cause of failure located and
rectified.
•
If an unavailability event occurs during the 24 (twenty four) hour test period
or the prescribed error limits are exceeded, testing shall be suspended and
the fault localised and cleared. If the unavailability is due to fading on a
microwave link, this shall be substantiated as the cause and quantified
against the predicted calculations.

6.2.5.
Path measurements
An end-to-end test where all digital sections are linked together shall be
conducted. The limits are the summing of the allocations in percentage for all
Path Sections in the path. The BIS, objectives are then derived from the overall
HRDL. The testing procedures for end-to-end paths are as above for a 15 (fifteen)
minute time period and then a 24 (twenty four) hour time period.

6.2.6.
BISL
Calculations are based upon the formulae given in the ITU-T Recommendation
M.2100 and the limits in ITU-T Recommendation G.826. The RPO is the
minimum limit objective for the maintenance of the path while in service and the
BISO is the minimum limit for acceptance testing of the link, section or path. To
allow for a margin of safety, the BISO is fixed at two times better than the RPO.
The RPO for ES and SES = A x 86400 x PO,

where
A
= Path Allocation
86400
= Number of seconds in 24 (twenty four) hours
1440
= Number of minutes in 24 (twenty four) hours
PO
= Performance Objectives
BISO
= RPO/2
S1
= BISO - 2
√
(BISO)
S2
= BISO + 2
√
(BISO)
Note: No additional allowance for adverse propagation conditions has been
included for microwave links as the measured time period is relatively short.

The 24 (twenty four) hour testing period for microwave systems or links is only
applicable on existing routes where the propagation behaviour is known. On new
routes, links shall be tested for a period of 72 (seventy two) hours. This testing
period shall also apply to all new equipment types.
background image
Page 9
The tables below list the performance limits for the various bit rates:
Performance Objective for 24 Hour Period - Bit Rate 2240 Kbit/s
Errored Second Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
7
3
0
6
200
0.4
14
7
2
12
300
0.6
21
10
4
16
400
0.8
28
14
7
21
500
1.0
35
17
9
25
750
1.5
52
26
16
36
1000
2.0
69
35
23
47
1250
2.5
86
43
30
56
1500
3.0
104
52
38
66
1750
3.5
121
60
45
75
2000
4.0
138
69
52
86
2250
4.5
156
78
60
96
2500
5.0
173
86
67
105
2750
5.5
190
95
76
114
Severely Errored Second Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
0
0
0
0
200
0.4
1
0
0
0
300
0.6
1
1
0
3
400
0.8
1
1
0
3
500
1.0
2
1
0
3
750
1.5
3
1
0
3
1000
2.0
3
2
0
5
1250
2.5
4
2
0
5
1500
3.0
5
3
0
6
1750
3.5
6
3
0
6
2000
4.0
7
3
0
6
2250
4.5
8
4
0
8
2500
5.0
9
4
0
8
2750
5.5
10
5
0
9
Background Block Error Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
69
35
23
47
200
0.4
138
69
52
86
300
0.6
207
104
84
124
400
0.8
276
138
115
161
500
1.0
346
173
147
199
750
1.5
518
259
227
291
1000
2.0
691
346
309
383
1250
2.5
864
432
390
474
1500
3.0
1037
518
472
564
1750
3.5
1210
605
556
654
2000
4.0
1382
691
638
744
2250
4.5
1555
778
722
834
2500
5.0
1728
864
805
923
2750
5.5
1901
950
888
1012
background image
Page 10
Performance Objective for 24 Hour Period - Bit Rate 2048 Kbit/s
Errored Second Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
7
3
0
6
200
0.4
14
7
2
12
300
0.6
21
10
4
16
400
0.8
28
14
7
21
500
1.0
35
17
9
25
750
1.5
52
26
16
36
1000
2.0
69
35
23
47
1250
2.5
86
43
30
56
1500
3.0
104
52
38
66
1750
3.5
121
60
45
75
2000
4.0
138
69
52
86
2250
4.5
156
78
60
96
2500
5.0
173
86
67
105
2750
5.5
190
95
76
114
Severely Errored Second Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
0
0
0
0
200
0.4
1
0
0
0
300
0.6
1
1
0
3
400
0.8
1
1
0
3
500
1.0
2
1
0
3
750
1.5
3
1
0
3
1000
2.0
3
2
0
5
1250
2.5
4
2
0
5
1500
3.0
5
3
0
6
1750
3.5
6
3
0
6
2000
4.0
7
3
0
6
2250
4.5
8
4
0
8
2500
5.0
9
4
0
8
2750
5.5
10
5
0
9
Background Block Error Count
Path Distance
(km)
Path Allocation
(%)
RPO
BIS
S1
S2
100
0.2
52
26
16
36
200
0.4
104
52
38
66
300
0.6
156
78
60
96
400
0.8
207
104
84
124
500
1.0
259
130
107
153
750
1.5
389
194
166
222
1000
2.0
518
259
227
291
1250
2.5
648
324
288
360
1500
3.0
778
389
350
428
1750
3.5
907
454
411
497
2000
4.0
1037
518
472
564
2250
4.5
1166
583
535
631
2500
5.0
1296
648
597
699
2750
5.5
1426
713
660
766

6.2.7
15 (fifteen) minute testing of 2 Mbit/s ports
All 2 Mbit/s ports shall be tested on an individual basis, end-to-end, for at least 15
(fifteen) minutes. No more than 1 (one) errored second in the 15 (fifteen) minute
testing period is permitted. If more than 1 (one) errored second is detected, then
the test shall be repeated for a further 15 (fifteen) minutes. Should this limit still
be exceeded hereafter, then an investigation shall be instituted to determine the
cause of the errors and the fault rectified.
background image
Page 11
6.3
Jitter

6.3.1       Jitter parameters shall be measured according to ITU-T Recommendation G.823
(2003), at a bit rate of 2 Mbit/s during type approval of all equipment.

6.3.2
The tests involved are input jitter tolerance (limits are given in Table 2 of ITU-T
Recommendation G.823 (2003)), maximum output jitter in the absence of input
jitter (limits are given in Table 1 of ITU-T Recommendation G.823 (2003)) and
the jitter transfer characteristics.

6.4
Test duration

6.4.1
All 2 Mbit/s digital paths shall be tested end to end. The first 2 Mbit/s tributary
on a digital path shall be tested for 24 (twenty four) hours to verify the basic
transmission at tributary level. The other tributaries shall then be tested for 15
(fifteen) minutes, to verify continuity and to check performance quickly.

6.4.2
All future installations on the same path shall follow the same test procedures.

6.5
Test procedure 2 Mbit/s (no route diversity)

6.5.1
Pre-service test points shall be the test and patch frame associated with either
Party’s equipment.

6.5.2
The duration of the tests shall be according to 6.4 performed in a 120 (one
hundred and twenty) ohm terminated mode using a pseudo-random sequence
according to ITU-T Recommendation Q.151.

6.5.3
Error performance tests shall be carried out as indicated above.

6.5.4
The test parameters shall be according to 6.2.

6.5.5
The duration of the tests shall be as indicated in 6.4.

6.5.6
All test equipment employed shall meet the relevant ITU-T Recommendation
Q.151.

6.5.7
Document results

6.6
Test procedure 2 Mbit/s (with route diversity)

6.6.1
Pre-service test points shall be the test and patch frame associated with either
Party’s equipment.

6.6.2
The duration of tests shall be according to 6.4 performed in a 120 (one hundred
and twenty) ohm terminated mode using a pseudo-random sequence according to
ITU-T Recommendation Q.151.

6.6.3
Error performance tests shall be carried out as indicated above.
background image
Page 12
6.6.4
The test parameters shall be according to 6.2.

6.6.5
The duration of the tests shall be as indicated in 6.4.

6.6.6
All test equipment employed shall meet the relevant ITU-T Recommendation
Q.151.

6.6.7
Upon completion of the test on the normal path, the service shall be force
switched to the standby path for the test to be repeated as indicated in 6.6. When
the test is completed the service shall be restored to normal working.

6.6.8
Document results.

background image
Page 1
APPENDIX 7




















OPERATION AND MAINTENANCE PROCEDURES FOR POILs
background image
Page 2

CONTENTS


1.
INTRODUCTION

2.
DEFINITIONS

3.
INTERCONNECTION SERVICE DESK

4.
FAULT HANDLING AND RECTIFICATION PROCEDURES

5.
SERVICE REVIEWS

6.
SETTLEMENT OF VARIOUS FEES





background image
Page 3
OPERATION AND MAINTENANCE PROCEDURES FOR POILs


1.
INTRODUCTION

This Appendix addresses the operation and maintenance procedures for POILs.


2.
DEFINITIONS

2.1.
Fault
A Fault is an incident that will affect the availability of a POIL. A POIL is deemed to be
unavailable when there is either no data throughput for a period greater than 10 (ten) seconds
or when the error ratio exceeds 10
-3
for more than 10 (ten) consecutive seconds.
2.2.
Normal Business Hours
Means any time between 07:30 to 17:00 on Mondays to Thurdays and 07:30 to 16:30 on
Fridays. Official public holidays in the Territory (from 16:30 on a Friday, or 17:00 if the start
of the public holiday falls on a day other than a Friday, until 07:30 on the next Business Day)
and week-ends (from 16:30 on a Friday, until 07:30 on the next Business Day) shall be
excluded.
2.3.
Recurring Faults
A Recurring Fault is defined as an instance where 3 (three) Faults are reported on the same
POIL within a sliding period of 30 (thirty) days.


3.
INTERCONNECTION SERVICE DESK

3.1.
Each Party shall each establish at its own cost and expense, an Interconnection Service Desk
(“ISD”) which shall be staffed on a 24 (twenty four) hour seven days a week basis and be
equipped with the necessary infrastructure to facilitate efficient communication in order to
manage all aspects relating to the proper functioning of POILs as well as to deal with all Faults
relating to POILs.
3.2.
Where assistance is required by either Party, this shall be requested through the other Party’s
ISD.
3.3.
A copy of all ISD contact telephone numbers shall be made available to each Party by the
other Party and shall be updated as and when changes occur.
3.4.
Functions of the ISD shall be as follows:

3.4.1.
receive Fault reports from the other Party, either directly or via nominated Fault reporting
points;
background image
Page 4
3.4.2.
issue a unique reference number to the other Party when a Fault is reported;

3.4.3.
ensure the co-ordination and localising of Faults up to and including the last point on the
other Party’s terminating block;

3.4.4.
control the return to service of POILs after Fault clearance, routine maintenance, etc;
3.4.5.
be familiar with the re-routing procedures for any POIL under its control;
3.4.6.
advise the other Party of the progress of Fault clearance where appropriate i.e. in the case
of lengthy outages;
3.4.7.
advise the other Party when the Fault has been rectified;
3.4.8.
keep accurate records of POIL outages. Records shall include, (in addition to information
necessary for availability assessment), but not be limited to:
a)
name of the Party’s representative who reported the Fault;

b)
unique reference number the Party who reported the Fault;

c)
the other Party’s description of the problem;

d)
date and time of all incidents/actions related to a Fault;

e)
priority of the problem;

f)
end-to-end POIL reference;

g)
POIL outage time;

h)
location of the Fault;

i)
nature of the Fault;
3.4.9.
supply the other Party with weekly Fault reports specifying the minimum details as required
in 3.4.8 above;
3.4.10.
calculate and provide availability figures for all POILs for each calendar month. The
availability figures calculated by the ISD’s will be compared weekly and reconciled;
3.4.11.
analyse weekly, monthly and yearly failure statistics to produce service performance
reports in order to establish trends and determine the general quality of service provided.
This information will be used to identify problem areas and where appropriate initiate
escalation procedures to rectify the problems.

background image
Page 5
4.
FAULT HANDLING AND RECTIFICATION PROCEDURES

4.1.
Reporting of Faults (Unplanned outages)

4.1.1.
All Faults relating to POILs shall be reported by a Party (“the reporting Party”) to the other
Party’s ISD (“the repairing Party”) and the repairing Party shall report all Faults to the
relevant maintenance sections of that Party according to its internal fault reporting
procedures. Where reported Faults are proven by the repairing Party to be in the reporting
Party’s Telecommunication System, a Fault location fee of R640.00 (“Fault location fee”)
shall be charged by the repairing Party. Where Faults are referred back to the reporting
Party by the repairing Party, but proven to be in the repairing Party’s Telecommunication
System, a Fault location fee shall be charged by the reporting Party.
4.1.2.
Prior to reporting and handing over Faults to the repairing Party’s ISD, the reporting Party
shall conduct a preliminary investigation into the Fault, which may include a site visit by the
reporting Party’s technician. The reporting Party’s Network Controller (“the Network
Controller”) on duty at the reporting Party’s Network Management Centre (“NMC”) shall
make an assessment of the Fault taking into account the Fault history of the POIL in
question and shall then decide whether or not it is necessary to send out a technician to visit
the site of the Fault prior to handing the Fault over to the repairing Party.
A site visit shall not be required where:
a)
a Fault involves multiple POILs clearly related to a common failure; or

b)
a POIL has had a recent history of being faulty and was previously proved by the
reporting Party to be faulty, but due to it clearing as right when tested (“RWT”) or
cleared while localising (“CWL”) could not be conclusively proved as a Fault on
either Party’s Telecommunication System; or

c)
the repairing Party would in any event have to visit the site of a Fault to allow the
reporting Party access.
Should the repairing Party’s ISD not accept the Network Controller’s assessment as
aforesaid, the matter may be escalated to the most senior reporting Party staff member on
duty at the NMC, whose decision shall be final. The repairing Party’s ISD shall not
directly contact the reporting Party’s technicians to verify whether or not the site of a Fault
has been visited by the reporting Party.

4.2.
After-hours repair service

4.2.1.
After-hours Fault reports shall also be handled by the ISD. An after-hours repair fee of
R640.00 (“after-hours repair fee”), provided that the reporting Party accepts the charge on
each occasion, shall be charged for after-hours repairs except for POILs having a Platinum
service level. Only one after-hours repair fee, regardless of the number of the repairing
Party’s personnel involved, shall be charged per single Fault reported to the repairing
Party’s ISD after hours. The actual time that a Fault is logged at the repairing Party’s ISD
shall determine whether or not an after-hours repair fee shall be payable.
background image
Page 6
The after-hours repair service will be rendered during hours other than Normal Business
Hours.

4.2.2.
In respect of 4.2.1 above, the following principles shall apply:
4.2.2.1.
where a Fault recurs on the same POIL within 14 (fourteen) days, and the Fault recurs
on the same element or piece of equipment within that POIL, only one after-hours repair
fee shall be payable;
4.2.2.2.
where a Fault recurs on the same POIL, but the Fault varies in that different elements or
pieces of equipment within that POIL are involved, then an after-hours repair fee shall
be payable in respect of each Fault;
4.2.2.3.
where the repairing Party is attending to a failure at the time of the reporting Party
reporting and handing over a Fault relating to that failure, no after-hours repair fee shall
be payable;
4.2.2.4.
where the reporting Party reports and hands over a Fault on a POIL passing through
any repairing Party site which is manned on a 24 (twenty four) hour basis and any action
is taken by the repairing Party (even if such action comprises the testing of the POIL) an
after-hours repair fee shall be payable;

4.2.2.5.
where the reporting Party reports a Fault clearance on a POIL previously reported and
handed over as a Fault, no after-hours repair fee shall be payable if the repairing Party
has taken no action or is able to stop the repairing Party personnel from responding to
the Fault reported and handed over;
4.2.2.6.
where the reporting Party reports and hands over a Fault during Normal Business Hours
and requests the repairing Party to attend to such Faults after-hours, an after-hours
repair fee shall be payable;
4.2.2.7.
where the reporting Party reports and hands over a Fault after-hours and that Fault is
proven by the repairing Party to be in the reporting Party’s Telecommunication System,
then a Fault location fee shall be payable by the reporting Party in addition to the after-
hours repair fee;

4.2.2.8.
where the Fault is the result of the negligent or wilful act or omission of an employee or
subcontractor of the repairing Party, no after-hours repair fee shall be payable.

4.3.
Call-out services
4.3.1.
Where either Party (“the requesting Party”) requires access at any time to a site of the other
Party (“the responding Party”) for purposes of the requesting Party’s own maintenance
requirements and the requesting Party requires the responding Party to give access to its
site, a call-out fee of R640.00 (“call-out fee”) shall be payable by the requesting Party to
the responding Party. For the avoidance of doubt the aforegoing shall not apply where the
repairing Party requires access to the reporting Party site in order to rectify a Fault
background image
Page 7
reported by the reporting Party. The call-out fee shall not be payable in the event that
access is obtained to a site actually manned at the time of the required access.
4.3.2.
Where a Party (“the offending Party”) accesses a site of the other Party without prior
notification to the other Party’s ISD and an intrusion alarm is activated resulting in the other
Party having to send personnel to its site to investigate the alarm, the offending Party shall
be liable for a call-out fee.
background image
Page 8
4.4.
Recurring Faults
In the case of a Recurring Fault, the repairing Party shall take all reasonable measures to find
and clear the Fault by means of special investigations with the view to repair, re-route or
provide a temporary alternate link, if possible, to improve the quality of service. The repairing
Party shall report back to the reporting Party within 24 (twenty four) hours of a Fault being
identified as a Recurring Fault and provide information on the possible cause of the Fault and
the remedial action that is being planned.
4.5.
Multiple Faults
Where the reporting Party reports and hands over multiple faults relating to a single failure, a
minimum of 2 (two) Faults shall be reported and handed over to the repairing Party’s ISD
immediately and all remaining Faults relating to the aforesaid failure, shall be handed over
within 2 hours of the first 2 (two) Faults being handed over. Faults as aforesaid not handed
over within the said 2 (two) hour period shall not be accepted by the repairing Party’s ISD.
4.6.
Slow or intermittent error rates
4.6.1.
Where the reporting Party reports and hands over a POIL which is faulty (having a slow or
intermittent error rate), such fault not being a Fault in terms of 2.1 above, as regards
unavailability of such POIL, such fault shall be accepted by the repairing Party as a
miscellaneous fault which shall be dealt with no differently by the repairing Party than a
Fault. No penalties shall be payable by the repairing Party in respect of a miscellaneous
fault as aforesaid.
4.6.2.
In cases where the reporting Party refuses the repairing Party to investigate or work on the
problem during Normal Business Hours and insists that all investigations and/or work to be
carried out be done after hours, an after-hours repair fee shall be payable.

4.7.
Planned outages
Planned outages must be kept to an absolute minimum and shall not be carried out during busy
traffic times. The Party planning such an outage shall inform the other Party’s ISD 48 (forty
eight) hours in advance (by mutual agreement this time scale can be reduced) and mutually
agree upon a suitable time and expected duration for such an outage. During the planned
outage, the responsible Party shall keep the other ISD informed at regular intervals with the
progress until full restoration of service, whereupon the ISD’s shall note the outage duration.
If any items are not restored to full service within the expected duration, time lost shall be dealt
with as provided for in clause 4.3.5 of Appendix 9.
4.8.
Access to the reporting Party’s sites housing transmission line terminating equipment
When Faults on POILs at the reporting Party’s sites are reported, the reporting Party shall
provide access and/or assistance to the repairing Party’s maintenance personnel at these sites
during testing and repair of the Fault.
background image
Page 9
The reporting Party shall ensure, when procuring a site, that provision is made for the ongoing
maintenance access by the repairing Party’s staff.
4.9.
General escalation procedure
A general escalation procedure, a copy of which shall be furnished by both Parties upon
request, shall be established for all operation and maintenance activities and shall contain
contact telephone numbers that shall be updated as and when changes occur.


5.
SERVICE REVIEWS
Whenever required, meetings may be held between the Parties’ ISD’s to review the operational
information exchange between the ISD’s and the procedures as embodied herein.


6.
SETTLEMENT OF VARIOUS FEES

6.1.
Each Party undertakes, at its own cost and expense, to record all relevant information needed
to enable it to determine the amounts owed to the other Party in respect of Rebates.

6.2.
Based on the information recorded in respect of after-hour repair fees, Fault location fees and
call-out fees, each Party shall calculate the amounts owed to and by the other Party and
provide a summary of the information and calculations applicable to the relevant calendar
month, no later than 10 (ten) Business Days after the reconciliation of the events giving rise to
the above-mentioned charges has been completed by the respective ISD’s of the Parties.

6.3.
Following such exchange of information, the Parties shall, within 10 (ten) Business Days
resolve any discrepancies and reconcile between themselves the amounts owed to and by
each Party.

6.4.
All billing procedures for the various fees are as detailed in clause 13 of the main Agreement.
background image
Page 1
APPENDIX 8






















OPERATION AND MAINTENANCE PROCEDURES
FOR INTERCONNECTION
background image
Page 2

CONTENTS


1.
INTRODUCTION

2.
DEFINITIONS

3.
INTERCONNECTION SERVICE DESK

4.
FAULT HANDLING AND RECTIFICATION PROCEDURES FOR
INTERCONNECTION

5.
MAINTENANCE PROCEDURES

6.
SERVICE REVIEWS






background image
Page 3
OPERATION AND MAINTENANCE PROCEDURES FOR INTERCONNECTION


1.
INTRODUCTION

This Appendix addresses the operation and maintenance procedures for Interconnection.


2.
DEFINITIONS

2.1.
Cataleptic failure of Interconnection
A sudden failure, persisting for longer than 10 (ten) seconds, which is characterised by
complete inability to perform the required functions of any aspect relating to Interconnection.

2.2.
Fault
A Fault is an incident that will affect the availability of Interconnection.
2.3.
Partial failure of Interconnection
Any failure other than a cataleptic failure which affects more than 15% (fifteen percent) of the
total number of ports in service. A port is the interface between switching equipment and the
environment.


3.
INTERCONNECTION SERVICE DESK

3.1.
The Interconnection Service Desks (“ISD”) as envisaged in Appendix 7 shall manage all
aspects relating to the proper functioning of Interconnection as well as to deal with all Faults
relating to Interconnection.
3.2.
Where inter-service assistance is required by either Party, this shall be requested through the
other Party’s ISD.
3.3.
A copy of all ISD contact telephone numbers shall be made available by each Party to the
other Party and shall be updated as and when changes occur.
3.4.
Functions of each ISD shall be as follows:

3.4.1.
receive Fault reports from each other, either directly or via nominated Fault reporting
points;
3.4.2.
issue a unique reference number to the other Party when a Fault is reported;

3.4.3.
ensure the co-ordination and localising of Faults in respect of Interconnection;
background image
Page 4
3.4.4.
control the return to service of Interconnection after Fault clearance, routine maintenance,
etc;
background image
Page 5
3.4.5.
be familiar with the re-routing procedures for any Interconnection under its control;

3.4.6.
advise each other of the progress of Fault clearance where appropriate i.e. in the case of
lengthy outages;
3.4.7.
advise each other when the Fault has been rectified;
3.4.8.
keep accurate records of Interconnection outages. Records shall include (in addition to
information necessary for availability assessment), but not be limited to:
a)
name of the Party’s representative who reported the Fault;

b)
unique reference number of the Party who reported the Fault;

c)
the description of the problem as reported by the relevant Party;

d)
date and time of all incidents/actions related to a Fault;

e)
priority of the problem;

f)
interconnection outage time;

g)
location of the Fault;

h)
nature of the Fault.
4.
FAULT HANDLING AND RECTIFICATION PROCEDURES FOR
INTERCONNECTION

4.1.
Reporting of Faults

4.1.1.
All Faults relating to Interconnection shall be reported to the other Party’s ISD which shall
report all Faults to the relevant maintenance sections of that Party according to its internal
fault reporting procedures.

4.1.2.
Prior to reporting and handing over Faults to the other Party’s ISD, the reporting Party
shall conduct a preliminary investigation into the Fault and ascertain as to whether the
problem exists in its own Telecommunication System.
4.2.
Cessation and recovery of Interconnection

4.2.1.
Outages caused by cataleptic or partial failures
The duration of cataleptic or partial failures of any components included in the
Interconnection are termed “outages”. These outages could be planned or unplanned and
such outages shall be reported to the other Party’s ISD.
background image
Page 6
4.2.1.1.
Unplanned outages

4.2.1.1.1.
Upon detection of an unplanned outage, the relevant ISD’s shall be notified. At the
time of notification the outage could have ceased to exist or could still be persisting.

4.2.1.1.2.
In cases where the outage has ceased to exist, the ISD’s shall note the occurrence,
duration and details of the failure.

4.2.1.1.3.
In cases where the outage persists, immediate action shall be taken to localise the
Fault causing the failure (and consequently identify which Party is responsible for
clearing the Fault where this is unclear at first). The relevant ISD shall be informed
every 15 (fifteen) minutes, or at mutually agreed upon intervals, thereafter by the
responsible Party of the progress of the repair until restoration of full service
whereupon the ISD’s shall note the outage duration and details of the failure.
4.2.1.2.
Planned outages

4.2.1.2.1.
Planned outages shall be kept to an absolute minimum and shall not be carried out
during busy traffic times.

4.2.1.2.2.
The Party planning such an outage shall inform the other Party’s ISD 48 (forty eight)
hours in advance (by mutual agreement this time scale can be reduced) and mutually
agree upon a suitable time and expected duration for such an outage.

4.2.1.2.3.
During the planned outage, the responsible Party shall keep the other ISD informed
at regular intervals with the progress until full restoration of service whereupon the
ISD’s shall note the outage duration.
4.2.1.2.4.
If the items are not restored to full service within the expected duration, the outage
shall be regarded as a planned outage followed by an unplanned outage and the
procedure as set out in 4.2.1.1 above for an unplanned outage shall be followed.

4.2.2.
Fault history
Each Party shall maintain records, preferably electronic, containing details of all Faults and
the corresponding restoration times which were handled between the Parties for a running
12 (twelve) month period. These records shall be used to assess the Fault performance of
Interconnection.

4.2.3.
External influences which could affect Interconnection

4.2.3.1.
International services
Each Party shall inform the other Party’s ISD immediately of any major failures which
could degrade international telephone services to any particular destination by more than
50% (fifty percent) as a result of the failure of satellite or undersea cables, international
switches, etc. The other Party’s ISD shall be informed of restoration of service and
details of the failure.
background image
Page 7
4.2.3.2.
National services
Each Party shall inform the other Party’s ISD immediately of any major failures which
could degrade its national telephone services between Switches/POPs by more than
50% (fifty percent) as a result of the failure of transmission media, Switches, POPs, etc.
The other Party’s ISD shall be informed of restoration of service and details of the
failure.

5.
MAINTENANCE PROCEDURES

5.1.
Maintenance methodology

5.1.1.
It is anticipated that certain scheduled (preventative) and unscheduled maintenance actions
shall be carried out by the Parties on aspects relating to Interconnection. Where such
actions by a Party could affect the proper functioning of Interconnection (e.g. working on
critical, centralised equipment), the other Party’s ISD shall be informed accordingly.

5.1.2.
In the case of scheduled maintenance, the schedule of critical activities shall be made
available to the other Party’s ISD in advance. It would not be necessary to inform the
other Party’s ISD of completion of such activities. If the maintenance action results in a
cataleptic or partial failure, the procedure in 4.2.1.1 above shall be followed.

5.2.
Routine testing
The Parties shall supply each other with test Numbers to be used for test Calls for routine
testing of the Interconnection and POILs. The Parties agree to use artificial traffic generators
in such a way so as not to unduly load the Interconnection.

5.3.
Interconnection and POIL utilization details

5.3.1.
The Parties shall, where required, exchange records of utilisation and Call connection
performance across the POI to ensure that service over the POI is maintained at
satisfactory levels.

5.3.2.
Information regarding planned dates for route augmentation shall also be exchanged
between the Parties whenever necessary.

5.4.
Malicious Call tracing
Authorised malicious Call tracing may be requested by either Party. The other Party shall give
priority to the request.
5.5.
General escalation procedure
A general escalation procedure, a copy of which shall be furnished by both Parties upon
request, shall be established for all operation and maintenance activities and shall contain
contact telephone numbers that will be updated as and when changes occur.
background image
Page 8

background image
Page 9
6.
SERVICE REVIEWS
Whenever required, meetings may be held between the Parties’ ISD’s to review the operational
information exchanged between the ISD’s and the procedures as embodied herein.

background image
Page 1
APPENDIX 9























SERVICE LEVEL AGREEMENT FOR POILs
background image
Page 2
CONTENTS


1.
INTRODUCTION

2.
DEFINITIONS

3.
REBATES

4.
MEASUREMENT OF SERVICE LEVELS

5.
SETTLEMENT OF REBATES






background image
Page 3
SERVICE LEVEL AGREEMENT FOR POILs


1.
INTRODUCTION

This Appendix deals with the service level agreement applicable to the maintenance of POILs.

2.
DEFINITIONS

2.1.
In this Appendix the following expressions bear the meanings assigned to them below and
cognate expressions bear corresponding meanings –

2.1.1.
"AADT” means the Agreed Down Time for which the service is unavailable as reported to
the providing Party but excluding all agreed time periods during such service unavailability
as set out in 4 of this Appendix 9. Multiple failures in a calendar month are accumulated;

2.1.2.
“Fault” means an incident that will affect the availability of a POIL. A POIL is deemed to
be unavailable when there is either no data throughput for a period greater than 10 (ten)
seconds or when the error ratio exceeds 10
-3
for more than 10 (ten) consecutive seconds.

2.1.3.
"GMTR” means Guaranteed Maximum Time To Repair being the maximum time allowed
to enable the providing Party to complete the repair of a failure without incurring penalties,
as measured by the Time To Repair (TTR);

2.1.4.
“Monthly Rental” means the total rental paid in an applicable month for a POIL after all
discounts have been taken into consideration;

2.1.5.
“MTTR” means Mean Time To Repair being the average time taken to repair failures;

2.1.6.
"Pmax" means the maximum Rebate applicable at Tmax expressed as a percentage (%) of
the Monthly Rental for the particular POIL;

2.1.7.
“providing Party” means the Party providing a POIL to the supplied Party;

2.1.8.
"Rebate" means the portion of the Monthly Rental that will be refunded to the supplied
Party as a service credit if the providing Party fails to meet the GMTR and in accordance
with a sliding scale as set out in this Appendix;

2.1.9.
“supplied Party” means the Party to whom a POIL is provided by the providing Party:

2.1.10.
"TTR” means Time To Repair being the time taken from the time that the Fault is reported
by the supplied Party to the providing Party, until completion of the repair, as verified by
the supplied Party. TTR includes a maximum of 15 (fifteen) minutes for final testing by the
supplied Party;

2.1.11.
"Tmax" means the maximum time elapsed at which point a full Rebate is applicable;
background image
Page 4
2.2.
Any expression not defined herein shall bear the meaning assigned to it in the main Agreement
and cognate expressions shall bear corresponding meanings as in the main Agreement.


3.
REBATES

3.1.
Fault reporting and rectification procedures
All aspects relating to the reporting of Faults, Fault rectification, call outs and escalation
procedures shall be as provided for in Appendix 7.

3.2.
Repair service levels
Repair service levels are expressed in terms of a GMTR per POIL and per calendar month.

3.3.
GMTR for POILs
The GMTR figures offered are indicated in the following table.
Service Level Option
Contract
GMTR (hrs)
Bronze
24
Silver
8
Platinum
2
A maximum period of 15 (fifteen) minutes is included in the GMTR for end-to-end testing by
the supplied Party for the validation of the providing Party’s Fault clearance for an individual
POIL.

3.4.
Service credits

3.4.1.
Service credits shall be granted in the form of a Rebate on the Monthly Rental for that
specific circuit.

3.4.2.
Rebates shall be paid on a sliding scale from the GMTR to Tmax, which is equal to 4 (four)
times the GMTR for POILs, as depicted in the graph below. Pmax is based on the
accumulated down time for the relevant calendar month.











background image
Page 5
background image
Page 6
















3.4.3.
The following formula details the calculation of Rebates:
For agreed down time greater than GMTR but less than or equal to Tmax (calculations to
be done per circuit per calendar month):
Rebate = (Agreed Down Time for the month (hrs) – GMTR (hrs)) x Pmax x Monthly Rental
                                       Tmax (hrs) – GMTR (hrs)
Agreed down time excludes all allowances that lead to clock stop or deferred time.

3.4.4.
The Rebate shall be capped at a maximum of Pmax calculated on a calendar monthly basis
and as defined in the table below.
Service Level
Option
Pmax on Monthly Rental
Bronze
15%
Silver
30%
Platinum
100%


4.
MEASUREMENT OF SERVICE LEVELS

4.1.
The service level shall be measured per POIL irrespective of the number of links used to
provide the POIL and shall be done on a calendar month basis.

4.2.
Where a number of POILs are affected by the same Fault, the down time shall be recorded
against each individual POIL.

4.3.
The AADT shall exclude the following times-
4.3.1.
Elapsed time from when the Fault is reported to the providing Party’s ISD after hours until
the start of the following Business Day if the supplied Party elects not to make use of the
providing Party’s after hours repair service.
0
GMTR
time
Rebate
(R)
Pmax
Tmax
background image
Page 7
background image
Page 8
4.3.2.
The time lost in the case where repairs are started during normal hours, stopped after hours
and resumed on the following Business Day with the consent of the supplied Party.

4.3.3.
The time lost when Faults cannot be repaired due to a lack of access to the supplied
Party’s sites and/or lack of assistance from the supplied Party.

4.3.4.
The time lost due to the supplied Party’s ISD not being available to receive a Fault clear
report.

4.3.5.
The time lost due to planned outages (scheduled maintenance) as provided for in clause 4.7
of Appendix 7. Where the planned outage time exceeds the agreed time frames, the extra
down time shall be regarded as outage time on a POIL unless the supplied Party’s ISD
agrees to the extension of the planned outage time.

4.3.6.
Where a planned outage time is requested less than 48 (forty eight) hours before the
planned outage (unscheduled maintenance), the outage time shall be added to the
unavailability time of a POIL unless the supplied Party’s ISD agrees to this short notice
planned outage.

4.4.
Only Faults due to failures of the providing Party’s equipment or the providing Party’s working
party involvement or 50% (fifty percent) of the outage time due to Faults cleared as "no Fault
found", shall be taken into account when calculating the down time for individual POILs. It is
specifically recorded that Faults due to failure of the supplied Party’s power supply shall not
be taken into account when calculating the down time for individual POILs.

4.5.
Should the supplied Party require any testing time additional to the maximum 15 (fifteen)
minute period as set out in 3.3 of this Appendix 9, such additional testing time shall not
contribute to down time unless the Fault on the POIL is still proven to be within the providing
Party’s Telecommunication System.

4.6.
Clause 23 of the main Agreement (force majeure) will be applicable to the repair of Faults and
the measurement of down time for individual POILs.


5.
SETTLEMENT OF REBATES

5.1.
Each Party undertakes, at its own cost and expense, to record all relevant information needed
to enable it to determine the amounts owed to the supplied Party in respect of Rebates.

5.2.
Based on the information recorded in respect of Rebates, each Party shall calculate the value
of the Rebates owed to the supplied Party and provide a summary of the information and
calculations applicable to the relevant year, no later than 10 (ten) Business Days after the
reconciliation of the events giving rise to the above mentioned Rebates has been completed by
the respective ISD’s of the Parties.

5.3.
Following such exchange of information, the Parties shall, within 10 (ten) Business Days
resolve any discrepancies and reconcile between themselves the value of the Rebates owed to
the supplied Party.
background image
Page 9
5.4.
All billing procedures for Rebates are as detailed in clause 13 of the main Agreement.

background image
Page 1
APPENDIX 10






















TELKOM CHARGES AND DISCOUNTS FOR POILs


background image
Page 2
CONTENTS


1.
INTRODUCTION

2.
TELKOM POIL CHARGES

3.
DISCOUNTS ON TELKOM POIL CHARGES

4.
EXPLANATORY NOTES ON TELKOM POIL CHARGES


background image
Page 3
TELKOM CHARGES AND DISCOUNTS FOR POILs
1.
INTRODUCTION
This Appendix addresses Telkom POIL charges and discounts for POILs.


2.
TELKOM POIL CHARGES

2.1.
Charges for Bronze temporary services
(R Excluding VAT)

Type of link
Radial
Distance (km)
Installation Charge
Hourly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
20 367.00
2.33
0 to 20
20 367.00
2.72
>20 to 30
20 367.00
3.68
>30 to 40
20 367.00
5.53
>40 to 50
20 367.00
5.89
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
20 367.00
9.00
Type of link
Radial
Distance (km)
Hourly Rental per km
(R Excluding VAT)
0 to 50
0.20
>50 to 200
0.12
> 200 to 400
0.07
Main links between Telkom
Switches
C Tariff
>400
0.05

2.2.
Charges for Silver temporary services
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Hourly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
20 367.00
2.39
0 to 20
20 367.00
2.78
>20 to 30
20 367.00
3.76
>30 to 40
20 367.00
5.67
>40 to 50
20 367.00
6.03
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
20 367.00
9.21
Type of link
Radial
Distance (km)
Hourly Rental per km
(R Excluding VAT)
0 to 50
0.20
>50 to 200
0.12
> 200 to 400
0.08
Main links between Telkom
Switches
C Tariff
>400
0.05
background image
Page 4
2.3.
Charges for Silver permanent services – 1 year
(R Excluding VAT)

Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
16 294.00
1 396.43
0 to 20
16 294.00
1 628.63
>20 to 30
16 294.00
2 196.23
>30 to 40
16 294.00
3 307.78
>40 to 50
16 294.00
3 520.63
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
16 294.00
5 380.38
(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
361.20
68.10
>50 to 200
2 336.33
28.59
> 200 to 400
5 418.84
13.18
Main links between Telkom Switches
C Tariff
>400
7 895.46
6.98

2.4.
Charges for Silver permanent services – 3 year
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
15 479.30
1 344.47
0 to 20
15 479.30
1 568.03
>20 to 30
15 479.30
2 114.51
>30 to 40
15 479.30
3 184.70
>40 to 50
15 479.30
3 389.63
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
15 479.30
5 180.18
(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
347.76
65.57
>50 to 200
2 249.40
27.52
> 200 to 400
5 217.20
12.69
Main links between Telkom Switches
C Tariff
>400
7 601.67
6.72

2.5.
Charges for Silver permanent services – 4 year
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
14 664.60
1 234.05
0 to 20
14 664.60
1 439.25
>20 to 30
14 664.60
1 940.85
>30 to 40
14 664.60
2 923.15
>40 to 50
14 664.60
3 111.25
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
14 664.60
4 754.75
background image
Page 5



(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
319.20
60.18
>50 to 200
2 064.67
25.26
> 200 to 400
4 788.74
11.64
Main links between Telkom Switches
C Tariff
>400
6 977.38
6.17

2.6.
Charges for Silver permanent services – 5 year
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
14 664.60
1 169.10
0 to 20
14 664.60
1 363.50
>20 to 30
14 664.60
1 838.70
>30 to 40
14 664.60
2 769.30
>40 to 50
14 664.60
2 947.50
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
14 664.60
4 504.50
(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
302.40
57.02
>50 to 200
1 956.00
23.93
> 200 to 400
4 536.70
11.03
Main links between Telkom Switches
C Tariff
>400
6 610.15
5.85

2.7.
Charges for Platinum permanent services – 4 year
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
25 255.70
2 208.30
0 to 20
25 255.70
2 575.50
>20 to 30
25 255.70
3 473.10
>30 to 40
25 255.70
5 230.90
>40 to 50
25 255.70
5 567.50
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
25 255.70
8 508.50
(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
571.20
107.70
>50 to 200
3 694.66
45.21
> 200 to 400
8 569.32
20.84
Main links between Telkom Switches
C Tariff
>400
12 485.84
11.04
background image
Page 6
2.8.
Charges for Platinum permanent services – 5 year
(R Excluding VAT)
Type of link
Radial
Distance (km)
Installation Charge
Monthly Rental
Local ends (within same exchange area)
between a POP and a Telkom Switch
A Tariff
Flat Rate
21 996.90
1 883.55
0 to 20
21 996.90
2 196.75
>20 to 30
21 996.90
2 962.35
>30 to 40
21 996.90
4 461.65
>40 to 50
21 996.90
4 748.75
Inter-premises connections between a
POP and a POI
B Tariff
>50 to 100
21 996.90
7 257.25
(R Excluding VAT)
Type of link
Radial
Distance (km)
Monthly Fixed
Cost
Monthly Rental per
km
0 to 50
487.20
91.86
>50 to 200
3 151.33
38.56
> 200 to 400
7 309.13
17.77
Main links between Telkom Switches
C Tariff
>400
10 649.68
9.42


3.
DISCOUNTS ON TELKOM POIL CHARGES

3.1.
Route based installation discounts
Installation fee discounts based on number of POILs per
route (Note 1)
A Tariff
B Tariff
Type of POIL
Package 
 Option
Contract   
 period 
 (years)
Service Level
    option
1
st

POIL
2
nd
, 3
rd
 
 4
th
POIL
5
th
and
and
subsequent
POILs
1
st

POIL
2
nd
, 3
rd
and 4
th
POIL
5
th
, 6
th
, 7
th
and
8
th
POIL
9
th
    and
 subsequent
POILs
T1
<1
Bronze
0%
20%
25%
0%
35%
50%
60%
Temporary
T2
<1
Silver
0%
25%
30%
0%
35%
50%
60%
P1
1
Silver
0%
25%
30%
0%
35%
50%
60%
P2
3
Silver
0%
25%
30%
0%
35%
50%
60%
P3
4
Silver
0%
25%
30%
0%
35%
50%
60%
P4
5
Silver
0%
25%
30%
0%
35%
50%
60%
P5
4
Platinum
0%
25%
30%
0%
25%
30%
30%
Permanent
P6
5
Platinum
0%
25%
30%
0%
25%
30%
30%

Note 1:
Route based installation fee discounts are calculated on the charges referred to in 2
of this Appendix 10. For the purpose of determining installation fee discounts on
POILs, a route is defined as a group of POILs used to connect a POI and a POP.
In instances where POILs of more than one service level exist between a POI and a
POP, calculation of the above mentioned discount is performed separately for each
service level.
background image
Page 7
3.2.
Volume discounts on total rental charges

3.2.1.
Monthly rental discounts shall be applicable to all POILs (permanent and temporary) and shall
be based on the total POIL bandwidth leased by Neotel in terms of this Agreement, regardless
of site location. The discount shall be calculated on a calendar month basis according to the
total bandwidth reflected on the main account for an applicable calendar month. For the
avoidance of doubt, broken period rentals shall also form part of the calculation for an
applicable calendar month.

3.2.2.
The volume based discounts set out in the table below are irrespective of the package options
selected by Neotel.
Bandwidth
Discount
< 1000 Mb/s
0%
1000 – 5000 Mb/s
2.5%
5001 – 15000 Mb/s
5%
15001 – 30000 Mb/s
7.5%
> 30000 Mb/s
10%

3.3.
If the Parties have entered into a fixed link leasing agreement, the fixed links provided in terms of
that agreement shall also be included in order to determine the total bandwidth discount to be
applied to the POILs provided by Telkom in terms of this Agreement.


4.
EXPLANATORY NOTES ON TELKOM POIL CHARGES
4.1.
Where POILs are required for connecting a POI to a POP:
4.1.1.
and the POI and POP being connected by means of a POIL are within 100 (one hundred) km
of one another, then the B tariff will be applied.
4.1.2.
and the POI and POP being connected by means of a POIL are further than 100 (one
hundred) km from one another, then the A tariff shall be applied to the portion of the POIL
between the POP and its nearest Telkom switching exchange, plus the C tariff based on the
radial distance between the two Telkom switching exchanges, plus the A tariff shall be applied
to the portion of the POIL between the POI and its nearest Telkom switching exchange.


background image
LEGAL_US_E # 80237606.2
Exhibit 12.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) (17 CFR 240.13a-14(a)) OR RULE
15d-14(a) (17 CFR 240.15d-14(a)), PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Reuben Joseph September, certify that:
1.
I have reviewed this annual report on Form 20-F for the year ended March 31, 2008
of Telkom SA Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect,
the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the company’s auditors and the audit
background image
LEGAL_US_E # 80237606.2
2
committee of the company’s board of directors (or persons performing the equivalent
functions):
(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company’s internal control over
financial reporting.
By: /s/ Reuben Joseph September
Name: Reuben Joseph September
Title:   Chief Executive Officer
(principal financial officer)
Date: July 17, 2008
background image
LEGAL_US_E # 80237606.2
Exhibit 12.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) (17 CFR 240.13a-14(a)) OR RULE
15d-14(a) (17 CFR 240.15d-14(a)), PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Deon Jefta Fredericks, certify that:
1.
I have reviewed this annual report on Form 20-F for the year ended March 31, 2008
of Telkom SA Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect,
the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent
functions):
background image
LEGAL_US_E # 80237606.2
2
(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company’s internal control over
financial reporting.
By: /s/ Deon Jefta Fredericks
Name: Deon Jefta Fredericks
Title:
Acting Chief Financial Officer
(principal financial officer)
Date: July 17, 2008
background image
LEGAL_US_E # 80237606.2
Exhibit 13.1
CERTIFICATION FURNISHED PURSUANT TO RULE 13a-14(b) (17 CFR 240.13a-14(b))
OR RULE 15d-14(b) (17 CFR 240.15d-14(b)) AND SECTION 1350 OF CHAPTER 63 OF
TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350), PROMULGATED UNDER
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Telkom SA Limited (the “Company”) on Form 20-F for
the year ending March 31, 2008 (the “Report”), we, Reuben Joseph September , Chief Executive
Officer of the Company, and Deon Jefta Fredericks, Acting Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, promulgated under Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: July 17, 2008
By:
/s/ Reuben Joseph September
Reuben Joseph September
Chief Executive Officer
(principal executive officer)
Date: July 17, 2008
By:
/s/ Deon Jefta Fredericks
Deon Jefta Fredericks
Acting Chief Financial Officer
(principal financial officer)
The foregoing certifications are being furnished solely pursuant to Rule 13a-14(b) under
the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 and will not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically
incorporates them by reference.
background image
293
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that
it has duly caused and authorized the undersigned to sign this annual report on its behalf.
TELKOM SA LIMITED
By: /s/ Reuben Joseph September
Name: Reuben Joseph September
Title:   Chief Executive Officer
Dated: July 18, 2008

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘20-F’ Filing    Date    Other Filings
5/30/24
2/24/20
1/31/19
11/14/16
3/31/13
12/1/12
8/24/12
3/31/12
1/1/12
10/31/11
9/1/11
3/31/11
3/5/11
3/4/11
1/1/11
12/31/10
11/30/10
9/30/10
6/15/10
12/31/09
7/26/09
7/1/09
5/1/096-K
4/2/09
3/31/096-K
2/27/09
1/30/09
1/1/096-K
10/31/08
10/4/08
10/1/086-K
9/30/08
8/1/086-K
7/31/086-K
Filed as of:7/21/08
Filed on:7/18/08
7/17/08
7/15/08
7/11/08
7/9/08
7/7/08
7/4/08
7/3/08
7/2/086-K
7/1/08
6/30/086-K
6/26/08
6/20/08
6/6/086-K
6/3/08
6/2/08
5/30/08
5/14/08
5/12/08
5/8/08
4/29/08
4/25/08
4/22/08
4/4/08
4/3/08
4/1/08
3/31/086-K
3/28/08
3/26/08
3/20/08
3/19/08
3/6/08
3/5/08
2/29/08
2/27/08
2/15/08
2/12/08
1/31/086-K
1/30/08
1/28/08
1/22/08
1/1/08
12/24/07
12/14/07
12/5/07
11/30/076-K
11/22/07
11/16/07
11/9/07
11/2/07
11/1/07
10/31/076-K
10/26/07
10/1/07
9/30/076-K
9/27/07
9/24/07
9/20/07
9/19/07
9/12/07
9/6/07
9/4/07
9/3/07
9/1/07
8/31/07
8/13/07
8/1/07
For Period End:7/18/07
7/9/07
7/6/07
7/3/07
7/1/07
6/30/076-K
6/12/07
6/8/07
6/7/07
6/5/07
6/1/07
5/29/07
5/28/07
5/23/07
5/21/07
5/17/07
5/8/07
5/3/07
5/1/07
4/11/076-K
4/10/07
4/5/076-K
4/4/07
4/2/07
4/1/07
3/31/076-K
3/26/07
3/14/07
3/9/076-K
3/7/07
3/6/07
3/1/07
2/23/07
2/21/07
2/15/07
2/14/07
2/6/07
1/31/076-K
1/29/07
1/25/07
1/23/07
1/16/07
1/1/07
11/11/06
11/10/06
11/9/06
11/1/06
10/31/066-K
10/20/06
10/18/06
10/9/06
10/4/06
10/3/06
10/2/06
10/1/06
9/30/066-K
9/29/06
9/21/06
9/20/06
9/19/06
9/13/06
9/12/06
9/7/06
9/1/06
8/31/066-K
8/30/06
8/24/06
8/17/06
8/1/06
7/30/06
7/26/06
7/19/06
7/14/066-K
7/7/06
6/19/06
6/15/06
6/2/06
6/1/06
5/1/06
4/20/06
4/18/06
4/5/06
4/3/06
4/1/06
3/31/066-K
3/9/06
3/1/06
1/1/06
12/20/05
12/9/05
12/1/05
11/25/05
10/21/05
10/3/05
10/1/05
9/30/056-K
9/9/05
9/5/05
9/1/05
8/26/05
8/23/05
8/1/05
7/31/056-K
7/29/05
7/8/05
7/5/05
7/2/05
7/1/05
6/29/05
6/24/05
6/23/05
6/1/05
5/20/05
4/11/05
4/1/05
3/31/056-K
3/4/05
2/23/05
2/18/05
2/1/05
12/9/04
12/2/04
11/30/046-K
11/29/04
10/29/04
10/27/04
10/26/04
10/14/04
10/7/04
9/30/046-K
9/15/04
9/4/04
8/3/04
7/9/04
6/30/046-K
6/23/04
6/7/04
6/4/04
5/11/04
5/8/04
5/7/04
5/3/04
4/1/04
3/31/0420-F
3/30/04
3/17/04
2/27/04
1/27/04
12/31/03
12/15/03
11/28/036-K
11/27/03
10/23/03
10/3/03
9/18/03
9/16/03
9/1/03
8/23/03
5/5/03
3/31/03
3/7/03
3/4/03F-1/A
3/3/03F-1/A
2/26/03
1/16/03
10/17/02
8/22/02
8/19/02
7/19/02
5/7/02
4/1/02
3/31/02
3/29/02
3/1/02
12/11/01
12/1/01
10/1/01
9/18/01
9/14/01
9/4/01
8/31/01
3/31/01
7/31/00
7/1/00
6/15/00
4/12/00
2/25/00
2/22/00
10/20/98
7/21/98
1/12/98
7/1/97
5/14/97
5/7/97
3/31/97
2/21/97
11/15/96
8/22/96
8/20/96
8/19/96
7/1/95
3/31/95
3/29/95
2/16/94
9/30/93
9/30/92
 List all Filings 

2 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/30/08  SEC                               UPLOAD10/21/17    1:47K  Telkom SA Ltd.
10/06/08  SEC                               UPLOAD10/21/17    1:64K  Telkom SA Ltd.
↑Top
Filing Submission 0001205613-08-000119   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help — Fri., Apr. 26, 3:13:06.3pm ET