For more than three years, Telkom has grappled with the question of how to best manage its portfolio of properties, masts and towers. 

Towers and masts are infrastructure used by mobile operators to extend telecommunications coverage and high-speed data services such as 4G and 5G to customers.  They are costly to run for mobile operators, given the need to provide them with power and security for their sites. Adding to the cost base for mobile operators is that towers and masts require heavy investments – mainly for their maintenance and upgrades. 

For Sipho Maseko, the outgoing Telkom CEO, the question of managing the telecoms operator’s masts and towers has also been about how to create shareholder value and unlock the billions of rands that are trapped in its infrastructure. 

Towers and masts were considered vital to a company’s competitive standing. But as more mobile operators have started to share their infrastructure to reduce costs and improve coverage, towers and masts have instead become valuable assets that companies are increasingly looking to monetise. 

Mobile operators around the world have been offloading their towers and masts to dedicated infrastructure companies or spinning them off into separate listings and renting back the space to rival companies. This allows mobile operators to generate additional revenue, expand their networks and eliminate maintenance costs. 

Telkom, which is about 40% owned by the government, wants to emulate the spin-off model. 

On Tuesday Telkom announced a plan to separately list Swiftnet, which houses its portfolio of properties, masts and towers and is held by its subsidiary Gyro on the JSE. The Telkom board expects to make a final determination regarding a separate listing before the end of the financial year. 

A successful listing of Swiftnet will bring a notable entity to the JSE as Telkom has 6,225 masts and towers across South Africa. The number of its masts and towers makes it a sizable owner and operator of telecommunications infrastructure in the country.  

Telkom’s announcement about the listing of Swiftnet sent its share price as much as 17% higher on the JSE, adding R3.3-billion to its market value. Its share price eventually finished 15% higher on Tuesday to R43.20. Investors have long expected the move by Telkom to reform the operational structure of its telecommunications infrastructure. 

The Telkom Tower and city tower blocks in the Hillbrow district in Johannesburg, South Africa. (Photo: Waldo Swiegers/Bloomberg via Getty Images)

Maseko, who leaves Telkom at the end of June 2022 after nine years in the top job, has long complained that the book value of the company’s portfolio of properties, masts and towers – housed under Swiftnet – is not reflected on Telkom’s share price. A Telkom valuation exercise has ascribed a book value of between R12-billion and R13-billion for its portfolio of properties, masts and towers. 

But the book value is currently not being recognised in Telkom’s share price because Swiftnet has operated as a separate tower company for more than three years, Maseko told Business Maverick.  

Considering the quality of assets under Swiftnet and other businesses under the Telkom stable, including IT company Business Connexion and internet fibre operator Openserve, Maseko said Telkom’s share price should be trading at R75. 

“Our share price is trading under a massive discount [actual share price is R43.20]. There should at least be R6 or R7 added to the share price. That’s why we believe that a separate listing of Swiftnet will affirm the valuation of the masts and towers business and its contribution to the overall valuation of the Telkom business,” he said. 

He believes that the market is unfairly discounting Telkom’s share price because the company is partly state-owned and there are still fears that the government is “calling the shots” when it comes to its governance and management. 

Two options were on the table for Telkom for Swiftnet: either separately list the entity on the JSE, find a buyer for its properties, masts, and towers, or find equity partners for the business. 

Maseko said Telkom had a “long queue” of private equity and pension fund investors that were keen on investing in its infrastructure. But the board opted for the separate listing because some investors were not appropriate or prepared to invest in its towers and masts business for the long term. DM/BM