FILE PHOTO: Customers are served at a branch of South Africa’s mobile operator, Telkom, in Johannesburg, South Africa, March 2, 2022. REUTERS/Siphiwe Sibeko
March 28, 2022
JOHANNESBURG (Reuters) – Telkom said on Monday it had enough room on its balance sheet to pay 2.1 billion rand ($143.73 million) for bands of radio frequency spectrum it bought in a recent auction, despite negative free cash flow that tracked below expectations.
The South African firm, 40% owned by the government, and fellow telecom operator Rain won the first round of bidding in the auction held earlier in March. Operators have been waiting over a decade for spectrum licenses needed to lower data costs, roll out 5G and add 4G network capacity.
Telkom purchased two chunks of 10 MHz in the 800 Mhz band, giving it access to frequencies below 1 GHz for the first time – crucial to providing better internet coverage in underserved and rural areas and better indoor coverage. It also acquired 22 MHz in the higher frequency 3500 MHz band.
The company said 1.1 billion rand of the total cost was expected to be paid in its current financial year, affecting its debt levels, capital expenditure and free cash flow.
“Notwithstanding the financial impact, Telkom has adequate capacity on its balance sheet to fund the spectrum while maintaining sufficient headroom in its loan covenants,” it said.
The main spectrum auction was due to take place earlier this month, but Telkom helped block it via a court application, saying the auction would not allow it to obtain the amount of spectrum it needed to compete effectively.
(Reporting by Emma Rumney; Editing by Clarence Fernandez and Uttaresh.V)