Telkom SA SOC Ltd (TKG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Telkom SA Limited International Analyst Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Sipho Maseko. Please go ahead, sir.

Yes. Thank you very much, Claudia. Thank you very much, and thanks to everybody on the call, and good morning to those in the U.S., and good afternoon to everybody everywhere else. With me, I have Tsholo Molefe, our group CFO; I have Babalwa George, our Head of IR. And I'd like to start by just unpacking a bit of our results that we presented this morning. There's a couple of themes I will follow. I'll share how Telkom played its role to support during the COVID-19 pandemic. I will also unpack how each of our businesses were impacted by COVID-19 and how each one of them responded. Tsholo will then unpack the financial performance and how we are building -- continuing to build financial resilience. I will then come back to address the regulatory environment as the country prepares for the release of spectrum on a permanent basis and also about the value unlock initiative that we have started. So we played a key role as a good corporate citizen to support all of our stakeholders during the height of the COVID-19 period. We spent roughly about ZAR 80 million that is related to COVID-19 spend since the beginning of the lockdown in March to support our employees and to support the country as a whole, so that we can be able to weather the crisis. First and foremost, we focus on our employees. We provided testing facilities for our employees. We provided counseling facilities for those that would have been infected and their families, through our wellness partner, ICAS. At our peak, actually, we had about 80% -- 90% of our employees working from home. At the moment, we have roughly about 80% who are still working from home since the beginning of the national lockdown. Of our employees who have been infected, we saw a recovery rate of about 92%. And we continue to ensure that our employees feel safe and supported, as they are members of society, on an ongoing basis. We also supported a number of health care initiatives and education initiatives. We launched our own education platform, Lightbulb, and zero-rated approximately 1,000 education sites to support students of higher learning, working with the nation -- various national departments. From a health perspective, we developed the track and trace tool with NICD and the Department of Health, which has been used, initially used in the process of checking and identifying various potentially infected citizens. And then our customers were impacted as well in different ways. We put some reduced data prices into the market. We increased the bundle sizes and speeds to assist customers to meet their data needs. On the BCX side and small and medium business, we granted some extended payment terms to assist them. And in return, we've been able to secure something like 24 to 24 -- 12 to 24-month contract extension. We also worked closely with the Red Cross in terms of health education and making sure that they are able to reach as many people as possible during that time. We also made some of our facilities available as additional quarantine sites to assist government to accommodate those who are infected and could not quarantine from home. So those are some of the things that we did and we actually think that Telkom as a whole showed up in the right way in the country with regards to supporting the national COVID response plan. Despite this challenging environment, we also completed the first half of the year with a very strong performance that weathered that storm. And I will share a couple of highlights for now. So our top line is very, very resilient in the face of the pandemic; our profitability has improved, it is underpinned by our sustainable cost management; very, very strong cash generation, which moved us from negative free cash territory last year to positive. We strengthened our balance sheet and we saw double-digit earnings growth as well. And maybe just to give a couple of highlights insofar as businesses are concerned. On the Consumer side, we saw massive mobile data usage growth and demand for connectivity, despite the fact that the network rollout was slow, based on the lockdown protocols and some of the distribution channels were closed. But also this then made us to really look at how do we strengthen some of the digital distribution channels as well, almost as a semi-permanent factor going forward. Total Mobile performance was very strong, 19% growth in the subscriber base to about 13.7 million subscribers, ARPU increasing by about 37% to ZAR 113 on a blended basis, which is the highest in our history. Our prepaid base continues to grow, now in excess of 10 million subscribers. As a whole, Mobile gave us a service revenue growth of about 47%, which is very, very strong growth on a year-on-year basis. And the EBITDA doubled by approximately ZAR 1.8 billion to almost ZAR 3 billion and our margin was expanded to almost about 30%, 29.9%. The big opportunity that we saw and that we are able to capitalize on is the growth in data. We saw a 23% increase in the broadband base to about 9.6 million. And our total subscriber base now make up more than 70% of the overall base. It's a very, very important milestone for us. We've always been focused around data and how we make sure that we lead in data. Mobile data traffic grew with about 80% and which saw a revenue growth associated with that to about ZAR 6 billion. I'm also pleased that we've made substantial inroads in the data market over the past few years, which, as I've indicated, has been underpinned by our data -- our aggressive broadband growth strategy. We have now closed the data revenue gap in absolute terms between our Telkom Mobile and the #2 player in the market. The gap is not, is not big at all if we just look at absolute data revenue. And we want to continue to focus on that over the short term so that we can truly become one of the leading companies in terms of data, especially in terms of revenue shift in the data market. Our objective is to broaden broadband adoption. And yesterday, we launched a content streaming partnership with SABC to become the first official streaming video on-demand service to host various SABC live channels and digital functionalities. And we would be the first video and audio streaming platform that is aimed at the mass market consumer with a focus on local content in particular, as we launched and focusing initially on the use, but making sure that the broadness of that market, we are able to give them a value proposition on content that is not necessarily provided by other players in the market. BCX. BCX has been negatively impacted by the COVID impact with a close correlation, as we've indicated before, between GDP growth cycle and BCX. With a lockdown and deep impact on the business, almost all the large enterprises were under financial pressure. Retailers were closed; banks were closed; the public sector was closed. And we saw how that impacted the performance of BCX. They could not trade during this time. They could not use some of our products. Some of them who, before that, had been great customers, all of a sudden, they're not able to pay. So we had to partner with them to ensure that they are able to meet their obligations. In return, they give us about 12 to 24 months of contract extension. Some customers are unfortunately closed down. Some went into business rescue. However, one of the things that we saw is that the costs were optimized almost as aggressively as the revenue declined. So the BCX team did the best that they could to pull some of the costs, some of the levers on cost so that they can come in as flat as they possibly could. The annuity revenue ratio, they are maintaining it at about 73%. And as the economy opens up, we want to see how that plays itself out. They're still continuing to pull the cost lever and looking to capitalize as the economy opens up in terms of new revenue. Openserve, big growth in fixed traffic demand, 30% increase and this was achieved with an overall broadband access connections reduction of about 16%. We saw a lot more people using, the average data usage per customer went up. We've been focused a lot on fiber to the home connections. We're now at a ratio of about 54%. This enables us to start remunerating the capital that we have deployed and we are also further reducing our overall cost to connect fiber to the home by approximately 50%. This will enable us to really, really stretch the CapEx, both to pass and connect homes. For us, that's a very, very important measure so that we can start to remunerate our investment as quickly as we can. Our drive to connect business customers through our ethernet-based network, so roughly a 15% increase in connections. We have grown fiber to the base stations by 10%. And despite all of this, actually, we still have that negative impact of enterprise fixed voice volumes declining. And it is something that we have been managing as best as possible and we continue to do that. Gyro. Gyro continued its performance, strong tenancy growth. As we've indicated earlier on, we supported quite a lot of the operators, internal and external, to be able to deploy the temporary spectrum as quickly as possible. The revenue for the Mast & Tower business grew by about 7.7%, with external revenue in that increasing by 10.5%. Number of leases grown by about 11%. The EBITDA grew by about 27%, with the margin growing from 65% to about 77%. So I'll now hand over to Tsholo, who will unpack the financial performance.

Thank you, Sipho. Good afternoon, everyone, and good morning to everyone on the international side. I will just unpack the key financial messages and I think before I do that, it's important to highlight that the published prior period results were restated with the cost of third-party services in BCX of ZAR 44 million. So the current results are measured against those restated prior numbers and the number is ZAR 44 million. So just to unpack a bit better. Overall, as indicated, our top line really demonstrated resilience, down 0.4% to ZAR 21.4 billion year-on-year. Our revenue streams, as you saw, were impacted in different ways by the pandemic. Firstly, the Mobile service revenue grew 47.8%, largely underpinned by the data traffic growth of 80% that we saw as well as the subscriber growth of 19% to about 13.7 million subscribers, particularly with the increase in people working from home, online and at schooling as well as the ongoing investments in our Mobile network. Secondly, in the wake of this pandemic, what we saw is enterprise customers really reducing or deferring their IT spend, which resulted in a decline of about a 15.6% decline in our IT revenues. We also saw [indiscernible] from COVID negatively impacting the enterprise fixed business as fixed usage was then being diverted to mobile connectivity, leading to a significant decline in fixed voice revenues of about 29.8%. We continue to commercialize our current Mast & Tower portfolio, as Sipho indicated. And from an external revenue perspective, we saw an increase of about 10.5% from the Towers revenue to about ZAR 346 million. Our continued focus on reducing costs really are bearing fruit as we protect our group EBITDA and margin. Despite a tough economic environment, we saw group EBITDA increasing by 6.3% to ZAR 5.9 billion, and margin expanding by 1.7 percentage points to about 27.6%. We optimized both direct and operating costs with a decrease of about 5.3% on direct expenses and 1.5% on our operating cost. And this was really a significant improvement, particularly in terms of total cost to revenue ratio. So the reduction, firstly, if I start with our direct expenses, the reduction in direct cost was largely driven also by the slowdown in the cost of handsets and equipment due to the lockdown impact on the distribution channel. This enables Mobile business to reduce its direct cost to revenue ratio from 56.2% in the same period last year to now about 38.2%. However, if we exclude the one source of handsets and equipment savings from cost of sales, particularly our cost to serve to Mobile service revenue ratio, which is really a combination of payment to other operators as well as sales incentives and logistical costs, was optimized from 36% in the same period last year to now about 30.5%. And this was in the main, as I indicated, due to payment to other operators reducing as we sought to manage our roaming cost down despite the significant growth that we saw in our Mobile. And I think also, as the size of the business grows from a Mobile perspective, we're able to negotiate better commission rates with the dealers. So that assisted in terms of overall improving the cost to serve to a ratio of about 30.5%. In terms of OpEx, we reduced compared to the prior period and this was significantly better than our target of containing operating expenditure to below inflation. This was mainly underpinned by the benefits of the restructuring program, Phase 1 of the restructuring program, where in the first half, we were able to realize benefits of about ZAR 440 million and also some of the employee expenses that we continue to save on -- of about ZAR 93 million. However, this was partly offset by some of the employee benefits provision, such as, for example, provision for leave pay and a provision for incentives. So the group EBITDA performance was also supported by the reversal of ZAR 66 million, relating to the provision for bad debt, the COVID-19 impairment, which we took at the end of the year. If you recall, at the end of the financial year 2020, we took an additional impairment of about ZAR 626 million. While we did not see any deterioration in the first quarter of the first half, we started seeing a deterioration in the second half. However, we also saw, due to the increase in our, in our debtors book due to the increase in our Mobile business, we saw we had to increase our impairment on receivables, but really reversed and as a result of no deterioration that we saw in the second half -- in the first quarter. So we will continue to be conservative in this approach also anticipating that we may have the second wave of the pandemic coming through. So the bulk of our additional COVID-19 provision will be kept as a provision until the end of the financial year. So from an earnings growth perspective, really robust earnings growth, double-digit growth in terms of headline earnings per share as well as basic earnings per share, with HEPS at 25% increase to ZAR 2.19, while basic earnings per share increased by 29.5% to ZAR 2.175. This was mainly driven by a 19%, almost a 19% growth in operating profit as a result of our EBITDA growth, as I indicated, but was partly offset by an increase in our effective tax rate from 29.9% to now 34.8%. We also saw strong cash generation during this period. Our adjusted free cash flow after adjusting for the VSP payment improved by ZAR 2.6 billion from negative ZAR 1.3 billion last year to now ZAR 1.3 billion positive. This was also really due to our ongoing efforts to release cash, which led to an improvement in cash generated from operations of about 32.7%. If we then obviously exclude the payment that we made relating to Phase 1 of the restructuring or the VSP payment of ZAR 1.1 billion, we also -- we still saw cash generated from operations improving by about 12%. The cash generated from operations was also -- our free cash flow, sorry, was also positively impacted by a slowdown in our CapEx rollout this year. As I indicated, the CapEx rollout was essentially also as a result of the national lockdown, we saw a 31% decline year-on-year. However, operating free cash flow before CapEx was still better at about 13% relative to last year. So in terms of free cash flow before VSP payment, we saw, obviously, an increase from ZAR 1.4 billion to positive ZAR 200 million. And we still expect to maintain in the second half of the year a positive free cash flow. We're able to strengthen our balance sheet, particularly as we look at our funding approach under these conditions, we saw our cash balances improving from ZAR 1 billion same period last year to now about ZAR 3.9 billion. So even after paying the SARS payment of ZAR 350 million, after paying down debt of about ZAR 900 million as well as paying the ZAR 1.1 billion, we still were able to maintain healthy cash balances, as I indicated, of ZAR 3.9 billion. In terms of our borrowings, we are able to obviously pay the ZAR 900 million, enabling us to reduce our borrowings by 6.2% year-over-year and our net debt-to-EBITDA ratio improving firstly from 1.4x same period last year to about 1.3x at the end of the financial year in March and now at 1x and this is after taking into account the impact of IFRS 16. In terms of our net finance charges, declined by 6.8%, largely underpinned by our strategy to switch from fixed to floating rate debt in the prior year. The average cost of debt also declined by 3.6 percentage points. So we really benefited from the low interest rate environment due to the current economic climate. In terms of looking at the outlook, in conclusion, in the second half of the year, we will continue to build financial resilience, really in the face of this tough economic environment by focusing on the very same levers that we have been continuing with. Firstly, sustainable cost management program, continuing to preserve cash, which is very important to us under these conditions. Disciplined capital allocation as well as mitigating refinancing risk on our balance sheet. Therefore the sustainable cost management program, we will continue this as a lever to be able to protect group EBITDA as well as margins. We expect the remaining benefit of Phase 1 of the restructuring program that we realized in the first half of the year to also to continue in the second half of the year. So the ZAR 443 million that we realized in the first half of the year will be repeated in the second half of the year as well. And with regards to Phase 2 of the restructuring program, we have BCX already in progress and we expect to conclude that by the end of the financial year. With regards to the corporate center as well as the support functions in the business units, we are still in design phase and we expect to conclude that roughly sometime in the first half of the new financial year. And the benefit of that restructuring will come, of Phase 2 of the restructuring, will come through in the, in the new financial year. So in terms of this year, we are still on track to realize our targeted cost-saving initiatives. If you look at some of those achievements that we've been able to make of between ZAR 1 billion to ZAR 2 billion and in the period under the review, we obviously realized about 50% of that. So we still believe that we're on track to conclude the balance of the target that we committed to. As I indicated earlier, protecting our liquidity is of utmost important to us under these current conditions and we remain comfortable with the annual cash release initiatives target that we gave at the end of the year of between ZAR 700 million to the ZAR 1 billion to be able to continue to preserve cash. We've already started executing on handset receivables financing. And so far, we've realized ZAR 164 million, but this came through in October, which is the beginning of the second half of the year. And we expect an additional ZAR 400 million to be concluded before the end of the financial year. Through our improved cash generation as well as this positive cash flow due to optimized working capital, we have been able to strengthen our balance sheet, really providing us with sufficient headroom to be able to fund the anticipated spectrum acquisition and other key investment requirements that we have in the business. And we are comfortable that we'll be able to do this through a combination of cash and debt. We will not issue any shares to fund any spectrum. Our CapEx rollout, as I indicated, was impacted by the national lockdown in the first half of the year. However, we do expect that we will get back to the schedule in the second half with ranges probably at the same range as the previous financial year. Within -- with the highest connectivity rate that we have seen in terms of fiber to the homes part of 54% and a significant reduction that Sipho alluded to in terms of unit cost to deploy, we will obviously want to accelerate our fiber rollout program with the objective of making more homes fiber-ready, while we continue to drive higher connectivity rate as we have been doing. We will also continue to invest in our Mobile business to support the Mobile growth. So we're comfortable that with all the efforts that we are making, really being able to strengthen our balance sheet, strong cash generation, we will be obviously thoughtful with our CapEx level and make sure that as the revenues come through, we -- don't come through and maintain it to the acceptable levels and we should be able to emerge with positive free cash flow. And really, that is the outlook for the second half of the year. And I will therefore now hand over to Sipho to conclude.

Yes. Thank you very much, Tsholo. So I'll just touch on 2 things as we kind of end it. Firstly is the regulatory environment. If you recall, there was the temporary assignment of spectrum, which was signed up until the end of November. That was subsequently extended to the end of March of next year. The ITA also was released, which is a significant step in the development of the ICT sector in South Africa. And much as we are pleased that ICASA has excluded the 2,300 band from the auction, it also presents us with opportunity as Telkom to acquire the much-needed sub 1Ghz. We are, however, very disappointed in how ICASA has narrowly defined the market, which is likely to perpetuate this skewed market structure. We've been beating this drum for the last couple of years, that the market structure is skewed and it will be up to the policymakers in terms of what do they want. If they want competition in the market, it's best for them to do so and do that in a way in which they can use spectrum as one of those levers that can facilitate greater competition in the market. I would probably rather have that if I were them than attempt to regulate prices. Price regulation does not, in the end, help anyone. It breeds inefficiency overall in the market. And in our reading of the ITA, and as I have indicated, the way which ICASA has adopted spectrum as a market and incorrectly then regards spectrum equilibrium as the balance necessary to promote competition. The ITA also disregards the implication of spectrum arrangements that exist between smaller players and larger players, with regards to competition issues. All these issues, in our view, are fair for us to raise. And this approach, actually, in a sense, disregards the expert findings of the Competition Commission, that the market is more holistic and the competition in it is not effective. And we were simply as well plotting the same path that the Competition Commission has gone through before. Lastly, rather, is the whole notion of awarding spectrum to the WOAN. And as a player in the market, we sort of think, well, if there is to be a WOAN, you want to have it as viable. And if you're going to allocate spectrum that the ITA is proposing, it will not be viable, because it will not have the necessary scale to address barriers to entry and more importantly, the effective rollout of 5G in South Africa. And yes, we see this as a missed opportunity in time, when the South African economy actually needs it. With regards to unlocking value, we remain committed to the value unlock strategy, unlocking value from our portfolio of businesses is a key component of our capital allocation framework and will afford us as management the flexibility to rebase our balance sheet and invest prudently in the right growth portfolios. In the first half of the year, we started with the sort of market sounding process to gauge interest on the Gyro, Mast & Tower business. And we are -- we've concluded that process and the analysis thereof. And now we will be proceeding with a firmer plan in the second half of the year. Secondly, we've made significant progress in structurally separating our fiber infrastructure business. And with -- that is Openserve, and we are in the process of concluding the separation of its balance sheet from Telkom. Once we've done this, we'll then be able to perform a further valuation of Openserve's key assets, now on the real data that we'd be having, then prepare then Openserve for its own value unlock opportunity. We've also started to look at our data center portfolio as we seek to expand further into a major infrastructure provider. We've explored the expansion of capacity for existing data centers and including evaluating edge data center possibilities within our portfolio, especially with 4G, 5G coming. So in a sense, some of the big exchanges that are -- that we have will perform a key role as part of our edge data center opportunity set. And therefore, considering the overall portfolio that we have, this supports our ability to roll out data centers at scale, co-location, vendor-neutral and truly position ourselves in this world of data explosion, where we are able to have a sufficiently distributed portfolio of fiber assets to carry the traffic, of data center assets that are located in the right way to be able to host applications, especially mission-critical applications, and a tower portfolio, which provides wireless connectivity as well. So I'll sort of pause there, operator, Claudia and then maybe take questions, which we'll handle between Tsholo and myself. Thank you very much.

[Operator Instructions] The first question comes from Jonathan Kennedy-Good from JPMorgan.

I just wanted to check in with you on the rate of fixed voice decline and some of the data lines there. You mentioned that you thought, I think on the data side, in enterprise, you could see an uptick in second half. Should we expect the rates of decline to start to slow a bit? Or is it still too early? And then in the earlier conference call, I don't know if I was mistaken, but I thought I heard Tsholo say that Mobile EBITDA margins for the full year would be 20% to 25%. And I'm just trying to understand, well, first, if that was actually given as guidance? And secondly, if it was, what's going to compress margins in the second half on Mobile?

Sure. Maybe Tsholo can take the questions first and then I'll build on that.

Thanks. If I can start with the last one, perhaps, Jonathan, thank you. Yes. So the Mobile EBITDA currently was obviously boosted by COVID-19, particularly with regards to the savings on the cost of sales. So the 29% or 30%, we don't see it as sustainable. We think that a sustainable EBITDA margin is in the region of 20% to 25%. And that is really in the range. And it will probably be more on the high end for the full year in terms of the EBITDA margin for the full year. So it will be more on the high end side of the 20% to 25%. So there will definitely be a correction in the second half of the year, largely due to us expecting to start seeing the postpaid growth or the cost of handset sales coming through in the second half of the year. With regards to the enterprise market, I think that it may still be early to tell. The third quarter of the first half was probably the worst for the enterprise business, as we were in lockdown Level 5 and 4. So we do expect that as the economy opens up a bit, we might see a slight improvement, but we think, overall, to expect a significant improvement, it is still early to tell. As you know that, that environment is highly GDP sensitive and now accelerated by the COVID-19 impact. I think on the fixed side, I think we've always said from an enterprise market perspective, the -- we expect, firstly, I think that to continue. It was accelerated to a large extent by COVID as well. As I indicated, most of the enterprise businesses moved from fixed usage to mobile connectivity. So that's the second thing -- the first thing. I think the second part is that this is in line with, obviously, the change in technology that we have seen. Obviously, customers moving from traditional products to things such as voice over IP, but also moving from Diginet to metro ethernet and we started seeing that growth coming through. But as we've indicated in the past, you need a lot more volumes to come through to be able to see that switch coming through in a meaningful way.

Yes. I just -- sorry. Go ahead.

No, go ahead.

I wanted to ask one more question. Just on the -- I mean your prepaid ARPU was quite spectacular in terms of its jump from March period year-end despite adding significant amounts of subscribers. And I just wanted to get a sense if that's continued post-period end, i.e., that kind of ZAR 84, ZAR 85 spend level?

Yes. So we think it will rebase to probably 2020 levels. So part of it was because everyone working from home using as much connectivity as possible. I think we only said that there was a lot of [ probably ] customers who are prioritizing connectivity above any of their expenses. So we had quite a high bit of spend from consumers, so to speak. We don't think that we will see the same trend, but it will not obviously be a lot lower than where we're seeing. So that's the message certainly from our Consumer business.

Yes. And maybe just to build on the points that Tsholo made. Indeed, I think the -- I mean we've kind of been prudent around this as well, Jonathan. As people -- people are probably getting better control and management of their data consumption, we're then taking a downside view, that this elevated pricing of prepaid will probably be managed down. So therefore, that will create a bit of a challenge. And we really want to make sure that we keep the Consumer team under the cosh in terms of them continuing to drive some of the initiatives that we've put in front of them. Insofar as the fixed voice decline, the imposition of the lockdown at the end of March was a massive, massive shock in the system. All of a sudden, what you had is something that was declining at sort of 20%, government offices were closed, businesses were closed. And for the first time, actually, there was a migration from making business calls to be on platforms like Teams and Zoom and all of those sorts of things, with a concomitant growth in traffic. We've seen that growth on the what we call the new-generation fixed data networks coming through very nicely, but it's still not large enough to offset the decline that you would have -- that you are seeing on the voice side. But I guess what I think we've been able to do is to derisk our business fundamentally now. The Mobile business is larger than the fixed business in simplistic terms. And our data focus is beginning to pay off, especially in terms of new generation, both on the wireless side and also on the fixed side. And that's where the intensity of the focus is in, on top of other cost optimization initiatives that we need to be driving.

The next question comes from Vikhyat Sharma from RMB Morgan Stanley.

I've got just 2 super simple questions. Have you given any details on the Phase 2 of restructuring, how big it is and how many employees are affected because of this? I mean if there is an indication on that. And second thing is, I mean I think the big 2 players have been indicating that they're bringing down the pricing ladder because of all these Competition Commission issues that have forced them to bring the prices down. So they are a lot more competitive. I just wanted to know I mean I think how you look forward for your Mobile growth in the environment that these big 2 players are competitive? I mean you've kind of indicated that you want to take that prepaid pricing down further to still go for growth. I just want to know, I mean I think how the pricing dynamic is working, especially in that mobile environment.

If I can start...

Yes, go for it, Tsholo.

Yes. If I can start with the Phase 2 restructuring, so it will not be at the same level as Phase 1. Phase 1 was almost ZAR 1.2 billion, almost 3,000 people. We are busy in BCX. We've already issued notice and it's probably roughly about 300 people there or thereabout. As I indicated on the head office side and the other support functions across other business units, it's still early to tell. We're obviously thoughtful that we get the operating model correct, firstly, from a corporate center perspective and all the other support functions. So we are busy with the design and we should be able to provide more color at the end of the year. But that will come through in the first half of the new financial year.

Yes. So in terms of the price reductions from the bigger players, we haven't seen the effect of that, actually, Vikhyat. We haven't seen the effect of that. We are still growing subscribers. Our customers are spending a lot more with us. And I think I mentioned this before, and I will do so, our -- we don't have the burden of 2G. So we freed up a lot of our spectrum to be able to carry a lot more traffic. We have shut down, I think, at the end of the period, almost 70%, 80% of our 2G traffic, we had already switched that off. So that's freed up quite a lot of the spectrum. And we have been very deliberate in making sure that as many of our towers as possible use fiber as backhaul so that we can be able to carry the outsized bundles of traffic that we've been able to offer to our customers. So that's on the wireless side. So we see that growth in mobile. We see that growth in LTE. And that is supplemented as well by the progress we are making on the fiber side with our homes connection ratio. We think that we have started the business for growth in data. Actually, if you look at the absolute data numbers, between ourselves and the #2 player, I think we're finishing the first half of the year, just at about ZAR 6 billion of revenues just on data, whilst our nearest competitive at #2 finished at ZAR 7 billion. And that's a metric we are focused on. How do we get to a point where in absolute terms, we are equal or better with our nearest? And then from there, without the albatross of 2G voice, we think that we'll be able to seize the opportunity to further grow our position in data going forward, complemented, obviously, by what we do on the fixed side.

The next question comes from Dilya Ibragimova from Citi.

I had a couple of questions here. First is on the Tribunal case. Maybe if you could give us a bit more on what your expectations are, whether you would hope that this case has been given attention and potentially conclusion before the auction takes place in March. Or that would be something you wouldn't maybe necessarily expect to be resolved before then? My second question is on data centers. Could you give us a bit more color as to what you plan to do? Is it something that you'd like to invest into more to perhaps add more capacity? I think in the morning, you mentioned you have around 11% share of the market. Yes. Some color there and I'll stop here.

Sure. No problem. So maybe let me start with the second question. Insofar as data centers are concerned, we have a fair distribution of data center locations that has been used exclusively by BCX. So we will now begin to use them on a vendor-neutral basis, like our Mast & Tower, that business will be migrated into Gyro. So it will be another asset plus that we'll be looking to, once we have tracked it in the right way, bring in third-party investors as well into that business. BCX will be an anchor tenant in that business model, or co-location, essentially, business. BCX will obviously continue to have their kit within the data center and manage people's applications there, which is data center management services, but the actual data center management, the real estate management, will be within Gyro and I think it's more suited for that. And the plan, obviously, as part of the value unlock, is to dutifully examine all opportunities of value unlock and be able to seek a path to realize that value unlock, just as we do as well with Openserve. Insofar as the Competition Tribunal, obviously, we have no control on the time lines, but we've served the papers. The other parties asked for an extension for them to file their reply and affidavit, which we agreed to, no issues whatsoever. We don't think that it's a matter that will be just set aside, the tribunal is independent from the Commission. We think that they will have to look at these arrangements, because they are very crucial in terms of how the ICASA finalizes the spectrum allocation. If they finalize them in a way that it is us and [indiscernible] and does not recognize those spectrum arrangements, we don't think that, that would be contributing to a fair and equitable level playing field. And our view is that the Competition Tribunal, once it pronounces, it will obviously then have to bind ICASA. ICASA is one of the respondents in the matter as well, because we think that they should have found otherwise and they did not and hence, we've taken it to the Tribunal as well.

The next question comes from John Kim from UBS.

I'm just hoping you can update us on the CapEx rollouts. I know H1 was a bit light due to COVID. I'm interested to see if circa ZAR 8 billion is the right number for the next 2 to 3 years. Last time we chatted, you were about 80% built out on your core network. And if you could give us a sense of the quantums and relative focus in the next 2 years? And then a short follow-on question with regards to spectrum. I think you had previously indicated a potential cost of roughly ZAR 3 billion to ZAR 5 billion. Is that a lump sum payment? Or is that more likely to be structured over the years?