Changing the way we do business - Telkom€¦ · Telkom SA Limited Annual Report 2008 Telkom is one...

Telkom

SA Lim

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nnual Report 2008 Telkom is one of Africa’slargest integratedcommunication serviceproviders.

We aim to be Africa’spreferred ICT solutionsprovider.

Annual2008

report

Telkom SA Limited

Changing the waywe do business

www.telkom.co.za

8968 Telkom cover:Layout 1 4/8/08 16:09

Telkom

SA Lim

itedA



Annual2008

report

Telkom SA Limited


www.telkom.co.za

8968 Telkom cover:Layout 1 4/8/08 16:09 Page 1

www.telkom.co.za

Group overviewTelkom Group structure 2Telkom shareholding 3Financial review summary 4Operational review summary 6Telkom’s investment case 8Industry overview 11

Management reviewChairman’s review 18Chief executive officer’s review 22Board of directors 26Chief officers 30Management team 32

Sustainability reviewSustainability review 36Corporate governance 44Enterprise risk management 54Black economic empowerment 64Human capital management 68Safety, health and environment 78Corporate social investment 96GRI content index 104

Performance reviewFive year operational review 108Operational review 109Chief of finance’s review 139Five year financial review 146Financial review 147

Annual financial statementsDirectors’ responsibility statement 181Certificate from Group Company Secretary 181Reports of the independent auditors 182Directors’ report 184Consolidated income statement 186Consolidated balance sheet 187Consolidated statement of changes in equity 188Consolidated cash flow statement 189Notes to the consolidated annual financial statements 190Company income statement 284Company balance sheet 285Company statement of changes in equity 286Company cash flow statement 287Notes to the annual financial statements 288Supplementary information 352

Shareholder informationShareholder analysis 354Definitions 356Special note regarding forward-looking statements 359Administration 360

CONTENTS

The core strategy remains to defend and growTelkom’s traditional revenue.

Telkom is building a fixed-wireless and mobiledata network in order to exploit theopportunities offered by fixed and mobileintegration.

Strategicoverview

Telkom continues to move up the value addeddata services chain.

Telkom is pursuing further attractive acquisitionopportunities in fast growing emerging markets.

We aim to establish Telkom as a regionalInformation Communications Technology player.

Telkom is leveraging the core strengths of ourhigh quality, resilient fixed-line network to be afully converged service provider.


Creating a fully convergedtelecommunications service

Group overview

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Joint Venture: Vodacom Group – 50%Vodacom Group (Pty) Ltd is a leading mobile communications company in South Africa, providing mobilecommunications services as of March 31, 2008, to 34.0 million customers in South Africa, Tanzania,Lesotho, the Democratic Republic of the Congo and Mozambique. Vodacom has an estimated market shareof 55% in South Africa.

TDS Directory Operations – 64.9%TDS Directory Operations (Pty) Ltd provides Yellow and White page directory services, an electronicdirectory service, 10118 “The Talking Yellow Pages”, and an online web directory service.

Swiftnet – 100%Swiftnet (Pty) Ltd trades under the name FastNet Wireless Services. FastNet provides synchronous wirelessaccess on Telkom’s X.25 network, Saponet-P, to its customer base. Services include retail credit card andcheck point of sale terminal verification, telemetry, security and fleet management.

Multi-Links Telecommunications – 75%Multi-Links Telecommunications Limited is one of Nigeria’s pioneer private telephone operators. As one of the leading providers of telecommunications solutions in Nigeria, Multi-Links was one of the first to locallyintroduce the CDMA technology.

Africa Online – 100%Africa Online is the preferred premium Internet service provider (ISP) in Africa. As the largest Pan-African ISP in sub-Saharan Africa, Africa Online offers a wide range of services to suit a variety of customer needs.With operations in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia andZimbabwe, Africa Online is positioned to provide individuals and organisations with scalable solutionsbased on each client’s specific needs.

Telkom Media – 75%Telkom Media is the holder of a commercial satellite and cable subscription broadcasting licence, whichallows it to operate both a satellite pay-TV service and an IPTV service in South Africa.

TELKOM GROUP STRUCTURE

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Government

The Government of the Republic of South Africa is the largestshareholder in Telkom, holding 39.4% of the company’s issuedshare capital. The Government is the Class A shareholder.

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TELKOM SHAREHOLDING AS OF MARCH 31, 2008

Telkom Treasury Stock

Rossal No 65 (Pty) Ltd holds10,493,141 shares, 2.0% of thecompany’s issued share capital which were purchased for theTelkom Conditional Share Plan.

Acajou Investments (Pty) Ltd holds10,849,058 shares, 2.1% of thecompany’s issued share capital, whichwere purchased for purposes other than the Telkom Conditional Share Plan.

Free float

The free float of 35.4%makes up the remainder ofthe company’s issued sharecapital. Included in the freefloat are 9,969,122 sharesheld by 86,729 retailshareholders representing1.9% of the company’sissued share capital.

Black Ginger 33 (Pty) Limited

Black Ginger 33 (Pty) Limited is a wholly owned (100%) subsidiaryof the Public Investment Corporation holding 8.9% of the company’sissued share capital. Black Ginger is the Class B shareholder.

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Public Investment Corporation

The Public Investment Corporation(PIC) is an investment managementcompany wholly owned by theGovernment. It invests funds onbehalf of public sector entities. ThePIC holds 6.4% of the company’sissued share capital.

Elephant Consortium

The Elephant Consortium is a Black EconomicEmpowerment group,which through Newshelf772 (Pty) Ltd holds 5.8%of Telkom’s issued share capital.

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Steady growth of annuity revenue and data services

FINANCIAL REVIEW SUMMARY

Solid revenue growthThe 17.1% growth in Vodacom’s revenue to R24.1 billion contributed to theGroup’s overall growth.

Operating profitTight control of the fixed-line’s operating expenditure, which increased by 3.6%, (an achievement in the current high inflationary environment), contributedto maintaining the operating profit.

EPS & HEPSThe decrease in both headline and basic earnings per share reflect slowerrevenue growth, increasing operating expenses, a decreasing Group EBITDAmargin to 36.6% from 38.3% and increased finance costs.

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The fixed-line business remains the major contributor to the Telkom Group

Segment contribution(after inter-segmental eliminations)

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OPERATIONAL REVIEW SUMMARY

92%of network with ADSL coverage

R3.4 billionnew sales in term and volumediscount plans

57% ADSL installationthrough self install

245.6%increase in Do Broadbandpackages

237 WiFi hotspotsdeployed at strategic partner locations

149.2%increase in Supreme Call packages

Consumer demand remains strong as Telkom continues to expand networks, products and services

Managed data networksRevenue from managed data network sites increased by 36.2% mainly as a result of the growth in the number of network sites.

VPN productsTelkom’s focus on bringing new innovative products to the market that cater for data usages and converged services has seen our new VPN products gainincreasing traction in the market.

The number of VPN sites increased by 58.0% to 12,741.

Internet subscribersThe ADSL footprint now covers 92% of the network, contributing to the growthin Internet subscribers.

ADSLThe 61.2% growth in ADSL subscribers was achieved through thecommoditisation of ADSL, Do Broadband, the self install option, DSL portautomation and wholesale services.

Calling plansThe 69.4% growth in Calling plan subscribers can be attributed to Telkom aggressively offering subscription based value propositions.

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Market performance

JSE Limited NYSE(ZAR per ordinary share) (USD per ADS)year ended March 31, year ended March 31,2007 2008 2007 2008

Closing price 166.00 131.20 91.50 65.43Highest price 175.50 195.02 109.50 113.00Market capitalisation (millions) 88,454 68,327 12,189 8,519

EQUITY MARKETS

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TELKOM SHARE PRICE INDEX

Telkom listed at R28.20 per share on March 4, 2003;

Telkom’s share price reached an intra-day high of R195.02 and the highest closingprice of R190.99 on September 3, 2007.

At March 31, 2008 the share price closed at R131.20, an increase of 365.2% over the 5 year period.

Thintana, Telkom’s strategic equity investor announced the sale of its 14.9% stake in Telkom to local and international shareholders on June 18, 2004.

Telkom issued bonus shares to the Khulisa shareholders on its second listinganniversary on March 4, 2005, continuing its commitment to empowering historicallydisadvantaged South Africans.

Telkom on April 6, 2006 announced a R30 billion capital expenditure programmeincorporating the building of the Next Generation Network.

Telkom announced the acquisition of Africa Online on February 23, 2007 and Multi-Links effective May 1, 2007, commensing with its geographic expansion strategyaimed at growing revenues.

The Competition Tribunal prohibited the proposed acquisition of Business Connection(BCX) on June 28, 2007, delaying Telkom’s strategic move into expanding value addeddata services.

Telkom on September 3, 2007 announces the review of its mobile strategy and that it isin discussion with Vodafone Group regarding the potential sale of its stake in Vodacom,and in discussion with the MTN Group regarding, inter alia, a combination of certainor all of Telkom’s fixed-line business with MTN.

On November 28, 2007 Telkom announces the withdrawal of the September 3, 2007cautionary. After a detailed investigation into the strategic, operational and regulatoryaspects of the transaction, the parties were unable to conclude the transaction in thebest interest of shareholders.

On March 31, 2008 Telkom announces its intention to build a fixed-wireless andmobile data network, signalling its intention to compete with all players in thetelecommunications industry.

On June 2, 2008 Telkom announces that it has received a non-binding proposal fromVodafone Group Plc to acquire a portion of Telkom’s stake in Vodacom Group (Pty)Limited subject to, inter alia, Telkom unbundling its remaining stake in Vodacom toTelkom shareholders. In addition, Telkom confirms that it received a letter from aconsortium comprising Mvelaphanda Holdings (Pty) Limited, affiliated funds of Och-ZiffCapital Management Group and other strategic investors stating that the consortium isconsidering making an offer for the entire issued share capital of Telkom subject to anumber of pre-conditions, one of which is confirmation by the Telkom Board that it willunbundle Telkom’s entire 50% stake in Vodacom.

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THE TELECOMMUNICATIONS INDUSTRY

OVERVIEW

The licensing and provision of telecommunications servicesin the Republic of South Africa has historically been subject to the Telecommunications Act and the extensiveregulations made under the Telecommunications Act. TheTelecommunication Act was repealed by the ElectronicCommunications Act when the Electronic CommunicationsAct came into effect on July 19, 2006. While a newlicensing regime has been created by the ElectronicCommunications Act, all existing licences are to remainvalid until converted to new licences in accordance with thenew licensing regime. Regulations made under theTelecommunications Act are also to remain in force untilnew regulations required are made to fully implement theprovisions of the Electronic Communications Act. As aresult, the regulatory environment is evolving, lacks clarityin a number of areas and is subject to interpretation, reviewand amendment as the telecommunications industry isfurther developed and liberalised. In addition, the regulatoryprocess entails a public comment process, which, in light ofthe politicised issue of privatisation of industries such astelecommunications in South Africa, makes the outcome ofthe regulations uncertain and may cause delays in theregulatory process. A number of significant matters have

not been addressed or clarified. ICASA has started severalregulatory process, the most important of which are:

the conversion of existing licences to individual electroniccommunications services and electronic communicationsnetwork services licences;

the establishment of the standard terms and conditionsfor class and individual licences;

the establishment of the special terms and conditions thatmay apply to each individual licensee;

the determination of the definition of the various markets;

the establishment of the methodologies that will be usedto determine the level of competitiveness in each marketand the existence of significant market power therein; and

the determination of the regulatory remedies that maybe imposed on a licensee upon a finding of significantmarket power.

It is not possible to determine at this stage the outcome ofthese processes or the timeframe within which they will beconcluded. It is not, however, likely that ICASA willcomplete the licence conversion process by July 2008 as

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stipulated in the Electronic Communications Act and willtherefore be required to use the additional six month thatthe Act allows. It is likely that we will be found to havesignificant market power in many of the markets in whichwe operate and will have regulatory remedies imposed onus, including cost based prices for interconnection servicesand the leasing of communication facilities.

IMPLEMENTATION OF THE ELECTRONICCOMMUNICATIONS ACT

In order to give effect to the new licensing and regulatoryregime set out by the Electronic Communications Act,ICASA is required to make a large number of regulationsand determinations concerning, among other things, the conversion of existing licences into electroniccommunications service and electronic communicationsnetwork service licences, the issuing of new class andindividual electronic communications service and electroniccommunications network service licences, the establishmentof the pro-competitive framework consisting of the definitionof markets, the determination of the level of competition andthe existence of significant market power in these markets,and the establishment of pro-competitive remedies that canbe imposed on licensees found to have significant marketpower in a market.

The main areas of regulation making that the ElectronicCommunications Act contemplates are those relating tointerconnection, leasing of communications facilities,including the determination of which communicationsfacilities are deemed to be “essential facilities”, theframework for the definition of relevant markets, thedetermination of the level of competition in each market,the determination of the existence of significant marketpower in relevant markets and the imposition of pro-

The telecommunications industry continued

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.

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LICENSING FRAMEWORK

The types of licences that can be granted are:

electronic communications network services for theprovision of communications infrastructure for the ownuse of the licensee or for the use of other licensees,including broadcasters;

electronic communications services for the conveyanceof communications over electronic communicationsnetworks, but excluding broadcasting services;

broadcasting services for the unidirectional broadcastingof television or sound material; and

radio frequency spectrum licences.

ICASA may make regulations prescribing that certainservices may be provided without a licence. The ElectronicCommunications Act provides that licences for electroniccommunications network services, electronic communicationsservices and broadcasting services can be issued asindividual licences or as class licences. Individual licencesare required for electronic communications networkservices and commercial and public broadcasting servicesthat are of provincial or national scope, for electroniccommunications services for voice telephony utilisingnumbers from the national numbering plan, for any servicewhere a state entity owns more than 25% of the sharecapital of the licensee, and for any service that ICASA findsto have significant impact on socio-economic development.

ICASA may only accept and consider applications forindividual electronic communications network servicelicences following a policy direction issued by the Ministerof Communications. The granting of individual licences issubject to an extensive process of evaluation that includespublic hearings. The granting of class licences is subject to a simple process of registration. A draft regulationproviding the framework for the granting of licences waspublished by ICASA for comment on March 7, 2007. Inaddition, the Minister of Communications has issued apolicy direction to ICASA requesting it to consider whetherVANS licensees should be authorised to provide servicesas well as provide and operate facilities or networks.ICASA subsequently announced the names of certain VANSlicensees whom they considered eligible for being awardedelectronic communications network services licences. OtherVANS who were not selected are challenging ICASA inlitigation with regard to its process of converting VANSlicences. ICASA would have to issue network servicelicences for such networks. We expect that the new

licensing framework will result in the market becoming morehorizontally integrated and will substantially increasecompetition in our fixed-line business.

The following licensing regulations have been finalised:

regulations on the processes and procedures for theregistration, amendment, renewal, surrender and transferof class licences;

regulations on the processes and procedures forapplications for individual electronic communicationsservice licences, electronic communications networkservice licences and broadcasting licences;

regulations on the standard terms and conditions for individual and class licences for electronic commu -nications service, electronic communications networkservice and broadcasting;

regulations setting out the minimum standard for end-users and subscriber service charters.

ICASA has subsequently published a notice invitingcomments for a possible reconsideration of those standardsdue to requests from the industry; and

regulations outlining a code of conduct for electroniccommunications licensees and electronic networkcommunications licensees.

Regulations on licence fees are still outstanding as itappears that ICASA has not yet received the requireddirection from the Minister of Communications.

LICENCE CONVERSION

The process of converting our radio spectrum licencesstarted in October 2006, but has not yet been finalised.Regulations providing the framework to convert our PSTSand VANS licences have been published by ICASA,including the standard terms and conditions that will applyto all electronic communications services and electroniccommunications network services licences, including ours.In addition to standard terms and conditions generallyapplying to a type of licence, the Electronic Commu -nications Act provides that ICASA may set out additionalterms and conditions applicable to any individual licence orclass licence. ICASA has proposed draft additionalconditions applicable to the electronic communicationsservice and electronic communications network servicelicences that will be issued to existing licensees, includingTelkom, and has drafted proposed additional terms and

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conditions for Telkom’s licences. Telkom has formallycommented on these proposed terms and conditions as theyapply to it. ICASA, after taking into account the commentsreceived, is expected to publish the final proposed termsand conditions for public comment. ICASA is required tocomplete the licence conversion process by July 18, 2008.It is, however, not likely that they will meet this target andwill use the six additional months provided for in theElectronic Communications Act to complete this process.

INTERCONNECTION

The Electronic Communications Act provides that anylicensee, other than broadcasting service licensees, must,on request, interconnect with any other licensee, unless suchrequest is unreasonable, and must enter into aninterconnection agreement with the requesting party for thispurpose. Where the parties are unable to reach anagreement, the Electronic Communications Act confers onICASA the power to intervene and propose, or impose,terms and conditions for the interconnection agreement, orrefer the matter to the Complaints and ComplianceCommittee, established as provided in the amendments tothe ICASA Act described above, for resolution. ICASA mustreview any interconnection agreement to determinewhether it is consistent with the regulations and, if theagreed terms are not consistent with the regulations, directthe parties to agree on new terms and conditions.

Any dispute arising under an interconnection agreementcan be referred by a party to the Complaints andCompliance Committee for resolution, and any decision ofthe Complaints and Compliance Committee is effective andbinding on the parties, unless an order of a court ofcompetent jurisdiction is granted against the decision.

ICASA may exempt a licensee from the obligation tointerconnect where such licensee has not been found tohave significant market power in the relevant market.ICASA must prescribe regulations to facilitate the conclusion of interconnection agreements by stipulatinginterconnection agreement principles. ICASA mayprescribe a framework of wholesale interconnection rates to be charged in circumstances where the existence ofsignificant market power has been determined. Theinterconnection agreements between Telkom and Vodacomand MTN that preceded the Telecommunications Act wererenegotiated and amended in 2001. An interconnectionagreement, on substantially the same terms, was negotiatedand concluded with Cell C. An interconnection agreementhas also been concluded between Telkom and Neotel and filed with ICASA on March 6, 2007. Interconnectionagreements have also been concluded between Telkom, the

USALs and those VANS licensees to whom ICASA hasgranted access to subscriber numbers.

An interconnection agreement has also been signed with Sentech. An unresolved issue is whether theseinterconnection agreements will be required to be amendedafter the final interconnection regulations are promulgated.The Electronic Communications Act and draft interconnectionregulations compel operators to provide interconnection ona non-discriminatory basis, whereas currently each class ofoperator receives a different interconnection rate.

ICASA has begun a review process of mobile terminationrates aimed at reducing high mobile interconnect charges,which, once completed, is also likely to impact upon Telkom’sown termination rates and interconnection revenues. ICASAhas issued draft regulations on interconnection. The draftregulations provide for a general obligation to interconnectby all licensees. The draft regulation does not provide for interconnection rates. These will be dealt with byregulations made as a result of the market review process.

FACILITIES LEASING

The Electronic Communications Act provides that anelectronic communications network licensee must, onrequest, lease electronic communications facilities to anyother licensee, unless such request is unreasonable, andmust enter into a facilities leasing agreement with therequesting party for this purpose. Where the parties areunable to reach an agreement, the Electronic Commu -nications Act confers on ICASA the power to intervene andpropose, or impose, terms and conditions for the facilitiesleasing agreement, or refer the matter to the Complaintsand Compliance Committee for resolution. ICASA mustreview any facilities leasing agreement to determinewhether it is consistent with the regulations and, if theagreed terms are not consistent with the regulations, directthe parties to agree on new terms and conditions.

Any dispute arising under a facilities leasing agreement canbe referred by a party to ICASA, and the Complaints andCompliance Committee must resolve the dispute and anydecision of the Complaints and Compliance Committee iseffective and binding on the parties, unless an order of a courtof competent jurisdiction is granted against the decision.

ICASA may exempt a licensee from the obligation to leasecommunications facilities where such licensee has notbeen found to have significant market power in therelevant market.


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ICASA must prescribe regulations to facilitate the conclusionof facilities leasing agreements by stipulating facilitiesleasing agreement principles. ICASA may prescribe aframework of wholesale rates applicable to specifiedelectronic communications facilities in circumstances wherethe existence of significant market power has beendetermined. Notwithstanding a finding of significant marketpower, ICASA may exempt, under certain circumstances,an electronic communications network licensee from theobligation to lease fibre loops and sub-loops servingresidential premises.

ICASA has issued draft regulations on facilities leasing. Themost significant impact on Telkom would be the obligationto build facilities to satisfy such request where no sparecapacity is available. ICASA must prescribe a list ofessential facilities, including local loops and sub-loops and associated electronic communications facilities, andelectronic communications facilities connected tointernational electronic communications facilities such assubmarine cables and satellite earth stations. ICASA mayrequire that essential communications facilities be suppliedat a cost based price, likely to be the long run incrementalcost of that facility. The Minister of Communications hasissued a policy decision declaring November 1, 2007 asthe date from which the exclusivity provisions in our SAT-3agreements shall be declared null and void. The Minister ofCommunications has also issued a policy direction toICASA requiring it to prioritise and urgently prescribe a listof essential facilities, ensuring that the facilities connectedto the SAT-3/WASC/SAFE submarine cables can beaccessed soon. ICASA has established a draft regulationfor public comment in compliance with this policy direction.

On December 24, 2007, the Minister of Communicationspublished “Proposed Guidelines for the Rapid Deploymentof Electronic Communications Facilities”. If the finalguidelines are published in their current form, they will notaffect our rights in our existing submarine cables andlanding 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 forinternational communications services.

A fixed link facilities leasing agreement which provides forleasing by Neotel of 2 Mbps leased lines has beenconcluded between Telkom and Neotel and filed withICASA on September 12, 2006. Further agreements for theleasing by Neotel of other facilities are expected to benegotiated as required.

UNBUNDLING THE LOCAL LOOP

While the Telecommunications Act provided that we werenot to be required to unbundle our local loop for a periodof two years after the issue of a licence to Neotel, TheElectronic Communications Act provides that ICASA may prescribe a framework for the unbundling of Telkom’slocal loop.

On May 23, 2007, the Local Loop Unbundling Committeeset up by the Minister of Communications to developappropriate policies for the unbundling of the local loop in South Africa submitted its report to the Minister ofCommunications recommending, among other things:

three forms of local loop unbundling to be considered,full unbundling of the metallic loop, line sharing andwholesale bit stream access; and

the regulatory process, with full industry participationshould commence as soon as possible and becompleted in 2011.

The Minister of Communications published policy decisionsthat the process of unbundling the local loop in South Africashould be urgently implemented and completed by 2011.In compliance with the Minister’s request ICASA hasinitiated consultations with Telkom on the process to befollowed, and is expected to soon open consultation with allother stakeholders. ICASA plans to set up consultativecommittees to consider policy and legal, technical andprocesses, and financial, economic and competition issuesrelating to unbundling the local loop.

CARRIER PRE-SELECTION

The Telecommunications Act mandates that fixed-lineoperators are required to implement carrier pre-selection,which will enable customers to choose and vary their fixed-line telecommunications carrier for long distance andinternational calls. These provisions are retained in theElectronic Communications Act. Regulations were publishedon June 24, 2005 for the implementation of carrier pre-selection in two phases. In phase one, call-by-call carrierpre-selection must be implemented and must be provided byan operator within two months of it being requested byanother operator. In phase two, fully automatic pre-selectionmust be implemented and must be provided by an operatorwithin ten months of it being requested by another operator.Telkom had already conditioned its exchanges to handlecall-by-call carrier pre-selection by December 31, 2003.On February 12, 2008, Telkom met with Neotel to discusstheir request for implementing carrier pre-selection.

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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 notbelieve that it will be able to implement automatic carrierpre selection within ten months of it being requested. Therequest for phase 2 of carrier pre-selection can only bemade after the functional specification and ordering systemspecification have been agreed to between Telkom andNeotel and approved and published by ICASA. Call-by-call carrier pre-selection will be implemented in 2008 oncethe interconnection agreement has been amended, thetesting phase has been completed successfully and Neotelhas received its prefix code from ICASA.

Regulations indicate that the system set-up costs may berecovered as part of the prescribed annual review of feesand charges, but no further detail is available. ICASA hasnot yet defined the manner in which such costs could berecovered. Slamming, which is the transfer of a user fromone operator to another without such user’s knowledge orauthorisation, is to be prohibited. Carrier pre-selection isnot applicable to mobile cellular operators.

NUMBER PORTABILITY

The Telecommunications Act mandates that numberportability to enable customers to retain their fixed-line and mobile telephone numbers if they switch between fixed-line operators or between mobile operators beintroduced. These provisions are retained in the Electronic

Communications Act. A framework number portabilityregulation was published at the end of 2004 thatgenerically provides for the introduction of fixed-to-fixedand mobile-to-mobile number portability. Telkom is requiredto implement number portability in blocks of 10,000numbers within two months after Neotel launches such retailservices and individual number portability within 12 monthsof receiving a request from Neotel. Telkom has received arequest from Neotel to implement both block and individualnumber portability and Telkom and Neotel are currently inthe process of finalising the testing for the introduction ofblock number portability which is scheduled to take placein the middle of the 2008 calendar year. Numberportability will therefore be phased in commencing withnumber portability in blocks of 10,000 numbers, followedby number portability in blocks of 1,000 numbers and thenindividual number portability. After several delays, mobilenumber portability phase one was launched on November11, 2006. Phase 2, which was implemented during April2007, includes multi-line porting, secure file transferprotocol access to third parties and operational softwareupgrades on the central reference data base. From launchuntil the end of March 2008 there have been 192,289successful ports. In the 2007 financial year, Cell Cregistered a net gain of 14,057 subscribers, Vodacom anet loss of 6,018 subscribers and MTN a net loss of 8,039subscribers. In the 2008 financial year Vodacom registereda net gain of 4,484 subscribers, MTN a net gain of 6,138subscribers and Cell C a net loss of 10,622 customers.

The set-up and per-operator costs are typically the largestcost components of implementing number portability.


Retaining Telkom’s critical skills is a vital element in moving towards a converged futureOur employees are key to our success

Management review

Chairman’s review 18

Chief Executive Officer’s review 22

Board of Directors 26

Chief officers 30

Management team 32

Managem

ent review

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My first full year as Non-executive Chairman of Telkom has beenboth challenging and rewarding and it is an honour to, onceagain, present you with my report for the year under review.

Telkom’s Board of Directors and management have focused onhow to take the business forward profitably and sustainably, andI am pleased to report that Telkom has made significant progressin executing our defend and grow strategy in an increasinglycompetitive and rapidly changing environment.

Telkom is considered a strategic national asset that plays acritical role in supporting the South African economy. Ournetwork infrastructure, including our undersea cables andsatellite capacity, is the backbone support for South Africa’sfinancial and communications systems, and ensures that thecountry is globally connected.

During the 2008 financial year, the Telkom Board realigned thestrategy taking cognisance of the current operating environmentand transforming the business to ensure sustainable growth andcreate value for our shareholders. Importantly, this also includesaddressing our challenges in an increasingly customer focusedand competitive market.

I will detail some of the factors that have influenced our strategicthrusts and the Chief Executive Officer, Reuben September willprovide further detail on the implementation of our strategy.

POLITICAL ENVIRONMENT

South Africa’s political environment has been stable since thefirst democratic election of 1994. Our Government remainscommitted to bridging the digital divide and providing universalaccess to Information and Communication Technology (ICT)services for all South Africans. Increasing competition,accelerating the penetration of services in under servicedcommunities and lowering the cost of doing business in SouthAfrica remain a challenge and are key to achievingGovernment’s long term economic growth objectives. Inresponse, Telkom is becoming increasingly innovative, efficientand competitive.

ECONOMIC ENVIRONMENT

Global equity markets delivered strong returns in 2007.However, following the considerable losses suffered in the UnitedStates’ sub prime mortgage crisis and with the continuedturbulence in international financial markets, the outlook for theglobal economy remains uncertain with fears of recession and aglobal slowdown in growth taking hold.

In South Africa, the Consumer Price Index excluding the effectsof mortgages and oil prices (CPIX) has remained outside thetarget range of 3% to 6%, reaching a five and a half year highof 10.4% in April 2008. Inflation is being fuelled by record high

reviewChairman’s

I am pleased to report thatTelkom has madesignificant progress inexecuting our growthstrategy in an increasinglycompetitive and rapidlychanging environment.

Shirley Lue Arnold


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crude oil prices and a substantial acceleration in food prices.The probability of further increases in interest rates, from thecurrent repo rate level of 12%, remains high. The Randexchange rate has displayed higher volatility compared to otheremerging market currencies. However, South Africa’s stronggrowth potential has sustained capital inflows and these arefinancing an expanding the current account deficit. Outputgrowth remained strong, with gross domestic product growthmeasuring 5.3% in the fourth quarter of 2007, compared to4.7% in the third quarter of 2007. Gross domestic productgrowth is expected to slow to around 4.6% in 2008 due toweaker consumer demand and Eskom’s widespread andprolonged power outages. The psychological energy implicit inthe run up to the 2010 FIFA Soccer World Cup, however, shouldsustain brisk growth in fixed investment which will feed throughinto the remainder of economic activity, thus helping to sustainoverall growth. For Telkom, therefore, the macro-economicpicture remains mixed.

TECHNOLOGICAL ENVIRONMENT

Technology is the defining force behind the revolution incommunications and development across the globe.

To adapt to this rapidly changing reality, Telkom continues tomake progress with the Next Generation Network (NGN) rollout.This is expected to increase the availability of innovative, newservices and applications through a truly converged offering thatgenerates incremental revenue over shared networks, providingboth data and voice services, with no distinction between fixedand mobile networks. The NGN allows users unfettered,ubiquitous access to disparate networks, including those ofcompetitors, and with capacity for full mobility. The deploymentof multi-technology network platforms that share the costs ofservices will also enable us to introduce further cost reductions.

Traditionally, telecommunications operators, including Telkom,have built separate networks to deliver different types of services.The NGN is expected to reduce the number of networks requiredto run traditional services, as well as any new multimedia andcommunication services. In future, all services carried by Telkomwill be transported over an all-encompassing converged InternetProtocol (IP) network.

ConvergenceConvergence of digital technologies and content allows Telkomand other operators to provide innovative solutions to consumersand business users, allowing them to access broadband serviceson a range of devices such as smart phones and laptops, as wellas Internet-enabled entertainment and music download devices.Telkom is committed to playing a major role in this sector.

Bandwidth requirementsAccording to operators interviewed by leading researchcompanies, access network bandwidth is expected to increase

by between 20Mbps and 100Mbps by 2010. This wide variancereflects different requirements across regions and cultures. Thecontinuing trend is for ever increasing higher bandwidthservices, such as Internet Protocol Television (IPTV) and HighDefinition Television (HDTV), as well as peer to peer type servicesincluding music and video file sharing, which requiresignificantly higher bandwidth in the upstream direction. Inanticipation of these global trends reaching our shores, Telkomcontinues to substantially invest in increasing South Africa’sbandwidth capacity which will be beneficial to both Telkom andthe country’s continuing economic development.

WIRELESS TECHNOLOGIES

The execution of Telkom’s mobile strategy is being designed to position us well to take advantage of the trend towards mass adoption of mobile broadband. This is extending the user experience of broadband Internet connectivity in andbeyond the home and office, giving customers wide areacoverage and access to their favourite applications on amultitude of mobile devices.

DECREASING MARGINS

Globally, incumbent fixed-line operators are experiencingdecreasing margins as a result of fixed-mobile substitution, theabandonment of second lines due to broadband migration andincreased competition causing downward pricing pressure.These factors apply to Telkom and, combined with the investmentrequired to increase customer satisfaction and expand ournetworks, will place pressure on margins. The inherent advantageof network ownership is also gradually being eroded throughregulation, which is stimulating service competition. We willcontinue to adapt to this reality by investing in new technologies,products and services.

CHANGING MARKET DYNAMICS

Market dynamics are changing radically and with increasingspeed. With growing competition, Telkom’s consumer market isdeclining; the enterprise and business market, however, continuesto grow. These important developments have been integrated intoevery aspect of Telkom’s strategy and business plan.

Broadband remains an important growth area and operatorsworldwide are trying to add value propositions like TV contentto their offerings. Owning content is an expensive undertakingand it is essentially for this reason that Telkom’s Board andmanagement team have decided to substantially reduce ourshareholding in Telkom Media. We believe that the contentmarket has developed sufficiently for Telkom to be able to accesscontent and provide it as a value-added service without needingto own the content provider.

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Chairman’s review continued

GLOBAL BEST PRACTICE FOR INCUMBENTOPERATORS ARE GUIDING TELKOM’S STRATEGIC DIRECTION

Telkom, as with most global incumbent telecom operators, hasexperienced declining revenues in its core fixed-line business.Our defend and grow strategy focuses on current and newrevenue growth and cost reduction and is influenced by thefollowing global developments.

Telecommunications companies that are successfully applicationand service driven.

Transformation and rationalisation of networks, systems andthe workforce, to deliver new services far more efficiently.

A focus on new models of revenue generation throughacquisitions and partnerships with IT and data servicecompanies and vendors. The combination of wireless andwireline services to reduce access costs and develop fixed-mobile convergence services.

Transformation from a monopolistic and traditional engineeringculture toward an innovative, corporate and commerciallybased research and development ethos.

Rapidly improving customer service and shortening the time-to-market cycles of innovative, new products.

Defending and growing Telkom’s traditional voice revenue is acore strategy. Our continued move into becoming an integratedfixed-mobile operator combined with our aggressive intention togrow our data business and expand geographically into highgrowth African markets was designed to create value for all ourstakeholders. The Board is confident that Telkom is moving in theright direction.

SUSTAINABILITY AND EMPOWERMENT

Implementating the NGN supports our drive towards sustainabledevelopment as it includes the recovery and disposal of outdatedtelephone poles and copper wire, replacing these with effective,cost-efficient environmentally-friendly technologies.

Telkom remains committed to Broad Based Black EconomicEmpowerment. It is the key to ensuring sustainable growth inSouth Africa by transferring training, experience and wealth topreviously disadvantaged communities. During the 2008financial year, Telkom spent R9.2 billion on empowered orsignificantly empowered suppliers, up from the R8.8 billion spentin the 2007 financial year. We are also extremely proud of thefact that we provide significant training for our suppliers. Theprocurement report on page 64 provides more detail.

The Telkom Foundation contributed R52.5 million towards theupliftment of disadvantaged communities by focusing on ICTeducation and training, the rollout of ICT infrastructure to under-developed areas and the empowerment of women and children.

The Vodacom Group continues to make progress with its R7.5 billion broad based black empowerment equity deal.

As detailed in our SENS announcement released on March 10,2008 a large part of this deal will be made available toVodacom employees, without whom the company would not besuch an enormous success. Vodacom has also selected RoyalBafokeng Holdings and Thebe Investment Corporation as its preferred empowerment partners. It is expected thatVodacom’s empowerment deal will be concluded by the end ofthe 2008 calendar year.

THE BOARD AND CORPORATE GOVERNANCE

The Telkom Board, has continued, and will continue, to be aneffective custodian of this strategic national asset with fullcommitment to the principles of good corporate governance andour responsibilities to our various stakeholders. We strive toadhere to the best corporate governance practices outlined inKing II and the Sarbanes-Oxley Act (SAOX).

Telkom’s Board, with management support, has introduced anumber of best practice structures and processes, including theaddition of new Board subcommittees, charters and guidelines,strengthening the company secretariat, governance resourcesand accountability in the company. In addition, work on theexpansion and functional efficiency of the Board continues, withthe support of the Class A shareholder, and the Articles ofAssociation continues to be improved through amendments(requiring a special meeting of shareholders) to update andimprove the Articles in line with the principles of good corporategovernance. A full report of our corporate governance andenterprise risk management framework can be found on pages44 and 54 respectively.

CEO AND BOARD CHANGES

Reuben September was appointed Chief Executive Officer of theTelkom Group on November 22, 2007. He had been in this rolein an acting capacity since the departure of the previous CEO,Papi Molotsane, on April 5, 2007. Reuben has worked invarious engineering and commercial positions at Telkom includingChief Technical Officer and Chief Operating Officer.

During the year under review, Papi Molotsane left the Board onApril 5, 2007. The terms of office of Marius Mostert, DumisaniTabata and Yekani Tenza expired on September 19, 2007,Thabo Mosololi resigned on October 26, 2007 and TshepoMahloele on January 30, 2008. I would like to thank theseofficers of the Board for their commitment to Telkom during theirtenure and their valuable support to the new Chairman.

We were delighted to acquire the services of Mark Lamberti onMay 29, 2007 and Ekwow Spio-Garbrah, Victor Lawrence andJackie Huntley on September 20, 2007. Brian Molefe joined theTelkom Board from the Public Investment Commission (PIC) onJanuary 30, 2008. The Class B shareholder elected to replaceBrian Molefe with Athol Rhoda on March 5, 2008. MarkLamberti and Athol Rhoda resigned as non-executive directorson June 3, 2008 and July 3, 2008, respectively. The Boardthanks Mr Lamberti for his commitment and valuable contributionto Telkom, given ex gratia over the past year as well as Mr Rhoda and wish them well in their future endeavours.

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Our new members bring a wealth of relevant experience to theBoard. Detailed curriculum vitae can be viewed on pages 26 to 29.

FINANCIAL RESULTS AND PROSPECTS

The challenging operating conditions are evident in our results.

The Group delivered 9.0% growth in group revenue to R56,3 billion through its fixed-line business growing revenue by0.7% to R32.6 billion and its mobile business impressing with a17.1% revenue growth to R48.2 billion (50% share: R24.1 billion).The drop in Group EBITDA margin from 38.3% to 36.6% ismainly attributable to flat revenue in the fixed-line business. It isworth mentioning that operating expenses in the fixed-line werewell controlled showing an increase of only 3.6% to R25.0 billiongiven the high inflationary environment. Group attributable profitdeclined by 7.8% to R8.0 billion largely as a result of the fixed-line’s decreasing EBITDA margin and increased finance charges.The Group reported a 4.4% decrease in headline earnings pershare to 1,634.8 cents. In the next few years, in line withstrategy, Telkom will be aggressively funding the improvement incustomer service, the expansion of our African subsidiaries andour network in South Africa.

During the 2008 financial year, 12,071,344 shares werebought back for a consideration of R1.6 billion.

The Board declared an ordinary dividend of 660 cents per sharedelivering on our promise to grow the ordinary dividend. Nospecial dividend was declared due to an increased investment inour customer service, our expansion programme and pressure onthe fixed-line’s EBITDA margin. We have previously stated thatthe level of dividend paid is based on a number of factorsincluding the assessment of our financial results, availablegrowth opportunities, the Group’s net debt level, interestcoverage, internal cash flows and resources, the repurchase ofTelkom shares and other future expectations.

We expect that competition will continue to constrain revenuegrowth over the next three years. We are targeting a compoundaverage growth rate (CAGR) of revenue over the following threeyears in the 5% to 10% range as increased revenues from ourdata, broadband and converged services and our newlyacquired subsidiaries are projected to mitigate the impacts ofincreased competition. The EBITDA margin relating to fixed-lineand other segments is expected to range between 32% and 36%over the next three years.

Capital expenditure for the fixed-line and other segments isexpected to range between 23% and 27% of revenue over the

next two years. In year three, capex is expected to rangebetween 18% and 22%.

The target net debt/EBITDA for the fixed-line and other segmentsis expected to be 1.3 times. Targets in a transforming industrysuch as ours are inherently risky, particularly in later years andinvestors should not place undue reliance on such targets.

CORPORATE ACTIONS

In November 2007 Telkom announced the termination ofdiscussions with MTN. Telkom issued a cautionary on June 2,2008 advising that a non-binding proposal from the VodafoneGroup Plc to acquire a portion of Telkom’s stake in VodacomGroup (Proprietary) Limited subject to, inter alia, the companyunbundling its remain stake in Vodacom to Telkom shareholders.In addition, Telkom confirmed that a letter was received from aconsortium comprising Mvelaphanda Holdings (Proprietary)Limited, affiliated funds of Och-Ziff Capital Management Groupand other strategic investors which stated that they areconsidering making an offer for the entire issued share capital ofTelkom. The letter stipulates that the offer will only be made if anumber of pre-conditions are met.

On July 15, 2008, Telkom issued a further cautionary statementthat its discussions with Vodafone and independently with theconsortium are still ongoing.

Shareholders will be kept apprised of any developments as andwhen they occur.

APPRECIATION

I would like to thank the Board, management and all employeesin South Africa and the rest of the continent for their strongcommitment to Telkom in a demanding and challenging year.

In balancing the needs of our stakeholders – shareholders,customers and employees – we are putting Telkom in a positionto grow not only in South Africa, but beyond our borders. Weare confident that with the support of our stakeholders we willcontinue to play a critical role in South Africa’s growth and futuresuccess, as well as that of the continent.

Shirley Lue ArnoldChairman

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Chief executive

officer’s

At the end of my first year as the CEO of Telkom, it gives megreat pleasure to report to shareholders on the progress Telkomhas made during the 2008 financial year. In an operatingenvironment that became more challenging as the yearprogressed, the Group delivered a strong performance for theyear ended March 31, 2008. What is evident from the results isthat our strategy is starting to bear fruit. We believe we are nowwell positioned for an increasingly competitive and rapidlychanging environment.

Telkom has been working very hard to position its tremendoustelecommunications assets to deal with the new, highlycompetitive environment and leverage opportunities for growth.Telkom currently bears the cost of maintaining a large legacynetwork, while we move towards the Next Generation Network(NGN) that is designed to allow our customers ubiquitous accessto networks and services. In view of the market challenges facingTelkom it is imperative that we accelerate our move towards theNGN, improve our customer service dramatically and takeadvantage of the growth opportunities that naturally fit with thestrengths of our fixed-line business.

FINANCIAL OVERVIEW

The Telkom Group operating revenue grew by 9.0% from R51.6 billion to R56.3 billion in the financial year ending March 31, 2008. The fixed-line business delivered revenuegrowth of 0.7% to R32.6 billion reflecting continued pricedecreases and competitive action in both our voice and data

review

markets. Attributable net profit of the Group declined by 7.8% toR8.0 billion largely as a result of the decreasing EBITDA marginand increased finance charges relating to the fixed-line business.Group operating expenses increased year-on-year by 12.8% toR42.3 billion primarily due to an increase of 17.9% in the mobilesegment. The operating expenditure of the fixed-line segmentincreased by 3.6% to R25.0 billion mainly due to employeeexpenses, payments to other operators and services rendered.

The Group EBITDA margin for the year ended March 31, 2008was 36.6%, a decrease from 38.3% in the previous year. Thisdecline is mainly attributable to flat revenue in the fixed-linebusiness. The EBITDA margin relating to fixed-line and othersegments is expected to range between 32% and 36% over the next three years. This margin range reflects increasedoperational expenditure, an aggressive customer serviceimprovement effort, an expansion programme in South Africaand into Africa, an increased contribution from the lower margindata business and the decline in local and national voice trafficrevenue. The costs associated with the early development stagesof Multi-Links and Africa Online add to the expected decrease inthe EBITDA margin. We expect to see improvements in theEBITDA margin within the range towards the end of our threeyear planning period.

The Group experienced a 4.4% decline in headline earnings pershare to 1,634.8 cents and declared an ordinary dividend of660 cents per share, an increase of 10.0% from the ordinarydividend of 600 cents per share declared in the 2007 financialyear. This is a continuation of our commitment to progressively

Telkom has been workingvery hard to position its tremendoustelecommunicationsassets to deal with thenew, highly competitiveenvironment and leverageopportunities for growth

Reuben September

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grow the ordinary dividend. This dividend was paid toshareholders on July 7, 2008.

The prospects of our acquisitions in Africa, namely Multi-Linksand Africa Online, are looking exciting. Multi-Links in particular,grew its customer base from 262,431 in September 2007 to813,392 subscribers at the end of March 2008, exceeding theaggressive subscriber target of 812,000 that was set for the yearending March 2008. At the end of May 2008 Multi-Linksrecorded 1,000,251 subscribers. Subscriber growth is notlinear; it is dependent on our capacity to sign up subscribers.We are focused on providing a high quality service and will notsign-up subscribers unless we have the capacity to deliver apremium service. This is an exceptional performance and ourprospects in Nigeria appear to be good.

Vodacom, our 50% joint venture, once again delivered strongfinancial performance, growing revenue by 17.1% to R48.2 billion. The EBITDA margin decreased slightly to 34.2%from 34.6% and Vodacom’s customer base grew by 12.7% to 34.0 million. Prepaid customers represent 88.8% of the totalcustomer base. The blended ARPU during the period underreview remained stable at R125 per month mainly as a result ofimplementing the supplementary disconnection rule duringSeptember 2007. Contract customer ARPU decreased by 6.0%to R486 per month due to the rapid growth in data customers aswell as in the low end of the top up packages. Through thecontinued high level of handset support to service providers andan improvement in service to customers, contract churn remainedlow at 8.3%.

The developing prepaid service market segment continued todrive market penetration in 2008 with the prepaid servicemaking up 93.4% of all gross connections. The prepaid ARPUremained stable at R62 per month. Community services ARPUdecreased by 23.6% to R689 per month due to increasedcompetition. Vodacom’s continued focus on value-added voiceand data services enabled their good performance. Vodacom’sdata revenue increased by a sterling 49.7% mainly due to highertake up of data services and more affordable product offerings.Vodacom’s non-South African operations provide services to 9.2 million customers, with a profit increase in the current yearof 51.6% to R790 million.

STRATEGIC OVERVIEW

Our strategy is to defend and grow profitable revenues. This willbe done via three mutually-reinforcing drivers – moving into highvalue-added data and content services, geographic expansioninto fast growing markets and providing fixed-mobile services.Our focus is on moving our business from basic voice and dataconnectivity to fully converged solutions that integrate voice,data, video and Internet services. We are embedding a cultureof excellence in customer service as well as innovation, whichare all crucial in an increasingly liberalised and competitiveenvironment.

Telkom’s mission is to be a leading South African-basedinternational Information Communications and Technology (ICT)services group focused on long term profitability through growthin both existing and new markets.

Telkom’s core strategies are as follows:

Strategy 1: Defend profitable revenueKey to defending revenue is converting a large percentage ofrevenue to annuity revenue. It is worth pointing out that althoughTelkom is coming under pressure from competitors, our fixed-linebusiness is successful in defending revenues through bundledproducts. Revenue from subscription based calling plansincreased almost 99% to R1.1 billion for the financial year underreview. This is being done largely through bundling call minuteswith access line rental into attractive subscription based valuepropositions. In addition, we will seek to build customer retentionby pursuing strategies that discourage customers to switch tocompetitors. In this regard, our customer centricity roadmapfocuses on improving customer value and ensuring churnreduction through improved customer insight. This insight isapplied to transform our Marketing division from being apredominantly product centric organisation to a customer centricstructure through the introduction of customer portfoliomanagement. Constant development of new, innovative productsand services to re-vitalise Telkom’s image and reputation isgaining traction as a key element of retaining our customers. Ourstrategy to treat our corporate customers as a priority is payingoff and evidence of success is visible.

Strategy 2: Grow profitable revenue: fixed-mobilecapabilityTelkom aims to significantly improve its ability to compete onmobile by selectively building a fixed-wireless and mobile datanetwork, as well as transforming our fixed-line business toincorporate key value-added services, including fixed-mobileconverged services.

Telkom is facing active competition from mobile operators in thevoice market and increasingly so in the data market. We believean integrated fixed-mobile operator is far better positioned torespond to competitive forces and customer needs. We believehaving an integrated fixed-mobile offering will allow Telkom toleverage our customer base, marketing, distribution and logisticschannels to increase our share of the voice revenue market. Inaddition, mobility is increasingly becoming a requirement for thepurpose of Internet access. An integrated bundled offering bythe fixed-line business would offer superior speed and quality,including the advantages of mobility when required by thecustomer. In the future we also anticipate that content demandwill require an element of mobility.

Strategy 3: Grow profitable revenue: broadband andconverged servicesTelkom seeks to increase revenue from customers in both the massand enterprise markets, taking advantage of opportunities offered

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by convergence, managed services, as well as applications andinfrastructure. We will seek to aggressively improve our marketshare in the IT services sector over the next five years. This will beaccomplished by targeting the medium to large business segmentto meet their demand for end-to-end solutions. In our consumermarket, we will pursue partnerships with content providers toenhance our offerings. Customers will be provided with richmedia content through, amongst others, our Do Broadbandportal. We intend to expand our data centre business organically,while also considering international acquisitions.

In addition, we are aggressively expanding our ADSL footprint,increasing the bandwidth in order to host applications such asvideo services and using the Next Generation Network tofacilitate innovative solutions. We will also seek to reduce thetime-to-market cycle of new products. The focus will be on servicedifferentiation through enhanced value packages and bundlesaccording to customer requirements, while ensuring improvedservice delivery and assurance.

Strategy 4: Grow profitable revenue: geographic reachWe aim to become a Pan-African integrated service providerthat offers international communications and Internet connectivity,hosting and managed data services, as well as wireless voiceand mobile broadband solutions. Over the long term, we planto provide international data connectivity to major cities in Africathrough regional hubs, such as Nigeria and South Africa. Inaddition, we will seek to position Telkom as a wholesale facilitiesand infrastructure enabler for regional incumbents.

With regards to our existing subsidiaries, we are focusing onachieving strong growth through both organic and acquisitivebusiness development strategies, as well as by leveragingsynergies across the Telkom Group. For Africa Online, thisincludes leveraging our available international capacity to deploysatellite based Internet access, and using Africa Online as themain vehicle through which Telkom will deliver Internet servicesoutside of South Africa. Through Multi-Links, Telkom is introducingconverged fixed and mobile services to the Nigerian market.

From the above it is clear that our strategy is to differentiateourselves from competitors by moving from a provider of basicvoice and data connectivity to become Africa’s preferred ICTservice provider, offering fully converged voice, data, video andInternet services.

IMPLEMENTING OUR STRATEGY

A number of key strategic decisions have already been madesince the announcement of our new strategy on March 31, 2008.

These include the decision to contain costs through capabilitymanagement and outsourcing; substantially reducing Telkom’sshareholding in Telkom Media, as well as committing to unlockshareholder value by evaluating options to unbundle our 50%stake in Vodacom, which is half owned with the Vodafone Groupof the UK. These landmark decisions are key to unlockingshareholder value and vital to Telkom’s future success.

In addition, Telkom has announced that it is deploying a fixed-wireless and mobile data network. This network is being deployedin areas severely affected by copper theft in order to reduce costsand improve service levels to our customers as well as providingservices to corporates and high margin customers.

We also announced the creation of the Telkom ManagementServices Company (TMSC) on June 9, 2008. The target marketfor such services is firstly the state owned incumbent operators insub Saharan Africa. The second target group is the numerousnew entrants in the ICT industry that need operational expertiseto scale up and be effective operators. There is a lack of sufficientservice providers in the ICT industry with the relevant expertiseand support from reputable telecommunications operators thatunderstand the African operational environment and are able toprovide such services.

TMSC will provide, amongst others, functional management,operational support services, as well as project managementand IT solutions.

Telkom has announced that it is pursuing the growth of its data centre business organically in South Africa and is alsoconsidering acquisitions internationally. The data centre businessis effective in stimulating the use of bandwidth over telecom -munication networks.

In terms of capability management, Telkom management istransforming the company into a more agile, customer-focusedcompany with world class skills through advanced capabilitymanagement.

Other key strategic initiativesNext Generation Network, capacity and productdevelopmentsTelkom is in the third year of its R30 billion build programmeincluding NGN and has spent R6.8 billion in the financial yearending March 31, 2008.

Customer demands and global standards necessitate theprovision of services and particularly bandwidth that is onlypossible utilising the intelligence of an NGN system. Further tothe information supplied in last year’s annual report, I would liketo mention the following key achievements:

An increase of the ADSL footprint to 2,660 DSLAMs, covering92% of Telkom’s network.

84 Metro Ethernet nodes have been deployed in major citiesusing 10Gbit and 1Gbit line systems.

The first Dense Wave Division Multiplexing (DWDM) systemcapable of forty 10Gbit/s signals over a single pair of fibrehas been deployed between Gauteng and Durban. This hassignificantly increased transport bandwidth capability. A significant rollout of this system between all major cities inSA is currently in process.

A network interactive voice response system has beendeployed which offers advanced speech services such asautomated speech recognition and text-to-speech applicationsenabling corporate customers and Telkom to enhance theirvoice systems.

Chief Executive Officer’s review continued

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38 WiMAX base stations have been deployed across allmajor cities and towns.

237 WiFi hotspots have been deployed at strategic partnerlocations.

Multi-LinksMulti-Links surpassed our target of 812,000 customers to March 31, 2008 and signed up 813,392 customers. We aregrowing more confident that we can achieve our ambitious targetof adding a further 3.0 million customers during the 2009financial year. The company reported revenue of R845.4 million,a loss before tax of R63.5 million and a profit after tax of R49.0 million after accounting for a tax credit.

Multi-Links’s focus is on providing a quality service. This isextremely important given that the Nigerian regulators fineoperators who cannot provide quality services. Capitalexpenditure of USD160 million was spent during the 2008financial year to accelerate the expansion of Multi-Links’s networkand quality operating systems. We plan to invest USD533 millionin capital expenditure for the 2009 financial year to furtherextend the network and services to take advantage of theenormous growth opportunities in Nigeria.

We are aggressively building our network in order to providedata services that are in extremely short supply in Nigeria. Thecorporate market is our initial target. The vast experience andcapabilities of Telkom South Africa will be supporting Multi-Linksin this endeavour.

Customer service Improved customer service is vital to the success of Telkom into thefuture. Sustainable and profitable growth in the customer baserequires creating and strengthening capabilities focused onmanaging customer relationships and learning from acquiredcustomer information. This will allow Telkom to manage thecustomer experience and anticipate customer needs. For thispurpose, an integrated customer data base was delivered which,for the first time, provides Telkom with a unified view of each of our customers.

We have consolidated all call centre operations under one structurecreating a single point of accountability. In addition, we haveensured redundancy through the linking of call centres allowing areduction of bottlenecks and rerouting of overflow traffic.

In areas of high cost, high maintenance and high theft occurrence,particularly copper and fibre theft, Telkom is deploying a wirelessnetwork using W-CDMA to restore and improve service quality.

As per our committed plan, we still have work to be done. Thisis core to everything that Telkom aims to accomplish in the future.

PROSPECTS

Telkom’s strategy is designed to deliver sustainable, profitablegrowth going forward. The creation of shareholder value is theunderlying driver of every decision made. Telkom’s Board ofDirectors and management team are committed to improvingshareholder value.

The next three years will focus on transforming the business todeal with competition, concentrating on delivering innovativeproducts and services to our customers, expanding our networkand bedding down our growth drivers. Competition will continueto constrain revenue growth over the next three years.

Telkom remains committed to grow attributable earnings for thefixed-line and other segments.

Our focus continues to be on the expansion of our network forgrowth in line with our overall strategy of service provisioning.

Our dividend policy remains that we progressively grow theordinary dividend each year. Given the investment in ournetwork, expansion in current businesses, the potential acquisitionsand pressure on the fixed-line and other segments’ EBIDTAmargins, no special dividend was paid in respect of the 2008financial year. The level of dividend going forward will be basedon a number of factors including the consideration of thefinancial results, the group’s debt level, interest coverage,internal cash flows and resources, the repurchase of Telkomshares and other future expectations.

APPRECIATION

On behalf of the Executive Committee, I extend my sinceregratitude to the Telkom Board of Directors for the guidance andinsights its members have provided. I would also like to thankthe executive team and the people of Telkom for their dedicationand the progress made in executing our ‘defend and grow’strategy. I would also like to extend my thanks to all ourcustomers for their continued and valued support during the year.Delivering value to all our stakeholders is the driving forcebehind our desire to succeed.

CONCLUSION

It goes without saying that the process of market liberalisation,and the brave new world of convergence, has had a huge impacton Telkom. In a dynamic environment we have not remained static.Far from it. Like the industry, the Telkom of 2008 is unrecognisablefrom the entity introduced to South Africa in 1991. In 17 years wehave undergone a remarkable transformation and this evolution ofours is ongoing. It has to be, for today we are confronted by newchallenges and we have to keep moving with the times. We haveto explore new ways of creating value and we have to developinnovative solutions so that our customers, and indeed the country,can extract the greatest possible value from the almost unlimitedpossibilities of the ICT industry.

I envision a company that already in 2010 will be a significantconverged player in Africa, nimble and innovative in maximisingvalue to all its stakeholders.

Reuben SeptemberChief Executive Officer

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Shirley Lue Arnold was appointed as Chairman of Telkom SA Limitedin November 2006. From 2004 to 2007, Ms Arnold was Non-executive Director of Peermont Global (Pty) Ltd, where she also chaired the empowerment committee. She is currently the Director ofAllAfrica.com.

Ms Arnold has consulted to various companies and institutions in theUnited States including Unisys, the Rockefeller Foundation, the InvestorResponsibility Research Center (IRRC) and the National GeographicSociety. In South Africa she has worked with Thebe InvestmentCorporation and Worldwide Africa Investment Holdings, and as aNon-executive Director of the South African arm of Ernst & Young,where she also performed as acting Chairman from February 2005to April 2006. She has taken on various public service responsibilities;her current responsibilities include being Trustee of the Maths Centreand Thuthuka Bursary Fund.

Ms Arnold holds a Bachelor of Arts degree and a Certificate inEducation.

SHIRLEY LUE ARNOLD

Chairman

Reuben September was appointed to the Board on May 8, 2007,following his appointment as acting Chief Executive Officer on April 5, 2007. He was appointed as Chief Executive Officer on November 22, 2007. Mr September is also a Director of Vodacom.

He previously served as Chief Operating Officer since September2005, as Chief Technical Officer from May 2002 until August 2005and as Managing Executive of Technology and Network Servicesfrom March 2000 to April 2002. He has worked in variousengineering and commercial positions at Telkom since 1977.

Mr September is a member of the Professional Institute of Engineersof South Africa (ECSA) and holds a Bachelor of Science degree in Electrical and Electronic Engineering from the University of Cape Town.

REUBEN SEPTEMBER

Chief Executive Officer

Board ofdirectors

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Dr Victor Lawrence was appointed to theBoard on September 20, 2007. He bringsto the Board extensive international research and development experience in digitalcommunications, and is championing theeffort to bring fibre optic connectivity to Africa.

He is the Charles W Bachelor Chair Professorof Electrical and Computer Engineering at theStevens Institute of Technology, and also holdsthe title of Associate Dean for SpecialPrograms. He is the founding Director of theIntelligent Networked Systems Center, iNetS. Dr Lawrence was elected to the NationalAcademy of Engineering in the United States.He is a Fellow of both the Institute of Electricaland Electronics Engineers (IEEE) and BellLaboratories. In 2004 he received the IEEEAward in International Communication, oneof numerous awards throughout his career.

Dr Lawrence received his Undergraduate,Master’s and Doctorate degrees in Electricaland Computer Engineering from the Universityof London in the United Kingdom.

DR VICTOR LAWRENCE

Government representative

Reitumetse Jackie Huntley was appointed tothe Board on September 20, 2007. She is apractising attorney and senior partner atMkhabela Huntley Adekeye Inc., one of the major black commercial law firms inSouth Africa.

As an independent Non-executive Director,Ms Huntley serves on the Telkom Board’sinvestment committee, advising on mergersand acquisitions; central to Telkom’s growthstrategy. Her experience in commercial,corporate and telecommunications lawcontributes to the Board’s deliberations onall legal matters and issues of corporategovernance. Ms Huntley has worked as alegal adviser to Gold Fields and NedcorBank. She has served on the boards of theRural Housing Loan Fund, Petro SA and AirTraffic Navigation Services, and is currentlyserving on the board of Blue Label Telecoms.

Ms Huntley obtained her BProc and LLB degrees from the University of theWitwatersrand, and a ManagementAdvancement Programme (MAP) certificatefrom the Wits Business School.

REITUMETSE JACKIE HUNTLEY


Brahm du Plessis was appointed to theBoard as a Non-executive Director on December 2, 2004.

Advocate du Plessis brings extensive legalexperience to the Board. A former seniorlecturer at the University of Cape Town, Adv du Plessis’ expertise in labour law hasproved valuable to the Board in dealing withemployment issues at all levels.

Adv du Plessis was a founding member ofthe Community Dispute Resolution Trust, andwas past Chair of the Johannesburg Branchof the National Association of DemocraticLawyers. He was formerly a member of theexecutive of the Johannesburg Branch ofAdvocates for Transformation and a memberof the Johannesburg Bar Council. He hasbeen appointed as a mediator by theArbitration Foundation of South Africa andhas worked in that capacity.

Adv du Plessis holds BA and LLB degreesfrom the University of Stellenbosch and a LLMdegree from the University of London (LSE).

BRAHM DU PLESSIS

Independent

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Keitumetse Matthews was appointed to the Board on June 19, 2006. Ms Matthewshas extensive legal experience in telecom -munications, including copyright andtrademark law.

Ms Matthews is a businesswoman, a memberof Keida Children’s Books cc since April2006, and former chief legal adviser to theSouth African Broadcasting Corporation fromMarch 2002 to September 2005. From April2000 to February 2002, she acted as specialadvisor to the Minister of Communications.Other positions that Ms Matthews has heldinclude legal advisor at Midi Television,housing lawyer at the London Borough ofLambeth Legal Services and copyright lawyerat the British Broadcasting Corporation.

Ms Matthews is a Barrister-at-Law and holdsa Bachelor of Arts (Honours) degree.

KEITUMETSE MATTHEWS


Dr Ekwow Spio-Garbrah was appointed to the Board on September 20, 2007. Healso serves on Vodacom’s Board ofDirectors and as Chief Executive Officer ofthe Commonwealth TelecommunicationsOrganisation.

He plays a leading role in Telkom’s Africaexpansion strategy. He chairs the TelkomBoard’s strategy committee and alsocontributes on technology and diplomaticmatters. He was formerly Ghana’s Ministerof Communication, Minister of Education aswell as Mines and Energy, and Chairmanof Ghana’s telecommunications regulator.He served as a senior official at the AfricanDevelopment Bank, the World Bank Groupand UNESCO.

Dr Spio-Garbrah holds a BA (Honours)degree in English and a Graduate Diplomain Journalism and Communications from the University of Ghana. He obtained aMaster of Arts in International Affairs fromOhio University and a Graduate Certificatein International Banking from New YorkUniversity. He was awarded a Doctor ofLaws degree, honoris causa (LLD) byMiddlebury University.

DR EKWOW SPIO-GARBRAH


Board ofdirectors

Sibusiso Luthuli was appointed to the TelkomBoard on July 29, 2005. He chairs the auditand risk management committee.

Mr Luthuli is a qualified chartered accountantwith extensive business and financeexperience. He has acted as ManagingDirector of Ithala Limited since July 2004,and was formerly the company’s FinanceDirector. From April 2000 to December2003, he was an Executive Manager atNedbank Corporate. He also established theJSE-listed pharmaceutical group Enaleni, ofwhich he is currently the non-executiveChairman. He is Chairman of the Universityof KwaZulu-Natal audit committee, aDirector of the Richards Bay IndustrialDevelopment Zone (IDZ) Company, amember of the Thekweni Municipality auditcommittee, Director of Luthuli and LuthuliInvestments (Pty) Ltd, and member of theKwaZulu-Natal Provincial Government auditcommittee.

Mr Luthuli holds a Bachelor of Commercedegree from the University of Zululand and aPost Graduate Diploma in Accountancy fromthe University of Durban Westville.

SIBUSISO LUTHULI

Independent

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Athol Rhoda was appointed to the Board onMarch 5, 2008, and served as a memberof the audit committee. He is a qualifiedchartered accountant with over 20 years ofcorporate experience serving a number ofthe biggest corporations in South Africa and globally.

He has extensive Board experience onfinancial, audit and investment matters, andpresently provides consulting and investmentbanking services to blue chip clients locallyand abroad. He serves on the board of thePublic Investment Corporation (PIC), as wellas its investment and risk committees.

Mr Rhoda has been a member of the SouthAfrican Institute of Chartered Accountantssince 1986. Previously he served as Headof Finance and Strategy at AngloGold SouthAfrica. He also served as a General Managerat Norwich in Cape Town, as a Non-executive Director of Teba Bank, Director atSCMB and Managing Director of DinersClub International.

Mr Rhoda resigned from the Telkom Boardon July 3, 2008.

Mark Lamberti was appointed to the Boardon May 29, 2007. Mr Lamberti is the non-executive Chairman of Massmart HoldingsLimited. Mr Lamberti currently serves as aNon-executive Director of Allied ElectronicsCorporation Limited and Business LeadershipSouth Africa and is co-Chairman of theConsumer Goods Council of South Africa.

Mr Lamberti holds a Bachelor of Commercedegree from the University of South Africa, aMasters degree in Business Administrationfrom the University of the Witwatersrandand is an alumnus of the Harvard GraduateSchool of Business Administration where he completed the Presidents Programme inLeadership.

Mr Lamberti resigned from the Telkom Boardon June 3, 2008.

ATHOL RHODA

Public Investment Corporation representative

MARK LAMBERTI

Independent

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Motlatsi Nzeku was appointed ChiefInformation Officer in March 2006. Previously,he was Group Executive of procurementsince November 2004 and ManagingExecutive of customer services from April2001 to October 2004. He holds a Bachelorof Science in Mathematics and Physics anda Bachelor of Engineering degree.

MOTLATSI NZEKU

Chief of Operations

Thami Msimango was appointed ChiefTechnical Officer in September 2005. Mr Msimango joined Telkom in 1984 andhas held a number of positions in Telkom.Previously, he was Managing Executive oftechnology and network services from July2003 to September 2005 and Executive ofTechnology, Direction and Integration fromJune 2002 to June 2003. Mr Msimango hasbeen involved in the information and commu -nication technology sector for the past 22years beginning his career in the formerDepartment of Posts and Telecommunicationsin 1984. Mr Msimango has taken a numberof management programs at various highereducation institutions. Mr Msimango is aDirector of Telkom Media, Africa Online and Multi-Links.

THAMI MSIMANGO

Chief of Global Operations and Subsidiaries

Chiefofficers

Deon Fredericks was appointed as actingChief of Finance on November 1, 2007.Previously he served as Telkom’s GroupExecutive of corporate finance accountingservices and as Chief Accountant fromNovember 2004 to November 2007. Heoriginally joined Telkom SA Limited in 1993as a senior manager in internal audit andhas held several executive positions in thevarious facets of finance. He is a CharteredAccountant (South Africa) and a member ofthe Chartered Institute of ManagementAccountants (UK). Mr Fredericks also holdsa Bachelor of Commerce (Honours) degreein Business Management. He also serves asa Director of Vodacom, Telkom DirectoryServices, Multi-Links, Africa Online andTelkom Media. Additionally he serves aschairman of the audit committees ofVodacom, Telkom Directory Services andMulti-Links.

DEON FREDERICKS

Acting Chief of Finance

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Naas Fourie was appointed as Chief ofStrategy on April 1, 2008 after acting in theposition from November 2007. Mr Fouriejoined Telkom in 1994 and has held anumber of positions in Telkom. Previously, hewas Managing Executive of commercialservices from April 2005 to October 2007and Executive of marketing services fromApril 1999 to March 2005. Mr Fourie holdsa Bachelor of Arts, Bachelor of Divinity andBachelor of Accounting Science (Honours)degree and completed the advancedexecutive program of the Kellogg School ofBusiness. Mr Fourie is a Director of Swiftnetand alternate Director of Vodacom.

Charlottte Mokoena was appointed as Chiefof Human Resources on November 1, 2007.Previously, she was Group Executive ofHuman Resources from December 2002 toOctober 2007, Group Executive of theTelkom Center for Learning from May 2002to November 2002 and organisationalcapability manager for Coca-Cola Africafrom November 2001 to April 2002. Sheholds a Bachelor of Arts (Honours) in Human Resources Development from theJohannesburg University, a Bachelor ofSocial Sciences from North West Universityand a Post-graduate Diploma in Trainingand Performance Management fromLeicester University.

NAAS FOURIE

Chief of Strategy

CHARLOTTE MOKOENA

Chief of Human Resources

OUMA RASETHABA

Chief of Corporate Affairs

Ouma Rasethaba was appointed as ChiefCorporate Affairs officer on November 1,2007. She joined Telkom in February 2006serving as Group Executive of regulatoryand public policy. Prior to joining Telkom shepracticed as an advocate of the High Courtof South Africa. She also held the positionof Special Director of Public Prosecutions atthe National Prosecuting Authority fromFebruary 2000 to January 2006. She holdsa Bachelors degree in law (BProc.) from theUniversity of the North, an Honours degreein law (LLB) from the University of theWitwatersrand, a Masters degree in law(LLM) from the University of Pretoria as wellas a Higher Diploma in Company Law fromthe University of the Witwatersrand. She is Non-executive Director, Chairman andmember of the audit committee of TDSDirectory Operations.

Managementteam

NAME AGE POSITIONAT TELKOM APPOINT-30 JUNE PORTFOLIO RESPONSIBILITY APPOINTMENT MENT

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Marius Mostert 53 Network Responsible for network technology 1973 2007Infrastructure strategy, planning, technical product Provisioning development and all associated

network infrastructure deployment.

Casper Kondo 47 Network Field Responsible for customer service 1993 2007Chihaka Operations fulfillment and assurance, network

restoration and planned maintenance execution.

Pierre Marais 49 Network Core Responsible for the technical and 1976 2007Operations operational management associated

with Telkom’s core network.

Zethembe Khoza 50 Contact Centre Responsible for managing all contact 1980 2007Operations points in which customers contact

Telkom, such as call centres,TelkomDirect shops, commercialservices and credit management.

Godfrey Ntoele 47 National Sales Responsible for the National Sales & 1997 2007& Marketing Marketing Operations for Telkom’sOperations retail consumers and business

enterprises and direct sales to business customers and Government entities.

Bashier Sallie 40 Information Responsible for enterprise wide IT 1986 2007Operations activities including infrastructure,

architecture, application development, computer operations and support and Internet service providers.

Theo Hess 50 Capability Responsible for ensuring that Telkom 1976 2007Management has the right groups of processes,

relationships, assets and resources that enable it to deliver on its strategic objectives.

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Thami Magazi 50 Multi-National Responsible for national and 2001 2007Customers international sales revenues for

multi-national customers and also service and project management to support both national sales and multinational sales teams. Theportfolio directs Telkom’s servicedelivery obligations for 2010 FIFASoccer World Cup.

Alphonzo Samuels 42 Wholesale Responsible for national and 1984 2007and international wholesale revenue Marketing and customer relationshipOperations management.

Bintu Petsana 42 (Acting) Guided by the Company’s business 2007 2008Corporate plan, vision and brand strategy,Communications the role of Corporate Communication

is to influence stakeholder behaviour through effective, timely and measurable communication making use of world class reputation management solutions.

Mike Mlengana 48 Corporate Responsible for implementing 1995 2005Development Telkom’s international expansion

strategy through business development and mergers and acquisitions activities across Africa and other emerging markets.

Steven Hayward 43 Strategy Responsible for Telkom 1994 2007Group Strategy.

Robin Coode 42 Corporate Overall responsible for tax, treasury 1992 2008Finance: and corporate investment withSpecialised specific focus areas that include share Services buyback evaluations, trustee

responsibilities on retirement funds and a mergers and acquisitions role through strategy.

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Anton Klopper 46 Legal Services Responsible for managing the 1991 2005provision of legal advice and assistance to various business units within Telkom.

Andrew Barendse 41 Regulatory Responsible for regulatory affairs 2006 2007Affairs which include regulatory strategy &

analysis, regulatory compliance, regulatory pricing & costing and protecting Telkom’s regulatory rights.

Nicola White 36 Investor Responsible for liaising with the 2006 2006Relations investor community which includes

shareholders, analysts and institutional investors.

Marena Janse 35 (Acting) Responsible for financial accounting, 2002 2007van Rensburg Accounting reporting and analysis, financial

Services services, external and regulatory reporting, capital work in progress and asset management.

Charmaine Houvet 35 (Acting) Responsible for improved governance 1991 2008Governance in the organisation through the

design and implementation of the Enterprise Programme office and key company governance process and policies

Nicolene Rossouw 39 (Acting) Responsible for the Performance 1997 2007Performance Centre in support of the company’sCentre customer centricity strategy,

marketing intelligence and to manage the business improvement function.

Prelene Schmidt 37 (Acting) Responsible for all facets of the 1996 2008CEO Telkom Telkom Foundation.Foundation

Elelwani Pahlana 38 (Acting) Responsible for overall management 1998 2007Procurement of procurement services Services encompassing strategic sourcing,

management of outsourced entities, corporate support and BEE.


Managementteam

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Sustainability review

Sustainability review 36

Corporate governance 44

Enterprise risk management 54

Black Economic Empowerment 64

Human capital management 68

Safety, health and environment 78

Corporate social investment 96

GRI content index 104

A consciousness towards best practiceenvironmental, human and social responsibilityinstilled throughout the company and our suppliers

Sustainability review


Sustainability reporting forms a vital part of our organisation’sreporting processes, and intends to ensure that we have soundcorporate governance, disciplined financial reporting andresponsible business practices. This is achieved through meetingthe triple bottom line reporting requirements and systematicpublic reporting on the social, environmental and economicspheres of the business. For Telkom, sustainability is primarilyreported in the annual report, wherein effort is made to meetreporting requirements and be in line with international bestpractice as set out by the Global Reporting Initiative.

Telkom endeavours to continuously refine and improve the qualityof its sustainability reporting. This process is informed by theneed for, and commitment to, good business practices, as wellas the need to balance this with social and shareholder returns.This is also in line with the second King Report on CorporateGovernance which urges companies to embrace the triplebottom line as a method of doing business.

In moving towards a more sustainable future for the Group as awhole, its people, the public and the environment, Telkomcontinues to focus on the transformation of its business, as wellas increased transparency in reporting on its operations and theimpact thereof on the broader society.

Our stakeholders are:

Employees; Media;

Customers; Unions;

Suppliers; Investors; and

Regulators; Government.

Sustainability reportingforms a vital part of ourorganisation’s reportingprocesses, and intends toensure that we have soundcorporate governance,disciplined financialreporting and responsiblebusiness practices.

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Although Telkom’s environmental impact is considered minimaldue to the nature of its business, we comply with all responsiblepractices as far as possible. This is evidenced in Telkom being re-certified as ISO 14001 compliant. A consciousness towardsenvironmental responsibility is also instilled throughout theorganisation and our suppliers, as per our procurementprocesses and policies. In terms of Black Economic Empowerment(BEE), we pride ourselves on our procurement policies for whichTelkom has been ranked number one in the 2008 TopEmpowerment companies. Telkom also participates extensively inthe upliftment of small and medium enterprises (SMEs) throughenterprise development. Being a responsible corporate citizen,Telkom participates in corporate social investment programmes.

ENGAGING WITH OUR STAKEHOLDERS

Telkom has adopted the 2002 King Report on CorporateGovernance to ensure that stakeholder management is one of theenabling strategies that form part of our Defend and Grow strategy.

Telkom’s objective is to transform its relationship with keystakeholders into one of trust, mutual respect, partnership andconstructive engagement. Telkom’s primary stakeholders includethose stated above as well as the South African Government asa 39.8% shareholder in the Group, the Department of Commu -nication as the policymaker, as well as the departments of Tradeand Industry and Public Enterprise, and local government, ascustodians of laws and by-laws that impact Telkom’s business.

Regulatory authorities such as the Independent CommunicationsAuthority of South Africa (ICASA) and the CompetitionCommission, as well as other government departments arecritical stakeholders that can have significant effects onTelkom’s operations.

Telkom strives for structured, proactive engagements with its keystakeholders to build constructive relationships and identifymutually beneficial outcomes in all interactions.

Telkom is continuously striving to comply with all relevant lawsand regulations, and this can be better achieved by, amongstothers, forging good relations with its stakeholders, properlyunderstanding stakeholders’ needs and expectations of theorganisation, as well as establishing how Telkom can contributeto ensuring that the relationships between the organisation andits stakeholders are mutually beneficial.

TELKOM’S CORPORATE COMMUNICATION

The corporate communication function aims to keep ourstakeholders informed through effective, timely and measurablecommunication and reputation management solutions. In theyear under review, Telkom’s corporate communication involveda number of initiatives to further engage with three specificstakeholder groups: Telkom’s 24,879 employees, the mediafraternity and our customers.

Employee engagementTelkom’s vision statement places employees at the core of ourbusiness. In line with this, we have been pursuing a number ofinitiatives that promote a culture of engagement among ouremployees. We recognise that a primary driver of employeeengagement is effective internal communications.

During the year under review the corporate communicationfunction refined its already-effective internal communicationsmechanisms, focusing on internal communication strategies,policies and procedures, as well as communication channels.

A particular area of focus was communicating and facilitating anunderstanding of Telkom’s business model, strategy and businessplan among all our employees. Corporate communication alsocontinued providing a service to the human resources function to ensure the timely and effective flow of project-specificcommunications.

Tailoring channels for an internal audience

Telkom utilises print, electronic and broadcasting channels for itsinternal communications, designed to provide relevant, audience-specific information in the most efficient manner possible.

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Our primary print channel, Online, was given a fresh look andnew format during the year under review. The most beneficialchange was the inception of a cross-functional editorial committee,to ensure that content is not only relevant, but reflects the full scopeof Telkom’s operations.

The electronic channel, E-News, was also changed to ensure thatinformation reflects an improved synergy between the channeland its target audience. As electronic communication channelsprovide significant advantages in terms of real-time informationand reach, a decision was taken to provide all employees withaccess to this channel, as opposed to only supervisors andmanagers. This has resulted in employees across the Groupalways having access to pertinent information.

Our email based desktop broadcast system is another electronicchannel that is utilised extensively to communicate criticalinformation. The format and appearance of this system havebeen updated, to give it greater prominence and distinguish itfrom other emails employees receive.

The broadcast channel, Skytrain, and its descendant, Telkomdigital media services (providing online audiovisual streamingdirectly to employees’ computers), communicate criticalinformation to employees quickly and cost-effectively. During theyear under review these channels were utilised for, amongothers, communicating the rollout of Telkom’s business plan andannual results. An added advantage of this channel is that itenables a two-way interface between members of top manage -ment and employees.

Building an understanding of our strategic directionThe rollout of our business plan was a mission-critical sequencedprogramme which started with the members of top leadership,and subsequently cascaded down to the next levels of leadershipand ultimately the entire organisation. This programmeencompassed a series of events, the most important of whichwas a process of decision-making and commitment, whichfacilitated buy-in through each level in the organisation.

Our corporate communication function fulfilled multiple rolesthroughout the process, from logistical arrangements for eventsto conceptualising presentations. However, the most significantintervention was in the form of structured communication, utilisingall available channels, to entrench critical messages among allour employees.

Partnering with human resources to entrench a culture of engagementAll human resources initiatives that aim to build a culture ofengagement depend on effective internal communications.Corporate communication played a vital role in this regard,ensuring effective messaging through its expertise and resources.

Where required, the communications function partnered withevent management. Examples of this partnership include thepremier reward and recognition vehicle, Leading Lights, the

length of service award functions for top management, andgraduation ceremonies for the Centre for Learning.

Conclusion

Driven by changes in technology and increasingly sophisticatedemployee information requirements, internal communication hasevolved into a science that requires expertise and continuousinnovation. Corporate communication aims to meet thechallenges of internal communication by continuing to enhanceexisting channels, introducing new channels as required andproducing compelling content.

Corporate communication will implement a process to regularlyevaluate not only its channels and the content communicatedthrough these channels, but also the effectiveness and efficiencyof project-specific communication. This will enable us to identifyinternal communication-related issues and continually improveour services.

The mediaAs a highly influential stakeholder, the media is a vehicle throughwhich Telkom can communicate with its broader stakeholderbase, and as such is key to effective reputation management.During the year under review our media engagement strategyconsisted of two primary activities: Firstly, furthering ourrelationships with the mainstream media, and secondly, ensuringan interactive flow of information between Telkom and itsstakeholders through media liaison.

These activities were premised on two underlying principles:

Open and consistent communication, which Telkom believes is key to creating and cementing positive mediarelationships; and

A willingness to anticipate and facilitate the needs of themedia fraternity.

Responding to media enquiries constitutes a crucial component ofTelkom’s media management function. Media interest in Telkomremained high throughout the year, resulting in a large number ofenquiries regarding diverse issues. Enquiries ranged from thecompany’s acquisition strategy and mobile strategy review, topricing and regulatory issues such as the unbundling of the local loop. The success of this media management strategy was evidenced by the frequency with which corporatecommunication’s interventions resulted in the media repositioningarticles to reflect the company’s position on specific issues.

Media campaign on cable theft

Cable theft not only remains a reputational challenge; itadversely impacts various sectors of the business resulting infinancial loss. During the year under review, the need for amedia campaign to communicate the challenges faced byTelkom, as well as the strategies to manage this problem,became increasingly clear. As a result, the corporatecommunication function conducted a highly successful media

Sustainability review continued

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campaign on cable theft, which involved creating publicawareness and engaging with all stakeholders.

The aim of this campaign was to help minimise incidents of theftby involving the media, the public and SMEs in the fight againstcable theft. A full media campaign was launched in variouslanguages, spanning community based, national andinternational media. The campaign was underpinned by amedia release and various interviews, resulting in high-impactmedia exposure and coverage.

Building mutually beneficial relationships

Telkom has identified the need to build a greater understandingamong the media of the broader issues impacting the ICTindustry. To this end, we commissioned the LINK centre at theUniversity of the Witwatersrand to facilitate eight ICT mediaforums. This research unit has garnered a distinctive track recordin supporting discussions around ICT-related issues.

The eight ICT media forums created a platform for journalists andindustry experts to interact regarding issues affecting the ICTindustry, hosting topics that ranged from cable theft to policy andconsumer issues. As part of Telkom’s drive to build positiverelationships with the media, we also conducted newsroom visitsand invited media representatives to prestigious events such asthe Standard Bank Joy of Jazz festival.

Telkom, through the Highway Africa conference, gets anopportunity to network with media representatives from acrossthe African continent, and provides a platform for ourrepresentatives to position the company as a leading ICT serviceprovider on the continent. This annual event, held at RhodesUniversity, brings African journalists together to discuss issues ofcommon interest, with the aim of further raising the standard ofAfrican journalism. The Highway Africa conference remains aneffective vehicle for Telkom’s leaders to position the Group, aswell as communicate Telkom’s strategic intent.

An interactive information flow

Telkom continues to pursue proactive relationships with the media to promote awareness and understanding among itsstakeholders. During the year under review our corporatecommunication function embarked on a number of initiatives topromote an interactive information flow.

Media releases, issued in a phased yet timely manner to increasethe percentage of take-up and maximise publicity opportunities,were used to great effect. However, it was in the area of issue-specific communication that the value of a proactive approachwas proven decisively.

Timely, accurate and informative communication regarding,among others, changes in leadership, bandwidth theft andcheque fraud, the FIFA sponsorship and the company’s financialperformance contributed to greater understanding among themedia, and thus among our other stakeholders.

ConclusionCorporate communication remains aware that the ICT landscape’srapid evolution will continue to stimulate stakeholder interest, andstrives to find innovative ways of building media relationships.These include promoting greater interaction between the ChiefExecutive and editors, networking sessions, site visits and breakfastengagements between the media and members of Telkom’s topmanagement. Our media relations function will continue to driveboth a proactive and reactive media liaison service to maintainand enhance the company’s reputation.

Customer engagementTelkom continues to strive to meet customer expectations. To thisend, we conducted approximately 120,000 telephonic interviewsduring the year under review, across all points of customercontact including call centres, TelkomDirect shops and our field technicians.

We conducted an additional 10,000 interviews with ourresidential, small, medium and large business customers, as wellas government, corporate and multi-national customers. The aimof these interviews was to measure customer loyalty andperceptions of service quality.

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These perceptions of quality of service are a measure forTelkom’s annual team awards. In the year under review we sawa marked improvement in perceptions of quality of serviceamong our corporate and multi-national customers. Nosignificant improvement in the overall perception of quality ofservice was achieved in the medium and large business, smallbusiness or residential segments.

The results of these studies indicated that our customers perceivecommunication and our products and services as thepredominant areas requiring improvement, and that they desireTelkom to demonstrate knowledge and understanding of theirneeds. In terms of addressing negative perceptions withreference to Telkom’s products and services, we will concentrateour efforts on improving reliability, cost-effectiveness and thevalue our products and services add to our customers’businesses. With regards to communication, our customersindicated a need to be informed about our products andservices, as well as new technologies being deployed in thetelecommunications arena. Additionally, our customers requireTelkom to deliver on its advertising promises, to which Telkom isfully committed.

Perceptions of our account managers’ and sales representatives’ability to know their customers’ needs and to meet theirexpectations have undergone a significant improvement,specifically within the corporate and multi-national, governmentand medium and large business segments. Initiatives by ouraccount managers in the corporate market appear to be payingdividends, with significant improvements in the perception ofTelkom’s ability to recommend the right product, be proactive,build strategic partnerships, and know our corporate customers’business and industry.

Within the government segment, our account managers’perceived ability to understand the particular needs ofgovernment customers improved significantly. Initiatives withinthe medium and large business segments also resulted insignificant improvements in responding to customer requests,with customers indicating that they trust Telkom to deliver on itspromises, understand their business needs and recommend theright product.

Our customer centricity programme is making progress inensuring everything we do maintains a customer focus, whilemoving away from being a predominantly product-centricorganisation. A key enabler of this programme is the use of ourown knowledge and database for customer analytics. Thisrefines our understanding of our customers’ value and needs inorder to transform the business to put our customers at the coreof all decision making within the organisation.

A key step towards achieving customer centricity was theconsolidation of all contact centres under one managementumbrella, and implementing a contact centre structure that isbased and focused on our different customer groups, and not oninternal functions as has been done previously. We further


worked towards transforming the structure of top management,creating specialised focus areas that service specific customersegments, ensure a coherent consolidated approach tomarketing, pricing, products and services development, andbetter serve multi-national and wholesale customers.

Going forward, the result of our customer analytics approachwill be a refined segmentation structure for the organisation, aswell as a marketing structure built around the different customergroups as opposed to products. This will provide the muchneeded end-to-end ownership of, and accountability for, thecustomer experience within Telkom.

Below we present highlights of specific customer engagementactivities pertaining to each of our customer segments during theyear under review.

Residential customers

Telkom has ascertained that our residential customers preferconsolidated bundled offerings that are easy to understand andmanage. In response to this call, we are placing an increasedfocus on bundled services, examples of which include the TelkomCloser and Do Broadband packages.

A multi-product brochure was introduced to enhance customercommunication. This brochure contains information on all Telkomproducts and services that are available to our residentialcustomers, and is distributed via TelkomDirect shops, as well asat shows and exhibitions. The brochure’s objectived are toincrease customer awareness of Telkom’s range of products andservices, and to empower customer-facing employees to bettercommunicate with customers on Telkom's products and services.

Furthermore, a welcome kit has been developed for newcustomers, with the objective of increasing customer satisfaction.The welcome kit contains a letter that welcomes customers to theTelkom family, provides information on the usage indicator,mentions the free value-added services available to customersand introduces the Do Broadband and Telkom Closer bundledservices. It also contains a leaflet explaining the Telkom invoice,a key ring with important Telkom and other contact numbers, aswell as a multi-product brochure. The kit is distributed viatechnicians and handed to customers upon line installation. Thispresents one of the best opportunities Telkom has to communicatedirectly with our new customers.

Business customers

Telkom’s activities to engage with our business customers duringthe year under review included:

Products and services information sessions with selectedbusiness customers;

Participation on the various regional Business Chambercommittees, including attendance at networking and businesstraining sessions;

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Active involvement in regional Women’s Day celebrations withselected female business enterprise leaders;

Facilitating understanding in developing business communitiesby hosting selected business customers at events such as theSoweto Experience; and

Local sponsorships for school, business and community activities.

Government customers

Telkom delivered a number of solutions to its Governmentcustomers during the year under review. This included providingthe Department of Justice with Telkom’s VPN Supreme solutionwhich provides a fully converged and proactively managed widearea network (WAN), with guaranteed Quality of Service forVoIP and video, centralised infrastructure as well as remoteaccess. This has contributed to reducing departmental costs andstreamlining processes.

The South African National Defence Force (SANDF) contractedTelkom to present it with a full turnkey migration of its nationalmicrowave network. Telkom’s wide-ranging access technologyexpertise enabled a solution that addresses most of the SANDF’sconnectivity needs and provides the transport medium formultiple communications applications while remaining costeffective, and addresses the future requirements of convergedmobility-centric telecommunications. Telkom’s responsibilitiesinclude the design and supply, installation, commissioning andoperation of equipment.

Going forward we will continue to focus on:

Revenue retention and seeking new business growth areas;

Improving our customer satisfaction measurement scoresthrough more regular customer contact, conducting strategicsessions including direct contact and corporate customerforums, and keeping customers informed about ICTdevelopments in South Africa;

Ensuring that our team members are appropriately skilled anddeveloped through enrichment programmes; and

Engaging with key stakeholders such as the State Informationand Technology Agency (SITA) through ICT summits, the jointlyhosted GovTech 2008 conference, and showcasing oursuccess stories in the Effective e-Government 2008 publication.

Corporate and multi-national customers

Telkom’s global markets section, which services our corporate andmulti-national customers, conducted the following customerengagement activities during the year under review:

The annual corporate and multi-national customer forum;

Quarterly strategic workshops with the majority of multi-national and corporate customers, with the purpose ofunderstanding our customers’ business strategies and directionto enable Telkom to effectively respond to our customers’different business needs;

Various customer relationship-building events in support ofTelkom’s business plan initiatives; and

Participating with ABSA in a Habitat for Humanity initiativeduring which the Telkom Foundation sponsored a house builtby volunteers from Telkom for the local community.

Telkom implemented a multi-million Randsolution for Chevron (Caltex), and onMarch 12, 2008 received the Supplier of the year 2008 award from theInternational CEO of Chevron in recognitionof our valued contribution to the safe,responsible and reliable delivery of goods and services to Chevron GlobalDownstream Africa Pakistan.

Wholesale customersTelkom’s goals for our wholesale customers for the year underreview included:

Developing a real-time electronic newsletter to communicateproduct launches and price revisions, with the aim ofextending this initiative to include a quarterly newsletter; and

Developing a wholesale dashboard to report on the status ofissues raised by customers during workshops.

Our new vision for our wholesale customers is to help themprosper in a very competitive marketplace. New initiativesplanned for the year ahead focus on our top ten wholesalecustomers, who account for more than 85% of our wholesalerevenue stream.

Contact centre network developmentsDuring the year under review Telkom, as part of its customercentricity strategy, reviewed our customer contact strategy. A contact centre master plan was implemented, with the first stepbeing consolidating all contact centres under one managementumbrella.

Furthermore, a number of initiatives were implemented toimprove our customer interface, including:

Forming the customer fault management centre (CFMC) toprovide an end-to-end fault management service to our top

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success of our business. This requires extensive effort by bothourselves and organised labour to build positive relationships,and accepting that the best interests of both parties areinextricably intertwined. As at the end of the year under review,major progress had been made in developing a sense ofpartnership and a shared vision by both parties.

There are three bargaining units to which qualifying employeesare affiliated. This often represents a challenge, particularly inthe interpretation of collective union agreements, and has in thepast contributed to unnecessary tension between Telkom andunions. This made the enforcement of such agreements difficult,as different parties would interpret the agreements differentlyeach time these agreements were being implemented. Thereviewing and simplifying of our processes has been initiated,and some of the arrangements and agreements are currentlybeing re-negotiated.

Telkom has adopted a transparent information sharing and fully interactive process with unions. As at the end of the yearunder review, major progress has been made in developing asense of partnership and shared vision between the two parties.We envisage that further progress will be made in this regardgoing forward.

SuppliersTelkom’s supplier engagement processes continue to be open,interactive and inclusive of all levels of suppliers. Ourprocurement policies are focused on disciplined, transparent andprofessional business practices. These are enforced through thecompany’s established cross-functional sourcing teams whoevaluate and make recommendations on bids. Where necessary,the teams involve the executive committee and advise the Boardof Directors. Telkom provides good quality assurance, which italso demands of all its suppliers in respect of which, wherenecessary for the relevant suppliers, enterprise development isprovided. For instance, clear communication of tender processesand policies are available on Telkom’s website.

Telkom’s BEE policy includes the upliftment and development ofSMEs and black business through its supplier developmentprogramme. For example, one of Telkom’s small business suppliersis a black supplier that runs a florist business. This is a supplier ofin-house flowers to Telkom, a 62 year old woman who lives in Ga-Rankuwa and who has persisted with determination against allodds. With a positive attitude and tenacity, she rose above therest in Pretoria and won the trust of the organisation. As part ofTelkom’s SME supplier development programme, Delta has beentrained and developed in her area of business. Telkom continuesto engage with all such stakeholders.

Investor Relations Telkom’s investor relations function is responsible for managingall contact with our investors. This strategic, marketing andcommunication function’s primary aim is to ensure quality ofinformation and consistent disclosure management when


40 corporate customers. To date only eight customers havebeen moved into the CFMC, however we plan to incorporatean additional 12 customers in the 2009 financial year. TheCFMC has improved the perception of Telkom among our topcorporate customers;

An outsourcing deal signed with Nedbank/Old Mutual,named the Merlot deal, followed by the creation of the Merlotcentre to manually operate as a single service aggregator(SSA). The customer views this centre as highly successful;

Repositioning the TelkomDirect shops to optimise the reach ofthis channel, giving customers the freedom to physicallyexperience a variety of product and service offerings in store.This enables a platform for the two-way exchange of customers’needs and requirements and Telkom’s advice and support;

Extending the Telkom/Vodacom retail synergy, positioningTelkomDirect as a one-stop shop for fixed-line and mobileproducts and services. This is to make accessing theseservices more convenient for our customers;

Implementing SMS notifications on faults, which contributedto a decrease in progress calls into our contact centres; and

Introducing certain self-service capabilities.

In terms of customer contact, our customer satisfactionmeasurement indicates that there is still room for improvement.Reasons for customer dissatisfaction include:

Long time to answer calls;

Long time to resolve problems;

Providing inconsistent feedback; and

Providing no feedback at all.

The increase in copper cable theft has led to the furtherdeterioration of service quality and customer satisfaction. Thishas contributed significantly to the higher call volumes into ourcontact centres, and places increased pressure on our employeesin the call centres which leads to high staff turnover. A numberof interventions are being instituted to mitigate these problems,which include counselling through Telkom’s wellness programme.

Despite these negative experiences, customers have alsoacknowledged exceptional performances by our employees,reflected in the feedback that we have received from delightedcustomers. Employees were commended for providingexceptional levels of service to Radio iGagasi 99.5 FM,providing ISDN infrastructure to facilitate remote broadcasts.

UnionsTelkom views building productive relationships with unionorganisations that represent our employees as essential to the

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communicating with our shareholders and the broader investorcommunity. It is essential to ensure fair, accurate and timelydissemination of information to all current and potential investors.Managing the investor community’s expectations of Telkom’sstrategic, financial and operational performance assists us tocomply with the listing requirements of both the Johannesburgand New York Stock Exchanges.

Keeping in touch with the investor communityInvestor relations conducts results presentations biannually, andeach is followed by a two week road show throughout SouthAfrica and internationally to ensure that Telkom reaches all itsinvestors. An analyst day is held annually to deal with specificissues of topical interest to the investor community.

Telkom’s investor relations function plays a key crises manage -ment role in situations where market conditions have led tomisinterpretations of our strategic decisions, financialperformance or anything that has a negative or overtly positiveimpact on Telkom’s share price. This function regularly conductsperception surveys to assess market perceptions around, amongothers, management delivery and expectations of Telkom’sfinancial and operational performance. As a result of feedbackfrom the latest survey conducted, Telkom undertakes to provideincreased access to its executive management.

Recognition of our continued drive for excellenceIn terms of effectively and efficiently engaging with investors,Telkom’s investor relations received awards for:

Best Online Annual Report in Asia, Pacific and Africa withinthe Telecommunications Industry by technical criteria;

Third place for its Investor Relations website in Asia, Pacificand Africa; and

Top five Best Disclosure procedures in Asia, Pacific and Africa.

In addition, Telkom won best telecommunications annual reportin the global telecommunication industry. IR Global Rankingsawards are adjudicated by MZ Consulting.

Going forward, we commit to ensuring an even greater level oftransparency, increased and improved disclosure and continuedgood corporate governance. Telkom’s goal is to meet therequirements of all our investors and shareholders regardless ofthe size of their investment.

Telkom’s investor relations website can be accessed atwww.telkom.co.za/ir

The Regulator and GovernmentTelkom’s regulatory environment defines special conditions underwhich the organisation is obliged to conduct its business. Theseconditions are complex and expert knowledge is required tointerpret and put these requirements into operation. To ensurethis, Telkom has a fully functional and well-staffed regulatoryaffairs section which establishes the capability required to effectthese requirements. The primary function of the regulatory affairssection is to ensure that our regulatory obligations are clearlyunderstood throughout the organisation, and properlyimplemented in all our products, services and business conduct.

The ICT regulatory and policy environment is very dynamic, andchanges have a material effect on Telkom’s operations. Thereforethe regulatory affairs section must continuously anticipatechanges and assist the organisation as a whole to adapt to suchchanges. The regulatory affairs section also seeks to proactivelyinfluence, to the extent it is possible, the evolution of the ICTregulatory environment.

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CORPORATE GOVERNANCE

ComplianceThe Telkom Board subscribes to the values of good corporategovernance as espoused in the Code of Corporate Practices andConduct of King II (the Code). In so doing, the directorsrecognise the need to conduct the enterprise with integrity andin accordance with best corporate practices.

The Board is of the view that Telkom complies in all materialrespects to the principles of the Code. While it acknowledgesthe importance of good governance, the Board is aware thatTelkom does not strictly comply with certain principles set out inthe Code. These areas of non-compliance stem primarily fromcertain provisions in Telkom’s articles of association. Most of theareas of non-compliance will be resolved by no later than March 5, 2011, when the provisions of Telkom’s articles ofassociation resulting in non-compliance with the Code fall away,or earlier if the shareholding of a significant shareholder fallsbelow certain stipulated levels.

Two significant areas in which Telkom does not comply with theCode are:

The Board does not have a balance of executive and non-executive directors, in that there is only one executive director(the Chief Executive Officer) on the Board, and out of a

The Telkom Boardsubscribes to the values of good corporategovernance as espousedin the Code of CorporatePractices and Conduct of King II.

maximum of 11 Directors, only a minority of four can beconsidered independent; and

The Chairman is not an independent Non-executive Directorand Telkom has not elected a lead independent Director asstated in the Code.

Telkom is holding a General Meeting of Shareholders on August 8,2008 in order to amend the articles of association to increase thenumber of Board Directors from 11 to 12 in order to bring the Chiefof Finance onto the Board as an additional executive director.

Corporategovernance

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Chairman and Board of DirectorsTelkom’s Board currently comprises nine directors. In accordancewith Telkom’s articles of association, five Non-executive Directorsincluding the Chairman have been appointed by theGovernment of the Republic of South Africa (the Class Ashareholder) and one Non-executive Director appointed by BlackGinger 33 holding 9% of Telkom’s issued shares plus the ClassB share (the Class B shareholder) a wholly owned subsidiary ofthe PIC. Three Non-executive Directors are appointed at Telkom’sannual general meeting and are considered to be independent,as set out in the Code and the JSE Listings Requirements.Currently the only executive director on the Board is the ChiefExecutive Officer (CEO).

In line with best practice, the roles of the Chairman and CEOhave been separated. The Board is led by the Chairman, Ms Shirley Lue Arnold, while operational management of theGroup is the responsibility of the CEO, Mr Reuben September.

In terms of the articles of association, the Non-executive Directorsappointed by the Class A shareholder have a fixed term of threeyears and may be re-elected to the Board by the shareholder.The Chairman has a term of one year and is re-elected asChairman for the ensuing year by the Class A shareholder. Thethree independent Non-executive Directors are subject toretirement by rotation and re-election by shareholders at leastevery three years, in accordance with the articles of associationand JSE Listings Requirements.

The only significant shareholder is the Class A shareholder whocurrently holds 39.8% of the issued ordinary shares in theGroup. The significant shareholder is a registered holder of theClass A shares with at least 15% of the issued ordinary sharesin Telkom. The Class A shareholder has certain Board-reservedmatters which are detailed in Telkom’s articles of associationwhich can be accessed at www.telkom.co.za/ir. The Boardreserved matters include the following:

Approval or amendment by the organisation of the strategicobjectives of Telkom, or the strategic objectives of anysubsidiary of Telkom;

Any increase or reduction in the issued share capital ofTelkom or any subsidiary of Telkom;

Approval or making of the dividend policy from time to time,including the declaration or distribution of any dividends byTelkom or any subsidiary of Telkom; and

Any merger or consolidation involving Telkom, where theaggregate of the payments and other consideration given bythe parties to such transaction exceeds, or any transfer of

assets or liabilities of Telkom or any subsidiary of Telkomwhere the sale price of such assets exceeds, in either case5% of Telkom’s gross revenues in the financial yearimmediately preceding the financial year in which suchtransaction occurs.

Pursuant to the articles of association, while the Government is asignificant shareholder, neither Telkom nor any of its subsidiariesmay take action with respect to certain reserved matters unlessauthorised by the Board. In addition, the authorising resolution ofthe Board must have received the affirmative vote of at least oneof the Directors appointed by the Class A shareholder.

Members’ resignations and appointments to the Telkom Boardof Directors during the year under review are as follows:

Resignations

LLR Molotsane April 5, 2007PL Zim April 11, 2007M Mostert September 19, 2007DD Tabata September 19, 2007YR Tenza September 19, 2007TF Mosololi October 26, 2007TD Mahloele January 30, 2008B Molefe March 5, 2008MJ Lamberti June 3, 2008AG Rhoda July 3, 2008

AppointmentsRJ September May 8, 2007MJ Lamberti May 29, 2007RJ Huntley September 20, 2007

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Dr VB Lawrence September 20, 2007Dr E Spio-Garbrah September 20, 2007B Molefe January 30, 2008 (re-appointed

July 3, 2008)AG Rhoda March 5, 2008

Company Secretary All directors have access to the advice and services of the GroupCompany Secretary, who is responsible for ensuring compliancewith procedures and applicable statutes and regulations. TheGroup Company Secretary is also responsible for the developmentof director training and education. The appointment and removalof the Group Company Secretary are matters for the Board as a whole.

Directors and executives of the organisation are responsible for advising the Group Company Secretary of all their dealingsin securities of Telkom, in accordance with well-defined rules and procedures.

Details of the Group Company Secretary’s business address andTelkom’s registered office are set out on page 109.

Board meetings

Board meetings are conducted at least once every quarter. Inaddition to these meetings, special Board meetings are convenedwhenever circumstances dictate that this is necessary. During theyear under review, four scheduled Board meetings were heldand 16 additional special Board meetings were convened. Theincrease in the number of meetings was necessitated by thediscussions around the mobile strategy review on the potentialsale of Telkom’s stake in Vodacom and relating to discussionswith the MTN Group. Details of attendance by each Director ofthe Board meetings are set out in the table below. Certainmembers of senior management attend Board meetings wheninvited to make presentations on particular organisational issuesof interest to the Board. A majority of Directors, one of whommust be a representative of the Class A shareholder, is requiredfor a quorum for Board meetings.

Corporate governance continued

The following table presents the attendance by Directors at meetings conducted during the year under review:

Scheduled Specialnumber of number of meetings(1) Attendance meetings(1) Attendance

Non-executiveST Arnold (Chairman) 4 4 16 16B du Plessis 4 4 16 15RJ Huntley 3 3 8 8MJ Lamberti 4 4 12 8Dr VB Lawrence 3 3 8 8PCS Luthuli 4 3 16 13TD Mahloele 2 1 16 14B Molefe 1 0 0 0TF Mosololi 1 1 9 5Dr M Mostert 1 1 8 8AG Rhoda 2 1 0 0Dr E Spio-Garbrah 3 3 8 6DD Tabata 1 1 8 7YR Tenza 1 1 8 7PL Zim 0 0 1 0KST Matthews 4 4 16 15

ExecutiveRJ September 4 4 15 15

(1) The table represents the possible meetings based on the appointment and resignation dates of members.

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CommitteesThe Board has a total of six committees assisting it in dischargingits responsibilities. During the year under review, the Boardestablished three new committees; a nominations committee, astrategy committee and an investment committee.

Executive committee

The executive committee comprises the CEO and chief officers ofthe Telkom Group. The CEO is the chairman of this committeeand has the authority to, among others:

Implement approved business plans, annual budgets and allother matters and issues relating to the achievement ofTelkom’s obligations under its licences, including withoutlimitations network expansion, equipment procurement, tariffsetting and packaging, customer service and marketing; and

Prepare, review and recommend to the Board the annualbudgets and any amendments thereto.

Audit and risk management committee (ARMC)

The ARMC is chaired by Mr PCS Luthuli who is an independentNon-executive Director. This committee conducted four scheduledmeetings and one special meeting during the year under review.Mr Luthuli is considered an audit committee financial expertwithin the meaning of the requirements of the United StatesSecurities and Exchange Commission (SEC). He is a CharteredAccountant.

In terms of its charter, the ARMC evaluates the Group’s systemsof internal and financial control, reviews accounting policies and financial information issued to the public, reviews theperformance of internal and external auditors, and determinesthe fees payable to external auditors. The committee examinesand reviews financial results, and recommends it to the Board for approval. The ARMC charter can be accessed onwww.telkom.co.za/ir

As at June 30, 2008, the committee comprised three Non-executive Directors of which one is considered independent:

PCS Luthuli (Chairman – Independent)RJ HuntleyAG Rhoda (resigned July 3, 2008)

As a result of the resignation of MJ Lamberti on June 3, 2008 andAG Rhoda on July 3, 2008 from the Board and all committeesthereof, Telkom’s ARMC currently consists of the two Non-executiveDirectors, one of whom is a representative of the Government ofSouth Africa. The Board of Directors is currently assessing thecomposition and membership of all the committees, including theARMC, and wants to address any instances of non-compliancewith their charters by the end of the 2008 calendar year.

The terms of reference of the committee were reviewed during theyear under review.

Nominations committee

A nominations committee, which must have a minimum of threemembers, was established on September 4, 2007. As of June 30,2008, the committee comprised of PCS Luthuli (Chairman), ST Arnold and one vacancy. The quorum for a meeting is two members.

The committee makes recommendations to the Board on thecomposition of the Board, and the balance between Executive,Non-executive and independent Non-executive Directors withrespect to all aspects of diversity and experience. The committeeis responsible for identifying and nominating candidates andformulating succession plans for the approval of the Board.

In addition, the committee recommends to the Board thecontinuation or discontinuation of services of any Director whohas reached the retirement age, as well as Directors who areretiring by rotation, for re-election.

Strategy committee

The strategy committee, which must have a minimum of threemembers, is chaired by Dr E Spio-Garbrah, and further consistsof RJ September and Dr VB Lawrence. A quorum for a meeting istwo members. The committee assists the Board with strategicdecisions and the financial implications thereof. MJ Lamberti wasa member of this committee until his resignation on June 3, 2008.

The functions of the committee, among others, include:

Verifying that management is fully conversant with the theoryand principles of strategic management;

Ensuring that management annually researches all stakeholdersto determine the latter’s satisfaction with, and expectationsof, the Group;

Ensuring that management conducts a comprehensive internalreview of the resources, capabilities and competencies of the Group;

Monitoring the strategic compliance of annual business plansand budgets for existing operations and assets, as well as forall proposed acquisitions and investments;

Monitoring the efficiency and success of strategyimplementation; and

Ensuring that the Board’s strategic questions and concerns areaddressed by management.

Where appropriate, the committee will make recommendationsto the Board arising from deliberations and decisions made byit in fulfilling its duties, under the committee’s terms of reference.

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Human resources review and remuneration committee(HRRRC)

As of June 30, 2008 the committee comprised of:

B du Plessis (Chairman)KST MatthewsOne vacancy

The HRRRC held six scheduled meetings and two specialmeetings during the year under review. This committee, inconsultation with management, ensures that the Group’sDirectors and senior executives are fairly rewarded for theirindividual contribution to the Group’s performance. In fulfillingits duties, the HRRRC give consideration to industry and localbenchmarks to ensure that packages remain competitive. Seniorexecutives receive a salary, short-term incentive and anallocation in terms of the rules of Telkom’s conditional shareplan. Medical and retirement benefits are also offered.Remuneration packages are reviewed annually andperformance bonuses are linked both to individual performanceand to the performance of the Group. Non-executive Directorsare paid fees for their services as Directors of the company, andfor their participation as members of Board committees.

Investment committee

The investment committee was established on November 16,2007, and must consist of at least five members. As at June 30,2008 the committee comprised of:

RJ Huntley (Acting chairman)PCS LuthuliRJ SeptemberDJ FredericksOne vacancy

The responsibilities of the investment committee are to:

Examine, review and recommend investment policy, criteriaand parameters in the context of the Group’s targeted growth,gearing and returns;

Examine, review and recommend potential new investmentsproposed by executive management, with due regard to theGroup’s strategic and financial objectives, the structural basisof integration and the operational and managerial demandsoccasioned by the investment;

Monitor the performance of existing investments againstinvestment criteria and pre-investment assumptions;

Examine and review recommendations by executivemanagement to dispose of investments;

Monitor and make recommendations on the Group’s financialfacilities and financing structures; and

Pursuant to the above, make recommendations on theselection of merchant banks and professional advisors.

Where appropriate, the investment committee will makerecommendations to the Board arising from deliberations anddecisions made by it in fulfilling its duties, under the committee’sterms of reference.

Share dealingsIn line with the JSE Listings Requirements and the Group’s insidertrading policy, Directors and executives who wish to trade inTelkom securities are required to obtain prior written approvalfrom the Chairman of the Board and the Company Secretarybefore dealing in Telkom securities. The Group operates closedperiods as defined in the JSE Listings Requirements andcommunicates these periods to all its employees at the start ofeach period. Telkom’s insider trading policy is set out onwww.telkom.co.za/ir. Additional closed periods are enforced,when required, in terms of corporate activities as and when theseoccur.

Compliance with Sarbanes-OxleyThe Sarbanes-Oxley Act of 2002 was passed in the United Statesof America to protect investors by improving the accuracy andreliability of corporate disclosures, accounting practices andcorporate governance. Telkom, as a listed company on the NewYork Stock Exchange (NYSE) registered with the US SecuritiesExchange Act of 1934, is required to comply with the Sarbanes-Oxley Act. Telkom is committed to good corporate governancepractices and compliance with the Act as directed by the US SEC.

Telkom’s Sarbanes-Oxley steering committee represents thedivisions that are directly impacted by the requirements of theAct. Working closely with line management, a Sarbanes-Oxleycompliance team is responsible for ensuring that risks andcontrols that may impact on the integrity of financial reportingare properly documented, reviewed and reported on. Theindependent external auditor attested to and reported onmanagement’s assessment of the effectiveness of internal controlover financial reporting for the year ended March 31, 2008.

The CEO and the acting Chief of Finance have certified that therequirements of Section 302 have been met for the year endedMarch 31, 2008. The certification is included in Telkom’s AnnualReport on Form 20-F as filed with the SEC.

In addition to the Sarbanes-Oxley Act, the NYSE corporategovernance rules, approved by the SEC, permit NYSE-listedcompanies that are foreign private issuers, such as Telkom, tofollow home-country practices in lieu of the requirementsapplicable to listed US companies, subject to certain exceptions.

In particular, foreign private issuers must have an auditcommittee that satisfies the requirements of Rule 10A-3 under theSecurities Exchange Act of 1934, as amended, and must


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disclose the significant ways in which their corporate governancepractices differ from those followed by US companies under theNYSE rules. In addition, the CEO of a foreign private issuer mustpromptly notify the NYSE in writing after any executive officer ofthe listed company becomes aware of any material non-compliance with any applicable provisions of the NYSEcorporate governance standards, and foreign private issuersmust submit an annual and interim written affirmation to the NYSE with respect to compliance with the foregoingrequirements and certain changes to their audit committees.

As a foreign private issuer, the definition of independence ofDirectors for Telkom is only relevant to the audit committee andis included in Rule 10A-3 of the US Securities Exchange Act. Thisstates that each member of the audit committee must be amember of the Board and should be independent as defined inrule 10A-3(b)(1)(ii) of the US Securities Exchange Act. A memberof an audit committee of a listed issuer may not, other than in his

capacity as a member of the audit committee, the Board, or anyother Board committee:

Accept directly or indirectly any consulting, advisory or othercompensation from the listed entity; or

Be an affiliated person of the listed entity.

An affiliated person of an issuer is a person who directly, orindirectly through one or more intermediaries, controls, or iscontrolled by the issuer, or is under common control with the issuer.

Rule 10A-3(b)(1)(iv)(E) of the US Securities Exchange Actprovides an exemption from the prohibition on being anaffiliated person of the issuer for an audit committee member ofa foreign private issuer, who is a representative or designee ofa foreign governmental entity that is an affiliate of the foreignprivate issuer, if the member is not an executive officer of theforeign private issuer.

Key differences between NYSE corporate governance listing rules and Telkom practice as of March 31, 2008 are:

NYSE rules Telkom practice

Board of DirectorsComposition The Board of Directors should The majority of Telkom’s Directors are Non-executive Directors.

have a majority of Three of the ten Directors are considered independent, based onindependent Directors. the King II definition of “independent”. Based on their ordinary

shareholding at March 31, 2008 and their holding of the Class Aand Class B shares respectively, the South African Government isentitled to appoint five Directors to the Board, while Black Ginger33, is entitled to appoint one Director to the Board.

King II defines an independent Director as a Non-executiveDirector who:

Is not a representative of a shareowner who has the ability tocontrol or significantly influence management;

Has not been employed by the company or the Group, ofwhich it currently forms part, in any executive capacity for thepreceding three financial years;

Is not a member of the immediate family of an individual whois, or has been in any of the past three financial years,employed by the company or the Group in an executivecapacity;

Is not a professional advisor to the company or the Group otherthan in a Director capacity;

Is not a significant supplier to, or customer of the company orGroup;

Has no significant contractual relationship with the company orGroup; and

Is free from any business or other relationship that could beseen to materially interfere with the individual’s capacity to actin an independent manner.

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NYSE rules Telkom practice

Board committeesCommittees Companies are required to Telkom has an ARMC, HRRRC, investment, strategy, and a required establish an audit committee, nominations committee. For the description and composition

a nominating or corporate of these committees and the members please refer to page 47.governance committee and a Board members who are not appointed by the Class A and Bcompensation committee. Each shareholders are appointed by shareholders at the AGM asof these committees must have a stipulated in Telkom’s articles of association. Telkom does notwritten charter that addresses perform an annual performance evaluation of each committee.certain matters specified in theNYSE listing standards, including the committee’s purpose andresponsibilities and an annualperformance evaluation of each committee.

Composition All of the required committees All the committees have Non-executive Directors as members.should be composed entirely of However, not all non-executive members are independent.independent Non-executive Directors.

Audit committeeWritten charter The audit committee must have a The ARMC has a written charter. The responsibilities of the ARMC

written charter that addresses are described in further detail in the Audit and Risk Managementcertain matters specified in the Committee charter. Telkom’s charter, as a listed issuer, complies NYSE listing standards, including with Sarbanes-Oxley requirements. The charter can be accessedthe committee’s purpose, an at www.telkom.co.za/ir.annual performance evaluation and the duties and responsibilities of the auditcommittee.

Composition The audit committee must include The following are the members of the Audit Risk Managementa minimum of three members that Committee as of June 30, 2008:satisfy the independence PSC Luthuli (Chairman);requirements of both the NYSE RJ Huntley; andlisting standards and the AG Rhoda (resigned July 3, 2008).Sarbanes-Oxley Act.

Telkom’s Audit and Risk Management Committee is to consist ofnot less than three Non-executive Directors. As a result of theresignations of MJ Lamberti on June 3, 2008 and AG Rhoda onJuly 3, 2008 from the Telkom Board of Directors and allcommittees thereof, Telkom’s Audit and Risk ManagementCommittee currently consists of two Non-executive Directors, oneof whom is a representative of the Government of South Africa.The Board of Directors is currently assessing the composition andmembership of all the committees of its Board of Directors,including the Audit and Risk Management Committee, and intendsto address any instances of non-compliance with their charters bythe end of the 2008 calendar year. Telkom’s current articles ofassociation requires shareholders to approve the appointment ofany members of Telkom’s Board of Directors, other than theDirectors nominated by the Class A and Class B shareholders, andTelkom’s Class A and Class B shareholding rights granted in itscurrent shareholders agreement that will expire in March 2011restricts the Board’s ability to appoint independent members.


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NYSE Rules Telkom practice

Telkom’s Board of Directors expects to request a special generalmeeting in which it intends to propose an amendment to its currentarticles of association to permit the Board of Directors to appointindependent Directors when a casual vacancy occurs, whom canthen be retired and made available for re-election at the firstannual general meeting following their appointment.

In addition, AG Rhoda, who served on the Telkom Audit and RiskManagement Committee from March 5, 2008 to July 3, 2008 wasa representative of the Public Investment Corporation, aninvestment management company wholly owned by the SouthAfrican Gorvernment. Because the Public Investment Corporationdirectly beneficially owned 6.6% of Telkom’s issued and 6.8% ofTelkom’s outstanding shares and Black Ginger, a wholly ownedsubsidiary of the Public Investment Corporation owned 9.0% ofTelkom’s issued and 9.3% of Telkom’s outstanding ordinary sharesand the Class B ordinary share, AG Rhoda’s appointment to theTelkom Audit and Risk Management Committee may have violatedthe New York Stock Exchange rules and Rule 10A-3(b)(1) of theExchange Act that require that each member of the auditcommittee of a listed issuer to be independent. Any such violationwas corrected by AG Rhoda’s resignation on July 3, 2008.

Telkom’s Board of Directors has determined that the chairman of itsaudit committee, Mr Sibusiso Luthuli, is the audit committeefinancial expert within the meaning of Item 16A. (b) and (c) of therequirements of Form 20-F of the SEC. The SEC has determinedthat the audit committee financial expert designation does notimpose on the person with that designation, any duties,obligations or liability that are greater than the duties, obligationsor liabilities imposed on such person as a member of the auditcommittee of the board of directors in the absence of suchdesignation. Mr Luthuli is a qualified Chartered Accountant (SA).

Each of the members of the audit For members’ work experience refer to pages 26 to 29 under committee must be financially Board of Directors. The Chairman of Telkom’s ARMC, PCS Luthuli,literate. In addition, at least one who is a Chartered Accountant, is considered an audit committeemember of the audit committee financial expert within the meaning of item 16A of the must have accounting or related requirements of Form 20-F in terms of the definition in thefinancial management skills. Sarbanes-Oxley Act. The SEC has determined that the auditAn audit committee financial committee financial expert designation does not impose on theexpert within the meaning of the person with that designation any duties, obligations or liabilitiesSEC rules adopted pursuant to that are greater than the duties, obligations or liabilities imposedthe Sarbanes-Oxley Act satisfies on such person as a member of the audit committee in thethis requirement. absence of such designation.

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NYSE Rules Telkom practice

Disclosure and communicationCorporate governance guidelines Listed companies are required to The corporate governance statement is available on the

adopt, and post on their websites, company’s website, www.telkom.co.za/ir.a set of corporate governance guidelines and the charters of their most important committees, including at least the audit, and if applicable, compensation and nominating committees. The guidelines must address, among other things: Director qualification standards, Director responsibilities, director access to management and independent advisers, Director compensation, Director orientation and continuing education, management succession, and an annual performance evaluation of the Board of Directors.


Internal controls

Telkom has a well established internal control environmentmonitored by the ARMC, whose duties include:

Assessing the company’s risk areas;

Consistent monitoring of systems and processes in place toprevent and/or mitigate these risks; and

Reviewing the quality of reporting and adherence to internal policies.

This incorporates internal control procedures designed to providereasonable assurance that the company’s assets are safeguardedand the risks facing the business are being assessed and mitigated.

Telkom’s internal controls are based on established writtenpolicies and procedures which are monitored throughout theGroup and are applied by sufficiently skilled personnel withappropriate segregation of duties, through clearly defined linesof accountability and delegation of authority.

The internal control environment is supported by Telkom’s BusinessCode of Ethics, which sets the standards of professionalism andintegrity. An effective internal control environment has oversightfrom Telkom’s active and participative Board and its relatedcommittees. The Board reviews and monitors key risk areas andkey performance indicators of the business, and have checksand balances in place for an effective control environment.

The company’s organisational structure facilitates and allows theflow of information upstream, downstream, and across allbusiness activities. This is supported by formal mechanisms inplace to communicate the responsibilities and expectations ofbusiness activities at executive level.

The Board assesses the company’s risk dashboard and ensuresthat the necessary procedures are in place to facilitate effectiveenterprise risk management, which entails identifying, measuringand taking action to manage the risk.

Existing internal control mechanisms are in place to anticipate,identify and react to risks arising from external and internalenvironments. The risk analysis process is well defined at policyand procedure level providing sufficient guidance on riskassessment and mitigation.

Section 404 of the Sarbanes-Oxley Act requires companies listedon the NYSE to comprehensively evaluate and report on theeffectiveness of their internal control over financial reporting onan annual basis. To this extent a process exists within thecompany to monitor and respond to the requirements of Section404 of the abovementioned Act. Progress reports are submittedat least quarterly to the ARMC which in turn reports to the Board.

The reports are provided to the Board by Telkom’s managementwith appropriate and timely information about the business,operations and general affairs of the Telkom Group.

Telkom’s internal audit (TIA) function plays a key role in providingan objective view and continuous assessment of the effectivenessof internal control systems throughout Telkom to both

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management and the ARMC. Mechanisms are in place forcapturing and reporting identified internal control weaknesses,including processes that ascertain the level at which deficienciesare reported. Significant deficiencies and material weaknessesin internal controls are reported to top management, the Boardor the ARMC, and the external auditors.

TIA also provides information to management, ARMC and theBoard on the status and results of the annual audit plan and thesufficiency of the departmental resources.

Telkom internal auditTIA, in line with global best practices, is a value adding,independent and objective assurance and consulting function,designed to add value to and improve the organisation’soperations. Its mandate is to give an independent assessment ofreliability of financial reporting, validate control systems andgive an oversight of management and overall business activities,bringing a systematic, disciplined approach to the evaluationand improvement of the effectiveness of enterprise riskmanagement, internal controls and corporate governanceprocesses. In carrying out its mandate, TIA coordinates withother control and monitoring functions, being enterprise riskmanagement, compliance, security, legal, ethics, environmentand external audit.

TIA is required to provide reasonable assurance and to determinewhether or not the organisation’s control processes and systemsare adequate and functioning in a manner that ensures:

Resources and assets are effective and efficiently utilised andadequately protected;

Risks are appropriately identified and managed;

Significant financial, managerial and operational informationis accurate, reliable and timely;

Employees’ actions are in compliance with policies, standards,procedures and applicable laws and regulations;

Significant legislative or regulatory issues impacting theorganisation are recognised and addressed appropriately; and

Assessments of the adequacy and effectiveness of theorganisation’s corporate governance, risk and controlprocesses for controlling its activities and managing its risks, setdown in the mission and scope of work, are provided regularly.

To ensure the independence of TIA, the acting Executive of TIA,reports functionally to the ARMC Chairman and administrativelyto the acting Chief of Finance, with direct access to the ChiefExecutive Officer. In this context, the ARMC oversees processesrelated to financial risks and internal controls, financialreporting and the monitoring of internal and external auditingprocesses. In carrying out its duties, the team has unrestrictedaccess to all Telkom functions, records, property and personnel.

The TIA team conducts audit work, or any other task, inaccordance with the internal auditing standards set by theglobally recognised Institute of Internal Auditing (IIA). Thisrequires compliance with the Standards for Professional Practiceof Internal Auditing (SPPIA), in particular, the codes of conductand ethics that are promulgated from time to time by relevantprofessional bodies, and any other corporate governanceinitiatives. Internal Audit practices and activities are alsobenchmarked independently by an authoritative external partyas recommended by the SPPIA and required by the ARMC.

DISCLOSURE COMMITTEE

During the year under review Telkom has established a disclosurecommittee for the purposes of facilitating all Telkom disclosureprocedures in furtherance of Telkom’s obligations under Section302 of the Sarbanes-Oxley Act. Such procedures are designedto source information that is relevant to an assessment of theneed to disclose developments and risks that pertain to thecompany’s various businesses, and their effectiveness for thispurpose will be reviewed periodically. The committee is mainlyfocused on ensuring complete, accurate dissemination ofinformation and fair representation of the company’s financialposition and operations on a timely basis within the applicableregulatory and legal frameworks.

The Disclosure committee works with the compliance officer inline with ensuring overall company compliance. It works to assistthe Chief Executive Officer, Chief of Finance and the Board ofDirectors in fulfilling their responsibilities amongst which:

Design and establish controls and other procedures;

Monitor the integrity and effectiveness of the company’sdisclosure controls and procedures on an ongoing basis;

Review current and future material developments and adviseon the company’s timely disclosure obligations with respectthereto;

Supervise, advise on and review the preparation and timelypublication and filing with regulatory authorities;

Evaluate and advise on the effectiveness of the company’sinternal control over financial reporting and disclosure controls.

The committee’s purpose is to ensure that the companyimplements and maintains internal procedures for the timelycollection, evaluation and accurate disclosure, as appropriate, ofinformation potentially subject to public disclosure under thelegal, regulatory and stock exchange requirements to which thecompany is subject and which is made available in the marketplace or to the investment community.

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Managing risk in an organisation as diverse as Telkom requiresa strong enterprise risk management culture. How we respond toour risks has an impact on the organisation’s bottom line, and istherefore a key strategic function. Enterprise Risk Management(ERM) ensures a risk-conscious culture within the organisation,which is critical to achieving our strategic business objectives.

The Telkom Board of Directors is ultimately accountable andresponsible for the performance of the organisation. The Boardand senior management demonstrate well-managed, informedand risk-conscious decision making, aligned with our corporatevalues and the Telkom Business Code of Ethics. Telkom’s BusinessCode of Ethics can be accessed on www.telkom.co.za/ir.

General risks faced by Telkom and the broader telecommunicationsindustry include regulatory challenges, increasing competitionand a decline in the average revenue per user of fixed andmobile voice services. Risks are an inherent part of doingbusiness, and as such Telkom strives to not only respond to risksas a threat, but as an opportunity for continuous improvement.

Corporate governance has moved beyond a singular focus ondirecting an organisation, to encompass a more deliberate andsystematic focus on management’s ability to manage risks withinthe business. Although the principles of ERM are widely practicedthroughout Telkom, integrating risk consciousness into oureveryday business activities remains a priority.

Telkom’s enterprise riskmanagement is focused onproactive managementof risk throughout theGroup, taking into accountthe health and safety of ourpeople, the environment weoperate in, our assets, theirearnings capacity andshareholder value.

Enterpriserisk management

RISK AND VISION

Linking ERM to the strategic objectives and vision of theorganisation is crucial in ensuring shareholder value. Telkom’srisk philosophy states that the health and safety of our peopleand the environment in which we operate, combined withpreserving our assets and earnings capacity, are essential to the

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future of our business and relevant to all our stakeholders.Managing risk is the responsibility of every person at Telkom.

Telkom aims to minimise risk wherever possible. The Board hasdetermined the level of acceptable risk to Telkom, and requiresthat the senior and line management of each division within theorganisation manages and reports risks accordingly. Seniormanagement approves procedures and controls to implementour risk policy effectively and efficiently, and managementthroughout the Group enforces these controls.

The scope of ERM encompasses the Telkom Group including allits subsidiaries. The ERM division plays a key role in enabling theproactive management of risk throughout the Group.

IMPROVEMENTS AND DEVELOPMENTS

ERM continues to pursue best-practice methodologies, guided bythe Committee of Sponsoring Organisations of the TreadwayCommission (COSO) framework. Our renewed focus on riskcommunication and awareness is designed to ensure a systematicapproach that does not neglect any aspect of ERM. It is beneficialfor divisions within the business to report risks in a forward-looking context and strengthen risk disclosure capabilities.

Telkom has entrenched a risk culture at the strategic level of theorganisation. The Audit and Risk Management Committee(ARMC), Telkom Executive Risk Management Committee (TERMC)as well as the subcommittee to TERMC vigorously debate ERMissues, ensuring that ERM forms part of all business planning andoperations. This further demonstrates senior management’ssupport for the process and their drive to create an internalenvironment that is conducive to enterprise risk management.

In the interest of continuous improvement Telkom performed aenterprise risk management maturity assessment to benchmarkthe effectiveness of its processes. A number of positive findings,as well as areas for improvement, were identified to assist therisk management functions.

The following factors contribute to our enabling environment foreffective risk management:

Our enterprise risk management policy and framework;

ERM responsibilities are allocated to authoritative committees;and

We have a clear organisational structure and human resourcepolicies (such as our Business Code of Ethics) that addressrisk mitigation.

ERM processes must coordinate with other risk processes to bemost effective and efficient. The TERMC took the decision toreview the context within which ERM operates, with the view ofincreasing its effectiveness. To this end, enterprise risk managementin Telkom has aligned with Telkom Asset and Revenue ProtectionServices (TARPS) as part of a new structure. This realignmentcreates a joint platform towards a common approach inmanaging risk.

Telkom’s objectives in managing risk are to:

Align the risk-taking behaviour of Telkom with the key strategicbusiness objectives as defined;

Protect the reputation and brand of Telkom SA Limited globally;

Promote a risk awareness ethic and improve risk transparencyto shareholders;

Maximise (create, protect and enhance) shareholder valueand net worth by managing risks that may impact definedfinancial and performance drivers;

Identify risk improvement opportunities in areas of operationalresponsiveness that impact customer satisfaction and efficiencymanagement, in order to deliver an improved operatingperformance;

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Support the business growth strategy through well-definedERM methodologies;

Monitor and ensure that Telkom’s enterprise risk managementstandards and best practice are subscribed to by subsidiary

companies, and minimise the potential for incurring riskthrough such investments; and

Assist the business in enhancing and protecting opportunitiesthat represent the greatest earnings potential.

Enterprise risk management continued

ENTERPRISE RISK MANAGEMENT GOVERNANCE

Enterprise risk management at Telkom is guided and monitored by various committees that have adopted certain principles to assistthem in executing their respective enterprise risk management functions. The model below outlines the key enterprise risk managementstructures, the key role-players and their roles and responsibilities.

Responsible for:Reviewing andapproving:• Risk philosophy• Risk management

principles• Risk appetite and

tolerance

Supportive of:Risk management culturein Telkom

Responsible to:• Regulators• Stakeholders• Government• Community

Supported by:• Board committees

Telkom Board of Directors

Ultimately responsiblefor all risk within

the Group

Responsible for:Implementing:• Approved risk

policies• Risk management

principles

Supportive of:Reviewing risk strategiesand submitting these tothe Board for approval

Responsible to:• Board• Regulators• Stakeholders

Supported by:• Risk forums• Audit and compliance• Executive committee

Audit and Risk Management Committee

(ARMC)

Responsible for:Coordinating andupdating the review of:• Risk philosophy• Strategy• Policies

Supportive of:To give effect to the riskmanagement policiesdefined by ARMC

Responsible to:• ARMC

Supported by:• Risk forums• Risk management• BC-DR steering

committee• Compliance

Telkom ExecutiveRisk Management

Committee(TERMC)

Responsible for:Reviewing:• Risk profiles• Management

responses• Key risk indicators

Supportive of:Prioritising andidentifying Telkom’sprimary risks

Responsible to:• TERMC

Supported by:• TERMC• Service organisations• Risk management

Telkom ExecutiveRisk Management

Sub-Committee(SUB-TERMC)

Responsible for:• Risk management

process• Group risk profile• Risk limits• Control and

compliance

Supportive of:• CEO

• Board

Responsible to:• CFO• CEO• TERMC/ARMC• Board

Supported by:• Risk management• Specialist functions

EnterpriseRisk Management

Division

Responsible for:Guidance and assistance

Supportive of:Compliance and audit

Responsible to:• Executive committee• Chief of service

organisations

Supported by:• Board• CEO• Executive committee

Reliance on specialist functionsAssist and focus on

main risk areasAudit TARPS Compliance

BC/DR SAOX SHE

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Enterprise risk management at Telkom is guided by severalprinciples, which are as follows:

Telkom regards risk management as an integral part of goodmanagement practice, at both a strategic and operationallevel. Our goal is to align risk management with the Telkomcorporate values, to encourage excellence at all times;

The ERM policy is based on international best practice and isaimed at enhancing value for all of Telkom’s stakeholders;

The underlying principles of developing and implementing theprocess of risk management within Telkom are: The increasein risk management sophistication, the availability of qualityrisk-reward information, and satisfying overall organisationalneeds through alignment with business objectives;

Key performance indicators for the process of risk manage -ment must be defined, measured, analysed and responded toat various intervals throughout the Group, done internally orthrough independent parties as appropriate, the results ofwhich will be tabled at ARMC meetings; and

The ERM approach ensures that the Board is provided, in atimely manner, with periodic reports and updates on themajor risks faced by Telkom, as well as regularly reviewingand approving risk management policies for controlling suchrisks. This enables the Board to effectively discharge its duties.

RESPONSIBILITY AND ACCOUNTABILITY

Telkom Board of DirectorsTelkom’s Board is ultimately responsible for the risk managementprocess within the Group. In particular the Board approvesTelkom’s risk strategy in liaison with, and through the recom -mendation of the ARMC. The Board proactively overseesTelkom’s risk strategy formulation, risk methodologies and riskassessments, as well as reinforces the Group’s commitment tosound enterprise risk management. The Board ensures thatmanagement has appropriate capabilities in place to implementapproved risk responses.

Audit and Risk Management Committee (ARMC)The ARMC is empowered by the Board to conduct or authoriseinvestigations into any matter within its scope of responsibility. TheARMC is responsible for reviewing the risk philosophy, strategyand policies and making recommendations for consideration andapproval by the Board. The ARMC monitors the management ofrisk, to ensure that it is aligned with risk strategies and guidelines.Furthermore, the ARMC monitors external developments that mayaffect Telkom and that may relate to the practice of corporateaccountability and the reporting of specifically associated risk,including emerging and prospective impacts.

Telkom Executive Risk Management Committee (TERMC)The TERMC is authorised by the ARMC to carry out any activitywithin its terms of reference, and has established a sub-committeewith representatives nominated by the respective chiefs of serviceorganisations within the company. The TERMC coordinates theupdating and review of the risk philosophy, strategy and policies.In performing this coordinating function the TERMC relies oninformation and input from a variety of sources such as riskforums, compliance, and the business continuity and disasterrecovery committee.

Enterprise Risk Management divisionThe ERM division is responsible for monitoring and controlling theERM process throughout the Group. By facilitating the ERMprocess, the risk management function assists Telkom to make themost appropriate risk based decisions. This facilitation processcontributes to providing business risk identification and assessmentthat considers risk in the context of achieving Telkom’s objectives.Enterprise risk management is accountable to the CEO, ActingCFO, ARMC (through TERMC), and ultimately the Board.

Reliance on specialist functionsA variety of sources support the ERM process, including internalaudit, TARPS, legal compliance, BC/DR, SAOX and SHE.Although ultimate responsibility for risk management lies with theBoard, the responsibility also rests with every individual withinthe organisation. The ERM framework adopted by Telkomrequires managers within the organisation to support the Telkomrisk philosophy, manage compliance with the company’s riskappetite and manage risks within their service organisations.

ENTERPRISE RISK MANAGEMENT FRAMEWORK

The ERM framework represents Telkom’s coordinated plan forrisk management across the Telkom Group, including subsidiarycompanies and key investments for which Telkom assumesmanagement responsibility.

The ERM function assists service organisations within the Groupto produce this risk profile in a consistent manner. During thisprocess:

Each service organisation performs a risk exposure analysisin consultation with ERM who then produce a risk profile thatdemonstrates the management of key risks and opportunitiesidentified;

A copy of the risk profile is forwarded to the ERM functionfor consolidation and submission to the Telkom TERMC andARMC; and

TERMC is responsible for analysing risk exposures, to ensurethat risk control and management efforts are not duplicated,gaps in risk identification are avoided, and interdependenciesof risk are identified and managed in a timely manner.

Achievements Activities Outcome

Promoting staff awareness

A fraud awareness week was held during November. After the awareness campaign, employees feel more comfortable inreporting irregularities to the crime centre and show confidence inTARPS to investigate the reported incidents. Employees within TARPSplay a major role in ensuring that employees have confidence in theprocesses of investigating incidents of fraud, and of Telkom’s whistleblowing policy.

Control measures implemented to reduce fraud incidents Commitment by line management to implement controls to ensure theprevention and timely detection of fraud.

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evidence that meets the agreed standard of proof required forthe relevant forum.

Fraud prevention activitiesThe TARPS forensic charter was approved by the ARMC. Thischarter provides independent, fair and objective investigation,detection and/or prevention of possible irregularity or possiblefraudulent action. In order to prevent any further loss Telkom maytake disciplinary action, seek to recover the monies or assetsdefrauded and/or pursue a criminal prosecution. This charterillustrates top management’s commitment to eradicatingmisconduct, and also serves as a good corporate governance tool.

A fraud committee has been established as an independent bodynot bound by any prejudicial interest, and its purpose is to ensurethat all forms of fraud are monitored (including network, financialor cable fraud) and that proactive measures are proposed andimplemented.

Asset theft remains a growing concern, with the theft of electronicequipment being a particular problem. Additional securitymeasures are being implemented, and security assessments arecontinuously conducted where these losses occur to identifyweaknesses or breaches and prevent reoccurrence.


Telkom’s methodologies are defined through continued researchand development, and benchmarked against international bestpractice. The methodologies transfer knowledge and riskmanagement techniques to and within the Telkom Group whileapplying a consistent approach throughout the Group, andencourage interaction between the various Telkom serviceorganisations, regional offices and owners of key businessprocesses.

TELKOM ASSET AND REVENUE PROTECTIONSERVICES (TARPS)

TARPS has a specific mandate from the ARMC to provideforensic services and protect Telkom’s assets. The scope of TARPSincludes ensuring that fraud and corruption within Telkom isminimised and prevented wherever possible.

Forensic servicesForensic services conduct fraud risk assessments for theorganisation, ensure a culture where fraud is not tolerated, andthat there is awareness of fraud-related matters throughout theorganisation. Where, however, fraud and/or corruption doesoccur, forensic services will mount investigations and gather

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Statistics for 2008

2007 2008 % change

Total incidents reported 9,279 7,954 (14.3)Total incidents investigated 8,863 7,838 (11.6)Total cases resolved 8,443 6,427 (23.9)

Incident types investigated

Incidents 2007 2008

Asset theft 1,794 2,026Burglary 117 141Business Code of Ethics 294 293Cable 3,399 3,198Fraud 192 124Line management requests 72 27Network fraud 786 716Payphones 224 157Projects (Forensics)(1) 3 –Reputational risk – Telkom refund scam 594 469Robbery 111 159Security breaches 57 16Solar panel theft 1,124 473Vehicle 96 39

(1) No new projects in this reporting period, only individual investigations wereregistered and conducted.

Security servicesTelkom utilises both physical and technical security services:

Physical security: The physical security division of TARPScontrols physical access to all Telkom sites nationally, as wellas guarding and protecting assets. This includes themanaging of security service contracts.

Technical security: The technical security division of TARPSprovides crucial electronic security solutions to effectivelysecure the company’s assets.

Cable theftTelkom has experienced financial losses due to copper and fibrecable theft. Highly organised syndicates target our main cablenetwork and open wire routes, however petty crime is alsoincreasing on the smaller cable routes.

The following are cable theft statistics for the year under review:

Cable theft losses are based on the:

Security cost: R142.1 million;

Cost of alarm systems: R38.6 million;

Repair cost of copper: R151.2 million; and

Repair cost of fibre: R7.9 million.

Estimated outbound revenue loss due to cable theft:

Year ended March 31,2006 2007 2008

(in millions) ZAR ZAR ZAR

Outbound revenue 61.9 368.1 626.3

Cable theft incidents logged:


Copper 6,783 16,578 15,496Fibre 170 256 339

Total 6,953 16,834 15,835

During the year under review, Telkom made 1,079 arrestsresulting in 165 successful convictions. There has been areduction in the number of incidents of cable thefts in certainareas. A reduction of R6 million was shown for losses in cabletheft for April 2008 compared to April 2007. We hope to seethe benefits of armed response vendors materialise in the 2009financial year.

The following table outlines a number of initiatives to combat cable theft for the year under review:

Control mechanism Outcome

Risk reduction

• Place cables underground by converting overhead Reduction of cable losses in certain areas.routes to underground routes.

• Replace manhole covers with lockable covers.

• Move routes to more secure locations.

• Replacement technologies.

Involvement of external bodies

• Business Against Crime Decrease in cable theft incidents. This can be ascribed to a number

• Non-Ferrous Theft Combating Committee of strategies deployed by the company, for example wireless

• South African Police Services technologies, replacing overhead cables with underground cables

• Department of Public Prosecution and targeting scrap metal dealers.

Lobbying amendments to the Second Hand Goods Act, Awaiting amendment of Second Hand Goods Act.to have copper declared as being in the same category as diamonds.

Media strategy to communicate the problem of cable Increased public awareness around cable theft. Telkom has runtheft to the public. various campaigns to create public awareness of cable theft and how

it affects all sectors of the economy. These campaigns included,among others, television advertisements, radio interviews andmeetings with farming communities (Agri SA).

Establish a closer relationship with communities. Awareness and reduction in cable theft.


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RISK FACTORS

Telkom advises that the risks described below are carefullyconsidered in conjunction with the other information and theconsolidated financial statements of the Telkom Group andVodacom, and the related notes thereto included elsewhere inthis annual report, before making an investment decision withrespect to Telkom’s ordinary shares or the American DepositoryShares (ADSs).

Detailed information on the risks is available on Telkom’s websitewww.telkom.co.za/ir and also published and filed with theSecurities and Exchange Commission in Telkom’s annual reporton Form 20-F for the year ended March 31, 2008 and its otherfilings and submissions with the SEC.

Risks related to our businessAny changes to Telkom’s mobile strategy and its inability tosuccessfully implement such strategy and organisationalchanges thereto, could cause our growth rates, operatingrevenue, net profit and dividends to decline.

Increased competition in the South African telecommunicationsmarket may result in a reduction in overall average tariffs andmarket share and an increase in costs in our fixed-line business,which could cause our growth rates, operating revenue andnet profit to decline and our churn rates to increase.

Increased competition in the South African data communicationsmarket may adversely impact our growth rates, operatingrevenue and net profit.

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We may not be successful in implementing our strategy oftransforming from basic voice and data connectivity to fullyconverged solutions offering integrated voice, data, videoand Internet services and managing costs through ourcapability management program, which could adverselyimpact our ability to maintain profitability by growing andprotecting revenue, while managing costs.

There are significant political, economic, regulatory, taxationand legal risks associated with Vodacom’s and Telkom’sAfrican investments outside of South Africa, which couldadversely affect their businesses and cause their financialcondition and net income to decline.

The number of commercially attractive acquisition andinvestment opportunities for our fixed-line and mobilebusinesses on the African continent is limited. Moreover, theconsummation of acquisitions and investments may beunsuccessful, which could have a material adverse effect onTelkom’s and Vodacom’s future growth.

The growth in the mobile market in South Africa has resultedin an increase in the number of Vodacom and Telkom callsterminating on mobile networks as opposed to our fixed-linenetwork. Vodacom’s and Telkom’s net interconnect marginsand net profit could decline if this trend continues.

Increased competition in the mobile communications marketsin South Africa and other African countries may result in areduction of Vodacom’s average tariffs and Vodacom’s marketshare and increased customer acquisition and retention costs,which could cause Vodacom’s growth rates, revenue and netprofit to decline and its churn rates to increase.

If we are not able to continue to improve and maintain ourmanagement information and other systems, we could besubject to losses and inaccuracies in our financial reporting,and our ability to provide accurate and comprehensiveoperating information and to compete may be harmed andour share price could decline.

If we lose key personnel or if we are unable to hire and retainhighly qualified employees and partners, our businessoperations could be disrupted and could impact on our abilityto compete successfully.

We do not have the right to appoint the majority ofVodacom’s Directors or members of its directing committeeand the Vodacom joint venture agreement contains approvalrights that may limit our flexibility and ability to implement ourpreferred strategies.

If Vodacom does not continue to pay dividends or make otherdistributions to Telkom, Telkom may not be able to paydividends and service its debt and could be required to loweror defer capital expenditures, dividends and debt reduction,which could cause the trading prices of Telkom’s ordinaryshares and ADSs to decline.

We have negative working capital, which may impair ouroperating and financial flexibility and require us to defercapital expenditures, and we may not be able to paydividends and our operations and financial condition couldbe adversely affected.

Continuing rapid changes in technologies could increasecompetition or require us to make substantial additionalinvestments in technologies and equipment, which couldreduce our return on investment and net profit.

If we continue to experience high rates of theft, vandalism,network fraud, payphone fraud and lost revenue due to non-licenced operators in our fixed-line business, our fixed-linefault rates could increase and our operating revenue and netprofit could decline.

Delays in the development and supply of communicationsequipment may hinder the deployment of new technologiesand services and 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 relatedpublicity or litigation could make it difficult to find attractivesites 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 Governmentof South Africa and major shareholders

Telkom’s major shareholders are entitled to appoint themajority of Telkom’s Directors and exercise control overTelkom’s strategic direction and major corporate actions.

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If we are unable to recover the substantial capital andoperational costs associated with the implementation ofcarrier pre-selection and number portability or are unable toimplement these requirements in a timely manner, ourbusiness operations could be disrupted and our net profitcould decline. The implementation of carrier pre-selection andnumber portability will also likely further increase competitionand cause our churn rates to increase.

The implementation of the Regulation of Interception ofCommunications and Provisions of Communication-RelatedInformation Act, or RICA, could be costly and may negativelyimpact the ability of Telkom and Vodacom to registercustomers and may require them to disconnect existingcustomers, causing their penetration rates, growth rates,revenue and net profit to decline.

If Telkom is required to comply with the provisions of the SouthAfrican Public Finance Management Act, 1 of 1999, (PFMA),and the provisions of the South African Public Audit Act of2004, (PAA), Telkom could incur increased expenses and itsnet profit could decline and compliance with the PFMA andPAA could result in the delisting of Telkom’s ordinary sharesand ADSs from the JSE and New York Stock Exchange.

Our total property tax expense could increase significantlyand our net profit could decline as a result of the enactmentof the South African Local Government: Municipal PropertyRates Act, 6 of 2004.

Risks related to the Republic of South AfricaFluctuations in the value of the Rand and inflation rates inSouth Africa could have a significant impact on the amountof Telkom’s dividends, the trading prices of Telkom’s ordinaryshares and ADSs, our operating revenue, operatingexpenses, net profit, capital expenditures and on thecomparability of our results between financial periods.

The levels of unemployment, poverty and crime in SouthAfrica may cause the size of the South African commu -nications market and our growth rates, operating revenue andnet profit, as well as the trading prices of Telkom’s ordinaryshares and ADSs, to decline.

Should the country continue to experience high occurrencesof power outages Telkom’s operational capacity, expenses

The Government of the Republic of South Africa may use itsposition as shareholder of Telkom and policymaker for, andcustomer of, the telecommunications industry in a manner thatmay be favourable to our competitors and unfavourable to us.

Risks related to regulatory and legal mattersThe regulatory environment for the telecommunicationsindustry in South Africa is evolving and regulationsaddressing a number of significant matters have not yet beenmade. The interpretation of existing regulations, the adoptionof new policies or regulations that are unfavourable to us, orthe imposition of additional licence obligations on us, coulddisrupt our business operations and could cause our net profitand the trading prices of Telkom’s ordinary shares and ADSsto decline.

Our tariffs are subject to approval by the regulatoryauthorities, which may limit our flexibility in pricing and couldreduce our revenues and net profit. Vodacom’s revenue andnet profit could also decline if wholesale price controls areimposed on it.

Any payments to Telcordia Technologies Incorporated(Telcordia), in the damages phase of its arbitrationproceedings against Telkom, will be required to be fundedby Telkom from cash flows or the incurrence of debt, whichcould have a material adverse effect on its financial conditionand results of operations.

We are parties to a number of legal and arbitrationproceedings, including complaints before the South AfricanCompetition Commission. If we lose these legal and arbitrationproceedings, we could be prohibited from engaging incertain business activities and could be required to paysubstantial penalties and damages, which could cause ourrevenue and net profit to decline and have a material adverseimpact on our business and financial condition.

If we are required to unbundle the local loop, or are unableto negotiate favourable terms and conditions for the provisionof interconnection services and facilities leasing services, orICASA finds that we or Vodacom have significant marketpower or otherwise imposes unfavourable terms andconditions on us, our business operations could be disruptedand our net profit could decline.

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and revenues will be affected and its operating revenue andnet profit could decline.

The high rates of HIV infection in South Africa could causethe size of the South African communications market and ourgrowth rates, operating revenue and net profit to decline.

Significant labour disputes, work stoppages, increasedemployee expenses as a result of collective bargaining andthe cost of compliance with South African labour laws couldlimit our operating flexibility and disrupt our fixed-linebusiness operations and reduce our net profit.

South African exchange control restrictions could hinder ourability to make foreign investments and procure foreigndenominated financing.

Risks related to ownership of Telkom’s ordinary sharesand ADSs

The future sale of a substantial number of Telkom’s ordinaryshares or ADSs could cause the trading prices of Telkom’sordinary shares and ADSs to decline.

Your rights as a shareholder are governed by South Africanlaw, which differs in material respects from the rights ofshareholders under the laws of other jurisdictions.

It may not be possible for you to effect service of legalprocess, enforce judgments of courts outside of South Africaor bring actions based on securities laws of jurisdictions otherthan South Africa against Telkom or against members of its Board.

Your ability to sell a substantial number of ordinary sharesand ADSs may be restricted by the limited liquidity ofordinary shares.

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INTRODUCTION

Telkom is committed to the empowerment of previouslydisadvantaged individuals and communities. This ethos runsdeeply in the veins of the organisation and is reflected in thecompany’s daily business operations and practices.

EMPLOYMENT EQUITY

Telkom was one of the first companies in South Africa to adoptan employment equity policy in October 1993. This was donebefore it was legally required to do so, and is an example ofTelkom’s deep commitment to transformation and diversity.

This philosophy permeates throughout Telkom, in our procurementpractices that ensure small business development, the diversity inour supplier base as well as the company’s employment policiesthat reflect transformation and employment equity in line with theEmployment Equity Act.

Our employment equity improvements are attributed todeliberate interventions such as targeted recruitment, talentmanagement, succession planning and special developmentprogrammes. Further information on our employment equityachievements can be found in the human capital report on page 68.

Telkom is committed tothe empowerment ofpreviously disadvantagedindividuals and communities.This ethos runs deeply in theveins of the organisation,and is reflected in thecompany’s daily businessoperations and practices.

Blackeconomic

empowerment

PREFERENTIAL PROCUREMENT

Addressing the persisting economic disparities in South Africarequires a concerted and sustained effort by all stakeholders,particularly the broader business community. Telkom has provenitself to be a leader in South Africa’s transformation, and achampion of Broad Based Black Economic Empowerment(BBBEE). Our rigorous and robust preferential procurement policyand our commitment to enterprise development are significantcontributors to this position.

Telkom’s championship in this sphere is also reflected in a totalpreferential procurement spend for the year under review of R9.2 billion (2007: R8.8 billion), which includes suppliers withsignificant BEE programmes. Total BEE spend amounted to70.6% (2007: 69.6%) of Telkom’s total procurement spend.

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The following table outlines this spend, and specifically ourachievements in certain subcategories of procurement.

Telkom’s BEE procurement progress

2008 2008Category Target Actual

Total BEE spend 70% 70.6%Engendered (30% black female) 10% 6.7%Qualifying small enterprises spend 15% 13.4%(black and empowered)Black spend (50.1% black ownership) 25% 39.1%

Growing with our suppliersTelkom has grown together with our suppliers in our mutualunderstanding and application of both our organisation’spreferential procurement policy and the Codes of Good Practicefor BBBEE. Through this process of growth, we are increasinglyfinding synergies between our own and our suppliers’transformation objectives.

The efforts of our people to formulate strategies that address thevarious remaining challenges to our empowerment andtransformation objectives are beginning to bear fruit. Previously,we have seen multi-nationals that have elected not to pursue BEEEquity deals that now have formidable Black equity partners intheir structures. This has seen a 3% improvement on our overallspend as a result of multi-nationals being recognised as BEE spend.

However, we acknowledge that there are still areas forimprovement, and we are committed to working towardsaddressing these areas going forward. The areas ofimprovement include our engendered spend as well asqualifying SMEs spend. In future, we will continue to focus ontender set asides with specific requirements for women. We willalso include more female particiption in the commitment planssigned with our suppliers.

Broad based empowerment through enterprisedevelopmentSmall and medium-sized enterprises (SMEs) constitute 64% ofTelkom’s total supplier base. We recognise that assisting thesebusinesses to improve their service delivery to their customersholds great benefits to all parties concerned. Through ourenterprise development programme, run in part by the TelkomCentre for Learning facility in Midrand, Johannesburg, we havetrained 947 candidates from SMEs during the year under review.This training includes focus areas such as building entrepreneurialcapacity, business process management, and our flagship trainingprogramme, Direct Current Power. Direct Current Power (DCPower) provides technical training to selected suppliers,particularly in electrical engineering related fields. This is to afford

both employees and suppliers training for the use and operationof DC Power to perform first line tasks on power equipmentspecifically related to the telecommunications industry. The mainobjective is to contribute to developing the limited skills in this areaof expertise in South Africa. This training includes field trainingand ensures that more skills are available in the market.

These training initiatives support SMEs to grow their businessesby enabling them to increase the value they create for theircustomers. To this end, just over 20 SMEs have grown theirturnover from approximately R25 million per annum to over R35 million per annum on business from Telkom alone. Thisproves that enterprise development is an effective means tocreate a sustainable base of suppliers that are able to grow intooffering more and/or alternative services to Telkom.

Achievements

During the year under review, Telkom was again honoured for itsachievements in BEE. At the Financial Mail/Empowerdex event,Telkom received the Top Empowerment Companies SurveyAward in Preferential Procurement. We produced a totalpreferential procurement score of 20, which represents a 100%score in this factor of the BBBEE scorecard. The Financial Mail onApril 4, 2008 stated that “Telkom is affirmative procurementrecord is extraordinary.”

The elements that are measured in the Preferential Procurementscorecard are the following:

Purchasing from Black owned companies (a company withmore than 51% Black equity ownership).

Purchasing from companies with a turnover of less than R35 million, these are classified as Qualifying SmallEnterprises (QSE).

Purchasing from Engendered companies (a company with aminimum of 30% Black Female Equity Ownership).

BBBEE measures seven elements which are Ownership,Management and Control, Employment Equity, Skills Development,Preferential Procurement, Enterprise Development and SocioEconomic Development. Amongst these seven elements Telkomdemonstrated its commitment towards transformation byreceiving full score on both the Preferential Procurement and theManagement and Control elements.

lives through people

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Technology

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Telkom employs people throughout South Africa and in severalAfrican countries where we maintain a presence. It is in thesecommunities where our employees live and work that Telkom’scontribution to society is most visible, through our employees’direct contribution to the local economy within their communities,and to a communications network that connects communitymembers to each other and the world.

We believe that the talents, experiences and diversity of ouremployees, together with our innovative technology, are whatdefine our value. Telkom aims to empower all employees throughvarious solutions focused on developing our human capital.

OUR DIVERSE WORKFORCE

As at March 31, 2008 Telkom employed 24,879 (2007:25,864) fulltime employees. The majority of our employees(69%) are deployed in operational and support roles (2007:69.3%), with 20.7% (2007: 20.5%) in supervisory roles, and10.3% (2007: 10.2%) in management positions. A further3,801 (2007: 5,807) temporary and contract workerssupported us in achieving our business goals.

We believe that the talents,experiences and diversityof our employees,together with our innovativetechnology, are what defineour value.

Humancapital

management

Our employees are widely distributed throughout South Africa,with some representation in other African countries. The distributionof our employees in South Africa, largely corresponds with thatof our customer base.

Employment equity achievements

In line with our commitment to transformation and diversity,Telkom proactively adopted an employment equity policy inOctober 1993, which formed the basis of the process designedto change the demographics of the workforce within theorganisation. The workforce profile at the time was 46% black

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and 19% women. Since then material changes have occurredas evidenced by the current workforce profile which, at the endof March 2008, stands at 60% black and 27% women. Theseimprovements are attributed to deliberate interventions such astargeted recruitment, talent management and successionplanning as well as special development programmes.

In compliance with the Employment Equity (EE) Act and SkillsDevelopment Act, Telkom annually submits EE progress reportsand plans, as well as a workplace skills plan, to the Departmentof Labour. Furthermore, Telkom has established a nationalemployment equity forum (NEEF), which serves as a consultationforum with organised labour on employment equity and skillsdevelopment matters.

The table below depicts our progress in employment equity:

2005 2006 2007 2008(%) (%) (%) (%)

OperationalBlack 63 65 66 67Female 29 27 28 29

SupervisoryBlack 42 44 46 47Female 22 22 23 24

ManagementBlack 36 38 40 41Female 20 21 22 22Disabled 1 1 1 1.2

STAFFING AND STAFF EXITS

Telkom aims to continuously ensure that we acquire the righthuman capital to meet current and future business objectives.

During the year under review 87% of all external recruits wereblack, of which 46% were women. Internally, 78% of allpromotions were black of which 46% were women.

In our aim to retain critical skills we are faced with the followingchallenges:

The increase in the natural attrition rate, which for the yearended March 31, 2008 was at 7.5% (2007: 4.7%); and

The resignation rate for the year ended March 31, 2008 of6.2% (2007: 3.7%). This rate is still below the industry normof 11.4%.

These challenges are as a result of increased competition in thetelecommunications industry with the consequent increaseddesire for the skills of Telkom’s employees.

Headcount movement

2006 2007 2008

Opening Balance 28,972 25,575 25,864Employee Gains 706 1,512 918Appointments 686 1,486 891Re-instatement 20 26 27Employee Losses (4,103) (1,223) (1,903)Employee retrenchments (2,990) (20) (4)Voluntary early retirement (674) (7) (2)Voluntary severance (2,295) (13) (2)

Involuntary reductions (21) 0 0Natural Attrition (1,113) (1,203) (1,899)Closing balance 25,575 25,864 24,879Other employees(1) 4,227 5,807 3,801

(1) Other employees refers to contract and temporary employees but excludesBoard members, learnerships and bursary students.

COMPENSATION AND BENEFITS

Our remuneration strategy is aimed at remunerating employeesfor their value contribution to the organisation. We also aim tocreate an active awareness of company performance among our employees through short-term and longer-term variablecompensation, with the variable portion of remuneration beingsignificantly motivating and linked to the financial performanceof the company.

RemunerationThe fixed (or guaranteed) portion of remuneration is reviewedannually. However, in circumstances where critical skills areneeded, and depending on supply and demand constraints forskills in the market, the portion of fixed remuneration is reviewedad hoc to ensure it remains competitive. This is necessary toretain key individuals who contribute to Telkom’s success.

Non-executive Directors

The remuneration of Non-executive Directors of the Board isdecided at the annual general meeting. Non-executive Directorsdo not participate in the incentive scheme for top managers. A summary of compensation received by, and fees paid to Non-executive Directors can be found on page 270 and in note 39in the consolidated annual financial statements.

of employees’ total remuneration package. Employees have norights or title to the shares and cannot receive dividends until theshares have vested. Shares will only vest if Telkom meets itsfinancial targets in each financial year as set out in the relevantteam award/gain-sharing plan, and the employee remains incontinuous employment with Telkom. If Telkom fails to meet itsfinancial targets for the year in which the shares vest, the sharesare forfeited.

PERFORMANCE MANAGEMENT

An electronic performance management system that includesdevelopment plans for each employee is in place and applies toall employees. This system will be enhanced to ensure thatleadership is measured on behaviours that support theorganisational renewal strategy. We also reward managementfor acting in accordance with our values.

REWARD AND RECOGNITION

The Name in Lights programme recognises employees foroutstanding achievement, as well as employees and/or teamsthat show exceptional performance and a willingness to gobeyond the call of duty, or for introducing innovations that addvalue to the organisation. We take pride in presenting thefollowing awards:

Individual award – Silver to Jean van Heerden.

Group award – Silver to the Network Fault ManagementPhase 2 team.

Group award – Bronze to the regulatory costing team.

Jean van Heerden

Jean positively impacted shareholder value by designing andimplementing the NER battery rotation system, which significantlyreduced incidents of theft of solar equipment at remote sites.Instead of replacing stolen solar panels, which are often stolenagain, batteries at the sites are rotated at regular intervals toensure that battery power is maintained.

The mathematical model Jean developed proved that this planwould cost a fraction of the cost of replacing the solar panels.The program has been operational for four years and hasresulted in a cost saving of over R220 million and ensured thatdisruptions to Telkom’s services became the exception and notthe rule.

The system improved the quality of service for over 100,000customers.

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Human capital management continued

Executive remuneration

Independent remuneration consultants advise the remunerationcommittee of the Board on executive management remuneration.Fixed remuneration is positioned according to the marketmedian. Telkom uses a band ranging from 90% to 110% of the market median when appointing employees, and whenrecognising consistent, outstanding individual contribution. Thedifference between the upper quartile and the market medianfor fixed remuneration is used when calculating incentives fortop management.

Other employees

The Board approves the overall salary increase for all employees(management and bargaining unit employees). Remuneration for non-management employees is paid in accordance withnegotiated agreements between Telkom and organised labour.All employees are remunerated on a total package; the benefitsare fixed in value and incorporated into the total package value.Employees may structure basic salary, 13th cheque, medical aid,housing allowance and car allowance accordingly.

Short-term incentive plan

Telkom management participates in an incentive scheme basedon a balanced set of measures as determined by the Board,which consist of financial and key operational and customerservice performance targets based on the approved businessplan. All non-management employees also participate in a gain-sharing scheme which uses the same principles and most of themeasures of the management incentive scheme.

In the top management scheme the financial target accounts for70% of the total award, and is based on the basic earnings pershare and return on assets contributions, with performancedrivers accounting for the remaining 30%. The performancedrivers consist of customer centricity and human resourcescomponents. Customer satisfaction and service delivery targetsare embedded in the customer centricity measure while thehuman resources component considers employee engagementand employment equity.

The on-target bonus for each member of top management isdetermined by the remuneration committee. A bonus pool for thetop management team is created comprising all the individualon-target bonus amounts. This pool is divided betweenparticipants based on individual performance. The remunerationcommittee determines a gearing and/or cap for the bonus pool.

Medium-term incentive plan

All employees receive conditional shares, subject to theirindividual performance for each year preceding the allocation.The allocation is based on the average share price ten dayspreceding the award date, (June 1, annually,) using a percentage

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Jean van Heerden – Silver Individual Award

Global recognition for network fault managementsystem team (NFMS) The implementation of the Network Fault Management Systemempowers Telkom to manage its entire network end-to-end in atruly world class fashion. It streamlines opeprations andenhances customer service to a level previously not attainable. Itis in line with the International best practices.

This team has empowered Telkom to generate more revenue dueto less downtime, and thus better assurance to its customers.

Regulatory costing teamThe team ensured that the conditions set by ICASA for theregulatory financial statements, were met within timelines thatare significantly shorter than elsewhere in the world. Otheroperators, who already had existing information available, tookfive to seven years to implement the same costing systems.

The fast-tracked implementation of this system provided Telkomwith the profit margins of the 27 products listed in theCOA/CAM regulation, enabling strategic decisions based onactual margins for future negotiations with ICASA.

TRAINING AND DEVELOPMENT

Telkom invests over 3.8% of its total labour costs in training anddevelopment which equates to 0.9% of its total revenue. Thisplaces Telkom amongst the top investors in training anddevelopment, as benchmarked against companies in SouthAfrica and globally (ASTD Benchmark study).

The Centre for Learning (CFL) provides training to employees atall levels of the organisation. Our training expenditure contributesapproximately 2.7% to annual payroll. During the year underreview 17,702 candidates were trained through various internaland external training programmes offered by CFL.

Forming part of Telkom’s overall human capital managementplan, our training and development strategy is aligned to Groupstrategy to ensure that Telkom realises the maximum benefit fromthis investment, that our employees are prepared for futuredemands in their roles and to enable employees to deliversuperior customer service each day.

Network fault management system team – Silver Group Award

The NFMS Phase 2 team comprises Chris Vermeulen, Denise Cordier,Dirk Niebuhr, Ezekiël Mpufane, Farouk Murchie, Frik Coetzee, GerhardOlivier, Gerhard Steyn, Gontse Raseroka, Henko Gouws, HermanHordijk, Jaco Lubbe, Jaco van der Merwe, Jason Pos, Mornè deBruine, Peet Badenhorst, Peter Tolsma and Rye Smith.

Regulatory costing team – Bronze Group Award

The members of the Regulatory costing team, in alphabetical orderare: Adriaan Steenberg, Caroline Mans, Corlia van Aardt, DeonFerreira, Frans Steenkamp, Jan Myburgh, Janet van der Berg, JCBrand, Jester Smith, Johan Pienaar, Kamie Govender, Mark Singery,Peter Namathe, Pieter Voges, Sajied Sayed, Taazmin Tar-Mahomedand Theloshni Govender.

The role of training and development at Telkom is to buildcompetencies and enhance leadership capabilities required toachieve business results and ensure corporate success, whilebuilding a skills pipeline to meet future skills requirements.

ASTD awardTelkom is a leader in training and development in the ICT sectorlocally, and our CFL has been recognised globally by theAmerican Society for Training and Development (ASTD) for BestPractice in Training and Development.

Building on our achievement as a BEST award winner during2006, Telkom’s CFL has once again been identified as a BESTaward winner during the 2007 ASTD BEST awards.

What contributes to the prestige of this award is the fact that, for2007, Telkom was the only African company recognised for itsefforts and achievements in enterprise-wide learning. A total of103 international companies participated in this competition andTelkom, through the CFL, was recognised as one of the top 42companies to excel in enterprise-wide learning.

Training and development distribution (EE/AA)A total of 10,935 black candidates and 4,194 women receivedtraining during the year under review. This is depicted in thefollowing graph, reflecting Telkom’s commitment to developing adiverse workforce:

Accelerated development of women, blacks and young talentDuring the year under review 257 candidates were trained invalue chain management and technology management. A totalof 50% of these participants were women, and 78% were blackwith 56% being African. Out of the 40 internal full-time femaleemployees targeted, 15 (38%) achieved the internationallyrecognised Cisco Certified Network Associate (CCNA)certification. This pool was reinforced by the permanentemployment of 22 Internet Protocol (IP) female interns who haveachieved the much sought-after professional certifications invarious IP-related specialisations.

To date 18 graduates from the ICT General Manager Programmehave successfully obtained their MSc degrees in management oftechnology and innovation. This programme produces versatilegeneral management skills and the participants are skilled toprovide leadership across the ICT value chain. The race andgender profile of graduates is 7 (39%) women, 11 (61%) blackwith 5 (28%) African.

ICT JIPSATelkom participates in the Jobs Initiative on Priority SkillsAcquisition (JIPSA), a Government initiative aimed at addressingthe skills shortage that exists in certain sectors in South Africa.The goal of this initiative is to find ways to develop priority skillswhere a shortage exists.

Participants in this initiative include Government, business andlabour organisations. Its ultimate objective is to assist in growingthe South African economy. This initiative was formed in responseto the Government’s realisation that a major obstacle to it meetingits growth objectives is the shortage of engineers, scientists,managers and technically skilled people such as artisans andtechnicians. Thus the aim of the ICT JIPSA project is to develop

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priority ICT skills in fields such as networking, IP networking,broadband, network operations and service management.

Telkom, through the CFL, has engaged in a collaborative long-term partnership with the Department of Communications andthe Information Systems, Electronics and TelecommunicationTechnologies Sector Education and Training Authority (ISETTSETA) to assist unemployed graduates and at the same time helpbuild high-level skills for the broader ICT sector. This initiativehas been implemented under the ambit of the JIPSA.

ICT JIPSA is a long-term project that is being co-funded by Telkomand ISETT SETA. The project, which started in August 2006 andnow in its second year, is already benefiting approximately 1,000unemployed graduates with engineering, science and technicalqualifications. Telkom has appointed 266 of these graduates whosuccessfully completed 12 month internships by March 2008.

To date 310 unemployed ICT graduates have completed theirNext Generation Network (NGN) internship and 184 (59%) ofthese graduates have been offered permanent employment atTelkom. A total of 430 students requiring mandatory industryexposure were provided with internship positions to qualify in thefollowing skills areas: cable maintenance, faults and fitting, aswell as data and advanced services. From the pool that qualified,72 (17%) were offered fulltime employment with Telkom.

EMPLOYEE WELLNESS AND WORKPLACE

The wellness of our employees is an important indicator of ourpeople’s ability to effectively and efficiently perform their roles.Our average absenteeism rate is 4.05%, which based onbenchmarks, is higher than both the South African (1.3%) andindustry (2.8%) norms.

The following initiatives aim to improve our employees’ wellness:

Thuso wellness programmesThuso wellness programmes are aimed at supporting ouremployees by providing focused wellness programmes in theirspecific work environments. To date Telkom has invested R8.8 million in these programmes.

Several environments have been covered directly including callcentres, network centres and TelkomDirect shops. In addition,specific interventions are aimed at supporting employees whoare suffering trauma as a result of crime, including victims ofhijackings and robberies.

HIV/AIDS programmeSince the inception of the Thuso programme, 19,896 employeesfrom a target population of 31,720 have undergone voluntarycounselling and testing (VCT). A total of 568 employees havetested positive for HIV through on-site VCT or self-identification,of which 396 are registered on the Thuso programme. Thisreflects a conversion rate of 69.7%. A total of 242 employeesare on anti-retroviral therapy. The Thuso HIV/AIDS workplaceprogramme is also available to all employees’ immediatefamilies. Since January 2007 the programme has been extendedto contract and temporary workers. All benefits are at no cost toemployees or their family members.

Telkom TouchThe Telkom Touch programme provides employees and theirdirect families with personal assistance to address personalneeds, for example telephonic trauma counselling and assistancewith school homework. Since its inception in August 2003, this

Supporting women in ICT

“When you educate a woman, you educate a nation,” saidPeter Sekgololo, Senior Manager of network operations,one of many speakers at recent ICT JIPSA event. “Throughyour conduct, you have changed the hearts and minds ofthose in Telkom who still think that a woman can’t make itin this field. You have demonstrated three things: You haveshown it can be done, you have dispelled myths and youhave ensured that gender equality is indeed beingpractised.” He concluded by saying that Telkom will notsurvive if it is dominated by men.

Keitumetse Tshabalala, the best performing student in herclass, thanked her mentors for their hard work and praisedTelkom for training female students as technicians. “I’mproud to stand here today and say I’m one of the best inTelkom,” she said.

During the year under review we successfully engaged in astrategy to leverage our human capital by focusing onbuilding required current and future competencies byproviding training programmes in the following areas:

Leadership and management development;

Customer service training; and

Technical training.

Rebuilding relationshipsProductive relationships with organisations that representemployees are crucial to avoid disturbances in the workplaceand general negativity among employees. A paradigm shift wasrequired by both Telkom and organised labour in terms of howthe two parties relate to each other. The mutual distrust thatexisted had to be addressed, and both parties had to acceptthat, through representing different constituencies, their interestsare inextricably intertwined. As at the end of the year underreview, major progress had been made in developing a sense ofpartnership and shared vision.

Simplifying employee relations processes andproceduresThe existence of multiple collective agreements on similar issuesserved to make our employee relations environment morecomplex, which often contributed to unnecessary tension betweenboth parties. It also made enforcing such agreements difficult asdifferent interpretations of agreements would arise each timethey had to be implemented. The process of reviewing andsimplifying our processes has begun and some of thearrangements and agreements are currently being renegotiated.It is envisaged that further progress will be made in this regard.

Labour actionDuring April and May 2007 about 35 members of Solidarityembarked on an industrial action due to their dissatisfaction withthe implementation of a new shift roster, which lasted aroundfive days. The implementation of a substantive agreement led toa declaration of dispute by the trade unions and the matter wasdealt with through private arbitration.

AchievementsAs mentioned above, the main objective we had set ourselves forthe 2008 financial year related to rebuilding relationships withorganised labour. With the establishment of the Organised

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lifestyle services centre has helped to remove distracting factorsfrom the minds of employees, leaving them time and energy tofocus on the job at hand.

EMPLOYEE ENGAGEMENT

It is important for us to remain aware of the state of mind andlevels of engagement of our employees, as this will eventuallyimpact service delivery to our customers.

The results of our annual employee engagement surveyHeartbeat, conducted during February 2008 by research firmSynovate, indicate that 51.8% of our employees are fullyengaged in their roles. This represents a slight increase from theprevious year’s 50.3%. Although this increase is not a statisticallysignificant improvement, it was attained with a new leadershipteam in place for less than six months.

One of the most successful interventions launched to positivelyimpact employee engagement was the Green Shoe project, thename of which refers to walking in someone else’s shoes. As partof this project, top management was required to spend a day inthe life of an operational employee, observing and physicallyperforming tasks at hand. This created greater awarenessamong management of work at all levels within the organisation.

UNION RELATIONS

As at March 31, 2008, 74.8% (73.7% in 2007) of employeeswithin the bargaining unit belonged to the three recognised tradeunions. The breakdown of membership of trade unions is as follows:

CWU: 37.6%

SACU: 23.8%

Solidarity: 13.2%

Non-affiliation: 0.2%

Non-union membership: 25.2%

The year under review was characterised by a steadyimprovement in the relationship between Telkom and the threerecognised trade unions. Although there are still points ofdisagreement, the manner in which these disagreements arebeing processed is constructive.

Considering the fragile nature of the relationship between Telkomand the unions after the 2006 industrial action by theCommunication Workers Union (CWU), it is understandable thatthe employee relations climate was tense at the beginning of the year under review. In light of this, a number of prioritieswere identified as crucial to rebuilding our relationships withorganised labour in general, which are discussed below.

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Labour Business Interface Summit as a forum for strategicengagement with the leadership of organised labour, we havecommenced the process of developing a partnership, and it isenvisaged that this will evolve into a shared vision between bothparties. Compared to the beginning of 2007, there has been amarked improvement in relationships between both parties.

TALENT MANAGEMENT

In an increasingly competitive industry the organisation with thebest talent will be most successful. Managing Telkom’s talent ina manner that ensures succession, retains scarce skills and isable to expand and grow the business globally is therefore acritical business imperative.

The aim of our talent management programme is to ensure acontinuous supply of talented individuals in key positions, especiallyin categories of critical, core and scarce skills in order to buildstrong leadership capabilities. The objectives of the programmeinclude creating development opportunities and accelerating skillsacquisition for critical roles and succession planning.

The talent management programme consists of the followingtalent pools as at March 31, 2008:

Potential Talent Pool replacement pool

Pool 1: Top leadership successors 26 (Executives)

Pool 2: Potential executive leadership 109

Pool 3: Global talent/business 50 (Total availabledevelopment for expatriate

placements)

Pool 4: Specialised skills/managerial potential 429

Pool 5: Young talent 321

Pool 6: Potential hires (bursary students) 306

Total 1,241

Succession planningTelkom has implemented a clear succession planning process,illustrated by promotions from our talent management Pool 1including Reuben September as CEO and Motlatsi Nzeku,Charlotte Mokoena and Ouma Rasethaba as Chief Officers. Thisconstitutes 100% black top management promotions of which50% are women. In addition four promotions to Group executivelevel were made of which one was black. Two career developmentopportunities were afforded to black women now acting as theGroup executives for procurement and corporate communicationrespectively.

Five candidates were also promoted to executive positions fromtalent management Pool 2, of which 25% are women and 40%are black.

Telkom will continue its focus on developing high-potentialemployees to ensure business sustainability over the long term.At this time we have at least one candidate in the talent pool foreach Group executive and executive position, who can replacethe current incumbent.

Global talentTelkom has established a global talent pool to ensure a sustainablesource of talent to staff global business operations. Of the initial72 employees available for acquisitions, 19 have already beenseconded on long-term international assignments to Multi-Linksand three to Africa Online, our African subsidiaries.

In line with best practice, employees who indicate their interestin possible expatriate positions are assessed on their role and thesuitability of themselves and their family as expatriates.

Managed career development for high potentialemployeesTelkom continues its focus on developing high-potential employeesto ensure business sustainability over the long term. Telkom hasboth local and international programmes to facilitate thedevelopment of identified talent pools.

The following are the programs that were introduced:

Cornell University (New York): Six employees are studyingtowards their Masters degree in engineering and/orcomputer science. These employees are on retention, and willbe redeployed in growth areas within Telkom, in product/solution development as well as research and development.They have specific executive mentors to ensure alignment oftheir Masters projects with critical business issues in theorganisation.

Building on Talent (BOT): Four employees successfullycompleted the BOT programme at IMD (Lausanne,Switzerland). The development programme is aimed atpreparing high-potential employees for more complex rolesin the organisation.

Graduate and skills pipelinesKey players in the fast-growing ICT industry are responsible forensuring a sustainable source of new talent to drive futuregrowth. Telkom, as one of the major industry players, hastherefore developed the following initiatives to support itself, theindustry and South Africa in building skills:

Learnerships: A total of 22 unemployed learners graduatedfrom Telkom’s wholesale and retail learnership, of which 68%were permanently employed by Telkom.

Graduate internship programme: A total of 350 unemployedgraduates participated in this programme, which aims toaccelerate ICT skills development. Of these candidates, 52%were permanently employed by Telkom.

Graduate development schemes (bursaries): A total of 1,070students benefited from various tertiary study opportunities,of which 109 full-time students graduated and 101 werepermanently employed by Telkom.

Candidates who were not employed permanently by Telkom areavailable to the broader ICT industry, ensuring a sustainablesupply of skills and reducing Telkom’s vulnerability to losingskilled staff to competitors.

According to the Magnet Graduate Survey for 2007, whichascertains the top 30 technology employers, Telkom’s rankingimproved from 19th position in 2006 to 5th in 2007, depictingTelkom as one of the best employers in science, technology andengineering.

Telkom continues to ensure that the depth of experience anddiversity of our workforce are aligned to current and futurebusiness needs. Specific interventions are put in place andresources allocated to ensure adequate capacity and capabilityin areas including network and systems, customer services andmarketing, management and leadership. The company’sstrategic focus informs talent requirements both locally and inour operations in the rest of Africa.

THE TELKOM CENTRES OF EXCELLENCEPROGRAMME

Telkom’s Centres of Excellence (CoE) is a collaborationprogramme between Telkom, the telecommunications industryand Government to:

Promote research in communication technology;

Allied social sciences; and

Provide facilities to encourage young scientists and engineersto pursue their interests in South Africa.

The CoEs are jointly funded through a partnership betweenTelkom, telecommunications players in the private sector and theDepartment of Trade and Industry (DTI) – through its Technologyand Human Resource for Industry Programme (THRIP). There arecurrently 16 CoEs, located at tertiary institutions around thecountry with a total of 42 students (including 3 foreigners, 8 women and 22 EE candidates) for the current year. Theprogramme provides partner institutions with additional fundingfor facilities that they would not otherwise have been able toafford. Through the programme they are able to offerconsultancy services. Telkom uses CoE lecturers to trainemployees on the latest technologies emerging from the CoE.

Each CoE has a unique research focus area. Examples includedistributed multimedia, radio access involving CDMA receivers,ATM and broadband networks, Internet Protocol networks andmodelling optical communication. In addition to developing skills in science, engineering and technology, the CoEs promote partnerships between historically disadvantaged andadvantaged institutions.

The programme’s showcase conference, SATNAC (SouthernAfrican Telecommunication Networks and ApplicationsConference) has become South Africa’s leading telecommuni -cation conference receiving widespread international recognition.

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AFRICA ONLINE AND MULTI-LINKS

Telkom has been deploying employees in its two newly acquiredsubsidiaries in Kenya and Nigeria since April 2007. As atMarch 31, 2008, three top management employees are on long-term (three year) assignments at Africa Online (Nairobi), and 19 top management employees at Multi-Links (Lagos). Localvacancies resulting from long-term assignments have beenadvertised and filled at Telkom, minimising the impact on ourskills levels.

Africa Online is an Internet service provider based in Nairobi,Kenya and operates in eight other countries throughout sub-Saharan Africa. The organisation’s approximately 300employees are predominantly based in Nairobi, but also operatein Cote d’Ivoire, Ghana, Namibia, Swaziland, Tanzania,Uganda, Zambia and Zimbabwe. Telkom expatriate employeesin Kenya have adapted to their new environment, and have beenable to maintain operations despite recent unrest in some partsof the country. Facilities in Kenya are generally of a highstandard and similar to those in South Africa, aiding theadaptation of expatriate employees and their families. TheTelkom teams have embraced the changes to their lifestylepositively and enthusiastically.

Multi-Links, Nigeria’s first private telephone operator, has itsheadquarters in the heart of the country’s financial centre onVictoria Island, which is located offshore from Lagos. Thecompany has approximately 770 employees, of which 19 arefrom Telkom South Africa, 52 are Indian expatriates and one isfrom China. All expatriate costs are paid by Telkom, andrecovered from the subsidiaries via a management andexpatriate fee.

Telkom’s safety, health and environment (SHE) governance portfoliois responsible for ensuring compliance with relevant legislationand establishing world-class best practices in employee safetyand wellbeing, and Telkom’s impact on the environment. Wehave made significant progress during the year under review inmanaging and mitigating various occupational health, safetyand employee wellness risk factors, as well as in improving andextending our SHE reporting structures.

OCCUPATIONAL INCIDENTS

The following table reflects occupational incidents for the yearunder review:

2006 2007 2008

Number of employees reporting incidents 1,163 1,125 1,043Total number of days lost due to incidents 12,822 11 ,684 10,219Disabling incident frequency rate 2.0 1.8 1.7

Injury on duty

Days lost due to incidents have a significant impact onproductivity and operational costs. The total number of days lost

due to injuries for the year under review decreased by 12.5%

(1,465 days) compared to the previous year. Telkom will continue

its efforts to reduce the number of days lost due to injury by a

further 8% over the next year.

The four occupational fatalities that occurred during the yearunder review resulted mainly from motor vehicle accidents.

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Safety, health and

Telkom’s safety, health andenvironment (SHE)governance portfolio isresponsible for ensuringcompliance with relevantlegislation and establishingworld-class bestpractices in employeesafety and wellbeing, and Telkom’s impact on the environment.

environment

During the year ended March 31, 2007, trip, slip and fall injurieswere the highest cause of safety-related incidents at Telkom. Weimplemented an intensive awareness campaign to address suchincidents, which resulted in a 10% reduction during the year underreview. We hope that further initiatives will help reduce relatedincidents by a further 5% over the next year.

Of great concern are incidents that increased during the yearunder review. These include:

Injuries resulting from lifting and pushing materials andequipment, which increased from 14% to 21%; and

Injuries as a result of falling from ladders, which increasedfrom 16% to 17%.

Vehicle accidents

Of the 10,219 incident days lost during the year under review,140 days were lost as a result of motor vehicle accidents,representing an increase of 7.9% compared to the previous year.In total, 3,177 vehicle accidents, including damage to the body ofthe vehicle, were reported. This indicates that, out of our total fleetof 9,285 vehicles, 34% were involved in minor incidents (such asscratches to the body of the vehicle) to more serious accidents.

The National Road Safety Act de-merit system will be implementedover the next number of months. Telkom will embark on variousinitiatives to reduce vehicle accidents within the organisation by atleast 10%, as these have become the number one cause ofoccupational injury during the year under review.

SHE LEARNING AND DEVELOPMENT

To sustain our health profile and manage incidents andabsenteeism holistically, a further 3,748 employees weretrained, spending a total of 6,599 training days.

Telkom deployed an intense awareness drive to support SHEperformance targets. Our strategy focused on awareness topicsaligned to risks affecting absenteeism, as well as incidentcause/effect trends. The virtual campus facility, which enables self-paced SHE knowledge reviews, was further expanded to include42 topics. Employees completed a total of 28,431 SHEknowledge reviews online, a 43% increase over the previous year.

A project was implemented to update our existing SHEcurriculum, to align it with existing unit standards of the Healthand Welfare Sector Education and Training Authority (SETA). Wehave established a close partnership with the Health and

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Welfare SETA, and are in the process of registering facilitatorsand curriculum offerings. Four new courses have been madeavailable, and a new Occupational Health and Safety Actcourse is being developed to form part of the new Certificate inTelecommunication Technology (CiTT) qualification. To promoteSHE compliance by Telkom contractors, SHE training has beenextended to all our BEE-compliant contractors.

Telkom extended its HIV/AIDS peer education programme, training85 additional peer educators who educated 652 employees.

OCCUPATIONAL HEALTH AND EMPLOYEEWELLNESS

The occupational health and employee wellness team isincreasing its focus on prevention, moving from being remedialand therapy orientated towards a proactive preventativeapproach to managing health and employee wellness risks inthe organisation. This is in line with our commitment to beingcompliant with occupational health and safety legislation, as wellas social responsibility requirements for employee wellness.

We will continue to focus on increasing the impact ofinterventions in high-risk areas to ensure that businessperformance is improved, while remaining employee-centric andpursuing our employee engagement objectives. Telkom hasinvested R11.6 million in the wellbeing of our employees duringthe year under review.

Highlights and achievements for the 2008 financial year The highlights and key achievements in our drive to maintain and improve occupational health and employee wellness areoutlined below:

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Areas of concernThe following areas of concern were identified for the year under review:

Trauma and crises counselling, necessitated by hijackings androbberies aimed at Telkom employees while on duty, increasedby more than 50%. These incidents are often violent, causingsevere trauma and high stress levels among employees.

Increased stress levels were found at TelkomDirect shops, asa result of an increased number of enquiries due to customerqueries and complaints not being addressed via customercontact centres. This risk is evidenced by, among others, anincreased number of psychological referrals, increases in sickleave indices and a growing number of incapacity hearingsin this environment.

Safety, health and environment continued

The annual Telkom employer of choice survey, conductedindependently by an external research firm among a sampleof Telkom employees, indicated that the Thuso employeewellness and HIV/AIDS workplace programme is regardedas the single largest contributor to employee engagement andour employer of choice status.

The results of our human resources and Centre for Learning(CFL) customer satisfaction and effectiveness survey indicatedthat the Thuso employee wellness and HIV/AIDS workplaceprogramme achieved an 80% rating for relevance andapplicability, and 70% for customer satisfaction andeffectiveness. This is the second highest rating for all humanresources services and products (including Telkom Touch, theHR web services, performance management, remunerationand benefits, etc).

Telkom’s Thuso HIV/AIDS workplace programme was one offive South African company programmes invited toparticipate in the 2008 Global Business Coalition’s Awardsfor Business Excellence on HIV/AIDS in the workplace. Morethan 80 countries participated and Telkom received theaward for Best HIV/AIDS Workplace Testing and Counsellingprogramme.

In our drive to optimise psychological wellness, Telkomadopted a more preventative focus on stress and resilienceinterventions in various workplace environments including call centres, TelkomDirect shops, commercial and creditmanagement, information technology services (ITS), thenational business service centre (NBSC) and integratedsystem development (ISD). Workshops were conducted toprovide participants with the necessary tools to deal with jobpressures, customer expectations and business demands.These workshops, facilitated by Telkom’s in-house clinicalpsychologist, were attended by 520 employees. Additionally,an online electronic stress tool has been developed whichemployees can use to determine their stress profile and majorcontributing and causal factors. Over 3,000 employees havecompleted an electronic stress survey, which provides animmediate printed profile and interpretation sheet. Thiselectronic tool was also supplemented by an educationaltheatre show on stress management, which was attended by4,471 employees during the year under review.

Telkom has embarked on a focused occupational hygienemanagement programme. Over 205 surveys on indoor airquality, water quality and illumination were conducted at 154sites and buildings, with the aim of improving the quality of physical environments for its employees. A variety ofmeasurements were established to monitor compliance andcorrective actions were formulated to address non-compliance.Currently 58% of all corrective actions have been completedthrough facility maintenance programmes and projects linkedto specific business cases and/or capital projects.

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Overall absenteeism rates as a result of illness (SAR) haveincreased by 4.1%. SAR for the year under review is 2.5%,higher than the 2007 SAR of 2.4%. This increase is mainly asa result of increased SAR for July 2007 (2.6%), August 2007(3.4%) and September 2007 (2.8%), due to the high numberof incidents related to influenza and colds.

Results from health risk assessments indicate that unhealthylifestyle factors are increasing. Overweight and obesity levelsin 2005 increased from 54.2% to 63.5% among women,and from 53.2% to 64.3% among men. This is particularlyconcerning considering that obesity is a major cause ofcardiovascular diseases such as heart attacks and strokes.

The high rate of non-compliance in occupational hygieneincluding factors such as illumination (100%), temperature(48%), ergonomics (96%) and the presence of highly volatileorganic compounds (33%) in densely populated buildingsneeds to be addressed urgently.

Increased stress-related incidents and poor work-life balanceresulting from a lack of physical and emotional resilience indealing with change and restructuring in the workplace,customer expectations and operational demands wereevidenced by an increase of 32.9% in employee assistanceprogramme referrals for counselling and stress-relatedinterventions, against a target of 15%.

Although penetration and participation targets for healthscreening assessments and HIV voluntary counselling andtesting have been met and in some cases exceeded, therecontinues to be approximately 35% of the target populationthat have not participated in these wellness events, which arepresented at no cost to employees and their families. This canmainly be attributed to lifestyle factors, concerns regardingconfidentiality and privacy, stigmatisation and cultural factors.

Challenges for the year aheadTo optimise employee health and wellness, Telkom will, over thenext year, address the high risk factors and areas of concernidentified above by:

Continuing to implement the Thuso total employee wellnessintervention, including resilience and stress managementworkshops in the TelkomDirect shops, to enable customer-facing employees to cope with customer demands andstrenuous work environments.

Developing and implementing a trauma resilienceintervention in all high-incidence and high-risk security areaswithin the operating environment where technical officers

performing fitting, faults checking and cable jointing aretargeted. This intervention will include aligning and adaptinghuman resources and Telkom policies to support employeesexposed to safety and security incidents such as hijacking,robberies and assault.

Implementing the Thuso total employee wellness interventionin all technical operations and customer-facing environments.

Establishing the third integrated health profile report, whichwill enable Telkom to track progress of the impact of, andvalue added by, the Thuso employee wellness interventionsimplemented since September 2005, and to establish newbaselines and prevalence figures for Telkom’s key wellnessand health risk areas and indicators.

Developing the Telkom green building concept, an initiativeaimed at making our buildings more environmentally benignand not detrimental to the health of our employees. Telkombuildings and facilities are classified and managed to complywith world-class standards and practices. These areas ofcompliance against set occupational hygiene criteria includeindoor air quality, illumination, temperature and water quality,among others. Our initial focus will be on high occupancybuildings and sites. Corrective actions will be tracked monthlyto establish to what extent the non-compliance gaps narrow.

The standardisation of health-risk assessments and clinicalprotocols for the expatriate programme from a pre-assessmenthealth sustainment, evacuation and post-assessment perspective.

Optimising the peer education process for programmeeffectiveness indices and visibility in the workplace, as well asevolving our focus on HIV/AIDS into a total wellness focus.

Launching an aggressive lifestyle modification programme tofocus on smoking, substance consumption and obesity.

Managing absenteeismMeasuring illness related absenteeism is a key indicator forunderstanding the health and wellness profile of the organisation,and for establishing and substantiating the impact of health andwellness interventions.

Sick leave indices for the year under review indicate a slightincrease against 2007. However, sick leave should not just beviewed against sick absence rates (SARs), but also in the contextof severities, frequencies and utilisation. The table below depictsthe sick leave indices for the 2007 and 2008 financial years.

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Sick leave indices

Sick leave measure 2007 2008 % change

SAR (%)Total number of sick leave days as a percentage of total available man days 2.24 2.51 12.1

ASR (days)Average number of days used per sick leave incident 2.45 2.48 1.2

AFR (incidents)Average number of sick leave incidents per sick leave user 3.38 3.59 6.2

SUR (% – monthly average)Number of sick leave users per month as a percentage of total number of employees 15.7 17.3 10.2

SUR (% – year to date)Number of sick leave users progressively utilising sick leave as a percentage of total employee population (all sick leave users are only calculated once) 67.2 70.1 4.3

Total number of man-days/shifts lost due to sick leave, implying the progressive and accumulative total of sick leave days over a 12 month period 176,795 194,364 9.93

The increase in SAR of 12.1% can primarily be ascribed to thedrastic increase in SARs for the months of July, August andSeptember 2007. This is indicative of the severity of the influenzaseason, causing employees to be off sick on two to three or moreoccasions, which further influenced frequencies.

The increase of 10.2% in monthly SUR indicates that moreemployees utilised sick leave, particularly during August 2007when 23.5% of employees utilised sick leave, against a monthlyaverage that fluctuates between 15 and 18%. No significantreduction can be expected in minor increases in ASR and AFR,but viewed in conjunction with the increased monthly SUR, it isevident that more people utilised sick leave. The total number ofman-days or shifts lost also increased significantly by 9.9%,implying that 17,569 more man-days were lost due to sick leave.

Physical health and wellnessThis component of employee wellness contains an occupationalhealth component which ensures Telkom’s compliance withoccupational health legislation and protocols such as health riskassessments and medical surveillance, and an individual orpersonal wellness component reflecting the acute (such asinfluenza and colds) and chronic (including diabetes andhypertension) disease profile of Telkom employees.

Health-risk assessments Health-risk assessments (HRA) were conducted on-site as part ofthe rollout of the Thuso total employee wellness intervention. Thetable below depicts participation levels:

Number of Rollout Target employees %phase population participated Uptake

Phase IX (9) 1,627 1,021 63Phase X (10) 4,054 2,594 64Phase XI (11) 1,839 1,360 73.9Total 7,520 4,975 66.1(1)

(1) Exceeds target of 60%

The HRA results regarding cholesterol indicate that 70.8% ofemployees who participated in health screenings are within thenormal cholesterol range. This is very similar to the integratedhealth profile baseline for 2005 at 74.8%, as well as theelevated range of 12% compared to 12.2% in 2005. In the at-risk category there is a slight increase from 11.7% in 2005 to thecurrent measure of 14.2%.

The average age of the 684 employees in the at-risk category is 40 years, with the youngest being a 19 year old woman.

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In this category, 296 (43.2%) of the 684 employees also havehigh blood pressure, indicating an increased cardiovasculardisease risk and stressing the importance of a lifestylemodification intervention. It is notable that the number of womenin this category exceeds the number of men, at 16.8% and12.7% respectively.

The HRA results for glucose testing (diabetes) revealed that 5.5%(29.5% in 2005) of men screened are at risk of developingdiabetes, compared to only 4.6% (33.7% in 2005) of women.The average ages of men and women at risk are 43.7 and 38.9years respectively. Comparing the current at-risk category withdata from the 2005 integrated health profile, there is asignificant improvement of 311%. This can be ascribed to a veryaggressive awareness and education campaign through variousmediums with regard to the risk of increased blood sugar orglucose levels and the associated cardiovascular risks. In the at-risk category, 132 (47.5%) of the 278 employees tested sufferfrom hypertension, again emphasising the exposure to more thanone chronic disease due to lifestyle factors.

The HRA results regarding hypertension or high blood pressureindicate that men are suffering more from high blood pressurethan women, at 31.8% and 28.7% respectively. In comparingthese ranges with the data as reflected in the 2005 integratedhealth profile, the normal to low blood pressure range decreasedfrom 82.9% to 67.6%, which is significant in terms of indicatinga deterioration in the blood pressure status of employees. In theraised category against either high systolic or high diastolic therewas an increase from 5.2% to 16.8%, and in the high range(both high in systolic and diastolic) there was an increase from10.6% to 13.8%. This is very significant and again emphasisesthe high cardiovascular disease risk in Telkom as well as lifestylecausal factors.

In the Body Mass Index (BMI) results, 579 (42.1%) of the 1,375obese employees also suffer from high blood pressure, oncemore attesting to the role of lifestyle factors in the developmentof chronic diseases. In the normal weight range there was adecrease from 38% to 31.9% in high blood pressure, furtheremphasising the increase in obesity levels amongst Telkom

employees as a particular concern, and the need for aformalised lifestyle modification programme that includesexercise and nutrition.

Eye screeningA new assessment of the Thuso total employee wellnessintervention is the screening of visual capabilities, which isextremely relevant in the call centre environment whereemployees work with computers for long hours. Since Telkomrolled out the total wellness interventions 1,820 employees werescreened for visual capabilities, of which 328 (18%) requiredinterventions such as spectacles.

AudiometryAnother intervention that has been introduced in the call andcontact centre environment is audiometry, which screens forhearing impairment. This has been piloted at three sites where380 employees were screened. This screening is important in the call centre environment to ensure data accuracy, goodcomprehension of customer information and communication, andoverall effectiveness of the customer experience. This interventionwill be extended to all call centres and network centre operationsat Telkom. Preliminary results indicate that 13% of employeestested for hearing impairment showed defective hearing orhearing loss and required further interventions such as hearingaids and instrumentation which can be requested via thereasonable accommodation policy. This policy is deployed tocater for employees who have a physical impairment or disability,and aimed at assisting employees to adapt better to the physicalwork environment or any possible risk factors in the workplace.

Occupational hygiene managementIn support of the occupational health and safety compliancerequirements and the employee Thuso wellness strategic initiative,Telkom has embarked on a programme to reduce the effects andconsequences of sick building syndrome (SBS). SBS is anoccupational health risk whereby the health and wellbeing of thebuilding occupants can be affected by poor airflow, air quality,inconsistent temperatures, humidity levels, poor illumination andpollutants. Our focus is on a preventative strategy that adoptsthe Green building concept, identifies the critical buildings,

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maintains these buildings and upgrading infrastructure wherenecessary to eliminate any effects of SBS.

The occupational hygiene management programme is a keydriver to promote an enhanced physical environment and qualityof work life in support of employee engagement indices.

The current focus of this program is on high occupancy buildings,in which audits were conducted to measure, among others,indoor air quality, water quality and illumination. Approximately70% of all audits were conducted based on a planned schedule,which catered for seasonal cycles to ensure that variations intemperature, humidity and other factors due to seasonal changeswere accounted for. The remaining 30% of audits consisted ofad-hoc requests received by occupants of buildings based onidentified risks.

A number of the high occupancy buildings audited had minordeviations in facility regulations and standards, especially againstcriteria such as indoor air quality (including humidity, temperature,volatile organic compounds and dust) and illuminationmeasurements. These deviations are being addressed throughplanned preventative maintenance of facilities as well as capitalprojects where required. The results of these audits presentedTelkom with indicators to inform building alterations and spaceplanning adjustments, which contributed to enhancing the workenvironment of Telkom employees.

A total of 205 surveys were conducted from April 2007 toJanuary 2008. The breakdown of the nature of these surveys ispresented in the graph below:


These results present indicators that substantiate the need tocontribute towards the improvement of a healthy physicalworkplace. Of note is that all non-compliances regardingillumination have been addressed. As this is a baseline, a targetof 75% will be set for the next performance cycle to close thecorrective action gap.

Factors that will negatively impact progress in closing the gapson corrective action as depicted above include the willingness ofproperty owners of Telkom-leased buildings to invest capital inbuilding upgrades without further contract extensions, as well asthe availability of capital to fund upgrades and renovation toTelkom buildings.

Case management and health risk assessmentsTo meet legislative requirements, Telkom appointed anoccupational health professional to manage its clinical casesinvolving disability and incapacity incidents, reasonableaccommodation requests, and to conduct health-risk assessmentsas necessitated by emerging and significantly increasing healthrisks in the workplace. During the period between March 2007and January 2008, 248 cases were handled by the Telkomnetwork doctor of which 107 cases (43.1%) and 46 cases(18.5%) were conducted in the Free State and Northern Caperegions respectively. A total of 865 hours were spent conductingthese clinical cases, of which 805 hours (93%) were spent on physical and clinical case evaluations for disability orincapacity inquiries.

The following health risk assessments were concluded betweenMarch 2007 and January 2008:

An assessment of multiple and extreme drug resistanttuberculosis (TB) in a TB hospital in Port Elizabeth, to establishthe feasibility for Telkom employees to work at this facility, inorder to ensure that exposure to this risk is minimised. Thisguideline is now utilised countrywide at all related facilities.

Conducting health risk assessments in Cape Town amongstshift workers at the radio transmission station that deals with

The results of the surveys indicate that a number of buildings haveminor deviations from accepted industry standards, includingthose of the American Society of Heating, Refrigerating and AirConditioning Engineers (ASHRAE) for temperature and indoor airquality, SANS 241 for water purity and SABS 0114 forillumination. Buildings were tested for temperature and showed anon-compliance rate of 48%, which remains a focus point.

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“ship to shore” network operations. The assessmenthighlighted the risk of long hours on shift due to skillsshortages in this environment.

A health-risk assessment was conducted among employeesexposed to asbestos in the Telkom network and infrastructureenvironment, to ensure correct personal protective clothingand specific health screening protocols are in place to protectat-risk employees against exposure.

A health risk assessment was also conducted on the impact ofmasts and towers and other telecommunications infrastructureenvironments, especially on external wireless networks suchas those of the cellular service providers. Due to an increasein the significance of this infrastructure related risk impact, themedical assessment protocol for this infrastructure haschanged from three years to one year. The inclusion of third-generation network cables within the mast and towerinfrastructure also poses a new risk as this reduces theclimbing space. The management of the risk has beenaddressed through the establishment of a Mast and TowerForum, which consist of a line specialist, safety andoccupational health specialist, a training consultant andoccupational health doctor. The focus of the forum is tooversee that all risks related to masts and towers aremanaged, measured and monitored with the necessarycorrective and preventative actions. The forum has alsorevised all current training modulars, work proceedings andinstructions and usage of specific personal protective wearand equipment to mitigate the risk.

An investigation and health risk assessment into the exposureof Telkom employees working on mobile and NextGeneration Networks to radiation. A non-ionising radiationassessment was conducted on all applicable infrastructureand Next Generation Networks, to test the levels of radiationagainst the ICNIRP (International Commission on Non-ionising Radiation Protection) world standard. Findingsindicated that current radiation levels at these networks arewell below the stated levels in the ICNIRP standard andtherefore do not pose any risk to the employee orenvironment. All the assessment results are placed on theTelkom Intranet web site for employees to view. Currentawareness and communication drives to all applicableemployees and line management are launched to inform allparties that the risk exposure is within required standards.

Medical surveillanceMedical surveillance protocols are followed by occupationalhealth nurses to ensure the adequate management of criticalsafety and health risks in Telkom’s technical and procurementoperations. Furthermore, medical screenings are conducted incompliance with human resource requirements when employeesare hired and exit from the company. The aim is to ensure thatthe company is not held liable for medical conditions that mayarise after employment with Telkom has ended. Occupational

health nurses in all regions where Telkom operates conducted1,588 medical screenings during the year under review.

Conducting annual periodic medical screenings to assess the fitnessof employees for work represents 67.8% of all medical screenings.The network field operations (58.4%), network infrastructureprovisioning (33.8%) and procurement services (3.9%) are themain users of medical screenings.

Expatriate clinical support programmeTelkom’s growing presence on the African continent necessitatesclinical and medical protocols to manage the health andwellness of employees on international assignments. With apresence already established in, among other African countries,Nigeria and Kenya, medical risk assessments were required for23 expatriate employees. This entailed the completion of amedical history profile, a range of pathological blood tests, andproviding pre-exposure prophylaxis as well as a first aid andmedical kit that contains medicines for opportunistic diseasessuch as malaria, cholera and yellow fever, among others. AThuso information kit was also provided to inform employeesabout various chronic and opportunistic diseases.

In extending the expatriate programme, our intention is todevelop standardised pre-assessment, employee health profiling,emergency evacuation and post-assessment protocols to ensurethat health risks affecting expatriates are proactively managed.

Psychological wellnessTelkom is focusing on preparing our employees to be moreresilient in terms of their mental wellness as required by changingoperational, business and customer demands. This is to enableour employees to manage these challenges through lifestylechanges that will optimise their ability to cope with thesestressors. The counselling approach will remain in place toensure that we care for and support our people throughnecessary therapeutic interventions.

Psychological counselling

During the year under review, a total of 1,337 (2007: 1,008)employees were referred to clinical and counsellingpsychologists and social workers. This has led to an increase of32.6% in the annual EAP utilisation rate among employees andtheir family members. The following table shows the majordiagnoses in the various categories.

2007 2008Diagnosis (%) (%) (%)

Crisis and trauma 41.7 41.3 (0.9)Family relationships and divorce 15.4 17.6 14.2Stress related 7.6 6.8 (10.5)

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Trauma and crises remain the primary precipitating factors ofmental and emotional illnesses among Telkom employees, withstress caused by family relationships remaining significant.

Although there is an insignificant decrease in most serviceorganisations, it is evident that the majority of psychologicalcounselling referrals are within the technical operationsenvironment (including field technical officers and call centreagents), comprising 64.4% of all counselling cases.

Preventative stress management

An online stress management tool was developed to enableemployees to measure stress levels and establish their stressprofile. More than 3,000 employees completed the electronicquestionnaire and received their printed profile.

A resilience and stress management workshop was developed to assist employees in the TelkomDirect shops and creditmanagement divisions in the commercial environment to betterdeal with workload, customer demand, teamwork and changingenvironment pressures. A total of 21 workshops have beenconducted to date, resulting in better stress management byemployees.

Thuso HIV/AIDS workplace programmeSince the inception of the Thuso HIV/AIDS workplaceprogramme, which provides voluntary counselling and testing aswell as treatment, 21,038 employees have been tested from atarget population of 31,720, including 5,200 contract andtemporary workers. This equates to an uptake rate of 66.3%.Furthermore, 4,519 employees took the repeat test, equating toa retesting uptake rate of 21.5%. The target for VCT uptake wasset at 50%, and at 15% for retesting uptake. These resultsindicate that both targets have been exceeded. The VCT rolloutfor the year under review was planned over three phases and thetable below reflects the participation rate in terms of uptake.

Number of Rollout Target employees %phase population tested Uptake

Phase IX (9) 1,627 910 56Phase X (10) 4,054 2,255 56Phase Xi (11) 1,839 1,245 67.7Total target 7,520 4,410 58.6(1)

(1) Exceeds target of 50%

Three phases are planned over the next year, focusing onTelkomDirect shops and the technical operations environment.These phases will target 8,000 employees with an uptake targetof 60% for HIV testing and 70% for health risk assessments.

The following table shows the number of employees participatingin the Thuso chronic disease management (CDM) and experttreatment programmes (ETP).

Number of employees

Total number of HIV positive employees 584HIV positive status established via VCT 423HIV positive status established via self-identification 166HIV positive employees registered on CDM (percentage of HIV positive employees) 399HIV positive employees on other approved NGO or government programmes or medical aids 75HIV positive on treatment (ETP) 240

The actual HIV/AIDS prevalence rate among Telkom employeesis 4.3%. The registration of 68% of HIV positive employees onthe Thuso CDM programme and 12.8% on other approvedprogrammes implies that approximately 20% of HIV positiveemployees are not accounted for. The challenge remains to keepthis figure as low as possible, as it implies that approximately20% of employees’ disease progression is not monitored, andthat they do not receive antiretroviral therapy. Telkom’s conversionrate of 68% compares favourably to available benchmarks inSouth Africa, although we continue to strive to get as close to100% as possible.

Currently, of the 240 employees on the ETP, 109 (45.4%) are onhighly active antiretroviral therapy (HAART) and 131 (54.6%)are on pre-HAART, receiving nutritional supplements and immuneboosters.

The programme is extended to immediate family members andspouses or partners. A total of 62 spouses and four children arecurrently registered on the programme, being eligible for the fullarray of benefits; from testing to treatment, and receivingantiretrovirals at an address of their choice through the servicesof a drug dispensing courier at no cost to the employee or familymember. The programme was also extended to Telkom contractand temporary workers in September 2006, and currently 42 contract workers are registered on the programme.

Thuso call centre

Since the inception of the call centre in October 2004, 23,821calls were routed through the Thuso helpline. Of these calls,14,111 (59.2%) were outbound in terms of case management,personal health advice and VCT follow-up, and 9,710 (40.8%)were inbound in terms of case management, health advice andchronic disease management. In the year under review, 6,596calls were made of which 4,343 (65.8%) were outbound and2,253 (34.2%) were inbound calls. Some 812 non-interventionoutbound calls were made to affected employees without anycontact. The average number of calls made to registeredemployees on the CDM programme in the year under review was10.3, and the average duration of calls by the counsellors was tenminutes and 29 seconds.


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HIV/AIDS prevalence The official 2010 projected prevalence rate at Telkom is currently6.3% for permanent employees, rising to 7% when contract andtemporary workers are included. It is projected that due to theThuso HIV/AIDS programme the prevalence will be between5.5% and 6% by 2010. It is also projected that management’sprevalence rate will be at 1.7% and supervisors at 3.3% by 2010.

The actual prevalence as derived from the VCT programme overthe 11 rollout phases reflected a prevalence that fluctuatesbetween 3.6% and 4.5%. Currently the prevalence as derivedfrom the latest VCT results is at 4.3%. The latter is not used as theofficial prevalence rate as more than 10,000 employees inTelkom still require testing. The conducting of an actuarialprevalence study is planned for the coming financial year tovalidate Telkom’s current projected prevalence based on thelatest VCT uptake statistics and the most recent demographicprofile of Telkom.

Post exposure prophylaxis

Post exposure prophylaxis (PEP) is used when employees areaccidentally or by incident exposed to possible HIV infection,including vehicle accidents, exposure to infected blood andsexual assault. Antiretroviral therapy and drugs are supplied toprevent possible infection of the individual. Our approach alsoincludes psychological counselling and further laboratory testingto determine whether infection has taken place. In theperformance cycle for the year under review, nine PEP caseswere registered due to employees or families being exposed topossible HIV infection, either through used needle exposure,vehicle accidents or sexual assault. Thuso also provided PEPtreatment to two pregnant mothers who are HIV positive toprevent mother-to-child transmission. Both infants tested negativefor the disease after birth.

Peer education

A total of 97 peer educators were trained during the year underreview, bringing the total number of trained peer educators to 689.However due to natural attrition and voluntary retirement from peereducator duties, we currently have 564 active peer educators.

A peer educator evaluation process was conducted among peereducators, master trainers and peer education mentors toestablish process bottlenecks and identify areas where theprocess can be improved. The overall effectiveness was 74%against a target of 80%. A project was initiated to renew thecurrent process and implement the necessary corrective actionfrom the feedback received. Attention is also given to new rolesof the peer education mentor, as well as to evolve the role of thepeer educator into a wellness peer educator rather than havinga singular focus on HIV/AIDS.

Condom dispensing

The dispensing of condoms has remained one of the keypreventative mechanisms in Telkom’s endeavour to prevent the

spread of HIV and to keep its prevalence rate low. During theyear under review 650,000 condoms were dispensed to allregions, with 268,800 remaining on hand. This indicates that381,200 condoms were taken by employees. Telkom, via itsThuso HIV/AIDS workplace programme, has imported 1.6million condoms that meet the necessary ISO internationalstandards at a cost of R650,000.

HIV related absenteeism

Absenteeism indices among our HIV positive employees aretracked quarterly by an external service provider, AlexanderForbes health management solutions, to ensure adherence toconfidentiality and privacy guidelines for our employeesregistered on the CDM and the ETP programmes. Theabsenteeism indicators are reflected over a nine month periodfrom April to December 2007. The following table compares theHIV absenteeism indicators against the current Telkom averagefor the year under review:

Sick absence ETP CDM Telkomindicators population population population

SAR (%) 2.9 3.0 2.5ASR (days) 2.7 2.5 2.5AFR (incidents) 1.9 1.9 3.6SUR monthly (%) 17.4 20.7 17.3

In comparing the SAR of the Telkom population against those ofour HIV positive employees registered on the Thuso programme,no significant deviances are evident. Of significance is that, incomparing the AFR with that of the greater Telkom population, itis significantly lower at 1.9 incidents for the ETP populationagainst 3.6 incidents for Telkom employees in general. Incomparing the ASR for the ETP (2.7 days) and CDM (2.5 days),it is evident that the wellness of our HIV positive employees isextremely high in comparison to actuarial case studies thatindicate the average number of sick leave days taken by HIVpositive employees is between 25 and 40 man days.

TELKOM ENVIRONMENTAL MANAGEMENT

ICT service providers such as Telkom are considered to have alimited impact on the environment. However, environmental risksarising from indirect or direct activities associated with theservices conducted by third parties on Telkom’s behalf are stillpertinent.

Telkom complies with all applicable environmental legislation asfar as is reasonably practicable, to minimise possible directfinancial implications associated with legislated penalties,contraventions, prohibitions and liability suits.

Indirect financial consequences of environmental mismanage -ment and disregard could arise from negative affects to Telkom’s reputation and brand, and our image as a responsiblecorporate citizen.

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Environmental governance

Environmental governance is integrated into the Telkom SHEgovernance structure, and the CEO is ultimately accountable forensuring the effective implementation of environmentalmanagement throughout the organisation. To ensure maximumeffectiveness, the CEO has delegated the responsibility ofenvironmental management to the various levels of topmanagement as part of their service delivery, which in turnensures that qualitative environmental management is sustainedthrough every employee’s performance contract.

Telkom has a dedicated corporate division to researchenvironmental needs and develop appropriate solutionsthroughout the company. This division’s responsibilities includethe assurance of all statutory requirements pertaining to SHEmanagement. Each area of service delivery in Telkom issupported by dedicated SHE consultants whose mandate is toensure the management of effective means to mitigate, as far asreasonably possible, all environmental risks and impactsassociated with Telkom activities.

Environmental strategyTelkom’s strategy and objectives in environmental managementare to ensure a uniform and fair approach to the effectivemanagement of any activities affecting the environment withinTelkom, among all employees, and outside the organisationincluding Telkom’s subsidiaries, vendors and any newly acquiredbusinesses. The key objectives that will be pursued over the nextyear include:

Ensuring compliance with all relevant environmental laws andregulations;

Conducting environmental education and awarenessprogrammes;

Sustaining the reduction of resource consumption (energy,water and fuel) by an average of 2%;

Minimising pollution including waste generation throughtraining, education and awareness;

Conducting education and awareness programmes to inspireour employees to effectively uphold our environmental policy;

Sustaining the reduction of resource consumption andminimising pollution, as well as the generation of waste, andpromoting appropriate resale, reuse and recycling ofrecovered material; and

Promoting adherence to our environmental policy bycontractors and service providers acting on our behalf, whereappropriate, and binding them contractually to comply withrelevant environmental legislation and standards.

Our environmental policyThe Telkom environmental policy is in line with ISO 14001requirements and has been approved by the SHE governancecouncil. Telkom employs a dedicated environmental manage -ment specialist whose responsibilities include, among others, theeffective implementation of the Telkom environmental manage -ment system (EMS) including the management of identifiedaspects and impacts of all associated activities. In ensuringpolicy effectiveness, all environmental incidents are reported,investigated and corrective actions implemented. To sustain ISO14001 specifications, the Telkom environmental policy isreviewed as and when technological and human resourcefactors are influenced to support the philosophy of continualimprovement.

Environmental management systemTelkom has a dedicated SHE website which is accessible to allemployees. This internal web portal consists of a SHE incidentprevention plan which incorporates the Telkom EMS. Ouremployees have access to the EMS strategy and associated policyguidelines, methods and procedures, forms, awareness topics andapplicable legislative compliance requirements on this site. Duringthe year under review, Telkom’s EMS achieved ISO 14001 re-certification, as well as the international DEKRA certification.Telkom has strategically identified other national key point sites to be considered for ISO 14001 certification, as part of ourcommitment to continuous improvement.

Environmental awarenessAs an effective means to communicate the requirements of theTelkom environmental strategy all relevant awareness topics areaccessible via the SHE website. Additionally, management isrequired to promote awareness of this strategy among theirsubordinates. Telkom supports all Government environmentalinitiatives and is currently embarking on a Group-wide energysaving awareness campaign. Telkom, as a model corporatecitizen, ensures alignment to both local and internationalenvironmental awareness calendars (e.g. the International andNational Health Observances Calendar 2008) and implementsapplicable topics associated with both the organisation’s andSouth Africa’s environmental sustainability initiatives.

Environmental risk and impact managementTelkom will sustainably manage its environmental risks andimpacts not only for our own benefit, but for the broader benefitof South Africa and the world. This will be done through thesupport of national and international initiatives against globalwarming and emissions, as well as those supporting properwaste management.

In recognising that Telkom’s communication network demands acontinuous energy supply, and in view of the current nationalenergy crisis affecting South Africa, Telkom’s CEO has made acommitment to the national energy supplier that it will embarkon a company-wide energy reduction drive over the next year.


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In support of this commitment, Telkom has already established aNational Utilities Forum (NUF) whose mandate it is to ensure theeffective and efficient management of energy, water, waste andemission initiatives. Status reports are escalated to the CEO ona monthly basis for review and for required action, if necessary.

Indirect environmental impacts

Telkom, as part of the ICT sector, is considered to be a mediumto low impact organisation. Telkom utilises external serviceproviders to conduct certain business activities on our behalf, forexample property and fleet management companies. As theultimate risk owner, Telkom ensures that all outsourced activitiesare measured, monitored and conform to the Telkom environ -mental policy and applicable legislative requirements.

Energy consumptionTelkom’s operations consumed a total of 585,682,377 kWh(normalised) during the year under review, compared to theprevious year’s consumption of 527,447,007 kWh (2006:470,911,288 kWh), an increase of 11.04%. A majorcontributing factor to the increase in consumption over the pasttwo years is the expansion of the Next Generation Network(NGN), particularly the air-cooling required to keep NGNsystems in optimal operation. To support the Telkom CEO’scommitment to a reduction in energy consumption, variousprojects and initiatives will be implemented to ensure animprovement during the next year.

EmissionsCarbon Dioxide (CO2 ) emissions are calculated against theannual amount of coal burned by Eskom to provide energy toTelkom for sustainable business operations. The increase inemissions is relative to the increase in energy consumptionrequired for the NGN.

Water consumptionTelkom consumed a total of 2,067,843 kilolitres of water duringthe year under review, compared to 2,327,814 kilolitres duringthe previous year. This represents an overall water saving of11%. A primary contributing factor in the reduction in waterconsumption is the implementation of more intensive measuring,monitoring and corrective action initiatives, including behaviourbased awareness campaigns. Further projects and initiatives willbe implemented over the next year to ensure an overall reductionof 2%.

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Telkom acknowledges the commitment and dedication of BennieKotze from Total Facility Management Company (TFMC) inextrapolating information from local municipal accountingsystems to calculate Telkom’s energy, emissions and water utilityconsumption.

BiodiversityAlthough activities undertaken by Telkom to render ICT servicesare considered as low to medium risk, the impact of the nationalfootprint of its associated network infrastructure is considerable.To this end it is imperative to take into account all businessactivity influences on the natural biodiversity of existingecosystems, fauna and flora which Telkom interacts with, and toinitiate meaningful and effective conservation protocols to ensureconsistent, sustainable development.

Conservation project

As previously reported Telkom, in association with BradleyGibbons from the endangered wildlife trust Karoo CraneConservation Working Group, embarked on an initiative tominimise the effect of our above-ground infrastructure on bluecrane collision incidents in certain high population areas of theFree State and Eastern Cape. Telkom produced a flapper device,manufactured from recyclable optic fibre piping, whichenhanced the visibility of the infrastructure thereby reducing theprobability of further collisions. To date no further incidents havebeen reported in these areas and Telkom has received lettersfrom members of the local communities thanking us for ourconscientious approach towards the conservation of the nationalbird of South Africa. One of the letters of appreciation from amember of the local community reads:

Similar projects will be implemented by Telkom in future, as andwhen potential areas for concern are identified by the variousprovincial crane conservation working groups.

Vegetation management project

The preferred industrial method for vegetation management for thepurpose of fire prevention beneath critical overhead infrastructureis the application of environmentally benign herbicidal treatment.At the inception of the project, Telkom consulted with industriesexperiencing similar infrastructure risks and who have experiencein the application of herbicides as a means of vegetation manage -ment. From the research conducted it was evident that herbicidaltreatment over the long term will be environmentally acceptable,provided that all anticipated risks are identified, mitigated as far asreasonably practicable, and managed in strict accordance with allapplicable environmental legislation.


“Dear Telkom,

Just a very short note to thank you forputting up the markers on the telephonewires next to the Suurberg road. As youknow these conductors are directly inthe flight path of hundreds of blue cranethat settle on my farm particularly duringthe breeding season. The markers arevery clear and look good on theconductors. We do not expect to haveany more cranes strung up in this area.

Thank you for the good work – muchappreciated.

Mr John Bennie”

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To further mitigate potential risks, Telkom initiated a pilot projectin consultation with the Endangered Wildlife Trust (EWT), as anexperiment to ensure the effectiveness of the identified andimplemented risk control measures.

Another anticipated project to contain and manage associatedherbicidal risks is the training of Telkom SHE specialistsresponsible for overseeing the external service providers duringthe application process. Telkom is researching various trainingoptions, one of which will be to train the associated SHEspecialists to a minimum level of Limited Pest Control Officer.

Paper recyclingIan Minnaar, an environmental consultant from Dekra NoriskoSouth Africa, helped put into perspective the impact of theresponsible management of paper recycling by sketching thefollowing factual scenario. Each year, 10.9 million hectares oftropical rainforests are destroyed. Telkom’s CEO supports thedrive to mitigate this impact through implementing paperrecycling initiatives.

Recyclable paper in Telkom workplaces is disposed of each dayin recyclable waste receptacles, and is collected regularly by acontracted external paper recycling service provider. Thevolumes collected for recycling are calculated at the end of eachyear to determine the amount of paper recycled. During theprevious financial year Telkom recycled 142 tons of paper,increasing to 322 tons in the year under review. From anestimated conversion calculation of tons of paper recycled intoactual trees saved, Telkom contributed to saving approximately5,474 trees.

The increase in recycled paper for the year under review islargely due to improved vendor collection processes includingeffective education and awareness campaigns regarding theimportance of discarding wasted paper into recycling boxes.

Other material recycledPrinter cartridge and related items

A range of plastics is used in the manufacture of printer cartridgecasings, which can take more than 100 years to biodegrade inlandfills. If handled inappropriately, toner powder can beinhaled by people, potentially leading to health problems. Ifallowed to leak from landfills, ink and toner residuals can pollutesoil and groundwater.

Printer cartridges contain ink which consists of various hazardoussubstances. At Telkom, printer cartridges are collected whenempty by an approved and certified external service provider.The cartridges are cleaned, repaired and then refilled. Telkom isremunerated for the resale of recyclable printer cartridges.During the year under review Telkom recovered R13,969 spenton printer cartridges (2007: R13,581) Although a slight increaseis evident, Telkom believes that through more internal awarenessdrives on the benefits of similar recycling initiatives, a significantincrease in this figure can be realised in future.

Copper wire

During the year under review Telkom recovered more copper wirethan in the previous year, as a result of progress in establishingthe NGN. For the year under review Telkom recovered a total of5,136 tons of copper (2007: 2,489 tons). As more wireless radioand microwave infrastructure is installed, fewer undergroundcopper cables will be required.

Optic fibre cable

Telkom recovered a total of 298 tons of optic fibre cable duringthe year under review (2007: 167 tons). This increase is largelydue to progress in NGN radio and microwave technologyinstallations. The optic fibre cable technology has reached the“end of life” cycle and associated capacity limits. This hasresulted in the recovery and replacement of older technologywith new optic fibre technology which requires smaller cableswith higher data-carrying capacity.

Batteries

Telkom adheres to all applicable legislative requirements andassociated municipal bylaws when disposing of hazardouswaste products. One such hazardous product is batteries utilisedas standby power supplies for Telkom’s network infrastructure.During the year under review Telkom disposed of 351 tons ofbatteries. The batteries are disposed of at accredited serviceproviders whose responsibility it is to ensure safe disposalpractices and implement recycling/re-use processes. Theincrease in recycled batteries can also be attributed to the endof product life cycle and the replacement of old batterytechnology with new technology.

Fleet management

Telkom has contracted an external fleet management company tomanage Telkom’s 9,285 branded vehicles. Telkom thus leases itsfleet from debis Fleet Management, an ISO 14001 accreditedcompany. This accreditation demonstrates commitment towardsall considerations associated with those aspects of the activitiesrequired to render a service incurring an impact on theenvironment. Vehicles are regularly serviced and replaced asprescribed by the service level agreement between debis andTelkom to ensure that vehicles are running efficiently, therebyresulting in a relative reduction of CO2 emissions.

The Telkom branded fleet of 9,285 vehicles travelled a combinedtotal of 186.5 million kilometres during the year under review.

Total fuel consumed

Telkom’s branded fleet of 9,285 vehicles consumed a combinedtotal of 28.6 million litres of fuel during the year under review.This results in an average consumption per Telkom branded fleet vehicle of 6.53 km/litre. During the next year Telkom will institute a technical forum to monitor and measure the overall

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effectiveness of the fleet. This will include further research andinvestigation into more efficient modes of transport andalternative fuel requirements. An indirect advantage ofimplementing alternatives is an automatic reduction in associatedemissions. The challenge for the year ahead is to improve fuelconsumption through a process of driver awareness andbehaviour modification to meet a desired, average vehicleconsumption of 7km/litre.

CO2 emissions from Telkom branded vehicles

The calculation of the total fuel consumed converted into CO2

emissions reveals a total of 66.6 tons during the year underreview. The disclosure of CO2 emissions in annual reportsultimately demonstrates to investors the company’s commitmenttowards decreasing the amount of air pollutants emitted into theatmosphere, which in turn contribute towards global warming andthe green house effect. Please note that a comparison for thisparticular reporting category is not available as this is a new indexto the Telkom annual report. It may prove difficult to set a tangiblereduction target as this would be directly associated with thecompany business plan going forward in relation to customerservices demand and the implementation of the NGN, withrespect to the efficiency and effectiveness thereof. For example, ifthe NGN proves effective and more self-sufficient it would requireless fault maintenance, which would require less travelling. Thiswould result in less fuel consumption and relative emissions.

Environmental compliance liabilitiesTelkom did not incur any environmental contraventions,prohibitions, penalties or liability suits during the year underreview. This is largely due to effective internal and externalstakeholder engagement, as well as communication of andadherence to Telkom’s EMSs. Stakeholders include national andlocal Government as external stakeholders and technicaloperations as internal stakeholders. Telkom’s due regard for allapplicable environmental legislation is also a contributing factor.

EMS compliance and management reviewTelkom reserves the right to ensure that all major companies thatrender services to Telkom are ISO 14001 accredited. To measureenvironmental management implementation effectiveness, aninternal statutory compliance audit and management reviewprocess is in place. Environmental statutory compliance auditsare conducted at least once during a cycle of two years.Environmental management reviews are conducted once every18 months on a stratified sample of Telkom’s managementemployees to verify the effectiveness of implementation withintheir respective areas of responsibility. A requirement of the ISO14001 standard is to ensure effective implementation of the EMS

in audits, and reviews are used to measure such effectiveness.The fact that, to date, Telkom has not incurred any environmentallegal liability suits proves the efficiency of the managementsystem in mitigating, as far as is reasonably practicable,negative impacts on the environment.

Key successes

The primary success during this reporting cycle is the ISO 14001re-certification of the Telkom EMS. Another key strategicachievement has been the approval and successful implemen -tation of the recently revised three year Telkom EMS.

The key environmental drivers for the next year will be retainingthe ISO 14001 system certification, and the successful ISO14001 certification of selected national key point sites. Thesuccessful reduction in energy consumption and associatedhuman behaviour modification towards holistic environmentalsustainability is also an imperative to be implemented over thenext year.

The green building concept currently forms part of SHEgovernance’s key projects for the 2009 financial year. Thisproject is currently in the design phase. The objective of theproject is to develop Telkom buildings and facilities incompliance with set occupational hygiene criteria, includingthose for indoor air quality, illumination, temperature and waterquality. The project will ensure that these criteria are classifiedand managed towards compliance as defined by world-classstandards and practices. The initial focus will be on highoccupancy buildings and sites.

VODACOM OCCUPATIONAL SAFETY ANDENVIRONMENTAL IMPACT REVIEW

Certification

Following an audit by DEKRA in October 2007, all three ISOcertifications were retained by Vodacom Group (Proprietary)Limited, Vodacom (Proprietary) Limited, and Vodacom ServiceProvider Company (Proprietary) Limited. These certifications areISO 9001 (quality), ISO 14001 (environmental) and OHSAS18001 (Occupational Health and Safety Assessment Series).

Vodacom achieved a rating of 90.8% following an externalaudit measuring compliance with South African environmentallegislation, as conducted by Lexis Nexis Butterworths in February2008. Given that few companies achieve a rating above 80%,this represents an outstanding achievement for Vodacom.

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Environmental dataConsumption of resources for Vodacom’s South Africanoperations for the year under review is as follows:

Resource 2007 2008

Electricity (buildings) 61 million kWh 74 million kWh

Electricity (sites) 112 million kWh 163 million kWh

Water 137,502 kl 335,990 kl

Paper 105,482 kg 160,000 kg

Diesel 466,681 litres 679,577 litres

Petrol 940,903 litres 1.3 million litres

The growth in Vodacom’s network and the scope of theiroperations has led to the increases in the metrics above.

is the heart of developmentconnectivity

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Initiatives that contribute to the communities in which ourcustomers and employees live and work form the basis ofTelkom’s social investment strategy. We have continued toemphasise programmes supporting education, entrepreneurshipand social upliftment. In line with our core business, we areincreasing our focus on bridging the digital divide in SouthAfrica and the continent.

TELKOM FOUNDATION

The Telkom Foundation (the Foundation) is responsible formanaging our corporate social investment (CSI) programmes.During the year under review the Foundation made significantprogress in increasing its focus on programmes that reflect ourcommitment to help bridge the digital divide. We anticipate thatthis focus will continue to gather momentum over the 2009financial year.

Our multimedia community centres, school connectivityprogrammes and our technological and entrepreneurialprogrammes constitute the educational and entrepreneurialdevelopment components of our strategy, and our social upliftmentprogrammes emphasise the need for sustainable growth.

The Foundation’s budget for the year under review was R52.5 million (2007: R51.1 million), allocated to the followingkey focus areas:

Social care and upliftment;

Skills training;

Education and knowledge building; and

Tools and infrastructure, including ICT.

The Foundation has contributed to the transformation and

development of various villages across South Africa. These include:

Contributing to theupliftment of South Africancommunities is an essentialingredient to promotinglong term, sustainablegrowth in South Africa.

Corporate social

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Eastern Cape Free State KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West

Alice Maluti-a- Bergville Sekhukhune Elukwatini Frances MakwasiPhofung Baard District

Uitenhage Villiers KwamncaneManyeleti (Inanda)

Borne of our commitment to take a holistic approach tocommunity development, Beacon of Hope gives high potentiallearners access to a higher quality of education by sponsoringtheir full tuition, boarding fees, travel and living expenses atbetter resourced private schools. This particular initiative wasstarted in 2007 specifically to invest in developing future leaders,with a primary focus on mathematics and science.

To date all 198 learners who have benefited from the projectshow considerable potential, particularly in mathematics, scienceand ICT. By providing these youths with an opportunity to realisetheir full potential, the Foundation is making a difference in thelives of individuals as well as their communities, which willbenefit over the longer term from having well educated members.

Developing teachers

Under-qualified teachers, particularly in the fields of mathematicsand science, remain one of the biggest challenges facing ruraland impoverished schools, and contribute to poor academicperformance and high matriculation failure rates. By investing ininitiatives aimed at improving the abilities and capacity ofteachers, the Foundation recognises the value in developingsustainable skills that will benefit many generations of learners.

Through our partnership with the Mathematics Centre forProfessional Teachers, we have assisted in improving teachingmethods and content comprehension among mathematicsteachers, and have contributed to teachers being certified.

The Aggrey Klaaste Maths, Science and Technology Educator ofthe Year Awards promote high quality teaching among educatorsby recognising and rewarding those who show excellencedespite limited resources. The three winning teachers in eachprovince are rewarded with a fully equipped computer centrefor their school.

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In these communities, the main programmes that were rolled outare: A total of 50 new computer centres, each comprising a fulllab of 20 computers, desks, chairs and peripheral equipment;157 full science kits donated to various schools; two new foodgardens; equipped seven bakeries and trained teachers andcommunity members to manage them; established five newsewing businesses; provided 10,777 learners across South Africawith school uniforms; and provided PC literacy training at severalschools. The Foundation’s goal has been to empower people tohelp themselves and its efforts have had discernable results.

CSI achievements

Since its inception in 1999, the Foundation has:

Spent over R372 million over the course of nine years,(excluding other contributions such as computers andcommunication equipment);

Established 650 computer centres in primary and secondaryschools across South Africa, including schools for the hearingand visually impaired, and community centres;

Deployed over 16,000 computers in impoverishedcommunities; and

Assisted in food security and poverty alleviation inimpoverished communities by establishing 25 food gardens.

Beacon of Hope

The Foundation continues to invest significantly in education,steadfast in our belief that education is one of the most effectiveroutes to empowerment. As a flagship initiative, our Beacon ofHope schools project leverages the Foundation’s long standingrelationships with some of the most under-resourced schools inSouth Africa.

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Giving from the heartDuring the year under review, Telkom employees continued tohelp those less fortunate than themselves by donating time,resources and personal funds to various socially responsibleprojects and initiatives. Telkom’s employee volunteer programme,Giving from the Heart, was incorporated into the TelkomFoundation during 2006 from being part of the overall Telkomcorporate employee contributions due to natural synergies withthe Foundation’s goals.

This volunteer programme entails some employees donatingfunds monthly, while others offer their time and skills to variousFoundation projects. Employees are also given the opportunity todonate time or funds to a charity of their choice, and thesedonations are matched by the Foundation. The generosity ofTelkom’s employees reflects the spirit of giving embodied in themany projects in which the Foundation is invested.

Rising to meet the challengeThe Foundation has adopted a holistic and integrated approachto social development, to address the diverse challenges in ourCSI focus areas comprehensively and effectively. Whileeducation, skills development and ICT remain our primaryinvestment focus, these are complemented by other interventionsthat help to meet a broader range of needs in impoverishedcommunities.

Our new transformation programme is geared towards theAfrican continent as a whole, with a specific focus on countriesTelkom operates in. In South Africa we will maintain our focus onpresidential nodal points as set out by the Government of SouthAfrica, as well as communities in the Government’s ruralintegrated development strategy.

CONTINUING TO ALIGN CSI WITH OUR CORE BUSINESS

We are proud and passionate about the assistance Telkom givesto less fortunate people, and believe that this will grow fromstrength to strength as the Telkom Foundation’s momentum andreach moves into Africa.

Future initiatives will increasingly be aimed at assertivelyaddressing the digital divide, in line with our core business. Insupport of this goal, we will focus on the following interventionsin the next year:

Global projects focusing on Telkom’s African subsidiaries;

Our obligations as defined by ICASA and in the objectives ofthe Electronic Communications Act;

Public interest initiatives around access, quality, pricing andservice, among others;

ICT village initiatives, for example Internet cafés, computerlaboratories and kiosks to drive exposure to ICT; and

Mathematics and science projects in identified areas toenhance computer based education, thus contributing tonarrowing the digital divide in rural areas.

SPONSORSHIPS

Sponsorships form an important part of Telkom’s brand buildingand reputation management activities. They are a platform for usto communicate with our customers and the general public topromote loyalty to the Telkom brand. Our sponsorship activitiessupplement advertising by breaking through the noise ofthousands of consumer focused messages to differentiate theTelkom brand, and create experiences for existing and potentialcustomers that will be remembered to our benefit.

Telkom’s sponsorship activities include a wide variety of projects,ranging from sports to entertainment. Highlights of key activitiesfor the year under review include:

The Lion KingAs one of the most successful, international theatrical productionsever produced, The Lion King brings to life the characters and

Corporate social investment continued

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story of the original Disney film. It has played to capacityaudiences in major cities around the world, and continues to besold out in cities where it is still being performed includingLondon, New York, Sydney and Shanghai.

Telkom’s sponsorship of the South African production creates anumber of opportunities for enhancing our corporate image, aswell as CSI and product linkage opportunities. The show isTelkom’s first content sponsorship, which holds significantpotential in that it establishes alliances with content providerssuch as the Walt Disney Company.

Telkom’s sponsorship has created positive attitude shifts amongLSM 7-10, who represent the primary target audience for theshow. These groups in turn represent potential customers forservices such as ADSL, Telkom Closer packages and TelkomBusiness services and products.

The Lion King production ran for 40 weeks, with two shows perday. Additional leveraging reinforced the Telkom brandassociation through advertising, merchandising, public relationsexercises and Lion King-themed product and service offers in therelated TelkomDirect shops.

The Lion King sponsorship allowed Telkom to create significantcontact with, and give back to our customers by bringing an internationally acclaimed show to South Africa under theumbrella of an internationally recognised, world class brand.

SoccerSoccer is one of South Africa’s favourite sports. Telkom’s ongoingsponsorship of the Telkom Charity Cup and the Telkom Knockoutsince 2006 has helped raise funds for various charities, and hascreated strong associations with the Telkom brand among millionsof fans. In the competitive South African ICT market, Telkom caneffectively and efficiently communicate its brand values and brandpromise to a fervent audience that associates Telkom with “thebeautiful game”.

In terms of organisational growth, we believe today’s soccer fanwill be making decisions in their business in the future, and wehope that they will consider Telkom when deciding on an ICTprovider. Telkom will be proving and show-casing its capabilitiesyet again in the 2010 Football World Cup during which it willbe an official national supporter focussing on providing the fixed-line infrastructure.

SwimmingTelkom’s involvement in swimming has helped produce Olympicgold medallists for South Africa, and has enabled thousands oflearners to gain swimming and water safety skills through theLearn to Swim programme. Our goal is to develop long-terminterest in the sport and promote swimming as a recreationalactivity. We remain a key sponsor of the sport in South Africa,and are being rewarded by an increased awareness of our

association with the sport in the broad markets we serve. Andimportantly, through our contribution to teaching water safetyskills we help to prevent drownings.

BUILDING VODACOM’S SOCIAL RESPONSIBILITYFRAMEWORK

In line with best practice, Vodacom Group enhanced itsestablished corporate social investment (CSI) platform by creatinga corporate responsibility unit during the year under review. Thisunit will ensure that the way the Group earns its profits is guidedby predetermined ethics and values. The establishment of this unitcompletes the Group’s corporate social responsibility offering,enabling it to align its “caring credentials” with those of listedcompanies mandated to produce social or sustainabledevelopment reports that reflect their non-financial assets.

Vodacom continues to pursue CSI programmes that contribute toimproving the quality of life of vulnerable groups within thecommunities it operates in, and assist people in thesecommunities to become more active players in the economy.These contributions generally take the form of cash, in-kindsupport, time and skills, and are primarily within the areas ofeducation and health.

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CSI provides a channel through which Vodacom can share theprofits it has been fortunate to realise with the communities inwhich it operates. Thus the better the Group’s financial results,the more it has available to share with communities. CSIcontributes to the expression of the Group’s social responsibility,which in turn builds the trust that communities have in Vodacom,and thereby contributes to its long-term sustainability.

Vodacom’s CSI spending continues to focus on projects thatexhibit a high multiplier effect and are transformational incharacter, giving these projects priority when allocating thelimited financial resources available through the CSI programme.In particular, Vodacom endeavours to support projects that useICT to address social issues, aligned to our core business.

The Vodacom Foundation is Vodacom’s primary vehicle forimplementing its CSI initiatives. Vodacom invests in sociallyresponsible projects in South Africa, The Democratic Republic ofthe Congo (DRC), Tanzania, Lesotho and Mozambique throughfoundations based in each country.

In general, the primary focus areas for each operating companywithin Vodacom are education, health and the environment.However, additional focus areas for each operating companyare determined in accordance with the needs of the particularcommunities within which they operate.

The following is a discussion of each of the Vodacom Foundation’sfocus areas within the countries Vodacom operates in.

EducationEducation is a major priority for the Vodacom Foundation in allVodacom’s operating companies.

South Africa

The Open Bursary Scheme awards bursaries to underprivilegedhigh school students who perform well in their final yearexaminations. A total of 50 bursaries are awarded per annum,which are tenable at local universities and technikons. Valued atR50,000, the bursaries are intended to cover all relevant costsencountered by students during their studies. To date about 800students have benefited from this scheme.

Vodacom also offers sizeable bursaries to the three bestperforming students in their final high school examinationsthrough the Vodacom CEO Scholarship Award. Additionally,Vodacom recently renewed its partnership with the NelsonMandela Metropolitan University to provide financial support toMasters and Doctoral students from disadvantaged backgroundsfor a further three years. In the 2007 academic year, Vodacomincreased its share of the contribution towards the Masters andDoctoral programmes from R300,000 to R500,000 per annum.

The Vodacom Foundation invested R7.5 million in infrastructureat two schools in the North West province at Freedom Park,

Rustenburg and Migdol near Wolmaransstad. In partnership withthe Department of Education in the North West province, eachparty contributed an equal amount to infrastructure at theseschools. Both schools were officially opened in April 2007. Thispartnership follows a previous partnership with the Free StateProvincial Department of Education, in which R5 million wasinvested to upgrade the Thuto Lesedi Secondary School.

DRC

The Vodacom Congo Foundation provides schools withequipment and rehabilitation of their premises, in addition tomanaging a bursary programme.

This foundation launched its school benches project in 2003 tohelp ensure that children in the DRC attend classes in anenvironment conducive to learning. Each year, 1,000 benchesare ordered at a cost of USD47,000 from Don Bosco, a non-profit religious organisation offering vocational training tounderprivileged youth. The manufacture of these benchesprovides income which contributes to their school fees.

The Vodacom Congo Foundation also invests in the rehabilitationof school and university buildings. In most cases, benches andbooks are also supplied.

On July 8, 2004 Vodacom Congo launched the MotomoloBursary Programme, which provides the ten top performingstudents with an opportunity to study at the Tshwane Universityof Technology in Pretoria, South Africa. This programme will runfor ten years.

Tanzania

The Vodacom Tanzania Foundation focuses its educationinitiatives on providing school desks and solar power, andcompleting the construction of classrooms.

The Amani Centre in the Mikese Morogoro region caters for 300 youths and children with mental disabilities. The VodacomTanzania Foundation constructed four classrooms at a cost ofTSH40 million.

The Kibondo district in the Kigoma region is not connected tothe national electric grid, and few people can afford generators.The Vodacom Tanzania Foundation approved the installation ofsolar power at the Moyowosi Secondary School at a cost ofTSH12 million. The success of this project is evidenced by thefact that students had to be persuaded to leave their classroomsat night to go home and sleep!

The Vodacom Tanzania Foundation also donated TSH5 million tothe Nguvu Mali Secondary School in Tanga, to complete theconstruction of classrooms to alleviate overcrowding. Thisdonation enabled the school to complete four classroomsaccommodating 200 students.


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Lesotho

Existing education initiatives in Lesotho include the NationalUniversity of Lesotho internship programme and VodacomLesotho’s sponsorship of Students in Free Enterprise students.Vodacom Lesotho also provided support to Lesotho’s top twelveJunior Certificate students by sponsoring a Nokia handset, starterpack and free airtime for a year, to the value of M2 thousand aswell as school fees.

Mozambique

Vodacom Mozambique participates in the country’s developmentthrough its support of education initiatives.

Vodacom Mozambique constructed and furnished a newsecondary school in the Chamanculo suburb of Maputo.Previously, students walked long distances to attend classes asthere was no school in the area. The total cost of the project wasUSD1.25 million. Built in cooperation with the Um Olhar deEsperanca project of the Ministry of Education and Culture, the Armando Emilio Guebuza Secondary School caters forapproximately 7,000 students with morning, afternoon andevening classes.

HealthSouth Africa

Vodacom is committed to helping Government meet its prioritiesin the area of health. The Group supports various initiatives inthis regard:

Vodacom Sight For You is a partnership between Vodacomand the Pretoria Eye Institute, in which surgeons from theInstitute offer their services at cost. With funding fromVodacom, 400 cataract operations were performed onpatients from the Gauteng and Mpumalanga provincesduring the 2007 Eye Care Awareness Week.

The Smile Foundation and the Johannesburg General Hospitalhosted the first Vodacom Smile Week at the end of October2007, followed by another week in May 2008. TheVodacom Foundation funded these events to the value of R2 million. During each week, up to 40 children receive freeworld-class reconstructive surgery for facial anomalies.

Vodacom, in partnership with the Netcare Group, helpedsponsor 155 cataract operations countrywide.

On Valentine’s Day 2008, the Vodacom Foundationannounced a R4 million donation to enable 27 disadvantagedchildren to receive corrective heart surgery through the WalterSisulu Paediatric Cardiac Centre for Africa.

Cell-Life is a pioneering initiative providing effectivetechnology based solutions to manage HIV/AIDS. Since2002, the Vodacom Foundation has invested more than

R6.2 million in the project. The system developed for thisinitiative enables data to be captured in a user-friendly way through a mobile phone. Cell-Life’s solutions addressprevention, treatment, dispensing antiretroviral treatment andvoluntary counselling and testing.

DRC

The Vodacom Congo Foundation rehabilitates public hospitalsand medical centres, provides hospital equipment and assists thenational programmes for HIV/AIDS. Staff members also assistwith blood donations.

The Kinshasa General Hospital is the biggest hospital in the DRC.During 2007 Vodacom Congo renovated two of its 20 blocks,as well as the surgery block, at a total cost of USD28,000. TheVodacom Congo Foundation also donated beds, mattresses,linen and bedside tables.

Renovating the Boma Hospital in the Bas Congo region was oneof the Foundation’s biggest health-related projects in 2007. TheVodacom Congo Foundation provided around USD88,000 forthe renovation. In addition to the renovations, the Foundationprovided beds, mattresses, linen and bedside tables.

During blood donation day on June 14, 2007, more than 70 Vodacom employees joined in the Government’s campaignto donate blood in support of women giving birth. Vodacom alsosupplied banners and merchandise to the Minister of Health toassist with publicising the campaign.

Tanzania

The Vodacom Tanzania Foundation’s health projects focus onrenovating hospitals and supplying equipment, as well assponsoring cataract operations.

Sekou Toure Hospital is a public hospital in Mwanza. Thehospital is the most affordable health service provider for manypeople in the lake region, serving 800 patients daily. TheVodacom Tanzania Foundation donated a modern, fullyrenovated children’s ward to the hospital. A total of TSH30million was invested in the project, which also provided hospitalbeds, mattresses and linen.

The Mawenzi Hospital is the main referral public hospital in theKilimanjaro region. Through funding from the Vodacom TanzaniaFoundation, ward number 7 was renovated to provide a modern,hygienic environment conducive to patient recovery.

During the year under review the Vodacom Tanzania Foundation,in its second partnership with Comprehensive Community BasedRehabilitation in Tanzania Hospital and the Lions Club, assistedin coordinating and organising eye screening camps andsubsequent surgeries for patients requiring treatment. A total of450 people received cataract surgery during the year under

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review; many patients who were living with blindness have hadtheir vision restored.

Lesotho

Following demands by the public to separate tuberculosis andchildren’s wards, Vodacom is sponsoring the construction of TBand children’s wards at a total cost of M1 million at theMamohau Roman Catholic Church Hospital in Leribe. Constructionwas initiated in January 2008.

Water projectsTanzania

Many communities in Tanzania do not have access to safedrinking water. Water projects therefore form an important focusfor the Vodacom Tanzania Foundation.

The Vodacom Tanzania Foundation funded water projects at acost of TSH30 million, which will ensure that around 4,000residents of the Manguamitogho and Kimpungua villages inSingida have access to clean water close to their homes.

The Foundation also donated TSH15 million towards a heavyduty water pump capable of delivering 50,000 litres of waterper hour to give over 5,000 residents of Tunguu, Kikungwi andBungi Shehias of Kibele in Zanzibar access to safe drinkingwater.

WelfareDRC

The Vodacom Congo Foundation donated food and materials to the value of USD5,000 to the Association pour l’Assistance de la Femme Célibataire Congolaise, a non-governmentalorganisation that creates employment for women and providesfood for the destitute.

Tanzania

The Vodacom Tanzania Foundation hosted a special iftar (a mealthat breaks the fast) for 170 orphaned children from severalIslamic orphanages in Dar Es Salaam. A total of 17 Islamicorphanages received four tons of food supplies. Furthermore,Vodacom employees teamed up with the Vodacom Tanzania

Foundation to support children from five orphanages in Dar Es Salaam.

Lesotho

Vodacom Lesotho annually donates blankets to the value ofM30,000 to orphanages under the patronage of Her MajestyQueen Masenate Bereng Seeiso. The donation is distributedthrough the Queen’s National Trust Fund. More than 4,000orphans throughout the country benefit from the Queen’s Fund.

Safety and security

South Africa

In June 2007 the Vodacom Foundation contributed R576,000to the Committee for Crime Prevention, a project that reintegratesat-risk street children into communities. Also in 2007, theVodacom Foundation funded training projects in woodwork andneedlework that will provide skills to 48 learners over a periodof one year.

Tanzania

The Ruangwa district has the highest crime rate in the Lindiregion. Of particular concern is the high incidence of rape ofyoung school girls. The villagers of Ruangwa approached theVodacom Tanzania Foundation to assist them in completing apolice post which would increase the police presence in thearea. The Vodacom Tanzania Foundation donated TSH5 millionto complete the project.

The Foundation also donated TSH15 million worth of airtime andSimu Ya Watu units to the anti-robbery unit of the Tanzania Policein October 2007 at a ceremony at the police head quarters.

Income generation

Tanzania

Mwanza Samaritans is a NGO based in Mwanza whichprovides support to orphans. The group operates several incomegenerating projects including a small-scale secretarial service.Through these projects, women are able to support their familiesas well as 42 orphans. The Vodacom Tanzania Foundationdonated computers and related hardware to the group.


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Employee involvement in Vodacom Foundation CSI projectsSouth Africa

The Vodacom Foundation’s Yebo Heroes programme provides a platform through which Vodacom employees contribute to thecommunities in which they live. As far as possible, Yebo Heroesactivities complement the projects supported by the VodacomFoundation. In 2007, Yebo Heroes participants were involvedin activities during National Employee Volunteer Week,collecting nearly R70,000 for the annual Cansa Shavathon thatraises awareness of cancer.

The first platform created under the Yebo Heroes banner isPayroll-Giving, whereby employees allow deductions to be madefrom their salaries on a monthly basis towards selected charities.The next platform to be created was the inclusion of a CSIcomponent for various departmental team building programmes.

Tanzania

Throughout the month of December 2007 the Vodacom TanzaniaFoundation implemented the Vodacom Cares campaign, with theaim of supporting orphans, children living in poverty and theelderly. The Foundation visited over 26 centres and providedfood including rice, flour, oil and sugar. Vodacom employeesfrom all departments contributed to the campaign.

DRC

The “Vodacom cares and shares” campaign during December2007 enabled Vodacom employees to bring hope and joy tounderprivileged people. During the campaign, 70 centres forpeople living with HIV/AIDS, the elderly and orphans across theDRC were visited once a week. The Foundation provided clothesand food to the value of USD50,000.

Projects that provide the greatest impact from investments madeenjoy priority for funding. The Vodacom Congo Foundationtherefore chooses to partner with a handful of NGOs with asound track record. To this end, the Vodacom Congo Foundationaims to adopt the following practices going forward:

Proactively call on NGOs to submit proposals for the deliveryof projects that have been identified by the Foundation;

Approach specific NGOs to investigate which of theirprojects can be funded, based on a good match with theFoundation’s priorities and criteria; and

Assist NGOs that demonstrate capacity to develop the skillsnecessary to mobilise resources towards their projects.

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Item Comment and page reference

Vision and strategy1.1 Statement of the organisation’s vision and strategy regarding its See Telkom’s website: www.telkom.co.za/ir

contribution to sustainable development.1.2 Statement from CEO (or equivalent senior manager) describing key Chief executive officer’s review – page 22

elements of the report.

ProfileOrganisational profile2.1 Name of reporting organisation. Telkom SA Limited2.2 Major products and/or services including brands if appropriate. Operational review – page 110

Further details of products and service can be accessed onthe website www.telkom.co.za

2.3 Operational structure of the organisation. Group structure – page 22.4 Description of major divisions, operating companies, subsidiaries. Group structure – page 22.5 Countries in which the organisation’s operations are located. The Telkom footprint – page 22.6 Nature of ownership; legal form. Telkom Group structure – page 32.7 Nature of markets served. The telecommunications industry – page 11

Report scope2.10 Contact person(s) for the report, including e-mail and web addresses. Administration page and www.telkom.co.za/ir2.11 Reporting period for information provided. Year ended March 31, 20082.12 Date of most recent previous report. Year ended March 31, 2007

Report profile2.17 Decisions not to apply GRI principles or protocols. Sustainability review – page 362.18 Criteria/definitions used in any accounting for economic environment. Notes to the consolidated annual financial

statements – page 1902.19 Significant changes from previous years in the measurement methods. Notes to the consolidated annual financial

statements – page 190 2.22 Means by which report users can obtain additional information and See Telkom’s website: www.telkom.co.za/ir

reports about economic, environmental and social aspects of the organisation’s activities, including facility-specific information.

Global reporting initiative(GRI) content index

Telkom has opted for an incremental adoption of the guidelines to the GRI index, the full adoptionwill include a quality assurance, and compliance audit report. In many cases, Telkom’s internalreporting frameworks pre-date external frameworks, hence this is presented as a navigation aid asopposed to a “tick-box” compliance exercise.

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Governance structure and management systemsStructure and governance3.1 Governance structure, including major Board committees. Corporate governance report – page 443.2 Percentage of the Board of Directors that are independent, Corporate governance report – page 26

non-executive directors.3.3 Board-level processes for overseeing economic environmental and Corporate governance report – page 78

social risks and opportunities.3.4 Linkage between executive compensation and achievement of goals. Human capital management report – page 693.5 Organisational structure and key responsibilities. Chief officers and management team – pages 30 and 323.6 Mission and values statements and codes of conduct. See Telkom’s website: telkom.co.za/ir3.7 Mechanisms for shareholders to provide recommendations to the Company Secretary (see contact details on ibc) IR road-

Board of Directors. shows; AGM and the IR website www.telkom.co.za/ir

Stakeholder engagement3.8 Major stakeholders. Sustainability review – page 363.9 Approaches to stakeholder consultation. Sustainability review – page 363.10 Type of information generated by stakeholder consultations. Sustainability review – page 363.11 Use of information resulting from stakeholder engagements. Sustainability review – page 36

Economic performance indicatorsEC1 Net sales. Consolidated income statement – page 186EC2 Geographic breakdown of markets. Notes to the consolidated annual financial

statements – page 190EC3 Cost of all goods, material and services purchased. Consolidated income statement – page 186EC5 Total payroll benefits. Consolidated income statement – page 186EC6 Distributions to providers of capital. Consolidated statement of changes in equity – page 188EC7 Increase/decrease in retained earnings at end of period. Consolidated statement of changes in equity – page 188EC8 Total sum of taxes of all types paid broken down by country. Notes to the consolidated annual financial

statements – page 190EC10 Donations to community, civil society and other groups. Corporate social investment report – page 96

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Environmental performance indicatorsMaterialsEN1 Total material use other than water, by type. Report in tonnes, Safety, health and environment report – page 78

kilograms or volume). Provide definitions used for types of materials.EN2 Percentage of materials used that are wastes (processed Safety, health and environment report – page 78

or unprocessed) from sources external to the reporting organisation.EN5 Total water use. Safety, health and environment report – page 78EN6 Land owned, leased, or managed in biodiversity-rich habitats. Safety, health and environment report – page 78EN7 Description of major impacts on biodiversity, associated with the Safety, health and environment report – page 78

organisation’s activities and/or products and services in terrestrial, freshwater and marine environments.

Social performance indicatorsLabour practices and decent workLA1 Breakdown of workforce. Human capital management report – page 68LA2 Percentage of employees represented by independent trade unions. Human capital management report – page 74 LA3 Occupational accidents and diseases. Safety, health and environment report – page 78 and 79LA4 Standard injury, lost day and absentee rates and number of Safety, health and environment report – page 78

work-related fatalities.LA5 Description of policies or programmes on HIV/AIDS. Safety, health and environment report – page 79 LA6 Average hours of training per year per employee by category Human capital management report – page 71

of employee.LA7 Equal opportunity policies or programmes. Human capital management report – page 68LA8 Composition of senior management and corporate Chief officers and management team – pages 30 and 32

governance bodies. Corporate governance report – page 44

Global reporting initiative continued

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Performance review

Five year operational review 108

Operational review 109

Chief of finance’s review 139

Five year financial review 146

Financial review 147

Telkom is aggressively building on the strengthsof its fixed-line network in South Africa andgrowing its presence in Africa

Performance review


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FIVE YEAR OPERATIONAL REVIEW

for the years ended March 31

2004 2005 2006 2007 2008 CAGR (%)

Fixed-line operational dataFixed access lines (thousands) 4,680 4,726 4,708 4,642 4,532 (0.8)

Postpaid – PSTN 3,048 3,006 2,996 2,971 2,893 (1.3)Postpaid – ISDN channels 601 664 693 718 754 5.8Prepaid 856 887 854 795 743 (3.5)Payphones 175 169 165 158 143 (4.9)

Fixed-line penetration rate (%) 10.1 10.1 10.0 9.8 9.5 (1.5)Revenue per fixed access line (ZAR) 5,341 5,250 5,304 5,275 5,250 (0.4)Total fixed-line traffic (millions of minutes) 32,942 31,706 31,015 29,323 26,926 (4.9)

Local 20,547 19,314 18,253 14,764 11,317 (13.9)Long distance 4,616 4,453 4,446 4,224 3,870 (4.3)Fixed-to-mobile 3,980 3,911 4,064 4,103 4,169 1.2International outgoing 427 415 515 558 635 10.4International VoIP 25 89 83 38 43 14.5Interconnection 3,347 3,524 3,654 3,740 3,895 3.9Subscription based calling plans – – – 1,896 2,997 n/a

Managed data network sites(1) 9,061 11,961 16,887 21,879 25,112 29.0Internet dial-up subscribers(1) 142,208 202,410 228,930 210,453 242,732 14.3Internet ADSL subscribers(1) 8,559 22,870 53,997 92,140 115,334 91.6ADSL subscribers(1) 20,145 58,278 143,509 255,633 412,190 112.7Calling plan subscribers – – 62,803 266,300 451,122 168.0Fixed-line employees 32,358 28,972 25,575 25,864 24,879 (6.4)Fixed lines per fixed-line employee 145 163 184 180 182 5.8

(1) Excludes Telkom internal services.

Mobile operational dataTotal mobile customers (thousands) 11,217 15,483 23,520 30,150 33,994 31.9South AfricaMobile customers (thousands) 9,725 12,838 19,162 23,004 24,821 26.4

Contract 1,420 1,872 2,362 3,013 3,541 25.7Prepaid 8,282 10,941 16,770 19,896 21,177 26.5Community services 23 25 30 95 103 45.5

Total inactive mobile customers (%) 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 –

Mobile churn (%) 36.6 27.1 17.7 33.8 42.3 3.7Contract 10.1 9.1 10.0 9.7 8.3 (4.8)Prepaid 41.3 30.3 18.8 37.5 47.9 3.8

Mobile market share (%) 54 56 58 58 55 0.5Mobile penetration (%) 39.0 49.5 70.6 84.2 94.3 3.2Total mobile traffic (millions of minutes) 12,172 14,218 17,066 20,383 22,769 16.9

Outgoing 7,647 9,231 11,354 13,638 15,323 19.0Incoming 4,525 4,987 5,712 6,745 7,446 13.3

Mobile ARPU (ZAR) 177 163 139 125 125 (8.3)Contract 634 624 572 517 486 (6.4)Prepaid 90 78 69 63 62 (8.9)Community services 2,155 2,321 1,796 902 689 (24.8)

Average MOU 96 84 74 69 66 (8.9)Contract 263 226 206 188 172 (10.1)Prepaid 56 52 49 47 46 (4.8)Community services 3,061 3,185 2,327 1,151 883 (26.7)

Cumulative network capital expenditure per customer (ZAR) 1,720 1,515 1,257 1,187 1,239 (7.9)Number of mobile employees 3,848 3,919 4,305 4,727 4,849 6.0Number of mobile customers per mobile employee 2,527 3,276 4,451 4,867 5,119 19.3Other African countriesTotal mobile customers (thousands) 1,492 2,645 4,358 7,146 9,173 57.5

Lesotho 80 147 206 279 395 49.1Tanzania 684 1,201 2,091 3,247 4,207 57.5Democratic Republic of Congo 670 1,032 1,571 2,632 3,289 48.8Mozambique 58 265 490 988 1,282 116.8

Churn (%)Lesotho 65.1 17.3 22.3 19.0 17.8 (27.7)Tanzania 30.0 29.6 28.5 35.6 45.5 11.0Democratic Republic of Congo 20.2 23.1 28.1 30.4 48.0 24.2Mozambique 0.3 11.3 32.2 41.7 58.7 274.0

Gross connections (thousands)Lesotho 51 70 98 119 176 36.3Tanzania 404 746 1,353 2,092 2,645 60.0Democratic Republic of Congo 513 565 892 1,688 2,141 42.9Mozambique 58 225 342 797 951 101.2

Penetration (%) Lesotho 5 7 13 17 26 51.0Tanzania 3 5 9 16 20 60.7Democratic Republic of Congo 2 4 6 9 12 56.5Mozambique 3 4 8 14 16 52.0

ARPULesotho 125 92 78 75 73 (12.6)Tanzania 128 81 67 52 49 (21.3)Democratic Republic of Congo 150 98 86 77 59 (20.8)Mozambique 110 52 36 28 29 (28.3)

Number of employees 761 1,074 1,154 1,522 1,992 27.2Lesotho 68 63 67 63 97 9.3Tanzania 316 356 438 527 766 24.8Democratic Republic of Congo 334 538 479 745 919 28.8Mozambique 43 123 170 187 210 48.7

Number of mobile customers per mobile employee 1,961 2,463 3,776 4,695 4,605 23.8


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HISTORY AND DEVELOPMENT OF THE COMPANY

Telkom was incorporated on September 30, 1991 as a publiclimited liability company registered under the South AfricanCompanies Act No. 61 of 1973, as amended.

Registration number: 1991/005476/06

The company’s principal executive offices are located at:

Telkom Towers North 152 Proes Street Pretoria 0002 Gauteng Province South Africa Telephone number: +27 (0) 12 311 3566Website address: http://www.telkom.co.za

Historical backgroundPrior to 1991, the former Department of Posts and Telecommu -nications of South Africa exclusively provided telecommu -nications and postal services in South Africa. In 1991, theGovernment of South Africa transferred the entire telecommu -nications enterprise of the Department of Posts andTelecommunications of South Africa to a new entity, Telkom, aspart of a commercialisation process intended to liberalise certainsectors of South Africa’s economy. Telkom remained a whollystate-owned enterprise until May 14, 1997, when theGovernment of South Africa sold a 30% equity interest in Telkomto Thintana Communications LLC, a strategic equity investorbeneficially owned by SBC Communications Inc. and TelekomMalaysia S.D.N. Berhard. On March 7, 2003, we completedour initial public offering and listing on the JSE and NYSE,pursuant to which the Government of South Africa sold a total of154,199,467 ordinary shares, including 14,941,513 ordinaryshares through the exercise of an over-allotment option.

Recent developmentsNon-binding proposals receivedTelkom has made a decision to invest in the built out of a fixed-wireless and mobile data network. Telkom is currently limited inits ability to pursue or provide full mobile services in South Africaand sub-Saharan Africa by the provision of the Vodacom jointventure agreement with Vodafone.

On May 30, 2008, Telkom received a non-binding proposal bya wholly-owned subsidiary of Vodafone Group Plc to acquire aportion of Telkom's stake in the Vodacom Group, subject to,among other things Telkom distributing its remaining stake inVodacom to Telkom shareholders.

Separately, on May 30, 2008, Telkom received a letter from a consortium comprising Mvelaphanda Holdings (Pty) Ltd,affiliated funds of Och-Ziff Capital Management Group andother strategic investors (the Consortium), stating that the

OPERATIONAL REVIEW

Consortium was considering making an offer for the entire issuedshare capital of Telkom, subject to a number of conditions,including, among other things, confirmation by the Telkom Boardthat Telkom would unbundle its entire 50% stake in Vodacom aspart of the offer.

Discussions with Vodafone commenced on May 14, 2008, andare independent from the approached received from theconsortium.

On July 15, 2008, Telkom issued a further cautionary statementthat its discussions with Vodafone and independently with theconsortium are still ongoing and shareholders are advised tocontinue to exercise caution when dealing in Telkom securities.Telkom’s Board does not intend to consider disposing of Telkomor any of its subsidiaries, joint venture or assets withoutcompelling strategic rationale. There can be no assurance thatTelkom will ultimately elect to divest of its interest in Vodacom orthe structure or the ultimate value to Telkom and its shareholdersof its Vodacom interest, or that Telkom’s mobile strategy willchange or that it will be successful in pursuing any new mobileopportunities.

Senior management

With effect from November 1, 2007, Telkom revised its topmanagement structure to better match the company’s currentbusiness needs. The revised structure is designed to facilitatefaster decision-making and more effective execution, smootherintegration of various operating entities, and to ensure that multi-national and wholesale customers are better served throughappropriate channels. On November 22, 2007, the Boardannounced the appointment of Reuben September as ChiefExecutive Officer. In appointing the CEO, the Board followed arigorous evaluation process including international benchmarkingand consultation with the Department of Communications, thelatter a requirement specified by Telkom's articles of association.

In addition, on November 1, 2007, Motlatsi Nzeku wasappointed as Chief of Operations, Thami Msimango as Chief of Global Operations and Subsidiaries, Charlotte Mokoena as Chief of Human Resources and Ouma Rasethaba as Chief of Corporate Governance. Additionally, 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 CEO of the Vodacom Group, effective from September 30, 2008. He is expected to remain as consultingCEO until the end of the 2009 financial year. Mr Pieter Uys hasbeen appointed Chief Executive Officer of the Vodacom Groupeffective from October 1, 2008. At the end of the 2008 financialyear, Leon Crouse ended his term as Chief Financial Officer ofthe Vodacom Group. Johan van der Watt is currently actingChief Financial Officer of Vodacom.

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OPERATIONAL REVIEW

OverviewOur fixed-line segment is our largest business segment andincludes our fixed-line voice, data and Internet businesses.Telkom’s fixed-line services comprise:

Fixed-line subscription and connection services to postpaid,prepaid and private payphone customers using PSTN linesincluding ISDN lines, and the sale of subscription basedvalue-added voice services and customer premises equipment(CPE) rental and sales;

Fixed-line traffic services to postpaid, prepaid and payphonecustomers including local, long distance, fixed-to-mobile,international outgoing and international Voice over InternetProtocol (VoIP) traffic services;

Interconnection services, including terminating and transitingtraffic from South African mobile operators and internationaloperators, as well as transiting traffic from mobile tointernational destinations; and

Fixed-line data and Internet services, including domestic andinternational data transmission services such as point to pointleased lines, ADSL services, packet based services, manageddata networking services, as well as Internet access andrelated information technology services.

Products and servicesSubscriptions and connectionsTelkom provides postpaid, prepaid and private payphonecustomers with digital and analogue fixed-line access servicesincluding PSTN lines, ISDN lines, and wireless access betweena customer’s premises and our fixed-line network. Each analoguePSTN line includes one access channel, each basic rate ISDNline includes two access channels and each primary rate ISDNline includes 30 access channels. Each ISDN line transmitssignals at speeds of 64 Kbps per channel. Subscriptions to ADSLare included in our data services revenue.

We were the first fixed-line operator globally to provide aprepaid service on a fixed-line network. Our prepaid serviceoffers customers an alternative to the conventional postpaid fixed-line telephone service. All costs including installation, telephoneequipment, line rental and call charges are paid in advance,eliminating the need for monthly telephone bills. We target ourprepaid service mainly at first-time residential customers who donot have sufficient credit history, and are located in areas wherewe can provide access to our network without significantadditional investment. Customers who have previously had theirtelephone service disconnected due to non-payment are alsoencouraged to migrate to our prepaid service option in order toreduce future non-payments while satisfying demand for ourservices. In the 2007 financial year we introduced Waya Waya,our most affordable fixed-line offer yet. Existing customers arerequired to pay R120 in advance to cover line rental for a periodof one year, thereby ensuring that our customers stay connected.

Telkom also offers a broad range of value-added voice serviceson a subscription or usage basis including call forwarding, callwaiting, conference calling, voicemail, toll-free calling, ShareCallwhich permits callers and recipients to share call costs, speeddialling, enhanced fax services and calling card services forpayphones. These services complement our basic voice servicesand provide us with additional revenue while satisfying customerdemand, enhancing our brand and increasing customer loyalty.Value-added voice services such as our CallAnswer voicemailservice are also bundled with value-added calling plans such asTelkom Closer, to further enhance the value of these services toour customers.

We provide payphone services throughout South Africa. As atMarch 31, 2008, Telkom operates approximately 138,344 publicpayphones and approximately 4,538 private payphones, of which approximately 41% are coin-operated and combinationpayphones, and the remainder being card-operated payphones.

The following table presents information regarding our postpaidand prepaid lines as well as payphones as at the datesindicated, excluding our internal lines:

Operational review continued

As at March 31,2006 2007 2008 2007/2006 2008/2007

(in thousands, except percentages) % change % change

Postpaid PSTN(1) 2,996 2,971 2,893 (0.8) (2.6)Business 1,412 1,426 1,429 1.0 0.2Residential 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 5.0Payphones(2) 165 158 142 (4.2) (10.1)

Total fixed-access lines(3) 4,708 4,642 4,532 (1.4) (2.4)

(1) Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fibre.(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 analogue PSTN line includes one access channel, each basic rate ISDN line includes two access channels and each primary rate ISDN line includes30 access channels.

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The following table presents information related to the number of fixed-access lines in service, net line growth and churn for theperiods indicated. Churn is calculated by dividing the number of disconnections by the average number of fixed access lines inservice during the period.

As at March 31,2006 2007 2008 2007/2006 2008/2007

(in thousands, except percentages) % change % change

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) (607) 0.8 (4.9)

Closing balance 4,708 4,642 4,532 (1.4) (2.4)

Churn (%) 13.4 13.6 13.3 1.5 (2.2)

and long-distance calls subject to a minimumcharge, as well as reduced rates to selectedinternational destinations and pure persecond billing for fixed to mobile calls sinceAugust 2007.

Telkom Closer 4 All the benefits of Telkom Closer 3 bundledwith DSL 384.

Telkom Closer 5 All the benefits of Telkom Closer 3 bundledwith DSL 4096.

Telkom Closer plans 1 to 3 have an option to purchase 150 or75 local Internet hours during call more time.

The Closer packages have performed exceptionally well, withthe usage base increasing by 69.4% to 451,122 plans.Subscriptions to the supreme call packages, targeted at thesmall, medium and micro enterprise (SMME) segment, haveincreased by 149.2% to 12,916. Telkom continues to besuccessful in tying in large corporate customers to term andvolumes discount plans. During the year under review R3.4 billion worth of term and volume discount plans were sold.Annuity revenue streams, which exclude line installations,reconnection fees and CPE sales, have increased by 14.1% toR6.9 billion. Telkom will seek to continue converting traditionalrevenue streams to annuity revenues. This will mainly be donethrough bundling call minutes with access line rental in attractivesubscription based value propositions, an important strategy fordelivering greater value to our customers.

Pricing is a key element of the value proposition and our pricingstrategy is aimed at improving our competitiveness in areaswhere competition is expected to intensify and where arbitrageopportunities exist. Telkom’s strategy to counter pricing pressuresis as follows:

Actively offer value based calling plans and bundles to extendvalue and savings to our customers;

Connections include new line orders resulting primarily fromchanges in service and, to a lesser extent, new line roll-out.Disconnections include both customer-initiated disconnectionsand Telkom-initiated disconnections. Included in disconnectionsand churn are those customers who have terminated their servicewith Telkom and subsequently subscribed to a new service withTelkom as a result of relocation or change of subscription to adifferent type of service.

Value-enhancing bundles

During the year under review Telkom continued to focus onoffering value for money by launching and continuouslyenhancing packages such as PC bundles and Telkom Closer,including the following:

Telkom Closer 1 Includes line rental, Call Answer, a minimumflat-rate charge for calls during off-peak timeup to one hour, a discounted per record ratefor local and long-distance calls subject to aminimum charge, as well as 30 free localminutes during standard time introduced sinceAugust 2007. In addition, with effect fromAugust 2008, this package includes 60 freelocal Internet minutes during off-peak time.

Telkom Closer 2 Includes line rental, Call Answer, unlimitedfree calls during off-peak time up to onehour, a discounted per record rate for localand long-distance calls subject to a minimumcharge, as well as 30 free local minutesduring standard time introduced in August2007. In addition, with effect from August2008, this package includes 60 free localInternet minutes during off-peak time.

Telkom Closer 3 Includes line rental, Call Answer, 1,000inclusive free peak-time minutes, unlimitedfree calls during off peak time up to onehour, a discounted per second rate for local

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Reduce international and long distance rates to reducearbitrage opportunities;

Rebalance standard/off-peak local rates, to better align these with international norms and improve our competitiveposition; and

Reduce and rebalance national and international data pricesto improve our competitive position.

Despite these campaigns, Telkom’s fixed-line base declined by2.4% in the 2008 financial year and 1.4% in the 2007 financialyear. The decrease in the number of subscriber lines was mainlyin the lower revenue generating areas such as prepaid PSTNlines and residential postpaid PSTN lines, partially offset by anincrease 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 yearand 1.0% in the 2007 financial year.

The decrease in the number of residential postpaid PSTN lineswas primarily as a result of customer migration to mobile andhigher bandwidth products such as ADSL and lower connections,while the decrease in prepaid PSTN lines was primarily as aresult of customer migration to mobile services and our residentialpostpaid PSTN services to enable access to subscription basedcalling plans. The decline in prepaid services in the 2008financial year was offset in part by “Waya-Waya”, whichaccounted for approximately 32.5% of prepaid services as at March 31, 2008. The increase in ISDN channels and ADSLservices was primarily driven by increased demand for higher

bandwidth and functionality. This, together with the alignment ofthe residential and business DSL product and the upgrading ofDSL 192 to DSL 384 without any additional cost to customers,has added to the positive growth in ADSL services. ISDN servicesgrew by approximately 5.0% in the 2008 financial year, mainlydue to Telkom’s primary rate service which grew 9.5%, while thebasic rate service declined 3.2%.

We also offer telecommunications equipment rentals and salessuch as telephones and private branch exchange (PABX) systems,as well as related post-sales maintenance and service forresidential and business customers in South Africa. The market inSouth Africa for such equipment and systems, commonly knownas customer premises equipment (CPE), is characterised by highcompetition and low profit margins. We believe, however, thatthe supply and servicing of CPE is an essential part of providinga full service to our customers.

Traffic minutes

Pure voice or traffic revenue remains the largest contributor to fixed-line revenue. Traffic revenue decreased 4.7% to R15.9 billion contributing 49.0% to fixed-line revenue. Thisdecrease is largely as a result of continued fixed to mobilesubstitution and price decreases.

The following table presents information regarding our fixed-linetraffic minutes, excluding interconnection traffic, for the periodsindicated. We calculate fixed-line traffic by dividing fixed-linetraffic revenues for the particular category by the weightedaverage tariff for that category during the relevant period.


Year ended March 31, 2007/2006 2008/2007(in millions, except percentages) 2006 2007 2008 % change % change

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 1.6International outgoing 515 558 635 8.3 13.8International VoIP 83 38 43 (54.2) 13.2Subscription based calling plans(2) – 1,896 2,997 – 58.1

Total traffic 27,361 25,583 23,031 (6.5) (10.0)

(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 year.

Traffic from subscription based calling plans was not reclassified in the 2006 financial year.

Traffic was adversely affected in both the 2008 and 2007 financial years by the increasing substitution of fixed-line calls with mobileservices, dial-up Internet traffic being substituted by our ADSL service, the decrease in the number of prepaid and residential postpaidPSTN lines, as well as increased competition in our payphone business. The decrease in international VoIP traffic in the 2007 financialyear is primarily due to the relocation of the international call centre business by one of our customers outside South Africa.

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The following table sets forth information regarding interconnection traffic terminating on or transiting through our network for theperiods indicated. We calculate interconnection traffic, other than international outgoing mobile traffic and internationalinterconnection traffic, by dividing interconnection revenue for the particular category by the weighted average tariff for such categoryduring the relevant period. Fixed-line international outgoing mobile traffic and international interconnection traffic are based on thetraffic registered through the respective exchanges and reflected in international interconnection invoices.

Year ended March 31, 2007/2006 2008/2007(in millions, except percentages) 2006 2007 2008 % change % change

Domestic mobile interconnection traffic 2,299 2,419 2,502 5.2 3.4Domestic fixed interconnection traffic – – 113 – n/aInternational interconnection traffic 1,355 1,321 1,280 (2.5) (3.1)

Total 3,654 3,740 3,895 2.4 4.1

The increase in domestic mobile interconnection traffic in theyears ended March 31, 2008 and 2007 was primarily due toan overall increase in mobile calls as a result of growth in themobile market, partially offset by increased mobile-to-mobilecalls bypassing our network.

Domestic fixed interconnection traffic includes traffic from Neotel,USALs and VANS.

International interconnection traffic decreased in the 2008financial year due to a decrease in volumes as a result of loss ofvolumes to Neotel, Sentech, the USALs and illegal operatorsterminating traffic in the country. International interconnectiontraffic decreased in the 2007 financial year due to a decreasein international switch hubbing traffic.

Tariff rebalancingTelkom made significant progress in rebalancing its fixed-linetariffs. Our tariff rebalancing programme was historically aimedat better aligning our fixed-line traffic charges with underlyingcosts and international norms. Telkom expects that its tariffrebalancing in future will focus more on the relationship betweenthe actual costs and tariffs of subscriptions, connections andtraffic in order to more accurately reflect underlying costs, andin response to increased competition.

Regulations under the Telecommunications Act, which remain in effect, impose a price cap on a basket of Telkom’s specifiedservices 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 andour Megaline product. A similar cap applies to a sub-basket ofthose services provided to residential customers, including leasedlines up to and including lines of 2 Mbps of capacity and therental and installation of business exchange lines. Approximately64% of Telkom’s operating revenue for the year ended March 31,2007 was included in this basket, compared to approximately57% in the year ended March 31, 2008. Our tariffs for theseservices are filed with ICASA for approval. The price cap operatesby restricting the annual percentage increase in revenues from allservices included in the basket that are attributable solely to pricechanges to annual inflation, measured by changes in the consumerprice index, less three and a half percent.

Historically, the annual permitted percentage increase in revenuesfrom both the whole basket and the residential sub-basket was1.5% below inflation. Effective from August 1, 2005 through July31, 2008, the annual permitted increase in revenues from both thewhole basket and the residential sub-basket was lowered to 3.5%below inflation, and ADSL products and services have beenadded to the basket. In addition, the price of no individual servicewithin the residential sub-basket can be increased by more than5% above inflation except where specific approval has beenreceived from ICASA, and pursuant to the Electronic Commu -nications Act, revenue generated from services where we havesignificant market power may not be used to subsidise competitiveservices. Early in 2008, ICASA commissioned a review of theexisting price control regulations applicable to Telkom, however,ICASA has not initiated the statutory public process of reviewingthe existing regulations. Telkom is awaiting communications fromICASA in respect of proposed timelines for the review.

ICASA approved a 3.0% reduction in the overall tariffs forservices in the basket effective September 1, 2005, a 2.1%reduction in the overall tariffs for services in the basket effectiveAugust 1, 2006 and a 1.2% reduction on its regulated basket ofproducts and services effective August 1, 2007. On June 20,2008, Telkom filed with ICASA proposed average priceincreases on its regulated basket of products and services of2.4% as a result of inflation increases, effective August 1, 2008.The price control formula would have permitted Telkom to applyfor a 17.2% price increase due to the high consumer price indexin South Africa and excess carryover of lower price increasesfor prior periods. Our tariffs are subject to approval by theregulatory authorities. All tariffs include value added tax (VAT) ata rate of 14%.

Data

Leased lines

A large number of leased lines are provided to the mobileoperators at negotiated wholesale rates for the build-out of theirnetworks. With the growth in traffic carried on the mobilenetworks, a need was identified for the deployment within thesenetworks of transmission links with speeds higher than the 2 Mbps

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provided by existing agreements. We entered into broadbandfixed link leasing agreements with Vodacom and MTN in the2004 financial year and with Cell C in the 2005 financial year.These agreements have been enhanced over time, and wecurrently provide broadband links at speeds of 45 Mbps, 155Mbps and 622 Mbps, and anticipate that we will soon beproviding links at speeds of 2.5 Gbps. Formalised service levelagreements as well as term and volume based discount structures,as a counter to the competitive challenges that are occurring inthis area of the business, have been implemented.

These agreements have been enhanced over time, and weanticipate that we will soon be providing links at speeds of 45Mbps, 155 Mbps and 622 Mbps. Agreements and term andvolume based discount structures have been put in place as acounter to competition challenges that are occurring in this areaof the business.

Recognising the increasing threat of competition in the provisionof leased lines to the mobile operators, Telkom introduced furtherdiscounting structures in the 2007 and 2008 financial years toenhance the attractiveness of Telkom’s product offerings to thisrapidly growing market. Fixed-link leasing agreements were alsoentered into with some of the smaller operators, including VANSand USALs, as well as with Neotel. Vodacom and MTN haveboth indicated that they intend to self-provide some of the leasedlines, which they require for the build-out of their networks, as analternative to leasing from Telkom. We are currently negotiatingimproved leased line prices with the mobile operators in order toretain revenue from leased lines.

The following table indicates the bandwidth capacity of ourDiginet, Diginet Plus, ATM Express and broadcasting datatransmission services:

Leased line BandwidthDiginet 2.4 Kbps to 64 KbpsDiginet Plus 128 Kbps to 2 MbpsATM Express 2 Mbps to 155 Mbps

BroadcastingAnalogue audio 7.5 or 15 KHzAnalogue video 70 MHzDigital 2 Mbps to 155 Mbps

Managed data networking services

Our managed data networking services combine our datatransmission services discussed above with active networkmanagement provided through our state-of-the-art nationalnetwork operations centre. We offer a wide range of integratedand customised networking services, including planning,installation, management and maintenance of corporate-widedata, voice and video communications networks, as well as othervalue-added services such as capacity, configuration andsoftware version management on customers’ networks. To supportour service commitment, we offer guaranteed service levelagreements on a wide range of our products, which includeguaranteed availability, or uptime, of the network through theuse of our national network operations centre.

Our managed data networking services include our customernetwork care service, which facilitates the network managementof all our data transmission services using the leased lines orpacket based services discussed above, and our Spacestreamand IVSat products, which are satellite based products.Spacestream is a high quality, flexible satellite networkingservice that supports data, voice, fax, video and multimediaapplications, both domestically and in the rest of Africa.

Managed data networking services are billed on a monthly basisand vary by customer depending on the particular servicesprovided and the number of network sites under management.The following table presents information regarding the number of managed network sites for each of our managed datanetworking services as at the dates indicated.


Year ended March 31, 2007/2006 2008/20072006 2007 2008 % change % change

Terrestrial based 9,492 12,905 17,237 36.0 33.6Satellite 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

(1) Satellite based managed network sites declined during the 2008 financial year as a result of Uthingo, the South African lottery operator, losing its licence to operate.

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Telkom’s focus on bringing new innovative products to the market that cater for increased data usage and convergedservices has resulted in our new VPN products gaining increasedtraction in the market. We have increased VPN sites by 58% to12,741. Our new VPN Lite products, which are delivered overthe ADSL network, include advanced self-help and onlinecharging solutions. This product was launched during November2007. Telkom is in the process of building on a culture ofresearch and innovation and fast time-to-market, in order to caterfor customers who are increasingly looking for innovative, easyto use products.

Broadband and Converged Services

Telkom is aggressively expanding its ADSL footprint, increasingthe bandwidth offered in order to host applications such asvideo services and using the Next Generation Network (NGN)to facilitate innovative solutions. The ADSL footprint now covers 92% of Telkom’s total network and our coverage inunderserviced areas has increased to 76%. ADSL subscribersgrew 61.2% to 412,190, excluding Telkom internal lines. Wefell short of our aggressive target of 420,000. Nevertheless,this strong growth was achieved through the commoditisationof ADSL, Do Broadband, the Self Install Option, DSL portautomation and wholesale services. Do Broadband packagesincreased by 245.6% to 119,288. Wholesale ADSL servicesgrew to 18,722. Telkom remains committed to achieving ourtargeted ADSL penetration of 15 to 20% of fixed access lines bythe end of the 2011 financial year. This will continue to offsetthe decrease in access lines which have decreased by 2.4% to4,531,752 access lines.

ADSL services

ADSL allows provisioning of high speed connections overexisting copper wires using digital compression. We havedifferent ADSL services available, aimed at the distinct needs ofour customers. In an attempt to simplify our DSL offering and toincrease value to customers, we have aligned the residential andbusiness DSL product offerings and upgraded all DSL 192customers to DSL 384 without any additional cost to customers.

The following table indicates our product offerings as at March 31, 2008:

DSL DSL DSL384 512 4096

Downstream speed Up to 384 Kbps 512 Kbps 4096 KbpsUpstream speed Up to 128 Kbps 256 Kbps 384 Kbps

The ADSL Self Install option is expected to continue to improvethe installation times. As at March 31, 2008, 57% of all ADSLinstallations were done through the Self Install option.

In extending and complementing our ADSL footprint, Telkom hasincreased its WiMAX base stations from 27 sites at September 30,2007 to the current 56 sites. Telkom remains committed to itstarget of 71 WiMAX base stations.

Internet access services and other relatedinformation technology services

Telkom is one of the leading Internet access providers in SouthAfrica in the retail and wholesale Internet access provision markets.We also package our TelkomInternet product with personalcomputers, ADSL and ISDN services, as well as our satellite accessproducts, SpaceStream Express and SpaceStream Office.

Our South African Internet eXchange (SAIX) is South Africa’slargest Internet access provider, offering dedicated and dial-up,ADSL and satellite Internet connectivity to Internet serviceproviders and value-added network providers. SAIX has offeredfixed-line network Internet access through dial-up service since1995. SAIX derives revenue for its access services primarily fromsubscription fees paid by Internet service providers and value-added network providers for access services. In order to growthe portfolio, an opportunity has been identified to develop aservice targeted mainly at night-time users of the SAIX ADSLservice. These customers can be regarded as heavy users as theyuse the service mainly for games, music and movie downloading.The SAIX customer base has expanded beyond service providersand value-added network providers, and now includes Vodacomand other operators in Africa. These include incumbents inMozambique, Namibia, Angola, Zimbabwe and Lesotho.

The following table presents information regarding our wholesale and retail Internet services and customers as at the dates indicated:

Year ended March 31, 2007/2006 2008/20072006 2007 2008 % change % change

WholesaleInternet leased lines-equivalent 64 Kbps 16,832 19,247 22,541 14.3 17.1Dial-up ports 12,889 11,462 7,010 (11.1) (38.8)RetailInternet dial-up subscribers 228,930 210,453 242,732 (8.1) 15.3Internet ADSL subscribers 53,997 92,140 115,334 70.6 25.2

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Voice over Internet Protocol network

Softswitch capability is initially being deployed as an overlaynetwork to enable the communication of VoIP services. Ourcurrent VoIP network terminates calls for numerous internationalvoice carriers into our fixed-line network. Call centres fromaround the world that have relocated to South Africa due tofavourable economic conditions and lower resource costs arealso hosted on our VoIP network. Telkom has points of presencefor connectivity to the VoIP network in Amsterdam, London, New York, Ashburn (Washington D.C.), Hong Kong, Zambia,Zanzibar, Tanzania, Senegal and Madagascar. The network canterminate 69 media gateways, or approximately 32,700 voicecircuits. The media gateways compress the traditional voicechannels of 64 Kbps to 8 Kbps channels thus enabling us toreduce the cost of international calls, while maintaining theperceived voice quality of a 64 Kbps call.

WiFi

In February 2005 Telkom launched a hot spot service thatprovides wireless data access through 802.11b/g WiFitechnology. Any user with a wireless-enabled notebook computeror personal digital assistant can connect to the service while inthe coverage area. WiFi is mainly targeted at restaurants, hotelgroups, major shopping malls and some sites on national routes.At March 31, 2008 Telkom has 237 hotspots, up from 75 atMarch 31, 2007.

WiMAX

Telkom has launched services based on fixed (IEEE 802. 16-2004) WiMAX technology. This technology is a standard basedbroadband wireless access technology that provides throughputconnectivity in a point-to-multipoint configuration. The technologyis designed to enable Telkom to complement its ADSL serviceoffering in peri-urban and rural areas, and in areas where ADSLservices are not yet available. Telkom is also pursuing theprovision of a voice service to complement the broadbandservice offering and a trial is currently in progress. If successful,this will be used to provide services in areas where Telkomexperiences problems with the fixed-line copper network dueprimarily to thefts and breakages.

Telkom has a memorandum of understanding in place with IntelCorporation for the interchange of information pertaining toWiMAX, in order to keep pace with the latest WiMAXdevelopments. Telkom is a member of the WiMAX Forum andactively monitors the Forum for any developments.

Geographic Expansion and other operationsTelkom aims to establish itself as a regional voice and dataplayer through providing a range of hosting services, managedsolutions, mobile voice and wireless broadband services. Weare also entering the field of management consulting tooperators. In addition, we are positioning Telkom as a wholesalefacilities and infrastructure enabler for regional incumbents.

Our expansion to date has been through Multi-Links, a privatetelecommunications operator operating in Nigeria and AfricaOnline, an Internet services provider with its head-office in Kenyaand operating in eight other African countries.

Our other operations segment provides directory servicesthrough our TDS Directory Operations Group, fixed mobile, dataand other international communications services in Nigeriathrough our newly acquired Multi-Links subsidiary, Internetservices outside South Africa through our Africa Onlinesubsidiary, and wireless data services through our Swiftnetsubsidiary, and includes Telkom Media and the TelkomManagement Service Company which will provide consultingand management services in South Africa and Africa. TDSDirectory Operations and Swiftnet were previously included inour fixed-line segment.

TDS Directory Operations

Telkom owns 64.9% of TDS Directory Operations, the largestdirectory publisher in South Africa providing white and yellowpages directory services and electronic white pages. During the2008 financial year, TDS Directory Operations publishedapproximately 2,460 million white, 2,078 million yellow and3,375 million combined directories. TDS Directory Operationsalso provides electronic yellow pages and value-added contentthrough full-colour advertisements. TDS Directory Operations hasimproved the accessibility and distribution of directories throughdoor-to-door delivery and electronic media. We also providenational telephonic inquiries and directory services. The remaining35.1% of TDS Directory Operations is owned by MaisterDirectories (Pty) Ltd. On January 23, 2007, TDS DirectoryOperations acquired a 100% shareholding in a shell companyand subsequently renamed it TDS Directory Operations (Namibia)(Pty) Ltd, which provides directory services in Namibia. OnOctober 31, 2007, TDS Directory Operations sold a 25% interestin TDS Directory Operations (Namibia) (Pty) Ltd to RipangaInvestment Holdings (Pty) Ltd, a black economic empowermentpartner in Namibia, for two million Namibian dollars.

TDS Directory Operations’ capital expenditure was R42 millionin the 2008 financial year, as the company sought to continueexpanding access and distribution into new markets. TDSDirectory Operations invested in a new online platform in orderto combat declining revenue from printed products.

TDS Directory Operations’ primary competitors for printmaterials include Caxton, Easy Info and Brabys. TDS DirectoryOperations’ primary Internet competitors include Yahoo, Googleand Ananzi, as well as vertical search capabilities such as AutoTrader and Supersport. TDS Directory Operations’ estimatedmarket share as at March 31, 2008 is approximately 9% withrespect to print media, and approximately 11% with respect toInternet directory services.

TDS Directory Operations had 610 employees as at March 31, 2008.


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Multi-Links

With effect from May 1, 2007, Telkom acquired 75% of Multi-Links Telecommunications Ltd (Multi-Links) in Nigeria for USD280 million (R1,985 billion). The remaining 25% of Multi-Links is owned by Kenston Investment Ltd, an investmentcompany based in the Isle of Man in the United Kingdom. Multi-Links is a private telecommunications operator with a UnifiedAccess Licence allowing fixed, mobile, data, long distance andinternational telecommunications services focused primarily oncorporate clients in Nigeria.

Multi-Links’ Unified Access Licence 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 Licences in Nigeria, making the Nigeriantelecommunications market extremely competitive as operatorsmay use any access technology to deliver voice, data and videoservices to their customers.

In the 2008 financial year, Multi-Links generated R845.4 millionin revenue and had total assets of R2,206 million. Telkomanticipates spending USD533 million in capital expenditure atMulti-Links in the 2009 financial year.

The company reported total subscribers of 262,431 atSeptember 30, 2007. We placed an aggressive subscribertarget of 812,000 for the year ending March 31, 2008 on thecompany. Multi-Links exceeded this target and delivered813,392 subscribers as at March 31, 2008. At the end of May2008, Multi-Links recorded 1,000,251 subscribers. Subscriberadditions are not linear and are entirely dependant on thecapacity that Multi-Links has available. Multi-Links is determinedto provide all its subscribers with a premium service.

Multi-Links reported revenue of R845.4 million, a loss before taxof R63.5 million and a profit after tax of R49 million due to a taxcredit. The pioneer tax status ended on December 31, 2007, andthe company is liable for tax of 30% and an educational levy of2% going forward, subject to the utilisation of tax credits.

Voice and data revenue contributed 81% to total revenue, handsetsales 12%, interconnect revenue 6.8% and short message service(SMS) 0.2%. Operating expenses were R941.8 million withpayments to other operators contributing 66%, selling, generaland administrative (SG&A) expenses contributing 15%, employeeexpenses 4%, operating leases 4%, services rendered 2% anddepreciation contributing 9%.

As a result of the CDMA technology, Multi-Links subsidisedhandsets which was the largest contributor to SG&A expenses.New CDMA customer premise equipment allows for CDMAtechnology to be embedded on SIM cards which enables CDMAto work on any telephone. This is expected to substantiallychange Multi-Links’ operating expenditure going forward.

The majority of new subscribers were added in late Februaryand March 2008 as a result of equipment being delayed

due to logistical difficulties. The average revenue per user (ARPU)achieved for the 11 months ended March 31, 2008 wasUSD32. It is however expected that ARPU will fall below USD30during the 2009 financial year.

In the 2008 financial year, Multi-Links’ build and expansionprogramme achieved the following:

Commissioned its first Huawei packet exchange in Abuja with300Kbps capacity;

Extended its Lagos switch by 250Kbps capacity to 600Kbpscapacity;

Extended the number of towers from 91 to 223;

Extended the number of base stations from 134 to 269;

Established a new main network site in Gbagada, Lagos; and

Added 1,300km of national backbone fibre, resulting in atotal of 2,500km.

Plans are underway to deploy Metro Ethernet rings in Kanu,Kaduna and the Delta region. Six NGN nodes will be built in the2009 financial year, greatly extending Multi-Links’ ability toprovide data products to corporate customers. In May 2008, thefirst South African organisation commissioned links betweenSouth Africa through Telkom and Nigeria through Multi-Links.This ability to provide end-to-end services throughout Africa is akey strength. Multi-Links expects more corporate customers tocome on board in the near future.

Multi-Links’ strategy will focus on brand awareness andpromotional campaigns to increase the revenue of fixed-wirelessand mobile customers, and will seek to offer easy to understandhigh-value bundles, differentiated by voice quality and servicelevels. Broadband Internet with Internet service provider serviceswill target high value bundles. High quality Internet protocolNGN services are planned to be deployed in Lagos to attracthigh-end corporate users, and carrier class wholesale productsand services are planned to be introduced by establishing anearth station to provide international connectivity.

The prospects for Multi-Links are good and the company intendsto capitalise on Telkom’s brand and access to internationalconnectivity. The resilience and quality of internationalconnectivity provides great opportunities in servicing corporate,wholesale and retail markets.

Africa Online

On February 23, 2007 Telkom acquired 100% of the issuedshare capital of Africa Online from African Lakes Corporation,at a total cost of R150 million. Africa Online is an Internet serviceprovider active in Cote d’Ivoire, Ghana, Kenya, Namibia,Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. AfricaOnline’s strategy focuses on brand development, creation and

The reason for the decrease in the number of dial-up and ADSLcustomers is that Africa Online has shifted its marketingapproach to focus on increasing the number of customers on itsown wireless network infrastructure, as opposed to dial-up andADSL networks.

Africa Online’s distribution is conducted through variouschannels including direct sales and different types of resellersdepending on the customer segment. Customers are servicedthrough customer relationship managers and a 24-hour callcentre. Africa Online’s primary competitors include formertelecommunications companies that have entered the Internetservice provider market and other private companies.

As at March 31, 2008, Africa Online’s network has 31 points ofpresence, 46 mobile broadband transceiver stations, 25 fixedbroadband wireless access transceiver stations, 13 networkoperation and support centres and 12 data centres across ninecountries. Africa Online’s capital expenditure was USD5.7 millionin the 2008 financial year as compared to USD0.8 million in the2007 financial year. The increase in capital expenditure wasprimarily due to the improvement of service quality and anincrease in the range of ICT services offered in the market.

Africa Online has 379 employees as at March 31, 2008. A newCEO, John Joseph, and a new chief financial officer, MunaffCassim, were appointed to Africa Online during May 2007.

Africa Online’s footprint covers East Africa, Southern Africa andWest Africa. The regulatory environments are fairly different in each of Africa Online’s different regions. East Africa isliberalised and Africa Online provides services across the ICTspectrum, including VoIP services. Markets in Southern Africa

are still regulated, limiting the services Africa Online can provideto its customers. West Africa is a fairly liberalised market andAfrica Online is presently seeking to take further advantage ofopportunities presented by this.

Africa Online increased its revenue from R46 million in the sixmonths ended September 30, 2007 to R110.0 million as atMarch 31, 2008. The major contributors to revenue were dial-up, consumer wireless and dedicated corporate links. Thedecline in earnings before interest, taxes, depreciation andamortisation (EBITDA) margin is largely as a result of the Telkommanagement fee, payments to other operators and SG&Aexpenses. The company reported an operating loss of R63.2 millionlargely as a result of foreign exchange losses.

Africa Online’s infrastructure roll-out has not progressed as fastas hoped due to the long equipment lead times and unrest inKenya during December 2007 and January 2008. However,Africa Online has capitalised on its relationship with Telkom inthe pursuit of multinational clients and has 124 Pan-Africanmultinational customers.

Telkom has migrated 115 corporate VSAT sites to AfricanOnline. This migration has allowed for the joint tendering ofbusiness to large multinational customers and opened theSouthern African region to Africa Online. The company is alsonow in a position to compete with the likes of MWEB and AFSAT.

In addition to the affiliates Africa Online currently works with inSenegal, Benin, Nigeria, Angola, Botswana and Mozambique,new affiliates have been signed up in Malawi, Mauritius andSudan including additional affiliates in Namibia, Angola andMozambique. The company is extending its coverage across thecontinent to aggressively target the Pan-African corporate market.

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links and consumer wireless services were the highest revenuestreams followed closely by dial-up business. Dial-up packages,however, are the most popular and accounted for approximately60% of Africa Online’s total customers as at March 31, 2008.Consumer wireless customers are expected to continue to growin line with Africa Online’s continued investment in infrastructure.The following table presents Africa Online’s customer base as atthe periods indicated:


development of customer channels, improving network systems,human resources development and an expansion drive targetingother African countries. In the 2008 financial year, Africa Onlinegenerated revenue of R110 million, and had assets totallingR122 million.

Africa Online offers wireless and fixed-line technologies, hostingand domain registration to both consumer and corporatecustomers. During the year under review dedicated corporate

As at March 31, 2008/20072007 2008 % change

Dial-up 11,599 8,936 (23.0)Consumer wireless 1,939 4,340 123.8Unbundled local loop 100 174 74.0ADSL 300 257 (14.3)VSAT 26 84 223.1Dedicated corporate 578 602 4.2

Total customers 14,542 14,393 (1.0)

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Telkom Media

Telkom launched Telkom Media (Proprietary) Limited as a privatecompany intended to have a 30% black economic empower -ment (BEE) shareholding. On August 31, 2006 Telkom Mediaapplied to ICASA for a commercial satellite and cablesubscription broadcast licence. On September 12, 2007, ICASAgranted Telkom Media a commercial satellite and cablesubscription broadcast licence, the issuance of which is subjectto the negotiation and satisfaction of certain conditions.

Telkom announced on March 31, 2008, its decision to reduce itsshareholding in Telkom Media substantially. Telkom will beinvestigating all opportunities to do this in the best interest ofTelkom shareholders and all other stakeholders. Telkom confirmsthat it has received proposals relating to Telkom’s announcedintention to substantially reduce its stake in Telkom Media. Nodecision has been made to date and Telkom is currentlyreviewing the proposals and anticipates making a decision inthe near future.

We acknowledge that the expansion of content rich services iscrucial as it will not only drive future revenue, but act as a majorproduct differentiator in a crowded broadband market space.Content can however be sourced from other operators andTelkom is in the process of investigating options with respect toacquiring content from a number of content providers.

Telkom Media has 142 employees as at March 31, 2008.Mandla Ngcobo and Lourens van Niekerk were appointed asChief Executive Officer and Chief Financial Officer respectively.

Swiftnet

Telkom owns 100% of Swiftnet, which operates under the nameFastnet Wireless Service. Fastnet is a wireless network providingasynchronous wireless access on our X.25 network, Saponet-P,to its customer base. This service has been expanded by Swiftnetto include a GPRS-driven solution using a dual SIM card allowingcustomers 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 onebase station network management centre. Swiftnet currentlyoperates a short message service over its network that feedsback into a third party operator connected to the mobileoperators. Swiftnet currently operates two sites for redundancypurposes, one in Centurion and one in Rosebank, for modemand router based services.

Swiftnet has a number of regional offices nationally that managemore than 160 contractors. Customers are serviced through atier 1 and tier 2 technical call centre as well as in-housetechnicians and external contractors. Swiftnet’s sales teamsupports various retail and wholesale relationships. Thecompany had an estimated 33% market share in the point ofsale communications market based on the number of customers

in the 2008 financial year, with strong competition from its threemain competitors, ConnectNet, X-Link and Datalink. Newservices such as ADSL router services are being developed tobroaden revenue streams.

John Myers was appointed as CEO as of July 9, 2007, andNokuthula Ngubeni was appointed as Chief Financial Officer as ofApril 4, 2008. Swiftnet has 85 employees as at March 31, 2008.

Swiftnet is in breach of its licence which requires it to have atleast 30% of its shares held by BEE individuals or entities. ICASAhas required Swiftnet to remedy this breach in its licence, whichexpired on August 24, 2006. On February 14, 2007 Telkomannounced that it had entered into an agreement to sell a 30%stake in Swiftnet to the Radio Surveillance Consortium, a groupof empowerment investors, for R55 million following a competitivesale process run by an independent adviser. The transactionwould not have required any financial support or facilitation fromTelkom. The transaction received Competition Commissionapproval on May 28, 2007, but was not approved by ICASA.Swiftnet is currently seeking black economic empoweredindividuals or entities who would be acceptable to ICASA. Withregard to shareholder issues, ICASA indicated that there iscurrently no agreement within the industry as to acceptable BEEshareholding percentages for all licensees. ICASA indicated thatthe shareholding issue for the Swiftnet licence would need to bein line with BEE values applicable to other similar licensees.Swiftnet met with ICASA on January 28, 2008 to discuss itsspecific licence terms and conditions. Swiftnet has submitted itscomments on the draft licence terms and conditions to ICASA thatICASA sent to Swiftnet during October 2007. Swiftnet, assisted byTelkom as its sole shareholder, has had a further meeting withICASA on February 27, 2008. It was decided that the draftamended licence that ICASA sent to Swiftnet during October2007 would not form the basis of the conversion process, butinstead the original licence issued to Swiftnet in August 1995would be used as the basis for licence conversion. The transactionis still subject to ICASA approval.

Other developmentsTelkom Management Services Company

The Telkom Board has approved the establishment of the TelkomManagement Services Company (TMSC). Opportunities exist in sub Saharan Africa for a reputable and acknowledgedtelecommunications operator to provide telecommunicationsmanagement services. The target markets for such services are:

State owned incumbent operators in sub Saharan Africa; and

Numerous new entrants into the ICT industry, including greenfield entrants that need operational expertise to scale up andbe effective operators. There is a need for consultants in theICT industry with relevant expertise and support from reputabletelecommunications operators that understand the Africanoperational environment and are able to provide such services.

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It is envisaged that TMSC will be a wholly-owned subsidiaryproviding the full range of strategic and operational services. Its relationship with Telkom holds advantages in terms ofexpertise in technology innovation and integration, independencefrom equipment manufacturers, experience of a large number ofsupplier platforms as well as firsthand experience in transformingfrom a state-owned monopoly, through commercialisation toprivatisation and listing.

The management contracts of Multi-Links and Africa Online willbe handled by TMSC.

Fixed wireless and mobile data network

Telkom has decided to utilise W-CDMA technology and hasappointed Huawei as our vendor to build out our fixed wirelessand mobile data network.

W-CDMA technology will provide Telkom with the followingbenefits:

Telkom will gain portable and mobile data as well as fixedand nomadic voice capability;

As W-CDMA has the capability of supporting full mobility,the above services can be further augmented with mobilevoice services should Telkom be successful in concluding itsmobile strategy, and no longer be bound to the currentshareholders agreement with Vodafone; and

The technology will alleviate the negative impact of Thefts,Breakages and Incidences (TBIs) on service delivery. In orderto satisfy demand for services in high theft and highmaintenance areas, Telkom has acquired W-CDMA todecrease exposure to the losses being incurred.

Key Next Generation Network, capacity and productdevelopments

Telkom is in the third year of its Next Generation Network (NGN)build out programme. Customer demand and global standardsnecessitate the provision of services and particularly bandwidththat is only possible utilising the intelligence of an NGN system.

Our NGN build out achievements are as follows:

An increase of the ADSL footprint to 2,660 DSLAMs, covering92% of Telkom’s existing customer footprint.

A total of 84 Metro Ethernet nodes have been deployed inmajor cities using 10 Gigabit and 1 Gigabit line systems.

The first Dense Wave Division Multiplexing (DWDM) systemcapable of 40 10 Gbps signals over a single pair of fibrehas been deployed between Gauteng and Durban. This hassignificantly increased transport bandwidth capability. Asignificant roll-out of this system between all major cities in

South Africa is currently in the build phase, and we anticipatethis to be completed during the 2009 financial year.

Automatic self-healing re-routing of bandwidth on the nationallayer has commenced.

The national and local transport network increased by 377 nodes, growing the network bandwidth by 1.2 Tbps or 21%.

Total international bandwidth has increased to 4.5 Gbps orby 88%.

ATM network available bandwidth on the core and metrolayers has increased to a combined 147 Gbps or by 41%.

National IP Network bandwidth has increased to 32.2 Gbpsor by 11%.

Network Interactive Voice Response Systems have beendeployed which offer advanced speech services. Automatedspeech recognition and text-to-speech applications enablecorporate customers and Telkom to enhance their voice systems.

Diginet and Diginet Plus network bandwidth has increased to27 Gbps, a growth of 20%.

A total of 237 WiFi hotspots have been deployed at strategicpartner locations.

Fibre deployment has increased by 8.7%.

IMAX has been introduced into the system and is ready tocarry traffic. IMAX has the ability to carry narrowband andbroadband services for wire line legacy and convergedservices.

Telkom spent R6.8 billion on its capital expenditure programmeduring the year under review for the fixed-line business. It isestimated that we will spend approximately R11.3 billion in thefinancial year ended March 31, 2009 on both the fixed-line andother segment.

Cost, efficiency and productivity management

Faced with increasing competition eroding our revenue base, costmanagement continues to be a key element in maintainingshareholder value.

The Telkom fixed-line business managed to contain its operatingexpense growth to a 3.6% increase, despite the high inflationaryenvironment with CPIX recorded at 10.1% in March 2008.Employee expenses increased by 4.2% to R7.4 billion, SG&Aexpenses decreased by 1.9% to R3.9 billion, services renderedincreased by 9.4% to R2.4 billion and operating leasesdecreased by 18.8% to R619 million. Depreciation, amortisation,impairment and write-offs increased by 4.2% to R3.7 billion.


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Telkom did not achieve its fixed-line EBITDA margin target of 37% to 40% with the EBITDA margin at 36.3%, decreasing from37.7% as at March 31, 2007. If the Telkom Media provision ofR217 million was excluded the EBITDA margin target of 37%would have been achieved.

Our continued focus on cost management, efficiency andproductivity management has resulted in Telkom implementingits capability management programme. Professional serviceshave grown globally, particularly in the information technologyand telecommunications environments. This enables Telkom tofocus on services that differentiate us from our competitors,including:

An increased focus on customer service;

Faster delivery of improved services to the market;

Improving cost management and capital productivity; and

Increasing shareholder returns.

Furthermore, Telkom is currently consolidating its serviceproviders to deliver network services. A critical factor in the newcontract process is to ensure that Telkom moves towards a moreconsolidated interface with the service provider market andobtains maximum efficiencies in the areas of scale and volume.A capability management process is underway to identifypartners for network operations, information technologymanagement and TelkomDirect shops, which entails that certainelements will be outsourced to professional service providers.Telkom has commenced with issuing closed requests for proposalsfor professional services in this regard.

To ensure that capability management, which includes elementsof outsourcing, is inclusive, we are engaging with organisedlabour in line with transparency and labour regulations. Manyinteractions have taken place with union leadership over the pastfew months to achieve the appropriate levels of awareness,education and strategic insight on the aspects of capabilitymanagement. This included international benchmarking visits toother operators and professional services providers in Germany,Australia, New Zealand and Brazil.

The sustained employability and wellbeing of Telkom staff is ofparamount importance.

Maintaining the quality of services to our customersImproved customer service is vital to the future success of Telkom.Sustainable and profitable growth in the customer base requirescreating and strengthening capabilities focused on managingcustomer relationships and learning from acquired customerinformation. This will enable Telkom to manage the customerexperience and anticipate customer needs.

Customer segmentation based on value should enable Telkom tounderstand customer equity better, in order to provide additionalvalue and services. Understanding an individual customer’sbreakeven point and anticipating their future requirements willallow Telkom to intelligently determine value enhancers and crossselling opportunities.

A call centre masterplan has been designed to complementcustomer segmentation through dedicated agents for high valuecustomers, upfront identification and routing of complex calls tothe specialised agents and upfront resolution of high volumesimple calls by universal agents. This is a vital element in makingit easier for our customers to do business with us.

We have consolidated all call centre operations under onestructure creating a single point of accountability. In addition,we have ensured redundancy through the interconnection of callcentres allowing a reduction of bottlenecks and rerouting ofoverflow traffic.

In areas of high cost, high maintenance and high theftoccurrence, particularly copper and fibre theft, Telkom isdeploying a wireless network using W-CDMA to restore andimprove service quality.

Network service quality

We have made significant investments in our national networkoperations centre and our data centre, designed to increase ourability to identify and anticipate future customer needs morerapidly, and to provide appropriate solutions and services. Inorder to take advantage of economies of scale in scheduling,we have consolidated our six voice installation and faultmanagement centres into two centres to address faults,installation and service appointment scheduling, and haveconsolidated our six data installation and fault managementcentres into two centres.

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The following table presents information regarding Telkom’s service delivery measurements during the periods indicated.


Residential voice% cleared in 24 hours 47 50 38Faults per 1,000 lines 470 485 476% installed within 5 days 49 81 54Business voice% cleared in 24 hours 61 66 50Faults per 1,000 lines 300 328 264% installed within 5 days 63 83 63Data subrate% cleared in 24 hours 92 84 93Faults per 1,000 lines 801 870 875% installed within 10 days 40 41 19ADSL business% cleared in 24 hours 54 33 42Faults per 1,000 lines 480 575 575% installed within 20 days 56 76 56

Residential and business voice orders installed within five daysand faults cleared in 24 hours declined during the year underreview due to the increased focus on ADSL services. The ADSLinstalled base grew by 61% during the 2008 financial year and78% during the 2007 financial year. This growth resulted in anincrease in the number of reported faults and impacted on the timetaken to clear faults. This growth also impacted on data sub rateservices as these share ADSL resources. The increase ofapproximately 20% in network failures during the 2007 financialyear contributed to the increased sub rate faults per 1,000 lines.Network failures consist of cable breaks, cable theft and failureson other core network elements. We implemented a self-installoption for ADSL, which had a positive impact on ADSL installation.

We have changed the measurements of the installation measuresas indicated in the table below. The change in methodologyserves to more accurately reflect the demands placed on us bycustomers. In addition we have differentiated between thoseservices that require network or infrastructure build activitycompared to those that can be provided by flow-through means,where no network or infrastructure build is required. Thisseparation provides insight into how Telkom is addressing thedemands of both flow-through and build instances, and providesfocus on the two processes with the objective to reduce cycletimes for both processes. It removes the potential masking of theone process over the other.

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 82Business voice% installed within 21 working days initial timeframe – No build 77 85% installed within 70 working days initial timeframe – Build 81 84Data subrate% installed within 30 working days initial timeframe – No build 49 48% installed within 90 working days initial timeframe – Build 54 79ADSL business% installed within 21 working days initial timeframe – No build 56 79% installed within 60 working days initial timeframe – Build 68 66

We anticipate that we will continue to change the method in which we measure performance to align with changes in the ICT industrythat focus more on broadband and data services, and also to support Telkom’s customer centricity drive.

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and Cell C entered into a joint venture with Virgin Mobile whichhas further increased competition. Telkom also competes withservice providers who use least cost routing technology thatenables fixed-to-mobile calls from corporate private branchexchanges to bypass our fixed-line network by being transferreddirectly to mobile networks. In recent periods, our fixed-linebusiness has experienced significant customer migration tomobile services, as well as substitution of calls placed usingmobile services rather than our fixed-line service. ICASA hasinitiated a review process of mobile termination rates aimed atreducing high mobile interconnect charges which, oncecompleted, is also likely to impact Telkom’s own termination ratesand interconnection revenues.

Data competition

Telkom also faces increased competition in the data market frommobile operators, value added network operators and privatenetwork operators as a result of determinations by the Ministerof Communications in September 2004 and the ElectronicCommunications Act, which came into effect on July 19, 2006.

Neotel and VANS providers such as Internet Solutions are ourmain competitors in the data market. Neotel is entering themarket through competitive pricing and niche products such asfibre connections and rings. VANS providers offer competitiveIP virtual private networks and Internet service provider servicesto the business segment. Consumer orientated Internet serviceproviders such as MWEB are our main competitors in theconsumer Internet market.

In addition, our data services have faced increased competitionfrom iBurst, a wireless competitor that offers competingbroadband services and, to a lesser extent, Sentech, which ownsand operates satellite transmission systems, a packaged, always-on bidirectional broadband service via satellite and a wirelesshigh-speed Internet service offering. Similarly, the mobileoperators’ 3G, HSDPA and EDGE networks also enablecustomers to access the Internet via mobile broadband services,which also results in increased competition for our data services.The mobile data providers have reduced prices significantlyleading to price competition in our data markets. We believethat VANS operators and Internet service providers willincreasingly move into the corporate and voice services market,

CompetitionCompetition in the South African fixed-line communicationsmarket is intense and is increasing as a result of the ElectronicCommunications Act and determinations issued by the Ministerof Communications.

The new licensing framework included in the ElectronicCommunications Act is resulting in the market becoming morehorizontally layered, with a number of separate licences beingissued for electronic communications network services, electroniccommunications services, broadcasting services and the radiofrequency spectrum. This will substantially increase competitionin our fixed-line business. In addition, pursuant to the Telecommu -nications Act and determinations issued by the Minister ofCommunications:

Mobile cellular operators are permitted to obtain fixedtelecommunications links from parties other than Telkom;

Value-added network services (VANS) operators and privatenetwork operators are permitted to resell the telecommu -nications facilities that they obtain from Telkom;

VANS operators are permitted to allow their services to carryvoice traffic, including VoIP;

Telkom is no longer the sole provider of facilities to VANSoperators; and

Licensing for the provision of payphone services has beenexpanded.

We compete primarily on the basis of customer service, quality,dependability and price in those areas where we currently facecompetition and where we expect to compete for public-switchedtelecommunications services in the future. We intend to introducenew products and services as well as tariff structures with theaim of maintaining and gaining revenue.

Mobile competition

Telkom competes for voice customers with the three existingmobile operators, Vodacom, our 50% owned joint venture, MTNand Cell C. MTN is a public company listed on the JSE Limited,

Infrastructure and technology

The following table presents information related to the digitisation and upgrade of our network at the dates indicated.

As at March 31,2004 2005 2006 2007 2008

Digitisation (% of lines) 99.9 99.9 99.9 99.9 99.9ATM switches 189 202 212 228 255Digital exchange units 4,321 4,339 4,427 4,448 4,463IP routers 32 70 76 79 158

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while telecommunications service providers aim to expand intothe managed data network and international traffic markets. Weanticipate that alliances will be forged between VANS operators,telecommunications service providers and content providers toconcentrate on the delivery of converged services within the nextfew years.

Domestically, expansion into new markets by VANS and mobilecompanies will occur, while the development of new productsand services will intensify competition. We expect competition tofurther increase as a result of consolidation in the market, withcompetitors growing through mergers, acquisitions and alliance-forming activity. The entry of multinational corporations intoSouth Africa is expected to be a further incentive for globalcommunications operators, which already service thesecorporations abroad, to establish or enhance their presence inSouth Africa.

Competition in the data market is expected to increase as a resultof the VANS providers’ ability to deliver complex managed datasolutions and integrated information communications technologysolutions, as well as expected future alliances between the VANSand fixed and mobile operators. Technological advances willalso enable more and more convergence and integration whichin turn will enable more effective competition and usage ofbandwidth.

As competition increases in the South African market, SouthAfrican telecommunication service providers, including Telkom,are expected to increasingly look to other developing marketsfor new revenue streams, particularly in sub-Saharan Africa.Internationally, Telkom’s new Africa Online business alreadycompetes with Internet Solutions and MTN Network Solutions.In addition, Verizon is already present in a number of otherAfrican markets.

Fixed-line voice competition

In September 2004, the Minister of Communications granted anadditional licence to provide public-switched telecommunicationsservices to Neotel. Neotel is 30% owned by Transtel and Esitel,which are beneficially owned by the South African Governmentand other strategic equity investors including 26% beneficially-owned by TATA Africa Holdings (Pty) Limited, a member of thelarge Indian conglomerate with information and communicationsoperations. On March 19, 2008 Neotel announced that theCompetition Tribunal of South Africa had approved itsacquisition of Transtel without any conditions. Neotel waslicensed on December 9, 2005 and commercially launched onAugust 31, 2006. Neotel commenced providing services tolarge corporations and other licensees at the beginning of the2007 calendar year to large corporations and other licensees.

On April 25, 2008 Neotel announced that the first of itsconsumer products were available in limited parts of Johannesburgand Pretoria. Government has created an infrastructure company,Infraco, which stated that it will provide inter-city bandwidth atcost based prices to Neotel, and later to the rest of the industry.This will further compete with our existing communicationsnetwork. Infraco was established by an Act of parliament: theBroadband Infraco Act, No. 33 of 2007. The Electronic Commu -nications Act, No 36 of 2005, has been amended by theElectronic Communications Amendment Act, No. 37 of 2007, topermit electronic communications licences to be issued to Infraco.

A process to issue additional licences to small business operatorsto provide telecommunications services in underserviced areaswith a teledensity of less than 5% commenced in 2005 and iscontinuing. The Minister of Communications has identified 27 ofthese underserviced areas. ICASA has issued licences to successfulbidders in seven of these areas and the Minister has issuedinvitations to apply for licences in 14 additional areas. In August2006 ICASA recommended to the Minister that licences begranted to successful applicants in 13 of these areas. While it wasexpected that further licences will be issued in the 2007 calendaryear, none were issued. The Minister of Communications hasissued a policy direction to ICASA directing it to, where there ismore than one licence in a province, merge the licences and issue one Provincial Under-Serviced Area Network Operator(PUSANO) licence. None of these consolidated licences have yetbeen issued by ICASA.

Telkom’s fixed-line voice business is expected to be furtherimpacted by continuing developments of Voice over InternetProtocol and by the roll-out of limited mobility services. Wirelessoperator iBurst has started to offer portable voice services overits wireless network. Additionally, VoIP and other operators withinternational gateway licences are expected to create increasedcompetition for Telkom’s fixed-line voice business in carryinginternational traffic in and out of South Africa.

We expect that the introduction of number portability and carrierpre-selection could further enhance competition in our fixed-linevoice business and increase our churn rates. As competitionintensifies, the main challenges our fixed-line voice businessfaces are continuing to improve customer loyalty throughimproved services and products, and maintaining our leadershipin the South African communications market. As a result ofincreasing competition, we anticipate pressure on our overallaverage tariffs, a reduction in our market share and an increasein costs in our fixed-line business.


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Our employeesFixed-line employees

The following table indicates the number of full time employees in our fixed-line segment.

As at March 31, 2007/2006 2008/20072006 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 17.1Support 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 has 3,801temporary employees as at March 31, 2008. Our employeesare represented by the Communication Workers Union (CWU),the South African Communications Union (SACU) and the MWU-Solidarity Union. The Alliance of Telkom Unions (ATU) disbandedduring the course of the 2007 financial year. Some of ouremployees also belong to other unions that are not recognisedby Telkom for collective bargaining purposes, including thePostal Union, the Society of Telkom Engineers, the South AfricanSteel and Allied Workers Union and the United Association ofSouth Africa. As at March 31, 2008, approximately 70% of ourtotal workforce are union members.

Employee related expenses are a significant component of ourtotal fixed-line operating costs. Fixed-line employee expensesincreased 4.2% from R7.1 billion in the 2007 financial year toR7.4 billion in the 2008 financial year. The number of Telkomemployees declined by approximately 31,236 positions fromMarch 31, 1997 to March 31, 2006, increased by 289positions in the year ended March 31, 2007 and decreased by985 positions during the year under review. As at March 31,2008 Telkom has a total of 24,879 employees.

Telkom is a party to a collective agreement on substantive matterscovering the terms and conditions of employment of its fixed-lineunionised employees and other non-management employees inTelkom’s bargaining unit with ATU and CWU for the period April 1, 2006 to March 31, 2009. In addition, Telkom signed anew collective recognition agreement with ATU and CWU in mid2004, designed to enhance the relationship between shopstewards and management. The long-term substantive agreementprovides for the re-opening of negotiations in the event that theconsumer price index varies from the April 2006 level of 3.7% bymore than 3%. Due to inflation increasing beyond this amount,Telkom re-opened the negotiations in December 2007 and thusfar have not reached settlement. Given the rapidly changingeconomic conditions as evidenced by an increase in theconsumer price index from 7.9% in December 2007 to 11.6% inJune 2008, the various Trade Union Federations, notablyCOSATU, have requested a double-digit increase. We havereceived a notice from CWU advising Telkom of its intention toembark on some unspecified industrial action. Telkom had placeda moratorium on employee reductions until March 31, 2007.

Our ability to achieve the planned cost reductions throughcapability management is further subject to our ability tooutsource necessary services and source strategic partners withthe necessary benefits of scale and required information,communications and technology capabilities to enable continuedalignment and transformation. In particular, our outsourcinginitiatives will be subject to compliance with South African labourand employment laws and successful negotiations with labourunions and our workforce.

A number of South African trade unions, including the tradeunions of our employees, have close links to various politicalparties. In the past, trade unions have had a significant influencein South Africa as vehicles for social and political reform and inthe collective bargaining process. Since 1995, South Africa hasenacted various labour laws that enhance the rights ofemployees that 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 picketand the right to participate in secondary strikes in prescribedcircumstances;

Provide for mandatory compensation in the event oftermination 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 Telkom to implementemployment equity policies to benefit previously disadvantagedgroups and impose significant monetary penalties for noncompliance; and

Provide for the financing of training programmes by means ofa levy grant system and a national skills fund.

We believe that investment in employee training and developmentis essential to implementing corporate cultural change andimproving customer satisfaction. In order to improve the skill levels

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of our employees, Telkom invested R283.1 million in employeetraining and development during the year under review.

Leadership development continues to remain a priority, withspecific focus on previously disadvantaged groups. We have

launched a number of initiatives designed to train our employeesand encourage employee retention.


Mobile employees

The following table presents the number of Vodacom employees as at the dates indicated.


South Africa 4,305 4,727 4,849 9.8 2.6Other African 1,154 1,522 1,992 31.9 30.9

Total(1) 5,459 6,249 6,841 14.5 9.5

(1) Vodacom had a total of 732, 581 and 469 temporary and contract employees as at March 31, 2008, 2007 and 2006 respectively. Headcount excludes outsourcedemployees. Employees seconded to other African countries are included in the number of other African countries and excluded from Vodacom South Africa’s numberof employees.

Vodacom is an equal opportunity employer committed to empowerment, and has developed an employment equity policy that isavailable to all employees. Vodacom’s South African employees’ participation in unions was approximately 13.9% as at March 31,2008, approximately 12.3% as at March 31, 2007 and approximately 10.2% as at March 31, 2006. Vodacom believes that therelationship between its management and its employees and labour unions is positive.

Other employees

The following table presents the number of employees in our other segment as at the dates indicated.


TDS Directory Operations(1) 514 549 610 6.8 11.1Swiftnet 67 76 85 13.4 11.8Africa Online – 317 379 – 19.6Multi-Links – – 680 – –Telkom Media – – 142 – –

Total 581 942 1,896 62.1 101.3

(1) TDS Operations’ employees increased in the 2008 financial year primarily in order to expand its marketing capacity.

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Mobile communicationsOverview

Telkom participates in the South African mobile communications market through our 50% interest in Vodacom. Vodacom is the largestmobile communications network operator in South Africa with an estimated market share of approximately 55% as at 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 beneficiallyowns 50% of Vodacom.

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, 2007/2006 2008/2007South Africa 2006 2007 2008 % change % change

Total mobile customers (thousands) (at year end)(1) 19,162 23,004 24,821 20.1 7.9Contract 2,362 3,013 3,541 27.6 17.5Prepaid 16,770 19,896 21,177 18.6 6.4Community services telephones 30 95 103 216.7 8.4Total 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 29.0Prepaid 9.6 11.8 11.4 22.9 (3.4)Gross connections (thousands) 9,140 10,859 12,040 18.8 10.9Contract(3) 506 666 782 31.6 17.4Prepaid(3) 8,618 10,124 11,248 17.5 11.1Community services 16 69 10 331.3 (85.5)Churn (%)(4) 17.7 33.8 42.3 91.0 25.1Contract 10.0 9.7 8.3 (3.0) (14.4)Prepaid 18.8 37.5 47.9 99.5 27.7Total mobile traffic (millions of minutes)(5) 17,066 20,383 22,769 19.4 11.7Outgoing 11,354 13,638 15,323 20.1 12.4Incoming 5,712 6,745 7,446 18.1 10.4ARPU (ZAR)(6) 139 125 125 (10.1) 0.0Contract 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 2.6Number of mobile customers per mobile employee(8) 4,451 4,867 5,119 9.3 5.2

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Year ended March 31, 2007/2006 2008/2007Other African countries(9) 2006 2007 2008 % change % change

Total mobile customers (thousands) (at year end)(1)(2) 4,358 7,146 9,173 64.0 28.4Lesotho 206 279 395 35.4 41.6Tanzania 2,091 3,247 4,207 55.3 29.6Democratic Republic of Congo 1,571 2,632 3,289 67.5 25.0Mozambique 490 988 1,282 101.6 29.8Gross connections (thousands)Lesotho 98 119 176 21.4 47.9Tanzania 1,353 2,092 2,645 54.6 26.4Democratic Republic of Congo 892 1,688 2,141 89.2 26.8Mozambique 342 797 951 133.0 19.3Churn(%)(4)

Lesotho 22.3 19.0 17.8 (14.8) (6.3)Tanzania 28.5 35.6 45.5 24.9 27.8Democratic Republic of Congo 28.1 30.4 48.0 8.2 57.9Mozambique 32.2 41.7 58.7 29.5 40.8ARPU (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) 3.6Number of employees (at year end)(8) 1,154 1,522 1,992 31.9 30.9Lesotho 67 63 97 (6.0) 54.0Tanzania 438 527 766 20.3 45.4Democratic Republic of Congo 479 745 919 55.5 23.4Mozambique 170 187 210 10.0 12.3Number of mobile customers per mobile employee (at year end)(8) 3,776 4,695 4,605 24.3 (1.9)

(1) Vodacom’s customer totals are based on the total number of customers registered on Vodacom’s network, which have not been disconnected, including inactivecustomers, 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 periodof 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 neverretrieved by the customer, resulting in estimated ARPUs of less than R1 per month, Vodacom changed its definition of active customers to exclude calls forwardedto voicemail from the definition of revenue generating activity effective June 15, 2006. Vodacom deleted approximately 3 million customers during the period ofthis rule change. As a result of the rule change, prepaid churn rates and ARPUs increased during the 2007 financial year. Vodacom subsequently changed itsdefinition of revenue generating activity back to include calls forwarded to voicemail effective September 1, 2006. Such SIM cards were disconnected from thenetwork 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 supplementarydisconnection rule in September 2007 to disconnect inactive prepaid SIM cards after 13 months of being kept in an active state, by call forwarding to voicemailonly, and not having has any other revenue generating activity on Vodacom’s network. The implementation of the supplementary disconnection rule led to thedisconnection 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 financialyear 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 prepaidcustomers at the expiration of time window lock of 210 days. Vodacom Tanzania, Vodacom DRC and Vodacom Mozambique disconnect their prepaid customersif 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 beenexcluded from gross connections. Based on the previous policy, contract connections would have been 702 thousand in the 2006 financial year and prepaidconnections 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 duringthe 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 packetswitch 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 totalreported customer base during the year. ARPU excludes revenue from equipment sales, other sales and services and revenue from national and international usersroaming 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 averagemonthly 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 excludesoutsourced employees. Employees seconded to other African countries are included in the number of employees of other African countries and excluded fromVodacom South Africa’s number of employees.

(9) Includes 100% of Vodacom’s operations in the Democratic Republic of the Congo.

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and provide security for future costs. While Telkom has announcedthat it supports a BEE deal, the final terms are in the process ofbeing approved by Vodafone and Telkom. Vodacom is expectedto announce the details of its broad based BEE transaction in thethird quarter of 2008.

Changes in Vodacom’s South African prepaid customer baseVodacom’s South African operations define active customers ascustomers with a SIM card that have revenue generating activityin the three months leading up to the reporting date. Up to June 15, 2006, calls forwarded to voicemail were regarded asrevenue generating activity and such SIM cards were classifiedas active customers. An analysis of the customer base, based onstatistical sampling, has revealed that a large number of SIMcards have calls forwarded to voicemail as their only revenuegenerating activity and a majority of such messages are neverretrieved by the customer, resulting in estimated ARPUs of lessthan R1 per month.

As a result, Vodacom changed its definition of active customersto exclude calls forwarded to voicemail from the definition ofrevenue activity effective June 15, 2006. Vodacom deletedapproximately 3 million customers during the period of this rulechange. As a result of the rule change, prepaid churn and ARPUincreased during the 2007 financial year.

Vodacom subsequently changed its definition of revenuegenerating activity back to include calls forwarded to voicemaileffective September 1, 2006. Such SIM cards were disconnectedfrom the network after being inactive for 215 consecutive days.Since implementing this change, prepaid SIM cards remaining inan active state on the network, with only call forwarding tovoicemail and no other revenue generating activities, increasedsignificantly. Vodacom therefore implemented a supplementarydisconnection rule in September 2007 to disconnect inactiveprepaid SIM cards after 13 months of being kept in an activestate by call forwarding to voicemail only, and not having hadany other revenue generating activity on Vodacom’s network.Implementing the supplementary disconnection rule led to thedisconnection of an additional 2.9 million prepaid SIM cards inSeptember 2007, increasing churn on the prepaid customerbase to 47.9% in the 2008 financial year and resulting in ahigher prepaid ARPU than would otherwise have occurred.

Vodacom BusinessDuring the 2007 financial year Vodacom created VodacomConverged Solutions, which was intended to become asignificant supplier of converged information, communicationsand technology services across the entire market, including thebundling of products across previously separate markets into asingle converged solution for customers. It further involved theexpansion of the existing network to provide both fibre andwireless solutions as may be required.

During the 2008 financial year, Vodacom restructured VodacomConverged Solutions and renamed it Vodacom Business.

Vodacom’s acquisitions and dispositions

Service provider acquisitions

On August 31, 2007, Vodacom purchased an additional 30% shareholding in Smartphone SP (Proprietary) Limited forR935 million, with goodwill amounting to R931.2 million. Thisincreased its shareholding in Smartphone from 70 to 100%.

On September 1, 2007, Vodacom increased its interest in theequity of Smartcom (Proprietary) Limited to 100% by acquiringan additional 12% for R18 million, with goodwill amounting toR18.0 million.

Subsequent to the above acquisitions, the operations ofSmartphone, Smartcom and Cointel V.A.S. (Proprietary) Limitedwere integrated into the operations of Vodacom Service ProviderCompany (Proprietary) Limited.

Vodacom Ventures (Proprietary) Limited

Vodacom Ventures (Proprietary) Limited was formed with thepurpose of generating innovative telecommunications productsand services for Vodacom by investing in companies. InSeptember 2007, Vodacom Ventures acquired an additional16% equity stake in G-Mobile Holdings Limited, a Wi-Ficorporation, by exercising its call option. This resulted inVodacom Ventures holding 26% of the aggregate issued share capital of G-Mobile Holdings Limited. During November2007, Vodacom Ventures acquired a 35% stake in XlinkCommunications (Proprietary) Limited, a value added serviceprovider of wireless data transfer systems and services usingGPRS, EDGE, 3G and HSDPA.

Dispositions

On September 3, 2007 Vodacom disposed of its 100% interestin Stand 13 Eastwood Road Dunkeld (Proprietary) Limited forR16 million.

Vodacom’s black economic empowerment equity deal

Vodacom is in the process of finalising a R7.5 billion BEE equitydeal for an interest of less than 10% in Vodacom South Africa,whereby 30% of the BEE shares are expected to be madeavailable to black South Africans and Vodacom’s black businesspartners in a public share offer that will specifically be targetedat low income groups. Vodacom staff are expected to take afurther 25%, and the remaining 45% is expected to be taken upby two BEE strategic partners. Vodacom announced that it hadselected Thebe Investment Corporation (Pty) Ltd and RoyalBafokeng Holdings (Pty) Ltd as preferred parties and signedtransaction agreements with these two parties on June 26, 2008.

In June 2008, Tiger Consortium, one of the losing bidders, fileda court interdict against Vodacom. On June 6, 2008 theapplication was dismissed by the South Africa High Courtwithout decision on the merits and ordered costs payable forVodacom’s counsel. If the Tiger Consortium wishes to proceedwith this matter further, it would be required to pay these costs

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Vodacom Business was established to provide convergedsolutions and services to corporate customers. The strategic aimof the division is to play a role in the broadband access servicesspace, capitalise on transmission and self-provisioningopportunities, grow revenue through managed servicesopportunities and enhance the retention of corporate clients. Theintention is to gain market traction and an increased customerbase while developing a Next Generation Network. VodacomBusiness developed a service portfolio that includes NextGeneration Internet Protocol voice services, managed networksand infrastructure services, access services, hosting andapplications. The platforms, systems and organisation have beencreated and the initial commercial products are being marketed,with the balance of the service portfolio expected to becomeavailable during the course of the 2008 calendar year.

Vodacom’s agreement with MultiChoice

On May 8, 2007 Vodacom formalised its entry into thebroadcasting and multimedia market by announcing that it had secured an exclusive pay-TV agency agreement withMultiChoice. With DStv Select, Vodacom and non-Vodacomcustomers have a choice between two DStv Select bouquets,each offering a variety of the latest entertainment, news, sport,movies, documentaries and music channels. Vodacom hasapproximately 31,000 Unique Mobile TV users as at March 31,2008, compared to approximately 33,000 Unique Mobile TVusers as at March 31, 2007.

Vodacom’s operations in South Africa

Market overview

Vodacom had approximately 24.8 million customers in SouthAfrica as at March 31, 2008. As at March 31, 2008,Vodacom’s 7,300 base stations are capable of reachingapproximately 98% of the country’s population based on the lastofficial census conducted in 2001, and covers approximately72% of the total land surface of the country. The estimatedpenetration rate for mobile communications in South Africa hasincreased to approximately 94% as at March 31, 2008.

Products and services

Vodacom offers a wide range of mobile voice and datacommunications products and services, including value-addedservices. Vodacom’s services also include the sale of handsets.Vodacom has a history of innovation as illustrated by its recordof product offerings. It was the first mobile communicationsnetwork operator globally to offer prepaid mobile commu -nications services on an intelligent network platform and to offerits customers coverage across the whole of Africa wherecommercial GSM roaming is available.

Significant products launched include data, voice and SMSbundles for prepaid, Top Up and contract customers. Vodacomcontinued to launch and support Vodafone products such asVodafone Simply, welcome tones, extended Mobile TV to 26channels and Vodafone live! release seven with its simple,tabular, user friendly approach. A number of corporate and

business products were also launched, ranging from e-mail andenhanced voicemail to corporate access points which enhancethe security of mobile customers using a 3G/HSDPA data cardremotely, and in May 2008 Vodacom launched High SpeedUplink Packet Access (HSUPA), an enhancement of its existingHSDPA service.

As discussed previously, Vodacom Converged Solutions,subsequently renamed Vodacom Business, was formed in the2007 financial year to provide converged solutions and servicesto corporate customers. Additionally, our pay-TV agreement withMultiChoice further extends our product offerings in South Africa.

In order to achieve company growth, Vodacom diversifiedhorizontally into the Internet service provider and informationtechnology services industries in the 2008 financial year.

Vodacom will seek to continue to grow data revenues bylaunching useful office tools and software applications such as3G, HSDPA, HSUPA, Mobile TV, Vodafone Mobile ConnectCards and BlackBerry® at competitive prices. BlackBerry®

Connect, as well as BlackBerry® Built-In, which enable customersto access BlackBerry® services without a traditional BlackBerry®

device, have become available on high-range handsetsproduced by manufacturers including HTC, Nokia and SonyEricsson. In future, Vodacom intends to continue to focus onoffering premier interactive voice response, premium shortmessaging services, general packet radio services, multimediaservices, HSDPA services, HSUPA services, Internet services, e-mail services and fixed-to-mobile products.

Prepaid services

As at March 31, 2008, approximately 85.3% of Vodacom’sSouth African customers were prepaid customers. Vodacom hastwo prepaid products, Vodago and 4U. Vodago was Vodacom’sinitial prepaid product and offers two tariff plans, VodagoStandard and Vodago Smartstep. Vodacom’s 4U is a prepaidper second billing product targeted at the youth market whohave higher usage of SMS and a need for per second billing.Since its inception, the number of 4U customers has increasedsignificantly and as at March 31, 2008, approximately 92.7%of Vodacom’s prepaid customers are 4U customers. Vodago and4U provide instant access to the Vodacom network and enablelow volume customers to control mobile telephone costs based onusage as there are no long term contracts. Fax and certain dataservices became available to Vodago customers in the 2006financial year.

A wide variety of retail outlets sell recharge vouchers forVodacom’s prepaid customers. Recharging can also take placeelectronically and through the use of banking networks. Becauseprepaid customers pay in advance for their mobile service, therisk of bad debts is eliminated and the risk of fraud issubstantially reduced. In addition, prepaid services provide costsavings to Vodacom as bills do not need to be sent to prepaidcustomers and handsets for prepaid customers are not

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subsidised. There are less service offerings for the prepaidmobile communications market than there are for the contract-based market. Following the launch of 4U and VodagoSmartstep, Vodacom is continuing to implement initiatives toexpand its prepaid mobile communications service offerings andto gain a greater understanding of its prepaid customer baseand its requirements.

Contract subscription services

As at March 31, 2008, approximately 14.3% of Vodacom’sSouth African customers are contract customers compared to13.1% as at March 31, 2007. This increase is due to contractsbecoming more affordable and tailored to different marketsegments.

Vodacom offers two broad categories of contract subscriptionpackages: Consumer packages such as Weekend Everyday, andbusiness packages such as Business Call. Additional packagessuch as Shared Talk 1500 were launched in the 2007 financialyear to address the requirements of the small and medium sizedenterprises (SME) market. Vodacom launched the Family Top Uppackage in the 2004 financial year, a hybrid contract productwhich combines the benefits of a contract service with thefinancial control offered by a prepaid service, and is designedto facilitate migrations to contract packages from existingprepaid packages. Vodacom’s Family Top Up package hasproven highly successful and continues to contribute to therevenue growth in contract customers, although the introductionof lower-end packages resulted in Top Up packages representinga smaller percentage of total contract packages. As at March 31,2008, 26.4% of Vodacom’s contract customers were Top Upcustomers compared to 30.0% as at March 31, 2007 and27.6% at March 31, 2006.

Community services

Vodacom has developed a number of community servicetelephone units that are installed throughout communities eitheron an individual basis or grouped in a container with theVodacom brand. Community service phones are purchased bylocal entrepreneurs who resell community phone services.Community service phones are preloaded with airtime and canbe recharged electronically by telephone shop operators whenthe airtime on the phone expires.

The demand for community service units has been strong sinceintroduction. Vodacom had deployed approximately 103,024community service phones as at March 31, 2008, exceeding itsinitial aggregate licence target of 22,000 community servicephones. The development of community service phones hasmade it possible to provide mobile access to the more than 20million South Africans who live in rural communities where thereis less than one telephone line per hundred people, and haveimproved the quality of life for many South Africans whopreviously had no access to telecommunications services.Community service phones have also been a cost-effectivemethod of significantly increasing traffic revenue on Vodacom’s

network due to their low roll-out costs to Vodacom and lowbarriers to entry for customers. Community service phone ARPUsdecreased by 23.6% to R689 per month in the 2008 financialyear from R902 per month in the 2007 financial year due toincreased competition from Cell C and other products that havetariff structures competitive to community service plans.

Value-added mobile voice and data services

Vodacom offers an extensive range of value-added mobile voiceand data services including caller identification, call forwarding,call waiting, voicemail, entertainment, mobile information andcommerce services, short messaging services, mobile multimediaservices, data services, mobile Internet access, fax services, e-Billing, video mail, missed call keeper and twin call services, thelatter of which enable customers to use two mobile phones underthe same number.

Through Vodacom’s ten percent investment in Wireless BusinessSolutions, also known as iBurst, a competitor to Telkom in thewireless area, Vodacom now supplies customers with continuedhigh speed connectivity through broadband Internet and emailservices. Wireless Business Solutions has a licence that enablesit to build a WiMAX network that complements Vodacom’sHSDPA wireless broadband service.

Vodacom’s Call Sponsor offering enables contract customers tosponsor the calls of up to three prepaid customers. In the 2005financial year, Vodacom entered into an alliance with Vodafone,pursuant to which Vodacom is able to market Vodafone brandedproducts and services. Vodacom has experienced substantialgrowth in the use of its value-added voice and data services,resulting in increased traffic revenue on its network.

Data revenue contributed 10.4% to Vodacom’s total revenue inthe year ended March 31, 2008, up from 8.1% in the yearended March 31, 2007 and 6.0% in the year ended March 31,2006. Vodacom’s data revenue increased primarily due tohigher penetration levels influenced by more affordable productofferings. In South Africa, Vodacom transmitted 4.7 billion SMSsover 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 financialyear, with the number of GPRS users increasing to approximately4.7 million as at March 31, 2008 from approximately 2.8 million as at March 31, 2007 and approximately 1.4 millionas at March 31, 2006. The number of active data users includesapproximately 1.4 million MMS users, approximately 370,000data card and USB modem users, approximately 1.3 million3G/HSDPA handsets, approximately 1.4 million Vodafone live!users and approximately 31,000 Unique Mobile TV users as atMarch 31, 2008, compared to approximately 1.2 million MMSusers, approximately 149,000 data card and USB modem users,approximately 584,000 3G/HSDPA handsets, approximately899,000 Vodafone live! users and approximately 33,000Unique Mobile TV users as at March 31, 2007. As at March 31,

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2008, Vodacom had 32,273 Blackberry® users registered on itsnetwork, compared to approximately 23,328 as at March 31,2007. Vodacom expects that the broad introduction of always-onconnectivity, faster response and generally higher speed packet-switched data services such as GPRS and universal mobiletelecommunications system (UMTS), will provide the platform forfuture value-added services.

Handset sales

Vodacom Service Provider Company (Pty) Limited (VodacomService Provider) sells handsets to its distribution channel andother service providers. Service providers in South Africagenerally subsidise handsets when a contract customer entersinto a new contract or renews an existing contract, depending onthe 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 and2006 financial years respectively, representing increases ofapproximately 10.9%, 21.1% and 58.3% in the 2008, 2007and 2006 financial years respectively.

Interconnection services

Vodacom has interconnection agreements with national mobileoperators MTN and Cell C, as well as with Telkom, Neotel andcarrier-of-carriers licensee, Sentech. In addition, Vodacom has aninterconnection agreement in place with eight VANS operators.

Roaming services

Vodacom has national roaming agreements in place withnational mobile network operator Cell C, which is terminablefifteen years after commencement on or after November 14,2016, as well as with USALs Amatole, iTel, BTel, Karabotel andKingdom Communications, which are terminable three yearsafter commencement. These agreements unilaterally enable thecustomers of Cell C and the USALs to make use of Vodacom’snetwork to originate and terminate calls as well as to accessother telecommunications services. In addition to allowing theUSALs’ customers to roam on Vodacom’s network, Vodacomprovides the USALs with certain ancillary services such as SIMcard provisioning, recharge facilities and customer care.

To enable Vodacom to provide its customers with telecommunicationsservices while outside South Africa, and to provide services tocustomers of foreign network operators while outside SouthAfrica, Vodacom has international roaming agreements with397 foreign mobile network operators in 182 countries as atMarch 31, 2008. Of these, 149 allow for GPRS roaming, 54allow for 3G roaming, three allow for HSDPA roaming and 27allow for prepaid roaming. Objectives for the 2009 financialyear will continue to focus on increasing the footprint forVodafone Passport, prepaid and GPRS networks as well asmaintaining reductions in the inter-operator tariffs charged toVodacom by other networks.

Customers

Vodacom has experienced substantial growth in its mobilecustomer base since its inception in 1994. As at March 31,2008, there are an estimated 45 million mobile customers inSouth Africa, which represents an estimated penetration rate of94% of the population. As at March 31, 2008, Vodacomestimated that its customers represent approximately 55% ofSouth African mobile customers, making Vodacom the leadingmobile communications network provider in South Africa basedon total estimated customers.

The South African customer base has continued to grow in the2008 and 2007 financial years with the majority of the growthresulting from the prepaid market, partially offset by an increasein prepaid churn due to the implementation of the supplementarydisconnection rule. The strong growth in contract customers wasa direct result of the large number of gross connections achievedwith continued levels of handset support to service providers withrespect to the contract base, coupled with decreased churn inthe contract base. Loyalty and retention programmes continue toplay an integral role in achieving the strategy of retaining marketshare and attracting new customers.

Prepaid gross connections increased 11.1% to approximately11.2 million in the 2008 financial year compared toapproximately 10.1 million in the 2007 financial year. Contractgross connections increased 17.4% to approximately 782,000in the 2008 financial year compared to approximately 666,000in the 2007 financial year. Growth in contract customers waslargely due to the increase in connections, Family Top Up, 3Gdata card packages, Messenger data packages and WeekendEveryday consumer packages. As at March 31, 2008, 26.4%of Vodacom’s contract customers are Top Up customers,compared to 30.0% as at March 31, 2007 and 27.6% as atMarch 31, 2006.

Vodacom expects that the number of contract customers in SouthAfrica will eventually level off, and that the number of prepaidcustomers in South Africa will continue to grow in the mediumterm driven by the continued demand for basic voice telephoneservices. Vodacom’s growth in prepaid customers could benegatively impacted by restrictions contained in the Regulationof Interception of Communication and Provision of Commu -nication-related Information Act (RICA), which may require aburdensome registration process for customers and may requireVodacom to disconnect prepaid customers if it is not able toobtain such information.

Vodacom believes that mobile communications services providea cost-effective means of telephone services for customers inunderserviced and rural, outlying areas. Vodacom’s efforts willtherefore continue to focus on growing customer numbers whilecarefully managing its existing customer base, marginal revenueper customer and customer-related acquisition and retentioncosts. Vodacom, MTN and Cell C each provide connectioncommissions to service providers and dealers or agents. Theseare often utilised by agents to subsidise handsets as an incentive

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for customers to switch operators to obtain a new handset andto reduce the cost of access. As a result, Vodacom is seeking tolower its contract churn rate and retain high value customersthrough focused handset upgrade policies, loyalty programmesand other retention measures, while continuously monitoringcustomer acquisition and retention costs. Vodacom also actively

manages churn through customer relationship managementsystems, developing its own distribution and logistics capabilitiesand other retention initiatives. Prepaid customer churn isnegatively affected by the high rate of unemployment in SouthAfrica and the low cost of access.

Traffic

The following table presents 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 SouthAfrica, excluding national roaming and incoming international roaming calls.

Year ended March 31, 2007/2006 2008/2007(millions of minutes, except percentages) 2006 2007 2008 % change % change

Outgoing 11,354 13,638 15,323 20.1 12.4Incoming (interconnection) 5,712 6,745 7,446 18.1 10.4

Total traffic 17,066 20,383 22,769 19.4 11.7

Growth in traffic in the 2008 financial year was primarily due tothe 7.9% growth in the total customer base in South Africa from23.0 million customers as at March 31, 2007 to 24.8 millioncustomers as at March 31, 2008. Customer calling patternscontinued the trend of the past few years, with total mobile-to-mobile traffic increasing by 13.5%, while total mobile-to-fixedand fixed-to-mobile traffic only increased by 3.5% in the 2008financial year. Growth in traffic in the 2007 financial year wasmainly due to the 20.1% growth in the total customer base inSouth Africa from 19.2 million customers as at March 31, 2006to 23.0 million customers as at March 31, 2007, with totalmobile-to-mobile traffic increasing by 23.9% and total mobile-to-fixed and fixed-to-mobile traffic increasing by 2.9% in the2007 financial year.

Tariffs

Vodacom’s tariffs are subject to regulatory scrutiny and, incertain circumstances, approval by ICASA. The contract tariffpackages are designed to appeal to consumers and businesscustomers. Vodacom sets its contract subscription package tariffsutilising a balanced mix of access and usage. For those tariffpackages where voice usage is high, the per-minute rate islowered and the monthly subscription tariff is raised. For thosepackages where the voice usage is low, the per-minute tariff rateis increased and the monthly subscription tariff is lowered. Forthose users for whom the monthly subscription tariff is a barrierto entry, Vodacom offers prepaid packages with no monthlysubscription tariff, but sets the per minute voice tariff rate higher.

Vodacom and MTN are parties to an amended interconnectionagreement with each other, and new interconnection agreementswith Cell C. Effective January 2005, the mobile-to-mobileinterconnection rates for both commercial and community servicetelephone 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 toR0.06 peak and R0.06 off-peak for community service calls, ineach case exclusive of VAT.

Customer care

Vodacom services customer needs through a variety of channelssuch as call centres, walk-in centres established in Bloemfontein,Cape Town, Durban, Johannesburg, Midrand and PortElizabeth, interactive voice response, e-mail and Vodacom’s websites. Vodacom’s key focus for the 2008 financial year has beenon call handling with the primary focus being the distribution ofcustomer calls to appropriately skilled agents, accompanied bya redesign of the customer care interactive voice response.Vodacom’s key focus areas for the 2007 financial year was togrow capacity in its call centres and concentrate on customerretention following the implementation of mobile numberportability. Approximately 70% of customer queries in the 2008financial year were handled by the interactive voice responsesystem and more than 80% of customer queries were resolvedwith the first call.

Vodacom has become increasingly proactive in developingrelationships with its customers, particularly in the high revenuesegment of the market. Seven centres are currently active, andone more is planned in the Gauteng Province. As data servicesbecame more popular, all of these centres were upgraded toassist customers with queries of a technical nature and in thecase of the Vodaworld centre, a dedicated data centre wascreated where customers receive personalised attention toresolve their highly technical data-related queries.

A new strategic call handling approach was developed toconsolidate skills and move customer care from a multi-skilledenvironment to a specialised single-skilled environment. Thisproject was closely aligned with the redesign of the existing


customer care interactive voice response unit. Customers fromacross the country from four language groups were interviewedto design an effective customer interface. Changes included newinteractive voice response menu structures, the re-scripting ofinteractive voice response prompts, and more effective callrouting designed to provide an improved overall customerexperience. Call volume to agents has subsequently decreaseddue to fewer repeat calls.

Infrastructure and technology

Vodacom operates one of the largest mobile communicationsnetworks based on total estimated customers on the African

continent, using and deploying digital GSM technology withinthe GSM 900/1800/2100 MHz frequency band.

In South Africa, the network’s core infrastructure is characterisedby mobile switching centres (including visitor location registersand gateways), while the radio network consists of radio networkcontrollers, Node Bs (UMTS base transceiver stations), basestation controllers and base transceiver stations. At this pointVodacom has deployed GPRS in all areas of its GSM network,whereas EDGE is deployed to a lesser degree and UMTS is inturn deployed to an even lesser degree, largely in majormetropolitan areas, key towns and resorts only.

As at March 31,2006 2007 2008

Macro base transceiver stations 4,873 5,231 5,603Micro base transceiver stations 1,528 1,634 1,697

Total 6,401 6,865 7,300

The Vodacom network’s UMTS 3G infrastructure as at March 31,2008 consists of 29 radio network controllers, 2,559 UMTSbase transceiver stations (Node B), 13,731 UMTS transceiversand HSDPA functionality across the 3G network.

During the 2008 year, Vodacom commenced with deploying aWiMAX network on behalf of Wireless Business Solutions. Phase1 of this network was deployed in Johannesburg, Pretoria, CapeTown and Durban. As at March 31, 2008, 60 WiMAX basestations were ready for network switch-on. Vodacom is planninguser trials in the second quarter of the 2009 financial year.

Vodacom embarked on the self-provisioning of transmissioncapability towards the end of the 2007 calendar year. A total of145 microwave links have been installed and are operational.Vodacom is currently deploying core fibre rings in Gauteng, thenorthern borders of Gauteng, Kwa-Zulu Natal, the WesternCape, the Eastern Cape and the Central region for the self-provisioning of a regional transmission core network.

This network enables Vodacom to provide value-added voice anddata services supported by voicemail platforms, short messagingservice centres, a wireless application protocol platform, a mobileInternet gateway platform supporting advanced SIM toolkitapplications and an intelligent network platform.

As at March 31, 2008, approximately 36% of Vodacom’s basestations are 3G enabled and Vodacom has installed dual band(GSM900/GSM1800 MHz) base transceiver stations in 2,532locations, including 19,081 GSM1800 MHz transceivers. In thedesign of its network, Vodacom has paid careful attention to theneeds of customers and to the environment by making an

extensive effort to implement sites in the most discrete mannerpossible. Furthermore, attention has been given to managementof electromagnetic emissions to ensure compliance with recognisedinternational environmental standards such as those developedby the International Commission on Non Ionizing RadiationProtection.

Competition

The current South African mobile telecommunications marketconsists of three mobile communications network operators:Vodacom, MTN (a wholly owned subsidiary of MTN GroupLimited, a public company listed on the JSE) and Cell C, whichannounced in June 2006 that it entered into a joint venture withVirgin Mobile. As at March 31, 2008, Vodacom is the marketleader with an estimated 55% market share based on the totalestimated customers in the South African mobile communicationsmarket, while MTN has an estimated 34% market share, Cell Can estimated 11% market share and Virgin Mobile, through itsjoint venture with Cell C, holding less than 1% of the estimatedmarket share. Vodacom competes primarily on the basis ofproduct quality, availability and network coverage. Vodacombelieves that increased competition could have an adverse impacton its tariffs and churn rate.

Vodacom’s operations in other African countries

Vodacom intends to increase revenue from its other Africanoperations by continuing to grow its existing operations in sub-Saharan Africa through converged infrastructure and servicesand, to the extent available, by selectively acquiring additionaltelecommunications licences or operators in other Africanmarkets in future. Investments outside South Africa are evaluatedand monitored against key investment criteria, focusing primarily

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on countries with stable economic and political conditions orgood prospects for growth, market leadership and profitability.Other key factors include Vodacom’s ability to gain majorityownership, develop strong local partnerships and obtain non-recourse financing, where available. Where Vodacom is notable to obtain non-recourse financing, it seeks to fund operationsfrom internally-generated funds. Other African operators arebranded under the “Vodacom” name.

Vodacom is also considering entering new markets by seekingout alternative entry strategies such as through management and technical service agreements and acquiring non-traditionalGSM operators such as Internet service providers and othertelecommunications service providers.

Vodacom has investments in mobile communications networkoperators in Lesotho, Tanzania, the Democratic Republic of theCongo and Mozambique. The number of customers served byVodacom’s operations outside South Africa has grownsignificantly to approximately 9.2 million as at March 31, 2008,from approximately 7.1 million as at March 31, 2007 andapproximately 4.4 million as at March 31, 2006. Revenue fromVodacom’s operations outside South Africa has grown to R5,394million in the year ended March 31, 2008, up from R4,139million in the year ended March 31, 2007 and R2,974 millionin the year ended March 31, 2006. Our share of Vodacom’soperating profit from other African operations was R395 millionin the year ended March 31, 2008, compared to R261 millionin the year ended March 31, 2007 and R144 million in the yearended March 31, 2006.

Lesotho

Vodacom owns an 88.3% interest in Vodacom Lesotho (Pty) Ltd.Although Vodacom Lesotho is a very small operation by SouthAfrican standards, Vodacom launched its Lesotho operations dueto the strategic geographical importance of Lesotho in terms ofVodacom’s market share in neighbouring South Africa.

Products

Vodacom Lesotho offers a variety of prepaid and contract productsto customers. Vodacom Lesotho’s prepaid plans are consistentlythe most popular packages and accounts for 97.0% of VodacomLesotho’s total customer base as at March 31, 2008, comparedto 97.5% as at March 31, 2007 and 97.1% as at March 31,2006. The current prepaid offering is known as Mocha-o-chele.

The recently launched Super Talk Dual 500 and 1000 packagesoffer free bundled minutes and SMSs in Lesotho, South Africa andother selected countries worldwide. Additional contract packagesinclude Corporate Executive, Master Plan, Budget Plan and FamilyPlan, which provide connectivity options without bundled servicesor subsidised handsets, except for the Corporate Executive plan,which offers free or subsidised handsets. Vodacom Lesotho alsooffers public phone services and a direct-connect service allowingcustomers to access the Vodacom Lesotho network directly fromtheir PABX. Vodacom Lesotho also offers community services and

has recently introduced an ultra low cost product, MotsamaiPayphone, to promote entrepreneurship and increase publicphone distribution.

Infrastructure

The Vodacom Lesotho network has 77 base transceiver stations,one mobile service switching centre, three base stationcontrollers, one short message service centre, one intelligentnetwork platform and one voicemail platform. WiMAX basestations have been installed in various towns in the lowlands ofLesotho to facilitate fixed-data connections for enterprise clients.Vodacom Lesotho’s capital expenditures were R39 million, R25 million and R26 million in the 2008, 2007 and 2006financial years respectively. The continued investment is anindication of the company’s drive to expand and optimise theexisting infrastructure in order to provide the widest coverage andsuperior network quality and service levels to its customer base.

Regulatory environment

The regulatory environment in Lesotho continues to provechallenging. The regulatory authorities in Lesotho issued aCommunications Sector Liberalisation Framework in January2007. In terms of this framework, there is to be no limit on thenumber of participants in any service. All existing networkoperators will be allowed to operate international gateways andvoice and data services are to be fully liberalised. Furtherproposals in the framework that will allow specified classes ofInternet service providers to have gateway licences were notimplemented during the 2008 financial year.

Employees

The headcount for Vodacom Lesotho increased to 97 employeesas at March 31, 2008, compared to 63 employees as at March 31, 2007 and 67 employees as at March 31, 2006. Theincrease resulted from the company’s continued expansion. Thenumber of customers per employee, including temporaryemployees, decreased from 4,429 customers per employee as atMarch 31, 2007 to 4,072 customers per employee as at March 31, 2008 due to an increase in the number of temporaryemployees.

Tanzania

Vodacom owns a 65% interest in Vodacom Tanzania Limited.The Vodacom Tanzania market profile was 99.4% prepaid asat March 31, 2008, compared to 99.3% prepaid as at March31, 2007 and 99.5% prepaid as at March 31, 2006. Thisprofile is not expected to change significantly in the near future.Vodacom Tanzania had a churn rate of 45.5% in the 2008financial year, 35.6% in the 2007 financial year and 28.5% inthe 2006 financial year due to the high and increasing levels ofcompetition in Tanzania. Vodacom Tanzania’s estimated marketshare was approximately 52% as at March 31, 2008.

Products

Vodacom Tanzania’s current package offerings are Vodago, itsprepaid product, Vodachoice, its contract product, and

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Vodajazza, a hybrid service that provides cost control topostpaid customers. During the course of the 2006 financialyear, Vodacom Tanzania introduced Vodafasta, a rechargeproduct which allows prepaid customers to electronicallyrecharge airtime via registered vendors. This product enhancesthe availability of Vodago prepaid airtime and reduces the costof physical distribution. Vodachoice continues to be the preferredcontract package although Vodajazza, offered on the prepaidbilling platform, has gained popularity in the corporate market,and was re-launched during the 2008 financial year intobundled packages.

Infrastructure

Vodacom Tanzania became the largest mobile communicationsnetwork 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 2006financial years respectively. Network coverage is at approximately40% of the land surface of Tanzania and approximately 63% ofthe population as at March 31, 2008, compared to approximately20% of the land surface and approximately 54% of thepopulation as at March 31, 2007.

In 2007, Vodacom Tanzania commercially launched its mobileInternet offering over its 3G/HSDPA and 2.5G GPRS and EDGEnetworks, which together with its leased line offering utilisingWiMAX, have enhanced data revenues. The 3G/HSDPA dataproduct covers Dar es Salaam, Dhoma and Arusha while theGPRS and EDGE networks have national coverage. Core datarevenues continued to be primarily from SMS in the 2008financial year, supported by Vodaflava, previously Vodatariffa,a premium rated SMS based information, ring tone and logodownload service.


New telecommunications regulations were introduced, effectiveFebruary 23, 2005. Vodacom Tanzania is currently regulatedby the Tanzanian Communications Regulatory Authority (TCRA)under the Tanzania Communications Act, 1993, as well as theTanzania Regulatory Authority Act, 2003 and it is under thesecommunications acts that the new telecommunications regulationswere adopted, and the TCRA introduced a converged licensingframework otherwise referred to as the unified licensingframework, which is service and technology neutral. The newregulations ended the fixed-line monopoly of TTCL, and lead to the liberalisation of the telecommunications market within the country.

The negotiation of the terms and conditions of migration ofVodacom Tanzania’s existing licence to the new regulatoryframework was finalised during the 2007 year. VodacomTanzania was granted new licences on July 26, 2006 in termsof the migration to a new regulatory framework. These licenceswere for national and international network facilities, networkservices application services and radio frequency spectrumresource usage.

Employees

Vodacom Tanzania had a total headcount of 766 employees asat March 31, 2008, compared to 527 employees as at March 31, 2007 and 438 as at March 31, 2006. Included in employees as at March 31, 2008, 2007 and 2006 are15, 9 and 10 secondees respectively, who are seconded fromVodacom International Limited.

The Democratic Republic of the Congo

Vodacom owns a 51% interest in Vodacom Congo. Improvedaffordability during the 2006 financial year, and the increase inspending power as a result of a positive economic outlook during2007 and 2008, fuelled expansion of Vodacom Congo’scustomer base as the penetration rate of mobile customers inCongo increased from 6% as at March 31, 2006 to 9% as atMarch 31, 2007 and 12% as at March 31, 2008. ARPU wasaffected negatively as lower-end users constituted a large part ofthe growth and the inactive customer base increased. The maincontributing factors in achieving customer and profit growthduring the 2008 financial year include coverage roll-out instrategic areas, capacity upgrades, the launching of newproducts and services and an effective and aggressive sales anddistribution strategy.

Vodacom Congo’s customer base consisted of 97.6%, 98.3% and97.9% prepaid customers as at March 31, 2008, 2007 and2006 respectively. Vodacom competes on the basis of effectivedistribution channels, network coverage, network quality, launchof new products and services and a strong and respected brand.

Vodacom Congo continued to be the market leader in theDemocratic Republic of the Congo with an estimated marketshare of approximately 41% as at March 31, 2008, comparedto approximately 47% as at March 31, 2007 and approximately48% as at March 31, 2006, based on the total estimated mobilemarket.

Products

Vodacom Congo currently offers contract, prepaid, PABX,Internet service provider and public phone services. The contractproduct is aimed at the corporate market with a focus on value-added services and customer service. New business solutionssuch as ATM recharge and GPRS terminals have been launchedfor banks and other corporate customers, to perform real timetransactions to enable their businesses in the DRC. The prepaidand public phone products are aimed at the broad Congolesemarket with the main competitive advantage being coverage,network quality and distribution.

To further enhance data revenue streams, Vodacom Congocommercially launched GPRS in February 2006. The applicationwas introduced to support data transfer requirements during theelectoral process and meet the data demands of local businessesand corporate clients. Vodacom Congo offers additionalproducts and services such as data and voice bundled packagesto new and existing customers.

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Infrastructure

Vodacom believes that its current coverage and market sharelevels provide Vodacom Congo with a strong position to benefitfrom an economic upturn. Network coverage has been rolledout in all of the nine provinces of the Democratic Republic of theCongo, including 274 towns and consisting of 425 base stationsand six mobile service switching centres as at March 31, 2008,compared to 238 towns, 368 base stations and four mobileservice switching centres as at March 31, 2007 and 184 towns,373 base stations and four mobile service switching centres asat March 31, 2006. Network capacity in the main centres hasalso been upgraded to maintain quality and service. VodacomCongo covers approximately 11% of the geographical area ofthe Democratic Republic of the Congo and approximately 53% of the population as at March 31, 2008, compared toapproximately 10% of the geographical area and approximately53% of the population as at March 31, 2007 and approximately8% of the geographical area and 44% of the population as atMarch 31, 2006.


In the 2008 financial year, a Bill was initiated by the Minister ofFinance that will subject mobile operators to excise duties of 10%with a total burden of taxes on services revenue amounting to28%. This Bill was passed on May 8, 2008 and is awaitingpromulgation by the Head of State.

The telecommunications industry in the Democratic Republic ofthe Congo is subject to a recently promulgated ministerial decreerequiring the registration of the entire customer base of allnetwork operators. This decree required prescribed particulars ofall customers to be obtained and maintained by June 30, 2008.The sanction for non-compliance by any operator who has notidentified its customers in accordance with the requirements ofthis decree within three months from March 28, 2008 couldresult in:

A fine equivalent to between USD5,000 and USD10,000 percustomer;

Suspension of the licence for a period not exceeding threemonths in the event of repetition; and

Suspension of the licence in the event of a likely disturbanceof law and order/safety.

Vodacom is making every effort to obtain the requiredinformation but management believes it is unlikely that Vodacomwill meet all the requirements as prescribed in this decree byJune 30, 2008. Management is engaging with the relevantministries on this matter and is presently unable to reliably assessthe potential impact on Vodacom in the event of non-compliancewith this decree.

Employees

Vodacom Congo had 919, 745 and 479 employees as atMarch 31, 2008, 2007 and 2006 respectively. The process of

evaluation, identifying and training local staff is a continuousfocus of the company as part of its skills transfer process. TheDRC’s employment market is currently very competitive with thearrival of multinational companies. Vodacom Congo staff are anattractive target for recruitment as a result of their highly valuedskills and training.

Vodacom Congo embarked on an intensive programme oftraining staff and projects such as implementing the VodacomCongo employees’ cooperative and wellness programme. Inprevious years, a bursary scheme was implemented, aimed attargeting and developing students, and a retention scheme wasimplemented aimed at retaining key employees. VodacomCongo is focused on social responsibility programmes includingeducation, health, welfare, the environment, culture and arts.Since 2002, the company has invested about USD3.5 million invarious social projects.

Mozambique

Vodacom owned 98% of VM (S.A.R.L.) trading as VodacomMozambique, and the remaining 2% was held by localconsortium EMOTEL. Effective April 1, 2007, VodacomInternational Limited (Mauritius) sold an 8% stake in VodacomMozambique to local investors, with 5% being purchased byIntelec Holdings Limitada and EMOTEL acquiring an additional3%. On May 12, 2008, Vodacom International Limited (Mauritius)entered into an agreement to sell 5% of its 90% stake in VodacomMozambique to local investors, which is subject to a number ofsuspensive conditions.

During the 2008 financial year Vodacom Mozambiqueincreased its customer base by 29.8% to approximately1,282,000 customers as at March 31, 2008, up fromapproximately 988,000 customers as at March 31, 2007. Thisincrease is primarily a result of approximately 951,000 grossconnections in the 2008 financial year, compared toapproximately 797,000 in the 2007 financial year, offset in partby a churn rate of 58.7% in the 2008 financial year, comparedto 41.7% in the 2007 financial year.

Vodacom Mozambique had an estimated market share ofapproximately 40% as at March 31, 2008, compared toapproximately 35% as at March 31, 2007 and 30% as at March 31, 2006, based on the total estimated mobile market.Vodacom Mozambique is focusing on coverage expansion,building sound distribution channels and delivering innovativevalue propositions underscored by a warm and receptive brand identity. A unique point of differentiation for VodacomMozambique has come from its corporate social investmentprojects, which sponsored the complete reconstruction of a schoolin Maputo, as well as the construction of an entirely new schoolin Maputo that opened in May 2007 and the donation of booksand encyclopaedias to more than 40 schools nationally. Duringthe year under review, Vodacom Mozambique implemented arevenue based corporate social investment fund whereby 0.02%of monthly prepaid and contract revenue is allocated to a

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corporate social investment fund administered by a board oftrustees who will then allocate resources to charitable causes.

Products

Vodacom Mozambique offers customers contract and prepaidplans and continued to roll out public phones in the 2008financial year. Prepaid packages accounted for 97.9%, 99.0%and 98.5% of gross connections in the 2008, 2007 and 2006financial years respectively. Contract products are primarilyaimed at the corporate and business market, while prepaidproducts are aimed at the large informal market. VodacomMozambique has interactive voice response in place andcustomer care can handle customer queries in Portuguese and English.

Since prepaid continues to constitute the bulk of business inMozambique, a range of new innovative services was launchedduring the 2007 financial year to enhance the overall valueproposition of the Bazza Bazza prepaid product. Launched inJuly 2007, Vodakool is an innovative illustration of how mobilecommunications can empower Mozambicans. Vodakool, thenews and information portal exclusive to Vodacom, linkscustomers with breaking local and international news, sportsresults, weather and financial information in partnership withlocal content providers. In a country where traditional mediareach is generally restricted to large cities, this service helps tobridge the information divide in a society where this divide isstill prevalent.

Infrastructure

Vodacom Mozambique’s infrastructure consists of two mobileservice switching centres, six base station controllers and 220base transceiver stations as at March 31, 2008. VodacomMozambique increased its network to a capacity of approximately4.0 million customers as at March 31, 2008. VodacomMozambique’s capital expenditure was R111 million, R85 millionand R121 million in the 2008, 2007 and 2006 financial yearsrespectively. GPRS/EDGE has been available since the end ofJune 2006 for contract and prepaid customers. EDGE is a dataservice that provides a faster version of GSM wireless service. Intandem with the launch of GPRS and MMS, VodacomMozambique also launched VodaMail, a free e-mail serviceavailable to all contract customers.


In February 2007 the Mozambican TelecommunicationsRegulator (INCM) appointed a consultant to facilitate theintroduction of cost based interconnection. As a result of thestudy initiated by the INCM, asymmetrical interconnection rateshave been introduced in Mozambique as of January 1, 2008,which have been agreed on by all operators for a period of twoyears ending December 31, 2009. The asymmetrical rates were proposed by the consultant as a result of VodacomMozambique’s late entry into the market and include an annualinflation adjustment. This two year period will allow operators

to develop their own interconnect costing models, based on thelong term prospective incremental costs methodology (LTPIC). Ifthe results of such models clearly demonstrate to the remainingoperators 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 licencesare to be re-issued in compliance with the new TelecommunicationsLaw of 2004. Vodacom Mozambique was invited to submitsuggestions to any amendments it wished to make to its existinglicence. To date, no new licences have been issued. However,Vodacom Mozambique applied to expand its internationalgateway rights and to lease transmission capacity to entitiesother than licensed telecommunication network operators, suchas Internet service providers and satellite companies, during theend of the 2006 calendar year but to date no formal responsehas been received from the INCM.

Vodacom continues to engage TDM with regard to excessivetransmission prices. Vodacom informed the INCM that it isconsidering the sanctions available in terms of the law in respectof the pricing that can lead to TDM being declared a dominantoperator.

Vodacom Mozambique believes that its ability to strictly managecosts in the face of low ARPU and low minutes of usage, whileexpanding coverage and distribution and intensifyingpromotional and product offerings, will be critical to achievingimproved results.

Employees

Vodacom Mozambique employed 210, 187 and 170 peopleas at March 31, 2008, 2007 and 2006 respectively. VodacomMozambique continues to support the development of local skills. A succession plan and development programmes wereimplemented to transfer skills and knowledge to local employees.Staff issues are addressed via a consultative forum where theyare given a platform to address issues.

Vodacom annual report

The full Vodacom annual report can be accessed atwww.telkom.co.za/ir/financial/annualreports or on Vodacom’swebsite at www.vodacom.co.za

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Chief of finance’sreview

Telkom has been workingvery hard to position its tremendoustelecommunications assets to deal with the new,highly competitiveenvironment and leverageopportunities for growth

Deon Fredericks

It is my pleasure to present Telkom’s financial review for the yearended March 31, 2008. It has been a challenging year withsignificant changes including alignment of our strategy,increasing continued mobile substitution competition, pricingpressures and a high inflationary environment.

This year focused on on transforming the business to deal moreeffectively with competition, delivering innovative productsexpanding our networks including the maintenance thereof andbedding down our growth drivers to our overall strategy. Theseincluded:

Aggressive customer service improvement and we are startingto see the results especially in the corporate market and wewill continue with this;

Creating capacity and capability and improving the reliabilityof the network; and

Continued bundling of services at discounted rates.

Furthermore, Telkom has continued to leverage from the corestrengths of the fixed-line network, continuing our migrationtoward a fully Internet Protocol based Next Generation Network,growing our data business, expanding geographically,realigning our product portfolio and working to achieve

maximum efficiencies from our service and capital equipmentsuppliers. Our results to March 31, 2008 are reflective of theabove focus areas and particularly of the continuing growth oflower margin data business, the early stages of development forboth Multi-Links and Africa Online and continued pressure onTelkom’s traditional voice revenue.

Telkom’s operating structure comprises three segments, fixed-line,mobile and other. The fixed-line segment provides fixed-line voiceand data communications services through Telkom and themobile segment provides mobile services through our 50% jointinterest in Vodacom. The other operations segment providesdirectory services through the TDS Directory Operations Group,fixed mobile, data and other international communicationsservices in Nigeria, through our newly acquired Multi-Linkssubsidiary, internet services outside South Africa, through ourAfrica Online subsidiary, and wireless data services, through ourSwiftnet subsidiary, and includes Telkom Media. TDS DirectoryOperations and Swiftnet were previously included in our fixed-line segment.

Below please find a condensed summary of Telkom Group’sfinancial results for the year ended March 31, 2008. A detailedbreakdown, including segmental information, can be found inthe Financial review on page 147.

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Chief of finance’s review continued

GROUP OPERATING REVENUE

Group operating revenue increased by 9.0% to R56,285 million(March 31, 2007: R51,619 million) in the year ended March 31,2008. Fixed-line operating revenue, before inter-segmentaleliminations, increased by 0.7% to R32,572 million primarily dueto increased data services, interconnection and subscriptions andconnections revenue partially offset by a decline in traffic revenue.Mobile operating revenue, before inter-segmental eliminations,increased by 17.1% to R24,089 million primarily due to significantcustomer growth, offset in part by declining ARPU’s as a result ofincreased lower spending customers connected.

Our defend and grow strategies to provide value to our customersand build loyalty through bundled products and volume discountsare bearing fruit. We will continue with these strategies to retaincustomers.

Telkom continues to actively focus its efforts on convertingrevenue streams into annuity revenue and we are pleased toannounce that annuity revenue which include line installations,reconnection fees and CPE sales, increased by 14.1% to R6.9billion. Another key revenue growth area is data. Again we havebeen successful in growing data revenue, before inter-segmentaleliminations, by 10.9% to R8.3 billion. Whilst many of ourrevenue growth areas including; inter alia, data and our newventures in Africa being Multi-Links and Africa Online arecurrently lower margin business segments, we are also continuingto leverage our traditional voice revenues towards those productsand services that have higher margins.

Management will continue to focus on high growth potentialrevenue streams as well as high margin revenue streams. Thereis also a significant effort to align the cost structures of significantrevenue streams throughout the business.

GROUP OPERATING EXPENSES

Group operating expenses increased by 12.8% to R42,337million (March 31, 2007: R37,533 million) in the year endedMarch 31, 2008, primarily due to a 17.9% increase inoperating expenses in the mobile segment to R17,898 million(before inter-segmental eliminations). Fixed-line operatingexpenditure increased by 3.6% to R24,962 million (before inter-segmental eliminations) due to increased employee expenses,payments to other operators, depreciation, amortisation,impairment and write-offs and services rendered, partially offsetby a decrease in operating leases and selling, general andadministrative expenses. The increase in mobile operatingexpenses of 17.9%, before inter segmental eliminations, wasprimarily due to increase in employee expenses and grossconnections resulting in increased cost to connect customers tothe network. Mobile payments to other operators also increasedas a result of the increased outgoing traffic and the higher

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volume growth of more expensive outgoing traffic terminatingon other mobile networks when compared to traffic terminatingon the lower cost fixed-line network.

The telecommunications regulator, ICASA, limits Telkom’s priceincrease to CPIX minus 3.5%. The prices for Telkom’s regulatedproducts and service, are therefore decreasing in real terms. Inaddition, competitive pressures are forcing price decreases acrossthe board resulting in pressure on Telkom’s revenues. In thisenvironment, together with strong inflationary momentum on ouroperating expenditure, Telkom remains focused on maximisingall cost efficiencies and align on cost structures with our revenuestreams. Capability management is one of the initiatives toachieve this. We aim to continue ensuring that our cost increasesare below CPIX and are proud of the fixed-line’s achievement inlimiting operational expenditure increases to 3.7% in the yearending March 31, 2008 given that CPIX was recorded at 10.1%at end March 2008.

INVESTMENT INCOME

Investment income consists of interest received on short-terminvestments and bank accounts. Investment income decreasedby 16.2% to R197 million (March 31, 2007: R235 million),largely as a result of lower interest received from fixed depositsprimarily due to lower cash balances.

FINANCE CHARGES

Finance charges include interest paid on local and foreignborrowings, amortised discounts on bonds and commercialpaper bills, fair value gains and losses on financial instrumentsand foreign exchange gains and losses on foreign currencydenominated transactions and balances. Finance chargesincreased by 60.3% to R1,803 million (March 31, 2007:R1,125 million) in the year ended March 31, 2008, due to a42.0% increase in interest expense to R1,885 million (March31, 2007: R1,327 million) as a result of the 65.7% increase innet debt to R16,617 million (March 31, 2007: R10,026 million).Net debt increased mainly as a result of the issuance ofcommercial paper debt with a nominal value R18,806 millionduring the year, as well as an increase in Vodacom’s net debt forthe year. This was partly offset by the repayment of R15,773million nominal value of commercial paper bills. In addition tothe increase in the interest expense, net fair value and exchangemovements on financial instruments resulted in a gain of R82 million for the year ended March 31, 2008 (March 31,2007: R202 million).

Telkom continues to focus on re-aligning its profile towards longerterm debt. This is evident in the recent issuance of the TL12 andTL15 bonds.

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TAXATION

The consolidated tax expense reduced to R4,704 million (March31, 2007: R4,731 million) in the year ended March 31, 2008.The consolidated effective tax rate for the year ended March 31,2008, was 36.5% (March 31, 2007: 34.9%). Telkom Company’seffective tax rate was 24.6% for the year ended March 31, 2008(March 31, 2007: 24.2%) and Vodacom’s effective tax ratedecreased to 34.1% (March 31, 2007: 36.9%).

The increase in the Telkom Group effective tax rate in the 2008financial year was mainly due to higher non-deductible expensesrelating mostly to the impairment of Telkom Media and AfricaOnline assets, the increase in STC tax credits utilised in respectof the repurchases of Telkom shares and the impact of the tax ratechange on deferred taxation from 29% to 28% with effect fromApril 1, 2008.

The higher effective tax rate for Telkom Company in the yearended March 31, 2008 was primarily due to higher non-deductable expenses relating to the R217 million impairment ofthe Telkom Media loan and an increase of R198 million insecondary tax on companies, partially offset by higher exemptincome resulting from dividends received from Vodacom andother subsidiaries.

Vodacom’s effective tax rate decreased in the 2008 financialyear primarily due to the decrease in the rate of secondary tax oncompanies from 12.5% to 10%.

PROFIT FOR THE YEAR AND EARNINGS PER SHARE

Profit for the year attributable to the equity holders of the Group decreased by 7.8% to R7,975 million (March 31, 2007:R8,646 million) for the year ended March 31, 2008.

Group basic earnings per share decreased by 6.9% to 1,565.0cents (March 31, 2007: 1,681.0 cents) and Group headlineearnings per share decreased by 4.4% to 1,634.8 cents (March31, 2007: 1,710.7 cents).

Telkom will continue to focus on restructuring and consolidatingits business while concentrating on ensuring continued returnsfor our shareholders through share buy backs and increasing theordinary dividend in the years going forward. For the yearending March 31, 2008, Telkom bought back R1.6 billion ofshares and increased the ordinary dividend by 10% to 660cents per share. We will also continue to drive profitable growththrough data, geographic expansion and exploiting theopportunities presented by fixed and mobile integration.

GROUP BALANCE SHEET

Interest bearing debt increased by R5,369 million (51.8%) inthe year ended March 31, 2008. Telkom company’s interestbearing debt increased with R4,279 million and Vodacom’s debtincreased with R538 million mainly due to investing in our fixed-line and mobile networks. Our other segment’s debt increasedwith R552 million in the current financial year due to ourexpansion into Africa.

In the financial year ended March 31, 2008, the Group redeemedthe TK01 local bond with a nominal value of R4,680 million.We increased our book value of Commercial paper bills withR2,900 million and we entered into call loans and term facilities,of which R5,600 million was outstanding at year end.Subsequent to year end, we successfully issued the TL12 (dueApril 29, 2012) and TL15 (due April 29, 2015) bonds listed onthe Bond Exchange of South Africa with a combined nominalvalue of R2.2 billion, and repaid the R1.6 billion bridge facilityincluded in our interest bearing debt at March 31, 2008.

The increase in the other segment’s financial liabilities are mainlycontributed by the Multi-Links put option of R919 million due tothe acquisition of Multi-Links in the current year.

Multi-Link’s minorities have been granted a put option thatrequires Telkom to purchase all of the minorities’ shares. The putoption is exercisable within 90 days of the second anniversaryof signing of the sale agreement, being May 1, 2009.

In addition Vodacom’s subsidiary, Vodacom Congo (RDC) s.p.r.lhas an option liability with a value of R397 million (Group share:R198 million) as at March 31, 2008 for a period of maximum8 years after December 1, 2001.

Telkom continue to focus on an efficient balance sheet structure.As such we have given the market guidance to the effect that weare targeting a net debt/EBITDA ratio of 1.3x over the followingthree years. We will continue to manage both our balance sheetand cash to extract maximum efficiencies for the business.

GROUP CASH FLOW

Cash flows from operating activities increased by 13.3% toR10,603 million (March 31, 2007: R9,356 million), mainly due to lower taxation as well as an increase in cash generatedfrom operations of R21,256 million (March 31, 2007: R20,520 million), partly offset by higher dividends paid. Cashflows utilised in investing activities increased by 35.5% toR14,106 million (March 31, 2007: R10,412 million), primarily

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due to increased capital expenditure in both the fixed-line andmobile segments, as well as cash utilised for the purchase of Multi-Links Telecommunications (Proprietary) Limited. Cash flows fromfinancing activities of R2,943 million (March 31, 2007: (R2,920)million) was mostly due to the R1,647 million paid for sharerepurchases, the repayment of the TK01 bond with a nominal

value of R4,680 million on March 31, 2008 and maturingcommercial paper debt of R15,773 million nominal value duringthe year. This was offset by the issuance of R18,806 millionnominal value commercial paper bills, as well as entering into callloans and term facilities of R5,600 million to fund the redemptionof the TK01 bond and other cash flows from investing activities.

Summary

Year ended March 31,2006 2007 2008 2007/2006 2008/2007

(in millions, except percentages) ZAR ZAR ZAR % change % change

Cash generated from operations 19,724 20,520 21,256 4.0 3.6Cash from operating activities(after tax, interest, dividends) 9,506 9,356 10,603 (1.6) 13.3Investing activities (7,286) (10,412) (14,106) (42.9) (35.5)Financing activities (258) (2,920) 2,943 (1,031.8) 200.8

Net increase/(decrease) in cash 1,962 (3,976) (560) (302.7) 85.9

Group Capital Expenditure

Group capital expenditure increased by 16.1% to R11,900 million (March 31, 2007: R10,246 million) and represents 21.1% ofGroup revenue (March 31, 2007: 19.8%).

Year ended March 31,2006 2007 2008 2007/2006 2008/2007

(in millions, except percentages) ZAR ZAR ZAR % change % change

Fixed-line 4,900 6,594 6,794 34.6 3.0Mobile 2,571 3,608 3,460 40.3 (4.1)Other 35 44 1,646 25.7 –

7,506 10,246 11,900 36.5 16.1

Fixed-line capital expenditure, which includes spending onintangible assets, increased by 3.0 % to R6,794 million (March31, 2007: R6,594 million) and represents 20.9% of fixed-linerevenue (March 31,2007: 20.4%). Our focus continue to be the expansion of our capacity for growth specially broadband.This include accelerated pre provisioning of ADSL and backbone infrastructure. Baseline and revenue generatingcapital expenditure of R4,095 million (March 31, 2007: R3,568million) was largely for the deployment of technologies to supportthe growing data services business (including ADSL footprint),links to the mobile cellular operators, service on demandcustomer solutions and expenditure for access line deployment inselected high growth residential areas. The continued focus onrehabilitating the access network and increasing the efficienciesin the transport network contributed to the network evolution andsustainment capital expenditure of R1,369 million (March 31,2007: R1,200 million).

Telkom continues to focus on its operations support systeminvestment with current emphasis on workforce management,provisioning and fulfillment, assurance and customer care,hardware technology upgrades on the billing platform andperformance and service management. During the year endedMarch 31, 2008, R841 million (March 31, 2007: R1,141 million)was spent on the implementation of systems.

Mobile capital expenditure (50% of Vodacom’s capitalexpenditure) decreased by 4.1% to R3,461 million (March 31,2007: R3,608 million) and represents 14.4% of mobile revenue(March 31, 2007: 17.5%) which was mainly spent on thecellular network infrastructure consisting of radio, switching andtransmission network infrastructure and computer software. Thedecrease in capital expenditure in other African countries waslargely as a result of decreased investment in Tanzania,Democratic Republic of the Congo and Mozambique offset byan increase in investment in Lesotho.

Other capital expenditure consists of additions to property, plantand equipment for our subsidiaries TDS Directory Operations(Proprietary) Limited, Swiftnet (Proprietary) Limited, TelkomMedia (Proprietary) Limited, Africa Online Limited and Multi-LinksTelecommunications Limited. Other capital expenditure, whichincludes spending on intangible assets, increased to R1,646million (March 31, 2007: R44 million) and represents 84.9% ofother revenue (March 31, 2007: 4.5%).

Telecommunications is naturally a capital intensive businesswhich requires continued investment and longer pay backperiods. It is imperative that capex is used effectively and

efficiently to ensure service delivery by focusing on the evolutionof the network and providing infrastructure for future growth.

PROSPECTS AND GUIDANCE

Telkom’s strategy is designed to deliver and guided by ourstrategy, the creation of shareholders value is the underlyingdriver of every decision.

The next 3 years we will continue to focus on transforming thebusiness to deal with competition, concentrating on deliveringinnovative products and services to our customers, expandingour network and bedding down our growth drivers. We expectthat competition will continue to constrain revenue growth overthe next three years. Targets in a transforming industry such asours are inherently risky, particularly in later years and investorsshould not place undue reliance on such targets. We aretargeting a compound annual growth rate (CAGR) of revenueover the following three years in the 5% to 10% range asincreased revenues from our data, broadband and convergedbusiness and our newly acquired subsidiaries are projected tomitigate the impacts of increased competition.

The EBITDA margin relating to fixed-line and other segments istargeted to range between 32% and 36% over the next threeyears. This margin range reflects the increased operationalexpenditure that goes hand in hand with an aggressive customerservice improvement and expansion programme, an increasedcontribution from lower margin business and the decline in local and national voice traffic revenue. The early stages ofdevelopment in Multi-Links and Africa Online add to theexpected decrease in the EBITDA margin. We expect to seeimprovements in the EBITDA margin within the range towardsthe end of our three year planning period.

Capital expenditure for the fixed-line and other segments willrange between 23% and 27% of revenue over the next twoyears. In year three capex is targeted to range between 18%and 22%. Capital expenditure is expected to be R11.3 billion inthe 2009 financial year. Fixed-line capital expenditure istargeted at R7 billion and Multi-Links at USD533 million.

The targeted net debt to EBITDA for the fixed-line and othersegments will be 1.3 times.

Targets in a transforming industry such as ours are inherentlyrisky, particularly in later years and investors should not placeundue reliance on such targets.

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Our dividend policy remains that we progressively grow theordinary dividend each year. Given the investment in our network,expansion in current businesses, the potential acquisitions andpressure on the fixed-line and other segments’ EBITDA margin,no special dividend will be paid in respect of the 2008 financialyear. The level of dividend going forward will be based on anumber of factors including the consideration of the financialresults, available growth opportunities, the Group’s debt level,interest coverage, internal cash flows and resources, therepurchase of Telkom shares and other future expectations.

I wish to express my appreciation to the staff of Telkom andparticularly the finance team for the exemplary work done overthe past financial year.

Deon FredericksActing Chief of Finance

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FIVE YEAR FINANCIAL REVIEW

for the years ended March 31

Amounts in accordance with IFRS 2004 2005 2006 2007 2008 CAGR (%)(in ZAR millions, except percentages)

Fixed-line segment financial data(1)

Revenue 31,832 32,345 32,572 1.2Operating profit 9,843 8,596 8,107 (9.2)Operating profit margin (%) 30.9 26.6 24.9 (71.6)EBITDA 14,206 12,178 11,839 (8.7)EBITDA margin (%) 44.6 37.7 36.3 (9.8)Capital expenditure to revenue (%) 15.4 20.4 20.9 16.5

Mobile segment financial data (50% of Vodacom)Revenue 11,428 13,657 17,021 20,573 24,089 20.5Operating profit 2,614 3,240 4,436 5,430 6,247 24.3Operating profit margin (%) 22.9 23.7 26.1 26.4 25.9 3.1EBITDA 3,879 4,796 5,908 7,123 8,217 20.6EBITDA margin (%) 33.9 35.1 34.7 34.6 34.1 0.1Capital expenditure to revenue (%) 13.2 12.8 15.1 17.5 14.4 2.2

Other segment financial data(1)

Revenue 952 979 1,993 44.7Operating profit 398 444 230 (24.0)Operating profit margin (%) 41.8 45.4 11.5 (47.5)EBITDA 439 484 373 (7.8)EBITDA margin (%) 46.1 49.4 18.7 (36.3)Capital expenditure to revenue (%) 3.7 4.5 82.6 372.5(1) No audited information on the redefined fixed-line and other segment is available for 2004 and 2005

Financial review (Group)Income statement dataOperating revenue 40,582 43,160 47,625 51,619 56,285 8.5Operating expenses (including depreciation) 31,499 32,179 33,428 37,533 42,337 7.7EBITDA 16,586 17,549 20,553 19,785 20,612 5.6Operating profit 9,338 11,261 14,677 14,470 14,482 11.6Profit before tax 6,396 9,917 13,851 13,580 12,876 19.1Profit after tax/net profit 4,658 6,835 9,328 8,849 8,172 15.1Basic earnings per share (cents) 823.9 1,246.9 1,746.1 1,681.0 1,565.0 17.4Headline earnings per share (cents) 875.2 1,279.2 1,728.6 1,710.7 1,634.8 16.9Dividends per share (cents) 90 110 900 900 1,100 87.0Balance sheet dataTotal assets 53,174 57,597 57,544 59,146 70,372 7.3Current assets 11,423 15,045 12,731 10,376 12,609 2.5Non-current assets 41,751 42,552 44,813 48,770 57,763 8.5Total liabilities 31,346 31,236 28,078 27,138 37,035 4.3Current liabilities 14,639 17,366 15,687 18,584 21,931 10.6Non-current liabilities 16,707 13,870 12,391 8,554 15,104 (2.5)Shareholders’ equity 21,828 26,361 29,466 32,008 33,337 11.2Total debt 17,821 15,225 12,051 11,034 18,365 0.8Net debt 13,362 6,941 6,828 10,026 16,617 5.6Cash flow dataCash flow from operating activities 13,884 15,711 9,506 9,356 10,603 (6.5)Cash flow used in investing activities (5,423) (6,306) (7,286) (10,412) (14,106) 27.0Cash flow used in financing activities (6,481) (9,897) (258) (2,920) 2,943 –Capital expenditure excluding intangibles 4,936 4,464 6,310 8,648 10,108 19.6Operating free cash flow 9,009 10,034 7,104 3,728 2,150 (30.1)Financial ratiosOperating profit margin (%) 23.0 26.1 30.8 28.0 25.7 2.8EBITDA margin (%) 40.9 40.7 43.2 38.3 36.6 (2.7)Net profit margin (%) 11.5 15.6 19.3 16.7 14.2 5.4Net debt to equity (%) 61.2 26.3 23.2 31.3 49.8 (5.0)After tax operating return of assets (%) 17.9 19.8 25.6 22.8 18.3 0.6Capital expenditure to revenue (%) 13.2 13.6 15.8 19.8 21.1 12.4

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As of the beginning of the year the Telkom Group added a newsegment to its financial reporting, the other segment. Thecomparative information in this annual report has been updatedto reflect the changes to Telkom’s reporting segments.

Our operating structure comprises three segments, fixed-line,mobile and other. Our fixed-line segment provides fixed-line voiceand data communications services through Telkom. Our mobilesegment provides mobile services through its 50% joint interest inVodacom. Our other segment provides directory services throughour TDS Directory Operations Group, fixed mobile, data andother international communications services in Nigeria, throughour newly acquired Multi-Links subsidiary, Internet services outsideSouth Africa, through our Africa Online subsidiary, and wirelessdata services, through our Swiftnet subsidiary, and includesTelkom Media. TDS Directory Operations and Swiftnet werepreviously included in our fixed-line segment.

We proportionately consolidate Vodacom’s results into theTelkom Group’s consolidated financial statements. This meansthat we include 50% of Vodacom’s results in each of the lineitems in the Telkom Group’s consolidated financial statementsand in the year to year discussion below. We fully consolidateour TDS Directory Operations, Multi-Links, Africa Online,Swiftnet and Telkom Media subsidiaries in the Telkom Group’sconsolidated financial statements.

CONSOLIDATED RESULTS

The following table shows information related to our operatingrevenue, operating expenses, operating profit, profit for the year,profit margin, EBITDA and EBITDA margin for the periodsindicated.

FINANCIAL REVIEW

Telkom Group’s segmental results

Year ended March 31,2006 2007 2008 2007/ 2008/

2006 2007(in millions, except percentages) ZAR % ZAR % ZAR % % change % change

Operating revenue 47,625 100.0 51,619 100.0 56,285 100.0 8.4 9.0Fixed-line 31,832 66.8 32,345 62.7 32,572 57.9 1.6 0.7Mobile 17,021 35.7 20,573 39.8 24,089 42.8 20.9 17.1Other 952 2.0 979 1.9 1,993 3.5 2.8 103.6Intercompany eliminations (2,180) (4.5) (2,278) (4.4) (2,369) (4.2) 4.5 4.0Other income(1) 480 100.0 384 100.0 534 100.0 (20.0) 39.1Fixed-line 465 96.9 334 87.0 497 93.1 (28.2) 48.8Mobile 50 10.4 42 10.9 56 10.5 (16.0) 33.3Other 10 2.1 54 14.1 67 12.5 440.0 24.1Intercompany eliminations (45) (9.4) (46) (12.0) (86) (16.1) 2.2 87.0Operating expenses 33,428 100.0 37,533 100.0 42,337 100.0 12.3 12.8Fixed-line 22,454 67.2 24,083 64.1 24,962 59.0 7.3 3.6Mobile 12,635 37.8 15,185 40.5 17,898 42.3 20.2 17.9Other 564 1.7 589 1.6 1,830 4.3 4.4 210.7Intercompany eliminations (2,225) (6.7) (2,324) (6.2) (2,353) (5.6) 4.4 1.2Operating profit(2) 14,677 100.0 14,470 100.0 14,482 100.0 (1.4) 0.1Fixed-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 15.0Other 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) 4.2Fixed-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 15.4Other 439 2.1 484 2.4 373 1.8 10.3 (22.9)Intercompany eliminations – – – – 183 0.9 n/a n/aEBITDA margin (%) 43.2 38.3 36.6 (11.3) (4.4)

(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 2007financial 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, amortisation,impairments and write-offs. We believe that EBITDA provides meaningful additional information to investors since it is widely accepted by analysts and investors asa basis for comparing a company’s underlying operating profitability with that of other companies as it is not influenced by past capital expenditures or businessacquisitions, 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 alsoa 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 USGAAP or IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash flows from operating activities determined in accordance withUS 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 measuresof 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 isbased 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 calculatedin the same manner as it is calculated in the above table.

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Fixed-line operating revenue

Year ended March 31,2006 2007 2008 2007/ 2008/


Subscriptions and connections 5,803 18.2 6,286 19.4 6,330 19.4 8.3 0.7Traffic 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) 7.2Data 6,674 21.0 7,489 23.1 8,308 25.5 12.2 10.9Sundry 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

EBITDA can be reconciled to operating profit as follows:


(in millions) ZAR ZAR ZAR

Fixed-lineEBITDA 14,206 12,178 11,839Depreciation, amortisation, impairments and write-offs (4,363) (3,582) (3,732)Operating profit 9,843 8,596 8,107Mobile EBITDA 5,908 7,123 8,217Depreciation, amortisation and impairments (1,472) (1,693) (1,970)Operating profit 4,436 5,430 6,247OtherEBITDA 439 484 373Depreciation, amortisation, impairments and write-offs (41) (40) (143)Operating profit 398 444 230

in data revenue and higher subscriptions and connectionsrevenue partially offset by lower average traffic tariffs, lower localand long distance traffic and lower interconnection revenue.These additional revenue streams were further supported by thecontinued growth in advertising revenue from our subsidiary, TDSDirectory Operations, offset in part by a slight reduction inwireless data services revenue from our subsidiary, Swiftnet dueto increased competition in the wireless data environment.Revenue from directory services increased in the years endedMarch 31, 2007 and 2008 primarily due to annual tariffincreases and increased marketing and online efforts, resulting inincreased spending on advertising by existing customers andadditional advertising revenue from new customers.

Fixed-line segment operating revenueThe following table shows operating revenue for our fixed-linesegment broken down by major revenue streams and as apercentage of total revenue for our fixed-line segment and the percentage change by major revenue stream for the periods indicated.

Group operating revenueOperating revenue increased in the years ended March 31,2008 and 2007 due to increased operating revenue in ourmobile other and fixed-line segments. Vodacom’s operatingrevenue increased in the 2008 financial year primarily due toincreased airtime, data, interconnection and equipment salesrevenue as a result of strong customer growth. Vodacom’soperating revenue increased in the 2007 financial year primarilydue to increased data, interconnection and equipment salesrevenue as a result of continued customer growth. The increase inrevenue in our other segment in the 2008 financial year wasprimarily due to the inclusion in the 2008 financial year ofrevenue generated by our newly acquired subsidiaries, Multi-Linksand Africa Online. Fixed-line operating revenue remained flatwith a marginal increase of 0.7% in the 2008 financial yearprimarily due to continued growth in data services, intercon -nection revenues and higher revenue from subscription basedcalling plans, partially offset by a decrease in local and longdistance traffic. The increase in fixed-line operating revenue inthe 2007 financial year was primarily due to continued growth

Financial review continued

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increased competition in our payphones business. As a result,traffic declined 4.7% in both the 2008 and 2007 financialyears. Revenue per fixed access line decreased 0.5% to R5,250in the 2008 financial year from R5,275 in the 2007 financialyear primarily due to the decline in traffic tariffs and local trafficvolumes, partially offset by increased subscription based callingplans, interconnection and subscriptions and connections tariffs.Revenue per fixed access decreased 0.5% to R5,275 in the2007 financial year from R5,304 in the 2006 financial yearprimarily due to the decline in traffic tariffs, lower local trafficvolumes and lower interconnection revenue, partially offset byincreased subscriptions and connection tariffs.

Subscriptions and connections

Revenue from subscriptions and connections consists of revenuefrom connection fees, monthly rental charges, value added voiceservices and the sale and rental of customer premises equipmentfor postpaid and prepaid PSTN lines, including ISDN channelsand private payphones. Subscriptions and connections revenueis principally a function of the number and mix of residential andbusiness lines in service, the number of private payphones inservice and the corresponding charges. The following table setsforth information related to our fixed-line subscription andconnection revenue during the periods indicated.

Fixed-line subscription and connection revenue

Year ended March 31,2006 2007 2008 2007/ 2008/

2006 2007% change % change

Total subscriptions and connections revenue (ZAR millions, except percentages) 5,803 6,286 6,330 8.3 0.7Total subscription access lines (thousands, except percentages)(1) 4,551 4,490 4,395 (1.3) (2.1)PostpaidPSTN(2) 2,996 2,971 2,893 (0.8) (2.6)ISDN channels 693 718 754 3.6 5.0Prepaid PSTN 854 795 743 (6.9) (6.5)Private payphones 8 6 5 (25.0) (16.7)

(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 fibre.

Revenue from subscriptions and connections increased in theyears ended March 31, 2008 and 2007 mainly due to increasedtariffs as well as an increase in the number of ISDN lines and, toa lesser extent, business postpaid PSTN lines, partially offset bylower 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 thesale of customer premises equipment increased as a result of thereclassification of the related leases previously accounted for as

operating leases to finance leases, resulting in the recognition ofincome from the lease of customer premises equipment at the timeof 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 inservice in both the 2008 and 2007 financial years was primarilyas a result of customer migration to mobile and higherbandwidth products such as ADSL and lower connections. The

Fixed-line operating revenue increased in the 2008 financialyear primarily due to continued growth in data services andhigher revenue from subscription based calling plans, intercon -nection and subscriptions and connections, partially offset by adecrease in traffic revenue, particularly local and long distancetraffic revenue. Fixed-line operating revenue increased in the2007 financial year, primarily due to continued growth in dataservices and higher subscriptions and connections revenue,partially offset by lower average traffic tariffs, lower local andlong distance traffic and lower interconnection revenue.

Fixed-line operating revenue was adversely impacted in both the2008 and 2007 financial years due to a decrease in the numberof residential postpaid PSTN lines primarily as a result ofcustomer migration to mobile and higher bandwidth productssuch as ADSL and lower connections, and a decrease in thenumber of prepaid PSTN lines as a result of customer migrationto mobile services and our residential postpaid PSTN services toenable access to subscription based calling plans and waspositively impacted by our increase in ISDN channels, ADSLservices and, to a lesser extent, business postpaid PSTN lines. Inaddition, traffic was adversely affected in both years by theincreasing substitution of calls placed using mobile servicesrather than our fixed-line service and dial-up traffic beingsubstituted by our ADSL service, as well as the decrease in thenumber of prepaid and residential postpaid PSTN lines and

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increase in the number of postpaid ISDN channels was driven byincreased demand for higher bandwidth and functionality. Thedecrease in prepaid PSTN lines in both the 2008 and 2007financial years was primarily due to continued migration tomobile services and our residential postpaid PSTN services toenable access to subscription based calling plans. In addition,we relaxed our credit policies which led to fewer migrations ofour postpaid customers to prepaid service in the 2008 and2007 financial years.

Traffic Traffic revenue consists of revenue from local, long distance,fixed-to-mobile and international outgoing calls, internationalvoice over Internet Protocol services and subscription basedcalling plans. Traffic revenue is principally a function of tariffsand the volume, duration and mix between relatively moreexpensive 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 customerretention strategy in order to defend revenues. These calling planarrangements comprise monthly subscriptions for access linerental, value added services and free or discounted rates on calls.

Traffic revenue from calling plan subscriptions was reported aspart of local traffic revenue in financial years prior to the 2007financial year, as most of these calling plans related to local callsonly and the amounts were insignificant. The access line rentalsand value added services revenue components of calling planarrangements are included in subscriptions and connectionsrevenue. In response to the significant growth in calling planarrangements, the need arose to separate traffic revenue resultingfrom subscription based calling plans into annuity revenue andthe respective traffic revenue streams. Commencing in the 2007financial year, subscription based on calling plans revenueincludes traffic annuity revenue related to calling plans.Discounted and out of plan traffic relating to these calling plansis disclosed under the applicable traffic revenue streams.

Traffic includes dial up Internet traffic. Telkom has reclassifiedcalling plans from local, long distance and fixed-to-mobile trafficinto a separate line item to disclose traffic from subscriptionbased calling plans in the 2007 and 2008 financial year. Trafficfor the 2006 financial year was not restated.

The following table sets forth information related to our fixed-linetraffic revenue for the periods indicated.

Fixed-line traffic revenue

Year ended March 31,2006 2007 2008 2007/ 2008/


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 13.8International 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)

(1) Traffic, other than international Voice Over Internet Protocol traffic, is calculated by dividing total traffic revenue by the weighted average tariff during the relevantperiod. 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.

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Traffic revenue declined in the 2008 and 2007 financial yearsprimarily due to lower average traffic tariffs and lower localtraffic volumes partially offset by increased subscription basedcalling plans and revenue, international outgoing and fixed-to-mobile traffic.

ICASA approved a 3.0% reduction in the overall tariffs for servicesin the basket for which there is a price cap effective September 1,2005, a 2.1% reduction in the overall tariffs for services in thebasket effective August 1, 2006 and a 1.2% reduction in theoverall tariffs for services in the basket effective August 1, 2007.Traffic was adversely affected in both the 2008 and 2007financial years by the increasing substitution of calls placed usingmobile services rather than our fixed-line service and dialup trafficbeing substituted by our ADSL service, as well as the decrease inthe number of prepaid and residential postpaid PSTN lines andincreased competition in our payphone business.

Local traffic revenue decreased in the 2008 financial yearprimarily due to significantly lower traffic resulting primarily fromInternet call usage being substituted by our ADSL service, thesubstitution of calls placed using mobile services and discountsto business customers, partially offset by increased local off peaktariffs and traffic volumes related to Telkom Closer packages.Local traffic revenue decreased in the 2007 financial year dueto lower traffic resulting primarily from Internet call usage beingsubstituted by our ADSL service and the substitution of callsplaced using mobile services. We increased penetration ofdiscount and subscription based calling plans to stimulate usagein the 2008 and 2007 financial years and to counteract mobilesubstitution, which effectively lowers the cost to the customer. OnSeptember 1, 2005, we decreased the price of local peak callsafter the first unit by 5.0% to 38 SA Cents per minute (VATinclusive). This price was unchanged on August 1, 2006 andAugust 1, 2007. On August 1, 2007, the price of local off peakcalls increased 4.1% on average.

Long distance traffic revenue decreased in the 2008 financialyear mainly due to a decrease in average long distance tariffsand, to a lesser extent, decreased long distance traffic, partiallyoffset by increased traffic related to Telkom Closer packages andWorldcall. Long distance traffic revenue decreased in the 2007financial year mainly due to a decrease in average long distancetariffs, which was partially offset by increased long distancetraffic. 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 callsmade by our fixed-line customers to the three mobile networks inSouth Africa and is primarily a function of fixed-to-mobile tariffsand the number, the duration and the time of calls. Fixed-to-mobile traffic revenue decreased in the 2008 financial year dueto higher discounts offered to customers in order to retain traffic,partially offset by higher traffic related to the Telkom Closerpackages. Fixed-to-mobile traffic revenue was flat in the 2007financial year. Increased fixed-to-mobile traffic was partiallyoffset by higher discounts offered to customers in order to retaintraffic on our network. The increase in fixed-to-mobile traffic in the2008 and 2007 financial years was primarily due to discountsoffered to larger customers on fixed-to-mobile calls.

Revenue from international outgoing traffic consists of revenuefrom calls made by our fixed-line customers to internationaldestinations and from international voice over Internet Protocolservices and is a function of tariffs and the number, duration andmix of calls to destinations outside South Africa. In the 2008 and2007 financial years, international outgoing traffic revenuedeclined primarily as a result of a decrease in the averageinternational outgoing tariffs, partially offset by an increase ininternational outgoing traffic primarily as a result of the reducedtariffs. The average tariffs to all international destinationsdecreased by 11.1% on August 1, 2006 and by 9.0% onAugust 1, 2007.

Revenue from subscription based calling plans include revenuefrom Telkom’s subscription based plans, Telkom Closer andSupreme Call, which are bundled products on post-paid PSTNlines that include discounted rates and free minutes for a fixedmonthly subscription fee. In the 2008 financial year, revenuefrom subscription based calling plans increased by 98.7%primarily due to a 69.4% increase in customers subscribing tothese packages.

Interconnection We generate revenue from interconnection services for trafficfrom calls made by other operators’ customers that terminate onor transit through our network. Revenue from interconnectionservices includes payments from domestic mobile, domestic fixedand international operators regardless of where the trafficoriginates or terminates.

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The following table sets forth information related to interconnection revenue for the years indicated.

Interconnection revenue

Year ended March 31,2006 2007 2008 2007/ 2008/

2006 2007ZAR ZAR ZAR % change % change

Interconnection revenue (ZAR millions, except percentages) 1,654 1,639 1,757 (0.9) 7.2Interconnection 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) 8.3International interconnection traffic (millions of minutes, except percentages)(2) 1,355 1,321 1,280 (2.5) (3.1)

(1) Domestic mobile interconnection traffic, other than international outgoing mobile traffic, is calculated by dividing total domestic mobile and domestic fixedinterconnection traffic revenue, respectively, by the weighted average domestic mobile and domestic fixed 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 oninterconnection invoices.

Interconnection revenue from domestic mobile operators includesrevenue for call termination and international outgoing calls fromdomestic mobile networks, as well as access to other services,such as emergency services and directory enquiry services.Interconnection revenue from domestic mobile operatorsincreased in the 2008 and 2007 financial years mainly due toincreased traffic from domestic mobile operators, partially offsetby lower average tariffs on mobile international outgoing calls.Domestic mobile interconnection traffic increased in the yearsended March 31, 2008 and 2007 primarily due to an overallincrease in mobile calls as a result of a growing mobile market,partially offset by increased mobile-to-mobile calls bypassing ournetwork. Interconnection revenue from domestic mobileoperators includes fees paid to our fixed-line business byVodacom of R468 million in the year ended March 31, 2008,R468 million in the year ended March 31, 2007 and R464million in the year ended March 31, 2006. Fifty percent of theseamounts were attributable to our interest in Vodacom and wereeliminated from the Telkom Group’s revenue on consolidation.

Interconnection revenue from domestic fixed-line operatorsincludes fees paid by Neotel, underserviced area licence holdersand value added network service providers for call terminationand international outgoing calls, as well as access to otherservices, such as emergency services and directory inquiryservices. With effect from May 23, 2007, ICASA approvedinterconnection rates with Neotel, underserviced area licenceholders and value added network service providers forinterconnection on our fixed-line network. In October 2007,Neotel commenced interconnection with Telkom. In July 2007,Telkom began interconnection with the underserviced arealicence holders and in November 2007, value added network

service providers. We expect interconnection revenue to increaseas a result of the entrance of Neotel and the further liberalisationof the South African telecommunications industry, which maypartially mitigate declines in revenue in other areas.

Interconnection revenue from international operators includesamounts paid by foreign operators for the use of our network toterminate calls made by customers of such operators andpayments from foreign operators for interconnection hubbingtraffic through our network to other foreign networks.Interconnection revenue from international operators increased inthe year ended March 31, 2008 primarily due to the weakeningof the Rand against the SDR, the notional currency in whichinternational rates are determined, and increased switchedhubbing traffic volumes due to a reduction in tariffs to stimulatecompetitiveness, partially offset by lower volumes and settlementrates. Interconnection revenue from international operatorsdecreased in the year ended March 31, 2007 primarily due todecreased settlement rates and volume discounts and decreasedswitched hubbing traffic volumes, partially offset by increasedinternational termination tariffs and the weakening of the Rand.

DataData services comprise data transmission services, includingleased lines and packet based services, managed data networkingservices and Internet access and related information technologyservices. In addition, data services include revenue from ADSL.Revenue from data services is mainly a function of the number ofsubscriptions, tariffs, bandwidth and distance. The followingtable sets forth information related to revenue from data servicesfor the periods indicated.

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Data services revenue

Year ended March 31,2006 2007 2008 2007/ 2008/


Data services revenue (ZAR millions, except percentages) 6,674 7,489 8,308 12.2 10.9Leased lines and other data revenue(1) 5,304 5,828 6,460 9.9 10.8Leased line facilities revenues from mobile operators 1,370 1,661 1,848 21.2 11.3Number of managed network sites (at period end) 16,887 21,879 25,112 29.6 14.8Internet dial-up subscribers (at period end) 228,930 210,453 242,732 (8.1) 15.3Internet ADSL subscribers (at period end) 53,997 92,140 115,334 70.6 25.2Total ADSL subscribers (at period end)(2) 143,509 255,633 412,190 78.1 61.2

(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.

Sundry revenue Sundry revenue includes revenue relating to collocation of otherlicensed operators on Telkom owned properties, the sale ofmaterials and revenue related to the recovery of costs for workperformed on behalf of other licensed operators. Sundry revenueincreased by 18.8% to R227 million in the 2008 financial yearand 38.4% to R191 million in the 2007 financial year fromR138 million in the 2006 financial year primarily due to anincrease in prices, and in the 2007 financial year, volumes, forcollocation and recoveries.

Mobile segment operating revenueThe following table shows information related to our 50% shareof Vodacom’s operating revenue and operating profit brokendown by Vodacom’s South African operations and operations inother African countries for the periods indicated. All amounts inthis table and the discussion of our mobile segment that followsrepresent 50% of Vodacom’s results of operations unlessotherwise stated and are before the elimination of intercompanytransactions with Telkom.

Our data services revenue increased in both the 2008 and 2007financial years primarily due to increased revenue from dataconnectivity service, including ADSL connectivity and SAIX,Internet access, and managed data networks, including VPNSupreme and increased revenue from leased line facilities frommobile operators. These increases were partially offset bydecreased tariffs for leased line facilities to mobile operators anddata connectivity services. Revenue from leased line facilitiesfrom mobile operators increased in the years ended March 31,2008 and 2007 primarily due to the roll-out of third generationand universal mobile telecommunications system products by themobile 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. These amounts wereattributable to our interest in Vodacom and were eliminated fromthe Telkom Group’s revenue on consolidation.

Mobile operating revenue and profits

Year ended March 31,2006 2007 2008 2007/ 2008/


Operating revenue 17,021 100.0 20,573 100.0 24,089 100.0 20.9 17.1South Africa 15,535 91.3 18,504 89.9 21,392 88.8 19.1 15.6Other African countries 1,486 8.7 2,069 10.1 2,697 11.2 39.2 30.4Operating profit(1) 4,436 100.0 5,430 100.0 6,247 100.0 22.4 15.0South Africa 4,292 96.8 5,170 95.2 5,852 93.7 20.5 13.2Other African countries 144 3.2 260 4.8 395 6.3 80.6 51.9

(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 anincrease 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.

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African prepaid ARPU decreased to R62 per month in the 2008financial year from R63 per month in the 2007 financial yearand R69 per month in the 2006 financial year. In the 2008,2007 and 2006 financial years, contract and prepaid customerARPU were also negatively impacted by the high growth inVodacom’s hybrid contract product, Family Top Up, whichcontributed to the migration of higher spending prepaidcustomers, who tend to spend less than existing contractcustomers, to contracts. In the 2007 financial year, Vodacomchanged its definition of active customers to exclude callsforwarded to voicemail from the definition of revenue generatingactivity for a six-month period, resulting in the deletion ofapproximately 3 million customers. Prepaid ARPU was positivelyimpacted by this temporary rule change in the 2007 financialyear. Vodacom subsequently changed its definition of revenuegenerating activity back to include calls forwarded to voicemaileffective September 1, 2006. Such SIM cards were disconnectedfrom the network after being inactive for a 215 consecutive dayperiod. Since implementing this change, prepaid SIM cardsremaining in an active state on the network, with only callforwarding to voicemail and no other revenue generatingactivities, increased significantly. Vodacom therefore implementeda supplementary disconnection rule in September 2007 todisconnect inactive prepaid SIM cards after 13 months of beingkept in an active state, by call forwarding to voicemail only, andnot having has any other revenue generating activity onVodacom’s network. The implementation of the supplementarydisconnection rule led to the disconnection of an additional 2.9million prepaid SIM cards in September 2007, which resulted inhigher prepaid ARPU than would have otherwise occurred.Approximately 85.3% of Vodacom’s South African mobilecustomers were prepaid customers at March 31, 2008 andapproximately 93.4% of all gross connections were prepaidcustomers in the 2008 financial year. Vodacom expects thenumber of prepaid mobile users to continue to grow to a greater

Vodacom’s operating revenue increased in the 2008 and 2007financial years primarily due to increased airtime, data,interconnection and equipment sales revenue as a result ofcontinued customer growth. Vodacom’s equipment sales furtherincreased in the 2008 financial year due to the addedfunctionality of new phones based on new technologies and inthe 2007 financial year due to the continued uptake of newhandsets in South Africa as a result of cheaper Rand-prices ofnew handsets and the added functionality of new phones basedon new technologies.

Our 50% share of Vodacom’s revenue from operations outsideof South Africa increased to R2,697 million for the year endedMarch 31, 2008 from R2,069 million for the year ended March31, 2007 from R1,486 million in the year ended March 31,2006. The increase in Vodacom’s operating revenue from otherAfrican countries in the 2008 and 2007 financial years wasprimarily due to substantial increases in the number of customersin Vodacom’s operations, particularly in Tanzania, the DemocraticRepublic of the Congo and Mozambique, and the weakening ofthe Rand in the 2008 and 2007 financial year, which resultedin higher Rand converted revenue, partially offset by lower ARPUresulting from the higher volume of lower spending prepaidcustomers. Revenue from Vodacom’s other African countries asa percentage of Vodacom’s total mobile operating revenueincreased to 11.2% in the year ended March 31, 2008 from10.1% in the year ended March 31, 2007 and 8.7% in the yearended March 31, 2006.

A large part of the growth in mobile services was due to thesuccess of prepaid services and the increased growth in contractcustomers due to prepaid customers migrating to contracts.

South African contract ARPU decreased to R486 per month in the2008 financial year from R517 per month in the 2007 financialyear and R572 per month in the 2006 financial year. South

Mobile segment revenue

The following table shows our 50% share of Vodacom’s revenue broken down by major revenue type and as a percentage of totaloperating 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/ 2008/


Airtime 10,043 59.0 11,854 57.6 13,548 56.3 18.0 14.3Data 1,019 6.0 1,671 8.1 2,501 10.4 64.0 49.7Interconnection 3,348 19.7 3,918 19.0 4,443 18.4 17.0 13.4Equipment sales 1,993 11.7 2,350 11.4 2,526 10.5 17.9 7.5International airtime 486 2.9 653 3.2 918 3.8 34.4 40.6Other 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

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and approximately 1.4 million as of March 31, 2006. Thenumber of active data users includes approximately 1.4 millionMMS users, approximately 370,000 data card and USB modem users, approximately 1.3 million 3G/HSDPA handsets,approximately 1.4 million Vodafonelive! users and approximately31,000 Unique Mobile TV users as of March 31, 2008,compared to approximately 1.2 million MMS users, approximately139,000 data card and USB modem users, approximately584,000 3G/HSDPA handsets, approximately 899,000Vodafonelive! users and approximately 33,000 Unique MobileTV users as of March 31, 2007. As of March 31, 2008Vodacom had 32,273 Blackberry® users registered on itsnetwork, compared to approximately 23,328 as of March 31,2007. Vodacom expects that the broad introduction of “alwayson” faster response and generally higher speed packet-switched data services, such as GPRS and universal mobiletelecommunications system, or UMTS, will provide the platformfor future value-added services.

Interconnection revenue

Vodacom’s interconnection revenue increased in the years endedMarch 31, 2008 and March 31, 2007 primarily due to anincrease in the number of calls terminating on Vodacom’snetwork as a result of the increased number of Vodacom’scustomers and South African mobile users generally. The growthin the 2008 and 2007 financial years was also attributable tothe growth in the substitution of fixed-line calls by mobile callsand incoming traffic resulting from an overall increase in thecustomer base of other mobile operators. The increases werepartially offset by a reduced number of fixed-line calls fromTelkom’s network terminating on Vodacom’s network. Thetermination rate Telkom pay to Vodacom and the mobile-to-mobile interconnection rates have not changed in the three yearsended March 31, 2008. Interconnection revenue in our mobilesegment included R1,482 million, R1,454 million and R1,409million 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 onconsolidation.

Equipment sales

Vodacom’s equipment sales increased in the 2008 and 2007financial years primarily due to the growth of Vodacom’scustomer base and the continued uptake of new handsets inSouth Africa as a result of cheaper Rand-prices of new handsetsand the added functionality of new phones based on newtechnologies such as 3G enabled phones, camera phones andcolour screens. Sales of the Vodafone live! handset increasedsignificantly to 2,793,710 handsets in the 2008 financial yearfrom 1,994,269 handsets in the 2007 financial year. Theaverage price per handset sold was R1,052 in the 2008financial year compared to R1,067 in the 2007 financial year.

International airtime

International airtime revenues are predominantly frominternational calls by Vodacom customers, roaming revenue from

extent than contract mobile users. The increasing number ofprepaid users, who tend to have lower average usage, and thelower overall usage as the lower end of the market is penetratedhave historically resulted in decreasing overall average revenueper customer. Total South African ARPU remained stable at R125per month in the 2008 financial year, after decreasing in the2007 financial year to R125 per month from R139 per month inthe 2006 financial year. Total South African ARPU remainedstable in the 2008 financial year, despite declining South Africancontract and prepaid ARPU, due to a shift in the customer mix tohigher spending contract customers, which represented 14.3% oftotal South African customers as of March 31, 2008 comparedto 13.1% as of March 31, 2007.

Airtime revenue

Vodacom’s airtime revenue increased in the years ended March31, 2008 and March 31, 2007 primarily due to continuedcustomer growth, partially offset in the 2007 financial year by anoverall continued decline in ARPU resulting from the effect ofgrowth in lower spending prepaid customers. As Vodacom’sprimary market in South Africa continues to mature andVodacom continues to connect more marginal customers in itsSouth African operations, Vodacom expects that growth inairtime in South Africa will continue to slow. Total customersincreased 12.7% and 28.2% in the years ended March 31,2008 and 2007, respectively, primarily due to strong prepaidcustomer growth in South Africa and significant customer growthin Vodacom’s operations outside of South Africa, particularly inTanzania, the Democratic Republic of the Congo and Mozambiquein the 2008 and 2007 financial years. New products, packagesand services also had a role in Vodacom’s customer growth inthe 2007 financial year.

Data revenue

Vodacom derives data revenue from mobile data, including shortmessaging services, or SMSs, and multimedia messagingservices, or MMSs, general packet radio services, or GPRS, andthird generation services, or 3G. Data revenue contributed10.4% of Vodacom’s total revenue in the year ended March 31,2008, up from 8.1% in the year ended March 31, 2007 and6.0% in the year ended March 31, 2006. Vodacom’s mobiledata revenue increased in the year ended March 31, 2008primarily due to higher penetration levels influenced by moreaffordable product offerings. Vodacom’s mobile data revenueincreased in the year ended March 31, 2007 primarily due tosignificant growth in SMS usage and the continued roll-out ofdata initiatives such as Vodafone Mobile Connect Cards,Vodafone Live!, Mobile TV, BlackBerry® and the continueddelivery of wireless application services.

In South Africa, Vodacom transmitted 4.7 billion SMSs over itsnetwork in the 2008 financial year, compared to 4.5 billionSMSs in the 2007 financial year. There was an increase in usersof GPRS in the 2008 financial year, with the number of GPRSusers increasing to approximately 4.7 million as of March 31,2008 from approximately 2.8 million as of March 31, 2007

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Our other operating revenue increased in the 2008 financial yearprimarily due the inclusion in the current year of revenuegenerated by our newly acquired subsidiaries, Multi-Links andAfrica Online. Multi-Links, which was acquired with effect fromMay 1, 2007, contributed R845 million from its customers in theNigerian market since its acquisition, and Africa Online, whichwas acquired with effect from February 23, 2007, increased therevenue contribution to the Group from R8 million during the 2007financial year to R110 million during the 2008 financial year.

These additional revenue streams were further supported by thecontinued growth in advertising revenue from our subsidiary,TDS Directory Operations, offset in part by a slight reduction inwireless data services revenue from our subsidiary, Swiftnet dueto increased competition in the wireless data environment.Revenue from directory services increased in the years endedMarch 31, 2007 and 2008 primarily due to annual tariffincreases and increased marketing and online efforts, resultingin increased spending on advertising by existing customers andadditional advertising revenue from new customers. During the

2008 financial year, R4 million of revenue for TDS DirectoryOperations was generated through the investment in TDSDirectory Operations Namibia, which was acquired in January2007 to provide directory services in Namibia.

Group other income

Other income includes profit on the disposal of investments,property, plant and equipment and intangible assets. Theincrease in fixed-line other income in the 2008 financial yearwas primarily due to the disposal of more properties at a highervalue during the 2008 financial year. The decrease in fixed-lineother income in the 2007 financial year was primarily due tolower sales of assets and properties as well as a decrease inprofit on disposal of investments, which resulted from thereclassification of assets held by the Cell captive to an annuitypolicy that qualified as a plan asset, effective June 1, 2006. Theprofits and losses that would have previously been included inother income are now treated as movements in the plan assetsfunding the post retirement medical aid obligation.

Vodacom’s customers making and receiving calls while abroadand revenue from international customers roaming on Vodacom’snetworks. International airtime increased 40.6% to R918 millionin the year ended March 31, 2008 and 34.4% to R653 millionin the year ended March 31, 2007 primarily as a result of anincrease in customers resulting in increased traffic.

Other mobile revenue

Revenue from other sales and services includes revenue fromVodacom’s cell captive insurance vehicle, wireless applicationservices provider, or WASP, revenue, site sharing rental incomeas well as other revenue from non core operations. Vodacom’sother sales and services revenue increased 20.5% to R153 millionin the 2008 financial year primarily due to an increase ininactivated starter packs which do not contain an expirationdate, but which are recognised as income after a period of 36 months. Vodacom’s other sales and services revenuedecreased 3.8% to R127 million in the 2007 financial yearprimarily due to lower income recognised as a result of a

reduction in inactivated starter packs which do not contain anexpiration date, partially offset by higher revenue of Cointel andhigher site rental income.

Other segment operating revenue

Our other operating revenue is derived principally from directoryservices, through our TDS Directory Operations Group, fixed,mobile, data, long distance and international communicationsservices throughout Nigeria, through our 75% owned subsidiary,Multi-Links, Internet services outside South Africa, through ourAfrica Online subsidiary, and wireless data services, through our Swiftnet subsidiary, and includes 100% of the losses ofTelkom Media.

The following table shows the operating revenue for our othersegment broken down by major revenue streams and thepercentage change by major revenue stream for the periodsindicated.

Other operating revenue

Year ended March 31,2006 2007 2008 2007/ 2008/

2006 2007(in millions, except percentages) ZAR ZAR ZAR % change % change

TDS Directory Operations 834 865 930 3.7 7.5Multi-Links – – 845 n/a n/aAfrica Online – 8 110 n/a n/aSwiftnet 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

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Group operating expenses

Group operating expenses increased 12.8% to R42,337 million(March 31, 2007: R37,533 million) in the year ended March31, 2008, primarily due to a 17.9% increase in operatingexpenses in the mobile segment to R17,898 million (before inter-segmental eliminations). Fixed-line operating expenditureincreased by 3.6% to R24,962 million (before inter-segmentaleliminations) due to increased employee expenses, payments toother operators, depreciation, amortisation, impairment andwrite-offs and services rendered, partially offset by a decrease inoperating leases and selling, general and administrativeexpenses. Operating expenses of 17.9%, before inter segmentaleliminations, was primarily due to increase in employeeexpenses and gross connections resulting in increased cost toconnect customers to the network. Mobile payments to otheroperators also increased as a result of the increased outgoingtraffic and the higher volume growth of more expensive outgoingtraffic terminating on other mobile networks when compared totraffic terminating on the lower cost fixed-line network.

Operating expenses increased in the years ended March 31,2008 and 2007 as a result of increased operating expenses inour mobile, other and fixed-line segments. The increase in mobileoperating expenses in the 2008 financial year was primarilydue to inflationary factors and growth in the business, which ledto increased selling, general and administrative expenses tosupport the expansion of 3G, growth in Vodacom’s SouthAfrican and African operations and increased competition,increased payments to other network operators due to higheroutgoing traffic and the increased percentage of outgoing trafficterminating on other mobile networks, higher employee costs as a result of increased headcount as well as increaseddepreciation, amortisation and impairment. The increase inmobile operating expenses in the 2007 financial year wasprimarily due to increased selling, general and administrativeexpenses to support the expansion of 3G, growth in Vodacom’sSouth African and other African operations and increasedcompetition, increased payments to other network operators dueto higher outgoing traffic and the increased percentage ofoutgoing traffic terminating on other mobile networks, increaseddepreciation, amortisation and impairment, higher employeecosts as a result of increased headcount, average 7.5% annualsalary increases, an increase in the provision for bonus schemesand an increase in the provision for long term incentives forexecutives and increased operating leases.

The increase in these operating expenses in the 2008 financialyear was primarily due to the inclusion of operating expensesrelating to our newly acquired subsidiaries, Multi-Links andAfrica Online, and the creation of Telkom Media, all of whichimpacted all expense categories. Increases in other operatingexpenses in the 2008 financial year were primarily driven bysignificant increases in payments to other operators, employeeexpenses, depreciation, amortisation and impairments, operatingleases and services rendered.

The increase in fixed-line operating expenses in the 2008financial year was primarily due to increased payments to otheroperators, higher employee expenses and services rendered,partially offset by lower leases and selling, general andadministrative expenses. Payments to other operators increasedprimarily due to increased calls from our fixed-line network tomobile and international operators as result of higher call volumesfrom our fixed-line network to the mobile and internationalnetworks. Employee expenses increased due to higher salariesand wages as a result of average annual salary increases andhigher share compensation expenses, partially offset by areduced provision for team award and a reduction in the numberof employees. Services rendered increased primarily due toincreased property management costs mainly related to increasedelectricity usage, electricity rates and taxes, payments toconsultants to explore local and international investmentopportunities, higher security costs due to increases in contractprices and maintenance and monitoring of the cable alarmsystem and legal fees related to Telcordia. Operating leasesdecreased in the year ended March 31, 2008 primarily due toa discount received on the extension of our vehicle lease and areduction in the number of vehicles from 9,694 at March 31,2007 to 8,792 at March 31, 2008. Selling, general andadministrative expenses decreased primarily due to the provisionfor probable liabilities in the Telcordia dispute in the 2007financial year, which were not increased significantly in the 2008financial year, and lower marketing expense, partially offset bythe R217 million impairment of the Telkom Media loan in the2008 financial year – increased materials and maintenanceexpenses and higher bad debts. Depreciation, amortisation,impairments and write-offs increased in the year ended March 31,2008 primarily as a result of higher amortisation of intangibleassets and increased depreciation due to the ongoing investmentin telecommunications network equipment and data processingequipment, partially offset by lower asset write-offs.

The increase in fixed-line operating expenses in the 2007financial year was primarily attributable to increased selling,general and administrative expenses, employee expenses,payments to other operators, and services rendered, partiallyoffset by lower depreciation, amortisation, impairments and write-offs as a result of an increase in the useful lives of certain assets.Selling, general and administrative expenses increased primarilyas a result of the provision raised for possible liabilities in theTelcordia dispute, higher materials and maintenance expenses,increased marketing and sponsorships, and increased costs ofsales due to the reclassification of finance leases associated withcustomer premises equipment in selling, general and administrativeexpenses, partially offset by a provision for VAT that was reverseddue to a revenue ruling from SARS. Employee expenses increaseddue to higher salaries and wages as a result of average annualsalary increases of 7.0% and related benefits, an increase in thenumber of employees and increased payments to part timeemployees and contractors. Payments to other network operatorsincreased primarily due to higher call volumes from our fixed-linenetwork to the mobile networks and higher payments to

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international network operators as a result of higher internationaloutgoing volumes and a weaker exchange rate. Servicesrendered increase in the year ended March 31, 2007 primarilydue to increased payments to consultants to explore local andinternational investment opportunities, customer centricity andhigher security and property management costs at TFMC.

Fixed-line segment operating expenses

The following table shows the operating expenses of our fixed-line segment broken down by expense category as a percentageof total revenue and the percentage change by operatingexpense category for the years indicated.

Fixed-line operating expenses

Year ended March 31,2006 2007 2008 2007/ 2008/

2006 2007ZAR % of ZAR % of ZAR % of

(in millions, except percentages) revenue revenue revenue % change % change

Employee expenses(1) 6,314 19.8 7,096 21.9 7,397 22.7 12.3 4.2Payments to other network operators 6,140 19.3 6,461 20.0 6,902 21.2 5.2 6.8Selling, 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 9.4Operating leases 755 2.4 762 2.4 619 1.9 0.9 (18.8)Depreciation, amortisation, 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

(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 legalfees, of which R510 million is included in selling, general and administrative expenses and R11 million for interest and R6 million for foreign exchange rate effectis 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 arbitrationwith 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.

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Employee expenses

Employee expenses consist mainly of salaries and wages for employees, including bonuses and other incentives, benefits andworkforce 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/ 2008/

2006 2007(in millions, except percentages and number of employees) ZAR ZAR ZAR % change % change

Salaries and wages 4,466 5,095 5,509 14.1 8.1Benefits 2,383 2,673 2,671 12.2 (0.1)Workforce reduction expenses 85 24 3 (71.8) (87.5)Employee related expenses capitalised (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 25,575 25,864 24,879 1.1 (3.8)

and lower training expenses, partially offset by increased shareoption grant expenses as a result of the higher number of sharesallocated during the year. Benefits increased in the 2007financial year due to increases in salaries and wages, higherpension fund contributions resulting from the movement ofemployees from the pension fund to the retirement fund and thefunding of the related deficit, increased post-retirement telephonebenefits, increased sales commissions, increased training andincreased critical skills retention.

Workforce reduction expenses include the cost of voluntary earlyretirement, termination severance packages offered to employeesand the cost of social plan expense to prepare affected employeesfor new careers outside Telkom. Workforce reduction expensesdecreased substantially in the years ended March 31, 2008 and2007 due to the moratorium on voluntary severance packagestaken in the 2007 financial year. Workforce reduction expensesin the 2007 financial year included social planning expenses aspart of Telkom’s workforce reduction program. An additional fouremployees in the 2008 financial year, 13 employees in the 2007financial year and 245 employees in the 2006 financial year leftTelkom as part of the conclusion of Telkom’s workforce reductioninitiatives for the 2005 financial year.

Employee related expenses capitalised include employee relatedexpenses associated with construction and infrastructuredevelopment projects. Employee related expenses capitalisedincreased in the years ended March 31, 2008 and March 31,2007 primarily due to annual salary increases and increasedcapital expenditures on projects during the year.

Employee expenses increased in the year ended March 31,2008 primarily due to higher salaries and wages as a result ofaverage annual salary increases of 7.0%, and increased shareoption grant expenses as a result of the higher number of sharesgranted 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 ofaverage annual salary increases of 7.0% and related benefits,a 1.1% increase in the number of fixed-line employees andincreased 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 contractorsfrom original equipment manufacturers. Salaries and wagesincreased in the year ended March 31, 2007 primarily due toaverage annual salary increases of 7.0% and a 1.1% increasein the number of fixed-line employees and increased paymentsto part time employees and contractors to meet customercentricity objectives and the deployments of next generationnetwork objectives.

Benefits include allowances, such as bonuses, companycontributions to medical aid, pension and retirement funds, leaveprovisions, workmen’s compensation and levies payable for skillsdevelopment. Benefits decreased in the 2008 financial yearprimarily due to lower team awards, a lower provision formedical aid for pensioners as a result of the annuity policyqualifying as a plan asset in June 2006, a lower provision forleave as a result of the decrease in the number of employees

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Payments to other network operatorsThe 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/ 2008/


Payments to mobile communications network operators 5,220 5,425 5,460 3.9 0.6Payments to international and other network operators 920 1,036 1,208 12.6 16.6Payments 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 wereas a result of interconnection commencing with Neotel, USALSand VANS during the year.

Payments to mobile and international network operatorsincreased in the 2008 and 2007 financial years primarily dueto higher call volumes from our fixed-line network to the mobilenetworks, resulting from discounts offered on our CellSaver andTelkom Closer products, increased fixed-to-mobile calls by businesscustomers due to growth in the mobile market, increasedinternational outgoing traffic arising from our reduced average

international tariffs and a weaker exchange rate in the 2008and 2007 financial years. The termination rate we pay to mobileoperators and our retention have not changed in the three yearsended March 31, 2008 while our international outgoing tariffshave generally decreased during this period. Payments to othernetwork operators include payments made by our fixed-linebusiness to Vodacom, which were R3,017 million, R2,954 millionand R2,855 million in the years ended March 31, 2008, 2007and 2006, respectively. These amounts were attributable to ourinterest in Vodacom and were eliminated from the TelkomGroup’s expenses on consolidation.

Selling, general and administration expenses

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/ 2008/


Materials and maintenance 1,608 1,900 1,996 18.2 5.1Marketing 378 604 583 59.8 (3.5)Bad debts 154 137 217 (11.0) 58.4Other(1) (2) 697 1,335 1,103 91.5 (17.4)

Selling, general and administrative expenses(1) 2,837 3,976 3,899 40.1 (1.9)

(1) 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 aprovision of R527 million for probable liabilities related to Telkom’s arbitration with Telcordia, excluding legal fees, of which R510 million is included in selling, generaland 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 theprovision 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 aprovisional 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.

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Selling, general and administrative expenses decreased primarilydue to the provision for probable liabilities in the Telcordia disputein the 2007 financial year, which were not increased significantlyin the 2008 financial year, and lower marketing expense,partially offset by the R217 million impairment of the TelkomMedia loan in the 2008 financial year – increased materials andmaintenance expenses and higher bad debts. Selling, generaland administrative expenses increased in the year ended March31, 2007 primarily due to the provision raised for probableliabilities in the Telcordia dispute, higher materials andmaintenance expenses, increased marketing and sponsorshipsand increased costs of sales due to the reclassification of financeleases associated with customer premises equipment in selling,general and administrative expenses.

Materials and maintenance expenses increased in the yearended March 31, 2008 primarily due to increased operatingmaintenance projects as result of an increase in the number oftechnologies employed in the network and higher fuel costs as aresult of the increased price of fuel. Materials and maintenanceexpenses increased in the year ended March 31, 2007 primarilydue to higher incidents of copper theft, increased operatingmaintenance projects and a higher number of maintenancecontracts as result of new technology roll-out.

Marketing expenses decreased in the year ended March 31,2008 primarily due to lower sponsorships and decreased callingplan advertising during the year. Marketing expenses increased

in the year ended March 31, 2007 primarily due to increasedsponsorships, higher market research costs and increasedadvertising and media campaigns. We expect marketingexpenses in response to increased competition, including fromNeotel, and the further liberalisation of the South Africancommunications industry generally, and the marketing of ourpackages will increase and sponsorships will decrease.

Bad debt increased in the year ended March 31, 2008 due toprovisions for higher international bad debts in certain countries,including Nigeria, Gaban and the United Kingdom. Bad debtdecreased in the year ended March 31, 2007 resulting primarilyfrom improved credit management and credit vetting policies,targeted line roll-out and an improved profiling of debtors. Baddebt as a percentage of revenue was 0.7%, 0.4% and 0.5% inthe 2008, 2007 and 2006 financial years, respectively.

Other expenses decreased in the year ended March 31, 2008primarily due to the provision for probable liabilities in theTelcordia dispute in the 2007 financial year, which were notincreased significantly in the 2008 financial year, partially offsetby the R217 million impairment of the Telkom Media loan in the2008 financial year. Other expenses increased in the yearended March 31, 2007 primarily due to the provision raised forprobable liabilities in the Telcordia dispute and increased costsof sales due to the reclassification of finance leases associatedwith customer premises equipment in selling, general andadministrative expenses.

Services rendered

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/ 2008/


Property management 1,109 1,141 1,222 2.9 7.1Consultants, 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 andtaxes, payments to consultants to explore local and internationalinvestment opportunities, higher security costs due to increases incontract prices and maintenance and monitoring of the cablealarm system and legal fees related to Telcordia. Propertymanagement increased in the year ended March 31, 2007primarily 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 toexplore local and international investment opportunities,customer centricity and higher security costs.

Operating leases

Operating leases decreased in the year ended March 31, 2008primarily due to a discount received on the extension of our vehiclelease and a reduction in the number of vehicles from 9,694 atMarch 31, 2007 to 8,792 at March 31, 2008. Operating leaseswas relatively flat in the year ended March 31, 2007.

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Fixed-line depreciation, amortisation, impairments and write-offs

Year ended March 31, 2006 2007 2008 2007/ 2008/

2006 2007(in millions, except percentages) % change % change

Depreciation of property, plant and equipment 3,789 2,993 3,061 (21.0) 2.3Amortisation of intangibles 387 305 409 (21.2) 34.1Write-offs of property, plant and equipment and intangible assets 187 284 262 51.9 (7.7)

Depreciation, amortisation, impairments and write-offs 4,363 3,582 3,732 (17.9) 4.2

Depreciation, amortisation, impairments and write-offs

Depreciation, amortisation, impairments and write-offs increased in the year ended March 31, 2008 primarily as a result of higheramortisation of intangible assets and increased depreciation due to the ongoing investment in telecommunications network equipmentand data processing equipment, partially offset by lower asset write-offs. Depreciation, amortisation, impairments and write-offsdecreased in the year ended March 31, 2007 primarily as a result of an increase in the useful life of certain assets, partially offsetby ongoing investment in telecommunications network equipment and data processing equipment.

Mobile operating expenses

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/ 2008/


Employee expense 1,019 1,186 1,488 16.4 25.5Payments to other network operators 2,317 2,818 3,279 21.6 16.4Selling, general and administrative expenses 7,327 8,777 10,271 19.8 17.0Services rendered 65 82 115 26.2 40.2Operating leases 435 629 775 44.6 23.2Depreciation, amortisation 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 financialyear was primarily due to inflationary factors and growth in thebusiness, which led to increased selling, general andadministrative expenses to support the expansion of 3G, growthin Vodacom’s South African and African operations andincreased competition, increased payments to other networkoperators due to higher outgoing traffic and the increasedpercentage of outgoing traffic terminating on other mobilenetworks, higher employee costs as a result of increasedheadcount as well as increased depreciation, amortisation and

impairment. The increase in mobile operating expenses in the2007 financial year was primarily due to increased selling,general and administrative expenses to support the expansionof 3G, growth in Vodacom’s South African and Africanoperations and increased competition, increased payments toother network operators due to higher outgoing traffic and theincreased percentage of outgoing traffic terminating on othermobile networks, increased depreciation, amortisation andimpairment, higher employee costs as a result of increasedheadcount, average 7.5% annual salary increases, an increase

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in the provision for deferred bonus schemes and an increase inthe provision for long term incentives for executives andincreased operating leases.

Employee expenses

Vodacom’s employee expenses increased in the year endedMarch 31, 2008 primarily as a result of a 9.5% increase inheadcount to support the expansion of customer care operations,the strengthening of senior management structures to support thegrowth in ongoing operations and the launch of VodacomBusiness. Annual salary increases and increased provisions forlong term incentive schemes also contributed to the increase instaff expenses. Vodacom’s employee expenses increased in theyear ended March 31, 2007 primarily as a result of an 14.5%increase in the number of employees to support the growth inoperations as well as a 7.5% average annual salary increases,an increase in the provision for deferred bonus schemes and anincrease in the provision for long term incentives for executives.

Total headcount in Vodacom’s South African operationsincreased 2.6% to 4,849 employees as of March 31, 2008 and9.8% to 4,727 employees as of March 31, 2007 from 4,305employees as of March 31, 2006. Total headcount in Vodacom’sother African countries increased 30.9% to 1,992 employees asof March 31, 2008 and 31.9% to 1,522 employees as ofMarch 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 inthe number of employees of other African countries and excluded

from Vodacom South Africa’s number of employees. Employeeproductivity in South Africa and other African countries, asmeasured by customers per employee, increased 3.0% to 4,969customers per employee as of March 31, 2008 and 12.0% to4,825 customers per employee as of March 31, 2007 from4,308 customers per employee as of March 31, 2006.

Payments to other network operators

Payments to other network operators consist mainly ofinterconnection payments made by Vodacom’s South Africanand other African operations for terminating calls on otheroperators’ networks. Vodacom’s payments to other networkoperators increased significantly in the years ended March 31,2008 and 2007 as a result of increased outgoing traffic in linewith increased customer growth and the increasing percentageof outgoing traffic terminating on the other mobile networksrather than Telkom’s fixed-line network as the cost of terminatingcalls on other mobile networks is higher than calls terminating onTelkom’s fixed-line network. As the mobile communicationsmarket continues to grow in South Africa, Vodacom expects thatinterconnection charges will continue to increase and adverselyimpact Vodacom’s profit margins.

Payments to other network operators in our mobile segmentincluded R234 million, R234 million and R232 million in theyears ended March 31, 2008, 2007 and 2006, respectively, forinterconnection fees paid to our fixed-line segment, which wereeliminated from the Telkom Group’s operating expenses onconsolidation.

Selling, general and administrative expenses

The following table sets forth information related to our 50% share of Vodacom’s selling, general and administrative expenses for theperiods indicated.

Mobile selling, general and administrative expenses

Year ended March 31,2006 2007 2008 2007/ 2008/


Selling, distribution and other 6,415 7,703 9,063 20.1 17.7Marketing 488 573 632 17.4 10.3Regulatory and licence fees 406 490 527 20.7 7.6Bad debts 18 11 49 (38.9) 345.5

Selling, general and administrative expenses 7,327 8,777 10,271 19.8 17.0

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Vodacom’s selling, general and administrative expensesincreased in the years ended March 31, 2008 and 2007primarily due to an increase in selling, distribution and otherexpenses, incentive costs, regulatory and licence fees andmarketing expenses to support the launch and expansion of 3G,growth in Vodacom’s South African and African operations andincreased competition.

Selling, distribution and other expenses include cost of goods sold,commissions, customer acquisition and retention expenses,distribution expenses and insurance. The increase in sellingdistribution and other expenses in the 2008 and 2007 financialyears was primarily due to increased customer connections,competition, revenue, cost of equipment as a result of increasedhandset sales and maintenance of the GSM infrastructure andbilling systems as well as due to the Vodafone global alliance fee.

The increase in marketing expenses in the 2008 and 2007financial years was mainly due to promoting new technologies,including 3G and Vodafone live!, promoting number portabilityin the 2007 financial year and further promoting the Vodacombrand in all operations. The increases in regulatory and licencefees during the reporting periods were directly related to theincrease in operating revenues and corresponding paymentsunder Vodacom’s existing licences. The increase in bad debts inthe 2008 financial year resulted from a clean-up of Smartphonedebtors following the increase in shareholding to 100%.

Services rendered

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

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.

Depreciation, amortisation and impairments

Depreciation, amortisation 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. Amortisation of

intangibles was higher in the year ended March 31, 2007 due

to the business acquisitions in that financial year.

Other segment operating expenses

The following table shows operating expenses for our other segment broken down by major expense categories and the percentagechange for the periods indicated.

Other operating expenses

Year ended March 31, 2006 2007 2008 2007/ 2008/


Employee expense 156 173 340 10.9 96.5Payments to other operators 9 10 698 11.1 6,880.0Selling, general and administrative expenses 325 336 532 3.4 58.3Services rendered 5 5 45 – 800.0Operating leases 28 25 72 (10.7) 188.0Depreciation, amortisation and impairments 41 40 143 (2.4) 257.5

Other operating expenses 564 589 1,830 4.4 210.7

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The following table shows the contributions to other operating expenses by each of the five subsidiaries contained in our other segmentand the percentage change for the periods indicated.

Year ended March 31, 2006 2007 2008 2007/ 2008/


TDS Directory Operations 488 504 530 3.3 5.2Multi-Links – – 942 n/a n/aAfrica Online – 8 118 n/a 1,375.0Swiftnet 76 77 89 1.3 15.6Telkom Media – – 151 n/a n/a

Other operating expenses 564 589 1,830 4.4 210.7

Increases in other operating expenses in the 2008 financial yearwere primarily driven by significant increases in payments toother operators, employee expenses, depreciation, amortisationand impairments, operating leases and services rendered. Theincrease in these operating expenses in the 2008 financial year

Multi-Links and Africa Online were the main contributors to thesignificant increase in payments to other operators in the 2008financial year, with R624 million payments made by Multi-Linksand R141 million payments made by Africa Online to enabletheir respective networks in the nine countries of operation tosupply data transmission services, managed data networkingservices and Internet access and related information technologyservices in these newly acquired markets.

Employee expenses

Employee expenses increased by 96.5% in the 2008 financialyear due to a significant investment in workforce during the2008 financial year. Employee expenses of R88 million inTelkom Media, R39 million by Multi-Links and R28 million byAfrica Online were required to attract and develop the necessaryskilled workforce in each of these new operating environments.

Selling, general and administration expensesThe 58.3% increase in selling, general and administrativeexpenditure in the 2008 financial year primarily related to R141 million spent at Multi-Links, mainly on materials andmaintenance to enable the further development and maintenanceof its CDMA network in order to achieve subscriber growth andnetwork reliability.

Depreciation, amortisation, impairments and write-offsThe increased investment in property, plant and equipment byMulti-Links in Nigeria and Kenya to establish a new main networksite 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, amortisation and impairments in this segment in the 2008 financial year. Theincrease primarily related to R86 million depreciation cost in Multi-Links and R12 million from Africa Online.

Services rendered and operating leases

The increases in services rendered and operating leases werealso directly related to our newly acquired subsidiaries, Multi-Links, Africa Online and Telkom Media, that were not previouslyincluded in the Telkom Group results.

Group investment income

Investment income consists of interest received on short terminvestments and bank accounts and income received from ourinvestments. Investment income decreased 16.2% to R197 millionin the 2008 financial year and decreased 40.8% to R235 millionin the 2007 financial year from R397 million in the 2006financial year. The decrease in the 2008 financial year wasprimarily due to lower interest received from fixed deposits andrepurchase agreements mainly due to lower cash balances. Thedecrease in the 2007 financial year was primarily due to lowerinterest received as a result of lower cash balances available forshort term investments and increased taxation payments.

Group finance charges Finance charges include interest paid on local and foreignborrowings, amortised discounts on bonds and commercialpaper bills, fair value gains and losses on financial instrumentsand foreign exchange gains and losses on foreign currencydenominated transactions and balances.

was primarily due to the inclusion of operating expenses relatingto our newly acquired subsidiaries, Multi-Links and AfricaOnline, and the creation of Telkom Media, all of which impactedall expense categories.

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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/ 2008/


Interest expense 1,346 1,327 1,885 (1.4) 42.1Local loans 1,506 1,488 2,041 (1.2) 37.2Foreign loans 9 – 19 – n/aFinance charges capitalised (169) (161) (175) (4.7) 8.7Foreign exchange (gains) losses and fair value movements (123) (202) (82) (64.2) 59.4Fair value (adjustments) on derivative instruments (170) (448) (196) (163.5) 56.3Foreign 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 chargesincreased primarily due to a higher interest expense resultingfrom higher debt levels in the fixed-line, mobile and othersegments, and foreign exchange losses and fair value movementsdecreased primarily due to currency movements and fair valuelosses on the put option we have in place relating to Multi-Linksand Vodacom Congo. This was partially offset by fair valueadjustments 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 slightlyreduced interest expense resulting from lower interest bearingdebt levels, and an increase in the net fair value and exchangegains due to currency movements and fair value adjustments ofour consolidated special purpose entity used to fund Telkom’spost retirement medical benefit obligation.

Taxation

Our consolidated tax expense decreased 0.6% to R4,704million in the year ended March 31, 2008 and increased 4.6% to R4,731 million in the year ended March 31, 2007 fromR4,523 million in the year ended March 31, 2006. Thedecrease in the 2008 financial year was primarily due to highernon-deductable expenses relating mostly to the impairment ofTelkom Media and Africa Online assets, the increase in STC taxcredits utilised in respect of the repurchase of Telkom Shares, theutilisation of the Multi-Links assessed losses and the impact of thetax rate change on deferred taxation from 29% to 28% witheffect from April 1, 2008. The increase in the 2007 financialyear was mainly due to the higher capital gains tax liabilitycreated and higher non-deductable expenses in Telkom companyand Vodacom.

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The following table sets forth information related to our effective tax rate for the Telkom Group, Telkom Company and Vodacom forthe periods indicated:

Year ended March 31, 2006 2007 2008 2007/ 2008/

2006 2007% % % % change % change

Effective tax rateTelkom Group 32.7 34.9 36.5 6.7 4.6Telkom Company 25.0 24.2 24.6 (3.2) 1.7Vodacom 37.5 36.9 34.1 (1.6) (7.6)

The increase in the Telkom Group effective tax rate in the 2008financial year was mainly due to higher non-deductible expensesrelating mostly to the impairment of Telkom Media and AfricaOnline assets, the increase in STC tax credits utilised in respectof the repurchases of Telkom shares and the impact of the taxrate change on deferred taxation from 29% to 28% with effectfrom April 1, 2008. The increase in the Telkom Group effectivetax rate in the 2007 financial year was mainly due to highercapital gains tax and higher non-deductable expenses in Telkomcompany and Vodacom.

The higher effective tax rate for Telkom Company in the yearended March 31, 2008 was primarily due to higher non-deductable expenses relating to the R217 million impairment ofthe Telkom Media loan and an increase of R198 million insecondary tax on companies, partially offset by higher exemptincome resulting from dividends received from Vodacom andother subsidiaries. The lower effective tax rate for TelkomCompany in the year ended March 31, 2007 was primarily dueto higher exempt income resulting mainly from dividendsreceived primarily from Vodacom partially offset by higher non-deductable expenses relating to the Telcordia dispute.Vodacom’s effective tax rate decreased in the 2008 financialyear primarily due to the decrease in the rate of secondary taxon companies from 12.5% to 10%. The lower effective tax ratefor Vodacom in the 2007 financial year was mainly due to theutilisation of the Vodacom Congo’s capital expenditureallowances.

Profit for the year and earnings per share

Profit for the year attributable to the equity holders of the Groupdecreased by 7.8% to R7,975 million (March 31, 2007:R8,646 million) for the year ended March 31, 2008.

Profit for the year attributable to equity holders of Telkomdecreased in the 2008 financial year primarily due to decreased

operating profit in our fixed-line and other segments, partiallyoffset by increased operating profit in our mobile segment. Higherfinance charges and lower investment income were partially offsetby lower taxation. Profit for the year attributable to equity holdersof Telkom decreased in the 2007 financial year primarily due todecreased operating profit in our fixed-line segment, partiallyoffset by increased operating profit in our mobile segment. Lowerinvestment income and higher taxation was partially offset by anincrease in net fair value and exchange gains.

Group basic earnings per share decreased 6.9% to 1,565.0cents (March 31, 2007: 1,681.0 cents) and Group headlineearnings per share decreased 4.4% to 1,634.8 cents (March 31,2007: 1,710.7 cents).

Operating performance across the Group has seen the balancesheet retain its strength with net debt, after financial assets andliabilities, increasing 65.7% to R16,617 million (March 31,2007: R10,026 million) as at March 31, 2008, resulting in a netdebt to equity of 49.9% from 31.3% at March 31, 2007. OnMarch 31, 2008, the Group had cash balances of R1,134 million(March 31, 2007: R749 million).

During the year ended March 31, 2008, 12.1 million shares wererepurchased for R1.65 billion, to be cancelled from the issuedshare capital by the Registrar of Companies. As at March 31,2008, 4,444,138 of these shares have not yet been cancelled.

Interest-bearing debt, including credit facilities utilised, increased58.0% to R17,075 million (March 31, 2007: R10,805 million)in the year ended March 31, 2008. The Group raisedcommercial paper bills with a nominal value of R18,806 millionfor the year ended March 31, 2008 of which R15,773 millionwas redeemed by March 31, 2008. Credit facilities from oursubsidiaries increased by R901 million, and Telkom’s portion ofVodacom’s interest bearing debt increased by R490 million.

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Interest Outstandingpayment Interest as of March 31,

dates rate (%) 2008(in millions) ZAR

TELKOMBonds10% statutorily guaranteed local bond due not later than March 31,March 31, 2008 (TK01)(1)(2)(3) September 30 10 –

6% unsecured local bond due February 24, 2020 (TL20) (1)(4) February 22 6 1,283

Zero coupon unsecured loan stock due September 30, 2010 (PP02)(5) – – 304

Zero coupon unsecured loan stock due June 15, 2010 (PP03) (6) – – 977

Finance leases n/a 13% – 38% 856

Commercial paper – – 4,202

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

Term Loans Various 12.22 3,000

Bank facilitiesR459 million unsecured overdraft facility with ABSA Bank Limited, repayable on demand and a R1 billion unsecured committed facility, repayable on 364 days notice – Mutually agreed Not utilised

R1 billion unsecured committed overdraft facility with The Standard Bank of South Africa Limited, repayable with 365 days of drawdown – Mutually agreed Not utilised

R500 million unsecured overdraft facility with FirstRand Bank Limited, repayable on demand – Mutually agreed Not utilised

R150 million unsecured overdraft facility with Commerzbank AG, repayable on demand – Mutually agreed Not utilised

USD35 million unsecured short-term loan facility with Calyon Corporate and Investment bank, repayable on demand

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Nominaloutstanding Maturing

as of March 31, Year ended March 31,2008 2009 2010 2011 2012 2013 After 2013

ZAR ZAR ZAR ZAR ZAR ZAR ZAR

– – – – – – –

2,500 – – – – – 2,500

430 – – 430 – – –

1,350 – – 1,350 – – –

856 26 11 – 17 36 766

4,383 3,483 900 – – – –

2,600 2,600 – – – – –

3,000 – 3,000 – – – –

Not utilised – – – – – –




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OutstandingInterest as of March 31,rate (%) 2008

(in millions) ZAR

R1 billion uncommitted/short-term facility with Sumitomo Mitsui Banking Corporation Mutually agreed Not utilised

R500 million call loan facility with iNkotha Investments Ltd. Repayable on demand. Mutually agreed Not utilised

R1 billion loan agreement with Old Mutual Specialised finance (Pty) Ltd. Repayable on demand Mutually agreed Not utilised

Various bank loans(3) Various 141

Bank overdraft and other short-term debt 41

Total Telkom 13,404

Vodacom(7)

USD18.4 million shareholders Loan with Mirambo Limited(8) LIBOR + 5% 72

USD180 million term loan to Vodacom International Limited LIBOR +0.35% 731

R1 billion subscription agreement with Asset JIBAR+0.78% toBacked Arbitage Securities (Pty) Ltd JIBAR +0.82% 500

USD37.0 million preference shares by Vodacom Congo(R.D.C) s.p.r.l.(9) 4.0% 150

USD1 million short-term facility by Vodacom Congo (R.D.C) s.p.r.l. 18.0% 4

R6.0 million of the shareholder loan with Number Portability Company (Proprietary) Limited Prime 3

Various finance leases(10) 12.1% to 16.9% 308

Various other short-term loans 8% 47

Bank overdrafts and other short-term debt – 1,298

Total Vodacom(7) 3,113

TDS Directory OperationsVarious finance leases(10) Various 3

Telkom MediaVarious loans 8

Multi-LinksUSD14 million from Zenith Bank LIBOR +3.5% 45

Naira 1,500 million FCMB loan 13% 87

USD17 million ECA funding LIBOR + 2.5% 82

USD42 million ECA Huawei VFF funding LIBOR + 2% 319

Africa OnlineVarious loans 12

Bank overdrafts and other short term debt 2

Total other 558

Grand total 17,075

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, but only after the first three years from date of issuance, and only on the basis that the shareholders are repaid

simultaneously and in proportion to their shareholding.(10) Secured by land and buildings.

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Nominaloutstanding Maturing

as of March 31, Year ended March 31,2008 2009 2010 2011 2012 2013 After 2013

ZAR ZAR ZAR ZAR ZAR ZAR ZAR

– – – – – – –

– – – – – – –

– – – – – – –

141 – – 21 13 9 98

41 41 – – – – –

15,301 6,150 3,911 1,801 30 45 3,364

72 – – – – – 72

731 – 731 – – – –

500 – – 500 – – –

150 150 – – – – –

4 4 – – – – –

3 – – – – – 3

308 97 49 81 42 39 –

47 3 22 22 – – –

1,298 1,298 – – – – –

3,113 1,552 802 603 42 39 75

3 1 2 – – – –

8 – 4 2 2 – –

45 45 – – – – –

87 – 70 17 – – –

82 – – – – – 82

319 – – 319 – – –

12 3 6 2 1 – –

2 2 – – – – –

558 51 82 340 3 – 82

18,972 7,753 4,795 2,744 75 84 3,521

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Group capital expenditure

The following table shows the Telkom Group’s investments in property, plant and equipment including intangible assets, including our50% share of Vodacom’s investments, for the periods indicated.

Year ended March 31, 2006 2007 2008 2007/ 2008/


Group capital expenditureFixed-line 4,900 6,594 6,794 34.6 3.0

Baseline 2,128 3,409 4,038 60.2 18.5Revenue generating 374 159 57 (57.5) (64.2)Network evolution 330 784 1,092 137.6 39.3Sustainment 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 onintangible assets, increased 3.0% to R6,794 million in the 2008financial year from R6,594 million in the 2007 financial yearand represented 20.9% of fixed-line revenue compared to20.4% in the 2007 financial year. The increase in baseline andrevenue generating capital expenditure to R4,095 million in the2008 financial year from R3,568 million in the 2007 financialyear was largely for the deployment of technologies to supportthe growing data services business, including ADSL footprint,links to the mobile cellular operators and expenditure for accessline deployment in selected high growth residential areas. Thecontinued focus on rehabilitating the access network andincreasing the efficiencies in the transport network contributedto the network evolution and sustainment capital expenditureincreasing to R1,369 million in the 2008 financial year fromR1,200 million in the 2007 financial year.

Telkom continues to focus on its operations support systeminvestment with current emphasis on workforce management,provisioning and fulfilment, assurance and customer carehardware technology upgrades on the billing platform andperformance and service management. During the year endedMarch 31, 2008, R841 million was spent on the implementationof systems compared to R1,141 million in the 2007 financial

year. Mobile capital expenditure (50% of Vodacom’s capitalexpenditure) decreased by 4.1% to R3,460 million in the 2008financial year from R3,608 million in the 2007 financial yearand 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 andtransmission network infrastructure and computer software. Thedecrease in capital expenditure in other African countries waslargely as a result of decreased investment in Tanzania,Democratic Republic of the Congo and Mozambique offset byan increase in investment in Lesotho.

Our capital expenditure of R6,594 million on fixed-line capitalexpenditure in the year ended March 31, 2007 was higher thanthe budgeted fixed-line capital expenditure for the 2007financial year of R6.5 billion largely due to investment inbroadband services and an unfavourable exchange rate. The34.6% increase in fixed-line capital expenditure in the 2007financial year was primarily due to higher expenditure forbusiness and residential broadband services, wholesale servicesto the mobile cellular operators, access line deployment inselected high growth residential areas, technologies to supportthe continued growth in our data services business, the ongoingrehabilitation of our access network and increasing the efficiencies

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and redundancies in our transport network in line with ourplanned migration to an Internet Protocol next generation network.The 40.3% increase in mobile capital expenditure in the 2007financial year reflects the increased investment in South Africaand other African countries in network infrastructure due primarilyto the increased customer base and higher traffic and to furthersupport 3G technologies.

Our consolidated capital expenditures in property, plant andequipment for the 2009 financial year is budgeted to be

approximately R15.2 billion, of which approximately R7.0 billionis budgeted to be spent in our fixed-line segment, andapproximately R5.2 billion is budgeted to be spent in our mobilesegment, which is our 50% share of Vodacom’s budgeted capitalexpenditure of approximately R10.4 billion, and approximatelyR3.0 billion is budgeted to be spent in our other segment. Ourcapital expenditures are continuously examined and evaluatedagainst the perceived economic benefit and may be revised inlight of changing business conditions, regulatory requirements,investment opportunities and other business factors.

Group cash flow

The following table shows information regarding our consolidated cash flows for the periods indicated.

Year ended March 31, 2006 2007 2008 2007/ 2008/


Cash flows from operating activities 9,506 9,356 10,603 (1.6) 13.3Cash flows from investing activities (7,286) (10,412) (14,106) 42.9 35.5Cash flows from financing activities (258) (2,920) 2,943 – 200.8Net (decrease)/increase in cash and cash equivalents 1,962 (3,976) (560) (302.7) 85.9Effect of foreign exchange rate differences (8) 29 44 (462.5) 51.7Net 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 operatingactivities and borrowings. We intend to fund our expenses,indebtedness and working capital requirements from cashgenerated from our operations and from capital raised in themarkets. The increase in cash flows from operating activities inthe 2008 financial year is mainly due to lower taxationpayments as well as an increase in cash generated fromoperations, partially offset by higher dividends paid. Thedecrease in cash flows from operating activities in the 2007financial year is mainly due to higher taxation payments,partially offset by the increase in cash generated fromoperations.

Cash flows from investing activities

Cash flows from investing activities relate primarily to investmentsin our fixed-line network, our other segment’s networks and our50% share of Vodacom’s investments in its mobile networks inSouth Africa and other African countries. The increase in cashflows used in investing activities in the 2008 financial year wasmainly the result of R1, 985 million cash utilised for the purchaseof Multi-Links and increased equity investments in Smartphone,increased capital expenditures in our fixed-line, mobile and othersegments 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 flowsused in investing activities in the 2007 financial year was mainlythe result of increased capital expenditure in both the fixed-lineand mobile segments and acquisitions of subsidiaries andreduced disposals and additions to investments.

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Cash flows from financing activities

Cash flows from financing activities are primarily a function ofborrowing and share buy back activities.

In the 2008 financial years, loans raised and the decrease innet financial assets exceeded loans repaid, shares bought backand cancelled and finance lease obligation repaid. In the 2008financial year, cash flows from financing activities was primarilydue to the issuance of R18,806 million nominal value ofcommercial paper bills, as well as entering into call and termloans of R5,600 million to fund the redemption of the TK01 bondand other cash flows from investing activities, including R1.6 billion of additional bank borrowings and interest bearingdebt by Vodacom. This was partially offset by the maturingcommercial 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 ofshares during the year.

In the 2007 financial year, loans and finance leases repaid and shares repurchased and cancelled exceeded loans raisedand the decrease in net financial assets, by R2,920 million. Inthe 2007 financial year cash flows used in financing activitiesincreased primarily due to the lower sale of repurchaseagreements and derivative instruments that were sold in the2006 financial year to fund dividends and tax payments. OnOctober 31, 2006, we repaid the TL06 local bond having anominal value of R2,100 million and during the 2007 financialyear, we repaid R3,731 million in nominal value of commercialpaper bill debt. Commercial paper bills having a nominal valueof R4,651 million were issued in the 2007 financial year.

In the 2006 financial year, loans and finance lease repaid andshares repurchased and cancelled exceeded loans raised andthe decrease in financial assets by R258 million. On April 11,2005, we repaid Euro 500 million of our 7.125% unsecuredEuro bond that was issued on April 12, 2000 by issuingcommercial paper bills ranging in maturities from one month toone year, with yields of between 7.00% and 7.51% and byissuing 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 commercialpaper bills and utilised R1,502 million for the share buy-back.Cash inflows from maturing financial assets amounted to R4,544million in the 2006 financial year.

Working capital

We had negative consolidated working capital of approximatelyR9.3 billion as of March 31, 2008, compared to negativeconsolidated working capital of approximately R8.2 billion as ofMarch 31, 2007 and approximately R3.0 billion as of March31, 2006 and Vodacom had negative working capital ofapproximately R7.9 billion as of March 31, 2008, compared tonegative working capital of approximately R7.4 billion as ofMarch 31, 2007 and approximately R5.2 billion as of March31, 2006. Negative working capital arises when currentliabilities are greater than current assets. The increase in negativeworking capital in the 2008 financial year was primarily due toan increase in the current portion of interest bearing debt due tothe repayment of the TK01 local bond with a short term debt thatwas subsequently partially refinanced by the TL12 and TL15bonds after year end, a reduction in cash available due toacquisition activities, increased capital expenditure, increaseddividends paid, shares repurchased and an increase in tradeand other payables. The increase in negative working capital inthe 2007 financial year was primarily due to a reduction in cashused to pay dividends, tax and capital expenditures and anincrease in the current portion of interest bearing debt, as a resultof the TK01 local bond becoming due on March 31, 2008.Telkom is of the opinion that the Telkom Group’s cash flows fromoperations, together with proceeds from liquidity available undercredit facilities and in the capital markets, will be sufficient tomeet the Telkom Group’s present working capital requirementsfor the twelve months following the date of this annual report.We intend to fund current liabilities through a combination ofoperating cash flows and with new borrowings and borrowingsavailable under existing credit facilities. We had R7.6 billionavailable under existing credit facilities as of March 31, 2008.

Legal proceedings

Telcordia

Telcordia instituted arbitration proceedings against Telkom inMarch 2001 before a single arbitrator of the International Courtof Arbitration, operating under the auspices of the InternationalChamber of Commerce. Telcordia is seeking to recoverapproximately USD130 million for monies outstanding anddamages, plus costs and interest at a rate of 15.5% per yearwhich was increased by Telcordia to USD172 million in the 2007financial year and subsequently decreased to USD128 million.The arbitration proceeding relates to the cancellation of anagreement entered into between Telkom and Telcordia during

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June 1999 for the development and supply of an integrated end-to-end customer assurance and activation system by Telcordia. InSeptember 2002, the arbitrator found that Telkom hadwrongfully repudiated the contract and a partial award wasissued by the arbitrator in favor of Telcordia. Telkom subsequentlyfiled an application in the South African High Court to reviewand set aside the partial award. On November 27, 2003, theSouth African High Court set aside the partial award and issueda cost order in favor of Telkom. On May 3, 2004, the SouthAfrican High Court dismissed an application by Telcordia forleave to appeal and ordered Telcordia to pay the legal costs ofTelkom. On November 29, 2004 the Supreme Court of Appealsgranted Telcordia leave to appeal. Telcordia filed a notice ofappeal and also petitioned the United States District Court forthe District of Columbia to confirm the partial award, whichpetition was dismissed, along with a subsequent appeal.Following the dismissal of the appeal, Telcordia filed a similarpetition in the United States District Court of New Jersey. TheUnited States District Court of New Jersey also dismissedTelcordia’s petition, reaffirming the decision of the United StatesDistrict 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 wasset down for and heard on October 30 and October 31, 2006.Following the successful upholding of the appeal, Telkom filedan application for leave to appeal to the Constitutional Court ononly the issue revolving around the Supreme Court of Appeals’failure to recognise Telkom’s rights of access to the courts underthe South African Arbitration Act. The Constitutional Court hassince dismissed Telkom’s appeal with costs. The ConstitutionalCourt judgment brought to finality the dispute over the merits ofTelcordia’s claim against Telkom and the parties reconvened thearbitration in May 2007 to deal with the amount of damages towhich Telcordia is entitled. Two hearings were held at theInternational Dispute Resolutions Centre, or IDRC. The firsthearing was held in London on May 21, 2007 and was a‘directions hearing’, in terms of which the parties consented to aruling by the arbitrator setting out a consolidated list of proposalsand issues to form part of the damages hearing.

The second hearing was held in London at the IDRC on June 25and 26, 2007 and dealt with the application by Telcordia for thestriking out of part of Telkom’s defence on the basis that Telkomhad raised issues in its defence that had already been heard by

the arbitrator prior to his partial award. This application wasdismissed by the arbitrator. The arbitrator also made a rulingcompelling Telcordia to provide certain particulars requested byTelkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for determination of the damages.

The mediation took place in London in February and April of2008 without success. In the interim the parties have agreed tothe appointment by the arbitrator of a third party expert to dealwith the technical issues in relation with the software that wasrequired to be provided by Telcordia, who will make arecommendation to the arbitrator in dealing with the amount ofthe claims. The arbitration is expected to continue later in 2008.

Although Telkom is currently unable to predict the exact amountthat it may eventually be required to pay Telcordia, it has madeprovisions for estimated liabilities in respect of the Telcordia claimin the sum of USD70 million (R569 million), including interestand legal fees. Telkom will be required to fund any payments toTelcordia from cash flows or the incurrence of debt and theamount of any damages above Telkom’s provision wouldincrease Telkom’s liabilities and decrease its net profit, whichcould 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 proceedingsfiled by parties with the South African Competition Commissionalleging anti-competitive practices described below. If Telkomwere found to have committed prohibited practices as containedin the Competition Act, 1998, as amended, Telkom could berequired to cease these practices, divest these businesses andbe fined a penalty of up to 10% of Telkom’s annual turnover,excluding the turnover of subsidiaries and joint ventures, for eachcomplaint for the financial years prior to the dates of thecomplaints. The Competition Commission has to date not imposedthe maximum penalty on any offender.

As competition continues to increase, we expect that we willbecome involved in an increasing number of disputes regardingthe legality of services and products provided by us and thirdparties. These disputes may range from court lawsuits tocomplaints lodged by or against us with various regulatorybodies. We are currently unable to predict the amount that we

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may eventually be required to pay in these proceedings,however, we have not included provisions for any of these claimsin our financial statements. In addition, we may need to spendsubstantial amounts defending or prosecuting these claims evenif we are ultimately successful. If Telkom is required to cease thesepractices, divest itself of the relevant businesses or pay significantfines, Telkom’s business and financial condition could bematerially adversely affected and its revenue and net profit coulddecline. We may be required to fund any penalties or damagesfrom cash flows or drawings on our credit facilities, which couldcause our indebtedness to increase.

Independent Cellular Service Provider Associationof South Africa (ICSPA)

In 2002, the ICSPA filed a complaint against Telkom at theCompetition Commission in terms of the Competition Act,alleging that Telkom had entered into contracts with largecorporations, providing large discounts with the effect ofdiscouraging the corporates from using the ‘premicell’ deviceinstalled by their members. ICSPA alleged various contraventionsof the Competition Act. Telkom provided the CompetitionCommission with certain information requested. Telkom alsoreferred the Competition Commission to its High Courtapplication in respect of utilisation of the ‘premicell’ device. TheCompetition Commission declined to refer the matter to theCompetition Tribunal. ICSPA then referred the matter to theCompetition Tribunal on September 18, 2003. Telkom filed itsanswering affidavit on November 28, 2003. ICSPA has takenno further action since then.

The South African Value Added Network Services(SAVA)

On May 7, 2002, the South African Value Added NetworkServices Providers’ Association, an association of VANSproviders, filed complaints against Telkom at the CompetitionCommission of the Republic of South Africa under the SouthAfrican Competition Act, 89 of 1998, alleging, among otherthings, that Telkom was abusing its dominant position incontravention of the Competition Act, 89 of 1998, and that itwas engaged in price discrimination. The CompetitionCommission determined, among other things, that severalaspects of Telkom’s conduct contravened the Competition Act,89 of 1998, and referred certain of the relevant complaints tothe Competition Tribunal for adjudication. The referred complaintsdeal 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 withmonopoly services, discriminatory pricing with regard to leasedline services and alleged refusal to peer with certain VANSproviders.

Telkom brought an application for review against the CompetitionCommission and the Competition Tribunal in the South AfricanHigh Court, in respect of the decision by the CompetitionCommission to refer the matters to the Competition Tribunal.Telkom is of the view that the Competition Tribunal does not havejurisdiction to adjudicate these matters and argues that ICASAhas the requisite jurisdiction. In the review application Telkomalso sought to set aside the decision by the CompetitionCommission to refer the complaints to the Competition Tribunalon the basis that the Competition Commission was biased, thatthe referral was out of time and that the Competition Commissionhad not adhered to the memorandum of understanding betweenit and ICASA. Only the Competition Commission opposed theapplication and filed an answering affidavit.

The main complaint at the Competition Commission was heldover 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 theCompetition Commission to refer the SAVA complaints and theOmnilink complaint against Telkom discussed below to theCompetition Tribunal. The decision was made based on threegrounds, namely that:

The Competition Commission failed to comply with theperemptory provisions of the memorandum of understandingbetween the Competition Commission and ICASA;

The referral was out of time, on the basis that the agreementswith the complainants to extend the time in which theCompetition Commission was allowed to investigate thecomplaints were invalid; and

The Competition Commission’s reliance on a report by theLink Centre created a reasonable apprehension of bias, sincesome of the complainants contribute financially to the LinkCentre and the Link Centre’s advisory board includesemployees of the complainants in the SAVA complaints.

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The Judge did not make a decision on the question of jurisdiction(i.e., whether ICASA or the Competition Tribunal has thejurisdiction to deal with competition matters in the electroniccommunications industry). To date, the Competition Commissionhas not appealed the South African High Court ruling.

Omnilink

On August 22, 2002 Omnilink filed a complaint against Telkomat the Competition Commission alleging that Telkom was abusingits dominance by discriminating in its price for Diginet servicesas against those charged to VANS and the price charged tocustomers who apply for a Telkom IVPN solution. The CompetitionCommission conducted an enquiry and subsequently referred thecomplaint, together with the SAVA complaint, to the CompetitionTribunal for adjudication. This matter is currently being dealt withtogether with the SAVA matter discussed above and formed partof the application to the South African High Court by Telkom toset aside the decision by the Competition Commission to referthis complaint to the Competition Tribunal.

Orion/Telkom (Standard Bank and Edcon)

In April 2003, Orion filed a complaint against Telkom, StandardBank and Edcon at the Competition Commission concerningTelkom’s discounts offered on public switched telecommunicationservices to corporate customers. In terms of the rules of theCompetition Commission, the Competition Commission, whoacts as an investigator, had one year to investigate thecomplaint. Orion simultaneously with the filing of the complaint,also filed an application against Telkom, Standard Bank andEdcon at the Competition Tribunal, for an interim orderinterdicting and restraining Telkom from offering Orion’scorporate customers reduced rates associated with Telkom’sCellsaver discount plan.

The Competition Commission completed its investigation anddecided that there was no prima facie evidence of anycontravention of the Competition Act. Orion however referredthe matter to the Competition Tribunal in terms of section 51 ofthe Competition Act, which allows for parties to refer matters tothe Competition Tribunal themselves. Telkom has not yet filed itsanswering affidavit in the main complaint before the CompetitionTribunal. To date there has been no further developments on this matter.

Internet Service Association (ISPA)

In December 2005, the ISPA, an association of ISPs, filedcomplaints against Telkom at the Competition Commissionregarding alleged anti-competitive practices on the part ofTelkom. The complaints deal with the cost of access to SAIX, theprices offered by TelkomInternet, the alleged delay in provisionof facilities to ISPs and the alleged favourable installationtimelines offered to TelkomInternet customers. The CompetitionCommission has formally requested Telkom to provide it withcertain records of orders placed for certain services, in anattempt to first investigate the latter aspects of the complaint.Telkom provided the Competition Commission with the informationand is awaiting the Commission’s response.

M-Web and Internet Solutions (IS)

On June 29, 2005, M-Web and Internet Solutions, or IS, jointlylodged a complaint with the Competition Commission againstTelkom and also requested interim relief at the CompetitionTribunal. The complaint at the Competition Commission mainlydeals with Telkom’s pricing for ADSL retail products and its IPConnect products, the termination of the peering link betweenTelkom and IS, the wholesale pricing of SAIX bandwidth forADSL users of other Internet service providers, the architectureof Telkom’s ADSL access route and the manner in which Internetservice providers can only connect to Telkom’s edge servicerouter via IP Connect as well as alleged excessive pricing forbandwidth on Telkom’s international undersea cable. Theapplication for interim relief at the Competition Tribunal dealtwith allegations that Telkom should maintain the peering linkbetween IS and Telkom in terms of its current peering agreement,and demanded that Telkom treat the traffic generated by ADSLcustomers of M-Web as traffic destined for the peering link andthat Telkom upgrade its peering link to accommodate theincreased ADSL traffic emanating from M-Web and maintain amaximum of 65% utilisation. Telkom filed its answering affidavit,and is awaiting IS and M-Web’s replying affidavit.

Since then, Telkom has entered into a new peering agreementwith IS and has responded to numerous documentation andinformation requests from the Competition Commission. To datethere has been no further developments on this matter, either inthe filing of a replying affidavit by IS/M Web in the interim relief application or in the investigation of the matter by theCompetition Commission.

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M-Web

On June 5, 2007, M-Web brought an application against Telkomfor interim relief at the Competition Tribunal with regard to themanner in which Telkom provides wholesale ADSL Internetconnections. M-Web requested the Competition Tribunal to grantan order of interim relief against Telkom to charge M-Web awholesale price for the provision of ADSL Internet connectionswhich is not higher than the lowest retail price. M-Web furtherapplied for an order that Telkom implement the migration of endcustomers from Telkom PSTS ADSL access to M-Web withoutinterruption of the service. Telkom raised the objection that theCompetition Tribunal does not have jurisdiction to hear the matterin its answering affidavit filed at the Competition Tribunal. Telkomstill had to “plead over” as to the merits of the matter. Telkomalso filed an application in the Transvaal Provincial Division ofthe South African High Court on July 3, 2007 for an orderdeclaring that the Competition Tribunal does not have jurisdictionto hear the application for interim relief made to it by M-Web.The application before the High Court was set down for hearingduring the first quarter of the 2009 financial year. The partieshowever entered into settlement negotiations, which resulted inthe withdrawal of the interim relief application at the CompetitionTribunal by M-Web as well as a withdrawal of the jurisdictionalchallenge filed at the South African High Court by Telkom. Theparties are in further negotiations.

We are not currently able to predict when these disputes maybe resolved or the amount that we may eventually be required topay, however, we have not included provisions for all of theseclaims in our consolidated financial statements. In addition, wemay need to spend substantial amounts defending or prosecutingthese claims even if we are ultimately successful. If we were tolose these or future legal and arbitration proceedings, we couldbe prohibited from engaging in certain business activities andcould be required to pay substantial penalties and damages,which could cause our revenue and net profit to decline andhave a material adverse impact on our business and financialcondition. We may be required to fund any penalties ordamages from cash flows or drawings on our credit facilities,which could cause our indebtedness to increase.

We are parties to various additional proceedings and lawsuitsin the ordinary course of our business, which our managementdoes not believe will have a material adverse impact on us.


Annual financial statements

Growing shareholder returns remains our focus

Consolidated financial statements 179

Company financial statements 283

Supplementary information 353

Annual financial statem

ents


Directors’ responsibility statement 181

Certificate from Group Company Secretary 181

Reports of independent auditors 182

Directors’ report 184

Consolidated income statement 186

Consolidated balance sheet 187

Consolidated statement of changes in equity 188

Consolidated cash flow statement 189

Notes to the consolidated annual financial statements 190

CONSOLIDATED FINANCIAL STATEMENTS

Company income statement 284

Company balance sheet 285

Company statement of changes in equity 286

Company cash flow statement 287

Notes to the Company annual financial statements 288

COMPANY FINANCIAL STATEMENTS

180


Directors’ responsibility statement

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The directors are responsible for the preparation of the annual financialstatements of the Company and the Group. The directors are alsoresponsible for maintaining a sound system of internal control tosafeguard shareholders’ investments and the Group’s assets.

In presenting the accompanying financial statements, InternationalFinancial Reporting Standards with appropriate reconciliations toaccounting principles generally accepted in the United States of Americahave been followed and applicable accounting policies have been usedincorporating prudent judgements and estimates.

The external auditors are responsible for independently auditing andreporting on the annual financial statements.

In order for the directors to discharge their responsibilities, managementcontinues to develop and maintain a system of internal control aimed atreducing the risk of error or loss in a cost-effective manner.

The internal controls include a risk-based system of internal auditing andadministrative controls designed to provide reasonable but not absoluteassurance that assets are safeguarded and that transactions are executedand recorded in accordance with generally accepted business practices andthe Group’s policies and procedures.

The directors, primarily through the Audit and Risk ManagementCommittee, which consists of non-executive directors, meet periodicallywith the external and internal auditors, as well as executive managementto evaluate matters concerning accounting policies, internal controls,auditing and financial reporting.

The directors are of the opinion, based on the information andexplanations given by management and internal audit that the internalaccounting controls are adequate, so that the financial records may berelied on for preparing the financial statements and maintainingaccountability for assets and liabilities.

The directors are satisfied that the Company and the Group have adequateresources to continue in operational existence for the foreseeable future.Accordingly, Telkom SA Limited continues to adopt the going concernbasis in preparing the annual financial statements.

Against this background, the directors of the Company acceptresponsibility for the annual financial statements, which were approvedby the Board of Directors on July 11, 2008 and are signed on theirbehalf by:

Shirley Lue Arnold

Chairman

Reuben September

Chief Executive Officer

Deon Fredericks

Acting Chief Financial Officer

Pretoria

July 11, 2008

Certificate from Group Company Secretary

Secretary to the Company is Ms SF Linford who joined Telkom as Group Company Secretary with effect from June 1, 2007.

Details of the secretary’s business address and the Company’s registered office are set out on the ibc page in the administration section and page 109.

Company Secretary

Pretoria

July 11, 2008

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 thenended set out on pages 186 to 281. 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, whichstatements reflect total assets constituting 24%, 24% and 22% at March 31, 2008, 2007 and 2006, respectively, and total revenues constituting43%, 40% and 36% for the years ended March 31, 2008, 2007 and 2006, respectively of the related consolidated totals. Those statements wereaudited 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 standardsrequire 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 financialstatement 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 present fairly, in allmaterial respects, the consolidated financial position of Telkom SA Limited and its subsidiaries at March 31, 2008, 2007 and 2006, and the consolidatedresults 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-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated July 11, 2008expressed an unqualified opinion thereon.

Ernst & Young Inc.Pretoria Republic of South Africa

July 11, 2008

182

Report of the Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Telkom SA Limited

Ernst & Young Inc.Wanderers Office Park52 Corlett Drive, IllovoPrivate Bag X14Northlands 2116

Tel: 00 27 (0) 11 772-3000Fax: 00 27 (0) 11 772-4000Docex 123 RandburgWebsite www.ey.com/za

Co. Reg. No. 2005/002308/21

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Report on the Financial Statements

We have audited the accompanying Group and Company annual financial statements of Telkom SA Limited, which comprise, the balance sheet as atMarch 31, 2008, the income statement, statement of changes in equity and cash flow statement for the year then ended, a summary of significantaccounting policies and other explanatory notes, as set out on pages 184 to 281 and 284 to 351.

Directors’ Responsibility for the Financial Statements

The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with InternationalFinancial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementingand maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with InternationalStandards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selecteddepend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraudor error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Group and Company financial statements present fairly, in all material respects, the financial position of the company as ofMarch 31, 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial ReportingStandards, and in the manner required by the Companies Act of South Africa.

Ernst & Young Inc.Pretoria Republic of South Africa

July 11, 2008

Independent Auditor’s report

To the Board of Directors and Shareholders of Telkom SA Limited

Ernst & Young Inc.Wanderers Office Park52 Corlett Drive, IllovoPrivate Bag X14Northlands 2116

Tel: 00 27 (0) 11 772-3000Fax: 00 27 (0) 11 772-4000Docex 123 RandburgWebsite www.ey.com/za

Co. Reg. No. 2005/002308/21

Directors’ report

To the members of Telkom SA Limited

The directors have pleasure in submitting the annual financial statementsof the Company and the Group for the year ended March 31, 2008.

Nature of business

Telkom is an integrated communications group with fixed and mobileservices in South Africa and other African countries. Until December 9,2005 when Neotel was issued a license, Telkom was the only fixed-lineoperator in South Africa. Telkom is also a leading provider of mobileservices through its 50% shareholding in Vodacom Group (Pty) Limited.

Financial results

Earnings attributable to equity holders of Telkom for the year endedMarch 31, 2008 were R7,975 million (2007: R8,646 million)representing basic earnings per share of 1,565.0 cents (2007:1,681.0 cents). Full details of the financial position and results of theGroup are set out in the accompanying Company and Group financialstatements.

Dividends

The following dividend was declared in respect of the year endedMarch 31, 2008:

• ordinary dividend number 13 of 660 per share (2007:600 cents).

It remains policy to declare dividends annually at the time of announcingthe Group’s results each year. The objective of the Board is toprogressively increase ordinary dividend payments. The level of dividendwill be based upon a number of factors, including the assessment offinancial results, the Group’s debt level, interest coverage and futureexpectations, including internal cash flows.

Subsidiaries, associates, other investments andjoint ventures

Particulars of the significant subsidiaries and the joint venture of theGroup are set out in notes 43 and 44 of the accompanying Groupfinancial statements.

The attributable interest of the Group in the income of its subsidiariesfor the year ended March 31, 2008 is:

2008 2007R million R million

Aggregate amount of income after taxation (186) 564

Share capital

Details of the authorised, issued and unissued share capital of the Companyas at March 31, 2008, are contained in note 21 and note 19 of theaccompanying Group and Company financial statements respectively.

Share repurchase

Shareholders approved a special resolution granting a general authorityfor the repurchase of shares by the Company at its annual generalmeeting of October 26, 2007. The Company repurchased 12,071,344ordinary shares at a value of R1,647 million (including costs) during theyear under review. As of March 31, 2008, 4,444,138 of these shareshad not yet been cancelled from the issued share capital by the Registrarof Companies. The remainder of these shares have been cancelled asissued share capital and restored as authorised but unissued share capital.

Borrowing powersIn terms of the Company’s articles of association, Telkom has unlimitedborrowing powers subject to the restrictive financial covenants of theTL 20 loan.

Capital expenditure and commitmentsDetails of the Company’s capital expenditure on property, plant andequipment as well as intangibles are set out in notes 9 and 10 of theaccompanying financial statements, while details of the Company’scapital commitments are set out in note 33.

Details of the Group’s capital expenditure on property, plant andequipment as well as intangibles are set out in notes 10 and 11 ofaccompanying financial statements, while details of the Group’s capitalcommitments are set out in note 37.

Events subsequent to balance sheet dateEvents subsequent to the balance sheet date are set out in note 45 ofthe accompanying Group financial statements and note 37 of theCompany financial statements.

DirectorateThe following changes occurred in the composition of the Board fromApril 1, 2007 to date of this report.

Appointments

RJ September May 8, 2007MJ Lamberti May 29, 2007RJ Huntley September 20, 2007Dr VB Lawrence September 20, 2007Dr E Spio-Garbrah September 20, 2007B Molefe January 30, 2008AG Rhoda March 5, 2008B Molefe April 22, 2008 (as alternate to AG Rhoda)B Molefe July 3, 2008

Resignations

LLR Molotsane April 5, 2007PL Zim April 11, 2007M Mostert September 19, 2007DD Tabata September 19, 2007YR Tenza September 19, 2007TF Mosololi October 26, 2007TD Mahloele January 30, 2008B Molefe March 5, 2008MJ Lamberti June 3, 2008AG Rhoda July 3, 2008B Molefe July 3, 2008 (as alternate to AG Rhoda)

The Board of Directors at date of this report are as follows:

ST Arnold (Chairman)RJ September (Chief Executive Officer)B du PlessisRJ HuntleyVB LawrencePCS LuthuliKST MatthewsB MolefeE Spio-Garbrah

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Directors report (continued)

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Details of each director may be found on page 26 in the Managementreview section.

Directors’ interestsAt March 31, 2008, none of Telkom’s directors other than Mr RJ Septemberheld any direct and indirect, beneficial and non-beneficial interests in theshare capital of the company. Mr RJ September directly holds7,155 ordinary shares in the capital of Telkom. At January 28, 2008Mr MJ Lamberti sold 175,000 shares that he held in an indirect nonbeneficial capacity.

Details of the Company Secretary’s business address and the company’sregistered office are set out on the ibc page in the administration sectionand on page 109.

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 9,220Payments to other operators 5.2 6,826 7,590 9,169Selling, general and administrative expenses 5.3 10,273 12,902 14,409Service fees 5.4 2,114 2,291 2,571Operating leases 5.5 850 981 838Depreciation, 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 1,885Foreign 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 2008Notes Rm Rm Rm

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Consolidated balance sheet

at March 31, 2008

AssetsNon-current assets 44,813 48,770 57,763

Property, plant and equipment 10 37,274 41,254 46,815Intangible assets 11 3,910 5,111 8,468Investments 13 2,894 1,384 1,448Deferred expenses 14 254 270 221Finance lease receivables 15 – 158 206Deferred taxation 16 481 593 605

Current assets 12,731 10,376 12,609

Short-term investments 13 69 77 51Inventories 17 814 1,093 1,287Income tax receivable 33 – 520 9Current portion of deferred expenses 14 226 287 362Current portion of finance lease receivables 15 – 88 166Trade and other receivables 18 6,399 7,303 8,986Other financial assets 19 275 259 614Cash and cash equivalents 20 4,948 749 1,134

Total assets 57,544 59,146 70,372

Equity and liabilitiesEquity attributable to equity holders of Telkom 29,165 31,724 32,815

Share capital and premium 21 6,791 5,329 5,208Treasury shares 22 (1,809) (1,774) (1,638)Share-based compensation reserve 23 151 257 643Non-distributable reserves 24 1,128 1,413 1,292Retained 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 9,403Other financial liabilities 19 – 36 919Provisions 28 2,677 1,443 1,675Deferred revenue 14 991 1,021 1,128Deferred 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 8,771Shareholders for dividend 34 4 15 20Current portion of interest-bearing debt 27 3,468 6,026 6,330Current portion of provisions 28 1,660 2,095 2,181Current portion of deferred revenue 14 1,975 1,983 2,593Income tax payable 33 1,549 594 323Other financial liabilities 19 235 193 371Credit 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 2008Notes Rm Rm Rm

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Consolidated statement of changes in equity


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 9,328Foreign 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 86Acquisition of subsidiaries and minorities (refer to note 35) – 27 27Shares 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


Profit for the year 8,646 8,646 203 8,849Foreign 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 141Shares 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


Profit for the year 7,975 7,975 197 8,172Revaluation of available-for-sale investment (net of tax of R1 million) 8 8 8Foreign 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 522Shares vested and re-issued (refer to note 23) 136 (136) – –Acquisition of subsidiaries and minorities (refer to note 35) – 77 77Shares bought back and cancelled (refer to note 21) (121) (1,526) (1,647) (1,647)Minority put option (refer to note 12) (661) (661) (661)

Balance at March 31, 2008 5,208 – (1,638) 643 1,292 27,310 32,815 522 33,337

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Attributable to equity holders of Telkom

Share-based Non-

compen- distri-Share Share Treasury sation butable Retained Minority Totalcapital premium shares reserve reserves earnings Total interest equity

Rm Rm Rm Rm Rm Rm Rm Rm Rm

Consolidated cash flow statement


Cash flows from operating activities 9,506 9,356 10,603

Cash receipts from customers 46,958 50,979 55,627Cash paid to suppliers and employees (27,234) (30,459) (34,371)

Cash generated from operations 31 19,724 20,520 21,256Interest received 482 422 433Dividends 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 16,335Dividend 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 169Proceeds on disposal of investments 493 77 8Additions 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 23,877Loans 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 308Effect 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 2008Notes Rm Rm Rm

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Notes to the consolidated annual financial statements


1. Corporate informationTelkom SA Limited (‘Telkom’) is a company incorporated anddomiciled in the Republic of South Africa (‘South Africa’) whoseshares are publicly traded. The main objective of Telkom, itssubsidiaries and joint ventures (‘the Group’) is to supplytelecommunication, broadcasting, multimedia, technology,information and other related information technology services tothe general public, as well as mobile communication servicesthrough the Vodacom Group (Proprietary) Limited (‘Vodacom’) inSouth Africa and certain other African countries. The Group’sservices 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 rentaland sales;

• fixed-line traffic services to postpaid, prepaid and payphonecustomers, including local, long distance, fixed-to-mobile,international outgoing and international voice-over-internetprotocol traffic services;

• interconnection services, including terminating and transitingtraffic from South African mobile operators, as well as frominternational operators and transiting traffic from mobile tointernational destinations;

• fixed-line data services, including domestic and internationaldata transmission services, such as point-to-point leased lines,ADSL services, packet-based services, managed datanetworking services and internet access and related informationtechnology services;

• e-commerce, including internet access service provider,application service provider, hosting, data storage, e-mail andsecurity services;

• mobile communications services, including voice services, dataservices, value-added services and handset sales throughVodacom; and

• other services including directory services, through our TDSDirectory Operations Group, wireless data services, through ourSwiftnet (Proprietary) Limited subsidiary, television mediaservices through our Telkom Media Group, internet servicesoutside South Africa, through our Africa Online Limited subsidiaryand information, communication and telecommunicationoperating services in Nigeria, through our newly acquired Multi-Links Telecommunications Limited subsidiary.

2. Significant accounting policiesBasis of preparation

The consolidated annual financial statements comply withInternational Financial Reporting Standards (‘IFRS’) of theInternational Accounting Standards Board (‘IASB’) and theCompanies Act of South Africa, 1973.

The financial statements are prepared on the historical cost basis,with the exception of certain financial instruments and share-basedpayments which are measured at grant date fair value.

Details of the Group’s significant accounting policies are set outbelow, and are consistent with those applied in the previousfinancial year except for the following:

• adoption of amendment to IAS1;

• adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10, IFRIC11 andCircular 8/2007; and

• identification of a new segment.

The principal effects of these changes are discussed below.

Adoption of amendments to standards and newinterpretations

The following revised standards and interpretations have beenadopted during the year under review:

Amendment to IAS1 Presentation of Financial Statements

This amendment is effective for annual periods beginning on orafter January 1, 2007. As a result of the pronouncement of IFRS7Financial Instruments: Disclosures, IAS1 has been amended torequire the disclosure of the entity’s objective, policies andprocesses for managing capital, quantitative data about what theentity regards as capital, whether the entity has complied withany capital requirements and if it has not complied, theconsequences of such non-compliance. The impact of thisamendment has been disclosed under note 12.

IFRS7 Financial Instruments: Disclosures

This standard is effective for annual periods beginning on or afterJanuary 1, 2007. IFRS7 supersedes disclosure in IAS32. Allfinancial instruments disclosures will now be provided in terms ofIFRS7. One of the main disclosure requirements added by IFRS7is that an entity must group its financial instruments into classesof similar instruments, and when disclosures are required, makedisclosures by class. IFRS7 also requires information about thesignificance of financial instruments and information about thenature and extent of risks arising from financial instruments. Theimpact of this standard is to expand on certain disclosures relatingto financial instruments and requires certain additional disclosures(refer to note 12).

IFRIC8 Scope of IFRS2

The interpretation is effective for annual periods beginning on orafter May 1, 2006. The interpretation clarifies that IFRS2 appliesto transactions in which an entity receives goods or services asconsideration for equity instruments of the entity. This includestransactions in which the entity cannot identify specifically some orall of the goods or services received. The impact of the interpretationon the consolidated annual financial statements is not materialsince the Group has not transacted with other parties using equityas a purchase consideration for the transaction, other than thosepaid to employees in share-based payment transactions.

IFRIC9 Reassessment of Embedded Derivatives

The interpretation is effective for annual periods beginning on orafter June 1, 2006. The interpretation clarifies that an entityshould assess whether an embedded derivative is required to beseparated from the host contract and accounted for as a derivativewhen the entity first becomes a party to the contract. It furtherclarifies that reassessment is only allowed when there is a changein the terms of the contract which significantly modifies the cashflows that would otherwise be required under the contract. Theinterpretation does not have a material impact on the consolidatedannual financial statements.

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Notes to the consolidated annual financial statements (continued)


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2. Significant accounting policies (continued)

Adoption of amendments to standards and newinterpretations (continued)

IFRIC10 Interim Financial Reporting and Impairment

The interpretation is effective for annual periods beginning on orafter November 1, 2006. The interpretation clarifies that an entityshould not reverse an impairment loss recognised in a previousinterim period in respect of goodwill or an investment in eitheran equity instrument classified as available-for-sale or financialasset carried at cost. The interpretation does not have a materialimpact on the consolidated annual financial statements.

IFRIC11 IFRS2 – Group and Treasury Share Transactions

The interpretation is effective for annual periods beginning on orafter March 1, 2007. The interpretation clarifies that regardlessof whether the entity chooses or is required to buy equityinstruments from another party to satisfy its obligations to itsemployees under the share-based payment arrangement bydelivery of its own shares, the transaction should be accounted foras equity settled. This interpretation also applies regardless ofwhether the employee’s rights to the equity instruments weregranted by the entity itself or by its shareholders or was settledby the entity itself or its shareholders. Share-based paymentsinvolving the Group’s own equity instruments in which the Groupchooses or is required to buy its own equity instruments to settlethe share-based payment obligation are currently accounted for asequity-settled share-based payment transactions under IFRS2. Theinterpretation has had no impact on the consolidated annualfinancial statements.

Circular 8/2007 Headline earnings

The circular was issued by the South African Institute of CharteredAccountants (SAICA) and is applicable for financial periods endingon or after August 31, 2007. Circular 8/2007 supersedes Circular7/2002 and it defines rules for calculating headline earnings pershare, which is an additional per share measure permitted byIAS33 Earnings per Share. It further requires a disclosure of adetailed reconciliation of headline earnings to the earningsnumbers used in the calculation of basic earnings per share inaccordance with the requirements of IAS33. The Group adoptedthe provisions of Circular 8/2007 in the reporting periodbeginning on April 1, 2007 and the adoption has had no impactother 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 arenot yet effective:

IFRS2 Vesting Conditions and Cancellations

This amendment is effective for annual periods beginning on orafter January 1, 2009. The amendments to IFRS2 Share-basedPayment clarifies the definition of vesting conditions and theaccounting treatment of cancellations by the counterparty to ashare-based arrangement. All features of a share-based payment

arrangement other than service conditions and performanceconditions will be considered to be non-vesting conditions. IFRS2(as revised) specifies that, when estimating the fair value of equityinstruments granted, an entity shall take into account all non-vestingconditions (i.e. all conditions other than service and performanceconditions) and vesting conditions that are market conditions (i.e. conditions that are related to the market price of the entity’sequity instruments – for example, attaining a specified share price).The impact of this amendment is currently being evaluated.

IFRS3 Business Combinations-comprehensive revision onapplying 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 IFRS3on 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 IFRS3on 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.




Accounting pronouncements not yet adopted (continued)

IFRS8 Operating Segments

This standard is effective for annual periods beginning on or afterJanuary 1, 2009. The significant change to the standard is thatit requires segments to be disclosed based on the information thatmanagement uses to make decisions about operating matters.IFRS8 sets out the requirements for disclosure of informationabout an entity’s operating segments and also about the entity’sproducts and services, the geographical areas in which it operates,and its major customers. IFRS8 further requires the entity todisclose factors used to identify the entity’s operating segmentsand type of products and services from which each operatingsegment derives its revenues. The impact of this standard iscurrently being evaluated.

IAS1 Presentation of Financial Statements (revised)

The revised standard is effective for annual periods beginning onor after January 1, 2009. The changes made to IAS1 requireinformation in financial statements to be aggregated on the basisof shared characteristics and to introduce a statement ofcomprehensive income. This will enable users to analyse changesin a Group’s equity resulting from transactions with owners in theircapacity as owners (such as dividends and share repurchases)separately from ‘non-owner’ changes (such as transactions withthird parties). The revised standard gives preparers of financialstatements the option of presenting items of income and expenseand components of other comprehensive income either in a singlestatement of comprehensive income with subtotals, or in twoseparate statements.

The revisions include changes in the titles of some of the financialstatements to reflect their function more clearly. The new titleswill be used in accounting standards, but are not mandatory foruse in financial statements. The impact of this standard will be thatthe presentation of the financial statements will change.

IAS23 Borrowing Costs

The revised standard requires all borrowing costs that are directlyattributable to the acquisition, construction or production of aqualifying asset to be capitalised. The revised Standard applies toborrowing costs relating to qualifying assets for which thecommencement date for capitalisation is on or after January 1,2009. The Group does not expect the adoption of the standardto have a material impact since the Group has always applied theallowed alternative of capitalising borrowing costs under thecurrent standard.

Amendment to IAS32 Financial Instruments Presentationand IAS1 Presentation of Financial Statements, puttablefinancial instruments

The amendment is effective for annual periods beginning on orafter January 1, 2009. In January 2008, the IASB amendedIAS32 and IAS1 Presentation of Financial Statements with respectto the balance sheet classification of puttable financial instrumentsand obligations arising only on liquidation. As a result of theamendments, some financial instruments that currently meet thedefinition of a financial liability will be classified as equity becausethey 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 orafter January 1, 2008. The interpretation clarifies that contractualservice arrangements do not convey the right to control the useof the public service infrastructure to the operator, instead theoperator acts as a service provider. The infrastructure under thesearrangements shall therefore not be recognised as the property,plant and equipment of the operator. The operator shall recogniseand measure revenue in accordance with IAS11 and IAS18 for theservices it performs. The operator should recognise the asset asan intangible asset for the right (or licence) it receives to chargethe users of the public service or as a financial asset when it hasthe right to receive cash from the grantor for construction services.The interpretation provides guidance on the recognition andmeasurement of the various aspects of service concessionarrangements from an operator’s perspective. The impact of thisinterpretation is currently being evaluated.

IFRIC13 Customer Loyalty Programmes

The interpretation is effective for annual periods beginning on orafter July 1, 2008. The interpretation addresses accounting byentities that grant loyalty award credits (such as ‘points’ or travelmiles) to customers who buy other goods or services. It specificallyrequires these entities to recognise the obligation to provide freeor discounted goods or services (‘awards’) to customers whoredeem award credits. The interpretation requires companies toestimate the value of the points to the customer and defer thisamount of revenue and recognise a liability until they have fulfilledtheir obligations to supply awards. In effect, the award isaccounted for as a separate component of the sale transaction. Thepossible impact of this interpretation is currently being evaluated.

IFRIC14 The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their Interaction

The interpretation is effective for annual periods beginning on orafter January 1, 2008. The interpretation addresses the interactionbetween a minimum funding requirement and the limit placed byparagraph 58 of IAS19 on the measurement of the definedbenefit asset. When determining the limit on a defined benefitasset in accordance with IAS19.58, IFRIC14 requires an entity tomeasure any economic benefits available to them in the form ofrefunds or reductions in future contributions at the maximumamount that is consistent with the terms and conditions of theplan and any statutory requirements in the jurisdiction of the plan.The interpretation states that the employer only needs to havean unconditional right to use the surplus at some point during thelife of the plan or on its wind up in order for a surplus to berecognised. The Group is currently evaluating the potential impactthat the interpretation will have on the financial position or resultsof operations.

Significant accounting judgements and estimatesThe preparation of financial statements requires the use ofestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting periods.Although these estimates are based on management’s bestknowledge of current events and actions that the Group mayundertake in the future, actual results may ultimately differ fromthose estimates.

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Significant accounting judgements and estimates (continued)

The presentation of the results of operations, financial positionand cash flows in the financial statements of the Group isdependent upon and sensitive to the accounting policies,assumptions and estimates that are used as a basis for thepreparation of these financial statements. Management has madecertain judgements in the process of applying the Group’saccounting policies. These, together with the key assumptionsconcerning the future, and other key sources of estimationuncertainty at the balance sheet date, are as follows:

Revenue recognition

To reflect the substance of each transaction, revenue recognitioncriteria are applied to each separately identifiable component ofa transaction. In order to account for multiple-element revenuearrangements in developing its accounting policies, the Groupconsidered the guidance contained in the United States FinancialAccounting Standards Board (‘FASB’) Emerging Issues Task ForceNo 00-21 Revenue Arrangements with Multiple Deliverables.Judgement is required to separate those revenue arrangementsthat contain the delivery of bundled products or services intoindividual units of accounting, each with its own earnings process,when the delivered item has stand-alone value and the undelivereditem has fair value. Further judgement is required to determine therelative fair values of each separate unit of accounting to beallocated to the total arrangement consideration. Changes in therelative fair values could affect the allocation of arrangementconsideration between the various revenue streams.

Judgement is also required to determine the expected customerrelationship period. Any changes in these assessments may havea 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 andrequired return on assets and equity to determine the optimumuseful life expectation for each of the individual categories ofproperty, plant, equipment and intangible assets. Due to the rapidtechnological advancement in the telecommunications industry aswell as Telkom’s plan to migrate to a next generation networkover the next few years, the estimation of useful lives could differsignificantly on an annual basis due to unexpected changes in theroll-out strategy. The impact of the change in the expected usefullife of property, plant and equipment is described more fully innote 5.6. The estimation of residual values of assets is also basedon management’s judgement whether the assets will be sold orused to the end of their useful lives and what their condition willbe like at that time.

For intangible assets that incorporate both a tangible andintangible portion, management uses judgement to assess whichelement is more significant to determine whether it should betreated as property, plant and equipment or intangible assets.

Asset retirement obligations

Management judgement is exercised when determining whetheran asset retirement obligation exists, and in determining thepresent value of expected future cash flows and discount ratewhen the obligation to dismantle or restore the site arises, as wellas the estimated useful life of the related asset.

Impairments of property, plant and equipment andintangible assets

Management is required to make judgements concerning thecause, 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, discontinuanceof services and other circumstances that could indicate that animpairment exists. The Group applies the impairment assessmentto its separate cash-generating units. This requires managementto make significant judgements concerning the existence ofimpairment indicators, identification of separate cash-generatingunits, remaining useful lives of assets and estimates of projectedcash flows and fair value less costs to sell. Managementjudgement is also required when assessing whether a previouslyrecognised impairment loss should be reversed.

Where impairment indicators exist, the determination of therecoverable amount of a cash-generating unit requires managementto make assumptions to determine the fair value less costs to selland value in use. Key assumptions on which management hasbased its determination of fair value less costs to sell include theexistence of binding sale agreements, and for the determinationof value in use include projected revenues, gross margins, averagerevenue per asset component, capital expenditure, expectedcustomer bases and market share. The judgements, assumptionsand methodologies used can have a material impact on the fairvalue and ultimately the amount of any impairment.

Impairment of other financial assets

At each balance sheet date management assesses whether thereare indicators of impairment of financial assets, including equityinvestments. If such evidence exists, the estimated present valueof the future cash flows of that asset is determined. Managementjudgement is required when determining the expected future cashflows. To determine whether the decline in fair value is prolonged,reliance is placed on an assessment by management regarding thefuture prospects of the investee. In measuring impairments,quoted market prices are used, if available, or projected businessplan information from the investee is used for those financialassets not carried at fair value.

Impairment of receivables

An impairment is recognised on trade receivables that are assessedto be impaired. The impairment is based on an assessment of theextent to which customers have defaulted on payments alreadydue and an assessment on their ability to make payments basedon their credit worthiness and historical write-offs experience.Should the assumptions regarding the financial condition of thecustomer change, actual write-offs could differ significantly fromthe impaired amount.





Leases

The determination of whether an arrangement is, or contains alease is based on whether, at the date of inception, the fulfilmentof the arrangement is dependent on the use of a specific asset orassets or the arrangement conveys a right to use the asset.

Leases in which a significant portion of the risks and rewards ofownership are retained by the lessor are classified as operatingleases. Payments made under operating leases (net of anyincentives received from the lessor) are charged to the incomestatement on a straight-line basis over the period of the lease. Alease is classified as a finance lease if it transfers substantially allthe risks and rewards incident to ownership.

Deferred taxation asset

Management judgement is exercised when determining theprobability of future taxable profits which will determine whetherdeferred tax assets should be recognised or derecognised. Therealisation of deferred tax assets will depend on whether it ispossible to generate sufficient taxable income, taking into accountany legal restrictions on the length and nature of the taxationasset. When deciding whether to recognise unutilised taxationcredits, management needs to determine the extent that futurepayments are likely to be available for set-off. In the event thatthe assessment of future payments and future utilisation changes,the change in the recognised deferred tax asset must berecognised in profit or loss.

Taxation

The tax rules and regulations in South Africa as well as the otherAfrican countries within which the Group operates are highlycomplex and subject to interpretation. Additionally, for theforeseeable future, management expects South African tax lawsto further develop through changes in South Africa’s existing taxstructure as well as clarification of the existing tax laws throughpublished interpretations and the resolution of actual tax cases.

Management has made a judgement that all outstanding taxcredits will be available for utilisation before the tax regime changeis effective, despite the change of “secondary tax on companies”to withholding tax.

The growth of the Group, following its geographical expansioninto other African countries over the past few years, has madethe estimation and judgement required in recognising andmeasuring deferred taxation balances more challenging. Theresolution of taxation issues is not always within the control of theGroup and it is often dependent on the efficiency of the legalprocesses in the relevant taxation jurisdictions in which the Groupoperates. Issues can, and often do, take many years to resolve.Payments in respect of taxation liabilities for an accounting periodresult from payments on account and on the final resolution ofopen items. As a result there can be substantial differencesbetween the taxation charge in the consolidated income statementand 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.

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Provisions and Contingent liabilities

Management judgement is required when recognising andmeasuring provisions and when measuring contingent liabilitiesas set out in notes 28 and 38 respectively. The probability thatan outflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must be madeof the amount of the obligation. Provisions are discounted wherethe effect of discounting is material based on management’sjudgement. The discount rate used is the rate that reflects currentmarket assessments of the time value of money and, whereappropriate, the risks specific to the liability, all of which requiresmanagement judgement. The Group is required to recogniseprovisions for claims arising from litigation when the occurrenceof the claim is probable and the amount of the loss can bereasonably estimated. Liabilities provided for legal matters requirejudgements regarding projected outcomes and ranges of lossesbased on historical experience and recommendations of legalcounsel. Litigation is however unpredictable and actual costsincurred could differ materially from those estimated at thebalance sheet date.

Held-to-maturity financial assets

Management have reviewed the Group’s held-to-maturity financialassets in the light of its capital management and liquidityrequirements and have confirmed the Group’s positive intentionand ability to hold those assets to maturity.

Summary of significant accounting policies

Basis of consolidation

The consolidated financial statements include those of Telkom, itsforeign and domestic subsidiaries and joint ventures. Subsidiariesare those entities over which financial and operating policies theGroup has the ability to exercise control, so as to obtain majorityof the benefits from their activities. Joint ventures are thoseenterprises over which the group exercises joint control in termsof a contractual agreement. Joint ventures are accounted for usingthe proportionate consolidation method on a line by line basis.Intra-group balances and transactions, and any unrealised gainsand losses arising from intra-group transactions, are eliminated inpreparing the consolidated financial statements. Transactions withjointly controlled entities together with related unrealised gainsand losses and resulting balances are eliminated to the extent ofthe Group’s interest in the entities. Consolidation commences fromthe date that effective control passes to the Group.

Business combinations

On acquisition of a subsidiary or joint venture, any excess of thepurchase price over the fair value of the Group’s interest in the netassets is recognised as goodwill. Minority interests are calculatedon the fair value of assets and liabilities. Where there is loss ofcontrol of a subsidiary, the consolidated financial statementsinclude the results for the part of the reporting year during whichthe Group has control.

Minority shareholders are treated as equity participants and,therefore, all acquisitions of minority interest by the Group insubsidiary companies are accounted for using the parent entityextension method. Under this method, the assets and liabilities ofthe subsidiary are not restated to reflect their fair values at thedate of the acquisition. The difference between the purchase priceand the minority interest’s share of the assets and liabilitiesreflected within the consolidated balance sheet at the date of theacquisition is therefore reflected as goodwill. Minority interestsare separately presented in the consolidated financial statements.

Operating revenue

The Group provides fixed-line communication services, mobilecommunication services and other services. Other includes dataservices, directory services and communication related products.The Group provides such services to business, residential,payphone and mobile customers. Revenue represents the fairvalue of fixed or determinable consideration that has beenreceived or is receivable.

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

Revenue is recognised when there is evidence of an arrangement,collectability is reasonably assured, and the delivery of the productor service has occurred. In certain circumstances revenue is splitinto separately identifiable components and recognised when therelated components are delivered in order to reflect the substanceof the transaction. The value of components is determined usingverifiable objective evidence. The Group does not providecustomers with the right to a refund.

Fixed-line and Other

Subscriptions, connections and other usage

The Group provides telephone and data communication servicesunder post paid and prepaid payment arrangements. Revenueincludes fees for installation and activation, which are deferredover the expected customer relationship period. Costs incurred onfirst time installations that form an integral part of the network arecapitalised and depreciated over the expected average customerrelationship period. All other installation and activation costs areexpensed as incurred.

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

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

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

Prepaid

Prepaid traffic service revenue collected in advance is deferredand recognised based on actual usage or upon expiration of theusage period, whichever comes first. The terms and conditions ofcertain prepaid products allow the carry over of unused minutes.Revenue related to the carry over of unused minutes is deferreduntil usage or expiration.




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 deferredand recognised based on actual usage or upon expiration of theusage period, whichever comes first.

Telkom provides incentives to its retail payphone card distributorsas trade discounts. Revenue for retail payphone cards is recordedas 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 recognisedwhen the call is placed or the connection provided.

Interconnection

Interconnection revenue for call termination, call transit, andnetwork usage is recognised as the traffic flow occurs.

Data

The Group provides data communication services under post paidand prepaid payment arrangements. Revenue includes fees forinstallation and activation, which are deferred over the expectedaverage customer relationship period. Costs incurred on first timeinstallations that form an integral part of the network arecapitalised and depreciated over the life of the expected averagecustomer relationship period. All other installation and activationcosts are expensed as incurred. Post paid and prepaid servicearrangements include subscription fees, typically monthly fees,which are recognised over the subscription period.

Directory services

Included in other are directory services. Revenue is recognisedwhen paper directories are released for distribution, as thesignificant risks and rewards of ownership have been transferredto the buyer. Electronic directories’ revenue is recognised on amonthly basis, as earned.

Sundry revenue

Sundry revenue is recognised when the economic benefit flows tothe Group and the earnings process is complete.

Dealer incentives

Telkom provides incentives to its retail payphone card distributorsas trade discounts. Incentives are based on sales volume andvalue. Revenue for retail payphone cards is recorded as trafficrevenue, net of these discounts as the cards are used.

Mobile

The Vodacom Group invoices its independent service providers forthe 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 amountequal to the gross revenue earned less the administrative feespayable to the agents.

Contract products

Contract products that may include deliverables such as a handsetand 24-month service are defined as arrangements with multipledeliverables. The arrangement consideration is allocated to eachdeliverable, based on the fair value of each deliverable on a standalone basis as a percentage of the aggregated fair value of theindividual deliverables. Revenue allocated to the identifieddeliverables in each revenue arrangement and the cost applicableto these identified deliverables are recognised based on the samerecognition criteria of the individual deliverable at the time theproduct or service is delivered.

Vodacom revenue from the handset is recognised when theproduct is delivered limited to the amount of cash received.Monthly service revenue received from the customer is recognisedin the period in which the service is delivered. Airtime revenue isrecognised on the usage basis. The terms and conditions of thebundled airtime products, where applicable, allow the carry overof unused airtime. The unused airtime is deferred in full. Deferredrevenue related to unused airtime is recognised when utilised bythe customer. Upon termination of the customer contract, alldeferred revenue for unused airtime is recognised in revenue.

Prepaid products

Prepaid products that may include deliverables such as a SIM-cardand airtime are defined as arrangements with multipledeliverables. The arrangement consideration is allocated to eachdeliverable, based on the fair value of each deliverable on a standalone basis as a percentage of the aggregated fair value of theindividual deliverables. Revenue allocated to the identifieddeliverables in each revenue arrangement and the cost applicableto these identified deliverables are recognised based on the samerecognition criteria of the individual deliverable at the time theproduct or service is delivered.

• Revenue from the SIM-card representing activation fees isrecognised over the average useful life of a prepaid customer.

• Airtime revenue is recognised on the usage basis. Unusedairtime is deferred in full.

• Deferred revenue related to unused airtime is recognised whenutilised by the customer. Upon termination of the customerrelationship, all deferred revenue for unused airtime isrecognised in revenue.

Upon purchase of an airtime voucher the customer receives theright to make outgoing voice and data calls to the value of the airtime voucher. Revenue is recognised as the customer utilisesthe voucher.

Deferred revenue and costs related to unactivated starter packswhich do not contain any expiry date, is recognised in the periodwhen the probability of these starter packs being activated by acustomer becomes remote. In this regard the Group applies aperiod of 36 months before these revenue and costs are releasedto the consolidated income statement.

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Operating revenue (continued)

Mobile (continued)

Data

Revenue, net of discounts, from data services is recognised whenthe Group has performed the related service and depending on thenature of the service, is recognised either at the gross amountsbilled to the customer or the amount receivable by the Group ascommission for facilitating the service.

Equipment sales

All equipment sales are recognised only when delivery andacceptance has taken place. Equipment sales to third party serviceproviders are recognised when delivery is accepted. No rights ofreturn exist on sales to third party service providers.

Mobile number portability

Revenue transactions from mobile number portability areaccounted for in terms of current business rules and revenuerecognition policies above.

Interest on debtors’ accounts

Interest is raised on overdue accounts on an effective interest ratemethod 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 productsdelivered to the customer are expensed as incurred. Incentivespaid to service providers and dealers for services delivered areexpensed in the period that the related revenue is recognised.

Distribution incentives paid to service providers and dealers forexclusivity are deferred and expensed over the contractualrelationship period.

Investment income

Dividends from investments are recognised on the date that theGroup is entitled to the dividend. Interest is recognised on a timeproportionate basis taking into account the principal amountoutstanding and the effective interest rate.

Taxation

Current taxation

The charge for current taxation is based on the results for the yearand is adjusted for non-taxable income and non-deductibleexpenditure. Current taxation is measured at the amount expectedto be paid to the taxation authorities, using taxation rates andlaws that have been enacted or substantively enacted by thebalance sheet date.

Deferred taxation

Deferred taxation is accounted for using the balance sheet liabilitymethod on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred tax is not provided on the initial recognition of goodwillor initial recognition of assets or liabilities which is not a business

combination and at the time of the transaction affects neitheraccounting nor taxable profit or loss.

A deferred tax asset is recognised to the extent that it is probablethat future taxable profits will be available against which theassociated unused tax losses, unused tax credits and deductibletemporary differences can be utilised. The carrying amount ofdeferred tax assets is reviewed at each balance sheet date and isreduced to the extent that it is no longer probable that the relatedtax benefit will be realised, except in respect of deductibletemporary differences associated with investments in subsidiaries,associates and interest in joint ventures. Deferred income taxassets are recognised only to the extent that it is probable thattemporary differences will reverse in the foreseeable future andtaxable profit will be available against which temporary differencescan be utilised.

Deferred tax relating to items recognised directly in equity arerecognised in equity and not in the income statement.

Deferred tax assets and liabilities are measured at the tax rates thatare expected to apply to the period when the asset is realised or theliability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if alegally enforceable right exists to set off current tax assets againstcurrent tax liabilities and the deferred taxes relate to the sametaxable entity and the same taxation authority.

Exchange differences arising from the translation of foreigndeferred taxation assets and liabilities of foreign entities where thefunctional currency is different to the local currency, are classifiedas a deferred taxation expense or income.

Secondary taxation on companies

Secondary taxation on companies (‘STC’) is provided for at a rateof 10% (12.5% before October 1, 2007) on the amount bywhich dividends declared by the Group exceeds dividends received.Deferred tax on unutilised STC credits is recognised to the extentthat STC payable on future dividend payments is likely to beavailable for set-off.

Property, plant and equipment

At initial recognition acquired property, plant and equipment arerecognised at their purchase price, including import duties andnon-refundable purchase taxes, after deducting trade discountsand rebates. The recognised cost includes any directly attributablecosts for preparing the asset for its intended use. The cost of anitem of property, plant and equipment is recognised as an assetif it is probable that the future economic benefits associated withthe item will flow to the Group and the cost of the item can bemeasured reliably.

Property, plant and equipment is stated at historical cost lessaccumulated depreciation and any accumulated impairment losses.Each component of an item of property, plant and equipment witha cost that is significant in relation to the total cost of the item isdepreciated separately. Depreciation is charged from the date theasset is available for use on a straight-line basis over the estimateduseful life and ceases at the earlier of the date that the asset isclassified as held for sale and the date the asset is derecognised.Idle assets continue to attract depreciation.




Property, plant and equipment (continued)

The estimated useful life of individual assets and the depreciationmethod thereof are reviewed on an annual basis at balance sheetdate. The depreciable amount is determined after taking intoaccount the residual value of the asset. The residual value is theestimated amount that the Group would currently obtain from thedisposal of the asset, after deducting the estimated cost ofdisposal, if the asset were already of the age and in the conditionexpected at the end of its useful life. The residual values of assetsare reviewed on an annual basis at balance sheet date.

Assets under construction represents freehold buildings, integraloperating software, network and support equipment and includesall 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. Amountspaid by the Group on improvements to assets which are held interms of operating lease agreements are depreciated on a straight-line basis over the shorter of the remaining useful life of theapplicable asset or the remainder of the lease period. Where it isreasonably certain that the lease agreement will be renewed, thelease period equals the period of the initial agreement plus therenewal periods.

The estimated useful lives assigned to groups of property, plantand 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 upondisposal or when no future economic benefits are expected fromits use or disposal. Any gain or loss arising on derecognition ofthe asset (calculated as the difference between the net disposalproceeds and the carrying amount of the asset) is included in theincome statement in the year the asset is derecognised.

Assets held under finance leases are depreciated over theirexpected useful lives on the same basis as owned assets or, whereshorter, the term of the relevant lease if there is no reasonablecertainty that the Group will obtain ownership by the end of thelease 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 impairment

losses. 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.

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Intangible assets (continued)

Licences, software, trademarks, copyrights and other (continued)

Assets under construction represent application and other nonintegral software and includes all direct expenditure as well asrelated borrowing costs capitalised, but excludes the costs ofabnormal amounts of waste material, labour, or other resourcesincurred in the production of self-constructed assets.

Intangible assets are derecognised when they have been disposedof or when the asset is permanently withdrawn from use and nofuture economic benefit is expected from its disposal. Any gainsor losses on the retirement or disposal of assets are recognised inthe 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 related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated useful life.The unwinding of the discount is included in finance charges andfair value movements. Changes in the measurement of an existingliability that result from changes in the estimated timing or amountof the outflow of resources required to settle the liability, or achange in the discount rate are accounted for as increases ordecreases to the original cost of the recognised assets. If theamount deducted exceeds the carrying amount of the asset, theexcess is recognised immediately in profit or loss.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held forsale if their carrying amount will be recovered through a saletransaction rather than through continuing use. This condition isregarded as met only when the sale is highly probable and theasset (or disposal group) is available for immediate sale in itspresent condition. Management must be committed to the sale,which should be expected to qualify for recognition as a completesale within one year from the date of classification. Assets are nolonger depreciated when they are classified into the category.

Non-current assets (and disposal groups) classified as held forsale are measured at the lower of the assets’ previous carryingamount and fair value less cost to sell.

Impairment of property, plant and equipment andintangible assets

The Group regularly reviews its assets, other than financialinstruments, and cash-generating units for any indication ofimpairment. When indicators, including changes in technology,

market, economic, legal and operating environments occur andcould result in changes of the asset’s or cash-generating unit’sestimated recoverable amount, an impairment test is performed.

The recoverable amount of assets or cash-generating units ismeasured using the higher of the fair value less costs to sell andits value in use, which is the present value of projected cash flowscovering the remaining useful lives of the assets. Impairmentlosses are recognised when the asset’s carrying value exceeds itsestimated recoverable amount. Where applicable, the recoverableamount is determined for the cash-generating unit to which theasset belongs.

Previously recognised impairment losses, other than goodwill, arereviewed annually for any indication that it may no longer existor may have decreased. If any such indication exists, therecoverable amount of the asset is estimated. Such impairmentlosses are reversed through the income statement if therecoverable amount has increased as a result of a change in theestimates used to determine the recoverable amount, but not toan amount higher than the carrying amount that would have beendetermined (net of depreciation or amortisation) had noimpairment loss been recognised in prior years. Impairment ongoodwill is not reversed.

Repairs and maintenance

The Group expenses all costs associated with repairs andmaintenance, unless it is probable that such costs would result inincreased future economic benefits flowing to the Group, and thecosts can be reliably measured.

Borrowing costs

Financing costs directly associated with the acquisition or constructionof assets that require more than three months to complete and placein service are capitalised at interest rates relating to loans specificallyraised for that purpose, or at the weighted average borrowing ratewhere the general pool of Group borrowings was utilised. Otherborrowing costs are expensed as incurred.

Deferred revenue and expenses

Activation revenue and costs are recognised in accordance withthe principles contained in Emerging Issues Task Force Issue No00-21, Revenue Arrangements with Multiple Deliverables (‘EITF00-21’), issued in the United States. This results in activationrevenue and costs up to the amount of the deferred revenue beingdeferred and recognised systematically over the expected durationof the customer relationship because it is considered to be part ofthe customers’ ongoing rights to telecommunication services andthe operator’s continuing involvement. The excess of the costsover revenues is expensed immediately.

Inventories

Installation material, maintenance and network equipmentinventories are stated at the lower of cost, determined on aweighted 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 netrealisable value. Write-down of inventories arises when, forexample, goods are damaged or when net realisable value islower than carrying value.




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 valuethrough profit or loss, transaction costs that are directly attributableto the acquisition or issue. Financial instruments are recognisedwhen 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 financialassets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace.

Subsequent measurement

Subsequent to initial recognition, the Group classifies financialassets as ‘at fair value through profit or loss’, ‘held-to-maturityinvestments’, ‘loans and receivables’, or ‘available-for-sale’. Themeasurement of each is set out below and presented in a tablein note 12.

The fair value of financial assets and liabilities that are activelytraded in financial markets is determined by reference to quotedmarket prices at the close of business on the balance sheet date.Where there is no active market, fair value is determined usingvaluation 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 inthe 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 areacquired for the purpose of selling in the future. Derivatives notdesignated as hedges are also classified as held for trading. Onremeasurement to fair value the gains or losses on held for tradingfinancial assets are recognised in net finance charges and fairvalue 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 arepresented in the income statement within ‘finance charges and fairvalue movements’ in the period which they arise. Dividend incomefrom financial assets at fair value through profit or loss isrecognised in the income statement as part of other income whenthe Group’s right to receive payment is established.


The Group classifies non-derivative financial assets with fixed ordeterminable payments and fixed maturity dates as held-to-maturity when the Group has the positive intention and ability tohold to maturity. This category includes bills of exchange andpromissory notes. These assets are subsequently measured atamortised cost. Amortised cost is computed as the amount initiallyrecognised minus principal repayments, plus or minus thecumulative amortisation using the effective interest rate method.This calculation includes all fees paid or received between partiesto the contract. For investments carried at amortised cost, gainsand losses are recognised in net profit or loss when theinvestments are sold or impaired.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixedor determinable payments that are not quoted in an active market.Such assets are carried at amortised cost using the effectiveinterest rate method. Trade receivables are subsequently measuredat the original invoice amount where the effect of discounting isnot material.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assetsthat are designated as available-for-sale, or are not classified in anyof the three preceding categories. Equity instruments are alltreated as available-for-sale financial instruments. After initialrecognition, available-for-sale financial assets are measured at fairvalue, with gains and losses being recognised as a separatecomponent of equity.

Changes in the fair value of monetary securities denominated ina foreign currency and classified as available-for-sale are analysedbetween translation differences resulting from changes inamortised cost of the security and other changes in carryingamount of the security. The translation differences on monetarysecurities are recognised in profit or loss, while translationdifferences on non-monetary securities are recognised in equity.Changes in the fair value of monetary and non-monetary securitiesclassified as available-for-sale are recognised directly in equity.When an investment is derecognised or determined to beimpaired, the cumulative gain or loss previously recorded in equityis recognised in profit or loss.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit orloss (‘FVTPL’) where the financial liability is either held for tradingor 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 ahedging instrument.

Financial liabilities at a FVTPL are stated at fair value, with anyresultant gains or losses recognised in profit or loss. The net gainor loss recognised in profit or loss incorporates any interest paidon the financial liability.

Other financial liabilities

Other financial liabilities are subsequently measured at amortisedcost using the effective interest rate method, with interest expenserecognised in finance charges and fair value movements, on aneffective yield basis.

The effective interest rate is the rate that accurately discountsestimated future cash payments through the expected life of thefinancial liability, or, where appropriate, a shorter period.

Financial guarantee contracts

Financial guarantee contracts are subsequently measured at thehigher of the amount determined in accordance with IAS37Provisions, Contingent Liabilities and Contingent Assets or theamount initially recognised less, when appropriate, cumulativeamortisation, recognised in accordance with IAS18 Revenue.

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Financial instruments (continued)

Put option

A contract that contains an obligation for the Group to purchaseits own equity instruments for cash or another financial asset givesrise to a financial liability and is accounted for at the present valueof the redemption amount. On initial recognition its fair value isreclassified directly from equity. Subsequent changes in the liabilityare included in profit or loss. On expiry or exercise of the optionthe carrying value of the liability is reclassified directly to equity.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. Thiscomprise cash on hand, deposits held on call and term deposits withan initial maturity of less than three months when entered into.

For the purpose of the cash flow statement, cash and cashequivalents 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 subsequentlymeasured at amortised cost using the effective interest rate method.

Bonds issued where Telkom is a buyer and seller of last resort arecarried at fair value. The Group does not actively trade in bonds.

Derecognition

A financial instrument or a portion of a financial instrument will bederecognised and a gain or loss recognised when the Group’scontractual rights expire, financial assets are transferred orfinancial liabilities are extinguished. On derecognition of a financialasset or liability, the difference between the consideration and thecarrying amount on the settlement date is included in financecharges and fair value movements for the year. For available-for-sale assets, the fair value adjustment relating to prior revaluationsof assets is transferred from equity and recognised in financecharges and fair value movements for the year.

Bonds and commercial paper bills are derecognised when theobligation specified in the contract is discharged. The differencebetween the carrying value of the bond and the amount paid toextinguish the obligation is included in finance charges and fairvalue movements for the year.

Impairment of financial assets

At each balance sheet date an assessment is made of whetherthere are any indicators of impairment of a financial asset or agroup of financial assets based on observable data about one ormore loss events that occurred after the initial recognition of theasset or the group of assets. In the case of equity securitiesclassified as available-for-sale, a significant or prolonged declinein the fair value of the security below its cost is considered as anindicator that the securities are impaired. If any such evidenceexists for available-for-sale assets, the cumulative loss – measuredas the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previouslyrecognised in profit or loss – is removed from equity andrecognised in the income statement. Impairment losses recognisedin the income statement on equity instruments are not reversed

through the income statement. The recoverable amount offinancial assets carries at amortised cost is calculated as thepresent value of expected future cash flows discounted at theoriginal effective interest rate of the asset.

If, in a subsequent period, the amount of the impairment loss forfinancial assets decreases and the decrease can be relatedobjectively to an event occurring after the impairment wasrecognised, the previously recognised impairment loss is reversedexcept for those financial assets classified as available-for-sale andcarried at cost that are not reversed. Any subsequent reversal ofan impairment loss is recognised in the income statement, to theextent that the carrying value of the asset does not exceed itsamortised cost at the reversal date. Reversals in respect of equityinstruments classified as available-for-sale are not recognised.Reversals of impairment losses on debt instruments classified asavailable-for-sale are reversed through the income statement, if theincrease in fair value of the instrument can be objectively relatedto an event occurring after the impairment loss was recognisedthrough the income statement.

Foreign currencies

Each entity within the Group determines its functional currency. TheGroup’s presentation currency is the South African Rand (‘ZAR’).

Transactions denominated in foreign currencies are measured atthe rate of exchange at transaction date. Monetary itemsdenominated in foreign currencies are remeasured at the rate ofexchange at settlement date or balance sheet date whicheveroccurs first. Exchange differences on the settlement or translationof monetary assets and liabilities are included in finance chargesand fair value movements in the period in which they arise.

The annual financial statements of foreign operations are translatedinto South African Rand, the Group’s presentation currency, forincorporation into the consolidated annual financial statements.Assets and liabilities are translated at the foreign exchange ratesruling at the balance sheet date. Income, expenditure and cashflow items are measured at the actual foreign exchange rate oraverage foreign exchange rates for the period. All resulting unrealisedexchange differences are classified as equity. On disposal, thecumulative amounts of unrealised exchange differences that havebeen deferred are recognised in the consolidated income statementas part of the gain or loss on disposal.

All gains and losses on the translation of equity loans to foreignoperations that are intended to be permanent whether they aredenominated in one of the entities functional currencies or in athird currency, are recognised in equity.

Goodwill and intangible assets arising on the acquisition of a foreignoperation are treated as assets of the foreign operation andtranslated at the foreign exchange rates ruling at balance sheet date.

Treasury shares

Where the Group acquires, or in substance acquires, Telkomshares, such shares are measured at cost and disclosed as areduction of equity. No gain or loss is recognised in profit or losson the purchase, sale, issue or cancellation of the Group’s ownequity instruments. Such shares are not remeasured for changesin fair value.




Insurance contracts

Premiums written comprise the premiums on insurance contractsentered into during the year, irrespective of whether they relatein whole or in part to a later accounting period. Premiums aredisclosed gross of commission to intermediaries and exclude ValueAdded Tax. Premiums written include adjustments to premiumswritten in prior accounting periods. Outward reinsurance premiumsare accounted for in the same accounting period as the premiumsfor the related direct insurance business assumed. The net earnedportion of premiums received is recognised as revenue. Premiumsare earned from the date of attachment of risk, over the indemnityperiod, based on the pattern of risks underwritten. Outwardreinsurance premiums are recognised as an expense in accordancewith the pattern of indemnity received.

The provision for unearned premiums comprises the proportion ofpremiums written which is estimated to be earned in subsequentfinancial years, computed separately for each insurance contractusing a time proportionate basis or another suitable basis foruneven risk contracts.

Claims incurred consist of claims and claims handling expensespaid during the financial year together with the movement in theprovision for outstanding claims. Claims outstanding compriseprovisions for the Group’s estimate of the ultimate cost of settlingall claims incurred but unpaid at the balance sheet date whetherreported or not, and an appropriate risk margin.

A reserve in equity is made for the full amount of the contingencyreserve as required by the regulatory authorities in South Africa.Transfers to and from this reserve are treated as appropriations ofretained earnings.

Leases

A lease is classified as a finance lease if it transfers substantiallyall the risks and rewards incidental to ownership. All other leasesare classified as operating leases.

Where the Group enters into a service agreement as a supplier ora customer that depends on the use of a specific asset, and conveysthe right to control the use of the specific asset, the arrangementis assessed to determine whether it contains a lease. Once it hasbeen concluded that an arrangement contains a lease, it is assessedagainst the criteria in IAS17 to determine if the arrangement shouldbe recognised as a finance lease or operating lease.

The land and buildings elements of a lease of land and buildingsare considered separately for the purposes of lease classificationunless it is impracticable to do so.

Lessee

Operating lease payments are recognised in the income statementon a straight-line basis over the lease term.

Assets acquired in terms of finance leases are capitalised at thelower of fair value or the present value of the minimum leasepayments at inception of the lease and depreciated over the lesserof the useful life of the asset or the lease term. The capital elementof future obligations under the leases is included as a liability inthe balance sheet. Lease finance costs are amortised in the incomestatement over the lease term using a constant periodic rate ofinterest. Where a sale and leaseback transaction results in a

finance lease, any excess of sale proceeds over the carryingamount is deferred and recognised in the income statement overthe term of the lease.

Lessor

Operating lease revenue is recognised in the income statement ona straight-line basis over the lease term.

Assets held under a finance lease are recognised in the balancesheet and presented as a receivable at an amount equal to the netinvestment in the lease. The recognition of finance income is basedon a pattern reflecting a constant periodic rate of return on the netinvestment in the finance lease.

Employee benefits

Post-employment benefits

The Group provides defined benefit and defined contribution plansfor the benefit of employees. These plans are funded by theemployees and the Group, taking into account recommendationsof the independent actuaries. The post-retirement telephone rebateliability is unfunded.

Defined contribution plans

The Group’s funding of the defined contribution plans is chargedto employee expenses in the same year as the related serviceis provided.

Defined benefit plans

The Group provides defined benefit plans for pension, retirement,post-retirement medical aid benefits and telephone rebates toqualifying employees. The Group’s net obligation in respect ofdefined benefits is calculated separately for each plan byestimating the amount of future benefits earned in return forservices rendered.

The amount recognised in the balance sheet represents the presentvalue of the defined benefit obligations, calculated by using theprojected unit credit method, as adjusted for unrecognised actuarialgains and losses, unrecognised past service costs and reduced bythe fair value of the related plan assets. The amount of any surplusrecognised and reflected as deferred expenses is limited tounrecognised actuarial losses and past service costs plus the presentvalue of available refunds and reductions in future contributions tothe plan. To the extent that there is uncertainty as to theentitlement to the surplus, no asset is recognised. No gain isrecognised solely as a result of an actuarial loss or past service costin the current period and no loss is recognised solely as a result ofan actuarial gain or past service cost in the current period.

Actuarial gains and losses are recognised as employee expenseswhen the cumulative unrecognised gains and losses for eachindividual plan exceed 10% of the greater of the present value ofthe Group’s obligation and the fair value of plan assets at thebeginning of the year. These gains or losses are amortised on astraight-line basis over ten years for all the defined benefit plans,except gains or losses related to the pensioners in the TelkomRetirement Fund or unless the standard required faster recognition.For the Telkom Retirement Fund pensioners, the cumulativeunrecognised actuarial gains and losses in excess of the 10%corridor at the beginning of the year are recognised immediately.

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Employee benefits (continued)

Defined benefit plans (continued)

Past service costs are recognised immediately to the extent that thebenefits are vested, otherwise they are recognised on a straight-linebasis over the average period the benefits become vested.

Leave benefits

Annual leave is provided for over the period that the leave accruesand is subject to a cap of 22 days.

Workforce reduction

Workforce reduction expenses are payable when employment isterminated before the normal retirement age or when anemployee accepts voluntary redundancy in exchange for benefits.Workforce reduction benefits are recognised when the entity isdemonstrably committed and it is probable that the expenses willbe incurred. In the case of an offer made to encourage voluntaryredundancy, the measurement of termination benefits is basedon the number of employees expected to accept the offer.

Deferred bonus incentives

Employees of the wholly owned subsidiaries of Vodacom, includingexecutive directors, are eligible for compensation benefits in theform of a Deferred Bonus Incentive Scheme. The benefit isrecorded at the present value of the expected future cash outflows.

Share-based compensation

The grants of equity instruments, made to employees in terms ofthe Telkom Conditional Share Plan, are classified as equity-settledshare-based payment transactions. The expense relating to theservices rendered by the employees, and the correspondingincrease in equity, is measured at the fair value of the equityinstruments at their date of grant based on the market price atgrant date, adjusted for the lack of entitlement to dividends duringthe vesting period. This compensation cost is recognised over thevesting period, based on the best available estimate at eachbalance sheet date of the number of equity instruments that areexpected to vest.

Short-term employee benefits

The cost of all short-term employee benefits is recognised duringthe year the employees render services, unless the Group usesthe services of employees in the construction of an asset and thebenefits received meet the recognition criteria of an asset, at whichstage it is included as part of the related property, plant andequipment or intangible asset item.

Long-term incentive provision

The Vodacom Group provides long-term incentives to eligibleemployees payable on termination or retirement. The Group’sliability is based on an actuarial valuation. Actuarial gains andlosses 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 probablethat an outflow of resources will be required to settle theobligation, and a reliable estimate can be made of the amount ofthe obligation. Provisions are reviewed at each balance sheet dateand adjusted to reflect the current best estimate. Where the effectof the time value of money is material, the amount of theprovision is the present value of the expenditures expected to berequired to settle the obligation.

Segmental reporting

As of the beginning of the year the Group identified a newsegment called ‘Other’, and is now managed in three businesssegments, which form the primary segment reporting basis:Fixed-line, Mobile and Other. The Other business segmentincludes newly acquired Multi-Links Telecommunications Limitedand 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 theFixed-line segment. The corporate information has also beenupdated to reflect the above changes.

The Group’s three segments operate in South Africa, and otherAfrican countries. The geographical location of the Group’s customershas been identified as the secondary basis for segment reporting.

The Fixed-line business segment provides local telephony anddata, domestic and international long-distance services as well asleased lines, data transmission and internet access.

The Mobile business segment provides mobile telephony servicesas well as the sale of mobile equipment.

The Other business segment provides directory services, fixed,mobile, data and international telecommunication servicesthroughout other African countries.

Inter-segment transactions are accounted for in the same way astransactions to third parties at current market prices.



3. Revenue3.1 Total revenue 48,260 52,157 56,865

Operating revenue 47,625 51,619 56,285Other income (excluding profit on disposal of property, plant and equipment, intangible assets and investments, refer to note 4) 238 303 383Investment income (refer to note 6) 397 235 197

3.2 Operating revenue 47,625 51,619 56,285

Fixed-line 31,832 32,345 32,572Mobile 17,021 20,573 24,089Other 952 979 1,993Eliminations (2,180) (2,278) (2,369)

Fixed-line 31,832 32,345 32,572

Subscriptions, connections and other usage 5,803 6,286 6,330Traffic 17,563 16,740 15,950

Domestic (local and long distance) 8,915 7,563 6,328Fixed-to-mobile 7,647 7,646 7,557International (outgoing) 1,001 988 986Subscription based calling plans* – 543 1,079

Interconnection 1,654 1,639 1,757Data 6,674 7,489 8,308Sundry revenue 138 191 227

Mobile 17,021 20,573 24,089

Airtime and access 10,043 11,854 13,548Data revenue 1,019 1,671 2,501Interconnect revenue 3,348 3,918 4,443Equipment sales 1,993 2,350 2,526International airtime 486 653 918Other 132 127 153

*The Group has reclassified calling plans from domestic traffic into a separaterevenue line item to disclose revenue earned from subscription based callingplans. Amounts for the year ended March 31, 2006 were not restated as theywere 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 257Sundry income 102 113 126

Profit on disposal of property, plant and equipment and intangible assets 79 29 147Profit 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 thesale of Telkom properties in alignment with Telkom’s strategy of disposing of non-core assets.

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5. Operating expensesOperating expenses comprise:

5.1 Employee expenses 7,489 8,454 9,220

Salaries and wages 5,566 6,362 7,144Medical aid contributions 371 385 417Retirement contributions 435 496 598Post-retirement pension and retirement fund (refer to note 29) (58) 33 5

Current service cost 4 5 5Interest cost 364 329 509Expected 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 84Interest cost 249 286 322Expected return on plan asset – (188) (257)Actuarial loss 63 149 129Settlement loss 7 – –Curtailment gain (6) – –

Telephone rebates (refer to note 28 and 29) 19 104 27

Current service cost 3 4 3Interest cost 16 19 22Past service cost – 76 2Actuarial loss – 5 –

Share-based compensation expense (refer to note 23) 127 141 522Other benefits* 1,288 1,299 1,015Employee expenses capitalised (620) (696) (786)

*Other benefitsOther benefits include skills development, annual leave, performance incentiveand service bonuses.

5.2 Payments to other operators 6,826 7,590 9,169

Payments to other network operators consist of expenses in respect ofinterconnection 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 10,352Maintenance 1,928 2,286 2,508Marketing 899 1,215 1,249Bad debts (refer to note 18) 206 153 300

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5. Operating expenses (continued)

5.4 Service fees 2,114 2,291 2,571

Facilities and property management 1,110 1,142 1,228Consultancy services 182 266 291Security and other 772 821 982Auditors’ remuneration 50 62 70

Audit services 38 61 69

Company auditors 28 48 46

Current year 26 47 43Prior 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 tominimise cable theft.

5.5 Operating leases 850 981 838

Land and buildings 221 284 170Transmission and data lines 42 63 187Equipment 78 80 50Vehicles 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 4,855Amortisation 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 tonote 10) (26) – –

Write-offs of property, plant and equipment and intangible assets (referto 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 theirremaining useful lives as at March 31. The assets affected were certain items included in Network equipment, Support equipment, Furnitureand office equipment, Data processing equipment and software and Intangible assets. The revised estimated useful lives of these assets as setout below, resulted in a decrease of the current year depreciation and amortisation charges of R198 million (2007: R983 million).

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5.6 Depreciation, amortisation, impairment and write-offs (continued)


Network equipmentSwitching equipment 5 – 18 2 – 18Other 2 – 20 1 – 20

Support equipment 8 – 13 5 – 13Furniture and office equipment 4 – 15 2 – 15Data processing equipment and software 5 – 10 3 – 10

Intangible assets

Subscriber bases 3 – 8 4 – 10Software 5 – 10 2 – 10

2006 2007 2008Rm Rm Rm

6. Investment income 397 235 197

Interest received 347 232 197Dividends 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 fromfinancial 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 2,041Foreign debt 9 – 19Less: Finance costs capitalised (169) (161) (175)

Foreign exchange gains and losses and fair value movement (123) (202) (82)

Foreign exchange losses 47 246 114Fair 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 onfinancial liabilities not measured at fair value through profit or loss.

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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 3,764Underprovision/(overprovision) for prior year 9 (36) (8)

Deferred taxation 173 516 219

Temporary differences – normal company taxation 229 584 141Temporary difference – Secondary Taxation on Companies (‘STC’) tax credits utilised/(raised) 51 (69) 190Change in tax rate – – (59)(Overprovision)/underprovision for prior year (107) 1 (53)

Secondary Taxation on Companies 585 670 678Foreign taxation 2 17 51

The net deferred taxation expense results mainly from the extension ofuseful lives, offset slightly by an increase in the STC tax credits.

The STC expense was provided for at a rate of 10% (12.5% beforeOctober 1, 2007) on the amount by which dividends declared exceededdividends received. Deferred tax expense relating to STC credits areprovided for at a rate of 10%.

Reconciliation of taxation rate % % %

Effective rate 32.7 34.9 36.5South African normal rate of taxation 29.0 29.0 29.0Adjusted 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 2.9Tax losses not utilised 0.6 – (0.7)STC tax credits utilised/(raised) 0.4 (0.3) 1.5STC tax charge 4.2 4.9 5.3Capital 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 authoritieson indirect taxes. The provisions made include estimates of anticipated interest and penalties where appropriate. As of March 31, 2008, theGroup has accrued for tax obligations in the amount of RNil (2007: RNil; 2006: R199 million). These amounts represent what managementbelieves will be the probable outcome of such disputes for all tax years for which additional taxes can be assessed.

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9. Earnings per shareBasic 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 ofordinary 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 theyear 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 theweighted average number of shares is as a result of the expected futurevesting of shares already allocated to employees under the TelkomConditional 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 headlineearnings 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 headlineearnings 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. Theadjustment in the weighted average number of shares is as a result ofthe expected future vesting of shares already allocated to employeesunder the Telkom Conditional Share Plan.

Reconciliation of weighted average number of ordinary shares:Ordinary shares in issue (refer to note 21) 557,031,821 544,944,901 532,855,530Weighted 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 withthe 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 63.4cents and a reduction in headline earnings per share of 62.7 cents.

2006 2007 2008

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9. Earnings per share (continued)

2008

Reconciliation between earnings and headline earnings:

Earnings as reported 7,975Profit 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 244Write-offs of property, plant and equipment and intangible assets 285 219

Headline earnings 8,331

2007


Earnings as reported 8,646Profit 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 9Write-offs of property, plant and equipment and intangible assets 284 202


2006


Earnings as reported 9,189Profit 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 133Acquisition of subsidiary (35) (35)


*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 526,271,095 514,341,284 509,595,092Expected 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 onJune 8, 2007 and 511,513,239 (2007: 519,711,238; 2006: 533,465,573) number of ordinary shares outstanding on the date ofdividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment.

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Gross* NetRm Rm

2006 2007 2008

Accumulated Carrying Accumulated Carrying Accumulated Carrying

Cost depreciation value Cost depreciation value Cost depreciation valueRm Rm Rm Rm Rm Rm Rm Rm Rm

10. Property, plant and equipmentFreehold land and buildings 4,510 (1,811) 2,699 4,594 (1,837) 2,757 4,931 (2,010) 2,921Leasehold buildings 940 (322) 618 926 (362) 564 1,052 (418) 634Network equipment 59,418 (30,477) 28,941 63,003 (31,820) 31,183 69,572 (35,214) 34,358Support equipment 3,740 (2,419) 1,321 4,045 (2,436) 1,609 4,355 (2,635) 1,720Furniture and office equipment 469 (335) 134 536 (366) 170 568 (377) 191Data processing equipment and software 5,612 (3,530) 2,082 5,836 (3,707) 2,129 6,279 (3,904) 2,375Under construction 1,320 – 1,320 2,536 – 2,536 4,200 – 4,200Other 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 focuson Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continueover 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 financialyear. 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: R574 million; 2006: R624 million) are pledged as security. Detailsof 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 ofof year Additions nations Transfers lation reversals Disposals ciation year


2008

Freehold land and buildings 2,757 300 22 27 2 (3) (8) (176) 2,921Leasehold buildings 564 136 26 32 1 (67) (1) (57) 634Network equipment 31,183 5,167 404 1,301 272 (136) (107) (3,726) 34,358Support equipment 1,609 316 1 116 3 (8) – (317) 1,720Furniture and office equipment 170 78 3 1 1 (8) (1) (53) 191Data processing equipment and software 2,129 525 31 150 6 (19) (2) (445) 2,375Under construction 2,536 3,416 135 (1,737) 2 (152) – – 4,200Other 306 170 8 11 7 (2) (3) (81) 416

41,254 10,108 630 (99) 294 (395) (122) (4,855) 46,815

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10. Property, plant and equipment (continued)

2007

Freehold land and buildings 2,699 209 – – 2 17 (1) (169) 2,757Leasehold buildings 618 – – 1 – – (14) (41) 564Network equipment 28,941 5,154 1 849 240 (199) (270) (3,533) 31,183Support equipment 1,321 442 – 109 2 (15) – (250) 1,609Furniture and office equipment 134 51 3 8 1 – – (27) 170Data processing equipment and software 2,082 466 12 (36) 8 (10) (2) (391) 2,129Under construction 1,320 2,165 – (912) – (37) – – 2,536Other 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) 2,699Leasehold buildings 618 75 – (1) – – – (74) 618Network equipment 28,336 2,622 – 2,228 (122) (49) (21) (4,053) 28,941Support equipment 1,355 130 – 106 (1) (6) (5) (258) 1,321Furniture and office equipment 155 19 – 4 – – – (44) 134Data processing equipment and software 2,035 381 1 153 (2) (10) (1) (475) 2,082Under construction 1,084 2,933 – (2,622) – (75) – – 1,320Other 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, shouldbe recognised as tangible or intangible assets, based on management judgement and on facts available and the significance of each element tothe 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 itemsof property, plant and equipment and intangible assets were estimated, and an impairment loss of R217 million was recognised in orderto reduce the carrying amount of those assets to their recoverable amount. The impairment has been included in impairment, write-offsand reversals.

Impair-Carrying Foreign ment, Carrying value at Business currency write-offs value at

beginning combi- trans- and Depre- end ofof year Additions nations Transfers lation reversals Disposals ciation year


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11. Intangible assetsGoodwill 305 – 305 673 – 673 3,255 – 3,255Trademarks, copyrights and other 685 (472) 213 761 (521) 240 1,127 (633) 494Licences 155 (95) 60 222 (116) 106 311 (140) 171Software 5,607 (3,338) 2,269 6,720 (3,737) 2,983 8,106 (4,298) 3,808Under 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 ofof year Additions nations Transfers lation write-offs posals sation year


2008

Goodwill 673 492 1,727 – 375 (12) – – 3,255Trademarks, copyrights and other 240 174 165 – 20 – – (105) 494Licences 106 32 36 – 15 (3) – (15) 171Software 2,983 739 – 713 9 (10) – (626) 3,808Under 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 – – – 673Trademarks, copyrights and other 213 8 69 – – – – (50) 240Licences 60 47 1 – 8 – – (10) 106Software 2,269 628 – 559 7 (4) – (476) 2,983Under construction 1,063 729 – (636) – (47) – – 1,109

3,910 1,598 243 (77) 24 (51) – (536) 5,111

2006

Goodwill 269 – 37 – (1) – – – 305Trademarks, copyrights and other 199 2 91 2 – – – (81) 213Licences 64 1 – – (1) – – (4) 60Software 1,745 219 – 801 (2) – (19) (475) 2,269Under 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 isbetween 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 beingMulti-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


Cost amortisation value Cost amortisation value Cost amortisation value


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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 usecalculation. The value in use calculation uses cash flow projections and a discount rate of 18.43%. It was concluded that Multi-Links is notimpaired. The valuation was based on cash flow projections based on financial budgets approved by management covering a ten year periodand 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 averagegrowth 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. Goodwillwas only tested against the three cash-generating units namely; Kenya, Tanzania and Ghana, which amongst them share 82% of the totalgoodwill 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. Itwas determined that goodwill associated with two cash-generating units; Tanzania and Ghana was impaired. The value in use calculations usecash 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 DemocraticRepublic 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 calculationsuse cash flow projections based on financial budgets approved by management covering a ten year period and discount rates of between12.0% and 15.0% in South African Rand terms. The terminal growth rate applicable is between 4.0% and 6.0%. Management believes thatany reasonable change in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed theaggregate 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 calculationuses cash flow projections based on financial budgets approved by management covering a ten year period and a discount rate which rangedbetween 16.0% and 19.0% in US Dollar terms. Cash flows beyond this period have been extrapolated using annual nominal growth rates whichranged 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 ratesbeyond an initial five year period, for the markets in which they operate. Management believes that any reasonable possible change in thekey 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 periodimmediately 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 theperiod immediately before the budget period and increased to expected efficiencies. The value assigned reflects past experience andefficiency improvements.

Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achievedin the period immediately before the budget period and adjusted for expected network coverage roll out. The value assigned is based onmanagement’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 onmarket 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 overthe budget period in respect of the ZAR/USD. The value assigned to the key assumption is consistent with external sources of information.

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12. Financial instruments and risk managementExposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limitsand 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 currencyand 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 Groupuses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The derivativesused for this purpose are principally interest rate swaps, currency swaps and forward exchange contracts. The Group does not speculate inderivative instruments.

The table below sets out the Group’s classification of financial assets and liabilities

At fair value Financialthrough profit liabilities

or loss at Totalheld for amortised Held-to- Available- Loans and carrying Fairtrading cost maturity for-sale receivables value value

Notes Rm Rm Rm Rm Rm Rm Rm

2008

Classes of financial instruments per Balance SheetAssets 1,991 – 372 55 9,783 12,201 12,201

Investments 13 1,377 – – 55 67 1,499 1,499Trade and other receivables* 18 – – – – 8,582 8,582 8,582Other financial assets 19 614 – – – – 614 614

Interest rate swaps 19 9 – – – – 9 9Forward exchange contracts 19 589 – – – – 589 589Other financial assets 19 16 – – – – 16 16

Finance lease receivables 15 – – 372 – – 372 372Cash 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) (16,269)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)

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12. Financial instruments and risk management (continued)

2007

Classes of financial instruments per Balance SheetAssets 1,608 – 246 47 7,861 9,762 9,762

Investments 13 1,349 – – 47 65 1,461 1,461Trade and other receivables* 18 – – – – 7,047 7,047 7,047Other financial assets 19 259 – – – – 259 259

Bills of exchange 19 98 – – – – 98 98Interest rate swaps 19 16 – – – – 16 16Forward exchange contracts 19 145 – – – – 145 145

Finance lease receivables 15 – – 246 – – 246 246Cash 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)Interest rate swaps 19 (26) – – – – (26) (26)Forward exchange contracts 19 (42) – – – – (42) (42)Other financial liabilities 19 (36) – – – – (36) (36)

Credit facilities utilised 20 – (441) – – – (441) (441)

2006

Classes of financial instruments per Balance SheetAssets 3,149 – – – 11,269 14,418 14,418

Investments 13 2,874 – – – 89 2,963 2,963Trade and other receivables* 18 – – – – 6,232 6,232 6,232Other financial assets 19 275 – – – – 275 275

Bills of exchange 19 107 – – – – 107 107Interest rate swaps 19 19 – – – – 19 19Forward 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)

Interest rate swaps 19 (105) – – – – (105) (105)Forward exchange contracts 19 (130) – – – – (130) (130)

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).

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At fair value Financialthrough profit liabilities

or loss at Totalheld for amortised Held-to- Available- Loans and carrying Fairtrading cost maturity for-sale receivables value value



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 valuationmethodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course ofbusiness.

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 carryingamount 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 paymentsdiscounted 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 investmentsare 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 borrowingsand 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 acost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peakadditional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debtrepresents approximately 51.88% (2007: 90.37%; 2006: 92.04%) of the total debt. There were no material changes in the policies andprocesses for managing and measuring risk in the 2008 financial year.

The table below summarises the interest rate swaps outstanding as at March 31:

Notional WeightedAverage amount averagematurity Currency Rm coupon rate

2008

Interest rate swaps outstandingReceive fixed <1 year ZAR 27 13.62%

1 – 5 years ZAR 58 13.30%>5 years ZAR – –

2007

Interest rate swaps outstandingPay 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 outstandingPay 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 interestrate 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%.

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12.3 Credit risk managementCredit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Group is not exposed tosignificant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterpartiesis a net favourable position of R438 million (2007:R144 million; 2006: R158 million). No collateral is required when entering into derivativecontracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits the exposureto 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 heldat fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a potentialdefault 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 reducethe risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counter party failure, limitsare set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large widespread customerbase, 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 futurecash 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 employmentperiod and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before anypension payout can be made to the employee. There is no provsision outstanding in respect of these contingencies. The fair value of theguarantee 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 riskduring 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:

Carrying amount2006 2007 2008

Rm Rm Rm

Business and residential 1,955 1,924 1,824Global, corporate and wholesale 1,381 1,643 1,875Government 369 318 368Other customers 35 41 334

Fixed-line 3,740 3,926 4,401Mobile 1,834 2,299 2,880Other 514 567 704Impairment of trade receivables (290) (235) (290)

Subtotal for trade receivables 5,798 6,557 7,695Other receivables* 434 490 887Investments and loans receivable 2,963 1,461 1,499Other 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 6,840Ageing of past due but not impaired21 to 60 days 217 331 38461 to 90 days 42 80 11091 to 120 days 24 59 71120+ days 173 258 290

5,798 6,557 7,695

*Other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million).

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12.3 Credit risk management (continued)

The ageing in the allowance for the impairment of trade receivables atreporting date was:

Fixed-line and Other

Current defaulted trade 25 24 5321 to 60 days 43 21 2561 to 90 days 23 19 3191 to 120 days 19 15 19120+ days 138 118 121

248 197 249Mobile 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 invoicefor the South African operations and between 20 and 75 days from the date of invoice for the non-South African operations. Generally no interestis charged on trade receivables. Mobile operations have provided fully for all receivables over 120 days due for their South African operationsand 90 days due for their non-South African operations because historical experience is such that receivables that are due beyond these daysare generally not recoverable. Trade receivables of the South African operations due between 60 and 120 days are provided for based onestimated 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 thedifference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group doesnot hold any collateral over these balances except for Mobile which holds collateral for financial assets past due but not impaired to the valueof 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 riskas a result of uncertain trade receivable related to cash flows as well as capital commitments of the Group. Liquidity risk is managed by theGroup’s various Corporate Finance divisions in accordance with policies and guidelines formulated by the Group’s Executive Committees. In termsof its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-termliquidity risk, the Group maintains a reasonable balance between the period over which assets generate funds and the period over which therespective 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 riskduring the 2008 financial year.

2006 2007 2008Rm Rm Rm

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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 theremaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractualundiscounted 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 1,150Interest-bearing debt (excluding finance leases) 27 14,566 16,672 6,350 4,835 2,733 2,754Trade 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


Finance lease liabilities* 27 1,220 2,424 231 276 585 1,332Interest-bearing debt (excluding finance leases) 27 9,144 11,329 6,133 1 2,551 2,644Trade and other payables 30 7,237 7,237 7,237 – – –Bank borrowings 20 441 441 441 – – –


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


Finance lease liabilities* 27 1,272 2,644 217 236 672 1,519Interest-bearing debt (excluding finance leases) 27 9,851 12,415 3,425 4,581 1,792 2,617Trade and other payables 30 6,103 6,103 6,103 – – –Bank borrowings 20 693 693 693 – – –


Interest rate swaps 19 105 105 – 105 – –Forward exchange contracts 19 130 130 130 – – –

18,154 22,090 10,568 4,922 2,464 4,136

*For details on minimum lease payments refer to note 37.

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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 ofshares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issuedshare capital of the company on the date upon which the option is exercised. The option will lapseafter 36 months following the month in which the triggering events, as stipulated in the optionagreement, 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 andbeneficially 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 isincluded in other non-current financial liabilities. R661 million was initially recognised in equity andR258 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 atMarch 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 profilethe company ensures that there is adequate insurance cover through the utilisation of a special purpose insurance vehicle.

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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 instrumentssuitable 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 Groupalso enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitments denominatedin foreign currencies (primarily United States Dollars and Euros). The purpose of the Group’s foreign currency hedging activities is to protectthe 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 managingand 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 valueTo buy m Rm Rm

2008

Currency

USD 139 1,042 109Euro 252 2,826 444Pound Sterling 19 281 30Other 31 32 6

4,181

2007

Currency

USD 181 1,329 (1)Euro 196 1,899 23Pound Sterling 19 261 6Other 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

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Foreign contract value Forward value Fair valueTo sell m Rm Rm


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 88Euro 52 505 (5)Pound Sterling 4 51 1Other 29 17 –

1,567

2006

Currency

USD 128 954 140Euro 41 309 (3)Pound Sterling 5 56 2Other 54 23 –

1,342







The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table representsthe net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the differentforeign currencies.

South UnitedAfrican Pound States

Rand Euro Sterling Dollar OtherRm 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



ZAR – 475 (166) 159 32USD 26 (25) – – (17)

2006



ZAR – 376 (165) 42 99USD (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 atthe balance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’sassessment 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 attributableto the fixed-line’s segment exposure to interest rates on its derivative and floating rate debt portfolios.

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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 100Profit/(loss) before tax (Rm) 37 24 (12)

LIBOR

Basis points increase 100 100 100Profit/(loss) before tax (Rm) 0 0 (5)

EURIBOR

Basis points increase 100 100 100Profit/(loss) before tax (Rm) 0 0 1

Lesotho prime rates

Basis points increase 100 100 100Profit/(loss) before tax (Rm) 0 0 1

Foreign exchange currency riskThe 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 profitin foreign before tax

exchange currency increase/(decrease)% Rm

2008Rand appreciates

USD +10 (25)EURO +10 (42)

Rand depreciatesUSD –10 25EURO –10 42

2007

Rand appreciatesUSD +10 (18)EURO +10 (27)



USD +10 (11)EURO +10 (17)


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Foreign exchange currency risk (continued)

The following table details Mobile’s sensitivity to the below-mentioned percentage strengthening and weakening in the functional currency againstthe relevant foreign currencies.

A positive number indicates an increase in profit before taxation where the functional currency is expected to strengthen against the relevantcurrency in a net financial liability position. A negative number indicates a decrease in profit before taxation where the functional currency isexpected to strengthen against the relevant currency in a net financial asset position.

The Group is exposed to 50% of the following:

South UnitedAfrican Pound States

Rand Euro Sterling Dollar% % % %

2008

South African Rands – 7.6 6.5 9.5United States Dollar 9.5 5.1 2.6 –Tanzanian Shilling 11 7.5 5 2.5Mozambican Meticals 0.1 3.8 6.5 9.4Profit before tax (Rm) 2 (54.4) (1.0) (7.7)

2007

South African Rands – 31.9 13.1 11.5United States Dollar 11.5 18.3 1.4 –Tanzanian Shilling 11 17.4 0.6 0.8Mozambican Meticals 17.7 8.6 6.9 8.2Profit before tax (Rm) 6.3 (36.8) (2.6) 2.1

2006

South African Rands – 29.3 32.5 17.7United States Dollar 17.7 9.8 12.5 –Tanzanian Shilling 13.7 11.5 14.3 1.5Mozambican Meticals 17 7.4 10 2.2Profit before tax (Rm) 3.2 (16.9) (38.3) 4.1

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Exchange rate table (closing rate)

USD 6.180 7.248 8.132Euro 7.482 9.649 12.854Pound Sterling 10.737 14.189 16.166Swedish Krona 0.793 1.033 1.370Japanese 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 futuredevelopment of the business. The Group monitors capital using net debt to equity ratio. Telkom’s policy is to keep the net debt to equity ratiobetween 50% and 70%. Vodacom’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. Included in net debt are interestbearing 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 otherinvestments 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 fordividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declaredto 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 equityattributable 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 2008Rm Rm Rm

Non-current portion of interest-bearing debt 7,655 4,338 9,403Current portion of interest -bearing debt 3,468 6,026 6,330Credit facilities utilised 693 441 1,342Non-current portion of other financial liabilities – 36 919Current portion of other financial liabilities 235 193 371Less: 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%

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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 AfricanSatellite Communications Organisation, headquartered in Abidjan, IvoryCoast, at cost.

Cost 1 1 1Impairment (1) (1) (1)

The fair value of this unlisted investment cannot be practicablydetermined. The directors’ valuation is based on the Group’s interest inthe entity’s net asset value converted at year-end exchange rates. Thedirectors’ 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 materiallydifferent from the carrying amount as it is recognised at fair value. Theinvestee company also granted the Group an option to subscribe foradditional shares (refer to note 12) from the 10% currently held up toan aggregate of 25.5%.

Other investments – 7 32

The Group purchased a 10% equity stake in G-Mobile Holdings Limitedand a 25.93% equity stake in Gogga Tracking Solutions (Proprietary)Limited. The investee companies also granted the Group an option toincrease the investments (refer to note 27). During 2008 the Grouppurchased a 50% equity stake in Waterberg Lodge (Proprietary) Limited,a 35% equity stake in X-Link Communications (Proprietary) Limited andincreased its interest in G-Mobile Holdings Limited from 10% to 26% byexercising 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 PlanetelCommunications Limited and Caspian Limited respectively in VodacomTanzania Limited on November 30, 2007. The shareholder loans with acombined nominal value of USD14.9 million, were transferred toMirambo Limited in order to meet its obligations to Vodacom TanzaniaLimited in respect of shareholder contributions. The loan bears interest atLIBOR plus 5% and shall be repaid from any cash distributions byVodacom Tanzania Limited to Mirambo Limited. The loan and capitalisedinterest are collateralised by cession over all shareholder distributionsand a pledge over the shares of Vodacom Tanzania Limited.

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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%. PlanetelCommunications Limited utilised this loan to ensure sufficient shareholderloan funding by itself as a shareholder of Vodacom Tanzania Limited. Theloans and capitalised interest were collateralised by cession over allshareholder distributions and a pledge over their shares of VodacomTanzania Limited. All the shareholders subordinated their loans to VodacomTanzania 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%. CaspianLimited utilised this loan to ensure sufficient shareholder loan funding byitself as a shareholder of Vodacom Tanzania Limited. The loans andcapitalised interest were collateralised by cession over all shareholderdistributions and a pledge over the shares of Vodacom Tanzania Limited.All the shareholders subordinated their loans to Vodacom Tanzania Limitedfor the duration of the project finance funding period, which expired atthe end of the current financial year (refer to note 27). On November30, 2007, Caspian sold its 19% shareholding in Vodacom TanzaniaLimited 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 allcreditors of NPC for repayment until such time as the assets of NPC fairlyvalued exceed its liabilities and in such case, the loan shall cease to besubordinated to the extent that the assets of NPC exceed its liabilitiesfrom time to time. The shareholder loan bears no interest and has nofixed repayment terms.

Sekha-Metsi Investment Consortium Limited – 8 –

The loan was advanced to Sekha-Metsi Investment Consortium Limitedand bore interest at South African overdraft interest rates plus a marginof 2%. Interest was payable monthly in arrears. The loan was repayableon demand, should Sekha-Metsi Investment Consortium Limited be ableto obtain a loan externally. Sekha-Metsi Investment Consortium Limitedpledged their shares in Sekha-Metsi Enterprises (Proprietary) Limited assecurity for the loan. During the current financial year the loan was repaid.

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Loans and receivables (continued)

Empresa Moçambicana de Telecommuniçacoes S.A.R.L. (‘Emotel’) – – 4

The loan with a nominal value of USD0.9 million issued during the 2008financial year bears interest at LIBOR plus 2%. Interest is capitalised ona monthly basis. The loan and capitalised interest are repayable uponthe 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 respectof its 2% shareholding in V.M, S.A.R.L. The loan and capitalised interestare collateralised by cession over all cash distributions and a pledge overtheir 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 wasrepayable through traffic revenue from June 2004 over 5 years. R41 milliontraffic was set off against the loan in the 2007 financial year, hencesettling 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 1,291Linked insurance policies – Investec 24 – –Ordinary shares – listed 1,059 – –Cash 229 – –Other money market investments 284 69 51Government 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 thecell 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 preferenceshares are dependant on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preferenceshareholder, receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of therisks 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 captiveannuity 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 millionin the financial year ended March 31, 2007 (refer to note 29).

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14. Deferred revenue and Deferred expensesDeferred expenses 480 557 583

Deferred expenses 254 270 221Current portion of deferred expenses 226 287 362

Included in long-term deferred expenses and revenue is Vodacomunactivated starter packs.

The current portion of deferred expenses represents the deferral ofconnection costs.

Deferred revenue 2,966 3,004 3,721

Deferred revenue 991 1,021 1,128Current 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 ofR107 million and a short-term portion of R11 million (2007: R129 million; 2006: R140 million). A profit of R11 million per annum is recognisedin income on a straight-line basis, over the period of the lease ending 2019 (refer to note 37).

15. Finance lease receivablesThe Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to specificcustomers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms of IAS17.

In terms of IFRIC4 the Group has concluded that some of its voice and non-voice service arrangements with its customers contain a lease. IFRIC4required the entity to assess existing arrangements at the beginning of the earliest period for which comparative information under IFRS ispresented on the basis of facts and circumstances existing at the beginning of that period. The effect of the application of this interpretationwas not considered material for 2006, and therefore all cumulative adjustments were made during the 2007 financial year.

Total < 1 year 1 – 5 years > 5 yearsRm Rm Rm Rm

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) –



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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) 53Change 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 2,008Tax losses 112 113 276STC tax credits 301 370 183

Deferred tax balance is made up as follows: (587) (1,123) (1,374)

Deferred tax assets 481 593 605Deferred 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 toreduce 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 millionrelates 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 iscalculated using the revised STC rate of 10% (previously 12,5%) as announced by the Minister of Finance. The deferred tax asset is recognisedas 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 expensewhen 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 fromthe change in the estimate of useful lives of the assets as well as from the acquisition of Multi-Links Telecommunications Limited.

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17. Inventories 814 1,093 1,287

Gross inventories 916 1,275 1,535Write-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 895Merchandise 327 282 392

Write-down of inventories to net realisable value 102 182 248

Opening balance 67 102 182Charged to selling, general and administrative expenses 64 154 164Inventories written-off (29) (74) (98)

Inventory levels as at March 31, 2008 and 2007 have increased dueto the roll-out of the Next Generation Network and increased inventorylevels, required to improve customer service.

The increase in merchandise in the current year is due to the acceleratedacquisition of merchandise to limit the Group’s exposure to foreigncurrency 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 7,985Impairment of receivables (290) (235) (290)

Prepayments and other receivables 601 746 1,291

Impairment of receivables 290 235 290

Opening balance 285 290 235Charged to selling, general and administrative expenses 206 153 300Receivables 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 provisionfor doubtful debts.

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19. Other financial assets and liabilitiesOther financial assets consist of:

At fair value through profit or loss 275 259 614

Bills of exchange 107 98 –Interest rate swaps 19 16 9Forward exchange contracts 149 145 589Other financial assets – – 16

Bills of exchange

The fair value of bills of exchange has been derived at with reference toBESA 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)Interest rate swaps (105) (26) –Forward exchange contracts (130) (42) (173)

Change in comparativeDerivative instruments in other financial liabilities category increased by R125 million in 2007 (2006: RNil) due to the reclassification of theVodacom DRC put option from trade and other payables.

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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 664Short-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 interestat a rate that will be mutually agreed between the borrower and lenderat the time of drawdown, have no specific maturity date and are subjectto annual review. The facilities are in place to ensure liquidity. At March 31,2008, R2,000 million of these undrawn facilities were committed.

Borrowing powersTo borrow money, Telkom’s directors may mortgage or encumberTelkom’s property or any part thereof and issue debentures, whethersecured or unsecured, whether outright or as security for debt, liability orobligation of Telkom or any third party. For this purpose the borrowingpowers of Telkom are unlimited, but are subject to the restrictive financialcovenants of the TL20 and the conditions and covenants of the BridgeLoan facility indicated on note 27.

21. Share capital and premiumAuthorised and issued share capital and share premium are made upas follows:

Authorised 10,000 10,000 10,000

999,999,998 ordinary shares of R10 each 10,000 10,000 10,0001 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 5,2081 (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 557,031,821 544,944,901 532,855,530Shares 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.

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21. Share capital and premium (continued)

Share buy-backDuring the financial year Telkom bought back 12,071,344 ordinaryshares at a total consideration of R1,647 million. This reduced Sharecapital by R121 million and Retained earnings by R1,526 million.

During the financial year ended March 31, 2007, Telkom bought back12,089,371 ordinary shares at a total consideration of R1,596 million.This reduced Share capital by R120 million, Share premium byR1,342 million and Retained earnings by R134 million.

During the financial year ended March 31, 2006, Telkom bought back12,086,920 ordinary shares at a total consideration of R1,502 million.This reduced the Share capital by R121 million and Share premium byR1,381 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 treasuryshares by its subsidiaries Rossal No 65 (Proprietary) Limited and AcajouInvestments (Proprietary) Limited, respectively.

The shares held by Rossal No 65 (Proprietary) Limited are reserved forissue 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 bemade available to the TCSP to make up for the current shortfall in theshare scheme after the additional grants made in the current year (referto 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 theTCSP during the year.

The fair value of these shares at the date of vesting was R301 million(2007: R63 million; 2006: R4 million).

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23. Share-based compensation reserveThis reserve represents the cumulative fair value of the equity-settledshare-based payment transactions recognised in employee expenses overthe vesting period of the equity instruments granted to employees interms of the Telkom Conditional Share Plan (refer to note 29).

The Telkom Board approved the fourth enhanced allocation of shares toemployees on September 4, 2007, with a grant date of September 27,2007, the day that the employees and Telkom shared a commonunderstanding of the terms and conditions of this grant. A total of6,089,810 shares were granted.

The Board has also approved an enhanced allocation for the November2006 grant on September 4, 2007, with a grant date of September27, 2007. The number of additional shares granted with respect to the2006 allocation is 4,966,860.

No consideration is payable on the shares issued to employees, butperformance criteria will have to be met in order for the granted sharesto vest. The ultimate number of shares that will vest may differ based oncertain individual and Telkom performance conditions being met. Therelated compensation expense is recognised over the vesting period ofshares granted, commencing on the grant date.

The following table illustrates the movement within the Share-basedcompensation reserve:

Balance at beginning of year 68 151 257Net increase in equity 83 106 386

Employee cost* 120 141 522Accelerated 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 expensesfor 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).

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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 investmentto fund Telkom’s post-retirement medical aid liability and the other is forVodacom’s short-term insurance obligation in respect of handsets.

In terms of the Short-term Insurance Act, 1998, the Vodacom Group’s cellcaptive partner, Nova Risk Partners Limited is required to recognise acontingency reserve equal to 10% of premiums written less approvedreinsurance (as defined in the Act). This reserve can be utilised only withthe prior permission of the Registrar of Short-term Insurance.

The earnings from the cell captives are recognised in the incomestatement and then transferred to Non-distributable reserves.

Gains and losses from changes in the fair value of available-for-saleinvestments are recognised directly in equity until the financial asset isdisposed 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)

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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 debtLong-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 17,839Discount 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 valueTK01, 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 bondsThe local Telkom bonds are unsecured, but a side letter to the subscriptionagreement (as amended) of the TL20 bond, and the R1,600 million BridgeLoan facility, included in Call borrowings, contain a number of restrictivefinancial 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 interestbearing 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 BridgeLoan facility and R2,000 million Term loan agreement agreements limitthe Group’s ability to encumber, cede, assign, sell or otherwise dispose ofa material portion of its assets without the prior written consent of theLenders, which will not be unreasonably withheld. The TL20, PP02, andPP03 local bonds limit Telkom’s ability to create encumbrances on revenuesor assets, and secure any indebtedness without securing the outstandingbonds equally and rateably with such indebtedness.

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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 asubscription 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 witha nominal value of R500 million (Group shares: R250 million) each towhich ABACAS subscribed. The debt instrument will bear interest based onJIBAR plus credit margin and funding margin. The repayment term is threeyears with interest being paid quarterly. The credit margin is 0.4% and thefunding margin is 0.18% and 0.15% respectively.

Licence Obligation – – 47

On December 9, 2004, ICASA amended the Vodacom South Africa licenceto allow for access to the 1800 Megahertz frequency spectrum band andthe 3G radio spectrum band. The costs to the Group for the 1800 Megahertzfrequency band obligations is estimated at R68.8 million (Group shareR34.4 million). The net present value, at a discount rate of 8%, over threeyears amounts to R64 million (Group share: R32 million). The cost to theGroup for the 3G radio sprectrum band obligation is estimated atR36.8 million (Group share: R18.4 million). The net present value, at adiscount rate of 8%, over three year amounts to R32.2 million (Groupshare: R16.1 million).

Other debt 2 6 10

Other debt includes Vodacom Group shareholders’ loans with variablepayment 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%), 511 million (2007: 511 million; 2006: 511 million)

Mirambo Limited – – 72

Mirambo Limited bought the 16% and 19% equity stake of PlanetelCommunications Limited and Caspian Limited respectively in VodacomTanzania Limited on November 30, 2007. The shareholder loans with acombined nominal value of USD18 million (Group share: USD9 million),were transferred to Mirambo Limited in order to meet its obligations toVodacom Tanzania Limited in respect of shareholder contributions. The loanbears interest at LIBOR plus 5% and shall be repaid by approval of at least60% of the shareholders of Vodacom Tanzania Limited. The loan andcapitalised interest are unsecured and surbordinated.

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(b) Foreign debt (continued)

Planetel Communications Limited 21 27 –

The shareholder loan of USD8 million (2007: USD8 million; 2006: USD8million) (Group share: USD4 million; 2007: USD4 million; 2006: USD4million) was subordinated for the duration of the project finance fundingperiod of Vodacom Tanzania Limited, which expired at the end of the currentfinancial year, bore no interest from April 1, 2002, and was thereafteravailable for repayment, by approval of at least 60% of the shareholdersof Vodacom Tanzania Limited. The loan became non-interest bearing andwas remeasured at amortised cost at an effective interest rate of LIBORplus 5%. The gain on remeasurement was included in equity. On November30, 2007 Planetel Communications Limited sold its 16% shareholding inVodacom 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 financefunding period of Vodacom Tanzania Limited, bears no interest from April1, 2002, and was thereafter available for repayment, by approval of at least60% of the shareholders of Vodacom Tanzania Limited. The loan becamenon-interest bearing and was remeasured at amortised cost at an effectiveinterest rate of LIBOR plus 5%. The gain on remeasurement was includedin 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 VodacomGroup. The loan originally repayable on July 19, 2006, was refinancedduring 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 partiesinclude the following:

(a) Netherlands Development Finance Company USDNil (2007: USD4million; 2006: USD8 million) (Group share: USDNil; 2007: USD2million; 2006: USD4 million)

(b) Deutsche Investitions – und Entwicklungsgesellschaft mbH 5Nil(2007: 54 million; 2006: 58 million) (Group share: 5Nil; 2007: 52 million; 2006: 54 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, thelicense and Vodacom Tanzania Limited’s tangible assets and intangibleassets. The loans bore interest based upon the foreign currencydenomination of the project financing between 6% and 14.4% per annumand was fully repaid in the 2008 financial year.

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(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 withno fixed repayment terms. USD2 million (Group share: USD1 million) ofthese facilities was repaid on June 30, 2007 and bore interest at LIBOR plus6% 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. Thepreference shares are redeemable at the discretion of the shareholders andon the basis that the shareholders are repaid simultaneously and inproportion to their shareholding.

Zenith Bank – – 45

Multi-Links Telecommunications Limited has taken out a loan from ZenithBank. The original loan amounted to USD14 million against which repaymentsamounting to USD8.4 million have already been made. The loan bears interestat LIBOR plus 3.5% and will be repaid during 2008.

FCMB Loan – – 87

Multi-Links Telecommunications Limited has taken out a FCMB loan.Theoriginal loan amounted to Naira 1,500 million against which repaymentsamounting to Naira 250 million have already been made. The loan bearsinterest at 13% and will be fully repaid during 2010. This loan is securedby a charge on assets registered in the form of a debenture trust deed. Thedeed is valued at Naira 520 million as at March 31, 2008.

Export Development Bank of Canada – – 82

Multi-Links Telecommunications Limited has a long-term funding facility inplace with Export Development Bank of Canada (EDC), through First Bankof Nigeria Plc. The original funding amounted to USD18 million againstwhich USD8 million repayments have already been made. The loan bearsinterest 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 Financingagreement with Huawei Tech Investment Co. Limited for the supply oftelecommunications equipment and services. The original funding amountedto USD41.6 million against which repayments of USD2 million have alreadybeen made. The loan bears interest at LIBOR plus 2% and will be repaid by2010. The above arrangement is temporary until financing facilities areobtained from China Development Bank.

PTA Bank and Barclays Bank – – 12

Africa Online Group has taken out a loan from PTA Bank and BarclaysBank that in total amounts to USD1,5 million. Of this amountUSD0.8 million bears interest at LIBOR plus 6% and the remainingUSD0.4 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 ofR634 million (2007: R564 million; 2006: R618 million) and officeequipment with a book value of R14 million (2007: R10 million; 2006:R6 million) (refer to note 10). These amounts are repayable within periodsranging from 1 to 12 years. Interest rates vary between 13% and 38%.

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Included in long-term and short-term debt is:

Debt guaranteed by the South African Government 4,315 4,537 141A major portion of the guaranteed debt for the years ended March 31, 2007and 2006 relates to the TK01 debt instrument, however, this instrumenthas been redeemed in full during the year ended March 31, 2008.

Telkom may issue or re-issue locally registered debt instruments in terms ofthe Post Office Amendment Act 85 of 1991. The borrowing powers ofTelkom are set out as per note 20.

Repayments/refinancing of current portion of interest-bearing debtThe repayment/refinancing of R6,330 million of the current portion ofinterest-bearing debt will depend on the market circumstances at the timeof repayment.

Management believes that sufficient funding facilities will be available at thedate of repayment/refinancing.

Loans raised and loans repaid on the cash flow statement increased dueto raising and redemption of the Commercial Paper Bills in Telkom, as wellas 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)

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28. Provisions (continued)

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 alllevels 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 atthe 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 participatingrights of employees vest at different stages and employees are entitled to cash in their entitlements within one year after the participating rightshave 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 netmovement in the provision of R42 million (2007: R17 million; 2006: R Nil) consists of finance charges and fair value movements offset byprovisional 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 estimateis based on claims notified and past experience. The suppliers of the various handsets assumed responsibility for the second year warrantysubsequent 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.

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29. Employee benefitsThe Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund and theVodacom Group Pension Fund. Membership of one of the funds is compulsory. In addition, certain retired employees receive medical aidbenefits and a telephone rebate. The liabilities for all of the benefits are actuarially determined in accordance with accounting requirementseach 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 andretirement 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 afterunrecognised 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 inNovember 2008.

With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007, asettlement 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.

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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 8Settlements – (61) (15)Actuarial (loss)/gain (18) 75 10

Plan assets at end of year 243 284 311

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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:

2006 2007 2008

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 isbased on the portfolio as a whole and not the sum of the returns ofindividual asset categories. The expected return takes into account theasset allocation of the Telkom pension fund and expected long-term returnof these assets, of which South African equities and foreign investmentsare 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 SouthAfrica, for pre-retirement purposes and the PA(90) ultimate table, minusone year age rating as published by the Institute and Faculty of Actuariesin 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.

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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 weregiven the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the TelkomPension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Governmentceased 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 fromthe defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom RetirementFund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. Telkom is unable to benefitfrom 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 theretirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding positionof 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 payableto the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan assets, Telkomwould 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 thatTelkom has a potential asset with regards to this Fund.

The funded status of the Telkom Retirement Fund is disclosed below:

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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

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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 596Telkom 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 ofthese managers specialise in trades with bonds on behalf of the Retirement Fund. The international investment portfolio consists of globalequity and hedged funds.


2006 2007 2008

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 isbased on the portfolio as a whole and not the sum of the returns ofindividual asset categories. The expected return takes into account theasset allocation of the Retirement Fund and expected long-term return onthese assets, of which South African equities, foreign investments and SAfixed interest bonds are the largest contributors.


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 TelkomRetirement Fund 25,320 25,766 24,939

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The fund portfolio consists of the following:Equities (%) 72 59 70Property (%) 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 thenext 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 providentscheme. Both schemes are administered by ABSA Consultants and Actuaries (Proprietary) Limited. The Group’s share of the current contributionsto the pension fund amounted to R57 million (2007: R42 million; 2006: R38 million). The Group’s share of the current contributions to theprovident fund amounted to R7 million (2007: R6 million; 2006: R6 milllion). South African funds are governed in terms of the Pension FundAct 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. Theexpense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical benefitsto 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 Randcap, 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 recentactuarial 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 interms of IAS19, effective June 1, 2006.

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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)


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


2006 2007 2008

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


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 impactof changing some of the valuation assumptions above:

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The TDS benefit obligation of R19 million has been excluded from the sensitivity analysis below.

Current assumption Decrease IncreaseRm 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%


The fund portfolio consists of the following:

2007 2008

Equities (%) 59 56Bonds (%) 3 2Cash and money markets investments (%) 21 33Foreign investments (%) 9 9Insurance policies (%) 8 –

Telephone rebatesTelkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2008. Eligibleemployees 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


2006 2007 2008

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 ofSouth Africa, for pre-retirement purposes and the PA(90) ultimate table,minus one year age rating as published by the Institute and Faculty ofActuaries 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

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Telkom Conditional Share Plan

Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers bothoperational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the vestingperiod. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of the 3 yearsthereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after 3 years. Although the number ofshares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may differ based on certainperformance 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 numberof 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 ofshares 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 ofshares 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 numberof shares that will vest to employees for the additional November2006 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 ofshares 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)


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Telkom Conditional Share Plan (continued)

The fair value of the shares granted have been calculated by an actuary usingthe 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) 77.50 111.00 141.25 173.00Dividend 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 ofshares that will vest are as follows:

Employee turnover (%) 5 5 5 Meeting specified performance criteria (%) 100 100 100

Long-term incentive provision

The long-term incentive provision represents the present value of theexpected future cash outflows to eligible employees that qualify. Theamount of the liability is based on an actuarial valuation. The provisionis utilised when eligible employees of the Vodacom Group receive thevalue of vested benefits.

2006 2007 2008Rm Rm Rm

The Group exposure is 50% of the following items:

Net liability at beginning of year – 122 161 Interest cost 7 10 15Current 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 2008Rm 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)

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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

*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 wasused, as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005 statutoryvaluation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair valueof the 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 theMarch 31, 2007 estimates. The remaining R1,291 million is a result of the actual investment returns exceeding the expected return for the March 31, 2007year end.

The experience adjustments on asset and liabilities for each of the financial periods ended March 31, 2004, 2005 and 2006 has not beendisclosed due to the fact that it was impractical to determine the information.

2006 2007 2008Rm 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 tradeand other payables to other financial liabilities.

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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)

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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 AfricaOnline 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 nofair value information based on IFRS was available.

The process of calculating a fair value of the identified assets, liabilitiesand contingent liabilities continued after the preceding year end and hasnow 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) 43Less: Deferred taxation raised on intangible assets (12)Less: Net liabilities acquired (excluding fair value of intangible assets) (26)

Fair value of net assets acquired 5Goodwill 145

Purchase price 150

The goodwill has been allocated to the various cash-generating units (‘CGU’) representative of the countries in which Africa Online Limitedoperates. An impairment loss of R12 million was recognised relating to the Tanzanian and Ghana cash-generating units in 2008 in order towrite down goodwill to the recoverable amount. The recoverable amount represents the value in use of the CGU’s and has been determinedusing 11.6% discount rate.

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35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests (continued)

35.1 Acquisitions (continued)


Smartphone SP (Proprietary) Limited and subsidiaries (‘Smartphone SP’)

On August 30, 2006 the Vodacom Group acquired a further 19% interest,in addition to the 51% interest already held, in the equity of Smartphone SP.

On August 31, 2007 the Vodacom Group increased its interest in the equityof Smartphone SP from 70% to 100%. The acquisition was accounted forusing 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 in Smartcom to 88% by acquiring an additional 2.25% in the equity of Smartcom.

On September 1, 2007 the Vodacom Group increased its interest in theequity of Smartcom from 88% to 100%. The acquisition was accounted forusing 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 onSeptember 6, 2007.

Africell Cellular Services (Proprietary) Limited

Effective October 1, 2006 the Vodacom Group acquired the cellular businessof Africell Cellular Services (Proprietary) Limited. The fair value of the assetsand liabilities acquired were determined as follows:

Fair value of assets acquired 25Less: Deferred taxation liability (including taxation effect on intangible assets) (7)


Purchase price 40

The customer base was not previously recorded in the accounting records of Africell Cellular Services (Proprietary) Limited as it was an internallygenerated intangible asset. The goodwill related to the acquisition represents future synergies and the ability to directly control VodacomGroup’s customers in South Africa.

2006 2007 2008 Rm Rm Rm

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By the Group’s 50% joint venture, Vodacom (continued)

InterConnect s.p.r.l

Effective November 1, 2006 the Vodacom Group acquired the internetservice provider business of InterConnect s.p.r.l. The fair values of the assetsand liabilities acquired were determined as follows:

Fair value of assets acquired 6Less: Deferred taxation liability (2)


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 areallocated 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 theequity of Cointel V.A.S. (Proprietary) Limited.

On October 4, 2006 the Vodacom Group increased its interest to 100% byacquiring 49% from the minority shareholders. The acquisition wasaccounted for using the parent entity extention method. The goodwill relatedto the acquisition represents future synergies and are allocated to the mobileSouth African cash-generating unit.

Fair value of net assets acquired 47 –Minority interest (23) 28Goodwill 18 45

Purchase price (including capitalised costs) 42 73Cash 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 VodacomGroup (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.

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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 OneAfrica Television and Downlink respectively, two companies registered inthe Republic of Namibia, for a total cost of R18 million. Telkom Media hasmanagement control and therefore the entities are consolidated into TelkomMedia Group.

Purchase price 18

The purchase price allocation will be completed in the 2009 financial yearas not all the information was available at year end to finalise it. Goodwillhas not been tested for impairment as the accounting is provisional andhas not been allocated to the various cash-generating units.

Multi-Links Telecommunications Limited (‘Multi-LinksTelecommunications’)

On May 1, 2007 Telkom acquired a 75% shareholding in Multi-LinksTelecommunications through Telkom International, a wholly owned SouthAfrican subsidiary, for a total cost of R1,985 million.

Multi-Links Telecommunications is a Nigerian Private TelecommunicationsOperator with a Unified Access License providing fixed, mobile, data, longdistance 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 operationsas a result of the combination.

At acquisition date the company was not IFRS compliant and thus no fairvalue information based on IFRS was available.

The purchase price allocation has been completed during the current yearunder review, and has resulted in goodwill being adjusted since the interimresults has been released.

The following intangible assets were identified and valued at the end ofthe year:

Customer relationship 61 Licence 36 Brand 105

Fair value of intangible assets 202

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By the Group’s subsidiaries (continued)

Multi-Links Telecommunications Limited (‘Multi-LinksTelecommunications’) (continued)

The fair value of the assets and liabilities acquired were determinedas 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 includedin the consolidated annual financial statements, since acquisition date.

The factors that lead to goodwill recognised is a combination of premiumpaid and intangible assets not separately identifiable at acquisition.

35.2 Disposals of Subsidiaries


Ithuba Smartcall (Proprietary) Limited (‘Ithuba Smartcall’)

On September 3, 2007 the Group disposed of its 52% interest in IthubaSmartcall. The fair value of the assets and liabilities disposed of was lessthan R1 million.

Stand 13 Eastwood Road Dunkeld (Proprietary) Limited

On September 3, 2007 the Group disposed of its 100% interest in Stand13 Eastwood Road Dunkeld (Proprietary) Limited. The fair value of theassets 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.

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36. Undrawn borrowing facilities and guarantees36.1 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. Whendrawn bear interest at a rate linked to prime, have no specific maturity date and are subject to annual review. R2,000 million of these undrawnfacilities were committed.


Vodacom has Rand denominated credit facilities totalling R5,788 million with R2,456 million utilised as at March 31, 2008. The facilities thatare uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an annual basis). Certainof the facilities are still subject to the Group’s final acceptance.

2006 2007 2008Guarantor Details Beneficiary Currency Rm Rm Rm

Vodacom (Proprietary) Limited All guarantees individually Various 3 3 2less 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 guaranteesTelkom 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 Multi-Links from Export Bank of Canada to CanadaTelecommunications 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 Multi-Links Satcom Limited in respect of LimitedTelecommunications interconnect service (standbyLimited) letter of credit).

Zenith Bank Plc Support the bid award of the NCC USD0.1 million – – 1 (on behalf of Multi-Links contract for the submission of Telecommunications the proposal to provide wireLimited) Nigerian Telecommunications

Services.

Zenith Bank Plc Issued in favour of Huawei Huawei Technology USD31 million – – 250(on behalf of Multi-Links Technology Investment Company Investment Company Telecommunications Limited for the supply of core LimitedLimited) telecommunications services.

Zenith Bank Plc Issued in favour of Huawei Huawei Technology USD11 million – – 88 (on behalf of Multi-Links Technology Investment Company Investment Company Telecommunications Limited for the supply of core LimitedLimited) telecommunications services.

– – 510

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36. Undrawn borrowing facilities and guarantees (continued)

36.2 Foreign denominated facilities and guarantees (continued)


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. VodacomInternational 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 overdraftfacility of USD0.5 million of which USDNil million was utilised at March 31, 2008. Foreign currency term facilities are predominantly US Dollarbased, at various maturities and are utilised for bridging and short-term working capital needs.

2006 2007 2008Guarantor Details Beneficiary Currency Rm Rm Rm

Nedbank on behalf of Unsecured standby Alcatel CIT DNil 86 – – Vodacom letters of credit (2007: DNil;(Proprietary) Limited 2006: D11 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 DNil 38 – – Limited obligation of Vodacom (2007: DNil;

Congo (RDC) s.p.r.l.* 2006: D5 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. CommitmentsCapital 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.

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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 necessarytelecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-linetelecommunications 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 marketingrights that are exercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amountedto USD35 million.

Total <1 year 1 – 5 years >5 yearsRm 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

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

Customer premises equipment receivables

The disclosed information relates to those arrangements which were assessed to be operating leases in terms of IAS17. The comparativeinformation for 2006 is not disclosed as it was not considered to be material.

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Operating leases

The Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are ten yearswith 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 majorityof 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 agreementprior 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 nofurther 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 thelease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating leasecommitments for vehicles are based on the new agreement which expires on March 31, 2013. In accordance with this agreement Telkom isnot allowed to lease any similar vehicle as specified in the contract from any other service provider during the five year period except for therentals 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, replacedby 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 ReserveBank. 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.


Finance lease commitments

2008

BuildingMinimum lease payments 2,182 161 871 1,150 Finance charges (1,029) (43) (603) (383)

Finance lease obligation 1,153 118 268 767

EquipmentMinimum 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) –


2007

BuildingMinimum lease payments 2,412 227 853 1,332 Finance charges (1,198) (166) (540) (492)


EquipmentMinimum 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.

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Finance lease commitments (continued)

2006BuildingMinimum lease payments 2,644 217 908 1,519 Finance charges (1,372) (172) (587) (613)


Finance leases

Finance leases on vehicles relates to the lease of Swap bodies. Swap bodies are detachable parts of the vehicle, designed according to Telkomspecifications, which are used as mobile storage. The lease term for the Swap bodies which have been classified as finance leases and vehicleswhich 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 thebuildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkom hasthe 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 paymentsfor 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 assessmentof whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfer significant risksand 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 yearsending 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 asa 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 alreadybeyond their normal 24 month contract period, but who have not yet upgraded to new contracts, and therefore have not utilised the incentiveavailable for such upgrades. The Group has not recognised the liability, as no legal obligation exists, since the customers have not yet enteredinto 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 beenvalidated. 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 activationcommissions on gross prepaid connections in excess of the legal liability recorded in the financial statements.

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38. ContingenciesThird parties 35 28 27

Fixed-line 27 19 18Mobile 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 customerassurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and inthat year, Telkom wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of the Telcordiainvestment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia was seekingapproximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plus interestat a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised by Telcordiato USD128 million.

The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Followingthe ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing washeld in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator settingout 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 onboth damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’sclaim, 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 relationto the software that was required to be provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amountof the claims. The arbitrator confirmed certain dates for the compliance of precedural steps to be taken by all the parties before final datescould 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.


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 tothe 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.

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2006 2007 2008 Rm Rm Rm

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 withlarge corporations, providing large discounts with the effect of the discouraging the corporates from using the ‘premicell’ device installed bytheir 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 CompetitionCommission declined to refer the matter to the Competition Tribunal. ICSPA then referred the matter to the Competition Tribunal on September18, 2003 but has done nothing since, notwithstanding that Telkom filed its answering affidavit on November 28, 2003. ICSPA has taken nofurther 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 CompetitionCommission Competition Act, 89 of 1998, alleging, among other things, that Telkom was abusing its dominant position in contravention ofthe 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 theCompetition Tribunal for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certainVANS providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidisedcompetitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with certainVANS providers.

Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the High Court, in respect ofthe decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the CompetitionTribunal 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 decisionof the Competition Commission to refer the SAVA complaints (and the Omnilink complaint against Telkom discussed below) to the CompetitionTribunal. 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 CompetitionCommission 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 thecomplainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in theSAVA 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 thecompetition 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 VANSand the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequentlyreferred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt withtogether 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 offeringdiscounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, theCompetition Commission, who acts as an investigator, has one year to investigate the complaint. Orion simultaneously with the filing of thecomplaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting andrestraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver discount plan.

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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 theCompetition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allowsfor 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 furtherdevelopments 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 Commissionregarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South African InternetExchange (‘SAIX’), the prices offered by TelkomInternet, the alleged delay in provision of facilities to ISP’s and the alleged favourable installationtimelines 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 attemptto first investigate the latter aspects of the complaint. Telkom has provided the Competition Commission with the information and is awaitingthe 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 reliefat the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and itsIP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users ofother 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 asalleged 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 ISand Telkom in terms of the current peering agreement, and demanded that Telkom treat traffic generated by the ADSL customers of M-Webas traffic destined for the peering link and that Telkom upgrades the peering link to accommodate the increased ADSL traffic emanating fromM-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 peeringagreement with IS and has responded to numerous documentation and information requests. To date there has been no further movementon 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 matterby 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 whichTelkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief againstTelkom 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 withoutinterruption of the service. Although Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter inits answering affidavit filed at the Competition Tribunal. Telkom still had to ‘plead over’ as to the merits of the matter. Telkom also filed anapplication in the Transvaal Provincial Division of the High Court on July 3, 2007 for an order declaring that the Competition Tribunal does nothave 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 settlementnegotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as withdrawal of the jurisdictional challengeby 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 unionisedemployees and other non-management employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006 toMarch 31, 2009. The long term substantive agreement provides for the re-opening of negotiations in the event the consumer price index variesfrom the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations inDecember 2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade UnionFederations especially COSATU have requested a double-digit increase. If Telkom is unable to implement workforce reductions as necessary oroutsourcing as planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increasedemployee expenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted andour net profit could be reduced.

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Negative working capital ratioAt each of the financial periods ended March 31, 2008, 2007 and 2006 Telkom had a negative working capital ratio. A negative workingcapital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cashflows, 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) LimitedR12 million, which is subject to Competition Commission approval. The Board of Vodacom Group (Proprietary) Limited has also approved the exerciseof 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 theregistration of the entire customer base of all network operators. This decree requires prescribed particulars of all customers to be obtained andmaintained by June 30, 2008. The sanction for non-compliance by any operator who has not identified its customers in accordance with therequirements 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 therequirements as prescribed in this decree by June 30, 2008. Management is engaging with the relevant ministries on this matter and arepresently 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 thelitigation. The directors are of the opinion that a claim may be successful and that the amount recovered could be significant.

39. Directors’ interestDD 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 withTelkom. Telkom paid R17,094,884 for the financial year for these goods and services (2007: R18,682,568). The outstanding creditor’s balancein Telkom at March 31, 2008 was R855,000 (2007: R151,924). Vodacom paid R592,474,403 for goods and services from the SAILGroup (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’srepresentatives on Telkom’s Board of Directors. At March 31, 2008 the Government held 39.42% (2007: 38.83%; 2006: 37.99%) ofTelkom’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 InvestmentCorporation (‘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-beneficialNumber of shares Direct Indirect Direct Indirect

Directors shareholding2008

ExecutiveRJ September 7,155 – – –

Total 7,155 – – –

2007

Non-executiveTF Mosololi 455 – – –

Total 455 – – –

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39. Directors’ interest (continued)Directors shareholding (continued)

2006

Non-executiveNE 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

ExecutiveFor other services 12 4 31

Non-executiveFor services as directors 3 3 5

Fringe Performance and other

Fees Remuneration bonus benefits TotalR 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


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Fringe Performance and other

Fees Remuneration bonus benefits TotalR R R R R

39. Directors’ interest (continued)

Directors’ emoluments

2007


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


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


*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 pensioncontribution 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 inremuneration for LRR Molotsane is a payment pursuant to a settlement agreement with Telkom. LRR Molotsane resigned from Telkom in April 2007 andRJ 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 bestinterest of the company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make recommendations tothe 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, theBoard took legal advice and established that there was not conflict of interest arising out of his involvement in the transaction evaluated.

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40. Segment informationEliminations represent the inter-segmental transactions that have beeneliminated 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 24,962Elimination (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 8,107Elimination 661 677 793Mobile 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 – – 320Elimination – – (34)

Consolidated taxation 4,523 4,731 4,704


2006 2007 2008 Rm Rm Rm

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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 8,175Elimination (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 1,830Consolidation 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


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

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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


Other segment informationCapital 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 1,791

Fixed-line 974 1,049 749 Mobile 221 539 985 Other 1 10 57

Depreciation and amortisation 5,714 5,019 5,601


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 segmentConsolidated operating revenue 47,625 51,619 56,285

South Africa 46,154 49,558 52,668Other African countries 1,487 2,099 3,653Eliminations (16) (38) (36)

Consolidated operating profit 14,677 14,470 14,482

South Africa 14,665 14,366 14,343Other African countries 131 294 245Eliminations (119) (190) (106)

Consolidated assets 57,544 59,146 70,372

South Africa 56,479 56,797 63,772Other African countries 2,015 3,489 8,785Eliminations (950) (1,140) (2,185)

Capital expenditure for property, plant and equipment and intangible assets* 7,506 10,246 11,899

South Africa 7,135 9,459 9,780Other 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 Africansubsidiaries 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’smobile 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.

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41. Related partiesDetails of material transactions and balances with related parties notdisclosed separately in the consolidated annual financial statements wereas follows:

With joint venture:

Vodacom Group (Proprietary) Limited

Related party balancesTrade receivables 48 61 51Trade payables (256) (353) (346)

Related party transactionsRevenue (710) (755) (816)Expenses 1,435 1,494 1,525 Audit fees 3 3 3 Revenue includes interconnect fees and lease and installation oftransmission linesExpenses mostly represent interconnect expenses

With shareholders:

Government

Related party balancesTrade receivables 247 271 326

Related party transactionsRevenue (2,304) (2,458) (2,623)

With entities under common control:

Major public entities

Related party balancesTrade receivables 39 59 28 Trade payables (2) (6) (25)The outstanding balances are unsecured and will be settled in cash inthe ordinary course of business

Related party transactionsRevenue (370) (435) (486)Expenses 172 238 243 Rent received (17) (29) (21)Rent paid 56 27 22

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41. Related parties (continued)

Key management personnel compensation:

(Including directors’ emoluments)

Related party transactionsShort-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 settlementoccurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there havebeen 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 undertakeneach financial year through examining the financial position of the related party and the market in which the related party operates.

42. Investments in joint venturesVodacom 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 controlledby its venturers, Telkom and Vodafone Plc through a contractual agreement. Telkom applies joint venture accounting in recognising its investmentin Vodacom since it shares control of Vodacom with Vodafone, as set out in the joint venture agreement between the two parties, and haschosen to proportionately consolidate Vodacom on a line-by-line basis. Some of the provisions in the joint venture agreement that indicate howthe 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 theCompany. 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 controlsthe activities of, Vodacom.

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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

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43. Interest in subsidiariesCountry of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republic ofCongo; 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

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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 of the 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





44. Significant eventsSwiftnet (Proprietary) Limited

Swiftnet is in breach of its licence 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 licence, which expired on August 24, 2006. On February 14, 2007 Telkom announcedthat 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 supportor 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 ICASAon January 28, 2008 to discuss its specific licence terms and conditions. Swiftnet has submitted its comments on the draft licence terms andconditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkom as its sole shareholder, has had a furthermeeting with ICASA on February 27, 2008. It was decided that the draft amended licence that ICASA sent to Swiftnet during October 2007would not form the basis of the conversion process, but instead the original licence issued to Swiftnet in August 1995 would be used as thebasis for licence conversion. The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there iscurrently no agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholdingissue for the Swiftnet licence 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 takenthe decision to substantially reduce its investment in Telkom Media (Proprietary) Limited and will be investigating all opportunities to do thisin the best interest of Telkom shareholders and all other stakeholders.

Vodacom’s BBBEE equity deal

Vodacom is in the process of finalising a R7.5 billion BBBEE (Broad-Based Black Economic Empowerment) equity deal whereby strategicbusiness 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 aposition to comment on the impact of the proposed transaction on Telkom as the details relating to the transaction are expected to be announcedby 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 TelematicsSA (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 theVodacom 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 contractcustomers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive conditions are met the transactionswould be effective.

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45. Subsequent eventsDividends

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 forshareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge ofR161 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 ofVodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, interalia, 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 isconsidering 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 numberof pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacomas part of the offer.

The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciaryduties, will evaluate all bona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisiteshareholder 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, leavingVodacom International Limited with an 85% equity investment in Vodacom Mozambique. Certain suspensive conditions are to be met beforethe 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 increasingmarket and competitive pressure has put communications companies such as Telkom under increasing revenue and expense constraintswhile being required to improve customer service. As a result a capability management initiative has been launched which is designed toensure that the capabilities needed to succeed in a converged communications market are established through the optimal utilisation of externalas well as internal capabilities, extracting effiencencies, where possible, through scale of a rapidly maturing retail and wholesale market andbetter organised functional areas in a more deregulated and liberalised communications market. The capability management initiative includesthe internal consolidation of certain functional areas and the selection of strategic long-term partners with proven performance for otherfunctional areas.

The areas which are expected to be impacted are the call centers, operations, ancillary services, network service providers, network fieldoperations, network core operations, information technology operations and retail outlets.

Telkom Management Services

On July 2, 2008, Telkom received confirmation from Cipro for the approval and reservation of a newly set-up company. The approved andreserved name is ‘Telkom Management Services’.

Union action

Telkom has received 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 endedMarch 31, 2008 and the date of this report, or otherwise dealt with in the consolidated annual financial statements, which significantly affectsthe financial position of the Group and the results of it operations.

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Company annual financial statements

Company income statement 284

Company balance sheet 285

Company statement of changes in equity 286

Company cash flow statement 287

Notes to the company annual financial statements 288


284

Total revenue 3.1 34,772 35,818 36,641

Operating revenue 3.2 31,829 32,340 32,571Other income 4 534 655 498Operating expenses 22,423 24,089 24,953

Employee expenses 5.1 6,310 7,077 7,386Payments to other operators 5.2 6,140 6,461 6,902Selling, general and administrative expenses 5.3 2,832 3,970 3,904Service fees 5.4 2,022 2,236 2,410Operating leases 5.5 755 762 619Depreciation, amortisation, impairment and write-offs 5.6 4,364 3,583 3,732

Operating profit 9,940 8,906 8,116Investment income 6 2,733 3,202 3,739Finance charges and fair value movements 7 1,320 1,027 1,289

Interest 1,222 1,142 1,499Foreign exchange and fair value movement 98 (115) (210)

Profit before taxation 11,353 11,081 10,566Taxation 8 2,838 2,690 2,599

Profit for the year 8,515 8,391 7,967

2006 2007 2008Notes Rm Rm Rm

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Company balance sheet

at March 31, 2008

AssetsNon-current assets 35,867 37,533 43,360

Property, plant and equipment 9 30,488 32,614 35,273Intangible assets 10 2,867 3,502 3,806Investments 11 2,133 887 3,883Finance lease receivables 13 – 136 160Deferred taxation 14 299 340 183Deferred expenses 24 80 54 55

Current assets 9,658 7,754 8,722

Short-term investments 11 16 – –Inventories 15 526 839 873Income tax receivable 30 – 519 –Current portion of finance lease receivables 13 – 71 105Trade and other receivables 16 5,628 5,920 6,859Other financial assets 17 256 229 443Cash and cash equivalents 18 3,232 176 442

Total assets 45,525 45,287 52,082

Equity and liabilitiesCapital and reserves 23,690 25,714 26,693

Share capital and premium 19 6,791 5,329 5,208Treasury share reserve 20 (1,786) (1,778) (1,642)Share-based compensation reserve 21 151 257 643Retained earnings 18,534 21,906 22,484

Non-current liabilities 11,413 6,580 11,181

Interest-bearing debt 22 7,245 3,308 7,336Provisions 23 2,631 1,203 1,445Deferred revenue 25 769 739 870Deferred taxation 14 768 1,330 1,530

Current liabilities 10,422 12,993 14,208

Trade and other payables 26 4,040 4,333 4,923Shareholders for dividend 31 4 15 20Current portion of interest-bearing debt 22 2,643 5,775 6,026Current portion of provisions 23 1,149 1,706 1,640Current portion of deferred revenue 25 1,216 1,107 1,424Income tax payable 30 1,164 – 7Other financial liabilities 17 206 57 168


Total equity and liabilities 45,525 45,287 52,082

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Balance at April 1, 2005 5,570 2,723 (1,789) 68 15,033 21,605Total income and expense – Profit for the year 8,515 8,515Dividend declared (refer to note 31) (5,014) (5,014)Increase in share-based compensation reserve (refer to note 21) 86 86Shares vested and re-issued (refer to note 21) 3 (3) –Shares bought back and cancelled (refer to note 19) (121) (1,381) (1,502)

Balance at March 31, 2006 5,449 1,342 (1,786) 151 18,534 23,690Total income and expense – Profit for the year 8,391 8,391Dividend declared (refer to note 31) (4,885) (4,885)Payment made for treasury shares (27) (27)Increase in share-based compensation reserve (refer to note 21) 141 141Shares vested and re-issued (refer to note 21) 35 (35) –Shares bought back and cancelled (refer to note 19) (120) (1,342) (134) (1,596)

Balance at March 31, 2007 5,329 – (1,778) 257 21,906 25,714Total income and expense – Profit for the year 7,967 7,967Dividend declared (refer to note 31) (5,863) (5,863)Increase in share-based compensation reserve (refer to note 21) 522 522Shares vested and re-issued (refer to note 21) 136 (136) –Shares bought back and cancelled (refer to note 19) (121) (1,526) (1,647)

Balance at March 31, 2008 5,208 – (1,642) 643 22,484 26,693

Treasury Share-basedShare Share share compensation Retainedcapital premium reserve reserve earnings Total

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Company statement of changes in equity


Company cash flow statement


Cash flows from operating activities 6,783 6,349 7,722

Cash receipts from customers 31,683 32,109 32,375Cash paid to suppliers and employees (18,329) (19,483) (20,163)

Cash generated from operations 27 13,354 12,626 12,212Interest received 469 385 390Dividends received 28 1,901 2,950 3,536Finance charges paid 29 (1,032) (886) (842)Taxation paid 30 (2,892) (3,852) (1,716)

Cash generated from operations before dividend paid 11,800 11,223 13,580Dividend paid 31 (5,017) (4,874) (5,858)

Cash flows from investing activities (4,494) (6,628) (9,544)

Proceeds on disposal of property, plant and equipment and intangible assets 117 4 164Additions to property, plant and equipment and intangible assets (4,821) (6,598) (6,763)Acquisition of subsidiary/loans to subsidiaries – (150) (2,945)Loans repaid by subsidiaries 210 116 –

Cash flows from financing activities (254) (2,777) 2,088

Loans raised 4,121 5,624 23,878Loans repaid (7,372) (6,843) (20,204)Shares bought back and cancelled (1,502) (1,596) (1,647)Decrease in net financial assets 4,499 38 61

Net increase/(decrease) in cash and cash equivalents 2,035 (3,056) 266Net cash and cash equivalents at beginning of the year 1,197 3,232 176

Net cash and cash equivalents at end of the year 18 3,232 176 442

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1. Corporate information

Telkom SA Limited (’the Company’) is a company incorporated

and domiciled in the Republic of South Africa (’South Africa’)

whose shares are publicly traded. The Company’s main objective

and main business is to supply telecommunication, broadcasting,

multimedia, technology, information and other related information

technology services to the general public. The principal activities

of the Company’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; and

• e-commerce, including internet access service provider,

application service provider, hosting, data storage, e-mail and

security services.

These separate annual financial statements are prepared in

compliance with the South African Companies Act, 1973. In

addition, the Group presents consolidated financial statements

which include all subsidiaries, special purpose entities and joint

ventures, which are included in these financial statements

as investments.

2. Significant accounting policies

Basis of preparation

The financial statements comply with the 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 Company’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 the amendment to IAS1; and

• adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10 and IFRIC11.

The principal effects of these changes are discussed below.

Adoption of amendments to standards and newinterpretations

The following revised standards and interpretations have beenadopted during the year under review:

Amendment to IAS1 Presentation of Financial Statements

This amendment is effective for annual periods beginning on orafter January 1, 2007. As a result of the pronouncement of IFRS7Financial Instruments: Disclosures, IAS1 has been amended torequire the disclosure of the entity’s objective, policies andprocesses for managing capital, quantitative data about what theentity regards as capital, whether the entity has complied withany capital requirements and if it has not complied, theconsequences of such non-compliance. The impact of thisamendment has been disclosed under note 12.

IFRS7 Financial Instruments: Disclosures

This standard is effective for annual periods beginning on or afterJanuary 1, 2007. IFRS7 supersedes disclosures in IAS32. Allfinancial instruments disclosures will now be provided in terms ofIFRS7. One of the main disclosure requirements added by IFRS7is that an entity must group its financial instruments into classesof similar instruments, and when disclosures are required, makedisclosures by class. IFRS7 also requires information about thesignificance of financial instruments and information about thenature and extent of risks arising from financial instruments. Theimpact of this standard is to expand on certain disclosures relatingto financial instruments and requires certain additional disclosures(refer to note 12).

IFRIC8 Scope of IFRS2

The interpretation is effective for annual periods beginning on orafter May 1, 2006. The interpretation clarifies that IFRS2 appliesto transactions in which an entity receives goods or services asconsideration for equity instruments of the entity. This includestransactions in which the entity cannot identify specifically someor all of the goods or services received. The impact of theinterpretation on the annual financial statements is not materialsince the Company has not transacted with other parties usingequity as a purchase consideration for the transaction, other thanthose paid to employees in share-based payment transactions.

IFRIC9 Reassessment of Embedded Derivatives

The interpretation is effective for annual periods beginning on orafter June 1, 2006. The interpretation clarifies that an entityshould assess whether an embedded derivative is required to beseparated from the host contract and accounted for as a derivativewhen the entity first becomes a party to the contract. It furtherclarifies that reassessment is only allowed when there is a changein the terms of the contract which significantly modifies the cashflows that would otherwise be required under the contract. Theinterpretation does not have an impact since the Company doesnot have embedded derivatives.

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Notes to the annual financial statements


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Adoption of amendments to standards and newinterpretations (continued)

IFRIC10 Interim Financial Reporting and Impairment

The interpretation is effective for annual periods beginning on orafter November 1, 2006. The interpretation clarifies that an entityshould not reverse an impairment loss recognised in a previousinterim period in respect of goodwill or an investment in eitheran equity instrument classified as available for sale or financialasset carried at cost. The interpretation has had no impact on theannual financial statements.

IFRIC11, IFRS2 – Group and Treasury Share Transactions

The interpretation is effective for annual periods beginning on orafter March 1, 2007. The interpretation clarifies that regardlessof whether the entity chooses or is required to buy equityinstruments from another party to satisfy its obligations to itsemployees under the share-based payment arrangement bydelivery of its own shares, the transaction should be accountedfor as equity settled. This interpretation also applies regardlessof whether the employee’s rights to the equity instruments weregranted by the entity itself or by its shareholders or was settledby the entity itself or its shareholders. Share-based paymentsinvolving the Group’s own equity instruments in which the Groupchooses or is required to buy its own equity instruments to settlethe share-based payment obligation are currently accounted foras equity-settled share-based payment transactions under IFRS2.The interpretation has had no impact on the Company annualfinancial statements.

Accounting pronouncements not yet adopted

The Company has not early adopted the following standards,interpretations and amendments that have been issued and arenot yet effective:

IFRS2 Vesting Conditions and Cancellations

This amendment is effective for annual periods beginning on orafter January 1, 2009. The amendment to IFRS2 Share-basedPayment clarifies the definition of vesting conditions and theaccounting treatment of cancellations by the counterparty to ashare-based arrangement. All features of a share-based paymentarrangement other than service conditions and performanceconditions will be considered to be non-vesting conditions. IFRS2(as revised) specifies that, when estimating the fair value of equityinstruments granted, an entity shall take into account all non-vestingconditions (i.e. all conditions other than service and performanceconditions) and vesting conditions that are market conditions (i.e.conditions that are related to the market price of the entity’s equityinstruments – for example, attaining a specified share price). Theimpact of this amendment is currently being evaluated.

IFRS3 Business Combinations-comprehensive revision onapplying the acquisition method

The revised standard is effective for annual periods beginning onor after July 1, 2009. The revised IFRS3 requires the consideration

for the acquisition, including the fair value of any contingentconsideration payable to be measured at fair value at theacquisition date. The revised standard only permits subsequentchanges to the measurement of contingent consideration as aresult of additional information about facts and circumstances thatexisted at the acquisition date. All other changes (e.g. changesresulting from events after the acquisition date such as theacquiree meeting an earnings target, reaching a specified shareprice, or meeting a milestone on a research and developmentproject) 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 IFRS3on IAS27 Consolidated and Separate Financial Statements

The revised IAS27 specifies that changes in a parent’s ownershipinterest in a subsidiary that do not result in the loss of controlmust be accounted for as equity transactions. No gain or loss isrecognised on such transactions and goodwill is not re-measured.Any difference between the change in the Non Controlling Interestand the fair value of the consideration paid or received isrecognised directly in equity and attributed to the owners ofthe parent.

Consequential amendments arising from revisions to IFRS3on IAS28 Investments in Associates; IAS31 Interests inJoint Ventures

Amendments to IAS28 and IAS31 extend the treatment requiredfor loss of control to these standards. For partial disposals ofassociates and joint ventures, the amended standards stipulatethat if an investor loses significant influence over an associate, itderecognises that associate and recognises in profit or loss thedifference between the sum of the proceeds received and anyretained interest, and the carrying amount of the investment in theassociate at the date significant influence is lost. A similartreatment is required when an investor loses joint control over ajointly controlled entity. The possible impact of this standard iscurrently being evaluated.

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.

Notes to the annual financial statements (continued)



Accounting pronouncements not yet adopted (continued)

IAS1 Presentation of Financial Statement (revised)

The revised standard is effective for annual periods beginning on or after January 1, 2009. The changes made to IAS1 requireinformation in financial statements to be aggregated on the basisof shared characteristics and to introduce a statement ofcomprehensive income. This will enable users to analyse changesin a company’s equity resulting from transactions with owners intheir capacity as owners (such as dividends and share repurchases)separately from ’non-owner’ changes (such as transactions withthird parties). The revised standard gives preparers of financialstatements the option of presenting items of income and expenseand components of other comprehensive income either in a singlestatement of comprehensive income with subtotals, or in twoseparate statements.

The revisions include changes in the titles of some of the financialstatements to reflect their function more clearly. The new titleswill be used in accounting standards, but are not mandatory foruse in financial statements. The impact of this standard will be thatthe presentation of the financial statements will change.

IAS23 Borrowing Costs

The revised standard requires all borrowing costs that are directlyattributable to the acquisition, construction or production of aqualifying asset to be capitalised. The revised Standard applies toborrowing costs relating to qualifying assets for which thecommencement date for capitalisation is on or after January 1,2009. The Company does not expect the adoption of the standardto have a material impact since the Company has always appliedthe allowed alternative of capitalising borrowing costs under thecurrent standard.

Amendment to IAS32 Financial Instruments Presentationand IAS1 Presentation of Financial Statements, puttablefinancial instruments

The amendment is effective for annual periods beginning on orafter January 1, 2009. In January 2008, the IASB amendedIAS32 and IAS1 Presentation of Financial Statements with respectto the balance sheet classification of puttable financial instrumentsand obligations arising only on liquidation. As a result of theamendments, some financial instruments that currently meet thedefinition of a financial liability will be classified as equity becausethey represent the residual interest in the net assets of the entity.The impact of this standard is currently being evaluated.

IFRIC12 Service Concession Arrangements

The interpretation is effective for annual periods beginning on orafter January 1, 2008. The interpretation clarifies that contractualservice arrangements do not convey the right to control the useof the public service infrastructure to the operator, instead theoperator acts as a service provider. The infrastructure under thesearrangements shall therefore not be recognised as the property,plant and equipment of the operator. The operator shall recogniseand measure revenue in accordance with IAS11 and IAS18 for theservices it performs. The operator should recognise the asset asan intangible asset for the right (or licence) it receives to chargethe 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 andmeasurement of the various aspects of service concessionarrangements from an operator’s perspective. The impact of thisinterpretation is currently being evaluated.

IFRIC13 Customer Loyalty Programmes

The interpretation is effective for annual periods beginning on orafter July 1, 2008. The interpretation addresses accounting byentities that grant loyalty award credits (such as ’points’ or travelmiles) to customers who buy other goods or services. It specificallyrequires these entities to recognise the obligation to provide free ordiscounted goods or services (’awards’) to customers who redeemaward credits. The interpretation requires companies to estimate thevalue of the points to the customer and defer this amount ofrevenue and recognise a liability until they have fulfilled theirobligations to supply awards. In effect, the award is accounted foras a separate component of the sale transaction. The possibleimpact of this interpretation is not expected to be significant as theCompany does not have customer loyalty programmes.

IFRIC14 The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their Interaction

The interpretation is effective for annual periods beginning on or after January 1, 2008. The interpretation addresses theinteraction between a minimum funding requirement and the limitplaced by paragraph 58 of IAS19 on the measurement of thedefined benefit asset. When determining the limit on a definedbenefit asset in accordance with IAS19.58, IFRIC14 requires anentity to measure any economic benefits available to them in theform of refunds or reductions in future contributions at themaximum amount that is consistent with the terms and conditionsof the plan and any statutory requirements in the jurisdiction ofthe plan. The interpretation states that the employer only needsto have an unconditional right to use the surplus at some pointduring the life of the plan or on its wind up in order for a surplusto be recognised. The Company is currently evaluating thepotential impact that the interpretation will have on the financialposition or results of operations.

Significant accounting judgements and estimates

The preparation of financial statements requires the use ofestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting periods.Although these estimates are based on management’s bestknowledge of current events and actions that the Company mayundertake in the future, actual results may ultimately differ fromthose estimates.

The presentation of the results of operations, financial positionand cash flows in the financial statements of the Company isdependent upon and sensitive to the accounting policies,assumptions and estimates that are used as a basis for thepreparation of these financial statements. Management has madecertain judgements in the process of applying the Company’saccounting policies. These, together with the key assumptionsconcerning the future, and other key sources of estimationuncertainty at the balance sheet date, are as follows:

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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 andrequired return on assets and equity to determine the optimumuseful life expectation for each of the individual categories ofproperty, plant and equipment and intangible assets. Due to therapid technological advancement in the telecommunicationsindustry as well as the Company’s plan to migrate to a nextgeneration network over the next few years, the estimation ofuseful lives could differ significantly on an annual basis due tounexpected changes in the roll-out strategy. The impact of thechange in the expected useful life of property, plant and equipmentis described more fully in note 5.6. The estimation of residualvalues of assets is also based on management’s judgementwhether the assets will be sold or used to the end of their usefullives and what their condition will be like at that time.

For intangible assets that incorporate both a tangible andintangible portion, management uses judgement to assess whichelement is more significant to determine whether it should betreated as property, plant and equipment or intangible assets.


Management judgement is exercised when determining whetheran asset retirement obligation exists, and in determining thepresent value of expected future cash flows and discount ratewhen the obligation to dismantle or restore the site arises, as wellas the estimated useful life of the related asset.


Management is required to make judgements concerning thecause, timing and amount of impairment. In the identification ofimpairment indicators, management considers the impact ofchanges in current competitive conditions, cost of capital,availability of funding, technological obsolescence, discontinuanceof services and other circumstances that could indicate that animpairment exists. The Company applies the impairmentassessment to its separate cash-generating units. This requiresmanagement to make significant judgements concerning theexistence of impairment indicators, identification of separate cash-generating units, remaining useful lives of assets and estimatesof projected cash flows and fair value less costs to sell.Management judgement is also required when assessing whethera previously recognised impairment loss should be reversed.

Where impairment indicators exist, the determination of therecoverable amount of a cash-generating unit requires managementto make assumptions to determine the fair value less costs to selland value in use. Key assumptions on which management hasbased its determination of fair value less costs to sell include theexistence of binding sale agreements, and for the determination of

value in use include projected revenues, gross margins, averagerevenue per asset component, capital expenditure, expectedcustomer bases and market share. The judgements, assumptionsand methodologies used can have a material impact on the fairvalue and ultimately the amount of any impairment.

Impairment of other financial assets

At each balance sheet date management assesses whether thereare indicators of impairment of financial assets, including equityinvestments. If such evidence exists, the estimated present valueof the future cash flows of that asset is determined. Managementjudgement is required when determining the expected future cashflows. To determine whether the decline in fair value is prolonged,reliance is placed on an assessment by management regarding thefuture prospects of the investee. In measuring impairments,quoted market prices are used, if available, or projected businessplan information from the investee is used for those financialassets not carried at fair value.

Impairment of receivables

An impairment is recognised on trade receivables that are assessedto be impaired. The impairment is based on an assessment of theextent to which customers have defaulted on payments alreadydue and an assessment on their ability to make payments basedon their credit worthiness and historical write-offs experience.Should the assumptions regarding the financial condition of thecustomer change, actual write-offs could differ significantly fromthe impaired amount.

Leases

The determination of whether an arrangement is, or contains alease is based on whether, at the date of inception, the fulfilmentof the arrangement is dependent on the use of a specific asset orassets or the arrangement conveys a right to use the asset. Leasesin which a significant portion of the risks and rewards of ownershipare retained by the lessor are classified as operating leases.Payments made under operating leases (net of any incentivesreceived from the lessor) are charged to the income statement ona straight-line basis over the period of the lease. A lease isclassified as a finance lease if it transfers substantially all the risksand rewards incident to ownership.

Deferred taxation asset

Management judgement is exercised when determining theprobability of future taxable profits which will determine whetherdeferred tax assets should be recognised or derecognised. Therealisation of deferred tax assets will depend on whether it ispossible to generate sufficient taxable income, taking into accountany legal restrictions on the length and nature of the taxationasset. When deciding whether to recognise unutilised taxationcredits, management needs to determine the extent that futurepayments are likely to be available for set-off. In the event thatthe assessment of future payments and future utilisation changes,the change in the recognised deferred tax asset must berecognised in profit or loss.





Taxation

The Company has historically filed, and continues to file, allrequired income tax returns. Management believes that theprinciples applied in determining the Company’s tax obligations areconsistent with the principles and interpretations of South Africa’stax laws.

Management has made a judgement that all outstanding taxcredits relating to Secondary Tax on Companies (‘STC’) will beavailable for utilisation before the tax regime change is effective,despite the change of STC to withholding tax.

The tax rules and regulations in South Africa are highly complexand subject to interpretation. Additionally, for the foreseeablefuture, management expects South African tax laws to furtherdevelop through changes in South Africa’s existing tax structure aswell as clarification of the existing tax laws through publishedinterpretations and the resolution of actual tax cases.

The Company is regularly subject to evaluation, by the South Africantax authorities, of its historic income tax filings and in connectionwith such reviews, disputes can arise with the taxing authoritiesover the interpretation or application of certain tax rules to theCompany’s business. These disputes may not necessarily beresolved in a manner that is favourable for the Company.Additionally the resolution of the disputes could result in anobligation for the Company that exceeds management’s estimate.

Deferred taxation rate

Management makes judgements on the tax rate applicable basedon the Company’s expectations at balance sheet date on how theasset is expected to be recovered or the liability is expected tobe settled.

Employee benefits

The Company provides defined benefit plans for certain post-employment benefits. The Company’s net obligation in respect ofdefined benefits is calculated separately for each plan by estimatingthe amount of future benefits earned in return for services rendered.The obligation and assets related to each of the post-retirementbenefits are determined through an actuarial valuation. Theassumptions determined by management make use of informationobtained from the Company’s employment agreements with staffand pensioners, market related returns on similar investments,market related discount rates and other available information. Theassumptions concerning the expected return on assets and expectedchange in liabilities are determined on a uniform basis, consideringlong-term historical returns and future estimates of returns andmedical inflation expectations. In the event that further changes inassumptions are required, the future amounts of post-retirementbenefits may be affected materially.

The discount rate reflects the average timing of the estimateddefined benefit payments. The discount rate is based on long-termSouth African government bonds with the longest maturity periodas reported by the Bond Exchange of South Africa. The discountrate 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 theperiod over which the obligation is to be settled.

The Company provides equity compensation in the form of theTelkom Conditional Share Plan to its employees. The relatedexpense and reserve are determined through an actuarial valuation.The assumptions include employee turnover percentages andwhether specified performance criteria will be met. Changes tothese assumptions could affect the amount of expense ultimatelyrecognised in the financial statements. An actuarial valuation reliesheavily on the actual plan experience assumptions as disclosed innote 24.

Provisions and contingent liabilities

Management judgement is required when recognising andmeasuring provisions and when measuring contingent liabilitiesas set out in notes 23 and 34 respectively. The probability thatan outflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must be madeof the amount of the obligation. Provisions are discounted wherethe effect of discounting is material based on managementsjudgement. The discount rate used is the rate that reflects currentmarket assessments of the time value of money and, whereappropriate, the risks specific to the liability, all of which requiresmanagement judgement. The Company is required to recogniseprovisions for claims arising from litigation when the occurrenceof the claim is probable and the amount of the loss can bereasonably estimated. Liabilities provided for legal matters requirejudgements regarding projected outcomes and ranges of lossesbased on historical experience and recommendations of legalcounsel. Litigation is however unpredictable and actual costsincurred could differ materially from those estimated at thebalance sheet date.


Management has reviewed the Company’s held-to-maturityfinancial assets in the light of its capital management and liquidityrequirements and have confirmed the Company’s positive intentionand ability to hold those assets to maturity.

Revenue recognition

To reflect the substance of each transaction, revenue recognitioncriteria are applied to each separately identifiable component ofa transaction. In order to account for multiple-element revenuearrangements in developing its accounting policies, the Companyconsidered the guidance contained in the United States FinancialAccounting Standards Board (’FASB’) Emerging Issues Task ForceNo 00-21 Revenue Arrangements with Multiple Deliverables.Judgement is required to separate those revenue arrangementsthat contain the delivery of bundled products or services intoindividual units of accounting, each with its own earnings process,when the delivered item has stand-alone value and the undelivereditem has fair value. Further judgement is required to determine therelative fair values of each separate unit of accounting to beallocated to the total arrangement consideration. Changes in therelative fair values could affect the allocation of arrangementconsideration between the various revenue streams.

Judgement is also required to determine the expected customerrelationship period. Any changes in these assessments may havea significant impact on revenue and deferred revenue.

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Summary of significant accounting policies

Operating revenue

The Company provides fixed-line and data communication servicesand communication-related products. The Company provides suchservices to business, residential and payphone customers. Revenuerepresents the fair value of fixed or determinable considerationthat has been received or is receivable.

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

Revenue is recognised when there is evidence of an arrangement,collectability is probable, and the delivery of the product or servicehas occurred. In certain circumstances, revenue is split intoseparately identifiable components and recognised when therelated components are delivered in order to reflect the substanceof the transaction. The value of components is determined usingverifiable objective evidence. The Company does not providecustomers with the right to a refund.

Dealer incentives

The Company provides incentives to its retail payphone carddistributors as trade discounts. Incentives are based on salesvolume and value. Revenue for retail payphone cards is recordedas traffic revenue, net of these discounts as the cards are used.

Subscriptions, connections and other usage

The Company provides telephone and data communicationservices under postpaid and prepaid payment arrangements.Revenue includes fees for installation and activation, which aredeferred and recognised over the expected customer relationshipperiod. Costs incurred on first time installations that form anintegral part of the network are capitalised and depreciated overthe expected average customer relationship period. All otherinstallation and activation costs are expensed as incurred.

Postpaid and prepaid service arrangements include subscriptionfees, typically monthly fees, which are recognised over thesubscription period.

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

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

Prepaid

Prepaid traffic service revenue collected in advance is deferredand recognised based on actual usage or upon expiration of theusage period, whichever comes first. The terms and conditions ofcertain prepaid products allow the carry over of unused minutes.Revenue related to the carry over of unused minutes is deferreduntil usage or expiration.

Payphones

Payphone service coin revenue is recognised when the serviceis provided.

Payphone service card revenue collected in advance is deferred

and recognised based on actual usage or upon expiration of theusage period, whichever comes first.

Postpaid

Revenue related to local, long distance, network-to-network,roaming and international call connection services is recognisedwhen the call is placed or the connection provided.

Interconnection

Interconnection revenue for call termination, call transit andnetwork usage is recognised as the traffic flow occurs.

Data

The Company provides data communication services underpostpaid and prepaid payment arrangements. Revenue includesfees for installation and activation, which are deferred over theexpected average customer relationship period. Costs incurred onfirst time installations that form an integral part of the network arecapitalised and depreciated over the life of the expected averagecustomer relationship period. All other installation and activationcosts are expensed as incurred. Postpaid and prepaid servicearrangements include subscription fees, typically monthly fees,which are recognised over the subscription period.

Sundry revenue

Sundry revenue is recognised when the economic benefit flows tothe Company and the earnings process is complete.

Interest on debtors’ accounts

Interest is raised on overdue accounts by using the effectiveinterest rate method and recognised in the income statement.

Marketing costs are recognised as an expense as incurred.

Investment income

Dividends from investments are recognised on the date that theCompany is entitled to the dividend. Interest is recognised on atime proportionate basis taking into account the principal amountoutstanding and the effective interest rate.

Taxation

Current taxation

The charge for current taxation is based on the results for the yearand is adjusted for non-taxable income and non-deductibleexpenditure. Current taxation is measured at the amount expectedto be paid to the taxation authorities, using taxation rates andlaws that have been enacted or substantively enacted by thebalance sheet date.

Deferred taxation

Deferred taxation is accounted for using the balance sheet liabilitymethod on all temporary differences at the balance sheet datebetween tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred tax is not provided on the initial recognition of goodwillor initial recognition of assets or liabilities which is not a businesscombination and at the time of the transaction affects neitheraccounting nor taxable profit or loss.




Taxation (continued)

Deferred taxation (continued)

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 the temporary

differences can be utilised.

Deferred tax relating to items recognised directly in equity is

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.

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 Company 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.


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 Company 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 or the date the asset is derecognised.

Idle assets continue to attract depreciation.

The estimated useful life of individual assets and the depreciationmethod thereof are reviewed on an annual basis at balance sheetdate. The depreciable amount is determined after taking intoaccount the residual value of the asset. The residual value is theestimated amount that the Company would currently obtain fromthe disposal of the asset, after deducting the estimated cost ofdisposal, if the asset were already of the age and in the conditionexpected at the end of its useful life. The residual values of assetsare reviewed on an annual basis at balance sheet date.

Assets under construction represent freehold buildings, operatingsoftware, network and support equipment and includes all directexpenditure as well as related borrowing costs capitalised, butexcludes 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. Amountspaid by the Company on improvements to assets which are heldin terms of operating lease agreements are depreciated on astraight-line basis over the shorter of the remaining useful life ofthe applicable asset or the remainder of the lease period. Whereit is reasonably certain that the lease agreement will be renewed,the lease period equals the period of the initial agreement plus therenewal periods.

The estimated useful lives assigned to groups of property, plantand equipment are:

Years

Freehold buildings 15 to 40Leasehold buildings and improvements 7 to 25Network equipment

Cables 20 to 40Switching equipment 5 to 18Transmission equipment 5 to 18Other 2 to 20

Support equipment 5 to 13Furniture and office equipment 11 to 15Data processing equipment and software 5 to 10Other 2 to 15

An item of property, plant and equipment is derecognised upondisposal or when no future economic benefits are expected fromits use or disposal. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposalproceeds and the carrying amount of the asset) is included in theincome statement in the year the asset is derecognised.

Assets held under finance leases are depreciated over theirexpected useful lives on the same basis as owned assets or, whereshorter, the term of the relevant lease if there is no reasonablecertainty that the Company will obtain ownership by the end ofthe lease term.

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Intangible assets

At initial recognition acquired intangible assets are recognised attheir purchase price, including import duties and non-refundablepurchase taxes, after deducting trade discounts and rebates. Therecognised cost includes any directly attributable costs forpreparing the asset for its intended use. Internally generatedintangible assets are recognised at cost comprising all directlyattributable costs necessary to create and prepare the asset to becapable of operating in the manner intended by management.Licenses, software, trademarks, copyrights and other intangibleassets are carried at cost less accumulated amortisation and anyaccumulated impairment losses. Amortisation commences whenthe intangible assets are available for their intended use and isrecognised on a straight-line basis over the assets’ expecteduseful lives. Amortisation ceases at the earlier of the date thatthe asset is classified as held for sale and the date that the assetis derecognised.

The residual value of intangible assets is the estimated amountthat the Company would currently obtain from the disposal of theasset, after deducting the estimated cost of disposal, if the assetwere already of the age and in the condition expected at the endof its useful life. Due to the nature of the asset the residual valueis assumed to be zero unless there is a commitment by a thirdparty to purchase the asset at the end of its useful life or whenthere is an active market that is likely to exist at the end of theasset’s useful life, which can be used to estimate the residualvalues. The residual values of intangible assets and their usefullives are reviewed on an annual basis at balance sheet date.

Intangible assets with indefinite useful lives and intangible assetsnot yet available for use, are tested for impairment annually eitherindividually or at the cash-generating unit level. Such intangiblesare not amortised. The useful life of an intangible asset with anindefinite life is reviewed annually to determine whether indefinitelife assessment continues to be supportable. If not, the change inthe useful life assessment from indefinite to finite is made on aprospective basis.

Assets under construction represent application and other nonintegral software and includes all direct expenditure as well asrelated borrowing costs capitalised, but exclude the costs ofabnormal amounts of waste material, labour, or other resourcesincurred in the production of self-constructed assets.

Intangible assets are derecognised when they have been disposedof or when the asset is permanently withdrawn from use and nofuture economic benefit is expected from its disposal. Any gainsor losses on the retirement or disposal of assets are recognised inthe income statement in the year in which they arise.

The expected useful lives assigned to intangible assets are:

Years

Software 5 to 10Trademarks and copyrights 4 to 5


Asset retirement obligations related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated useful life.The unwinding of the discount is included in finance charges andfair value movements. Changes in the measurement of an existingliability that result from changes in the estimated timing or amountof the outflow of resources required to settle the liability, or achange in the discount rate, are accounted for as increases ordecreases to the original cost of the recognised assets. If theamount deducted exceeds the carrying amount of the asset, theexcess is recognised immediately in profit or loss.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held forsale if their carrying amount will be recovered through a saletransaction rather than through continuing use. This condition isregarded as met only when the sale is highly probable and theasset (or disposal group) is available for immediate sale in itspresent condition. Management must be committed to the sale,which should be expected to qualify for recognition as a completesale within one year from the date of classification. Assets are nolonger depreciated when they are classified into this category.

Non-current assets (and disposal groups) classified as held forsale are measured at the lower of the assets’ previous carryingamount and fair value less costs to sell.


The Company regularly reviews its assets, other than financialinstruments, and cash-generating units for any indication ofimpairment. When indicators, including changes in technology,market, economic, legal and operating environments occur andcould result in changes of the asset’s or cash-generating unit’sestimated recoverable amount, an impairment test is performed.

The recoverable amount of assets or cash-generating units ismeasured using the higher of the fair value less costs to sell andits value in use, which is the present value of projected cash flowscovering the remaining useful lives of the assets. Impairmentlosses are recognised when the asset’s carrying value exceeds itsestimated recoverable amount. Where applicable, the recoverableamount is determined for the cash-generating unit to which theasset belongs.

Previously recognised impairment losses, other than for goodwill,are reviewed annually for any indication that it may no longerexist or may have decreased. If any such indication exists, therecoverable amount of the asset is estimated. Such impairmentlosses are reversed through the income statement if therecoverable amount has increased as a result of a change in theestimates used to determine the recoverable amount, but not toan amount higher than the carrying amount that would have beendetermined (net of depreciation or amortisation) had noimpairment loss been recognised in prior years. Impairment ongoodwill is not reversed.




Repairs and maintenance

The Company 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 Company, 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

Company borrowings was utilised. Other borrowing costs are

expensed as incurred.

Subsidiaries and joint venture

Investments in subsidiaries, special purpose entities and joint

ventures are carried at cost and adjusted for any impairment losses.

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.

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 Company 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 Company 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.

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 Company classifies financial assets that are held for tradingin the category ’financial assets at fair value through profit orloss’. This category includes bills of exchange and promissorynotes. Financial assets are classified as held for trading if they areacquired for the purpose of selling in the future. Derivatives notdesignated as hedges are also classified as held for trading. Onremeasurement to fair value the gains or losses on held for tradingfinancial assets are recognised in net finance charges and fairvalue 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 arepresented in the income statement within ’finance charges and fairvalue movements’ in the period which they arise. Dividend incomefrom financial assets at fair value through profit or loss isrecognised in the income statement as part of other income whenthe Company’s right to receive payment is established.

Held-to-maturity assets

The Company classifies non-derivative financial assets with fixedor determinable payments and fixed maturity dates as held-to-maturity when the Company has the positive intention and abilityto hold to maturity. This category includes bills of exchange andpromissory notes. These assets are subsequently measured atamortised cost. Amortised cost is computed as the amountinitially recognised minus principal repayments, plus or minus thecumulative amortisation using the effective interest rate method.This calculation includes all fees paid or received between partiesto the contract. For investments carried at amortised cost, gains and losses are recognised in net profit or loss when theinvestments are sold or impaired.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixedor determinable payments that are not quoted in an active market.Such assets are carried at amortised cost using the effectiveinterest rate method. Trade receivables are subsequently measuredat the original invoice amount where the effect of discounting isnot material.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assetsthat are designated as available-for-sale, or are not classified in anyof the three preceding categories. Equity instruments are alltreated as available-for-sale financial instruments. After initialrecognition, available-for-sale financial assets are measured at fairvalue, with gains and losses being recognised as a separatecomponent of equity, net of tax.

Changes in the fair value of monetary securities denominated ina foreign currency and classified as available-for-sale are analysedbetween translation differences resulting from changes inamortised cost of the security and other changes in carryingamount of the security. The translation differences on monetarysecurities are recognised in profit or loss, while translationdifferences on non-monetary securities are recognised in equity.Changes in the fair value of monetary and non-monetary securitiesclassified as available-for-sale are recognised in equity.

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Financial instruments (continued)

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit orloss (’FVTPL’) where the financial liability is either held for tradingor 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 ahedging instrument.

Financial liabilities at a FVTPL are stated at fair value, with anyresultant gains or losses recognised in profit or loss. The net gainor loss recognised in profit or loss incorporates any interest paidon the financial liability.

Other financial liabilities

Other financial liabilities are subsequently measured at amortisedcost using the effective interest rate method, with interest expenserecognised in finance charges and fair value movements, on aneffective interest rate basis.

The effective interest rate is the rate that accurately discountsestimated future cash payments through the expected life of thefinancial liability, or, where appropriate, a shorter period.

Financial guarantee contracts

Financial guarantee contracts are subsequently measured at thehigher of the amount determined in accordance with IAS37Provisions, Contingent Liabilities and Contingent Assets or theamount initially recognised less, when appropriate, cumulativeamortisation, recognised in accordance with IAS18 Revenue.

Put option

A contract that contains an obligation for the Company to purchaseits own equity instruments for cash or another financial asset givesrise to a financial liability and is accounted for at the present valueof the redemption amount. On initial recognition its fair value isreclassified directly from equity. Subsequent changes in the liabilityare included in profit or loss. On expiry or exercise of the optionthe carrying value of the liability is reclassified directly to equity.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. Thiscomprise cash on hand, deposits held on call and term depositswith an initial maturity of less than three months when purchased.

For the purpose of the cash flow statement, cash and cashequivalents 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 subsequentlymeasured at amortised cost using the effective interest rate method.

Bonds issued where the Company is a buyer and seller of lastresort are carried at fair value. The Company does not activelytrade in bonds.

Derecognition

A financial instrument or a portion of a financial instrument will be

derecognised and a gain or loss recognised when the Company’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 financial 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 carried 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.




Foreign currencies

The functional and presentation currency of the Company is theSouth African Rand (’ZAR’).

Transactions denominated in foreign currencies are measured atthe rate of exchange at transaction date. Monetary itemsdenominated in foreign currencies are remeasured at the rate ofexchange at settlement date or balance sheet date whicheveroccurs first. Exchange differences on the settlement or translationof monetary assets and liabilities are included in finance chargesand fair value movements in the period in which they arise.

Treasury shares

Where the company acquires, or in substance acquires, its ownshares, such shares are measured at cost and disclosed as areduction of equity. No gain or loss is recognised in profit or losson the purchase, sale, issue or cancellation of the Company’s ownequity instruments. Such shares are not remeasured for changesin fair value.

Leases

A lease is classified as a finance lease if it transfers substantiallyall the risks and rewards incidental to ownership. All other leasesare classified as operating leases.

Where the Company enters into a service agreement as a supplieror a customer that depends on the use of a specific asset, andconveys the right to control the use of the specific asset, thearrangement is assessed to determine whether it contains alease. Once it has been concluded that an arrangement containsa lease, it is assessed against the criteria in IAS17 to determineif the arrangement should be recognised as a finance lease oroperating lease.

The land and buildings elements of a lease of land and buildingsare considered separately for the purposes of lease classificationunless it is impractical to do so.

Lessee

Operating lease payments are recognised in the income statementon a straight-line basis over the lease term.

Assets acquired in terms of finance leases are capitalised at thelower of fair value or the present value of the minimum leasepayments at inception of the lease and depreciated over the lesserof the useful life of the asset or the lease term. The capital elementof future obligations under the leases is included as a liability inthe balance sheet. Lease finance costs are amortised in the incomestatement over the lease term using a constant periodic rate ofinterest. Where a sale and leaseback transaction results in afinance lease, any excess of sale proceeds over the carryingamount is deferred and recognised in the income statement overthe term of the lease.

Lessor

Operating lease revenue is recognised in the income statement ona straight-line basis over the lease term.

Assets held under a finance lease are recognised in the balancesheet and presented as a receivable at an amount equal to the netinvestment in the lease. The recognition of finance income is basedon a pattern reflecting a constant periodic rate of return on the netinvestment in the finance lease.

Employee benefits

Post-employment benefits

The Company provides defined benefit and defined contributionplans for the benefit of employees. These plans are funded by the employees and the Company, taking into accountrecommendations of the independent actuaries. The post-retirement telephone rebate liability is unfunded.

Defined contribution plans

The Company’s funding of the defined contribution plans ischarged to employee expenses in the same year as the relatedservice is provided.

Defined benefit plans

The Company provides defined benefit plans for pension,retirement, post-retirement medical aid benefits and telephonerebates to qualifying employees. The Company’s net obligationin respect of defined benefits is calculated separately for each planby estimating the amount of future benefits earned in return forservices rendered.

The amount recognised in the balance sheet represents the presentvalue of the defined benefit obligations, calculated by using theprojected unit credit method, as adjusted for unrecognised actuarialgains and losses, unrecognised past service costs and reduced bythe fair value of the related plan assets. The amount of any surplusrecognised and reflected as deferred expenses is limited tounrecognised actuarial losses and past service costs plus thepresent value of available refunds and reductions in futurecontributions to the plan. To the extent that there is uncertaintyas to the entitlement to the surplus (i.e. no economic benefitsare available), no asset is recognised. No gain is recognised solelyas a result of an actuarial loss or past service cost in the currentperiod and no loss is recognised solely as a result of an actuarialgain or past service cost in the current period.

Actuarial gains and losses are recognised as employee expenseswhen the cumulative unrecognised gains and losses for eachindividual plan exceed 10% of the greater of the present value ofthe Company’s obligation and the fair value of plan assets at thebeginning of the year. These gains or losses are amortised on astraight-line basis over ten years for all the defined benefit plans,except gains or losses related to the pensioners in the TelkomRetirement Fund or unless the standard requires faster recognition.For the Telkom Retirement Fund, the cumulative unrecognisedactuarial gains and losses in excess of the 10% corridor at thebeginning of the year are recognised immediately.

Past service costs are recognised immediately to the extentthat the benefits are vested, otherwise they are recognised ona straight-line basis over the average period the benefitsbecome vested.

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Employee benefits (continued)

Leave benefits

Annual leave is provided for over the period that the leave accruesand is subject to a cap of 22 days.

Workforce reduction

Workforce reduction expenses are payable when employment isterminated before the normal retirement age or when anemployee accepts voluntary redundancy in exchange for benefits.Workforce reduction benefits are recognised when the Companyis demonstrably committed and it is probable that the expenseswill be incurred. In the case of an offer made to encouragevoluntary redundancy, the measurement of termination benefitsis based on the number of employees expected to accept the offer.

Share-based compensation

The grants of equity instruments, made to employees in terms ofthe Telkom Conditional Share Plan, are classified as equity-settledshare-based payment transactions. The expense relating to theservices rendered by the employees, and the correspondingincrease in equity, is measured at the fair value of the equityinstruments at their date of grant based on the market price atgrant date, adjusted for the lack of entitlement to dividends duringthe vesting period. This compensation cost is recognised over thevesting period, based on the best available estimate at eachbalance sheet date of the number of equity instruments that areexpected to vest.

Short-term employee benefits

The cost of all short-term employee benefits is recognised duringthe year the employees render services, unless the Company usesthe services of employees in the construction of an asset and thebenefits received meet the recognition criteria of an asset, at whichstage it is included as part of the related property, plant andequipment or intangible asset item.

Provisions

Provisions are recognised when the Company has a presentobligation (legal or constructive) as a result of a past event, it isprobable that an outflow of resources will be required to settlethe obligation, and a reliable estimate can be made of the amountof the obligation. Provisions are reviewed at each balance sheetdate and adjusted to reflect the current best estimate. Where theeffect of the time value of money is material, the amount of theprovision is the present value of the expenditures expected to berequired to settle the obligation.



3. Revenue3.1 Total revenue 34,772 35,818 36,641

Operating revenue 31,829 32,340 32,571Other income (excluding profit on disposal of property, plant and equipment, investments and intangible assets, refer to note 4) 210 276 331Investment income (refer to note 6) 2,733 3,202 3,739

3.2 Operating revenue 31,829 32,340 32,571

Subscriptions, connections and other usage 5,803 6,286 6,330Traffic 17,563 16,740 15,949

Domestic (local and long distance) 8,915 7,563 6,327Fixed-to-mobile 7,647 7,646 7,557International (outgoing) 1,001 988 986Subscription based calling plans* – 543 1,079

Interconnection 1,654 1,639 1,757Data 6,674 7,489 8,308Sundry revenue 135 186 227

*The company has reclassified calling plans from domestic traffic into a separaterevenue line item to disclose revenue earned from subscription based callingplans. Amounts for the year ended March 31, 2006 were not restated as theywere considered to be immaterial.

4. Other income 534 655 498

Other income (included in Total revenue, refer to note 3) 210 276 331

Interest received from trade receivables 127 181 211Other interest 7 8 37Sundry income 76 87 83

Profit on disposal of property, plant and equipment and intangible assets 93 15 167Profit on disposal of investment 231 364 –

The increase in the profit on disposal of property, plant and equipment and intangible assets is due to the increased volumes and values onthe sale of Telkom properties in alignment with Telkom’s strategy of disposing non-core assets.

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5. Operating expensesOperating expenses comprise:

5.1 Employee expenses 6,310 7,077 7,386

Salaries and wages 4,463 5,076 5,505Medical aid contributions 357 377 407Retirement contributions 383 439 460Post-retirement pension and retirement fund (refer to note 24) (58) 33 5

Current service cost 4 5 5Interest cost 364 329 509Expected return on plan assets (454) (508) (713)Actuarial loss/(gain) 78 (136) (16)Settlement loss/(gain) – 21 (2)Asset limitation (50) 322 222

Post-retirement medical aid (refer to note 23) 362 329 277

Current service cost 47 83 84Interest cost 247 285 321Expected return on plan asset – (188) (257)Actuarial loss 64 149 129Settlement loss 4 – –


Current service cost 3 4 3Interest cost 16 19 22Past service cost – 76 2Actuarial loss – 5 –

Share-based compensation expense (refer to note 21 and 24) 127 141 522Other benefits* 1,277 1,274 969Employee expenses capitalised (620) (696) (786)

*Other benefits include skills development, annual leave, performanceincentive, service bonuses and workforce reduction expenses.

5.2 Payments to other operators 6,140 6,461 6,902

Payments to other network operators consist of expenses in respect ofinterconnection with other network operators.

5.3 Selling, general and administrative expenses 2,832 3,970 3,904

Selling and administrative expenses 692 1,329 1,108Maintenance 1,608 1,900 1,996Marketing 378 604 583Bad debts (refer to note 16) 154 137 217

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5.4 Services fees 2,022 2,236 2,410

Facilities and property management 1,107 1,140 1,221Consultancy services 104 209 160Security and other 772 833 978Auditors’ remuneration 39 54 51

Audit services 31 53 51

Company auditors 28 47 46

Current year 26 47 43Prior year underprovision 2 – 3

Other auditors – current year 3 6 5

Audit related services 8 – –

Company auditors – current year 6 – –Other auditors 2 – –

Other services – 1 –

The increase in security costs is mainly attributable to the Company’sdrive to minimise cable theft.

5.5 Operating leases 755 762 619

Land and Buildings 169 131 142Equipment 77 79 49Vehicles 509 552 428

5.6 Depreciation, amortisation and write-offs 4,364 3,583 3,732

Depreciation of property, plant and equipment (refer to note 9) 3,790 2,994 3,062Amortisation of intangible assets (refer to note 10) 387 305 408Write-offs of property, plant and equipment and intangible assets 187 284 262

In recognition of the changed usage patterns of certain items ofproperty, plant and equipment and intangible assets, the Companyreviewed their remaining useful lives as at March 31. The assetsaffected were certain items included in Support equipment. The revisedestimated useful lives of these assets as set out below, resulted in adecrease of the current year depreciation and amortisation charges ofR196 million (2007: R942 million).

Previous life Revised lifeYears Years

Property, plant and equipmentSupport equipment 8 – 13 5 – 13

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6. Investment income 2,733 3,202 3,739

Interest received 335 196 142Dividend received from joint venture 2,250 2,700 2,970Dividend received from subsidiaries 148 306 627

Included in investment income is an amount of R142 million (2007:R196 million; 2006: R335 million) which relates to interest earned fromfinancial assets not at fair value through profit or loss.

The increase in investment income is as a result of higher dividends beingreceived from Rossal No 65 (Proprietary) Limited, Acajou Investments(Proprietary) Limited and Vodacom Group (Proprietary) Limited.

7. Finance charges and fair value movements 1,320 1,027 1,289

Finance charges on interest-bearing debt 1,222 1,142 1,499

Local debt 1,382 1,303 1,675Foreign debt 9 – –Less: Finance costs capitalised (169) (161) (176)

Foreign exchange gains and losses and fair value movement 98 (115) (210)

Foreign exchange (gains)/losses (78) 58 116Fair value adjustments on derivative instruments 176 (173) (326)

Capitalisation rate 13.9% 14.8% 12.6%

Included in finance charges is an amount of R1,499 million (2007:R1,142 million; 2006: R1,222 million) which relates to interest paid onfinancial liabilities not measured at fair value through profit or loss.

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8. Taxation 2,838 2,690 2,599

South African normal company taxation 2,449 1,874 1,879

Current tax 2,459 1,907 1,879Overprovision for prior year (10) (33) –

Deferred taxation 113 521 357

Temporary differences – normal company taxation 148 561 255Temporary difference – Secondary taxation on companies (’STC’) taxcredits utilised/(raised) 51 (41) 157Change in tax rate – – (55)(Overprovision)/underprovision in prior year (86) 1 –

Secondary taxation on companies 276 295 363

The net deferred taxation expense results mainly from the extension ofuseful lives, offset slightly by an increase in the STC tax credits.

The STC expense was provided for at a rate of 10% (12.5% beforeOctober 1, 2007) on the amount by which dividends declared by theCompany exceeds dividends received. Deferred tax expense relating toSTC credits are provided for at a rate of 10%.

Reconciliation of taxation rate % % %

Effective rate 25.0 24.2 24.6South African normal rate of taxation 29.0 29.0 29.0Adjusted for: (4.0) (4.8) (4.4)

Change in tax rate 0.0 0.0 (0.5)Exempt income (6.6) (8.3) (10.6)Disallowable expenditure 0.5 1.5 1.8STC tax credits utilised/(raised) 0.4 (0.4) 1.5STC tax charge 2.5 2.7 3.4Net overprovision for prior year (0.8) (0.3) 0.0

The Company has historically filed, and continues to file, all required income tax returns. Management believes that the principles applied indetermining the Company’s tax obligations are consistent with the principles and interpretations of South Africa’s tax laws.

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9. Property, plant and equipmentFreehold land and buildings 4,419 (1,809) 2,610 4,381 (1,829) 2,552 4,581 (1,988) 2,593Leasehold buildings 509 (269) 240 496 (299) 197 534 (348) 186Network equipment 48,220 (24,967) 23,253 49,780 (25,774) 24,006 52,952 (27,366) 25,586Support equipment 3,396 (2,262) 1,134 3,584 (2,209) 1,375 3,863 (2,377) 1,486Furniture and office equipment 330 (226) 104 345 (236) 109 372 (265) 107Data processing equipment and software 4,712 (2,933) 1,779 4,758 (3,022) 1,736 4,951 (3,103) 1,848Under construction 1,316 – 1,316 2,530 – 2,530 3,362 – 3,362Other 276 (224) 52 456 (347) 109 476 (371) 105

63,178 (32,690) 30,488 66,330 (33,716) 32,614 71,091 (35,818) 35,273

A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build program with focuson Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continueover 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 financialyear. This has reduced both the cost price and accumulated depreciation of property, plant and equipment.

Property, plant and equipment with a carrying value of R188 million (2007: R203 million; 2006: R246 million) are pledged as security. Detailsof the loans are disclosed in note 22.

The carrying amounts of property, plant and equipment can be reconciled as follows:

Carrying Carrying value at Write-offs value at

beginning and Depre- end ofof year Additions Transfers reversals Disposals ciation year

Rm Rm Rm Rm Rm Rm Rm

2008

Freehold land and buildings 2,552 198 22 (3) (8) (168) 2,593Leasehold buildings 197 7 30 – – (48) 186Network equipment 24,006 2,693 1,308 (96) (88) (2,237) 25,586Support equipment 1,375 257 117 (7) – (256) 1,486Furniture and office equipment 109 26 1 – – (29) 107Data processing equipment and software 1,736 268 161 (14) – (303) 1,848Under construction 2,530 2,588 (1,725) (31) – – 3,362Other 109 7 10 – – (21) 105

32,614 6,044 (76) (151) (96) (3,062) 35,273

2007

Freehold land and buildings 2,610 102 (8) 17 – (169) 2,552Leasehold buildings 240 – – – (14) (29) 197Network equipment 23,253 2,599 847 (190) (240) (2,263) 24,006Support equipment 1,134 352 105 (13) – (203) 1,375Furniture and office equipment 104 11 5 – – (11) 109Data processing equipment and software 1,779 303 (48) (9) – (289) 1,736Under construction 1,316 2,163 (912) (37) – – 2,530Other 52 16 72 (1) – (30) 109

30,488 5,546 61 (233) (254) (2,994) 32,614

2006 2007 2008


Cost depreciation value Cost depreciation value Cost depreciation value


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9. Property, plant and equipment (continued)

2006

Freehold land and buildings 2,627 56 172 (22) (21) (202) 2,610Leasehold buildings 231 75 – – – (66) 240Network equipment 23,554 552 2,035 (75) – (2,813) 23,253Support equipment 1,138 53 166 (7) – (216) 1,134Furniture and office equipment 124 7 3 (1) – (29) 104Data processing equipment and software 1,734 251 241 (7) – (440) 1,779Under construction 1,084 2,933 (2,626) (75) – – 1,316Other 67 – 9 – – (24) 52

30,559 3,927 – (187) (21) (3,790) 30,488

Full details of land and buildings are available for inspection at the registered offices of the Company.

The Company does not have temporary idle property, plant and equipment.

An amount of R88 million under disposals relates to the derecognition of Customer Premises Equipment at the start of the lease. These disposalsare as a result of the Company applying IFRIC4 which requires assessment of whether an arrangement contains a lease. The leases areclassified as a finance lease in terms of IAS17 since they transfer significant risks and rewards of ownership to the customer.

2006 2007 2008


Cost amortisation value Cost amortisation value Cost amortisation value


10. Intangible assetsTrademarks and copyrights 52 (52) – 52 (52) – 197 (59) 138Software 4,420 (2,616) 1,804 5,306 (2,913) 2,393 6,239 (3,312) 2,927Under construction 1,063 – 1,063 1,109 – 1,109 741 – 741

5,535 (2,668) 2,867 6,467 (2,965) 3,502 7,177 (3,371) 3,806

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beginning and Depre- end ofof year Additions Transfers reversals Disposals ciation year


10. Intangible assets (continued)

The carrying amounts of intangible assets can be reconciled as follows:

2008

Trademarks and copyrights – 144 – – – (6) 138Software 2,393 250 688 (2) – (402) 2,927Under construction 1,109 353 (612) (109) – – 741

3,502 747 76 (111) – (408) 3,806

2007

Software 1,804 323 575 (4) – (305) 2,393Under construction 1,063 729 (636) (47) – – 1,109

2,867 1,052 (61) (51) – (305) 3,502

2006

Software 1,393 – 816 – (18) (387) 1,804Under construction 905 974 (816) – – – 1,063

2,298 974 – – (18) (387) 2,867

There are no intangible assets whose title is restricted, or that have been pledged as security for liabilities at March 31, 2008.

Intangible assets that are material to the Company consist of Software whose average remaining amortisation period is 5.9 years (2007: 6.58 years;2006: 3.8 years).

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beginning and Amorti- end ofof year Additions Transfers reversals Disposals sation year


11. Investments 2,133 887 3,883

Joint ventureVodacom Group (Proprietary) Limited50% shareholding at cost (R50) – – –

Special purpose entity – cell captiveCost 1,891 535 535

Subsidiaries 215 352 3,348

TDS Directory Operations (Proprietary) Limited64.90% shareholding at cost 167 167 167

Swiftnet (Proprietary) Limited 48 25 25

100% shareholding at cost 26 25 25Prime minus 1% cumulative redeemable preference shares 20 – –Loan 2 – –

Rossal No 65 (Proprietary) Limited – – –100% shareholding at cost (R100) – – –

Acajou Investments (Proprietary) Limited100% shareholding at cost (R100) – – –

Intekom (Proprietary) Limited – 10 10

100% shareholding at cost 10 10 10Loan 3 – –Impairment (13) – –

Q-Trunk (Proprietary) Limited – – –

100% shareholding at cost 10 10 10Loan 34 30 26Impairment (44) (40) (36)

Telkom Media (Proprietary) Limited – – 109

75% shareholding at cost (R2,868) – – –Loan – – 326Impairment of loan – – (217)

Africa Online Limited – 150 212

100% shareholding at cost – 150 150Impairment of investment – – (12)Loan – – 74

Multi-Links Telecommunications Limited*Loan – – 840

Telkom Communications International (Proprietary) Limited100% shareholding at cost (R12) – – –

Telkom International (Proprietary) Limited*100% shareholding at cost (R100) – – –Loan – – 1,985

*The 75% shareholding in Multi-Links Telecommunications Limited is an indirect investment through Telkom International (Proprietary) Limited.

The aggregate directors’ valuation of the above investments is R7,658 million (2007: R6,690 million; 2006: R8,751 million) based on netasset values.

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Telkom Media (Proprietary) Limited (’Telkom Media’)

On August 31, 2006 Telkom created a new subsidiary, Telkom Media with a Black Economic Empowerment (’BEE’) shareholding. TheIndependent Communications Authority of South Africa (‘ICASA’) awarded Telkom Media a commercial satellite and cable subscription broadcastlicence on September 12, 2007.

The BEE shareholders are Videovision Entertainment, MSG Afrika Media (Proprietary) Limited 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 theboard has taken the decision to substantially reduce its investment in Telkom Media and will be investigating all opportunities to do this in thebest interest of Telkom shareholders and all other stakeholders.

Swiftnet (Proprietary) Limited (’Swiftnet’)

Swiftnet is in breach of its licence 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 licence, which expired on August 24, 2006. On February 14, 2007 Telkom announcedthat 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 supportor 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 ICASAon January 28, 2008 to discuss its specific licence terms and conditions. Swiftnet has submitted its comments on the draft licence terms andconditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkom as its sole shareholder, has had a furthermeeting with ICASA on February 27, 2008. It was decided that the draft amended licence that ICASA sent to Swiftnet during October 2007would not form the basis of the conversion process, but instead the original licence issued to Swiftnet in August 1995 would be used as thebasis for licence conversion. The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there iscurrently no agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholdingissue for the Swiftnet licence would need to be in line with BEE values applicable to other similar licensees.

Incorporation

The subsidiaries and joint venture are all incorporated in the Republic of South Africa, with the exception of Telkom Communications International(Proprietary) Limited and Africa Online Limited, that are incorporated in the Republic of Mauritius as well as Multi-Links TelecommunicationsLimited which is incorporated in Nigeria.

2006 2007 2008Rm Rm Rm

Available-for-sale

Unlisted investment

Rascom0.69% (2007: 0.69%; 2006: 0.70%) interest in Regional African Satellite Communications Organisation, headquartered in Abidjan, Ivory Coast, at cost. – – –

Cost 1 1 1Impairment (1) (1) (1)

Loans and receivables 43 – –

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 five years. R41 million traffic was set off against the loan in the 2007 financialyear, hence settling the full amount of the loan in advance.

Other receivables 11 – –

Less: Short-term investments (16) – –

Tel.One (Pvt) Limited (14) – –Swiftnet (Proprietary) Limited loan (2) – –Intekom (Proprietary) Limited (Loan of RNil) (2007: RNil; 2006: R3 million, fully impaired) – – –Q-Trunk (Proprietary) Limited (Loan of R26 million) (2007: R30 million; 2006: R34 million, fully impaired) – – –

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12. Financial instruments and risk managementExposure to continuously changing market conditions has made management of financial risk critical for the Company. Treasury policies, risklimits and control procedures are continuously monitored by the Board of Directors through its audit and risk management committee.

The Company holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to managecurrency and interest rate risks. In addition, financial instruments for example trade receivables and payables arise directly from the Company’soperations.

The Company finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. TheCompany 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 Company doesnot speculate in derivative instruments.

The table below sets out the classification of financial assets and liabilities

At fair valuethrough profit Financial

or loss liabilities at Totalheld for ammortised Held-to- Loans and carrying Fairtrading cost maturity receivables value Value

Notes Rm Rm Rm Rm Rm Rm

2008Classes of financial instruments per Balance SheetAssets 443 – 265 7,035 7,743 7,743

Trade and other receivables* 16 – – – 6,593 6,593 6,593Finance lease receivable 13 – – 265 – 265 265Other financial assets 443 – – – 443 443

Forward exchange contracts 17 443 – – – 443 443

Cash and cash equivalents 18 – – – 442 442 442

Liabilities (168) (18,285) – – (18,453) (18,968)

Interest bearing debt 22 – (13,362) – – (13,362) (13,877)Trade and other payables 26 – (4,923) – – (4,923) (4,923)Other financial liabilities (168) – – – (168) (168)

Forward exchange contracts 17 (168) – – – (168) (168)

275 (18,285) 265 7,035 (10,710) (11,225)

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Classification of financial assets and liabilities (continued)

2007Classes of financial instruments per Balance Sheet

Assets 229 – 207 5,931 6,367 6,367

Trade and other receivables* 16 – – – 5,755 5,755 5,755Finance lease receivable 13 – – 207 – 207 207Other financial assets 229 – – – 229 229

Bills of exchange 17 98 – – – 98 98Forward exchange contracts 17 131 – – – 131 131

Cash and cash equivalents 18 – – – 176 176 176

Liabilities (155) (13,318) – – (13,473) (14,834)

Interest bearing debt 22 (98) (8,985) – – (9,083) (10,444)Trade and other payables 26 – (4,333) – – (4,333) (4,333)Other financial liabilities (57) – – – (57) (57)

Interest rate swaps 17 (26) – – – (26) (26)Forward exchange contracts 17 (31) – – – (31) (31)

74 (13,318) 207 5,931 (7,106) (8,467)

2006Classes of financial instruments per Balance Sheet

Assets 256 – – 8,785 9,041 9,041

Trade and other receivables* 16 – – – 5,553 5,553 5,553Other financial assets 256 – – – 256 256

Bills of exchange 17 107 – – – 107 107Forward exchange contracts 17 149 – – – 149 149

Cash and cash equivalents 18 – – – 3,232 3,232 3,232

Liabilities (314) (13,820) – – (14,134) (16,108)

Interest bearing debt 22 (108) (9,780) – – (9,888) (11,862)Trade and other payables 26 – (4,040) – – (4,040) (4,040)Other financial liabilities (206) – – – (206) (206)

Interest rate swaps 17 (106) – – – (106) (106)Forward exchange contracts 17 (100) – – – (100) (100)

(58) (13,820) – 8,785 (5,093) (7,067)

*Trade and other receivables are disclosed net of prepayments of R266 million (2007: R165 million; 2006: R75 million).

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At fair valuethrough profit Financial

and loss liabilities at Totalheld for ammortised Held-to- Loans and carrying Fairtrading cost maturity receivables value Value

Notes Rm Rm Rm Rm Rm Rm




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 valuationmethodologies as outlined below. This value is not necessarily indicative of the amounts that the Company could realise in the normal courseof business.

Derivatives are recognised at fair value. The fair value of derivatives approximates their carrying amount.

The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carryingamount 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 paymentsdiscounted 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 investmentsare based on quoted market prices.

12.2 Interest rate risk management

Interest rate risk arises from the repricing of the Company’s forward cover and floating rate debt as well as incremental funding or newborrowings and the refinancing of existing borrowings.

The Company’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mixin a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peakadditional borrowings, the Company makes use of interest rate derivatives as approved in terms of the Company policy limits. Fixed rate debtrepresents approximately 57.03% (2007: 98.83%; 2006: 99.14%) of the total debt. The debt profile of mainly fixed rate debt has beenmaintained to limit the Company’s exposure to interest rate increases given the size of the Company’s debt portfolio. There were no materialchanges 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 WeightedAverage amount averagematurity Currency Rm coupon rate

2008Interest rate swaps outstandingPay fixed Zero ZAR – 0.00%

2007Interest rate swaps outstandingPay fixed < 1 year ZAR 1,000 14.67%

2006Interest rate swaps outstandingPay fixed 1 – 5 years ZAR 1,000 14.67%

Pay fixed

The floating rate is based on the three months JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interestrate risk on debt instruments.

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12.3 Credit risk managementCredit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Company is not exposed tosignificant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Company from counterpartiesis a net favourable position of R289 million (2007: R103 million; 2006: R139 million). No collateral is required when entering into derivativecontracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Company limits the exposureto any counterparty and exposures are monitored daily. The Company expects that all counterparties will meet their obligations.

With respect to credit risk arising from other financial assets of the Company, which comprises held-to-maturity investments, financialassets held at fair value through profit or loss, loans and receivables and available-for-sale assets, (other than equity investments), theCompany’s exposure to credit risk arises from a potential default by a counterparty, with a maximum exposure equal to the carryingamount of these instruments.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management seeks toreduce 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 widespreadcustomer 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 Company 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 futurecash flows.

The Company has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2008 there was R23 million (2007:RNil million; 2006: RNil) outstanding.

Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment periodand salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before any pensionpayout can be made to the employee. There is no provision outstanding in respect of these contingencies. The fair value of the guarantee atMarch 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 riskduring the 2008 financial year.

The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:

Carrying amount2006 2007 2008

Rm Rm Rm


Business and residential 1,955 1,924 1,824Global, corporate and wholesale 1,533 1,701 1,950Government 369 318 368Other 35 41 334Impairment of trade receivables (183) (153) (160)

Derivatives 256 229 443Loans receivable 45 – 3,008Other receivables* 1,844 1,924 2,277

5,854 5,984 10,044

*Other receivables are disclosed net of prepayments of R266 million (2007: R165 million; 2006: R75 million).

The ageing of trade receivables at the reporting date was:

2006 2007 2008Rm Rm Rm

Not past due/current 3,372 3,250 3,654Ageing of past due but not impaired21 to 60 days 194 290 32061 to 90 days 30 70 8391 to 120 days 15 41 55120+ days 98 180 204

3,709 3,831 4,316

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12.3 Credit risk management (continued)

The ageing in the allowance for the impairment of trade receivablesat reporting date was:Ageing of impaired trade receivables:Current defaulted 25 24 2621 to 60 days 43 21 2561 to 90 days 17 14 2391 to 120 days 16 13 16120+ days 82 81 70

183 153 160

The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 16.

Included in the allowance for doubtful debts 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 differencebetween the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Company does nothold any collateral over these balances.

12.4 Liquidity risk managementLiquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidityrisk as a result of uncertain trade receivable related to cash flows as well as capital commitments of the Company. Liquidity risk is managedby Telkom’s Corporate Finance division in accordance with policies and guidelines formulated by Telkom’s Executive Committee. In terms of itsborrowing requirements the Company ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term liquidityrisk, the Company maintains a reasonable balance between the period over which assets generate funds and the period over which therespective 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 riskduring the 2008 financial year.

The table below analyses the Company’s financial liabilities which will be settled on a gross basis into relevant maturity groupings based onthe remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractualundiscounted cash flows.

Carrying Contractual < 6 6 – 12 1 – 2 2 – 5 > 5 amount cash flows months months years years years


2008Non-derivative financial liabilitiesFinance lease liabilities* 33 857 1,794 17 17 215 395 1,150Interest bearing debt (excluding finance leases) 22 12,505 14,403 4,882 1,200 3,900 1,823 2,598Trade and other payables 26 4,923 4,923 4,609 314 – – –Bank overdraft 18 41 41 41 – – – –

Derivative financial liabilitiesForward exchange contracts 17 168 168 83 85 – – –

18,494 21,329 9,632 1,616 4,115 2,218 3,748

2007Non-derivative financial liabilitiesFinance lease liabilities 33 852 1,903 59 61 137 356 1,290Interest bearing debt (excluding finance leases) 22 8,231 10,416 1,350 4,680 – 1,806 2,580Trade and other payables 26 4,333 4,333 3,887 446 – – –

Derivative financial liabilities 17 57 57 51 6 – – –

Interest rate swaps 26 26 26 26 – – – –Forward exchange contracts 31 31 25 6 – – –

13,473 16,709 5,347 5,193 137 2,162 3,870

*Excludes R183 million for vehicles. The contract disclosed under commitments commenced April 1, 2008.

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2006Non-derivative financial liabilitiesFinance lease liabilities 33 867 2,039 60 61 131 359 1,428Interest bearing debt (excluding finance leases) 22 9,021 11,584 540 2,101 4,581 1,792 2,570Trade and other payables 26 4,040 4,040 3,640 400 – – –

Derivative financial liabilities 17 206 206 96 4 106 – –

Interest rate swaps 106 106 – – 106 – –Forward exchange contracts 100 100 96 4 – – –

14,134 17,869 4,336 2,566 4,818 2,151 3,998

12.5 Foreign currency exchange rate risk management

The Company manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial instrumentssuitable to the Company’s risk exposure.

Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Company’s operations and liabilities. TheCompany also enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitmentsdenominated in foreign currencies (primarily USDs and Euros). The purpose of the Company’s foreign currency hedging activities is to protectthe Company 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 managingand 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 valueTo buy m Rm Rm

2008CurrencyUSD 123 915 107Euro 173 1,923 319Other 40 166 17

3,004

2007CurrencyUSD 165 1,209 2Euro 102 991 12Other 68 80 2

2,280

2006CurrencyUSD 174 1,134 (51)Euro 79 631 (29)Other 96 130 (9)

1,895

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Carrying Contractual < 6 6 – 12 1 – 2 2 – 5 > 5 amount cash flows months months years years years




Foreign contract value Forward value Fair valueTo sell m Rm Rm



2008CurrencyUSD 78 593 (67)Euro 69 803 (98)Other 22 105 (3)

1,501

2007CurrencyUSD 122 994 88Euro 50 483 (5)Other 31 40 1

1,517

2006CurrencyUSD 128 954 140Euro 39 294 (3)Other 59 77 2

1,325

The Company has various monetary assets and liabilities in currencies other than the Company’s functional currency. The following tablerepresents the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Company accordingto the different foreign currencies.

Euro USD OtherRm Rm Rm

2008Net foreign currency monetary assets/(liabilities)Functional currency of company operationSouth African Rand 219 1 117 51

2007Net foreign currency monetary assets/(liabilities)Functional currency of company operationSouth African Rand 282 90 70

2006Net foreign currency monetary assets/(liabilities)Functional currency of company operationSouth African Rand 213 (4) 148

Currency swapsThere were no currency swaps in place at March 31, 2008, 2007 and 2006.

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12.6. Sensitivity analysis

Interest rate risk

The sensitivity analysis below have been determined based on the exposure to interest rates for derivatives and other financial liabilities at thebalance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessmentof the reasonably possible change in interest rates.

If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s profit for the year endedMarch 31, 2008 would decrease/increase by R3 million (2007: decrease/increase by RNil million; 2006: decrease/increase by R9 million).

Foreign exchange currency risk

The following table illustrates the sensitivity to a reasonably possible change in the exchange rates, with all other variables held constant, tothe Company’s profit before tax.

Increase/decrease Effect on profitin foreign before tax

exchange currency increase/(decrease)% Rm


USD +10 (117)EURO +10 (42)



USD +10 (18)EURO +10 (27)



USD +10 (11)EURO +10 (17)


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12.7 Exchange rate table (closing rate)

United States Dollar 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 Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain futuredevelopment of the business. The Company monitors capital using net debt to equity ratio. The Company’s policy is to keep the debt equityratio between 50% and 70%. Included in net debt are interest bearing loans and borrowings, other financial liabilities, less cash and cashequivalents and other financial assets. The Company also monitors the level of dividends to ordinary shareholders.

Telkom plans on continuing its share buy back strategy based on certain criteria, including market conditions, availability of cash and otherinvestments 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 fordividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declaredto 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 Company has access to financing facilities, the total unused amount which is R5,894 million at the balance sheet date. Capital comprisesequity attributable to equity holders of the parent.

There were no changes in the Company’s approach to capital management during the year.

The Company is not subject to externally imposed capital requirements.

The net debt to equity ratio is as follows:

2006 2007 2008Rm Rm Rm

Non-current portion of interest-bearing debt 7,245 3,308 7,336 Current portion of interest-bearing debt 2,643 5,775 6,026 Other financial liabilities 206 57 168 Less: Cash and cash equivalents (3,232) (176) (442)Less: Other financial assets (256) (229) (443)

Net debt 6,606 8,735 12,645

Equity 23,690 25,714 26,693

Net debt to equity ratio 28% 34% 47%

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13. Finance lease receivablesThe Company provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated tospecific customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in termsof IAS17.

In terms of IFRIC4 the Company has concluded that some of its voice and non-voice service arrangements with its customers contain a lease.IFRIC4 required the entity to assess existing arrangements at the beginning of the earliest period for which comparative information under IFRSis presented on the basis of facts and circumstances existing at the beginning of that period. The effect of the application of this interpretationwas not considered material for 2006, and therefore all cumulative adjustments were made during the 2007 financial year.

Total < 1 year 1 – 5 years > 5 yearsRm Rm Rm Rm

2008

Minimum lease paymentsLease payments receivable 345 135 210 –Unearned finance income (80) (30) (50) –



2007

Minimum lease paymentsLease payments receivable 273 92 181 –Unearned finance income (66) (21) (45) –



14. Deferred taxation (469) (990) (1,347)

Opening balance (356) (469) (990)Income statement movements (113) (521) (357)

Temporary differences (199) (520) (412)

Capital allowances 109 (467) (446)Provisions and other allowances (257) (94) 191 STC tax credits raised/(utilised) (51) 41 (157)

Over provision/(under provision) prior year 86 (1) –Change in tax rate – – 55

The balance comprises: (469) (990) (1,347)

Capital allowances (2,059) (2,527) (2,870)Provisions and other allowances 1,291 1,197 1,340 STC tax credits 299 340 183

Deferred tax balance is made up as follows: (469) (990) (1,347)

Deferred tax assets 299 340 183 Deferred tax liabilities (768) (1,330) (1,530)

Unutilised STC credits 2,393 2,718 1,830

The deferred tax asset represents 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 will be released as a taxexpense when the dividends are declared. The asset is recognised as it is considered probable that it will be utilised in the future, given theCompany’s dividend policy.

The deferred tax liability increased mainly due to the increase in the difference between the carrying value and tax base of assets, resultingfrom the change in the estimate of useful lives of assets.

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15. Inventories 526 839 873

Gross inventories 589 972 1,072 Write-down of inventories to net realisable value (63) (133) (199)

Inventories consist of the following categories: 526 839 873

Installation material, maintenance material and network equipment 457 771 827 Merchandise 69 68 46

Write-down of inventories to net realisable value 63 133 199

Opening balance 36 63 133 Charged to selling, general and administrative expenses 56 152 164 Inventories written-off (29) (82) (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.

16. Trade and other receivables 5,628 5,920 6,859


Gross trade receivables 3,893 3,984 4,476 Impairment of receivables (184) (153) (160)

Prepayments and other receivables 1,919 2,089 2,543

Impairment of receivables 184 153 160

Opening balance 203 184 153 Charged to selling, general and administrative expenses 154 137 217 Receivables written-off (173) (168) (210)

Refer to note 12 for detailed credit risk analysis

17. Other financial assets and liabilitiesOther financial assets consist of:At fair value through profit or loss 256 229 443

Bills of exchange 107 98 –Derivative instruments (refer to note 12) 149 131 443

Bills of exchangeThe fair value of bills of exchange has been derived at with reference toBESA quoted prices.

Other financial liabilities consist of:At fair value through profit or loss

Derivative instruments (206) (57) (168)

Derivative instruments are made up of forward exchange contracts ofR168 million (2007: R26 million interest rate swaps and R31 millionforward exchange contracts; 2006: R106 million interest rate swapsand R100 million forward exchange contracts).

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18. Net cash and cash equivalents 3,232 176 442

Cash shown as current assets 3,232 176 483

Cash and bank balances 137 76 83 Short-term deposits 3,095 100 400

Credit facilities utilised – – (41)

Undrawn borrowing facilities 6,529 6,566 5,894

The undrawn borrowing facilities are unsecured, when drawn bear interest at a rate that will be mutually agreed between the borrower andlender 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 powersTo borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether securedor unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the borrowing powersof Telkom are unlimited, but are subject to restrictive financial covenants of the TL20 loan and the conditions and covenants of the Bridge Loanfacility indicated on note 22.

2006 2007 2008Rm Rm Rm

19. Share capital and premiumAuthorised and issued share capital and share premium are made upas follows:

Authorised 10,000 10,000 10,000

999,999,998 ordinary shares of R10 each 10,000 10,000 10,0001 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 the Company.

Share buy-backDuring the financial year Telkom bought back 12,071,344 ordinary shares at a total consideration of R1,647 million. This reduced Share capitalby R121 million and Retained earnings by R1,526 million.

During the year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of R1,596 million. Thisreduced Share capital by R120 million, Share premium by R1,342 million and Retained earnings by R134 million.

During the year ended March 31, 2006, Telkom bought back 12,086,920 ordinary shares at a total consideration of R1,502 million. Thisreduced Share capital by R121 million and Share premium by R1,381 million.

*As of March 31, 2008, 4,444,138 of these shares has not yet been cancelled from the issued share capital by the Registrar of Companies.

Capital managementRefer to note 12 for detailed capital management disclosure.

2006 2007 2008Rm Rm Rm

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20. Treasury shares (1,786) (1,778) (1,642)

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 AcajouInvestments (Proprietary) Limited, respectively.

The shares held by Rossal No 65 (Proprietary) Limited are reserved forissue in terms of the Telkom Conditional Share Plan (“TCSP”). In additionthe Board of directors agreed that, subject to JSE Listings Requirements,the treasury shares held by Acajou Investments (Proprietary) Limited bemade available to the TCSP to make up for the current shortfall in theshare scheme after the additional grants made during the current year(refer to note 21).

The reduction in the number of treasury shares is due to 1,743,875(2007: 450,505; 2006: 26,669) shares that vested in terms of theTCSP during the current year.

The fair value of these shares at the date of vesting was R301 million(2007: R59 million; 2006: R3 million).

21. Share-based compensation reserveThis reserve represents the cumulative fair value of the equity-settledshare-based payment transactions recognised in employee expenses overthe vesting period of the equity instruments granted to employees interms of the Telkom Conditional Share Plan (refer to note 24).

The Telkom Board approved the fourth enhanced allocation of shares toemployees on September 4, 2007, with a grant date of September 27,2007, the day that the employees and the Company shared a commonunderstanding of the terms and conditions of this grant. A total of6,089,810 shares were granted.

The Board has also approved an enhanced allocation for the November2006 grant on September 4, 2007, with a grant date of September27, 2007. The number of additional shares granted with respect to the2006 allocation is 4,966,860.

No consideration is payable on the shares issued to employees, butperformance criteria will have to be met in order for the granted sharesto vest. The ultimate number of shares that will vest may differ based oncertain individual and Telkom performance conditions being met. Therelated compensation expense is recognised over the vesting period of theshares granted, commencing on the grant date.

The following table illustrates the movement within the Share-basedcompensation reserve:

Balance at beginning of year 68 151 257Net increase in equity 83 106 386

Employee cost* 120 141 522Accelerated 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 cost in the current financial year is mainly a result of the additional share allocations (refer to note 24).

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22. Interest-bearing debtLong-term interest bearing debt 7,245 3,308 7,336

Total interest-bearing debt 9,888 9,083 13,362

Gross interest-bearing debt (refer to note 12) 11,584 10,416 14,403Discount on debt instruments issued (2,563) (2,185) (1,898)Finance leases 867 852 857

Less: Current portion of interest-bearing debt (2,643) (5,775) (6,026)

Local debt (2,640) (5,771) (6,000)

Locally registered Telkom debt instruments (2,211) (4,432) –Call borrowings – – (2,600)Commercial paper bills (429) (1,339) (3,400)

Foreign debt (3) – –Finance leases – (4) (26)

Total interest-bearing debt is made up as follows: 9,888 9,083 13,362

(a) Local debt 8,936 8,125 12,365

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 1,283PP02, 2010, 0%, R430 million (2007: R430 million; 2006: R430 million) 230 264 304PP03, 2010, 0%, R1,350 million (2007: R1,350 million; 2006: R1,350 million) 730 844 977Call borrowings, 2009, 11,58%, R2,600 million (2007: Rnil; 2006: Rnil) – – 2,600Term loans, 2010, 12,22%, R3,000 million (2007: Rnil; 2006: Rnil) – – 3,000

Total interest bearing debt is made up of R13,362 million debt at amortisedcost (2007: R8,985 million debt at amortised cost and R98 million debtat fair value through profit or loss; 2006: R9,780 million debt at amortisedcost and R108 million debt at fair value through profit or loss).

Local bonds

The local Telkom bonds are unsecured, but a side letter to the subscriptionagreement (as amended) of the TL20 bond and the R1,600 million BridgeLoan facility, included in Call borrowings contains a number of restrictivefinancial covenants to be maintained by the Company at the followingratios: EBITDA to net interest expense ratio of no less than 3.5:1 and netinterest bearing debt to EBITDA ratio of no greater than 3.0:1 which, if notmet, could result in the early redemption of the loan. The R1,600 millionBridge Loan facility and R2,000 million Term loan agreements limit theCompany’s ability to encumber, cede, assign, sell or otherwise dispose ofa material portion of its assets without the prior written consent of theLenders, which will not be unreasonably withheld. The TL20, PP02, andPP03 local bonds limit Telkom’s ability to create encumbrances on revenuesor assets, and secure any indebtedness without securing the outstandingbonds equally and rateably with such indebtedness.

Commercial paper bills 429 1,339 4,201

Rate p.a., nominal value2008, 11.71% (2007: 9.04%; 2006: 7%), R4,383 million (2007:R1,350 million; 2006: R430 million)

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(b) Foreign debt 85 106 140

Maturity, rate p.a., nominal valueEuro: 2010 – 2025, 0.1% – 0.14% (2007: 0.10% – 0.14%; 2006: 0.10% – 6.81%), 311 million (2007: 311 million; 2006: 311 million)

(c) Finance leases 867 852 857

The finance leases are secured by buildings with a carrying value ofR174 million (2007: R197 million; 2006: R240 million) and officeequipment with a book value of R14 million (2007: R6 million; 2006:R6 million) (refer to note 9). These amounts are repayable within periodsranging from 1 to 12 years. Interest rates vary between 13% and 38%.

Included in long-term and short-term debt is:Debt guaranteed by the South African Government 4,315 4,537 140A major portion of the guaranteed debt for the years ended March 31, 2007and 2006 related to the TK01 debt instrument, however, this instrument hasbeen redeemed in full during the year ended March 31, 2008.

The Company may issue or re-issue locally registered debt instruments interms of the Post Office Amendment Act 85 of 1991. The borrowing powersof the Company are set out as per note 18.

Repayments/refinancing of current portion of interest-bearing debt

The repayment/refinancing of R6,026 million of the current portion ofinterest-bearing debt will depend on the market circumstances at the timeof repayment.

Management believes that sufficient funding facilities will be availableat the date of repayment/refinancing.

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23. Provisions 2,631 1,203 1,445

Employee related 3,740 2,351 2,477

Annual leave 316 363 364

Balance at beginning of year 301 316 363Charged to employee expenses 76 53 10Leave paid (61) (6) (9)

Post-retirement medical aid (refer to note 24) 2,589 1,120 1,336

Balance at beginning of year 2,409 2,589 1,120Interest cost 247 285 321Current service cost 47 83 84Expected return on plan asset – (188) (257)Actuarial loss 64 149 129Settlement loss 4 – –Termination settlement (29) – –Plan asset – initial recognition – (1,720) –Contributions paid (153) (78) (61)


Balance at beginning of year 179 198 282Interest cost 16 19 22Current service cost 3 4 3Past service cost – 76 2Actuarial loss – 5 –Benefits paid – (20) (22)

Bonus 637 586 490

Balance at beginning of year 507 637 586Charged to employee expenses 637 656 473Payments made (507) (707) (569)

Non-employee related 40 558 608

Supplier dispute (refer to note 34) – 527 569

Balance at beginning of year – – 527Net movements – 527 42

Other 40 31 39

Less: Current portion of provisions (1,149) (1,706) (1,640)

Annual leave (316) (363) (364)Post-retirement medical aid (159) (185) (185)Telephone rebates (17) (26) (26)Bonus (637) (586) (490)Supplier dispute (refer to note 34) – (527) (569)Other (20) (19) (6)

23. Provisions (continued)

Annual leave

In terms of the Company’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of22 days (previously 25 days) which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordancewith legislation.

Bonus

The bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets. Thebonus is payable to all qualifying employees bi-annually after the Company’s results have been made public.

Supplier dispute

The Company provided R569 million for its estimate of the probable liability as discussed in note 34. The net movement in the provision ofR42 million consists of finance charges, fair value movements and payments made.

Other

Included in other provisions is an amount provided for asset retirement obligations.

24. Employee benefitsThe Company provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund. Membershipof one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate. The liabilities forall of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory funding valuationsfor the retirement and pension funds are performed at intervals not exceeding three years.

At March 31, 2008, the Company employed 24,879 employees (2007: 25,864; 2006: 25,575).

Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension andretirement funds for each of the financial periods presented.


The latest actuarial valuation performed at March 31, 2008 indicates that the pension fund is in a surplus position of R84 million afterunrecognised 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 inNovember 2008.

With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007 asettlement 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 2008Rm Rm Rm


The net periodic pension costs includes the following components:Interest and service cost on projected benefit obligations 22 22 21Expected 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 22 8 5The status of the pension plan obligation is as follows:At beginning of year 186 281 205Interest and service cost 22 22 21Employee contributions 4 2 2Benefits paid (20) (2) (3)Settlements – (70) (15)Actuarial loss/(gain) 89 (28) (6)

Benefit obligation at end of year 281 205 204

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The Telkom Pension Fund (continued)

Plan assets at fair value:At beginning of year 231 243 284Expected return on plan assets 24 19 27Benefits paid (20) (2) (3)Contributions 26 10 8Settlements – (61) (15)Actuarial (loss)/gain (18) 75 10

Plan assets at end of year 243 284 311

Present value of funded obligation 281 205 204Fair value of plan assets (243) (284) (311)

Funded 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 27Actuarial (loss)/return on plan assets (18) 75 10

Actual return on plan assets 6 94 37


2006 2007 2008

Discount rate (%) 7.5 7.5 9.0Yield on government bonds (%) 7.5 7.5 9.0Long-term return on equities (%) 10.5 10.5 11.0Long-term return on cash (%) 5.5 5.5 7.0Expected return on plan assets (%) 9.5 9.7 9.8Salary inflation rate (%) 6.0 6.0 7.5Pension increase allowance (%) 2.9 2.9 4.3

The overall long-term expected rate of return on assets is 9.75%. This is basedon the portfolio as a whole and not the sum of the returns of individual assetcategories. The expected return takes into account the asset allocation of theTelkom Pension Fund and expected long-term return of these assets, of whichSouth 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-retirementpurposes and the PA(90) ultimate table, minus one year age rating as published bythe Institute and Faculty of Actuaries in London and Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%) 99.8 100.0 100.0The number of employees registered under the Telkom Pension Fund 255 153 146

The fund portfolio consists of the following:Equities (%) 84 74 54Bonds (%) 9 5 5Cash (%) 7 3 23Foreign investments (%)* – 16 18Insurance policies (%) – 2 –

The total expected contributions payable to the pension fund for the next financial year are R7 million.

*Includes offshore unit trusts.

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The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees weregiven the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the TelkomPension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Governmentceased 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 fromthe defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom RetirementFund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. The Company is unableto benefit from the excess in the form of future reduced contributions.

Telkom guaranties any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of theretirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding positionof R1,368 million after unrecognised losses.

The Telkom Retirement Fund is governed by the Pension Funds Act, No. 24 of 1956. In terms of section 37A of this Act, the pension benefitspayable 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 theCompany 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 net periodic retirement costs include the following components:Interest and service cost on projected benefit obligations 346 312 493Expected 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 6,581Interest and service cost 346 312 493Benefits paid (377) (486) (488)Liability for new pensioners – 44 14Actuarial loss 388 2,334 501


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Plan assets at fair value:

At beginning of year 4,477 5,973 7,661Expected return on plan assets 431 489 686Benefits paid (377) (486) (488)Asset backing new pensioners’ liabilities – 44 14Actuarial gain 1,442 1,641 118

Plan assets at end of year 5,973 7,661 7,991

Present value of funded obligation 4,377 6,581 7,101Fair value of plan assets (5,973) (7,661) (7,991)

Funded 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 686Actuarial 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 596Telkom bonds 56 21 10Telkom shares 287 284 141

The Telkom Retirement Fund invests its funds in South Africa andinternationally. Twelve fund managers invest in South Africa and five ofthese managers specialise in trades with bonds on behalf of the RetirementFund. The international investment portfolio consists of global equity andhedged funds.


2006 2007 2008

Discount rate (%) 7.5 7.5 9.0Yield on government bonds (%) 7.5 7.5 9.0Long-term return on equities (%) 10.5 10.5 11.0Long-term return on cash (%) 5.5 5.5 7.0Expected return on plan assets (%) 8.5 9.3 10.3Pension increase allowance (%) 2.9 4.5 6.0

The overall long-term excepted rate of return on assets is 10.3%. This isbased on the portfolio as a whole and not the sum of the returns ofindividual asset categories. The expected return takes into account the assetallocation of the The Telkom Retirement Fund and expected long-term returnon these assets, of which South African equities, foreign investments andSouth African fixed interest bonds are the largest contributors.

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24 Employee benefits (continued)


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 yearage rating as published by the Institute and Faculty of Actuaries in Londonand Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%) 100 100 100The number of pensioners registered under the Telkom Retirement Fund 14,323 14,451 14,255The number of in-service employees registered under the Telkom Retirement Fund 25,320 25,766 24,939


Equities (%) 72 59 70Property (%) 4 2 2Bonds (%) 21 19 11Cash (%) 3 7 1Foreign investments (%) – 13 16The total expected contributions payable to the Retirement Fund for thenext financial year are R514 million.

Medical benefits

The Company 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 benefitsto current and retired employees have been actuarially determined and provided for as set out in note 23. The Company has terminated futurepost-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 Randcap, 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 recentactuarial valuation of the benefit was performed as at March 31, 2008.

The Company has allocated certain investments to fund this liability as set out in note 11. The cell captive annuity policy qualified as a planasset in terms of IAS19, effective June 1, 2006.

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Benefit obligation:

At beginning of year 3,057 3,889 4,366Interest cost 247 285 321Current service cost 47 83 84Actuarial loss 716 281 246Settlement loss 4 – –Termination settlement (29) – –Benefits paid from plan assets – (94) (125)Contributions paid by the Company (153) (78) (61)


Plan assets at fair value:At beginning of year – 1,961Plan asset – initial recognition 1,720 –Expected return on plan assets 188 257Benefits 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 3,889 4,366 4,831Fair value of plan assets – (1,961) (1,929)

Funded status 3,889 2,405 2,902Unrecognised net actuarial loss (1,300) (1,285) (1,566)

Liability as disclosed in the balance sheet (refer to note 24) 2,589 1,120 1,336

Expected return on plan assets – 188 257Actuarial return on plan assets – 147 (164)

Actual return on plan assets – 335 93


2006 2007 2008

Discount rate (%) 7.5 7.5 9.0Expected return on plan assets (%) – 13.5 12.0Salary inflation rate (%) 6.0 6.0 7.5Medical inflation rate (%) 6.5 6.5 8.0The 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 yearage rating as published by the Institute and Faculty of Actuaries in Londonand Scotland, for retirement purposes.

Contractual retirement age 65 65 65Average retirement age 60 60 60Number of members 17,872 17,119 15,526Number of pensioners 8,665 8,494 8,430

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The valuation results are sensitive to changes in the underlying assumptions. The following table provides an indication of the impact of changingsome of the valuation assumptions:

Current assumption Decrease IncreaseRm Rm Rm

Medical cost inflation rate 8.0% (1.0%) 1.0%

Benefit obligation 4,831 (672) 845Percentage change (13.9%) 17.5%Service cost and interest cost 2007/2008 521 (76) 97Percentage change (14.6%) 18.6%

Discount rate 9.0% (1.0%) 1.0%


Post-retirement mortality rate PA(90) ultimate -1 (10.00%) 10.00%



2006 2007 2008

Equities (%) – 59 56Bonds (%) – 3 2Cash and money market investments (%) – 21 33Foreign investments (%) – 9 9Insurance policies (%) – 8 –

Telephone rebates

The Company provides telephone rebates to its pensioners. The most recentactuarial valuation was performed at March 31, 2008. Eligible employeesmust be employed by the Company until retirement age to qualify for thetelephone 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 23) 198 282 287


2006 2007 2008

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

*Increase in unrecognised actuarial loss is due to changes in rebate inflation rate.

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Telephone rebates (continued)

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 yearage rating as published by the Institute and Faculty of Actuaries in Londonand Scotland, for retirement purposes.

Number of members 19,164 19,515 18,766 Number of pensioners 11,148 10,918 10,680

Telkom Conditional Share Plan

Telkom’s shareholders approved the Telkom Conditional Share Plan atthe January 2004 Annual General Meeting. The scheme covers bothoperational and management employees and is aimed at giving sharesto Telkom employees, at a RNil exercise price, at the end of the vestingperiod. The vesting period for the operational employees awarded in2004 and 2005 is 0% in year one and 33% in each of the 3 yearsthereafter, while the shares allocated in 2006 and 2007 together withmanagement shares vest fully after 3 years. Although the number ofshares awarded to employees will be communicated at the grant date,the ultimate number of shares that vest may differ based on certainperformance conditions being met. (refer to note 20).

The weighted average remaining vesting period for the sharesoutstanding as at March 31, 2008 is 1.25 years (2007: 1.75 years;2006: 1.75 years).

The following table illustrates the movement of the maximum number ofshares that will vest to employees for the August 2004 grant:

Outstanding at beginning of the year 2,943,124 2,414,207 1,883,991Granted during the year 90 1,212 252Forfeited 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 ofshares that will vest to employees for the June 2005 grant:

Outstanding at beginning of the year – 1,930,687 1,864,041Granted during the year 2,024,465 1,005 3,469Forfeited 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 ofshares that will vest to employees for the November 2006 grant:

Outstanding at beginning of the year – – 1,773,361Granted during the year – 1,825,488 833Forfeited during the year – (52,127) (133,214)

Outstanding at end of the year – 1,773,361 1,640,980

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Telkom Conditional Share Plan (continued)

The following table illustrates the movement of the maximum number ofshares that will vest to employees relating to the additional November2006 grant:

Outstanding at beginning of the year – – –Granted during the year – – 4,984,693Forfeited during the year – – (172,388)


The following table illustrates the movement of the maximum number ofshares that will vest to employees for the September 2007 grant:

Outstanding at beginning of the year – – –Granted during the year – – 6,117,163Forfeited during the year – – (270,527)


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) 77.50 111.00 141.25 173.00Dividend yield (%) 2.60 3.60 3.50 3.50

*The same information was used for November 2006 additional grant.

2006 2007 2008

The principal assumptions used in calculating the expected number of sharesthat will vest are as follows:

Employee turnover (%) 5 5 5Meeting specified performance criteria (%) 100 100 100

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The amounts for the current and previous four years are as follows:

2004 2005 2006 2007 2008Rm 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 107Asset 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 10Experience adjustment on liabilities 28 (6)

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 890Unrecognised actuarial gain/(loss) 382 312 (742) 96 478

Unrecognised net asset 760 769 854 1,176 1,368

Experience adjustment on assets* 1,641 118Experience adjustment on liabilities* 1,234 485

Medical benefits

Defined benefit obligation (2,359) (3,057) (3,889) (4,366) (4,831)Plan assets – – – 1,961 1,929

Deficit (2,359) (3,057) (3,889) (2,405) (2,902)Unrecognised actuarial (gain)/loss (46) 648 1,300 1,285 1,566

Liability recognised (2,405) (2,409) (2,589) (1,120) (1,336)

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

The experience adjustments on assets and liabilities for each of the financial periods ended March 31, 2004, 2005 and 2006 has not beendisclosed due to the fact it was impractical to determine the information.

*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 wasused, as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005 statutoryvaluation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair valueof 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 ofthe March 31, 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.

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25. Deferred revenue 1,985 1,846 2,294

Long-term deferred revenue 769 739 870Current portion of deferred revenue 1,216 1,107 1,424

Included in deferred revenue is profit on the sale and leaseback of certainTelkom buildings of R118 million, consisting of a long-term portion ofR107 million and a short-term portion of R11 million (2007:R129 million; 2006: R140 million). A profit of R11 million per annumis recognised in income on a straight-line basis, over the period of thelease ending 2019 (refer to note 33).

26. Trade and other payables 4,040 4,333 4,923

Trade payables 2,304 2,761 3,267Finance cost accrued 113 22 39Accruals and other payables 1,623 1,550 1,617

Accruals and other payables mainly represent amounts payable for goodsreceived, net of Value-added Tax obligations and licence fees.

Included in accruals and other payables are amounts owed to Rossal No65 (Proprietary) Limited of RNil million (2007: R148 million; 2006:R66 million), Acajou Investments (Proprietary) Limited of RNil million(2007: R98 million; 2006: R100 million) and Intekom (Proprietary)Limited of R13 million (2007: R5 million; 2006: RNil).

27. Reconciliation of profit for the year to cash generated from operations 13,354 12,626 12,212

Profit for the year 8,515 8,391 7,967Finance charges and fair value movements 1,320 1,027 1,289Taxation 2,838 2,690 2,599Investment income (2,733) (3,202) (3,739)Interest received from debtors (134) (189) (248)Non-cash items 4,484 4,531 4,187

Depreciation, amortisation and write-offs 4,364 3,583 3,732Cost of equipment disposed when recognising finance leases – 240 88Increase in provisions 451 1,103 757Profit on disposal of property, plant and equipment and intangible assets (93) (15) (167)Profit on disposal of investment (231) (364) –Loss on disposal of property, plant and equipment and intangible assets 4 1 2Impairment of investments and loans (11) (17) (225)

(Increase)/decrease in working capital (936) (622) 157

Inventories (202) (459) (202)Accounts receivable (147) (319) (196)Accounts payable (587) 156 555

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28. Dividend received 1,901 2,950 3,536

Dividend received per income statement 2,398 3,006 3,597Dividend accrued for the previous year 982 1,479 1,535Dividend accrued for the current year (1,479) (1,535) (1,596)

Dividend received consists of: 1,901 2,950 3,536

Dividend received from joint venture 1,750 2,650 2,825Dividend received from subsidiaries 151 300 711

29. Finance charges paid (1,032) (886) (842)

Finance charges per income statement (1,320) (1,027) (1,289)Non-cash items 288 141 447

Movements in interest accruals (247) (81) 49Net discount amortised 423 409 568Fair value adjustment 177 (172) (275)Unrealised (loss)/gain (65) (15) 105

30. Taxation paid (2,892) (3,852) (1,716)

(Liability)/asset at beginning of year (1,331) (1,164) 519South African normal company taxation (excluding deferred taxation) (2,449) (1,874) (1,879)Secondary Taxation on Companies (276) (295) (363)Taxation liability/(receivable) at end of year 1,164 (519) 7

31. Dividend paid (5,017) (4,874) (5,858)

Dividend payable at beginning of year (7) (4) (15)Declared during the year – Dividend on ordinary shares: (5,014) (4,885) (5,863)

Final dividend for 2005: 400 cents (2,228) – –Special dividend for 2005: 500 cents (2,786) – –Final dividend for 2006: 500 cents – (2,714) –Special dividend for 2006: 400 cents – (2,171) –Final dividend for 2007: 600 cents – – (3,198)Special dividend for 2007: 500 cents – – (2,665)

Dividend payable at end of year 4 15 20

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32. Acquisition of subsidiariesAfrica Online Limited (‘Africa Online’)

On February 23, 2007 Telkom acquired a 100% shareholding in AfricaOnline from African Lakes Corporation for a total cost of R150 million, witha 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 Limited is incorporated in the Republic of Mauritius.

Fair value of intangible assets 43Less: Deferred taxation raised on intangible assets (12)Less: Net liabilities acquired (excluding fair value of intangible assets) (26)


Purchase price 150

The goodwill has been allocated to the cash-generating units (CGU)representative of the countries in which Africa Online Limited operates. Animpairment loss of R12 million was recognised in order to write goodwilldown to the recoverable amount. The recoverable amount representsthe value in use of the CGUs and has been determined using 11.6%discount rate.

33. CommitmentsCapital commitments

Capital commitments authorised 6,500 7,000 7,000

Commitments against authorised capital expenditure 197 507 652 Authorised capital expenditure not yet contracted 6,303 6,493 6,348

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.

2010 FIFA World Cup commitments

The FIFA World Cup commitment is an executory contract which requires the Company to develop the fixed-line components of the necessarytelecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of fixed-line telecommunicationsrelated 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 NationalSupporter the Company owns a tier 3 sponsorship that grants the Company a package of advertising, promotional and marketing rights that areexercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amounted to USD35 million.

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Operating lease commitments and receivables

2008

Cash flow

Land and buildings 366 141 224 1Rental receivable on buildings (266) (94) (169) (3)Vehicles 1,430 226 1,204 –Equipment 13 10 3 –Customer premises equipment receivable (84) (45) (39) –

Total cash flow 1,459 238 1,223 (2)

The above figures represent actual cash flows relatingto operating leases expected during the periodsspecified. However, due to the straight-lining effect ofoperating leases, the amounts that would be recognisedin the income statement in the periods specified, wouldbe as follows:

Land and buildings 330 133 196 1Rental receivable on buildings (246) (92) (152) (2)Vehicles 1,430 226 1,204 –Equipment 13 10 3 –Customer premises equipment receivable (84) (45) (39) –

Total to be recognised in the income statement 1,443 232 1,212 (1)

Vehicles, equipment and customer premises equipmenthave no fixed annual escalation, therefore the cash flowsand income statement recognition would be the same.

Customer premises equipment receivable

The disclosed information relates to those arrangementswhich were assessed to be operating leases in terms ofIAS17. The comparative information for 2006 is notdisclosed as it was not considered to be material.

2007

Cash flow

Land and buildings 371 134 236 1Rental receivable on buildings (269) (91) (174) (4)Vehicles 564 564 – –Equipment 23 6 17 –Customer premises equipment receivable (57) (30) (27) –

Total cash flow 632 583 52 (3)

Income statement

Land and buildings 332 128 203 1Rental receivable on buildings (249) (90) (156) (3)Vehicles 564 564 – –Equipment 23 6 17 –Customer premises equipment receivable (57) (30) (27) –

Total to be recognised in the income statement 613 578 37 (2)

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Customer premises equipment receivable (continued)

2006

Cash flow

Land and buildings 265 97 167 1Rental receivable on buildings (226) (68) (156) (2)Vehicles 996 498 498 –Equipment 33 19 14 –

Total cash flow 1,068 546 523 (1)

Income statement

Land and buildings 231 91 139 1Rental receivable on buildings (213) (70) (141) (2)Vehicles 996 498 498 –Equipment 33 19 14 –

Total to be recognised in the income statement 1,047 538 510 (1)

Operating leases

The Company leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises areten years with other leases signed for five and three years. The bulk of non-equipment related premises are for leases of three years to tenyears. The majority of the leases normally contain an option clause entitling Telkom to renew the lease agreements for a period usually equalto 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 agreementprior 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 note below. Onerous leases for buildings, of which the Companyhas 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 thelease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating leasecommitments 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 providerduring the five year period except for the rentals at airports which are utilised in cases of subsistence and travel as well as vehicles which arenot 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, replacedby 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 ReserveBank. The leases of individual vehicles are renewed annually.

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.


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Operating leases (continued)

Finance leases

Finance lease commitments

Vehicles*

2008Minimum lease payments 242 48 194 –Finance charges (59) (20) (39) –


Buildings

2008Minimum lease payments 1,778 30 598 1,150Finance charges (935) (4) (548) (383)

Finance lease obligation 843 26 50 767

2007Minimum lease payments 1,897 120 487 1,290Finance charges (1,051) (116) (446) (489)


2006Minimum lease payments 2,039 121 490 1,428Finance charges (1,172) (116) (452) (604)


Equipment

2008Minimum lease payments 16 – 16 –Finance charges (2) – (2) –


2007Minimum lease payments 6 – 6 –Finance charges – – – –


*The finance lease commitments disclosed above are future commitments commencing April 1, 2008. Thus not recognised as interest-bearing debt.

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Finance leases

Finance leases on vehicles relates to the lease of Swap bodies. Swap bodies are detachable parts of the vehicle, designed according to Telkomspecifications which are used as mobile storage. The lease term negotiated for the Swap bodies, which is classified as finance lease andvehicles, which is classified as operating lease, has been extended from April 2008 to April 2013.

A major portion of the finance leases on buildings relates to the sale and lease-back of the Company’s office buildings. The lease term negotiatedfor 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. Telkomhas 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 Company’s building leases exceed the lease payments for the next three years. Minimum leasepayments for the next five years do not result in any income accruing to the Company.

Finance leases on equipment relates to the reclassification of operating leases as a result of the Company applying IFRIC4, which requiresassessment of whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfersignificant risks and rewards of ownership to the Company.

Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for the period of 3 yearsending in 2011.

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34. ContingenciesThird parties 27 19 18

Third parties

These amounts represent sundry disputes with third parties that are not individually significant and Telkom 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 customerassurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and inthat year, the Company wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of theTelcordia investment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia wasseeking approximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plusinterest at a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised byTelcordia to USD128 million.

The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Followingthe ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing washeld in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator settingout 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 ofthe 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 onboth damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’sclaim, 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 relationto the software that was required to be provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amountof the claims. The arbitrator confirmed certain dates for the compliance of procedural steps to be taken by all the parties before final datescould be agreed upon for a hearing of the evidence on the quantum.

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Supplier dispute (continued)

A provision has been raised based on management’s best estimate of the probable payments in this regard.

2006 2007 2008Rm Rm Rm

Supplier dispute liability included in current portion of provisions – 527 569*

For the net increase in the provision refer to note 23.

*USD 70 million


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 tothe compliant 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.

This applies to the following cases:

Independent Cellular Services 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 withlarge corporations, providing large discounts with the effect of discouraging the corporates from using the ‘premicell’ device installed by theirmembers. ICSPA alleged various contraventions of the Act. Telkom provided the Competition Commission with certain information requested.They also referred the Competition Commission to its High Court application in respect of utilisation of the ‘premicell’ device. The competitioncommission declined to refer the matter to the Competition Tribunal. ICSPA then referred the matter to the Competition Tribunal on September18, 2003 but has done nothing since, notwithstanding that Telkom filed its answering affidavit on November 28, 2003. ICSPA has taken nofurther 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 the Company at theCompetition Commission under the Competition Act 89 of 1998, alleging, among other things, that Telkom was abusing its dominant positionin 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 relevantcomplaints to the Competition Tribunal for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunicationsfacilities to certain VANS providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and crosssubsidised competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peerwith certain VANS providers.

Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the High Court, in respect ofthe decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the CompetitionTribunal does not have jurisdiction to adjudicate these matters and argued that the Independent 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 decisionof the Competition Commission to refer the SAVA complaints (and the Omnilink complaint against Telkom discussed below) to the CompetitionTribunal. 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 CompetitionCommission 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 thecomplainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in theSAVA 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 thecompetition 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 VANSand the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequentlyreferred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt withtogether 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 offeringdiscounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, theCompetition Commission, who acts as an investigator, had one year to investigate the complaint. Orion simultaneously with the filing of thecomplaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting andrestraining 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 theCompetition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allowsfor 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 furtherdevelopments on this matter.

The Internet Service Providers Association (‘ISPA’)

In December 2005, the ISPA, an association of Internet Service Providers (‘ISPs’), filed complaints against Telkom at the CompetitionCommission regarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South AfricanInternet Exchange (‘SAIX’), the prices offered by TelkomInternet, the alleged delay in provision of facilities to ISPs and the alleged favourableinstallation 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 attemptto first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information and is awaiting theCommission’s 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 reliefat the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and itsIP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users ofother ISPs, the architecture of the ADSL access route and the manner in which ISPs can only connect to the ESR via IP connect as well as allegedexcessive 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 ISand Telkom in terms of its current peering agreement, and demanded that Telkom treat the traffic generated by ADSL customers of M-Web astraffic 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% utilisation.

Telkom filed its answering affidavit, and is awaiting IS/M-Web’s replying affidavit. Since then Telkom has entered into a new peering agreementwith 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 CompetitionCommission.

M-WebOn June 5, 2007, M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner inwhich Telkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim reliefagainst Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not higher than the lowest retailprice. 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 tohear 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 theCompetition Tribunal does not have jurisdiction to hear the application for interim relief made to it by M-Web.

This application was set down for hearing during the first quarter of the 2009 financial year. The parties have entered into settlementnegotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as withdrawal of the jurisdictional challengeby Telkom. The parties are in further negotiations.

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Salary negotiations

Telkom is a party to a collective agreement on substantive matters covering the terms and conditions of employment of its fixed-line unionisedemployees and other non-management employees in Telkom’s bargaining unit with unions 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 theApril 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations in December2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade Union Federationsespecially COSATU have requested a double-digit increase. If Telkom is unable to implement workforce reductions as necessary or outsourcingas planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increased employeeexpenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted and our net profitcould be reduced.

Negative working capital ratio

At each of the financial periods ended March 31, 2008, 2007 and 2006 the Company had a negative working capital ratio. A negativeworking capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operatingcash flows, new borrowings and borrowings available under existing credit facilities.

35. Directors’ interestDD 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 withTelkom. Telkom paid R17,094,844 (2007: R18,682,568) in the 2008 financial year for these goods and services. The outstanding creditorsbalance at March 31, 2008 was R855,000 (2007: R151,924).

SL Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s Board members, are the South African Government’srepresentatives on Telkom’s Board of Directors. At March 31, 2008, the Government held 39.42% (2007: 38.83%; 2006: 37.99%) ofTelkom’s shares.

As at March 31, 2008 A Rhoda (B Molefe resigned March 5, 2008 and T Mahloele resigned on January 30, 2008) was the Public InvestmentCorporation (‘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.


Directors shareholding

2008

ExecutiveRJ September 7,155 – – –

7,155 – – –

Non-executiveAt March 31, 2008 there was no directors’ shareholding.

2007

Non-executiveTF Mosololi 455 – – –

Total 455 – – –

2006

Non-executiveNE Mtshotshisa – – – 88TF 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.

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2006 2007 2008Rm Rm Rm


Directors’ emoluments 15 7 36

ExecutiveFor other services 12 4 31

Non-executiveFor services as directors 3 3 5

Performance Fringe andFees Remuneration bonus other benefits Total

R R R R R

2008


Non-executive 4,633,933 – – – 4,633,933

SL Arnold 1,124,373 – – – 1,124,373B du Plessis 393,967 – – – 393,967MJ Lamberti – – – – –PSC Luthuli 502,117 – – – 502,117TD Mahloele 357,684 – – – 357,684KST Matthews 501,217 – – – 501,217TF Mosololi 174,960 – – – 174,960M Mostert*** 229,433 – – – 229,433DD Tabata 250,583 – – – 250,583YR Tenza 305,633 – – – 305,633PL Zim 5,333 – – – 5,333B Molefe 20,497 – – – 20,497A Rhoda 14,286 – – – 14,286RJ Huntley 193,833 – – – 193,833Dr E Spio-Garbrah** 273,841 – – – 273,841Dr 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 14,891,370Acting CEO – 1,437,233 – 2,780,234 4,217,467

LRR Molotsane* – 12,036,076 – 26,124 12,062,200


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Performance Fringe andFees Remuneration bonus other benefits Total

R R R R R


Directors’ emoluments (continued)

2007


Non-executive 2,641,168 – – – 2,641,168

NE Mtshotshisa 463,050 – – – 463,050SL Arnold 353,719 – – – 353,719TCP Chikane 32,670 – – – 32,670B du Plessis 213,367 – – – 213,367PSC Luthuli 205,417 – – – 205,417TD Mahloele 166,667 – – – 166,667KST Matthews 109,643 – – – 109,643TF Mosololi 214,417 – – – 214,417M Mostert 232,417 – – – 232,417DD Tabata 175,367 – – – 175,367YR Tenza 321,767 – – – 321,767PL 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


Non-executive 2,969,158 – – – 2,969,158

NE Mtshotshisa 759,500 – – – 759,500TCP Chikane 181,022 – – – 181,022B du Plessis 254,391 – – – 254,391PSC Luthuli 168,357 – – – 168,357TD Mahloele 223,227 – – – 223,227TF Mosololi 230,809 – – – 230,809M Mostert 308,272 – – – 308,272A Ngwezi 47,727 – – – 47,727DD Tabata 323,022 – – – 323,022YR Tenza 349,022 – – – 349,022PL 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 5,602,995SE Nxasana – 935,713 3,627,689 2,081,190 6,644,592


* 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 pensioncontribution for RJ September of R280,261 at March 31, 2008 paid to the Telkom Retirement Fund, and a payment made in terms of a restraint of tradeagreement. LRR Molotsane resigned from Telkom in April 2007 and RJ September was appointed CEO during November 2007. Included in remunerationfor LRR Molotsane is a payment pursuant to a settlement agreement with Telkom.

** 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 recommendationsto the Board on major transactions. During the year M Mostert led all efforts in this regard and was remunerated accordingly. Moreover in compliance withthe principles of good governance, the Board took legal advice and established that there was not conflict of interest arising out of his involvement in thetransaction evaluated.

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36. Related partiesDetails of material transactions and balances with related parties notdisclosed separately in the annual financial statements were as follows:

With joint venture:Vodacom Group (Proprietary) Limited

Related party balancesTrade receivables 96 122 99Dividend receivable 1,400 1,450 1,595Trade payables (512) (706) (691)

Related party transactionsRevenue (1,420) (1,510) (1,632)Expenses 2,870 2,974 3,050Dividend received (2,250) (2,700) (2,970)Audit fees 6 6 5Revenue includes interconnect fees and lease and installation of transmission lines.

Expenses mostly represent interconnect expenses.

With shareholders:Public Investment Corporation

There were no material transactions between the Company and the PublicInvestment Corporation.

Government

Related party balancesTrade receivables 247 271 326Related party transactionsRevenue (2,304) (2,458) (2,623)

With subsidiaries:TDS Directory Operations (Proprietary) Limited

Related party balancesTrade receivables 6 6 7Trade payables (120) (100) (151)Dividend receivable 78 84 –

Related party transactionsRevenue (57) (57) (59)Expenses 8 12 20Dividend received (143) (149) (120)

Swiftnet (Proprietary) Limited

Related party balancesTrade payables (14) (14) (12)

Related party transactionsRevenue (14) (16) (18)Income includes data calls and billing fees.

Rossal No 65 (Proprietary) Limited

Related party balancesAccruals and other payables (66) (148) –Loan to subsidiary – – 30

The loan is unsecured, interest free and has no fixed repayment terms.The loan has been subordinated in favour of other creditors.

Related party transactionsDividend paid 114 110 115Dividend received – (56) (290)

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With subsidiaries: (continued)

Acajou Investments (Proprietary) Limited

Related party balancesAccruals and other payables (100) (98) –

Related party transactionsDividend paid 98 98 119Dividend received – (100) (217)

Intekom (Proprietary) Limited

Related party balancesAccruals and other payables – (5) (13)

Related party transactionsExpenses 7 7 8

Q-Trunk (Proprietary) Limited

Related party balancesLoan to subsidiary 34 30 26Impairment of loan (34) (30) (26)The loan is unsecured, interest free and has no fixed repayment terms.

The company has deferred its right to claim or accept payment in favourof all other creditors in the event of the liquidation of the Company orsimilar event.


Special purpose entity – cell captive

Related party balancesInvestment (refer to note 11) 1,891 535 535

Related party transactionsInvestment income (106) (19) –

Africa Online Limited (‘Africa Online’)

Related party balancesLoan to subsidiary – – 74Impairment of investment – – (12)Trade payables – – (4)

Related party transactionsRevenue – – (4)Investment income – – (2)

The loan is unsecured and bears interest at 3 month USD LIBOR plus 5%.The loan has no fixed repayment terms.

Multi-Links Telecommunications Limited

Related party balancesLoan to subsidiary – – 840Trade payables (21)

Related party transactionsRevenue – – (21)Investment income (34)

The loan is unsecured and bears interest at 3 month USD LIBOR plus 5%.The loan may be prepaid in full or in whole, provided that each partprepayment may not be less than USD1 million. The advances must berepaid on May 01, 2009, July 01, 2009 and January 29, 2010.

2006 2007 2008Rm Rm Rm

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With subsidiaries: (continued)

Telkom International (Proprietary) Limited

Related party transactionsLoan to subsidiary – – 1,985

The loan has been used to purchase a 75% shareholding in Multi-LinksTelecommunications Limited . The loan is unsecured, interest-free and hasno fixed repayment terms.

Telkom Media (Proprietary) Limited

Related party transactionsLoan to subsidiary – – 326Impairment of loan – – (217)The loan is interest free and has no repayment terms.

Telkom Foundation


With entities under common control:

Major public entities

Related party balancesTrade receivables 37 51 26Trade payables (2) (2) (5)

The outstanding balances are unsecured and will be settled in cash in theordinary course of business.

Related party transactionsRevenue (362) (400) (485)Expenses 162 206 201Rent received (17) (29) (21)Rent paid 56 18 18

Income with major public entities for the year ended March 31, 2007 hasbeen restated due to additional BAN numbers being included in ourcalculation of income with major public entities. The effect of this is only onthe disclosure of the related party note and has a RNil effect on theCompany’s profit.

Key management personnel compensation:

(Including directors’ emoluments)

Related party transactionsShort-term employee benefits 89 108 114Post-employment benefits 3 3 3Termination benefits 12 – 27Equity compensation benefits 6 8 24

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 settlementoccurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there havebeen no guarantees provided or received for related party receivables or payables. Except as indicated above for the year ended March 31,2008, the Company has not made any impairment of amounts owed by related parties (2007: RNil; 2006: RNil). This assessment isundertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

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37. Subsequent eventsDividends

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 forshareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge ofR161 million.

Telkom Media (Proprietary) Limited (‘Telkom Media’)

On August 31, 2006 Telkom created a new subsidiary, Telkom Media with a Black Economic Empowerment (‘BEE’) shareholding. ICASAawarded Telkom Media a commercial satellite 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 takenthe decision to substantially reduce its investment in Telkom Media and will be investigating all opportunities to do this in the best interests ofTelkom shareholders and other stakeholders.

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 ofVodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, interalia, 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 isconsidering 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 numberof pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacomas part of the offer.

The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciaryduties, will evaluate all bona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisiteshareholder approvals.

Telkom will advise shareholders of further developments in this regard in due course.

Capability Management

Telkom will seek to manage costs by realigning its structure, employees and resources to better match its transforming information, communicationsand technology business and to improve customer service. The transformation of the communications industry and increasing market andcompetitive pressure has put communications companies such as Telkom under increasing revenue and expense constraints while being requiredto improve customer service. As a result a capability management initiative has been launched which is designed to ensure that the capabilitiesneeded 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 areasin a more deregulated and liberalised communications market. The capability management initiative includes the internal consolidation of certainfunctional 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 centres, operations, ancillary services, network service providers, network fieldoperations, 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 (‘CIPRO’) for the approvaland reservation of a newly set-up company. The approved and reserved name is ‘Telkom Management Services’.

Union action

Telkom have 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 matter or circumstance since the financial year ended March 31, 2008 and the date of this report, orotherwise dealt with in the financial statements, which significantly affects the financial position of the Company and the results of its operations.

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Supplementary information


In connection with the US Securities Exchange Commission Rules relating to“Conditions for use of Non-GAAP Financial Measures”, EBITDA and headlineearnings have been reconciled to net profit below:

EBITDAEarnings before interest, taxation, depreciation and amortisation (EBITDA) can be reconciled as follows:

EBITDA 20,553 19,785 20,612Depreciation, amortisation, impairment and write-offs (5,876) (5,315) (6,130)Investment income 397 235 197Finance charges (1,223) (1,125) (1,803)Taxation (4,523) (4,731) (4,704)Minority interests (139) (203) (197)

Net profit 9,189 8,646 7,975

Headline earnings

The disclosure of headline earnings is a requirement of the JSE Securities Exchange, South Africa and is not a recognised measure under US GAAP

Headline earnings can be reconciled as follows:

Earnings as reported 9,189 8,646 7,975Profit on disposal of investment (163) (52) (4)Profit on disposal of property, plant and equipment and intangible assets (79) (29) (147)Impairment/(reversal of impairment) of property, plant and equipment and intangible assets (26) 12 244Write-offs of property, plant and equipment 188 284 285Acquisition of subsidiary (35) – –Tax and minority interest effects 23 (62) (22)

Headline earnings 9,097 8,799 8,331

We believe that EBITDA provides meaningful additional information to investors since it is widely acceptable by analysts and investors as a basis forcomparing a company’s underlying operating profitability with that of other companies as it is not influenced by past capital expenditures or businessacquisitions, a company’s capital structure or the relevant tax regime.

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 activitiesdetermined in accordance with US GAAP or IFRS or as a measure of liquidity.

US DOLLAR CONVENIENCE

March 31,2008

Operating revenue 6,915Operating profits 1,779Net profit 980EBITDA 2,532EPS (cents) 192.3Net debt 2,041Total assets 8,645Cash flow from operating activities 1,267Cash flow used in investing activities (1,733)Cash flow used in financing activities 362Exchange ratePeriod end1

US$1 = ZAR 8.14

1. Noon buying rate.


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March 31,2008

Retaining Telkom’s critical skills is a vital element in building for a converged future.Our employees are the key to our success

Shareholder information

Shareholder analysis 354

Definitions 356

Shareholder information


Shareholder analysis

at March 31, 2008

Range of shareholders1 – 100 shares 65,248 71.94 2,196,619 0.42101 – 1 000 shares 23,098 25.47 6,274,870 1.191 001 – 10 000 shares 1,529 1.69 4,292,565 0.8210 001 – 50 000 shares 395 0.44 9,732,517 1.8550 001 – 100 000 shares 170 0.19 12,376,570 2.36100 001 – 1 000 000 shares 226 0.25 65,814,997 12.531 000 001 and more shares 38 0.04 424,540,184 80.83

90,704 100.00 525,228,322 100.00

Type of shareholderBanks 152 0.17 56,403,002 10.74Close corporations 107 0.12 62,780 0.01Empowerment 1 0.00 30,467,930 5.80Endowment funds 106 0.12 635,815 0.12Individuals 86,729 95.62 9,969,122 1.90Insurance companies 66 0.07 25,603,552 4.88Investment companies 73 0.08 21,733,144 4.14Medical aid schemes 22 0.02 759,430 0.14Mutual funds 367 0.40 38,427,179 7.32Nominees and trusts 2,146 2.37 2,289,478 0.44Other corporations (including the Government of the Republic of South Africa) 337 0.37 207,475,300 39.50Own holdings 3 0.00 25,786,403 4.91Pension funds 371 0.41 104,598,767 19.91Private companies 210 0.23 841,546 0.16Public companies 13 0.01 166,528 0.03Share trusts 1 0.00 8,346 0.00

90,704 100.00 525,228,322 100.00

Geographical holdings by ownerSouth Africa 90,334 99.60 458,288,214 87.25United States 100 0.11 44,311,058 8.44United Kingdom 91 0.10 16,674,394 3.17Europe 48 0.05 4,282,438 0.82Other 131 0.14 1,672,218 0.32

90,704 100 525,228,322 100.00

Public and non-public shareholdersNon-public shareholders 13 0.02 263,328,045 50.14

The Government of the Republic of South Africa 1 0.00 207,038,058 39.43Empowerment 1 0.00 30,467,930 5.80Government buffer account 1 0.00 9,461 0.00Diabo share trust 1 0.00 8,346 0.00Telkom Treasury Stock (Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited) 3 0.01 25,786,403 4.91Executive and Non-executive directors* 1 0.00 7,155 0.00Subsidiaries directors* 5 0.01 10,692 0.00

Public shareholders

Institutional and retail investors 90,691 99.98 261,900,277 49.86

90,704 100.00 525,228,322 100.00

Number of Number ofof shareholders % shares %

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Shareholder analysis (continued)

Beneficial shareholders of more than 2%The Government of the Republic of South Africa 207,038,058 39.42Public Investment Corporation 80,002,249 15.23Elephant Consortium NewShelf 772 (Proprietary) Limited 30,467,930 5.80Liberty Group 15,574,374 2.97Sanlam 11,408,885 2.17Telkom Treasury Stock (Acajou Investments) 10,849,058 2.07Telkom Treasury Stock (Rossal No 65 (Proprietary) Limited) 10,493,207 2.00

365,833,761 69.66

*Director holdings consists of direct and indirect holdings.The information above is based on registered shareholders, except where only beneficial shareholders’ information was available.

Number ofshares %

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3G

The generic term, 3G, is used to denote the next generation of mobilesystems designed to support high-speed data transmission (144 Kbps andhigher) and Internet Protocol (IP)-based services in fixed, portable andmobile environments. As envisaged by the ITU, the 3G system will integratedifferent service coverage zones and be a global platform and the necessaryinfrastructure for the distribution of converged service, whether mobile orfixed, voice or data, telecommunications, content or computing.

ADSL (Asymmetrical Digital Subscriber Line)

ADSL is a broadband access standard which uses existing copper lines tooffer high-speed digital connections over the local loop. ADSL transmitsdata asymmetrically, meaning that the bandwidth usage is much higherin one direction than the other. ADSL provides greater bandwidth from theexchange to the customer (ie. downloading) than from the customer tothe exchange (ie. sending).

ARPU

Vodacom’s average monthly revenue per customer, or ARPU, is calculatedby dividing the average monthly revenue during the period by the averagemonthly total reported customer base during the period. ARPU excludesrevenue from equipment sales, other sales and services and revenuefrom national and international users roaming on Vodacom’s networks.

ATM (Asynchronous Transfer Mode)

ATM is a high-speed Wide Area Network (WAN), connection-oriented,packet-switching data communications protocol that allows voice, dataand video to be delivered across existing local and Wide Area Networks.ATM divides data into cells and can handle data traffic in bursts. It isasynchronous, in that the stream of cells from one particular user is notnecessarily continuous.

Bandwidth

Bandwidth is a measure of the quantity of signals that can travel over atransmission medium such as copper or a glass fibre strand. It is the availablespace available to carry a signal. The greater the bandwidth, the greater theinformation carrying capacity. Bandwidth is measured in bits per second.

Broadband

Broadband is a method of measuring the capacity of different types oftransmission. Digital bandwidth is measured in the rate of bits transmittedper second (bps). For example, an individual ISDN channel has abandwidth of 64 kilobits per second (Kbps), meaning that it transmits64,000 bits (digital signals) every second.

CAGR

Compound Annual Growth Rate.

Carrier pre-selection

Carrier pre-selection is usually initiated by the telecoms Regulator.It enables individuals to choose which telecom will carry their traffic(mainly long distance) by a signalling contract rather than having to dialextra digits.

CDMA (Code Division Multiple Access)

CDMA is one of many technologies for digital transmission of radio signalsbetween, for example, mobile telephones and radio base stations. In CDMA,which is a spread-spectrum modulation technology, each call is assigned aunique “pseudorandom” sequence of frequency shifts that serve as a code to

distinguish it. The mobile phone is then instructed to decipher only a particularcode to pluck, as it were, the right conversation off the air. CDMA is thetechnology of choice for 3G mobile systems. CDMA, however, also refers to aparticular air-interface standard (a fact that is often a source of confusion).

Circuit

A circuit is a connection or line between two points. This connection canbe made through various media, including copper, coaxial cable, fibre ormicrowave. A telephone exchange is a circuit switch.

DECT (Digital Enhanced Cordless Telecommunications)

DECT is the standard for cordless telephones. DECT phones communicateusing the PSTN (public switched telephone network) through a small basestation in the home or office and have a working radius of between 50 and300 metres.

EBITDA

EBITDA represents profit for the year before taxation, finance charges,investment income and depreciation, amortisation, impairment and write-offs.

EDGE (Enhanced Data for GSM evolution)

EDGE is a technology designed to enhance GSM and TDMA systems withrespect to data rates and is widely considered to be the GSM evolutionbeyond GPRS. It enhances the data capabilities of GSM and TDMAsystems by altering the RF modulation scheme to allow greater datarates per time slot. Because it uses a different modulation techniqueacross the air-interface, EDGE requires different mobile terminals/handsets than those designed for the GSM air-interface.

Effective tax rate

The effective tax rate is the tax charge in the income statement dividedby pre-tax profit.

Ethernet

Ethernet is a protocol that defines how data is transmitted to and receivedfrom LANs. It is the most prevalent LAN protocol, with speeds of up to10 Mbps.

Fibre optics

Fibre optics is where messages or signals are sent via light rather thanelectrical signals down a very thin strand of glass. Light transmissionenables much higher data rates than conventional wire, coaxial cableand many forms of radio. Signals travel at the speed of light and do notgenerate nor are subject to interference.

Fibre rings

Fibre rings have come to be used in many fibre networks as it providesmore network resiliency: if there is a failure along a route and a ring isbroken, the direction of the traffic can be reversed and the traffic willstill reach its final destination.

Fixed access lines

Fixed access lines are comprised of public switched telecommunicationsnetwork lines, or PSTN lines, including integrated services digital networkchannels, or ISDN channels, and public and private payphones, butexcluding internal lines in service.

Fixed access lines per employee

To calculate the number of access lines per employee the total number ofaccess lines is divided by the number of employees at the end of the period.

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Fixed-line penetration

Fixed-line penetration or teledensity is based on the total number oftelephone lines in service at the end of the period per 100 persons in thepopulation of South Africa. Population is the estimated South Africanpopulation at the mid-year in the periods indicated as published byStatistics South Africa, a South African Government department.

Fixed-line traffic

Fixed-line traffic, other than international outgoing mobile traffic,international interconnection traffic and international Voice over InternetProtocol traffic, is calculated by dividing traffic operating revenue for theparticular category by the weighted average tariff for such category duringthe relevant period. Fixed-line international outgoing mobile traffic andinternational interconnection traffic are based on the traffic registeredthrough the respective exchanges and reflected in internationalinterconnection invoices. International Voice over Internet Protocol trafficis based on the traffic reflected in invoices.

Frame relay

Frame relay is a widely implemented telecommunications servicedesigned for cost-efficient data transmission for data traffic between localarea networks and between end-points in a wide area network. Thenetwork effectively provides a permanent circuit, which means that thecustomer sees a continuous, dedicated connection, but does not pay fora full-time leased line.

GPRS (General Packet Radio Service)

GPRS is a packet rather than a circuit-based technology. GPRS allows forfaster data transmission speed to both GSM and TDMA (IS-136) networks.GPRS is a packet-switched technology that overlays the circuit-switchedGSM network. The service can be introduced to cellular networksby infrastructure.

GSM (Global System for Mobile)

GSM is a second generation digital mobile cellular technology using acombination of frequency division multiple access (FDMA) and time divisionmultiple access (TDMA). GSM operates in several frequency bands: 400 MHz, 900 MHz and 1800 MHz. On the TDMA side, there are eighttimeslots or channels carrying calls, which operate on the same frequency.Unlike other cellular systems, GSM provides a high degree of security byusing subscriber identity module (SIM) cards and GSM encryption.

HSDPA

High Speed Downlink Packet Access.

IAS

International Accounting Standards.

IFRS

International Financial Reporting Standards.

Interconnection

Interconnection refers to the joining of two or more networks. Networksneed to interconnect to enable traffic to be transmitted to and fromdestinations. The amounts paid and received by the operators varyaccording to distance, time, the direction of traffic, and the type ofnetworks involved.

Interest cover

Interest cover is calculated by dividing EBIT by the net interest charge inthe income statement. It is a measure of income gearing.

ISDN (Integrated Services Digital Network)

ISDN is a data communications standard used to transmit digital signalsover ordinary copper telephone cables. This is one technology forovercoming the “last mile” of copper cables from the local exchange tothe subscribers premises, which has proved a bottleneck for Internetaccess, for example. ISDN allows to carry voice and data simultaneously,in each of at least two channels capable of carrying 64 Kbps. It providesup to 128 Kbps and a total capacity of 144 Kbps exist.

ITU (International Telecommunications Union)

ITU is the global technical standard-setting body for telecommunicationsservices.

LAN (Local Area Network)

A LAN is a group of devices that communicate with each other within alimited geographic area, such as an office.

Leased line

A leased line is a telecommunications transmission circuit that is reservedby a communications provider for the private use of a customer.

LIBOR

London Interbank Offer Rate.

Local loop

The local loop is the final connection between the exchange and thehome or office. It is also known as the last mile.

Microwave

Microwave is radio transmission using very short wavelengths.

MMS (Multimedia Messaging Services)

MMS is a service developed jointly together with 3GPP, allows users tocombine sounds with images and text when sending messages, much likethe text-only SMS.

Mobile churn

Vodacom’s churn is calculated by dividing the average monthly number ofdisconnections during the period by the average monthly total reportedcustomer base during the period.

Mobile penetration

Vodacom calculates penetration, or teledensity, based on the total numberof customers at the end of the period per 100 persons in the populationof South Africa. Population is the estimated South African population atthe mid-year in the periods indicated as published by Statistics SouthAfrica, a South African Governmental department.

Mobile traffic

Vodacom’s traffic comprises total traffic registered on Vodacom’s network,including bundled minutes, outgoing international roaming calls andcalls to free services, but excluding national and incoming internationalroaming calls.

Definitions (continued)

Definitions (continued)

MOU (Mobile Minutes of Use)

Vodacom’s average monthly minutes of use per customer, or averageMOU, is calculated by dividing the average monthly minutes during the period by the average monthly total reported customer base duringthe period. MOU excludes calls to free services, bundled minutes anddata minutes.

Net debt

Net debt is all interest-bearing debt finance (long-term and short-term)less cash and marketable securities.

Net debt to total equity

Net debt to total equity is a measure of book leverage (gearing): net debtin the balance sheet divided by total equity (the sum of shareholders’funds plus minority interests).

Operating free cash flow

Operating free cash flow is defined as cash flow from operating activities,after interest and taxation, before dividends paid, less cash flow frominvesting activities.

Packet switching

Packet switching is designed specifically for data traffic, as it cuts theinformation up into small packets, which are each sent across the networkseparately and are then reassembled at the final destination. This allowsmore users to share a given amount of bandwidth. X.25, ATM and framerelay are all packet switching techniques.

POP (Point of Presence)

A POP is a service provider’s location for connecting to users. Generally,POPs refer to the location where people can dial into the provider’scomputer. Most providers have several POPs to allow low-cost local accessvia telephone lines.

PSTN (Public Switched Telephone Network)

The PSTN is a collection of interconnected voice telephone networks,either for a given country or the whole world. It is the sum of the parts.It was originally entirely analog, but now increasingly digital (indeedin many developed countries digitisation has reached 100%), thesenetworks can be either state-owned or commercially owned. PSTN isdistinct from closed private networks (although these may interconnectto the PSTN) and from public data networks (PDN).

Revenue per fixed access line

Revenue per fixed access line is calculated by dividing total fixed-linerevenue during the period, excluding data and directories and otherrevenue, by the average number of fixed access lines during the period.

RICA

Regulation of Interception of Communication and Provision of Communication-related Information Act.

ROA (Return on Assets)

Return on Assets is calculated by dividing net profit (annualised) bytotal assets.

ROE (Return on Equity)

Return on Equity is calculated by dividing net income by the average ofthe shareholders’ funds.

SDH (Synchronous Digital Hierarchy)

SDH is used in most modern systems, where multimedia can be

transmitted at high speeds. The networks are shaped in a ring, so that

if there is a problem, the traffic can be redirected in the other direction

and the caller will not detect the interruption.

SMS (Short Message Service)

SMS refers to short, usually text-based messages sent by or to a wireless

subscriber. They are not delivered to the recipient instantly and have

some degree of transmission time delay. SMS messages are usually

limited to total character lengths of 140 to 160 characters.

Switch

A switch is a computer that acts as a conduit and director of traffic. It is

a means of sharing resources as a network.

Total interest-bearing debt

Total interest-bearing debt is defined as short- and long-term interest-

bearing debt, including credit facilities, finance leases and other

financial liabilities.

UMTS (Universal Mobile Telecommunications System)

UMTS is the Western European name for the 3G WCDMA standard

adopted as an evolutionary path by the GSM world. However, it utilises

the radio spectrum in a fundamentally different manner than GSM.

UMTS is based on DCMA technology and the GSM standard is based on

TDMA technology.

VoIP (Voice over Internet Protocol)

Voice over Internet Protocol is a protocol enabling voice calls to be

made over the Internet. Rather than a dedicated circuit being set up

between the caller and receiver, as with ordinary phone calls, the voice

conversation is digitised and transmitted over Internet Protocol using

packet-switched data networks.

WAN (Wide Area Network)

A WAN comprises LANs in different geographic locations that are

connected, often over the public network.

WAP (Wireless Application Protocol)

WAP is an application environment designed to bridge the gap between

the mobile and Internet worlds. It is a set of communication protocols for

wireless devices designed to provide vendor-neutral and technology-

neutral access to the Internet and advanced telecommunications services.

WiMAX

WiMAX is a standard for extending broadband wireless access to new

locations and over longer distances. The technology is expected to enable

multimedia applications with wireless connectivity and typically with a

range of up to 30 km. It is a standard for fixed wireless access with

substantially higher bandwidth capabilities than cellular networks.

The emergence of further enhancements to the standard wil enable nomadic

data communications accross an entire metropolitan area network linking

homes and businesses to the core telecommunications network. WiMAX can

be viewed as a technology complementing existing ADSL broadband offerings.

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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 actingon 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 financialposition and plans, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well as projected levels ofgrowth in the communications market, are forward looking statements. Forward looking statements can generally be identified by the use ofterminology 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 resultsand 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. “KeyInformation – Risk Factors” of Telkom’s most recent annual report on Form 20F filed with the US Securities and Exchange Commission and its otherfilings and submissions with the SEC which are available on Telkom’s website at www.telkom.co.za/ir, including, but not limited to, any changes toour mobile strategy and Vodacom holdings and our ability to successfully implement such strategy and organisational changes thereto, increasedcompetition in the South African fixed-line, mobile and data communications markets; our ability to implement our strategy of transforming from basicvoice and data connectivity to fully converged solutions, developments in the regulatory environment; continued mobile growth and reductions inVodacom’s and Telkom’s net interconnect margins; Telkom’s and Vodacom’s ability to expand their operations and make investments and acquisitionsin other African countries and the general economic, political, social and legal conditions in South Africa and in other countries where Telkom and Vodacominvest; our ability to improve and maintain our management information and other systems; our ability to attract and retain key personnel andpartners; our inability to appoint a majority of Vodacom’s directors and the consensus approval rights at Vodacom may limit our flexibility and abilityto implement our preferred strategies; Vodacom’s continued payment of dividends or distributions to us; our negative working capital; changes intechnology and delays in the implementation of new technologies; our ability to reduce theft, vandalism, network and payphone fraud and lostrevenue to non-licensed operators; the amount of damages Telkom is ultimately required to pay to Telcordia Technologies Incorporated; the outcomeof regulatory, legal and arbitration proceedings, including tariff approvals, and the outcome of Telkom’s hearings before the Competition Commissionand others; any requirements that we unbundle the local loop, our ability to negotiate favourable terms, rates and conditions for the provision ofinterconnection services and facilities leasing services or if ICASA finds that we or Vodacom have significant market power or otherwise imposesunfavourable terms and conditions on us; our ability to implement and recover the substantial capital and operational costs associated with carrierpreselection, number portability and the monitoring, interception and customer registration requirements contained in the South African Regulation ofInterception of Communications and Provisions of Communication-Related Information Act and the impact of these requirements on our business; Telkom’sability to comply with the South African Public Finance Management Act and South African Public Audit Act and the impact of the Municipal PropertyRates Act; fluctuations in the value of the Rand and inflation rates; the impact of unemployment, poverty, crime, HIV infection, labour laws and labour relations, exchange control restrictions and power outages in South Africa; and other matters not yet known to us or not currently consideredmaterial 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 updatethese statements, we will not necessarily update any of these statements after the date of this annual report, either to conform them to actual resultsor to changes in our expectations.

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Company registration number

1991/005476/06

Head office

Telkom Towers North152 Proes StreetPretoria 0002

Postal address

Telkom SA LimitedPrivate Bag X881Pretoria 0001

Telkom share register helpline

0861 100 948

Customer call centre

10219

Company secretary

Sandi LinfordTel: +27 12 311 [email protected]

Media relations

Pynee ChettyTel: +27 12 311 [email protected]

United States ADR depositary

The Bank of New YorkShareholder Relations DepartmentPO Box 11258New YorkNY 10286-1258Tel: +1 888 643 4269e-mail: [email protected]

Corporate Communications

Nabinto PetsanaTel: +27 12 311 [email protected]

Regulatory and Public Policy

Adv. Ouma RasethabaTel: +27 12 311 [email protected]

Auditors

Ernst & Young Inc.Wanderers Office Park52 Corlett DriveIllovo 2196

Private Bag X14Northlands 2116Tel: +27 11 772 3000Fax: +27 11 772 4000

Transfer agents

Computershare Investor Services 2004 (Pty) Ltd70 Marshall StreetJohannesburg, 2001

PO Box 61051Marshalltown 2107

Business call centre

10217

Investor Relations

Nicola WhiteTel: +27 12 311 [email protected]@telkom.co.za

Sponsors

UBS Securities South Africa (Pty) Limited64 Wierda Road EastWierda valleySandton 2196

Administration

Telkom

SA Lim

itedA



Annual2008

report

Telkom SA Limited


www.telkom.co.za


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