8968 Telkom Section 1 Pg1-16 Final:Layout 1

WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo we do business Telkom is one of Africa’s Telkom largest integrated communication service providers. aim to be Africa’s We preferred ICT solutions provider. Changing the way Changing report 2008 Annual Telkom SA Limited Telkom

Telkom SA Limited Annual Report 2008 www.telkom.co.za 8968 Telkom cover:Layout 1 4/8/08 16:09 Page 1 Page 16:09 4/8/08 1 cover:Layout Telkom 8968 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo we do business Telkom is one of Africa’s Telkom largest integrated communication service providers. aim to be Africa’s We preferred ICT solutions provider. Changing the way Changing report 2008 Annual Telkom SA Limited Telkom

Telkom SA Limited Annual Report 2008 www.telkom.co.za 8968 Telkom cover:Layout 1 4/8/08 16:09 Page 1 Page 16:09 4/8/08 1 cover:Layout Telkom 8968 8968 Telkom cover:Layout 1 4/8/08 16:10 Page 2

Strategic overview

CONTENTS

Group overview Telkom Group structure 2 Telkom shareholding 3 Financial review summary 4 Operational review summary 6 Telkom’s investment case 8 Industry overview 11 Management review Chairman’s review 18 Chief executive officer’s review 22 Board of directors 26 Chief officers 30 Management team 32 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 The core strategy remains to defend and grow Telkom continues to move up the value added Performance review Five year operational review 108 Telkom’s traditional revenue. data services chain. Operational review 109 Chief of finance’s review 139 Five year financial review 146 Telkom is building a fixed-wireless and mobile Telkom is pursuing further attractive acquisition Financial review 147 data network in order to exploit the opportunities in fast growing emerging markets. Annual financial statements opportunities offered by fixed and mobile Directors’ responsibility statement 181 Certificate from Group Company Secretary 181 integration. We aim to establish Telkom as a regional Reports of the independent auditors 182 Information Communications Technology player. Directors’ report 184 Consolidated income statement 186 Consolidated balance sheet 187 Telkom is leveraging the core strengths of our Consolidated statement of changes in equity 188 Consolidated cash flow statement 189 high quality, resilient fixed-line network to be a Notes to the consolidated annual financial statements 190 fully converged service provider. Company income statement 284 Company balance sheet 285 Company statement of changes in equity 286 Company cash flow statement 287 Notes to the annual financial statements 288 Supplementary information 352 Shareholder information Shareholder analysis 354 Definitions 356 Special note regarding forward-looking statements 359 www.telkom.co.za Administration 360 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom cover:Layout 1 4/8/08 16:10 Page 2

Strategic overview

CONTENTS

Group overview WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 TELKOM GROUP STRUCTURE

Joint Venture: Vodacom Group – 50% Vodacom Group (Pty) Ltd is a leading mobile communications company in South Africa, providing mobile communications 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 share of 55% in South Africa. TDS Directory Operations – 64.9% TDS Directory Operations (Pty) Ltd provides Yellow and White page directory services, an electronic directory 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 wireless access on Telkom’s X.25 network, Saponet-P, to its customer base. Services include retail credit card and check 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 2 the leading providers of telecommunications solutions in Nigeria, Multi-Links was one of the first to locally introduce 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 and Zimbabwe, Africa Online is positioned to provide individuals and organisations with scalable solutions based on each client’s specific needs. Telkom Media – 75% Telkom Media is the holder of a commercial satellite and cable subscription broadcasting licence, which allows it to operate both a satellite pay-TV service and an IPTV service in South Africa. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 TELKOM SHAREHOLDING AS OF MARCH 31, 2008

1 Government

The Government of the Republic of South Africa is the largest shareholder in Telkom, holding 39.4% of the company’s issued share capital. The Government is the Class A shareholder. 2 Black Ginger 33 (Pty) Limited

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

3 4 Public Investment Elephant Consortium Corporation The Elephant Consortium The Public Investment Corporation is a Black Economic (PIC) is an investment management Empowerment group, company wholly owned by the which through Newshelf Government. It invests funds on 772 (Pty) Ltd holds 5.8% behalf of public sector entities. The of Telkom’s issued Telkom PIC holds 6.4% of the company’s share capital. issued share capital. 2008 Annual Report

5 6 Telkom Treasury Stock Free float

Rossal No 65 (Pty) Ltd holds The free float of 35.4% 3 10,493,141 shares, 2.0% of the makes up the remainder of company’s issued share capital the company’s issued share which were purchased for the capital. Included in the free Telkom Conditional Share Plan. float are 9,969,122 shares held by 86,729 retail Acajou Investments (Pty) Ltd holds shareholders representing 10,849,058 shares, 2.1% of the 1.9% of the company’s company’s issued share capital, which issued share capital. were purchased for purposes other than the Telkom Conditional Share Plan. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 FINANCIAL REVIEW SUMMARY

Steady growth of annuity revenue and data services

Solid revenue growth The 17.1% growth in Vodacom’s revenue to R24.1 billion contributed to the Group’s overall growth.

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

EPS & HEPS The decrease in both headline and basic earnings per share reflect slower revenue growth, increasing operating expenses, a decreasing Group EBITDA margin to 36.6% from 38.3% and increased finance costs. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo

Telkom Annual Report 2008 5 to the Telkom Group to the Telkom The fixed-line business remains the major contributor Segment contribution eliminations) (after inter-segmental OPERATIONAL REVIEW SUMMARY

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

92% 149.2% of network with ADSL coverage increase in Supreme Call packages

R3.4 billion 245.6% new sales in term and volume increase in Do Broadband discount plans packages

57% 237 WiFi hotspots ADSL installation deployed at strategic through self install partner locations

6 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Managed data networks Revenue from managed data network sites increased by 36.2% mainly as a result of the growth in the number of network sites.

VPN products Telkom Telkom’s focus on bringing new innovative products to the market that cater

for data usages and converged services has seen our new VPN products gain 2008 Annual Report increasing traction in the market.

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

Internet subscribers The ADSL footprint now covers 92% of the network, contributing to the growth in Internet subscribers. 7

ADSL The 61.2% growth in ADSL subscribers was achieved through the commoditisation of ADSL, Do Broadband, the self install option, DSL port automation and wholesale services.

Calling plans The 69.4% growth in Calling plan subscribers can be attributed to Telkom aggressively offering subscription based value propositions. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 EQUITY MARKETS

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

8 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 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 closing price 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 listing anniversary on March 4, 2005, continuing its commitment to empowering historically disadvantaged South Africans.

Telkom on April 6, 2006 announced a R30 billion capital expenditure programme incorporating the building of the Next Generation Network. 9

Telkom announced the acquisition of Africa Online on February 23, 2007 and Multi-Links effective May 1, 2007, commensing with its geographic expansion strategy aimed 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 added data services. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom on September 3, 2007 announces the review of its mobile strategy and that it is in 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 certain or all of Telkom’s fixed-line business with MTN.

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

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

On June 2, 2008 Telkom announces that it has received a non-binding proposal from Vodafone 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 to Telkom shareholders. In addition, Telkom confirms that it received a letter from a consortium comprising Mvelaphanda Holdings (Pty) Limited, affiliated funds of Och-Ziff Capital Management Group and other strategic investors stating that the consortium is considering making an offer for the entire issued share capital of Telkom subject to a number of pre-conditions, one of which is confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacom. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 11 the conversion of existing licences to individual electronic the conversion of existing licences to individual communications services and electronic communications network services licences; the establishment of the standard terms and conditions for class and individual licences; the establishment of the special terms and conditions that may apply to each individual licensee; the determination of the definition of the various markets; the establishment of the methodologies that will be used to determine the level of competitiveness in each market and the existence of significant market power therein; and the determination of the regulatory remedies that may be imposed on a licensee upon a finding of significant market power. not been addressed or clarified. ICASA has startednot been addressed or clarified. ICASA has several regulatory process, the most important of which are: It is not possible to determine at this stage the outcome of these processes or the timeframe within which they will be likely that ICASA will concluded. It is not, however, complete the licence conversion process by July 2008 as Telecommunications Act. The Telecommunications Telecommunication Act was repealed by the Electronic Communications Act when the Electronic Communications Act came into effect on July 19, 2006. While a new licensing regime has been created by the Electronic Communications Act, all existing licences are to remain valid until converted to new licences in accordance with the new licensing regime. Regulations made under the Act are also to remain in force until Telecommunications new regulations required are made to fully implement the provisions of the Electronic Communications Act. As a result, the regulatory environment is evolving, lacks clarity in a number of areas and is subject to interpretation, review and amendment as the telecommunications industry is further developed and liberalised. In addition, the regulatory process entails a public comment process, which, in light of the politicised issue of privatisation of industries such as telecommunications in South Africa, makes the outcome of the regulations uncertain and may cause delays in the regulatory process. A number of significant matters have The licensing and provision of telecommunications servicesThe licensing and provision of telecommunications been in the Republic of South Africa has historically and the extensive Act subject to the Telecommunications regulations made under the OVERVIEW THE TELECOMMUNICATIONS INDUSTRY THE TELECOMMUNICATIONS The telecommunications industry continued

stipulated in the Electronic Communications Act and will competitive conditions on licensees found to have significant therefore be required to use the additional six month that market power. The following draft regulations have been the Act allows. It is likely that we will be found to have published by ICASA for comment: significant market power in many of the markets in which we operate and will have regulatory remedies imposed on draft regulations setting out the conceptual framework us, including cost based prices for interconnection services for the definition of relevant markets or market segments; and the leasing of communication facilities.

draft regulations setting out the methodology to be used IMPLEMENTATION OF THE ELECTRONIC to determine the effectiveness of competition in a defined COMMUNICATIONS ACT market or market segment;

In order to give effect to the new licensing and regulatory draft regulations setting out the methodology to be used regime set out by the Electronic Communications Act, in determining that a licensee has significant market ICASA is required to make a large number of regulations and determinations concerning, among other things, power in a defined market or market segment; the conversion of existing licences into electronic communications service and electronic communications regulations relating to the identification of pro-competitive network service licences, the issuing of new class and measures on licensees found to have significant market individual electronic communications service and electronic power in a defined market or market segment; communications network service licences, the establishment of the pro-competitive framework consisting of the definition draft regulations pursuant to which ICASA will undertake of markets, the determination of the level of competition and periodic reviews of the markets, market segments and the existence of significant market power in these markets, significant market power; and the establishment of pro-competitive remedies that can

be imposed on licensees found to have significant market draft regulations dealing with the administrative power in a market. procedure that will be used when undertaking an

The main areas of regulation making that the Electronic investigation pertaining to anti-competitive conduct; Communications Act contemplates are those relating to interconnection, leasing of communications facilities, draft regulations on the leasing of communications including the determination of which communications facilities; facilities are deemed to be “essential facilities”, the framework for the definition of relevant markets, the draft regulations on the identifications of communications determination of the level of competition in each market, facilities deemed to be essential facilities; and the determination of the existence of significant market power in relevant markets and the imposition of pro- draft regulations on interconnection.

12 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 13 - - regulations on the processes and procedures for the regulations on the processes renewal, surrender and transfer registration, amendment, of class licences; processes and procedures for regulations on the electronic communications applications for individual service licences, electronic communications network service licences and broadcasting licences; regulations on the standard terms and conditions commu for individual and class licences for electronic nications service, electronic communications network service and broadcasting; for end- regulations setting out the minimum standard users and subscriber service charters. electronic regulations outlining a code of conduct for network communications licensees and electronic communications licensees. LICENCE CONVERSION The process of converting our radio spectrum licences started in October 2006, but has not yet been finalised. Regulations providing the framework to convert our PSTS licences have been published by ICASA, and VANS including the standard terms and conditions that will apply to all electronic communications services and electronic communications network services including ours. licences, In addition to standard terms and conditions generally applying to a type of licence, the Electronic Commu nications Act provides that ICASA may set out additional terms and conditions applicable to any individual licence or class licence. ICASA has proposed draft additional conditions applicable to the electronic communications service network service and electronic communications licences that will be issued to existing licensees, including and has drafted proposed additional terms and Telkom, licensing framework will result in the market becoming more will result in licensing framework substantially increase integrated and will horizontally business. competition in our fixed-line regulations have been finalised: The following licensing notice inviting ICASA has subsequently published a those standards comments for a possible reconsideration of due to requests from the industry; and as it Regulations on licence fees are still outstanding appears that ICASA has not yet received the required direction from the Minister of Communications. electronic communications network serviceselectronic communications for the infrastructure for the own provision of communications for the use of other licensees, use of the licensee or including broadcasters; serviceselectronic communications for the conveyance over electronic communications of communications broadcasting services;networks, but excluding broadcasting services for the unidirectional broadcasting of television or sound material; and radio frequency spectrum licences. ICASA may only accept and consider applications for individual electronic communications network service licences following a policy direction issued by the Minister of Communications. The granting of individual licences is subject to an extensive process of evaluation that includes public hearings. The granting of class licences is subject to a simple process of registration. A draft regulation providing the framework for the granting of licences was published by ICASA for comment on March 7, 2007. In addition, the Minister of Communications has issued a policy direction to ICASA requesting it to consider whether licensees should be authorised to provide services VANS as well as provide and operate facilities or networks. ICASA subsequently announced the names of certain VANS licensees whom they considered eligible for being awarded electronic communications network services licences. Other who were not selected are challenging ICASA in VANS litigation with regard to its process of converting VANS licences. ICASA would have to issue network service expect that the new licences for such networks. We ICASA may make regulations prescribing that certainICASA may make regulations prescribing services The Electronic may be provided without a licence. for electronic Communications Act provides that licences communications network services, electronic communications services and broadcasting services be issued as can licences individual licences or as class licences. Individual network are required for electronic communications services services and commercial and public broadcasting for electronic that are of provincial or national scope, communications services for voice telephony utilising for any servicenumbers from the national numbering plan, of the share where a state entity owns more than 25% capital of the licensee, and for any service that ICASA finds development. to have significant impact on socio-economic The types of licences that can be granted are: The types of licences that LICENSING FRAMEWORK LICENSING The telecommunications industry continued

conditions for Telkom’s licences. Telkom has formally USALs and those VANS licensees to whom ICASA has commented on these proposed terms and conditions as they granted access to subscriber numbers. apply to it. ICASA, after taking into account the comments received, is expected to publish the final proposed terms An interconnection agreement has also been signed and conditions for public comment. ICASA is required to with Sentech. An unresolved issue is whether these complete the licence conversion process by July 18, 2008. interconnection agreements will be required to be amended It is, however, not likely that they will meet this target and after the final interconnection regulations are promulgated. will use the six additional months provided for in the The Electronic Communications Act and draft interconnection Electronic Communications Act to complete this process. regulations compel operators to provide interconnection on a non-discriminatory basis, whereas currently each class of INTERCONNECTION operator receives a different interconnection rate.

The Electronic Communications Act provides that any ICASA has begun a review process of mobile termination licensee, other than broadcasting service licensees, must, rates aimed at reducing high mobile interconnect charges, on request, interconnect with any other licensee, unless such which, once completed, is also likely to impact upon Telkom’s request is unreasonable, and must enter into an own termination rates and interconnection revenues. ICASA interconnection agreement with the requesting party for this has issued draft regulations on interconnection. The draft purpose. Where the parties are unable to reach an regulations provide for a general obligation to interconnect agreement, the Electronic Communications Act confers on by all licensees. The draft regulation does not provide ICASA the power to intervene and propose, or impose, for interconnection rates. These will be dealt with by terms and conditions for the interconnection agreement, or regulations made as a result of the market review process. refer the matter to the Complaints and Compliance Committee, established as provided in the amendments to the ICASA Act described above, for resolution. ICASA must FACILITIES LEASING review any interconnection agreement to determine whether it is consistent with the regulations and, if the The Electronic Communications Act provides that an agreed terms are not consistent with the regulations, direct electronic communications network licensee must, on the parties to agree on new terms and conditions. request, lease electronic communications facilities to any other licensee, unless such request is unreasonable, and Any dispute arising under an interconnection agreement must enter into a facilities leasing agreement with the can be referred by a party to the Complaints and requesting party for this purpose. Where the parties are Compliance Committee for resolution, and any decision of unable to reach an agreement, the Electronic Commu - the Complaints and Compliance Committee is effective and nications Act confers on ICASA the power to intervene and binding on the parties, unless an order of a court of propose, or impose, terms and conditions for the facilities competent jurisdiction is granted against the decision. leasing agreement, or refer the matter to the Complaints and Compliance Committee for resolution. ICASA must ICASA may exempt a licensee from the obligation to review any facilities leasing agreement to determine interconnect where such licensee has not been found to whether it is consistent with the regulations and, if the have significant market power in the relevant market. agreed terms are not consistent with the regulations, direct ICASA must prescribe regulations to facilitate the conclusion of interconnection agreements by stipulating the parties to agree on new terms and conditions. 14 interconnection agreement principles. ICASA may Any dispute arising under a facilities leasing agreement can prescribe a framework of wholesale interconnection rates to be charged in circumstances where the existence of be referred by a party to ICASA, and the Complaints and significant market power has been determined. The Compliance Committee must resolve the dispute and any interconnection agreements between Telkom and Vodacom decision of the Complaints and Compliance Committee is and MTN that preceded the Telecommunications Act were effective and binding on the parties, unless an order of a court renegotiated and amended in 2001. An interconnection of competent jurisdiction is granted against the decision. agreement, on substantially the same terms, was negotiated and concluded with Cell C. An interconnection agreement ICASA may exempt a licensee from the obligation to lease has also been concluded between Telkom and Neotel communications facilities where such licensee has not and filed with ICASA on March 6, 2007. Interconnection been found to have significant market power in the agreements have also been concluded between Telkom, the relevant market. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 15 three forms of local loop unbundling to be considered, and full unbundling of the metallic loop, line sharing wholesale bit stream access; and the regulatory process, with full industry participation and be should commence as soon as possible completed in 2011. CARRIER PRE-SELECTION Act mandates that fixed-line The Telecommunications operators are required to implement carrier pre-selection, which will enable customers to choose and vary their fixed- line telecommunications carrier for long distance and international calls. These provisions are retained in the Electronic Communications Act. Regulations were published on June 24, 2005 for the implementation of carrier pre- selection in two phases. In phase one, call-by-call carrier pre-selection must be implemented and must be provided by an operator within two months of it being requested by automatic pre-selection In phase two, fully another operator. must be implemented and must be provided by an operator within ten months of it being requested by another operator. had already conditioned its exchanges to handle Telkom call-by-call carrier pre-selection by December 31, 2003. met with Neotel to discuss On February 12, 2008, Telkom their request for implementing carrier pre-selection. UNBUNDLING THE LOCAL LOOP THE LOCAL UNBUNDLING Act provided that we were While the Telecommunications unbundle our local loop for a period not to be required to issue of a licence to Neotel, The of two years after the Act provides that ICASA Electronic Communications for the unbundling of Telkom’s may prescribe a framework local loop. Local Loop Unbundling Committee On May 23, 2007, the of Communications to develop set up by the Minister for the unbundling of the local loop appropriate policies in South Africa submitted its report to the Minister of things: Communications recommending, among other decisions The Minister of Communications published policy in South Africa that the process of unbundling the local loop by 2011. should be urgently implemented and completed request ICASA has In compliance with the Minister’s the process to be on initiated consultations with Telkom with all followed, and is expected to soon open consultation consultative other stakeholders. ICASA plans to set up technical and committees to consider policy and legal, issues processes, and financial, economic and competition relating to unbundling the local loop. A fixed link facilities leasing agreement which provides for leasing by Neotel of 2 Mbps leased lines has been and Neotel and filed with concluded between Telkom ICASA on September 12, 2006. Further agreements for the leasing by Neotel of other facilities are expected to be negotiated as required. On December 24, 2007, the Minister of Communications published “Proposed Guidelines for the Rapid Deployment of Electronic Communications Facilities”. If the final guidelines are published in their current form, they will not affect our rights in our existing submarine cables and landing stations, but may affect our ability to be parties new submarine cables and landing stations, which to might negatively affect our ability to meet demand for international communications services. ICASA has issued draft regulations on facilities leasing. The ICASA has issued draft regulations on facilities would be the obligation most significant impact on Telkom no spare to build facilities to satisfy such request where a list of capacity is available. ICASA must prescribe and sub-loops essential facilities, including local loops facilities, and and associated electronic communications connected to electronic communications facilities international electronic communications facilities such as submarine cables and satellite earth stations. ICASA may be supplied require that essential communications facilities run incremental at a cost based price, likely to be the long The Minister of Communications has cost of that facility. 1, 2007 as issued a policy decision declaring November in our SAT-3 the date from which the exclusivity provisions The Minister of agreements shall be declared null and void. direction to Communications has also issued a policy prescribe a list ICASA requiring it to prioritise and urgently connected of essential facilities, ensuring that the facilities submarine cables can be to the SAT-3/WASC/SAFE accessed soon. ICASA has established a draft regulation for public comment in compliance with this policy direction. ICASA must prescribe regulations to facilitate the conclusion prescribe regulations ICASA must by stipulating facilities leasing agreements of facilities ICASA may prescribe a leasing agreement principles. rates applicable to specified framework of wholesale facilities in circumstances where electronic communications market power has been the existence of significant determined. market Notwithstanding a finding of significant may exempt, under certain ICASA circumstances, power, network licensee from the an electronic communications fibre loops and sub-loops servingobligation to lease residential premises. The telecommunications industry continued

Telkom will not be able to fully implement carrier pre- Communications Act. A framework number portability selection until Neotel’s interconnection systems and the regulation was published at the end of 2004 that inter-operator process and systems to support carrier pre- generically provides for the introduction of fixed-to-fixed selection become available, however, Telkom does not and mobile-to-mobile number portability. Telkom is required believe that it will be able to implement automatic carrier to implement number portability in blocks of 10,000 pre selection within ten months of it being requested. The numbers within two months after Neotel launches such retail request for phase 2 of carrier pre-selection can only be services and individual number portability within 12 months made after the functional specification and ordering system of receiving a request from Neotel. Telkom has received a specification have been agreed to between Telkom and request from Neotel to implement both block and individual Neotel and approved and published by ICASA. Call-by- number portability and Telkom and Neotel are currently in call carrier pre-selection will be implemented in 2008 once the process of finalising the testing for the introduction of the interconnection agreement has been amended, the block number portability which is scheduled to take place testing phase has been completed successfully and Neotel in the middle of the 2008 calendar year. Number has received its prefix code from ICASA. portability will therefore be phased in commencing with number portability in blocks of 10,000 numbers, followed Regulations indicate that the system set-up costs may be by number portability in blocks of 1,000 numbers and then recovered as part of the prescribed annual review of fees individual number portability. After several delays, mobile and charges, but no further detail is available. ICASA has number portability phase one was launched on November not yet defined the manner in which such costs could be 11, 2006. Phase 2, which was implemented during April 2007, includes multi-line porting, secure file transfer recovered. Slamming, which is the transfer of a user from protocol access to third parties and operational software one operator to another without such user’s knowledge or upgrades on the central reference data base. From launch authorisation, is to be prohibited. Carrier pre-selection is until the end of March 2008 there have been 192,289 not applicable to mobile cellular operators. successful ports. In the 2007 financial year, Cell C registered a net gain of 14,057 subscribers, Vodacom a NUMBER PORTABILITY net loss of 6,018 subscribers and MTN a net loss of 8,039 subscribers. In the 2008 financial year Vodacom registered The Telecommunications Act mandates that number a net gain of 4,484 subscribers, MTN a net gain of 6,138 portability to enable customers to retain their fixed-line subscribers and Cell C a net loss of 10,622 customers. and mobile telephone numbers if they switch between fixed-line operators or between mobile operators be The set-up and per-operator costs are typically the largest introduced. These provisions are retained in the Electronic cost components of implementing number portability.

16 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:11 Page 17 Management review Chairman’s review 18 Chief Executive Officer’s review 22 Board of Directors 26 Chief officers 30 Management team 32

Retaining Telkom’s critical skills is a vital element in moving towards a converged future Our employees are key to our success Management review WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:11 Page 18

Chairman’s review

I am pleased to report that Telkom has made significant progress in executing our growth strategy in an increasingly competitive and rapidly changing environment.

Shirley Lue Arnold

My first full year as Non-executive Chairman of Telkom has been POLITICAL ENVIRONMENT both challenging and rewarding and it is an honour to, once again, present you with my report for the year under review. South Africa’s political environment has been stable since the first democratic election of 1994. Our Government remains Telkom’s Board of Directors and management have focused on committed to bridging the digital divide and providing universal how to take the business forward profitably and sustainably, and access to Information and Communication Technology (ICT) I am pleased to report that Telkom has made significant progress services for all South Africans. Increasing competition, in executing our defend and grow strategy in an increasingly accelerating the penetration of services in under serviced competitive and rapidly changing environment. communities and lowering the cost of doing business in South Africa remain a challenge and are key to achieving Telkom is considered a strategic national asset that plays a Government’s long term economic growth objectives. In critical role in supporting the South African economy. Our response, Telkom is becoming increasingly innovative, efficient network infrastructure, including our undersea cables and and competitive. satellite capacity, is the backbone support for South Africa’s 18 financial and communications systems, and ensures that the ECONOMIC ENVIRONMENT country is globally connected. Global equity markets delivered strong returns in 2007. During the 2008 financial year, the Telkom Board realigned the However, following the considerable losses suffered in the United strategy taking cognisance of the current operating environment States’ sub prime mortgage crisis and with the continued and transforming the business to ensure sustainable growth and turbulence in international financial markets, the outlook for the create value for our shareholders. Importantly, this also includes global economy remains uncertain with fears of recession and a addressing our challenges in an increasingly customer focused global slowdown in growth taking hold. and competitive market. In South Africa, the Consumer Price Index excluding the effects I will detail some of the factors that have influenced our strategic of mortgages and oil prices (CPIX) has remained outside the thrusts and the Chief Executive Officer, Reuben September will target range of 3% to 6%, reaching a five and a half year high provide further detail on the implementation of our strategy. of 10.4% in April 2008. Inflation is being fuelled by record high WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 19 by between 20Mbps and 100Mbps by 2010. This wide variance by between 20Mbps and across regions and cultures. The reflects different requirements for ever increasing higher bandwidth continuing trend is (IPTV) and High services, Internet such as Protocol Television (HDTV), as well as peer to peer type services Definition Television video file sharing, which require including music and in the upstream direction. In significantly higher bandwidth global trends reaching our shores, Telkom anticipation of these invest in increasing South Africa’s continues to substantially and to both Telkom bandwidth capacity which will be beneficial economic development. continuing the country’s DECREASING MARGINS fixed-line operators are experiencing incumbent Globally, substitution, the decreasing margins as a result of fixed-mobile migration and abandonment of second lines due to broadband pricing pressure. increased competition causing downward with the investment and, combined These factors apply to Telkom and expand our required to increase customer satisfaction networks, will place pressure on margins. The inherent advantage of network ownership is also gradually being eroded through will regulation, which is stimulating service competition. We continue to adapt to this reality by investing in new technologies, products and services. CHANGING MARKET DYNAMICS Market dynamics are changing radically and with increasing consumer market is growing competition, Telkom’s speed. With continues declining; the enterprise and business market, however, These important developments have been integrated into to grow. strategy and business plan. every aspect of Telkom’s Broadband remains an important growth area and operators worldwide are trying like TV content to add value propositions to their offerings. Owning content is an expensive undertaking Board and and it is essentially for this reason that Telkom’s management team have decided to substantially reduce our believe that the content Media. We shareholding in Telkom to be able to access market has developed sufficiently for Telkom content and provide it as a value-added service without needing to own the content provider. WIRELESS TECHNOLOGIES mobile strategy is being designed The execution of Telkom’s the trend towards to position us well to take advantage of is extending the mass adoption of mobile broadband. This user experience of broadband Internet connectivity in and wide area beyond the home and office, giving customers applications on a coverage and access to their favourite multitude of mobile devices. Bandwidth requirements According to operators interviewed by leading research companies, access network bandwidth is expected to increase Convergence of digital technologies and content allows Telkom and other operators to provide innovative solutions to consumers and business users, allowing them to access broadband services on a range of devices such as smart phones and laptops, as well as Internet-enabled entertainment and music download devices. is committed to playing a major role in this sector. Telkom Convergence Traditionally, telecommunications operators, including Telkom, Traditionally, have built separate networks to deliver different types of services. The NGN is expected to reduce the number of networks required to run traditional services, any new multimedia and as well as communication services.services In future, all carried by Telkom will be transported over an all-encompassing converged Internet Protocol (IP) network. To adapt to this rapidly changing reality, Telkom continues to Telkom adapt to this rapidly changing reality, To (NGN) rollout. make progress with the Next Generation Network of innovative, new This is expected to increase the availability services and applications through a truly converged offering that networks, providing generates incremental revenue over shared both data and voice services, between fixed with no distinction users unfettered, and mobile networks. The NGN allows ubiquitous access to disparate networks, including those of The deployment competitors, and with capacity for full mobility. of multi-technology network platforms that share the costs of services further will also enable us to introduce cost reductions. Technology is the defining force behind the revolution in is the defining force Technology globe. communications and development across the TECHNOLOGICAL ENVIRONMENT crude oil prices and a substantial acceleration in food prices. crude oil prices and The probability of further rates, from the increases in interest of 12%, remains high. The Rand current repo rate level higher volatility compared to other exchange rate has displayed strong South Africa’s However, emerging market currencies. sustained capital inflows and these are growth potential has the current account deficit. Output financing an expanding with gross domestic product growth growth remained strong, fourthmeasuring 5.3% in the quarter to of 2007, compared 4.7% in the third quarter of 2007. Gross domestic product in 2008 due to growth is expected to slow to around 4.6% widespread and weaker consumer demand and Eskom’s energy implicit in prolonged power outages. The psychological should however, Cup, Soccer World the run up to the 2010 FIFA will feed through sustain brisk growth in fixed investment which thus helping to sustain into the remainder of economic activity, the macro-economic therefore, overall growth. For Telkom, picture remains mixed. Chairman’s review continued

GLOBAL BEST PRACTICE FOR INCUMBENT As detailed in our SENS announcement released on March 10, OPERATORS ARE GUIDING TELKOM’S 2008 a large part of this deal will be made available to STRATEGIC DIRECTION Vodacom employees, without whom the company would not be such an enormous success. Vodacom has also selected Royal Telkom, as with most global incumbent telecom operators, has Bafokeng Holdings and Thebe Investment Corporation as experienced declining revenues in its core fixed-line business. its preferred empowerment partners. It is expected that Our defend and grow strategy focuses on current and new Vodacom’s empowerment deal will be concluded by the end of revenue growth and cost reduction and is influenced by the the 2008 calendar year. following global developments. THE BOARD AND CORPORATE GOVERNANCE Telecommunications companies that are successfully application and service driven. The Telkom Board, has continued, and will continue, to be an effective custodian of this strategic national asset with full Transformation and rationalisation of networks, systems and commitment to the principles of good corporate governance and the workforce, to deliver new services far more efficiently. our responsibilities to our various stakeholders. We strive to A focus on new models of revenue generation through adhere to the best corporate governance practices outlined in acquisitions and partnerships with IT and data service King II and the Sarbanes-Oxley Act (SAOX). companies and vendors. The combination of wireless and Telkom’s Board, with management support, has introduced a wireline services to reduce access costs and develop fixed- number of best practice structures and processes, including the mobile convergence services. addition of new Board subcommittees, charters and guidelines, Transformation from a monopolistic and traditional engineering strengthening the company secretariat, governance resources culture toward an innovative, corporate and commercially and accountability in the company. In addition, work on the based research and development ethos. expansion and functional efficiency of the Board continues, with the support of the Class A shareholder, and the Articles of Rapidly improving customer service and shortening the time- Association continues to be improved through amendments to-market cycles of innovative, new products. (requiring a special meeting of shareholders) to update and improve the Articles in line with the principles of good corporate Defending and growing Telkom’s traditional voice revenue is a governance. A full report of our corporate governance and core strategy. Our continued move into becoming an integrated enterprise risk management framework can be found on pages fixed-mobile operator combined with our aggressive intention to 44 and 54 respectively. grow our data business and expand geographically into high growth African markets was designed to create value for all our CEO AND BOARD CHANGES stakeholders. The Board is confident that Telkom is moving in the right direction. Reuben September was appointed Chief Executive Officer of the Telkom Group on November 22, 2007. He had been in this role SUSTAINABILITY AND EMPOWERMENT in an acting capacity since the departure of the previous CEO, Papi Molotsane, on April 5, 2007. Reuben has worked in Implementating the NGN supports our drive towards sustainable various engineering and commercial positions at Telkom including development as it includes the recovery and disposal of outdated Chief Technical Officer and Chief Operating Officer. telephone poles and copper wire, replacing these with effective, cost-efficient environmentally-friendly technologies. During the year under review, Papi Molotsane left the Board on April 5, 2007. The terms of office of Marius Mostert, Dumisani Telkom remains committed to Broad Based Black Economic Tabata and Yekani Tenza expired on September 19, 2007, Empowerment. It is the key to ensuring sustainable growth in Thabo Mosololi resigned on October 26, 2007 and Tshepo South Africa by transferring training, experience and wealth to Mahloele on January 30, 2008. I would like to thank these previously disadvantaged communities. During the 2008 officers of the Board for their commitment to Telkom during their 20 financial year, Telkom spent R9.2 billion on empowered or tenure and their valuable support to the new Chairman. significantly empowered suppliers, up from the R8.8 billion spent We were delighted to acquire the services of Mark Lamberti on in the 2007 financial year. We are also extremely proud of the May 29, 2007 and Ekwow Spio-Garbrah, Victor Lawrence and fact that we provide significant training for our suppliers. The Jackie Huntley on September 20, 2007. Brian Molefe joined the procurement report on page 64 provides more detail. Telkom Board from the Public Investment Commission (PIC) on The Telkom Foundation contributed R52.5 million towards the January 30, 2008. The Class B shareholder elected to replace upliftment of disadvantaged communities by focusing on ICT Brian Molefe with Athol Rhoda on March 5, 2008. Mark education and training, the rollout of ICT infrastructure to under- Lamberti and Athol Rhoda resigned as non-executive directors developed areas and the empowerment of women and children. on June 3, 2008 and July 3, 2008, respectively. The Board thanks Mr Lamberti for his commitment and valuable contribution The Vodacom Group continues to make progress with its to Telkom, given ex gratia over the past year as well as R7.5 billion broad based black empowerment equity deal. Mr Rhoda and wish them well in their future endeavours. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 21 next two years. In year three, capex is expected to range next two years. In year between 18% and 22%. and other segments The target net debt/EBITDA for the fixed-line in a transforming industry is expected to be 1.3 times. Targets particularly in later years and such as ours are inherently risky, such targets. investors should not place undue reliance on Shirley Lue Arnold Chairman APPRECIATION I would like to thank the Board, management and all employees in South Africa and the rest of the continent for their strong in a demanding and challenging year. commitment to Telkom In balancing the needs of our stakeholders – shareholders, in a position customers and employees – we are putting Telkom to grow not only in South Africa, but beyond our borders. We are confident that with the support of our stakeholders we will growth and future continue to play a critical role in South Africa’s success, as well as that of the continent. CORPORATE ACTIONS CORPORATE the termination announced of In November 2007 Telkom a cautionary issued on June 2, discussions with MTN. Telkom from the Vodafone 2008 advising that a non-binding proposal stake in Vodacom Group Plc to acquire a portion of Telkom’s Group (Proprietary) Limited subject to, inter alia, the company shareholders. to Telkom unbundling its remain stake in Vodacom confirmeda that a letter was received from In addition, Telkom consortium Mvelaphanda Holdings (Proprietary) comprising Management Group Limited, affiliated funds of Och-Ziff Capital that they are and other strategic investors which stated share capital of considering making an offer for the entire issued The letter stipulates that the offer will only be made if a Telkom. number of pre-conditions are met. issued a further cautionary statement On July 15, 2008, Telkom and independently with the that its discussions with Vodafone consortium are still ongoing. Shareholders will be kept apprised of any developments as and when they occur. Capital expenditure for the fixed-line and other segments is expected to range between 23% and 27% of revenue over the We expect that competition will continue to constrain revenue We are targeting a compound growth over the next three years. We average growth rate (CAGR) of revenue over the following three years in the 5% to 10% range as increased revenues from our data, broadband and converged services and our newly acquired subsidiaries are projected to mitigate the impacts of increased competition. The EBITDA margin relating to fixed-line and other segments is expected to range between 32% and 36% over the next three years. The Board declared an ordinary dividend of 660 cents per share delivering on our promise to grow the ordinary dividend. No special dividend was declared due to an increased investment in our customer service, and pressure on our expansion programme have previously stated that EBITDA margin. We the fixed-line’s the level of dividend paid is based on a number of factors including the assessment of our financial results, available net debt level, interest growth opportunities, the Group’s coverage, internal cash flows and resources, the repurchase of shares and other future expectations. Telkom During the 2008 financial year, 12,071,344 shares were During the 2008 financial year, bought back for a consideration of R1.6 billion. The Group delivered 9.0% growth in group revenue to The Group delivered 9.0% growth in growing revenue by R56,3 billion through its fixed-line business impressing with a 0.7% to R32.6 billion and its mobile business share: R24.1 billion). 17.1% revenue growth to R48.2 billion (50% 38.3% to 36.6% is The drop in Group EBITDA margin from business. It is mainly attributable to flat revenue in the fixed-line worth operating expenses in the fixed-line were mentioning that 3.6% to R25.0 billion well controlled showing an increase of only given the high inflationary environment. Group attributable profit a result of the fixed- declined by 7.8% to R8.0 billion largely as margin and increased finance charges. decreasing EBITDA line’s The Group reported a 4.4% decrease in headline earnings per years, in line with share to 1,634.8 cents. In the next few improvement in will be aggressively funding the Telkom strategy, customer service, the expansion of our African subsidiaries and our network in South Africa. The challenging operating conditions are evident in our results. The challenging operating conditions are evident FINANCIAL RESULTS AND PROSPECTS FINANCIAL RESULTS Our new members bring a wealth of relevant experience to the Our new members bring vitae can be viewed on pages 26 to 29. Board. Detailed curriculum Chief executive officer’s review

Telkom has been working very hard to position its tremendous telecommunications assets to deal with the new, highly competitive environment and leverage opportunities for growth Reuben September

At the end of my first year as the CEO of Telkom, it gives me markets. Attributable net profit of the Group declined by 7.8% to great pleasure to report to shareholders on the progress Telkom R8.0 billion largely as a result of the decreasing EBITDA margin has made during the 2008 financial year. In an operating and increased finance charges relating to the fixed-line business. environment that became more challenging as the year Group operating expenses increased year-on-year by 12.8% to progressed, the Group delivered a strong performance for the R42.3 billion primarily due to an increase of 17.9% in the mobile year ended March 31, 2008. What is evident from the results is segment. The operating expenditure of the fixed-line segment that our strategy is starting to bear fruit. We believe we are now increased by 3.6% to R25.0 billion mainly due to employee well positioned for an increasingly competitive and rapidly expenses, payments to other operators and services rendered. changing environment. The Group EBITDA margin for the year ended March 31, 2008 Telkom has been working very hard to position its tremendous was 36.6%, a decrease from 38.3% in the previous year. This telecommunications assets to deal with the new, highly decline is mainly attributable to flat revenue in the fixed-line competitive environment and leverage opportunities for growth. business. The EBITDA margin relating to fixed-line and other Telkom currently bears the cost of maintaining a large legacy segments is expected to range between 32% and 36% over network, while we move towards the Next Generation Network the next three years. This margin range reflects increased (NGN) that is designed to allow our customers ubiquitous access operational expenditure, an aggressive customer service improvement effort, an expansion programme in South Africa 22 to networks and services. In view of the market challenges facing Telkom it is imperative that we accelerate our move towards the and into Africa, an increased contribution from the lower margin NGN, improve our customer service dramatically and take data business and the decline in local and national voice traffic advantage of the growth opportunities that naturally fit with the revenue. The costs associated with the early development stages of Multi-Links and Africa Online add to the expected decrease in strengths of our fixed-line business. the EBITDA margin. We expect to see improvements in the EBITDA margin within the range towards the end of our three FINANCIAL OVERVIEW year planning period.

The Telkom Group operating revenue grew by 9.0% from The Group experienced a 4.4% decline in headline earnings per R51.6 billion to R56.3 billion in the financial year ending share to 1,634.8 cents and declared an ordinary dividend of March 31, 2008. The fixed-line business delivered revenue 660 cents per share, an increase of 10.0% from the ordinary growth of 0.7% to R32.6 billion reflecting continued price dividend of 600 cents per share declared in the 2007 financial decreases and competitive action in both our voice and data year. This is a continuation of our commitment to progressively WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 23 Telkom’s mission is to be a leading South African-based mission is to be a leading Telkom’s (ICT) international Information and Technology Communications services on long term group focused through growth profitability markets. in both existing and new core strategies are as follows: Telkom’s Strategy 3: Grow profitable revenue: broadband and converged services seeks to increase revenue from customers in both the mass Telkom and enterprise markets, taking advantage of opportunities offered Strategy 2: Grow profitable revenue: fixed-mobile Strategy 2: Grow profitable revenue: capability aims to significantly improve its ability to compete on Telkom mobile by selectively building a fixed-wireless and mobile data network, as well as transforming our fixed-line business to incorporate key value-added services, including fixed-mobile converged services. is facing active competition from mobile operators in the Telkom believe voice market and increasingly so in the data market. We an integrated fixed-mobile operator is far better positioned to believe respond to competitive forces and customer needs. We to having an integrated fixed-mobile offering will allow Telkom leverage our customer base, marketing, distribution and logistics channels to increase our share of the voice revenue market. In addition, mobility is increasingly becoming a requirement for the purpose of Internet access. An integrated bundled offering by the fixed-line business would offer superior speed and quality, including the advantages of mobility when required by the anticipate that content demand In the future we also customer. will require an element of mobility. Strategy 1: Defend profitable revenue Strategy 1: Defend is convertingKey to defending revenue a large percentage of revenue to annuity revenue. It is worth pointing out that although competitors, our fixed-line is coming under pressure from Telkom through bundled business is successful in defending revenues calling plans products. Revenue from subscription based financial year under increased almost 99% to R1.1 billion for the through bundling call minutes This is being done largely review. based value with access line rental into attractive subscription customer retention propositions. In addition, we will seek to build to switch to by pursuing strategies that discourage customers centricity roadmap competitors. In this regard, our customer ensuring churnfocuses on improving customer value and This insight is reduction through improved customer insight. applied to transformMarketing division from being a our to a customer centric predominantly product centric organisation customer portfoliostructure through the introduction of innovative products management. Constant development of new, is image and reputation and services to re-vitalise Telkom’s our customers. Our gaining traction as a key element of retaining a priority is paying strategy to treat our corporate customers as off and evidence of success is visible. he EBITDA margin decreased slightly to 34.2% Our strategy is to defend and grow profitable revenues. This will be done via three mutually-reinforcing drivers – moving into high value-added data and content services, geographic expansion into fast growing markets and providing fixed-mobile services. Our focus is on moving our business from basic voice and data connectivity to fully converged solutions that integrate voice, are embedding a culture data, video and Internet services. We of excellence in customer servicewell as innovation, which as are all crucial in an increasingly liberalised and competitive environment. STRATEGIC OVERVIEW STRATEGIC The developing prepaid service market segment continued to drive market penetration in 2008 with the prepaid service making up 93.4% of all gross connections. The prepaid ARPU remained stable at R62 per month. Community services ARPU decreased by 23.6% to R689 per month due to increased focus on value-added voice continued competition. Vodacom’s and data services enabled their good performance. Vodacom’s data revenue increased by a sterling 49.7% mainly due to higher take up of data services product offerings. and more affordable provide services non-South African operations to Vodacom’s 9.2 million customers, with a profit increase in the current year of 51.6% to R790 million. from 34.6% and Vodacom’s customer base grew by 12.7% to from 34.6% and Vodacom’s 88.8% of the total 34.0 million. Prepaid customers represent the period under customer base. The blended ARPU during mainly as a result of review remained stable at R125 per month implementing the supplementary disconnection rule during decreased by 6.0% September 2007. Contract customer ARPU in data customers as to R486 per month due to the rapid growth Through the well as in the low end of the top up packages. continued high level of handset support to service and providers an improvement in service to customers, contract churn remained low at 8.3%. Vodacom, our 50% joint venture, once again delivered strong our 50% joint venture, once again delivered Vodacom, financial performance, growing revenue by 17.1% to R48.2 billion. T The prospects of our acquisitions in Africa, namely Multi-Links The prospects of our looking exciting. Multi-Links in particular, and Africa Online, are from 262,431 in September 2007 to grew its customer base at the end of March 2008, exceeding the 813,392 subscribers target of 812,000 that was set for the year aggressive subscriber At the end of May 2008 Multi-Links ending March 2008. growth is not recorded 1,000,251 subscribers. Subscriber sign up subscribers. linear; it is dependent on our capacity to quality service are focused on providing a high and will not We to deliver a sign-up subscribers unless we have the capacity premium service. performance This is an exceptional and our prospects in Nigeria appear to be good. grow the ordinaryto dividend. This dividend was paid 2008. shareholders on July 7, Chief Executive Officer’s review continued

by convergence, managed services, as well as applications and In addition, Telkom has announced that it is deploying a fixed- infrastructure. We will seek to aggressively improve our market wireless and mobile data network. This network is being deployed share in the IT services sector over the next five years. This will be in areas severely affected by copper theft in order to reduce costs accomplished by targeting the medium to large business segment and improve service levels to our customers as well as providing to meet their demand for end-to-end solutions. In our consumer services to corporates and high margin customers. market, we will pursue partnerships with content providers to enhance our offerings. Customers will be provided with rich We also announced the creation of the Telkom Management media content through, amongst others, our Do Broadband Services Company (TMSC) on June 9, 2008. The target market portal. We intend to expand our data centre business organically, for such services is firstly the state owned incumbent operators in while also considering international acquisitions. sub Saharan Africa. The second target group is the numerous new entrants in the ICT industry that need operational expertise In addition, we are aggressively expanding our ADSL footprint, to scale up and be effective operators. There is a lack of sufficient increasing the bandwidth in order to host applications such as service providers in the ICT industry with the relevant expertise and support from reputable telecommunications operators that video services and using the Next Generation Network to understand the African operational environment and are able to facilitate innovative solutions. We will also seek to reduce the provide such services. time-to-market cycle of new products. The focus will be on service differentiation through enhanced value packages and bundles TMSC will provide, amongst others, functional management, according to customer requirements, while ensuring improved operational support services, as well as project management service delivery and assurance. and IT solutions.

Strategy 4: Grow profitable revenue: geographic reach Telkom has announced that it is pursuing the growth of its data centre business organically in South Africa and is also We aim to become a Pan-African integrated service provider considering acquisitions internationally. The data centre business that offers international communications and Internet connectivity, is effective in stimulating the use of bandwidth over telecom - hosting and managed data services, as well as wireless voice munication networks. and mobile broadband solutions. Over the long term, we plan to provide international data connectivity to major cities in Africa In terms of capability management, Telkom management is through regional hubs, such as Nigeria and South Africa. In transforming the company into a more agile, customer-focused addition, we will seek to position Telkom as a wholesale facilities company with world class skills through advanced capability and infrastructure enabler for regional incumbents. management. Other key strategic initiatives With regards to our existing subsidiaries, we are focusing on achieving strong growth through both organic and acquisitive Next Generation Network, capacity and product business development strategies, as well as by leveraging developments synergies across the Telkom Group. For Africa Online, this Telkom is in the third year of its R30 billion build programme includes leveraging our available international capacity to deploy including NGN and has spent R6.8 billion in the financial year ending March 31, 2008. satellite based Internet access, and using Africa Online as the main vehicle through which Telkom will deliver Internet services Customer demands and global standards necessitate the outside of South Africa. Through Multi-Links, Telkom is introducing provision of services and particularly bandwidth that is only converged fixed and mobile services to the Nigerian market. possible utilising the intelligence of an NGN system. Further to the information supplied in last year’s annual report, I would like From the above it is clear that our strategy is to differentiate to mention the following key achievements: ourselves from competitors by moving from a provider of basic voice and data connectivity to become Africa’s preferred ICT An increase of the ADSL footprint to 2,660 DSLAMs, covering service provider, offering fully converged voice, data, video and 92% of Telkom’s network. Internet services. 84 Metro Ethernet nodes have been deployed in major cities 24 using 10Gbit and 1Gbit line systems. IMPLEMENTING OUR STRATEGY The first Dense Wave Division Multiplexing (DWDM) system A number of key strategic decisions have already been made capable of forty 10Gbit/s signals over a single pair of fibre since the announcement of our new strategy on March 31, 2008. has been deployed between Gauteng and Durban. This has significantly increased transport bandwidth capability. These include the decision to contain costs through capability A significant rollout of this system between all major cities in management and outsourcing; substantially reducing Telkom’s SA is currently in process. shareholding in Telkom Media, as well as committing to unlock A network interactive voice response system has been shareholder value by evaluating options to unbundle our 50% deployed which offers advanced speech services such as stake in Vodacom, which is half owned with the Vodafone Group automated speech recognition and text-to-speech applications of the UK. These landmark decisions are key to unlocking enabling corporate customers and Telkom to enhance their shareholder value and vital to Telkom’s future success. voice systems. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 25 Reuben September Chief Executive Officer On behalf of the Executive Committee, I extend my sincere On behalf of the Executive Committee, Board of Directors for the guidance and gratitude to the Telkom also like to thank insights its members have provided. I would for their dedication the executive team and the people of Telkom ‘defend and grow’ and the progress made in executing our also like to extend my thanks to all our I would strategy. customers for their continued and valued support during the year. is the driving force Delivering value to all our stakeholders behind 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 impact In a dynamic environment we have not remained static. on Telkom. of 2008 is unrecognisable the Telkom Far from it. Like the industry, from the entity introduced to South Africa in 1991. In 17 years we have undergone a remarkable transformation and this evolution of ours is ongoing. It has to be, for today we are confronted by new have challenges and we have to keep moving with the times. We to explore new ways of creating value and we have to develop innovative solutions so that our customers, and indeed the country, can extract the greatest possible value from the almost unlimited possibilities of the ICT industry. I envision a company that already in 2010 will be a significant converged player in Africa, nimble and innovative in maximising value to all its stakeholders. The next three years will focus on transforming years will focus The next three to the business innovative on delivering concentrating deal with competition, products and services to our customers, expanding our network growth drivers. Competition will continue and bedding down our over the next three years. to constrain revenue growth committed to grow attributable earnings remains for the Telkom fixed-line and other segments. be on the expansion of our network for Our focus continues to overall strategy of servicegrowth in line with our provisioning. remains that we progressively grow the Our dividend policy in our Given the investment ordinaryeach year. dividend potential acquisitions network, expansion in current businesses, the segments’ EBIDTA and pressure on the fixed-line and other respect of the 2008 margins, no special dividend was paid in The level of dividend going forward will be based financial year. of the on a number of factors including the consideration debt level, interest coverage, financial results, the group’s internal cash flows and resources, the repurchase of Telkom shares and other future expectations. APPRECIATION 38 WiMAX base stations have been deployed across all deployed across stations have been base 38 WiMAX and towns. major cities partner hotspots have been deployed at strategic 237 WiFi locations. PROSPECTS is designed to deliver sustainable, profitable strategy Telkom’s growth going forward. shareholder value is the The creation of Board of underlying driver of everymade. Telkom’s decision Directors and management team are committed to improving shareholder value. As per our committed plan, we still have work to be done. This aims to accomplish in the future. is core to everything that Telkom In areas of high cost, high maintenance and high theft occurrence, is deploying a wireless particularly copper and fibre theft, Telkom to restore and improve servicenetwork using W-CDMA quality. We have consolidated all call centre operations under one structure We In addition, we have creating a single point of accountability. ensured redundancy through the linking of call centres allowing a reduction of bottlenecks and rerouting of overflow traffic. Customer service into the Improved customer service is vital to the success of Telkom in the customer base future. Sustainable and profitable growth focused on requires creating and strengthening capabilities managing customer relationships and learning from acquired to manage the customer information. This will allow Telkom customer experience and anticipate customer needs. For this purpose, an integrated customer data base was delivered which, with a unified view of each of for the first time, provides Telkom our customers. We are aggressively building our network in order to provide are aggressively building our network We data services that are in extremely short The supply in Nigeria. vast experience and corporate market is our initial target. The be supporting South Africa will Multi-Links capabilities of Telkom in this endeavour. Multi-Links’s focus is on providing a quality service. focus is is This Multi-Links’s extremely important given that the Nigerian regulators fine services.operators who cannot provide quality Capital during the 2008 expenditure of USD160 million was spent network Multi-Links’s financial year to accelerate the expansion of to invest USD533 million plan and quality operating systems. We year to furtherin capital expenditure for the 2009 financial extend the network and services to take advantage of the enormous growth opportunities in Nigeria. Multi-Links our target of 812,000 customers to Multi-Links surpassed March 31, are signed up 813,392 customers. We 2008 and that we can achieve our ambitious target growing more confident of adding a further during the 2009 3.0 million customers The company reported revenue of R845.4 million, financial year. R63.5 million and a profit after tax of a loss before tax of for a tax credit. R49.0 million after accounting Board of directors

SHIRLEY LUE ARNOLD REUBEN SEPTEMBER

Chairman Chief Executive Officer

Shirley Lue Arnold was appointed as Chairman of Telkom SA Limited Reuben September was appointed to the Board on May 8, 2007, in November 2006. From 2004 to 2007, Ms Arnold was Non- following his appointment as acting Chief Executive Officer on executive Director of Peermont Global (Pty) Ltd, where she also April 5, 2007. He was appointed as Chief Executive Officer on chaired the empowerment committee. She is currently the Director of November 22, 2007. Mr September is also a Director of Vodacom. AllAfrica.com. He previously served as Chief Operating Officer since September Ms Arnold has consulted to various companies and institutions in the 2005, as Chief Technical Officer from May 2002 until August 2005 United States including Unisys, the Rockefeller Foundation, the Investor and as Managing Executive of Technology and Network Services Responsibility Research Center (IRRC) and the National Geographic from March 2000 to April 2002. He has worked in various Society. In South Africa she has worked with Thebe Investment engineering and commercial positions at Telkom since 1977. Corporation and Worldwide Africa Investment Holdings, and as a Mr September is a member of the Professional Institute of Engineers Non-executive Director of the South African arm of Ernst & Young, of South Africa (ECSA) and holds a Bachelor of Science degree where she also performed as acting Chairman from February 2005 in Electrical and Electronic Engineering from the University of to April 2006. She has taken on various public service responsibilities; Cape Town. her current responsibilities include being Trustee of the Maths Centre and Thuthuka Bursary Fund.

26 Ms Arnold holds a Bachelor of Arts degree and a Certificate in Education. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 27 Brahm du Plessis was appointed to the Board as a Non-executive Director on December 2, 2004. Advocate du Plessis brings extensive legal experience to the Board. A former senior lecturer at the University of Cape Town, Adv du Plessis’ expertise in labour law has proved valuable to the Board in dealing with employment issues at all levels. Adv du Plessis was a founding member of and the Community Dispute Resolution Trust, was past Chair of the Johannesburg Branch of the National Association of Democratic Lawyers. He was formerly a member of the executive of the Johannesburg Branch of and a member Advocates for Transformation of the Johannesburg Bar Council. He has been appointed as a mediator by the Arbitration Foundation of South Africa and has worked in that capacity. Adv du Plessis holds BA and LLB degrees from the University of Stellenbosch and a LLM degree from the University of London (LSE). BRAHM DU PLESSIS Independent (MAP) certificate from the Wits Business School. from the Wits Reitumetse Jackie Huntley was appointed to the Board on September 20, 2007. She is a practising attorney and senior partner at Mkhabela Huntley Adekeye Inc., one of the major black commercial law firms in South Africa. As an independent Non-executive Director, Board’s Ms Huntley serves on the Telkom investment committee, advising on mergers growth and acquisitions; central to Telkom’s Her experience in commercial, strategy. corporate and telecommunications law deliberations on contributes to the Board’s all legal matters and issues of corporate governance. Ms Huntley has worked as a legal adviser to Gold Fields and Nedcor Bank. She has served on the boards of the Rural Housing Loan Fund, Petro SA and Air Navigation Services,Traffic and is currently servingthe board of Blue Label Telecoms. on Ms Huntley obtained her BProc and LLB degrees from the University of the and a Management Witwatersrand, Advancement Programme REITUMETSE JACKIE HUNTLEY REITUMETSE JACKIE Government representative Government representative DR VICTOR LAWRENCE Dr Lawrence received his Undergraduate, and Doctorate degrees in Electrical Master’s and Computer Engineering from the University of London in the United Kingdom. He is the Charles W Bachelor Chair Professor of Electrical and Computer Engineering at the and also holds Stevens Institute of Technology, the title of Associate Dean for Special Programs. of the He is the founding Director iNetS. Intelligent Networked Systems Center, Dr Lawrence was elected to the National Academy of Engineering in the United States. He is a Fellow of both the Institute of Electrical and Electronics Engineers (IEEE) and Bell Laboratories. In 2004 he received the IEEE in International Communication, one Award of numerous awards throughout his career. Dr Victor Lawrence was appointed to the Dr Victor Board on September 20, 2007. He brings to the Board extensive international research and development experience in digital communications, and is championing the effortto Africa. to bring fibre optic connectivity Board of directors

SIBUSISO LUTHULI KEITUMETSE MATTHEWS DR EKWOW SPIO-GARBRAH

Independent Government representative Government representative

Sibusiso Luthuli was appointed to the Telkom Keitumetse Matthews was appointed to Dr Ekwow Spio-Garbrah was appointed Board on July 29, 2005. He chairs the audit the Board on June 19, 2006. Ms Matthews to the Board on September 20, 2007. He and risk management committee. has extensive legal experience in telecom - also serves on Vodacom’s Board of munications, including copyright and Directors and as Chief Executive Officer of Mr Luthuli is a qualified chartered accountant trademark law. the Commonwealth Telecommunications with extensive business and finance Organisation. experience. He has acted as Managing Ms Matthews is a businesswoman, a member Director of Ithala Limited since July 2004, of Keida Children’s Books cc since April He plays a leading role in Telkom’s Africa and was formerly the company’s Finance 2006, and former chief legal adviser to the expansion strategy. He chairs the Telkom Director. From April 2000 to December South African Broadcasting Corporation from Board’s strategy committee and also 2003, he was an Executive Manager at March 2002 to September 2005. From April contributes on technology and diplomatic Nedbank Corporate. He also established the 2000 to February 2002, she acted as special matters. He was formerly Ghana’s Minister JSE-listed pharmaceutical group Enaleni, of advisor to the Minister of Communications. of Communication, Minister of Education as which he is currently the non-executive Other positions that Ms Matthews has held well as Mines and Energy, and Chairman Chairman. He is Chairman of the University include legal advisor at Midi Television, of Ghana’s telecommunications regulator. of KwaZulu-Natal audit committee, a housing lawyer at the London Borough of He served as a senior official at the African Director of the Richards Bay Industrial Lambeth Legal Services and copyright lawyer Development Bank, the World Bank Group 28 Development Zone (IDZ) Company, a at the British Broadcasting Corporation. and UNESCO. member of the Thekweni Municipality audit committee, Director of Luthuli and Luthuli Ms Matthews is a Barrister-at-Law and holds Dr Spio-Garbrah holds a BA (Honours) Investments (Pty) Ltd, and member of the a Bachelor of Arts (Honours) degree. degree in English and a Graduate Diploma KwaZulu-Natal Provincial Government audit in Journalism and Communications from committee. the University of Ghana. He obtained a Master of Arts in International Affairs from Mr Luthuli holds a Bachelor of Commerce Ohio University and a Graduate Certificate degree from the University of Zululand and a in International Banking from New York Post Graduate Diploma in Accountancy from University. He was awarded a Doctor of the University of Durban Westville. Laws degree, honoris causa (LLD) by Middlebury University. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 29 Mark Lamberti was appointed to the Board on May 29, 2007. Mr Lambertithe non- is executive Chairman of Massmart Holdings Limited. Mr Lamberti currently serves as a Non-executive Director of Allied Electronics Corporation Limited and Business Leadership South Africa and is co-Chairman of the Consumer Goods Council of South Africa. Mr Lamberti holds a Bachelor of Commerce degree from the University of South Africa, a Masters degree in Business Administration from the University of the Witwatersrand and is an alumnus of the Harvard Graduate School of Business Administration where he completed the Presidents Programme in Leadership. Board Mr Lamberti resigned from the Telkom on June 3, 2008. MARK LAMBERTI Independent rving a number of Public Investment Corporation Public Investment Corporation representative ATHOL RHODA ATHOL Mr Rhoda resigned from the Telkom Board Mr Rhoda resigned from the Telkom on July 3, 2008. Mr Rhoda has been a member of the South African Institute of Chartered Accountants since 1986. Previously he served as Head of Finance and Strategy at AngloGold South Africa. He also served as a General Manager as a Non- at Norwich in Cape Town, at Bank, Director executive Director of Teba SCMB and Managing Director of Diners Club International. Athol Rhoda was appointed to the Board on March 5, 2008, and served as a member committee. He is a qualified the audit of chartered years of accountant with over 20 corporate experience se He has extensive Board experience on financial, audit and investment matters, and presently provides consulting and investment banking services to blue chip clients locally and abroad. He serves on the board of the Public Investment Corporation (PIC), as well as its investment and risk committees. the biggest corporations in South Africa and globally. Chief officers

DEON FREDERICKS MOTLATSI NZEKU THAMI MSIMANGO

Acting Chief of Finance Chief of Operations Chief of Global Operations and Subsidiaries

Deon Fredericks was appointed as acting Motlatsi Nzeku was appointed Chief Thami Msimango was appointed Chief Chief of Finance on November 1, 2007. Information Officer in March 2006. Previously, Technical Officer in September 2005. Previously he served as Telkom’s Group he was Group Executive of procurement Mr Msimango joined Telkom in 1984 and Executive of corporate finance accounting since November 2004 and Managing has held a number of positions in Telkom. services and as Chief Accountant from Executive of customer services from April Previously, he was Managing Executive of November 2004 to November 2007. He 2001 to October 2004. He holds a Bachelor technology and network services from July originally joined Telkom SA Limited in 1993 of Science in Mathematics and Physics and 2003 to September 2005 and Executive of as a senior manager in internal audit and a Bachelor of Engineering degree. Technology, Direction and Integration from has held several executive positions in the June 2002 to June 2003. Mr Msimango has various facets of finance. He is a Chartered been involved in the information and commu- Accountant (South Africa) and a member of nication technology sector for the past 22 the Chartered Institute of Management years beginning his career in the former Accountants (UK). Mr Fredericks also holds Department of Posts and Telecommunications a Bachelor of Commerce (Honours) degree in 1984. Mr Msimango has taken a number in Business Management. He also serves as of management programs at various higher a Director of Vodacom, Telkom Directory education institutions. Mr Msimango is a 30 Services, Multi-Links, Africa Online and Director of Telkom Media, Africa Online Telkom Media. Additionally he serves as and Multi-Links. chairman of the audit committees of Vodacom, Telkom Directory Services and Multi-Links. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 31 Ouma Rasethaba was appointed as Chief Corporate Affairs officer on November 1, in February 2006 2007. She joined Telkom serving as Group Executive of regulatory she Prior to joining Telkom and public policy. practiced as an advocate of the High Court of South Africa. She also held the position of Special Director of Public Prosecutions at the National Prosecuting Authority from February 2000 to January 2006. She holds a Bachelors degree in law (BProc.) from the University of the North, an Honours degree in law (LLB) from the University of the a Masters degree in law Witwatersrand, (LLM) from the University of Pretoria as well as a Higher Diploma in Company Law from She the University of the Witwatersrand. Chairman and is Non-executive Director, member of the audit committee of TDS Directory Operations. OUMA RASETHABA Chief of Corporate Affairs , a Bachelor of ance Management from aduate Diploma in Training Charlottte Mokoena was appointed as Chief of Human Resources on November 1, 2007. she was Group Executive of Previously, Human Resources from December 2002 to October 2007, Group Executive of the Center for Learning May 2002 from Telkom to November 2002 and organisational capability manager for Coca-Cola Africa from November 2001 to April 2002. She holds a Bachelor of Arts (Honours) in Human Resources Development from the Johannesburg University Social Sciences from North West University Social Sciences from North West and a Post-gr and Perform Leicester University. CHARLOTTE MOKOENA Chief of Human Resources chool of NAAS FOURIE Chief of Strategy Business. Mr Fourie is a Director of Swiftnet and alternate Director of Vodacom. Naas Fourie was appointed as Chief of Strategy on April 1, 2008 after acting in the position from November 2007. Mr Fourie in 1994 and has held a joined Telkom he Previously, number of positions in Telkom. was Managing Executive of commercial services April 2005 to October 2007 from and Executive of marketing services from April 1999 to March 2005. Mr Fourie holds a Bachelor of Arts, Bachelor of Divinity and Bachelor of Accounting Science (Honours) degree and completed the advanced executive S Kellogg the of program Management team

NAME AGE POSITION AT TELKOM APPOINT- 30 JUNE PORTFOLIO RESPONSIBILITY APPOINTMENT MENT

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

Casper Kondo 47 Network Field Responsible for customer service 1993 2007 Chihaka Operations fulfillment and assurance, network restoration and planned maintenance execution.

Pierre Marais 49 Network Core Responsible for the technical and 1976 2007 Operations operational management associated with Telkom’s core network.

Zethembe Khoza 50 Contact Centre Responsible for managing all contact 1980 2007 Operations points in which customers contact Telkom, such as call centres, TelkomDirect shops, commercial services and credit management.

Godfrey Ntoele 47 National Sales Responsible for the National Sales & 1997 2007 & Marketing Marketing Operations for Telkom’s Operations retail consumers and business enterprises and direct sales to business customers and Government entities.

Bashier Sallie 40 Information Responsible for enterprise wide IT 1986 2007 Operations activities including infrastructure, architecture, application development, computer operations and support and Internet service providers. 32 Theo Hess 50 Capability Responsible for ensuring that Telkom 1976 2007 Management has the right groups of processes, relationships, assets and resources that enable it to deliver on its strategic objectives. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 33 2008 2008 2007 2007 2005 2007 POSITION APPOINT- APPOINTMENT MENT 1984 1995 2001 1994 y 1992 s business 2007 elkom international sales revenues for multi-national customers and also service and project management to support sales and both national multinational sales teams. The service portfolio directs Telkom’s delivery obligations for 2010 FIFA international wholesale revenue and customer relationship international expansion Telkom’s strategy through business development and mergers and acquisitions activities across Africa plan, vision and brand strategy, the role of Corporate Communication is to influence stakeholder behaviour through effective, timely and measurable communication making use of world class reputation through strategy. management solutions. and other emerging markets. Group Strategy. Soccer World Cup. Soccer World management. and corporate investment with specific focus areas that include share buyback evaluations, trustee responsibilities on retirement funds and a mergers and acquisitions role Responsible for implementing Responsible for T Overall responsible for tax, treasur Responsible for national and Responsible for national and Responsible for national Guided by the Company’ Marketing Customers and Development Communications Corporate Operations Specialised Services Finance: Corporate Strategy Corporate Wholesale Multi-National (Acting) AGE TELKOM AT 30 JUNE PORTFOLIO RESPONSIBILITY 48 43 42 42 50 42 NAME Mike Mlengana Steven Hayward Robin Coode Alphonzo Samuels Thami Magazi Bintu Petsana Management team

NAME AGE POSITION AT TELKOM APPOINT- 30 JUNE PORTFOLIO RESPONSIBILITY APPOINTMENT MENT

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

Andrew Barendse 41 Regulatory Responsible for regulatory affairs 2006 2007 Affairs 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 2006 Relations investor community which includes shareholders, analysts and institutional investors.

Marena Janse 35 (Acting) Responsible for financial accounting, 2002 2007 van 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 2008 Governance 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 2007 Performance Centre in support of the company’s Centre customer centricity strategy, 34 marketing intelligence and to manage the business improvement function.

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

Elelwani Pahlana 38 (Acting) Responsible for overall management 1998 2007 Procurement of procurement services Services encompassing strategic sourcing, management of outsourced entities, corporate support and BEE. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo

Sustainability review

Telkom Annual Report 2008 68 44 64 78 36 54 96 104 Corporate social investment GRI content index Sustainability review Corporate governance Enterprise risk management Black Economic Empowerment Human capital management environment health and Safety, Sustainability review A consciousness towards best practice best towards consciousness A responsibility and social human environmental, our suppliers and company the throughout instilled 8968 Telkom dividers••:Layout 1 4/8/08 16:11 Page 35 Page 16:11 4/8/08 1 dividers••:Layout Telkom 8968 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 36

Sustainability review

Sustainability reporting forms a vital part of our organisation’s reporting processes, and intends to

Sustainability reporting forms a vital part of our organisation’s ensure that we have sound reporting processes, and intends to ensure that we have sound corporate governance, corporate governance, disciplined financial reporting and responsible business practices. This is achieved through meeting disciplined financial the triple bottom line reporting requirements and systematic public reporting on the social, environmental and economic reporting and responsible spheres of the business. For Telkom, sustainability is primarily reported in the annual report, wherein effort is made to meet business practices. reporting requirements and be in line with international best practice as set out by the Global Reporting Initiative.

Telkom endeavours to continuously refine and improve the quality 36 of its sustainability reporting. This process is informed by the need for, and commitment to, good business practices, as well as the need to balance this with social and shareholder returns. This is also in line with the second King Report on Corporate Our stakeholders are: Governance which urges companies to embrace the triple bottom line as a method of doing business. Employees; Media;

In moving towards a more sustainable future for the Group as a Customers; Unions; whole, its people, the public and the environment, Telkom continues to focus on the transformation of its business, as well Suppliers; Investors; and as increased transparency in reporting on its operations and the impact thereof on the broader society. Regulators; Government. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 37 Tailoring channels for an utilises print, electronic and broadcasting channels for its internalTelkom audience internal communications, designed to provide relevant, audience- specific information in the most efficient manner possible. TELKOM’S CORPORATE COMMUNICATION TELKOM’S CORPORATE aims to keep our The corporate communication function stakeholders informed through effective, timely and measurable solutions. In the communication and reputation management corporate communication involved Telkom’s year under review, a number of initiatives to further engage with three specific 24,879 employees, the media stakeholder groups: Telkom’s fraternity and our customers. Employee engagement vision statement places employees at the core of our Telkom’s business. In line with this, we have been pursuing a number of initiatives that promote a culture of engagement among our recognise that a primary driver of employee employees. We engagement is effective internal communications. During the year under review the corporate communication function refined its already-effective internal communications mechanisms, focusing on internal communication strategies, policies and procedures, as well as communication channels. A particular area of focus was communicating and facilitating an business model, strategy and business understanding of Telkom’s plan among all our employees. Corporate communication also continued providing a service to the human resources function to ensure the timely and effective flow of project-specific communications. - as other government departments are Telkom is continuously striving to comply with all relevant laws Telkom amongst and regulations, and this can be better achieved by, others, forging good relations with its stakeholders, properly understanding stakeholders’ needs and expectations of the can contribute organisation, as well as establishing how Telkom to ensuring that the relationships between the organisation and its stakeholders are mutually beneficial. Telkom strives for structured, proactive engagements with its key Telkom stakeholders to build constructive relationships and identify mutually beneficial outcomes in all interactions. Telkom’s objective is to transform objective its relationship with key Telkom’s partnershipstakeholders into one of trust, mutual respect, and primary include stakeholders constructive engagement. Telkom’s Governmentthose stated above as well as the South African as a 39.8% shareholder in the Group, the Department of Commu critical stakeholders that can have significant effects on operations. Telkom’s ENGAGING WITH OUR STAKEHOLDERS Report has adopted the 2002 King on Corporate Telkom Governance to ensure that stakeholder management is one of the enabling strategies that form part of our Defend and Grow strategy. Regulatory authorities such as the Independent Communications Authority of South Africa (ICASA) and the Competition Commission, as well nication as the policymaker, as well as the departments as well of Trade nication as the policymaker, and Industry local government, and Public Enterprise, and as business. custodians of laws and by-laws that impact Telkom’s Although Telkom’s environmental impact is considered minimal environmental impact Although Telkom’s business, we comply with all responsible due to the nature of its being This is evidenced in Telkom practices as far as possible. re-certified consciousness towards as ISO 14001 compliant. A is also instilled throughout the environmental responsibility suppliers, as per our procurement organisation and our processes and policies. In terms of Black Economic Empowerment policies for which (BEE), we pride ourselves on our procurement one in the 2008 Top has been ranked number Telkom also participates extensively in Empowerment companies. Telkom (SMEs) through the upliftment of small and medium enterprises corporate citizen, enterprise development. Being a responsible participates in corporate social investment programmes. Telkom Sustainability review continued

Our primary print channel, Online, was given a fresh look and length of service award functions for top management, and new format during the year under review. The most beneficial graduation ceremonies for the Centre for Learning. change was the inception of a cross-functional editorial committee, to ensure that content is not only relevant, but reflects the full scope Conclusion of Telkom’s operations. Driven by changes in technology and increasingly sophisticated employee information requirements, internal communication has The electronic channel, E-News, was also changed to ensure that evolved into a science that requires expertise and continuous information reflects an improved synergy between the channel innovation. Corporate communication aims to meet the and its target audience. As electronic communication channels challenges of internal communication by continuing to enhance provide significant advantages in terms of real-time information existing channels, introducing new channels as required and and reach, a decision was taken to provide all employees with producing compelling content. access to this channel, as opposed to only supervisors and managers. This has resulted in employees across the Group Corporate communication will implement a process to regularly always having access to pertinent information. evaluate not only its channels and the content communicated through these channels, but also the effectiveness and efficiency Our email based desktop broadcast system is another electronic of project-specific communication. This will enable us to identify channel that is utilised extensively to communicate critical internal communication-related issues and continually improve information. The format and appearance of this system have our services. been updated, to give it greater prominence and distinguish it from other emails employees receive. The media

The broadcast channel, Skytrain, and its descendant, Telkom As a highly influential stakeholder, the media is a vehicle through digital media services (providing online audiovisual streaming which Telkom can communicate with its broader stakeholder directly to employees’ computers), communicate critical base, and as such is key to effective reputation management. information to employees quickly and cost-effectively. During the During the year under review our media engagement strategy year under review these channels were utilised for, among consisted of two primary activities: Firstly, furthering our others, communicating the rollout of Telkom’s business plan and relationships with the mainstream media, and secondly, ensuring annual results. An added advantage of this channel is that it an interactive flow of information between Telkom and its enables a two-way interface between members of top manage - stakeholders through media liaison. ment and employees. These activities were premised on two underlying principles: Building an understanding of our strategic direction Open and consistent communication, which Telkom The rollout of our business plan was a mission-critical sequenced believes is key to creating and cementing positive media programme which started with the members of top leadership, relationships; and and subsequently cascaded down to the next levels of leadership and ultimately the entire organisation. This programme A willingness to anticipate and facilitate the needs of the encompassed a series of events, the most important of which media fraternity. was a process of decision-making and commitment, which facilitated buy-in through each level in the organisation. Responding to media enquiries constitutes a crucial component of Telkom’s media management function. Media interest in Telkom Our corporate communication function fulfilled multiple roles remained high throughout the year, resulting in a large number of throughout the process, from logistical arrangements for events enquiries regarding diverse issues. Enquiries ranged from the to conceptualising presentations. However, the most significant company’s acquisition strategy and mobile strategy review, to intervention was in the form of structured communication, utilising pricing and regulatory issues such as the unbundling of the all available channels, to entrench critical messages among all local loop. The success of this media management strategy 38 our employees. was evidenced by the frequency with which corporate communication’s interventions resulted in the media repositioning Partnering with human resources to entrench a culture articles to reflect the company’s position on specific issues. of engagement Media campaign on cable theft All human resources initiatives that aim to build a culture of engagement depend on effective internal communications. Cable theft not only remains a reputational challenge; it Corporate communication played a vital role in this regard, adversely impacts various sectors of the business resulting in ensuring effective messaging through its expertise and resources. financial loss. During the year under review, the need for a media campaign to communicate the challenges faced by Where required, the communications function partnered with Telkom, as well as the strategies to manage this problem, event management. Examples of this partnership include the became increasingly clear. As a result, the corporate premier reward and recognition vehicle, Leading Lights, the communication function conducted a highly successful media WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 39 shops and our Direct Conclusion Corporate communication remains aware that the ICT landscape’s rapid evolution will continue to stimulate stakeholder interest, and strives to find innovative ways of building media relationships. These include promoting greater interaction between the Chief Executive and editors, networking sessions, site visits and breakfast top engagements between the media and members of Telkom’s management. Our media relations function will continue to drive both a proactive and reactive media liaison service to maintain reputation. and enhance the company’s Customer engagement this continues to strive to meet customer expectations. To Telkom end, we conducted approximately 120,000 telephonic interviews across all points of customer during the year under review, contact including call centres, Telkom field technicians. conducted an additional 10,000 interviews with our We residential, small, medium and large business customers, as well as government, corporate and multi-national customers. The aim of these interviews customer loyalty and was to measure perceptions of service quality. Timely, accurate and informative communication regarding, Timely, among others, changes in leadership, bandwidth theft and financial sponsorship and the company’s cheque fraud, the FIFA performance contributed to greater understanding among the media, and thus among our other stakeholders. Media releases, issued in a phased yet timely manner to increase the percentage of take-up and maximise publicity opportunities, it was in the area of issue- were used to great effect. However, specific communication that the value of a proactive approach was proven decisively. An interactive information continues to pursue proactive relationships with the Telkom flow media to promote awareness and understanding among its stakeholders. During the year under review our corporate communication function embarked on a number of initiatives to promote an interactive information flow. Telkom, through the Highway Africa conference, gets an through the Highway Africa Telkom, opportunity with media representatives from across to network platformthe African continent, and provides a for our a leading ICT servicerepresentatives to position the company as held at Rhodes provider on the continent. This annual event, African journalists brings to discuss issues of together University, common interest, with the aim of further raising the standard of African journalism. The Highway Africa conference remains an leaders to position the Group, as effective vehicle for Telkom’s strategic intent. well as communicate Telkom’s The eight ICT media forums created a platform for journalists and industry experts ICT to interact regarding issues affecting the to policy and hosting topics that ranged from cable theft industry, drive to build positive consumer issues. As part of Telkom’s newsroom visits relationships with the media, we also conducted events such as and invited media representatives to prestigious the Standard Bank Joy of Jazz festival. Telkom has identified the need to build a greater understanding has identified Telkom impacting the ICT among the media of the broader issues centre at the this end, we commissioned the LINK To industry. to facilitate eight ICT media University of the Witwatersrand forums. This research unit has garnered a distinctive track record issues. in supporting around ICT-related discussions Building mutually beneficial relationships The aim of this campaign was to help minimise incidents of theft The aim of this campaign the public and SMEs in the fight against by involving the media, campaign was launched in various cable theft. A full media community based, national and languages, spanning international by a media. The campaign was underpinned interviews,media release and various resulting in high-impact coverage. media exposure and campaign on cable theft, which involved creating public involved creating on cable theft, which campaign stakeholders. and engaging with all awareness Sustainability review continued

These perceptions of quality of service are a measure for worked towards transforming the structure of top management, Telkom’s annual team awards. In the year under review we saw creating specialised focus areas that service specific customer a marked improvement in perceptions of quality of service segments, ensure a coherent consolidated approach to among our corporate and multi-national customers. No marketing, pricing, products and services development, and significant improvement in the overall perception of quality of better serve multi-national and wholesale customers. service was achieved in the medium and large business, small business or residential segments. Going forward, the result of our customer analytics approach will be a refined segmentation structure for the organisation, as The results of these studies indicated that our customers perceive well as a marketing structure built around the different customer communication and our products and services as the groups as opposed to products. This will provide the much predominant areas requiring improvement, and that they desire needed end-to-end ownership of, and accountability for, the Telkom to demonstrate knowledge and understanding of their customer experience within Telkom. needs. In terms of addressing negative perceptions with reference to Telkom’s products and services, we will concentrate Below we present highlights of specific customer engagement our efforts on improving reliability, cost-effectiveness and the activities pertaining to each of our customer segments during the value our products and services add to our customers’ year under review. businesses. With regards to communication, our customers indicated a need to be informed about our products and Residential customers services, as well as new technologies being deployed in the Telkom has ascertained that our residential customers prefer telecommunications arena. Additionally, our customers require consolidated bundled offerings that are easy to understand and Telkom to deliver on its advertising promises, to which Telkom is manage. In response to this call, we are placing an increased fully committed. focus on bundled services, examples of which include the Telkom Closer and Do Broadband packages. Perceptions of our account managers’ and sales representatives’ ability to know their customers’ needs and to meet their A multi-product brochure was introduced to enhance customer expectations have undergone a significant improvement, communication. This brochure contains information on all Telkom specifically within the corporate and multi-national, government products and services that are available to our residential and medium and large business segments. Initiatives by our customers, and is distributed via TelkomDirect shops, as well as account managers in the corporate market appear to be paying at shows and exhibitions. The brochure’s objectived are to dividends, with significant improvements in the perception of increase customer awareness of Telkom’s range of products and Telkom’s ability to recommend the right product, be proactive, services, and to empower customer-facing employees to better build strategic partnerships, and know our corporate customers’ communicate with customers on Telkom's products and services. business and industry.

Furthermore, a welcome kit has been developed for new Within the government segment, our account managers’ customers, with the objective of increasing customer satisfaction. perceived ability to understand the particular needs of The welcome kit contains a letter that welcomes customers to the government customers improved significantly. Initiatives within Telkom family, provides information on the usage indicator, the medium and large business segments also resulted in mentions the free value-added services available to customers significant improvements in responding to customer requests, and introduces the Do Broadband and Telkom Closer bundled with customers indicating that they trust Telkom to deliver on its services. It also contains a leaflet explaining the Telkom invoice, promises, understand their business needs and recommend the a key ring with important Telkom and other contact numbers, as right product. well as a multi-product brochure. The kit is distributed via Our customer centricity programme is making progress in technicians and handed to customers upon line installation. This ensuring everything we do maintains a customer focus, while presents one of the best opportunities Telkom has to communicate 40 moving away from being a predominantly product-centric directly with our new customers. organisation. A key enabler of this programme is the use of our own knowledge and database for customer analytics. This Business customers refines our understanding of our customers’ value and needs in Telkom’s activities to engage with our business customers during order to transform the business to put our customers at the core the year under review included: of all decision making within the organisation. Products and services information sessions with selected A key step towards achieving customer centricity was the business customers; consolidation of all contact centres under one management umbrella, and implementing a contact centre structure that is Participation on the various regional Business Chamber based and focused on our different customer groups, and not on committees, including attendance at networking and business internal functions as has been done previously. We further training sessions; WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 41 Supplier Chevron Global award from the of the year 2008 Downstream Africa Pakistan. Telkom implemented a multi-million Rand Telkom and on solution for Chevron (Caltex), March 12, 2008 received the International CEO of Chevron in recognition the safe, of our valued contribution to responsible and reliable delivery of goods and services to Quarterlyof multi- with the majority strategic workshops of with the purpose corporate customers, national and business strategies and direction understanding our customers’ to effectively respond to our customers’ to enable Telkom different business needs; events in support customer relationship-building of Various business plan initiatives; and Telkom’s Participating initiative with ABSA in a Habitat for Humanity Foundation sponsored a house built during which the Telkom for the local community. by volunteers from Telkom Developing a real-time electronic newsletter to communicate Developing a real-time electronic newsletter with the aim of product launches and price revisions, extending this initiative to include a quarterly newsletter; and Developing a wholesale dashboard to report on the status of issues raised by customers during workshops. Forming the customer fault management centre (CFMC) to provide an end-to-end fault management service to our top Wholesale customers year under goals for our wholesale customers for the Telkom’s review included: Our new vision for our wholesale customers is to help them prosper in a very New initiatives competitive marketplace. planned for the year ahead focus on our top ten wholesale customers, who account for more than 85% of our wholesale revenue stream. Contact centre network as part of its customer During the year under review Telkom, developments reviewed our customer contact strategy. centricity strategy, A contact centre master plan was implemented, with the first step being consolidating all contact centres under one management umbrella. Furthermore, a number of initiatives were implemented to improve our customer interface, including: The annual corporate and multi-national customer forum; Revenue retention and seeking new business growth areas; Improving our customer satisfaction measurement scores through more regular customer contact, conducting strategic sessions including direct contact and corporate customer forums, and keeping customers informed about ICT developments in South Africa; Ensuring that our team members are appropriately skilled and developed through enrichment programmes; and Engaging with key stakeholders such as the State Information through ICT summits, the jointly Agency (SITA) and Technology 2008 conference, and showcasing our hosted GovTech success stories in the Effective e-Government 2008 publication. Active involvement in regional Women’s Day celebrations with Day celebrations in regional Women’s Active involvement leaders; business enterprise selected female in developing business communities Facilitating understanding customers at events such as the by hosting selected business Soweto Experience; and business and community activities. Local sponsorships for school, Corporate and multi-national global markets section, which services our corporate and Telkom’s customers multi-national customers, conducted the following customer engagement activities during the year under review: Going forward we will continue to focus on: The South African National Defence Force (SANDF) contracted The South African National Defence Force to present it with a full turnkey national migration of its Telkom wide-ranging access technology microwave network. Telkom’s expertise solution that addresses most of the SANDF’s enabled a connectivity needs and provides the transport medium for remaining cost multiple communications applications while of converged effective, and addresses the future requirements responsibilities mobility-centric telecommunications. Telkom’s installation, commissioning and include the design and supply, operation of equipment. Government customers a number of solutions to its Government delivered Telkom providing This included under review. customers during the year VPN Supreme solution the DepartmentJustice with Telkom’s of managed wide which provides a fully converged and proactively Quality of Service with guaranteed for area network (WAN), remote and video, centralised infrastructure as well as VoIP access. This has contributed to reducing departmental costs and streamlining processes. Sustainability review continued

40 corporate customers. To date only eight customers have success of our business. This requires extensive effort by both been moved into the CFMC, however we plan to incorporate ourselves and organised labour to build positive relationships, an additional 12 customers in the 2009 financial year. The and accepting that the best interests of both parties are CFMC has improved the perception of Telkom among our top inextricably intertwined. As at the end of the year under review, corporate customers; major progress had been made in developing a sense of partnership and a shared vision by both parties. An outsourcing deal signed with Nedbank/Old Mutual, named the Merlot deal, followed by the creation of the Merlot There are three bargaining units to which qualifying employees centre to manually operate as a single service aggregator are affiliated. This often represents a challenge, particularly in (SSA). The customer views this centre as highly successful; the interpretation of collective union agreements, and has in the past contributed to unnecessary tension between Telkom and Repositioning the TelkomDirect shops to optimise the reach of unions. This made the enforcement of such agreements difficult, this channel, giving customers the freedom to physically as different parties would interpret the agreements differently experience a variety of product and service offerings in store. each time these agreements were being implemented. The This enables a platform for the two-way exchange of customers’ reviewing and simplifying of our processes has been initiated, needs and requirements and Telkom’s advice and support; and some of the arrangements and agreements are currently being re-negotiated. Extending the Telkom/Vodacom retail synergy, positioning TelkomDirect as a one-stop shop for fixed-line and mobile Telkom has adopted a transparent information sharing and products and services. This is to make accessing these fully interactive process with unions. As at the end of the year services more convenient for our customers; under review, major progress has been made in developing a sense of partnership and shared vision between the two parties. Implementing SMS notifications on faults, which contributed We envisage that further progress will be made in this regard to a decrease in progress calls into our contact centres; and going forward.

Introducing certain self-service capabilities. Suppliers

In terms of customer contact, our customer satisfaction Telkom’s supplier engagement processes continue to be open, measurement indicates that there is still room for improvement. interactive and inclusive of all levels of suppliers. Our Reasons for customer dissatisfaction include: procurement policies are focused on disciplined, transparent and professional business practices. These are enforced through the Long time to answer calls; company’s established cross-functional sourcing teams who evaluate and make recommendations on bids. Where necessary, Long time to resolve problems; the teams involve the executive committee and advise the Board of Directors. Telkom provides good quality assurance, which it Providing inconsistent feedback; and also demands of all its suppliers in respect of which, where necessary for the relevant suppliers, enterprise development is Providing no feedback at all. provided. For instance, clear communication of tender processes and policies are available on Telkom’s website. The increase in copper cable theft has led to the further deterioration of service quality and customer satisfaction. This Telkom’s BEE policy includes the upliftment and development of has contributed significantly to the higher call volumes into our SMEs and black business through its supplier development contact centres, and places increased pressure on our employees programme. For example, one of Telkom’s small business suppliers in the call centres which leads to high staff turnover. A number is a black supplier that runs a florist business. This is a supplier of of interventions are being instituted to mitigate these problems, in-house flowers to Telkom, a 62 year old woman who lives in 42 which include counselling through Telkom’s wellness programme. Ga-Rankuwa and who has persisted with determination against all odds. With a positive attitude and tenacity, she rose above the Despite these negative experiences, customers have also rest in Pretoria and won the trust of the organisation. As part of acknowledged exceptional performances by our employees, Telkom’s SME supplier development programme, Delta has been reflected in the feedback that we have received from delighted trained and developed in her area of business. Telkom continues customers. Employees were commended for providing to engage with all such stakeholders. exceptional levels of service to Radio iGagasi 99.5 FM, providing ISDN infrastructure to facilitate remote broadcasts. Investor Relations Telkom’s investor relations function is responsible for managing Unions all contact with our investors. This strategic, marketing and Telkom views building productive relationships with union communication function’s primary aim is to ensure quality of organisations that represent our employees as essential to the information and consistent disclosure management when WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 43 In addition, Telkom won best telecommunications annual report telecommunications won best Telkom In addition, IR Global Rankings industry. telecommunication in the global by MZ Consulting. awards are adjudicated Going forward, of we commit to ensuring an even greater level disclosure and continued increased and improved transparency, the goal is to meet good corporate governance. Telkom’s investors and shareholders regardless of requirements of all our the size of their investment. can be accessed at investor relations website Telkom’s www.telkom.co.za/ir The Regulator and Government regulatory environment defines special conditions under Telkom’s its business. These which the organisation is obliged to conduct conditions are complex and expert knowledge is required to ensure operation. To interpret and put these requirements into well-staffed regulatory has a fully functional and this, Telkom required to effect affairs section which establishes the capability these requirements. The primary function of the regulatory affairs section is to ensure that our regulatoryobligations are clearly and properly understood throughout the organisation, implemented in all our products, services and business conduct. The ICT regulatory is very and policy environment dynamic, and operations. Therefore changes have a material effect on Telkom’s the regulatory anticipate affairs section must continuously to adapt to such changes and assist the organisation as a whole changes. The regulatory seeks to proactively affairs section also evolution of the ICT influence, to the extent it is possible, the regulatory environment. - Top five Best Disclosure procedures in Asia, Pacific and Africa. five Best Disclosure procedures in Asia, Pacific and Top Best Online Annual Report in Asia, Pacific and Africa within Industry by technical criteria; the Telecommunications in Asia, Pacific Third place for its Investor Relations website and Africa; and Recognition of our continuedIn terms of effectively and efficiently engaging with investors, drive for excellence relations received awards for: investor Telkom’s Telkom’s investor relations function plays a key crises manage investor relations function plays a key crises Telkom’s Keeping in touch with the and results presentations biannually, Investor relations conducts investor communitya two week road show throughout South each is followed by reaches all its Africa and internationally to ensure that Telkom day is held annually to deal with specific investors. An analyst issues of topical interest to the investor community. ment role in situations where market conditions have led to ment role in situations where market conditions financial misinterpretations of our strategic decisions, performance or anything that has a negative or overtly positive share price. This function regularly conducts impact on Telkom’s perception surveys to assess market perceptions around, among others, management delivery and expectations of Telkom’s financial and operational performance.a result of feedback As undertakes to provide from the latest survey conducted, Telkom increased access to its executive management. communicating with our shareholders and the broader investor and the broader with our shareholders communicating timely accurate and to ensure fair, It is essential community. dissemination of information investors. to all current and potential of Telkom’s expectations community’s Managing the investor operational performancestrategic, financial and assists us to requirements of both the Johannesburg comply with the listing Exchanges. Stock and New York Corporate governance

The Telkom Board CORPORATE GOVERNANCE subscribes to the values Compliance of good corporate The Telkom Board subscribes to the values of good corporate governance as espoused in the Code of Corporate Practices and governance as espoused Conduct of King II (the Code). In so doing, the directors recognise the need to conduct the enterprise with integrity and in the Code of Corporate in accordance with best corporate practices. Practices and Conduct The Board is of the view that Telkom complies in all material respects to the principles of the Code. While it acknowledges of King II. the importance of good governance, the Board is aware that Telkom does not strictly comply with certain principles set out in the Code. These areas of non-compliance stem primarily from certain provisions in Telkom’s articles of association. Most of the 44 areas of non-compliance will be resolved by no later than maximum of 11 Directors, only a minority of four can be March 5, 2011, when the provisions of Telkom’s articles of considered independent; and association resulting in non-compliance with the Code fall away, or earlier if the shareholding of a significant shareholder falls The Chairman is not an independent Non-executive Director below certain stipulated levels. and Telkom has not elected a lead independent Director as stated in the Code. Two significant areas in which Telkom does not comply with the Code are: Telkom is holding a General Meeting of Shareholders on August 8, The Board does not have a balance of executive and non- 2008 in order to amend the articles of association to increase the executive directors, in that there is only one executive director number of Board Directors from 11 to 12 in order to bring the Chief (the Chief Executive Officer) on the Board, and out of a of Finance onto the Board as an additional executive director. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 45 April 11, 2007 September 19, 2007 May 29, 2007 September 19, 2007 September 19, 2007 January 30, 2008 June 3, 2008 July 3, 2008 May 8, 2007 September 20, 2007 April 5, 2007 October 26, 2007 March 5, 2008 assets or liabilities of Telkom or any subsidiary of Telkom assets or liabilities of Telkom in either case where the sale price of such assets exceeds, gross revenues in the financial year 5% of Telkom’s in which such immediately preceding the financial year transaction occurs. Pursuant to the articles of association, while the Government is a nor any of its subsidiaries neither Telkom significant shareholder, may take action with respect to certain reserved unless matters resolution of authorised by the Board. In addition, the authorising the Board must have received the affirmative vote of at least one of the Directors appointed by the Class A shareholder. Board Members’ resignations and appointments to the Telkom of Directors during the year under review are as follows: Appointments RJ September MJ Lamberti RJ Huntley Resignations LLR Molotsane PL Zim M Mostert DD Tabata YR Tenza TF Mosololi TD Mahloele B Molefe MJ Lamberti AG Rhoda Approval or amendment by the organisation of the strategic or the strategic objectives of any objectives of Telkom, subsidiary of Telkom; Any increase or reduction in the issued share capital of or any subsidiary of Telkom; Telkom Approval or making of the dividend policy from time to time, including the declaration or distribution of any dividends by and or any subsidiary of Telkom; Telkom where the Any merger or consolidation involving Telkom, aggregate of the payments and other consideration given by the parties to such transaction exceeds, or any transfer of The only significant shareholder is the Class A shareholder who currently holds 39.8% of the issued ordinary shares in the Group. The significant shareholder is a registered holder of the Class A shares with at least 15% of the issued ordinary shares The Class A shareholder has certain Board-reserved in Telkom. articles of association matters which are detailed in Telkom’s The Board which can be accessed at www.telkom.co.za/ir. reserved matters include the following: In terms of the articles Directors of association, the Non-executive a fixed termappointed by the Class A shareholder have of three by the shareholder. years and may be re-elected to the Board The Chairman has a term as of one year and is re-elected The Chairman for the ensuing year by the Class A shareholder. are subject to three independent Non-executive Directors shareholders at least retirement by rotation and re-election by every three years, in accordance with the articles of association and JSE Listings Requirements. In line with best practice, the roles of the ChairmanIn line with best practice, the roles of the and CEO by the Chairman,have been separated. The Board is led Ms Shirley Lue Arnold, while operational management of the Reuben September. Group is the responsibility of the CEO, Mr Chairman and Board of Directors nine directors. In accordance Board currently comprises Telkom’s articles Directors of association, five Non-executive with Telkom’s including the Chairman by the have been appointed Government (the Class A of the Republic of South Africa Non-executive Director appointed by Black shareholder) and one issued shares plus the Class of Telkom’s Ginger 33 holding 9% a wholly owned subsidiaryB share (the Class B shareholder) of at Telkom’s the PIC. Three Non-executive Directors are appointed to be independent, annual general meeting and are considered Requirements. as set out in the Code and the JSE Listings Board is the Chief Currently the only executive director on the Executive Officer (CEO). Corporate governance continued

Dr VB Lawrence September 20, 2007 Details of the Group Company Secretary’s business address and Dr E Spio-Garbrah September 20, 2007 Telkom’s registered office are set out on page 109. B Molefe January 30, 2008 (re-appointed July 3, 2008) Board meetings AG Rhoda March 5, 2008 Board meetings are conducted at least once every quarter. In addition to these meetings, special Board meetings are convened Company Secretary whenever circumstances dictate that this is necessary. During the All directors have access to the advice and services of the Group year under review, four scheduled Board meetings were held Company Secretary, who is responsible for ensuring compliance and 16 additional special Board meetings were convened. The with procedures and applicable statutes and regulations. The increase in the number of meetings was necessitated by the Group Company Secretary is also responsible for the development discussions around the mobile strategy review on the potential of director training and education. The appointment and removal sale of Telkom’s stake in Vodacom and relating to discussions of the Group Company Secretary are matters for the Board as with the MTN Group. Details of attendance by each Director of a whole. the Board meetings are set out in the table below. Certain members of senior management attend Board meetings when Directors and executives of the organisation are responsible invited to make presentations on particular organisational issues for advising the Group Company Secretary of all their dealings of interest to the Board. A majority of Directors, one of whom in securities of Telkom, in accordance with well-defined rules must be a representative of the Class A shareholder, is required and procedures. for a quorum for Board meetings.

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

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

Non-executive ST Arnold (Chairman) 4 4 16 16 B du Plessis 4 4 16 15 RJ Huntley 3 3 8 8 MJ Lamberti 4 4 12 8 Dr VB Lawrence 3 3 8 8 PCS Luthuli 4 3 16 13 TD Mahloele 2 1 16 14 B Molefe 1 0 0 0 TF Mosololi 1 1 9 5 Dr M Mostert 1 1 8 8 AG Rhoda 2 1 0 0 Dr E Spio-Garbrah 3 3 8 6 DD Tabata 1 1 8 7 46 YR Tenza 1 1 8 7 PL Zim 0010 KST Matthews 4 4 16 15

Executive RJ September 4 4 15 15

(1) The table represents the possible meetings based on the appointment and resignation dates of members. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 47 Verifying that management is fully conversant with the theory that management is fully conversant with the Verifying and principles of strategic management; Ensuring that management annually researches all stakeholders satisfaction with, and expectations to determine the latter’s of, the Group; Ensuring that management conducts a comprehensive internal review of the resources, capabilities and competencies of the Group; Monitoring the strategic compliance of annual business plans and budgets for existing operations and assets, as well as for all proposed acquisitions and investments; Monitoring the efficiency and success of strategy implementation; and strategic questions and concerns are Ensuring that the Board’s addressed by management. Nominations committee of three must have a minimum committee, which A nominations on September 4, 2007. As of June 30, members, was established Luthuli (Chairman), comprised of PCS 2008, the committee is The quorum for a meeting Arnold and one vacancy. ST two members. recommendations to the Board on the The committee makes and the balance between Executive, composition of the Board, Non-executive Directors with Non-executive and independent diversity and experience. The committee respect to all aspects of and nominating candidates and is responsible for identifying formulating for the approval of the Board. succession plans to the Board the In addition, the committee recommends continuation or discontinuation of services of any Director who Directors who are has reached the retirement age, as well as retiring by rotation, for re-election. Strategy committee a minimum of three The strategy committee, which must have and furthermembers, is chaired by Dr E Spio-Garbrah, consists for a meeting is of RJ September and Dr VB Lawrence. A quorum Board with strategic two members. The committee assists the MJ Lambertidecisions and the financial implications thereof. was on June 3, 2008. a member of this committee until his resignation include: The functions of the committee, among others, Where appropriate, the committee will make recommendations to the Board arising from deliberations and decisions made by terms of reference. it in fulfilling its duties, under the committee’s Implement approved business plans, annual budgets and all Implement approved achievement of other matters and issues relating to the under its licences, including without obligations Telkom’s tariff limitations network expansion, equipment procurement, setting and packaging, customer service and marketing; and the annual Prepare, review and recommend to the Board budgets and any amendments thereto. The terms of reference of the committee were reviewed during the year under review. As a result of the resignation of MJ Lamberti on June 3, 2008 and Rhoda on July 3, 2008 from the Board and all committees AG ARMC consists of the two Non-executive currently thereof, Telkom’s Directors, one of whom is a representative of the Government of South Africa. The Board of Directors is currently assessing the composition and membership of all the committees, including the ARMC, and wants to address any instances of non-compliance with their charters by the end of the 2008 calendar year. PCS Luthuli (Chairman – Independent) RJ Huntley AG Rhoda (resigned July 3, 2008) As at June 30, 2008, the committee comprised three Non- executive Directors of which one is considered independent: In terms of its charter, the ARMC evaluates the Group’s systems evaluates the Group’s the ARMC In terms of its charter, of internal and financial control, reviews accounting policies and financial informationissued to the public, reviews the performance of internal and external auditors, and determines the fees payable to external auditors. The committee examines and reviews financial results, and recommends it to the Board for approval. The ARMC charter can be accessed on www.telkom.co.za/ir The ARMC is chaired by Mr PCS Luthuli who is an independent The ARMC is chaired by Mr PCS Luthuli who This committee conducted four scheduled Non-executive Director. year under review. meetings and one special meeting during the financial expertMr Luthuli is considered an audit committee of the United States within the meaning of the requirements He is a CharteredSecurities and Exchange Commission (SEC). Accountant. Audit and risk management committee (ARMC) Executive committee comprises the CEO and chief officers of The executive committee The CEO is the chairman Group. of this committee the Telkom to, among others: and has the authority Committees assisting it in discharging has a total of six committees The Board the Board the year under review, its responsibilities. During committees; a nominations committee, a established three new an investment committee. strategy committee and Corporate governance continued

Human resources review and remuneration committee Pursuant to the above, make recommendations on the (HRRRC) selection of merchant banks and professional advisors. As of June 30, 2008 the committee comprised of: Where appropriate, the investment committee will make B du Plessis (Chairman) recommendations to the Board arising from deliberations and decisions made by it in fulfilling its duties, under the committee’s KST Matthews terms of reference. One vacancy Share dealings The HRRRC held six scheduled meetings and two special meetings during the year under review. This committee, in In line with the JSE Listings Requirements and the Group’s insider consultation with management, ensures that the Group’s trading policy, Directors and executives who wish to trade in Directors and senior executives are fairly rewarded for their Telkom securities are required to obtain prior written approval individual contribution to the Group’s performance. In fulfilling from the Chairman of the Board and the Company Secretary its duties, the HRRRC give consideration to industry and local before dealing in Telkom securities. The Group operates closed benchmarks to ensure that packages remain competitive. Senior periods as defined in the JSE Listings Requirements and executives receive a salary, short-term incentive and an communicates these periods to all its employees at the start of allocation in terms of the rules of Telkom’s conditional share each period. Telkom’s insider trading policy is set out on plan. Medical and retirement benefits are also offered. www.telkom.co.za/ir. Additional closed periods are enforced, Remuneration packages are reviewed annually and when required, in terms of corporate activities as and when these performance bonuses are linked both to individual performance occur. and to the performance of the Group. Non-executive Directors are paid fees for their services as Directors of the company, and Compliance with Sarbanes-Oxley for their participation as members of Board committees. The Sarbanes-Oxley Act of 2002 was passed in the United States of America to protect investors by improving the accuracy and Investment committee reliability of corporate disclosures, accounting practices and The investment committee was established on November 16, corporate governance. Telkom, as a listed company on the New 2007, and must consist of at least five members. As at June 30, York Stock Exchange (NYSE) registered with the US Securities 2008 the committee comprised of: Exchange Act of 1934, is required to comply with the Sarbanes- Oxley Act. Telkom is committed to good corporate governance RJ Huntley (Acting chairman) practices and compliance with the Act as directed by the US SEC. PCS Luthuli RJ September Telkom’s Sarbanes-Oxley steering committee represents the DJ Fredericks divisions that are directly impacted by the requirements of the One vacancy Act. Working closely with line management, a Sarbanes-Oxley compliance team is responsible for ensuring that risks and The responsibilities of the investment committee are to: controls that may impact on the integrity of financial reporting are properly documented, reviewed and reported on. The Examine, review and recommend investment policy, criteria independent external auditor attested to and reported on and parameters in the context of the Group’s targeted growth, management’s assessment of the effectiveness of internal control gearing and returns; over financial reporting for the year ended March 31, 2008.

Examine, review and recommend potential new investments The CEO and the acting Chief of Finance have certified that the proposed by executive management, with due regard to the requirements of Section 302 have been met for the year ended 48 Group’s strategic and financial objectives, the structural basis March 31, 2008. The certification is included in Telkom’s Annual of integration and the operational and managerial demands Report on Form 20-F as filed with the SEC. occasioned by the investment; In addition to the Sarbanes-Oxley Act, the NYSE corporate Monitor the performance of existing investments against governance rules, approved by the SEC, permit NYSE-listed investment criteria and pre-investment assumptions; companies that are foreign private issuers, such as Telkom, to follow home-country practices in lieu of the requirements Examine and review recommendations by executive applicable to listed US companies, subject to certain exceptions. management to dispose of investments; In particular, foreign private issuers must have an audit Monitor and make recommendations on the Group’s financial committee that satisfies the requirements of Rule 10A-3 under the facilities and financing structures; and Securities Exchange Act of 1934, as amended, and must WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 49 Accept directly or indirectly any consulting, advisoryAccept directly or indirectly or other listed entity; or compensation from the of the listed entity. Be an affiliated person capacity as a member of the audit committee, the Board, or any committee, the Board, a member of the audit capacity as committee: other Board or of an issuer is a person who directly, An affiliated person or more intermediaries,indirectly through one controls, or is the issuer. or is under common control with controlled by the issuer, of the US Securities Exchange Act Rule 10A-3(b)(1)(iv)(E) on being an provides an exemption from the prohibition member of affiliated person of the issuer for an audit committee who is a representative or designee of a foreign private issuer, a foreign governmental entity that is an affiliate of the foreign if the member is not an executive officer of the private issuer, foreign private issuer. Is not a representative of a shareowner who has the ability to control or significantly influence management; Has not been employed by the company or the Group, of which it currently forms part, in any executive capacity for the preceding three financial years; Is not a member of the immediate family of an individual who is, or has been in any of the past three financial years, employed by the company or the Group in an executive capacity; Is not a professional advisor to the company or the Group other than in a Director capacity; Is not a significant supplier to, or customer of the company or Group; Has no significant contractual relationship with the company or Group; and Is free from any business or other relationship that could be capacity to act seen to materially interfere with the individual’s in an independent manner. Three of the ten Directors are considered independent, based on Three of the ten Directors are considered independent, shareholding at March 31, 2008 and their holding of the Class A shareholding at March 31, 2008 and their the South African Government is and Class B shares respectively, while Black Ginger entitled to appoint five Directors to the Board, Board. 33, is entitled to appoint one Director to the a Non-executive King II defines an independent Director as Director who: the King II definition of “independent”. Based on their ordinarythe King II definition of “independent”. Based The Board of Directors should are Non-executive Directors. Directors The majority of Telkom’s independent Directors. NYSE ruleshave a majority of practice Telkom Board of Directors Composition Key differences between NYSE corporate governance listing rules and Telkom practice as of March 31, 2008 are: Key differences between NYSE corporate governance Telkom listing rules and As a foreign private issuer, the definition of independence of the definition of independence issuer, As a foreign private the audit committee and is only relevant to Directors for Telkom Exchange Act. This is included in Rule 10A-3 of the US Securities must be a states that each member of the audit committee as defined in member of the Board and should be independent Act. A member rule 10A-3(b)(1)(ii) of the US Securities Exchange not, other than in his of an audit committee of a listed issuer may disclose the significant ways in which their corporate governance significant ways in which disclose the under the by US companies from those followed practices differ the CEO of a foreign private issuer must NYSE rules. In addition, in writing after any executive officer of promptly notify the NYSE becomes aware of any material non- the listed company applicable provisions of the NYSE compliance with any corporate governance private issuers standards, and foreign and interim written affirmationmust submit an annual to to compliance with the foregoing the NYSE with respect requirements and certain audit committees. changes to their Corporate governance continued

NYSE rules Telkom practice

Board committees Committees 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 B compensation committee. Each shareholders are appointed by shareholders at the AGM as of these committees must have a stipulated in Telkom’s articles of association. Telkom does not written charter that addresses perform an annual performance evaluation of each committee. certain matters specified in the NYSE listing standards, including the committee’s purpose and responsibilities and an annual performance 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 committee Written 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 Management certain 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 accessed the committee’s purpose, an at www.telkom.co.za/ir. annual performance evaluation and the duties and responsibilities of the audit committee.

Composition The audit committee must include The following are the members of the Audit Risk Management a minimum of three members that Committee as of June 30, 2008: satisfy the independence PSC Luthuli (Chairman); requirements of both the NYSE RJ Huntley; and listing standards and the AG Rhoda (resigned July 3, 2008). Sarbanes-Oxley Act. Telkom’s Audit and Risk Management Committee is to consist of not less than three Non-executive Directors. As a result of the resignations of MJ Lamberti on June 3, 2008 and AG Rhoda on July 3, 2008 from the Telkom Board of Directors and all committees thereof, Telkom’s Audit and Risk Management 50 Committee currently consists of two Non-executive Directors, one of whom is a representative of the Government of South Africa. The Board of Directors is currently assessing the composition and membership of all the committees of its Board of Directors, including the Audit and Risk Management Committee, and intends to address any instances of non-compliance with their charters by the end of the 2008 calendar year. Telkom’s current articles of association requires shareholders to approve the appointment of any members of Telkom’s Board of Directors, other than the Directors nominated by the Class A and Class B shareholders, and Telkom’s Class A and Class B shareholding rights granted in its current shareholders agreement that will expire in March 2011 restricts the Board’s ability to appoint independent members. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 51 Telkom practice Telkom absence of such designation. Telkom’s Board of Directors expects to request a special general Board of Directors expects Telkom’s to propose an amendment to its current meeting in which it intends articles of association to permit the Board of Directors to appoint when a casual vacancy occurs, whom can independent Directors available for re-election at the first then be retired and made following their appointment. annual general meeting and Risk Audit who servedIn addition, AG Rhoda, on the Telkom from March 5, 2008 to July 3, 2008 was Management Committee Public Investment Corporation, an a representative of the by the South investment management company wholly owned African Gorvernment. Because the Public Investment Corporation issued and 6.8% of directly beneficially owned 6.6% of Telkom’s a wholly owned shares and Black Ginger, outstanding Telkom’s subsidiary owned 9.0% of of the Public Investment Corporation outstanding ordinary shares and 9.3% of Telkom’s issued Telkom’s to the appointment and the Class B ordinary share, AG Rhoda’s Committee may have violated Audit and Risk Management Telkom Rule 10A-3(b)(1) of the Stock Exchange rules and the New York of the audit Exchange Act that require that each member Any such violation committee of a listed issuer to be independent. resignation on July 3, 2008. was corrected by AG Rhoda’s of Directors has determined Board that the chairman its of Telkom’s audit committee audit committee, Mr Sibusiso Luthuli, is the financial expert the meaning of Item 16A. (b) and (c) of the within requirements of Form 20-F of the SEC. The SEC has determined that the audit committee financial expert designation does not any duties, impose on the person with that designation, the duties, obligations obligations or liability that are greater than member of the audit or liabilities imposed on such person as a of such committee of the board of directors in the absence designation. Mr Luthuli is a qualified Chartered Accountant (SA). NYSE Rules Each of the members of the audit experience refer to pages 26 For members’ work to 29 under committee must be financiallyliterate. In addition, at least one ARMC, PCS Luthuli, Board of Directors. The Chairman of Telkom’s who is a Chartered Accountant, is considered an audit committee member of the audit committee must have accounting or related financial expert within the meaning of item 16A of the financial management skills. requirements of Form 20-F in terms of the definition in the An audit committee financial expert Sarbanes-Oxley Act. The SEC has determined that the audit within the meaning of the committee financial expert not impose on the designation does obligations or liabilities person with that designation any duties, SEC rules adopted pursuant to the Sarbanes-Oxley Act satisfies that are greater than the duties, obligations or liabilities imposed on such person as a member of the audit committee in the this requirement. Corporate governance continued

NYSE Rules Telkom practice

Disclosure and communication Corporate 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 The company’s organisational structure facilitates and allows the flow of information upstream, downstream, and across all Telkom has a well established internal control environment business activities. This is supported by formal mechanisms in monitored by the ARMC, whose duties include: place to communicate the responsibilities and expectations of business activities at executive level. Assessing the company’s risk areas; The Board assesses the company’s risk dashboard and ensures Consistent monitoring of systems and processes in place to that the necessary procedures are in place to facilitate effective prevent and/or mitigate these risks; and enterprise risk management, which entails identifying, measuring and taking action to manage the risk. Reviewing the quality of reporting and adherence to internal policies. Existing internal control mechanisms are in place to anticipate, identify and react to risks arising from external and internal This incorporates internal control procedures designed to provide environments. The risk analysis process is well defined at policy and procedure level providing sufficient guidance on risk reasonable assurance that the company’s assets are safeguarded assessment and mitigation. and the risks facing the business are being assessed and mitigated. Section 404 of the Sarbanes-Oxley Act requires companies listed Telkom’s internal controls are based on established written on the NYSE to comprehensively evaluate and report on the 52 policies and procedures which are monitored throughout the effectiveness of their internal control over financial reporting on Group and are applied by sufficiently skilled personnel with an annual basis. To this extent a process exists within the appropriate segregation of duties, through clearly defined lines company to monitor and respond to the requirements of Section of accountability and delegation of authority. 404 of the abovementioned Act. Progress reports are submitted at least quarterly to the ARMC which in turn reports to the Board. The internal control environment is supported by Telkom’s Business The reports are provided to the Board by Telkom’s management Code of Ethics, which sets the standards of professionalism and with appropriate and timely information about the business, integrity. An effective internal control environment has oversight operations and general affairs of the Telkom Group. from Telkom’s active and participative Board and its related committees. The Board reviews and monitors key risk areas and Telkom’s internal audit (TIA) function plays a key role in providing key performance indicators of the business, and have checks an objective view and continuous assessment of the effectiveness and balances in place for an effective control environment. of internal control systems throughout Telkom to both WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 53 Design and establish controls and other procedures; Monitor the integrity and effectiveness of the company’s disclosure controls and procedures on an ongoing basis; Review current and future material developments and advise timely disclosure obligations with respect on the company’s thereto; Supervise, advise on and review the preparation and timely publication and filing with regulatory authorities; Evaluate and advise on the effectiveness of the company’s internal control over financial reporting and disclosure controls. The TIA team conducts audit work, or any other task, in work, or any other conducts audit The TIA team with the internalaccordance by the standards set auditing Institute of Internalglobally recognised (IIA). This Auditing the Standards for Professional Practice requires compliance with conduct the codes of of Internal Auditing (SPPIA), in particular, from time to time by relevant and ethics that are promulgated and any other corporate governanceprofessional bodies, initiatives. Internal are also Audit practices and activities by an authoritative externalbenchmarked independently party the SPPIA and required by the ARMC. as recommended by DISCLOSURE COMMITTEE established a disclosure has During the year under review Telkom disclosure all Telkom committee for the purposes of facilitating obligations under Section procedures in furtherance of Telkom’s are designed 302 of the Sarbanes-Oxley Act. Such procedures to source information that is relevant to an assessment of the that pertainneed to disclose developments and risks to the various businesses, and their effectiveness for this company’s The committee is mainly purpose will be reviewed periodically. dissemination of focused on ensuring complete, accurate financial information of the company’s and fair representation within the applicable position and operations on a timely basis regulatory and legal frameworks. officer in The Disclosure committee works with the compliance It works to assist line with ensuring overall company compliance. Chief of Finance and the Board of the Chief Executive Officer, which: Directors in fulfilling their responsibilities amongst purpose is to ensure that the company The committee’s implements and maintains internal procedures for the timely collection, evaluation and accurate disclosure, as appropriate, of information potentially subject to public disclosure under the legal, regulatory and stock exchange requirements to which the company is subject and which is made available in the market place or to the investment community. Resources and assets are effective and efficiently utilised and Resources and assets are effective and efficiently adequately protected; Risks are appropriately identified and managed; Significant financial, managerial and operational information is accurate, reliable and timely; Employees’ actions are in compliance with policies, standards, procedures and applicable laws and regulations; Significant legislative or regulatory issues impacting the organisation are recognised and addressed appropriately; and Assessments of the adequacy and effectiveness of the corporate governance, risk and control organisation’s processes for controlling its activities and managing its risks, set down in the mission and scope of work, are provided regularly. To ensure the independence of TIA, the acting Executive of TIA, To reports functionally to the ARMC Chairman and administratively to the acting Chief of Finance, with direct access to the Chief the ARMC oversees processes In this context, Executive Officer. related to financial risks and internal controls, financial reporting and the monitoring of internal and external auditing processes. In carrying out its duties, the team has unrestricted functions, records, property and personnel. access to all Telkom TIA is required to provide reasonable assurance and to determineTIA is required to provide reasonable assurance control processes and systems whether or not the organisation’s that ensures: are adequate and functioning in a manner TIA, in line with global best practices, is a value adding, TIA, in line with global consulting function, independent and objective assurance and the organisation’s designed to add value to and improve assessment of operations. Its mandate is to give an independent reliability of financial reporting, validate control systems and business activities, give an oversight of management and overall to the evaluation bringing a systematic, disciplined approach of enterprise risk and improvement of the effectiveness management, internal controls and corporate governance processes. In carrying TIA coordinates with out its mandate, enterprise risk other control and monitoring functions, being legal, ethics, environment management, compliance, security, and external audit. Telkom internal audit Telkom TIA also provides information ARMC and the to management, results of the annual audit plan and the Board on the status and sufficiency of the departmental resources. management and the ARMC. Mechanisms are in place for Mechanisms are in and the ARMC. management reportingcapturing and internal identified control weaknesses, ascertainincluding processes that at which deficiencies the level are reported. material weaknesses Significant deficiencies and in internal controls are reported to top management, the Board externalor the ARMC, and the auditors. Enterprise risk management

Managing risk in an organisation as diverse as Telkom requires Telkom’s enterprise risk a strong enterprise risk management culture. How we respond to our risks has an impact on the organisation’s bottom line, and is management is focused on therefore a key strategic function. Enterprise Risk Management (ERM) ensures a risk-conscious culture within the organisation, proactive management which is critical to achieving our strategic business objectives. of risk throughout the The Telkom Board of Directors is ultimately accountable and Group, taking into account responsible for the performance of the organisation. The Board and senior management demonstrate well-managed, informed the health and safety of our and risk-conscious decision making, aligned with our corporate values and the Telkom Business Code of Ethics. Telkom’s Business people, the environment we Code of Ethics can be accessed on www.telkom.co.za/ir. operate in, our assets, their General risks faced by Telkom and the broader telecommunications earnings capacity and 54 industry include regulatory challenges, increasing competition and a decline in the average revenue per user of fixed and shareholder value. mobile voice services. Risks are an inherent part of doing business, and as such Telkom strives to not only respond to risks as a threat, but as an opportunity for continuous improvement. RISK AND VISION Corporate governance has moved beyond a singular focus on directing an organisation, to encompass a more deliberate and Linking ERM to the strategic objectives and vision of the systematic focus on management’s ability to manage risks within organisation is crucial in ensuring shareholder value. Telkom’s the business. Although the principles of ERM are widely practiced risk philosophy states that the health and safety of our people throughout Telkom, integrating risk consciousness into our and the environment in which we operate, combined with everyday business activities remains a priority. preserving our assets and earnings capacity, are essential to the WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 55 We have a clear organisational structure and human resource have a clear organisational structure We that address policies (such as our Business Code of Ethics) risk mitigation. with the key strategic Align the risk-taking behaviour of Telkom business objectives as defined; SA Limited globally; Protect the reputation and brand of Telkom Promote a risk awareness ethic and improve risk transparency to shareholders; Maximise (create, protect and enhance) shareholder value and net worth by managing risks that may impact defined financial and performance drivers; Identify risk improvement opportunities in areas of operational responsiveness that impact customer satisfaction and efficiency management, in order to deliver an improved operating performance; ERM processes must coordinate with other risk processes to be ERM processes must coordinate with other took the decision to most effective and efficient. The TERMC with the view of review the context within which ERM operates, enterprise risk management this end, increasing its effectiveness. To Asset and Revenue Protection has aligned with Telkom in Telkom as part of a new structure. This realignment Services (TARPS) creates a joint platform towards a common approach in managing risk. objectives in managing risk are to: Telkom’s Our enterprise risk management policy and framework; ERM responsibilities are allocated to authoritative committees; and The following factors contribute to our enabling environment for effective risk management: In the interest of continuous improvement Telkom performed a In the interest of continuous improvement Telkom enterprise risk management maturity assessment to benchmark the effectiveness of its processes. A number of positive findings, as well as areas for improvement, were identified to assist the risk management functions. Telkom has entrenched a risk culture at the strategic level of the has entrenched a risk culture Telkom organisation. The Audit and Risk Management Committee Executive Risk Management Committee (TERMC) (ARMC), Telkom as well as the subcommittee to TERMC vigorously debate ERM issues, ensuring that ERM forms part of all business planning and operations. This further demonstrates senior management’s support for the process and their drive to create an internal environment that is conducive to enterprise risk management. ERM continues to pursue best-practice methodologies, guided by ERM continues to pursue best-practice methodologies, of the Treadway the Committee of Sponsoring Organisations focus on risk Commission (COSO) framework. Our renewed to ensure a systematic communication and awareness is designed ERM. It is beneficial approach that does not neglect any aspect of for divisions within the business to report risks in a forward- capabilities. looking context and strengthen risk disclosure IMPROVEMENTS AND DEVELOPMENTS The scope of ERM encompasses the Telkom Group including all The scope of ERM encompasses the Telkom role in enabling the its subsidiaries. The ERM division plays a key Group. proactive management of risk throughout the Telkom aims to minimise risk wherever possible. The Board has risk wherever possible. The Board aims to minimise Telkom and requires determined the level of acceptable risk to Telkom, management of each division within the that the senior and line Senior organisation manages and reports risks accordingly. to implement management approves procedures and controls and management our risk policy effectively and efficiently, throughout the Group enforces these controls. future of our business and relevant to all our stakeholders. future of our business responsibility of everyManaging risk is the person at Telkom. Enterprise risk management continued

Support the business growth strategy through well-defined companies, and minimise the potential for incurring risk ERM methodologies; through such investments; and

Monitor and ensure that Telkom’s enterprise risk management Assist the business in enhancing and protecting opportunities standards and best practice are subscribed to by subsidiary that represent the greatest earnings potential.

ENTERPRISE RISK MANAGEMENT GOVERNANCE

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

Responsible for: Supportive of: Telkom Responsible to: Supported by: Reviewing and Risk management culture Board of • Regulators • Board committees approving: in Telkom Directors • Risk philosophy • Stakeholders • Risk management Ultimately responsible • Government principles for all risk within • Community • Risk appetite and the Group tolerance

Responsible for: Supportive of: Responsible to: Supported by: Implementing: Reviewing risk strategies Audit and Risk • Board • Risk forums • Approved risk and submitting these to Management • Regulators • Audit and compliance policies the Board for approval Committee • Stakeholders • Executive committee • Risk management principles (ARMC)

Responsible for: Supportive of: Responsible to: Supported by: Coordinating and To give effect to the risk Telkom Executive • ARMC • Risk forums management policies updating the review of: Risk Management • Risk management • Risk philosophy defined by ARMC Committee • BC-DR steering • Strategy • Policies (TERMC) committee • Compliance

Responsible for: Supportive of: Responsible to: Supported by: Reviewing: Prioritising and Telkom Executive • TERMC • TERMC identifying Telkom’s • Risk profiles Risk Management • Service organisations • Management primary risks Sub-Committee • Risk management responses • Key risk indicators (SUB-TERMC)

Responsible for: Supportive of: Responsible to: Supported by: 56 • Risk management • CEO • CFO • Risk management process Enterprise • Board • CEO • Specialist functions • Group risk profile Risk Management • Risk limits Division • TERMC/ARMC • Control and • Board compliance

Responsible for: Supportive of: Reliance on Responsible to: Supported by: Guidance and assistance Compliance and audit specialist functions • Executive committee • Board Assist and focus on • Chief of service • CEO main risk areas organisations • Executive committee Audit TARPS Compliance BC/DR SAOX SHE WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 57 Each service organisation performs a risk exposure analysis in consultation with ERM who then produce a risk profile that demonstrates the management of key risks and opportunities identified; A copy of the risk profile is forwarded to the ERM function TERMC and for consolidation and submission to the Telkom ARMC; and TERMC is responsible for analysing risk exposures, to ensure that risk control and management efforts are not duplicated, gaps in risk identification are avoided, and interdependencies of risk are identified and managed in a timely manner. A variety of sources support the ERM process, including internal legal compliance, BC/DR, SAOX and SHE. audit, TARPS, lies with the Although ultimate responsibility for risk management Board, the responsibility also rests with every individual within adopted by Telkom the organisation. The ERM framework to supportrequires managers within the organisation the Telkom risk manage compliance with the company’s risk philosophy, appetite and manage risks within their service organisations. ENTERPRISE RISK MANAGEMENT FRAMEWORK coordinated plan for The ERM framework represents Telkom’s Group, including subsidiary risk management across the Telkom assumes companies and key investments for which Telkom management responsibility. ERMThe function assists service organisations within the Group During this to produce this risk profile in a consistent manner. process: Telkom Executive Risk Management Committee (TERMC) Committee Risk Management Executive Telkom ARMC to carry is authorised by the The TERMC any activity out within its terms a sub-committee of reference, and has established by the respective chiefs of servicewith representatives nominated The TERMC coordinates the company. organisations within the strategy and policies. the risk philosophy, updating and review of In performing function the TERMC relies on this coordinating information such as risk and input from a variety of sources and the business continuity and disaster forums, compliance, recovery committee. division Enterprise Risk Management and controlling the The ERM division is responsible for monitoring facilitating the ERM ERM process throughout the Group. By to make the Telkom process, the risk management function assists facilitation process most appropriate risk based decisions. This and assessment contributes to providing business risk identification objectives. Telkom’s that considers risk in the context of achieving to the CEO, Acting Enterprise risk management is accountable the Board. CFO, ARMC (through TERMC), and ultimately Reliance on specialist functions - - ponded to Telkom regards risk management as an integral part regards of good Telkom at both a strategic and operational management practice, risk management with the Telkom level. Our goal is to align excellence at all times; corporate values, to encourage on internationalThe ERM policy is based and is best practice stakeholders; for all of Telkom’s aimed at enhancing value of developing and implementing the The underlying principles are: The increase process of risk management within Telkom of quality in risk management sophistication, the availability risk-reward information, and satisfying overall organisational needs through alignment with business objectives; Key performance indicators for the process of risk manage ment must be defined, measured, analysed and res at various intervals throughout the Group, done internally or through independent parties as appropriate, the results of which will be tabled at ARMC meetings; and is provided, in a The ERM approach ensures that the Board with periodic reports on the and updates timely manner, as well as regularly reviewing major risks faced by Telkom, controlling such and approving risk management policies for its duties. risks. This enables the Board to effectively discharge Audit and Risk Management Committee (ARMC) The ARMC is empowered by the Board to conduct or authorise The investigations into any matter within its scope of responsibility. strategy ARMC is responsible for reviewing the risk philosophy, and policies and making recommendations for consideration and approval by the Board. The ARMC monitors the management of risk, to ensure that it is aligned with risk strategies and guidelines. Furthermore, the ARMC monitors external developments that may and that may relate to the practice of corporate affect Telkom accountability and the reporting of specifically associated risk, including emerging and prospective impacts. Telkom Board of Directors Telkom is ultimately responsible for the risk management Board Telkom’s process within the Group. In particular the Board approves risk strategy in liaison with, and through the recom Telkom’s RESPONSIBILITY AND ACCOUNTABILITY mendation of the ARMC. The Board proactively oversees strategy formulation, risk risk methodologies and risk Telkom’s commitment to assessments, as well as reinforces the Group’s sound enterprise risk management. The Board ensures that management has appropriate capabilities in place to implement approved risk responses. Enterprise risk management at Telkom is guided by several is guided Telkom risk management at Enterprise which are as follows: principles, Enterprise risk management continued

Telkom’s methodologies are defined through continued research evidence that meets the agreed standard of proof required for and development, and benchmarked against international best the relevant forum. practice. The methodologies transfer knowledge and risk management techniques to and within the Telkom Group while Fraud prevention activities applying a consistent approach throughout the Group, and The TARPS forensic charter was approved by the ARMC. This encourage interaction between the various Telkom service charter provides independent, fair and objective investigation, organisations, regional offices and owners of key business detection and/or prevention of possible irregularity or possible processes. fraudulent action. In order to prevent any further loss Telkom may take disciplinary action, seek to recover the monies or assets defrauded and/or pursue a criminal prosecution. This charter TELKOM ASSET AND REVENUE PROTECTION illustrates top management’s commitment to eradicating SERVICES (TARPS) misconduct, and also serves as a good corporate governance tool.

TARPS has a specific mandate from the ARMC to provide A fraud committee has been established as an independent body forensic services and protect Telkom’s assets. The scope of TARPS not bound by any prejudicial interest, and its purpose is to ensure includes ensuring that fraud and corruption within Telkom is that all forms of fraud are monitored (including network, financial minimised and prevented wherever possible. or cable fraud) and that proactive measures are proposed and implemented. Forensic services Forensic services conduct fraud risk assessments for the Asset theft remains a growing concern, with the theft of electronic organisation, ensure a culture where fraud is not tolerated, and equipment being a particular problem. Additional security that there is awareness of fraud-related matters throughout the measures are being implemented, and security assessments are organisation. Where, however, fraud and/or corruption does continuously conducted where these losses occur to identify occur, forensic services will mount investigations and gather weaknesses or breaches and prevent reoccurrence.

Achievements Activities Outcome

Promoting staff awareness A fraud awareness week was held during November. After the awareness campaign, employees feel more comfortable in reporting irregularities to the crime centre and show confidence in TARPS to investigate the reported incidents. Employees within TARPS play a major role in ensuring that employees have confidence in the processes of investigating incidents of fraud, and of Telkom’s whistle blowing policy.

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

58 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 59 339 ZAR 2008 2008 626.3 15,496 15,835 Year ended March 31, Year Year ended March 31, Year ZAR ZAR 170 256 61.9 368.1 2006 2007 2006 2007 6,953 16,834 Security cost: R142.1 million; Security cost: R142.1 Cost of alarm systems: R38.6 million; Repair cost of copper: R151.2 million; and Repair cost of fibre: R7.9 million. (in millions) Outbound revenue Cable theft incidents logged: Copper 6,783Fibre 16,578 Total made 1,079 arrests Telkom During the year under review, resulting in 165 successful convictions. There has been a reduction in the number of incidents of cable thefts in certain areas. A reduction of R6 million was shown for losses in cable hope to see theft for April 2008 compared to April 2007. We the benefits of armed response vendors materialise in the 2009 financial year. Cable theft copper and fibre losses due to has experienced financial Telkom syndicates target our main cable cable theft. Highly organised routes, however petty crime is also network and open wire cable routes. increasing on the smaller theft statistics for the year under review: The following are cable based on the: Cable theft losses are theft: Estimated outbound revenue loss due to cable – 16 27 39 469 159 473 141 293 124 716 157 2008 (14.3) (23.9) (11.6) 3,198 2,026 % change 3 57 96 72 111 294 192 786 224 117 2008 2007 7,954 6,427 7,838 1,794 1,124 2007 (1) y No new projects in this reporting period, only individual investigations were registered and conducted. Physical security: The physical security division of TARPS Physical security: The physical security division as well sites nationally, controls physical access to all Telkom as guarding and protecting assets. This includes the managing of security service contracts. security: The technical security division of TARPS Technical provides crucial electronic security solutions to effectively assets. secure the company’s Incidents otal incidents investigated 8,863 Total incidents reportedTotal T 9,279 Reputational risk – Telkom refund scamReputational risk – Telkom Robbery 594 Security breaches Solar panel theft Business Code of Ethics 3,399 Cable Fraud Line management requests Network fraud Payphones Projects (Forensics) Security services security services: utilises both physical and technical Telkom Vehicle (1) Total cases resolvedTotal Incident types investigated 8,443 Statistics for 2008 Statistics for Burglar Asset theft Enterprise risk management continued

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 run theft 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 and meetings with farming communities (Agri SA).

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

RISK FACTORS Risks related to our business Any changes to Telkom’s mobile strategy and its inability to Telkom advises that the risks described below are carefully successfully implement such strategy and organisational considered in conjunction with the other information and the changes thereto, could cause our growth rates, operating consolidated financial statements of the Telkom Group and revenue, net profit and dividends to decline. Vodacom, and the related notes thereto included elsewhere in this annual report, before making an investment decision with Increased competition in the South African telecommunications respect to Telkom’s ordinary shares or the American Depository market may result in a reduction in overall average tariffs and Shares (ADSs). market share and an increase in costs in our fixed-line business, which could cause our growth rates, operating revenue and Detailed information on the risks is available on Telkom’s website net profit to decline and our churn rates to increase. www.telkom.co.za/ir and also published and filed with the 60 Securities and Exchange Commission in Telkom’s annual report Increased competition in the South African data communications on Form 20-F for the year ended March 31, 2008 and its other market may adversely impact our growth rates, operating filings and submissions with the SEC. revenue and net profit. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 61 Telkom’s major shareholders are entitled to appoint the Telkom’s Directors and exercise control over majority of Telkom’s strategic direction and major corporate actions. Telkom’s We do not have the right to appoint the majority of to appoint the majority not have the right do We directing committee or members of its Directors Vodacom’s agreement contains approval joint venture and the Vodacom flexibility and ability to implement our rights that may limit our preferred strategies. pay dividends or make other does not continue to If Vodacom to pay may not be able Telkom distributions to Telkom, dividends and service its debt and could be required to lower dividends and debt reduction, or defer capital expenditures, ordinary trading prices of Telkom’s which could cause the shares and ADSs to decline. which may impair our have negative working capital, We us to defer operating and financial flexibility and require be able to pay capital expenditures, and we may not condition could dividends and our operations and financial be adversely affected. could increase Continuing rapid changes in technologies additional competition or require us to make substantial which could investments in technologies and equipment, reduce our return on investment and net profit. theft, vandalism, If we continue to experience high rates of due to non- network fraud, payphone fraud and lost revenue our fixed-line licenced operators in our fixed-line business, revenue and net fault rates could increase and our operating profit could decline. communications Delays in the development and supply of new technologies equipment may hinder the deployment of and 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 related publicity or litigation could make it difficult to find attractive growth rates, sites for base stations and reduce Vodacom’s customer base, average usage per customer and net profit. Risks related to Telkom’s ownership by the Government Risks related to Telkom’s of South Africa and major shareholders We may not be successful in implementing our strategy of in implementing may not be successful We transforming connectivity to fully basic voice and data from offering integrated voice, data, video converged solutions and Internet servicescosts through our and managing program, which could adversely capability management maintain profitability by growing and impact our ability to managing costs. protecting revenue, while taxation economic, regulatory, There are significant political, and Telkom’s with Vodacom’s and legal risks associated outside of South Africa, which could African investments businesses and cause their financial adversely affect their condition and net income to decline. acquisition and The number of commercially attractive investment opportunities for our fixed-line and mobile the Moreover, businesses on the African continent is limited. may be consummation of acquisitions and investments adverse effect on unsuccessful, which could have a material future growth. and Vodacom’s Telkom’s has resulted The growth in the mobile market in South Africa calls and Telkom in an increase in the number of Vodacom terminating as opposed to our fixed-line on mobile networks margins net interconnect and Telkom’s network. Vodacom’s and net profit could decline if this trend continues. markets Increased competition in the mobile communications may result in a in South Africa and other African countries market average tariffs and Vodacom’s reduction of Vodacom’s retention costs, share and increased customer acquisition and growth rates, revenue and net which could cause Vodacom’s profit to decline and its churn rates to increase. If we are not able to continue to improve and maintain our management information and other systems, we could be subject to losses and inaccuracies in our financial reporting, and our ability to provide accurate and comprehensive operating information and to compete may be harmed and our share price could decline. If we lose key personnel or if we are unable to hire and retain highly qualified employees and partners, our business operations could be disrupted and could impact on our ability to compete successfully. Enterprise risk management continued

The Government of the Republic of South Africa may use its If we are unable to recover the substantial capital and position as shareholder of Telkom and policymaker for, and operational costs associated with the implementation of customer of, the telecommunications industry in a manner that carrier pre-selection and number portability or are unable to may be favourable to our competitors and unfavourable to us. implement these requirements in a timely manner, our business operations could be disrupted and our net profit Risks related to regulatory and legal matters could decline. The implementation of carrier pre-selection and The regulatory environment for the telecommunications number portability will also likely further increase competition industry in South Africa is evolving and regulations and cause our churn rates to increase. addressing a number of significant matters have not yet been The implementation of the Regulation of Interception of made. The interpretation of existing regulations, the adoption Communications and Provisions of Communication-Related of new policies or regulations that are unfavourable to us, or Information Act, or RICA, could be costly and may negatively the imposition of additional licence obligations on us, could impact the ability of Telkom and Vodacom to register disrupt our business operations and could cause our net profit customers and may require them to disconnect existing and the trading prices of Telkom’s ordinary shares and ADSs customers, causing their penetration rates, growth rates, to decline. revenue and net profit to decline.

Our tariffs are subject to approval by the regulatory If Telkom is required to comply with the provisions of the South authorities, which may limit our flexibility in pricing and could African Public Finance Management Act, 1 of 1999, (PFMA), reduce our revenues and net profit. Vodacom’s revenue and and the provisions of the South African Public Audit Act of net profit could also decline if wholesale price controls are 2004, (PAA), Telkom could incur increased expenses and its imposed on it. net profit could decline and compliance with the PFMA and PAA could result in the delisting of Telkom’s ordinary shares Any payments to Telcordia Technologies Incorporated and ADSs from the JSE and New York Stock Exchange. (Telcordia), in the damages phase of its arbitration proceedings against Telkom, will be required to be funded Our total property tax expense could increase significantly by Telkom from cash flows or the incurrence of debt, which and our net profit could decline as a result of the enactment could have a material adverse effect on its financial condition of the South African Local Government: Municipal Property and results of operations. Rates Act, 6 of 2004.

We are parties to a number of legal and arbitration Risks related to the Republic of South Africa proceedings, including complaints before the South African Fluctuations in the value of the Rand and inflation rates in Competition Commission. If we lose these legal and arbitration South Africa could have a significant impact on the amount proceedings, we could be prohibited from engaging in of Telkom’s dividends, the trading prices of Telkom’s ordinary certain business activities and could be required to pay shares and ADSs, our operating revenue, operating substantial penalties and damages, which could cause our expenses, net profit, capital expenditures and on the revenue and net profit to decline and have a material adverse comparability of our results between financial periods. impact on our business and financial condition. The levels of unemployment, poverty and crime in South If we are required to unbundle the local loop, or are unable Africa may cause the size of the South African commu - to negotiate favourable terms and conditions for the provision nications market and our growth rates, operating revenue and of interconnection services and facilities leasing services, or net profit, as well as the trading prices of Telkom’s ordinary ICASA finds that we or Vodacom have significant market shares and ADSs, to decline. 62 power or otherwise imposes unfavourable terms and conditions on us, our business operations could be disrupted Should the country continue to experience high occurrences and our net profit could decline. of power outages Telkom’s operational capacity, expenses WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 63 The future sale of a substantial number of Telkom’s ordinary Telkom’s The future sale of a substantial number of of Telkom’s shares or ADSs could cause the trading prices ordinary shares and ADSs to decline. rights as a shareholder are governed by South African Your which differs in material respects from the rights of law, shareholders under the laws of other jurisdictions. serviceIt may not be possible for you to effect of legal process, enforce judgments of courts outside of South Africa jurisdictions other or bring actions based on securities laws of or against members of than South Africa against Telkom its Board. of ordinary ability to sell a substantial number shares Your and ADSs may be restricted by the limited liquidity of ordinary shares. and revenues will be affected and its operating revenue and its operating revenue will be affected and and revenues decline. net profit could infection in South Africa could cause The high rates of HIV communications market and our the size of the South African revenue and net profit to decline. growth rates, operating work stoppages, increased Significant labour disputes, a result of collective bargaining and employee expenses as with South African labour laws could the cost of compliance flexibility and disrupt our fixed-line limit our operating reduce our net profit. business operations and could hinder our South African exchange control restrictions procure foreign ability to make foreign investments and denominated financing. Risks related to ownership of Telkom’s ordinary shares Risks related to ownership of Telkom’s and ADSs Black economic empowerment

Telkom is committed to the empowerment of previously disadvantaged individuals and communities. INTRODUCTION This ethos runs deeply in the

Telkom is committed to the empowerment of previously veins of the organisation, disadvantaged individuals and communities. This ethos runs deeply in the veins of the organisation and is reflected in the and is reflected in the company’s daily business operations and practices. company’s daily business

EMPLOYMENT EQUITY operations and practices.

Telkom was one of the first companies in South Africa to adopt an employment equity policy in October 1993. This was done before it was legally required to do so, and is an example of PREFERENTIAL PROCUREMENT Telkom’s deep commitment to transformation and diversity. Addressing the persisting economic disparities in South Africa 64 This philosophy permeates throughout Telkom, in our procurement requires a concerted and sustained effort by all stakeholders, practices that ensure small business development, the diversity in particularly the broader business community. Telkom has proven our supplier base as well as the company’s employment policies itself to be a leader in South Africa’s transformation, and a that reflect transformation and employment equity in line with the champion of Broad Based Black Economic Empowerment (BBBEE). Our rigorous and robust preferential procurement policy Employment Equity Act. and our commitment to enterprise development are significant Our employment equity improvements are attributed to contributors to this position. deliberate interventions such as targeted recruitment, talent Telkom’s championship in this sphere is also reflected in a total management, succession planning and special development preferential procurement spend for the year under review of programmes. Further information on our employment equity R9.2 billion (2007: R8.8 billion), which includes suppliers with achievements can be found in the human capital report on significant BEE programmes. Total BEE spend amounted to page 68. 70.6% (2007: 69.6%) of Telkom’s total procurement spend. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 65 Purchasing from Black owned companies (a company with more than 51% Black equity ownership). Purchasing from companies with a turnover of less than million, these are classified as Qualifying Small R35 Enterprises (QSE). Purchasing from Engendered companies (a company with a minimum of 30% Black Female Equity Ownership). both employees and suppliers training for the use and operation both employees and suppliers of DC Power to perform first line tasks on power equipment The main industry. specifically related to the telecommunications skills in this area objective is to contribute to developing the limited of expertise Africa. This training includes field training in South the market. and ensures that more skills are available in These training initiatives support SMEs to grow their businesses they create for their by enabling them to increase the value SMEs have grown their this end, just over 20 customers. To turnover from approximately R25 million per annum to over alone. This Telkom R35 million per annum on business from effective means to proves that enterprise development is an are able to grow into create a sustainable base of suppliers that offering more and/or alternative services to Telkom. Achievements was again honoured for its Telkom During the year under review, event, achievements in BEE. At the Financial Mail/Empowerdex EmpowermentSurvey Companies received the Top Telkom a total produced in Preferential Procurement. We Award represents a 100% preferential procurement score of 20, which The Financial Mail on score in this factor of the BBBEE scorecard. is affirmative procurement April 4, 2008 stated that “Telkom record is extraordinary.” The elements that are measured in the Preferential Procurement scorecard are the following: BBBEE measures seven elements which are Ownership, Skills Development, Management and Control, Employment Equity, Preferential Procurement, Enterprise Development and Socio Economic Development. Amongst these seven elements Telkom demonstrated its commitment towards transformation by receiving full score on both the Preferential Procurement and the Management and Control elements. 2008 2008 ectrical engineering related fields. This is to afford Category Target Actual Total BEE spendTotal Engendered (30% black female)Qualifying small enterprises spend (black and empowered) 10% 15% 13.4% 6.7% 70% 70.6% development Small and medium-sized enterprises (SMEs) constitute 64% of that assisting these recognise supplier base. We total Telkom’s businesses to improve their service delivery to their customers holds great benefits to all parties concerned. Through our enterprise development programme, run in part by the Telkom Centre for Learning facility in Midrand, Johannesburg, we have trained 947 candidates from SMEs during the year under review. This training includes focus areas such as building entrepreneurial business process management, and our flagship training capacity, Direct Current Power (DC programme, Direct Current Power. Power) provides technical training to selected suppliers, particularly in el Broad based empowerment through enterprise However, we acknowledge that there are still areas for we acknowledge that However, improvement, and we are committed to working towards addressing these areas going forward. The areas of improvement include our engendered spend as well as qualifying SMEs spend. In future, we will continue to focus on will tender set asides with specific requirements for women. We also include more female particiption in the commitment plans signed with our suppliers. The efforts to formulate of our people that address the strategies empowermentvarious remaining challenges to our and transformation beginning to bear fruit. Previously, objectives are not to pursue BEE we have seen multi-nationals that have elected Equity deals that now have formidable Black equity partners in on our overall their structures. This has seen a 3% improvement recognised as spend as a result of multi-nationals being BEE spend. Telkom has grown together with our suppliers in our mutual has grown together with our Telkom our organisation’s understanding and application of both of Good Practice preferential procurement policy and the Codes we are increasingly for BBBEE. Through this process of growth, and our suppliers’ finding synergies between our own transformation objectives. Black spend (50.1% black ownership)Growing with our suppliers 25% 39.1% Telkom’s BEE procurement progress BEE procurement Telkom’s The following table outlines this spend, and specifically our The following table achievements in certain procurement. subcategories of 66 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Technology lives through people Telkom Annual Report 2008 Annual Report

67 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Human capital management

We believe that the talents, experiences and diversity

Telkom employs people throughout South Africa and in several of our employees, African countries where we maintain a presence. It is in these communities where our employees live and work that Telkom’s together with our innovative contribution to society is most visible, through our employees’ technology, are what define direct contribution to the local economy within their communities, and to a communications network that connects community our value. members to each other and the world.

We believe that the talents, experiences and diversity of our employees, together with our innovative technology, are what define our value. Telkom aims to empower all employees through 68 various solutions focused on developing our human capital. Our employees are widely distributed throughout South Africa, with some representation in other African countries. The distribution OUR DIVERSE WORKFORCE of our employees in South Africa, largely corresponds with that of our customer base. As at March 31, 2008 Telkom employed 24,879 (2007: 25,864) fulltime employees. The majority of our employees Employment equity achievements (69%) are deployed in operational and support roles (2007: In line with our commitment to transformation and diversity, 69.3%), with 20.7% (2007: 20.5%) in supervisory roles, and Telkom proactively adopted an employment equity policy in 10.3% (2007: 10.2%) in management positions. A further October 1993, which formed the basis of the process designed 3,801 (2007: 5,807) temporary and contract workers to change the demographics of the workforce within the supported us in achieving our business goals. organisation. The workforce profile at the time was 46% black WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 69 0 (4) (2) (2) 27 918 891 2008 3,801 (1,903) (1,899) 24,879 25,864 20 26 (21) 0 706 1,512 686 1,486 2006 2007 4,227 5,807 (4,103) (1,223) (1,113) (1,203) 25,575 25,864 28,972 25,575 (1) Other employees refers to contract and temporary employees but excludes Board members, learnerships and bursary students. Voluntary early retirementVoluntary severanceVoluntary (674) (2,295) (7) (13) Involuntary reductions Employee retrenchments (2,990)Natural Attrition (20) Closing balance Opening Balance Employee Gains Appointments Re-instatement Employee Losses Non-executive Directors The remuneration of Non-executive Directors of the Board is decided at the annual general meeting. Non-executive Directors do not participate in the incentive scheme for top managers. and fees paid to Non- A summary of compensation received by, executive Directors can be found on page 270 and in note 39 in the consolidated annual financial statements. Other employees (1) AND BENEFITS COMPENSATION employees Our remuneration strategy is aimed at remunerating also aim to We for their value contribution to the organisation. create an active awareness of company performance among our employees through short-termvariable and longer-term compensation, with the variable portion of remuneration being significantly motivating and linked to the financial performance of the company. Remuneration The fixed (or guaranteed) portion of remuneration is reviewed in circumstances where critical skills are However, annually. needed, and depending on supply and demand constraints for skills in the market, the portion of fixed remuneration is reviewed ad hoc to ensure it remains competitive. This is necessary to success. retain key individuals who contribute to Telkom’s These challenges are as a result of increased competition in the These challenges are industrytelecommunications with the consequent increased employees. Telkom’s desire for the skills of Headcount movement (%) 29 47 24 41 22 67 1.2 2008 (%) (%) (%) 2005 2006 2007 The increase in the natural attrition rate, which for the year ended March 31, 2008 was at 7.5% (2007: 4.7%); and The resignation rate for the year ended March 31, 2008 of 6.2% (2007: 3.7%). This rate is still below the industry norm of 11.4%. In our aim to retain critical skills we are faced with the following challenges: During the year under review 87% of all external recruits were 78% of all black, of which 46% were women. Internally, promotions were black of which 46% were women. Telkom aims to continuously ensure that we acquire the right Telkom human capital to meet current and future business objectives. STAFFING AND STAFF EXITS AND STAFF STAFFING Disabled 1 1 1 Female 23 22 22 Female 29 27 28 Supervisory Black 42 44 46 Management Black Female 36 38 40 20 21 22 The table below depicts our progress in employment equity: The table below depicts our progress in employment In compliance with the Employment Equity (EE) Act and Skills In compliance with the Employment Equity annually submits EE progress reports Development Act, Telkom to the Departmentand plans, as well as a workplace skills plan, has established a national Furthermore, Telkom of Labour. employment equity forum (NEEF), which serves as a consultation equity and skills forum with organised labour on employment development matters. and 19% women. Since then material changes have occurred and 19% women. Since workforce profile which, at the end as evidenced by the current at 60% black and 27% women. These of March 2008, stands to deliberate interventionsimprovements are attributed as such talent management and succession targeted recruitment, development programmes. planning as well as special Operational Black 63 65 66 Human capital management continued

Executive remuneration of employees’ total remuneration package. Employees have no Independent remuneration consultants advise the remuneration rights or title to the shares and cannot receive dividends until the committee of the Board on executive management remuneration. shares have vested. Shares will only vest if Telkom meets its Fixed remuneration is positioned according to the market financial targets in each financial year as set out in the relevant median. Telkom uses a band ranging from 90% to 110% of team award/gain-sharing plan, and the employee remains in the market median when appointing employees, and when continuous employment with Telkom. If Telkom fails to meet its recognising consistent, outstanding individual contribution. The financial targets for the year in which the shares vest, the shares difference between the upper quartile and the market median are forfeited. for fixed remuneration is used when calculating incentives for top management. PERFORMANCE MANAGEMENT

Other employees An electronic performance management system that includes The Board approves the overall salary increase for all employees development plans for each employee is in place and applies to (management and bargaining unit employees). Remuneration all employees. This system will be enhanced to ensure that for non-management employees is paid in accordance with leadership is measured on behaviours that support the negotiated agreements between Telkom and organised labour. organisational renewal strategy. We also reward management All employees are remunerated on a total package; the benefits for acting in accordance with our values. are 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. REWARD AND RECOGNITION

Short-term incentive plan The Name in Lights programme recognises employees for outstanding achievement, as well as employees and/or teams Telkom management participates in an incentive scheme based that show exceptional performance and a willingness to go on a balanced set of measures as determined by the Board, beyond the call of duty, or for introducing innovations that add which consist of financial and key operational and customer service performance targets based on the approved business value to the organisation. We take pride in presenting the plan. All non-management employees also participate in a gain- following awards: sharing scheme which uses the same principles and most of the Individual award – Silver to Jean van Heerden. measures of the management incentive scheme.

Group award – Silver to the Network Fault Management In the top management scheme the financial target accounts for 70% of the total award, and is based on the basic earnings per Phase 2 team. share and return on assets contributions, with performance Group award – Bronze to the regulatory costing team. drivers accounting for the remaining 30%. The performance drivers consist of customer centricity and human resources Jean van Heerden components. Customer satisfaction and service delivery targets are embedded in the customer centricity measure while the Jean positively impacted shareholder value by designing and human resources component considers employee engagement implementing the NER battery rotation system, which significantly and employment equity. reduced incidents of theft of solar equipment at remote sites. Instead of replacing stolen solar panels, which are often stolen The on-target bonus for each member of top management is again, batteries at the sites are rotated at regular intervals to 70 determined by the remuneration committee. A bonus pool for the ensure that battery power is maintained. top management team is created comprising all the individual on-target bonus amounts. This pool is divided between The mathematical model Jean developed proved that this plan participants based on individual performance. The remuneration would cost a fraction of the cost of replacing the solar panels. committee determines a gearing and/or cap for the bonus pool. The program has been operational for four years and has resulted in a cost saving of over R220 million and ensured that Medium-term incentive plan disruptions to Telkom’s services became the exception and not All employees receive conditional shares, subject to their the rule. individual performance for each year preceding the allocation. The allocation is based on the average share price ten days The system improved the quality of service for over 100,000 preceding the award date, (June 1, annually,) using a percentage customers. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 71 The NFMS Phase 2 team comprises Chris Vermeulen, Denise Cordier, TRAINING AND DEVELOPMENT invests over 3.8% of its total labour costs in training and Telkom development which equates to 0.9% of its total revenue. This amongst the top investors in training and places Telkom development, as benchmarked against companies in South Africa and globally (ASTD Benchmark study). The Centre for Learning (CFL) provides training to employees at all levels of the organisation. Our training expenditure contributes approximately 2.7% to annual payroll. During the year under review 17,702 candidates were trained through various internal and external training programmes offered by CFL. overall human capital management Forming part of Telkom’s plan, our training and development strategy is aligned to Group realises the maximum benefit from strategy to ensure that Telkom this investment, that our employees are prepared for future demands in their roles and to enable employees to deliver superior customer service each day. Network fault management system team – Silver Group Award Dirk Niebuhr, Ezekiël Mpufane, Farouk Murchie, Frik Coetzee, Gerhard Olivier, Gerhard Steyn, Gontse Raseroka, Henko Gouws, Herman Hordijk, Jaco Lubbe, Jaco van der Merwe, Jason Pos, Mornè de The members of the Regulatory costing team, in alphabetical order Regulatory costing team – Bronze Group Award Bruine, Peet Badenhorst, Peter Tolsma and Rye Smith. are: Adriaan Steenberg, Caroline Mans, Corlia van Aardt, Deon Ferreira, Frans Steenkamp, Jan Myburgh, Janet van der Berg, JC Brand, Jester Smith, Johan Pienaar, Kamie Govender, Mark Singery, Peter Namathe, Pieter Voges, Sajied Sayed, Taazmin Tar-Mahomed and Theloshni Govender. Jean van Heerden – Silver Individual Award The fast-tracked implementation of this system provided Telkom with the profit margins of the 27 products listed in the COA/CAM regulation, enabling strategic decisions based on actual margins for future negotiations with ICASA. The team ensured that the conditions set by ICASA for the regulatory financial statements, were met within timelines that are significantly shorter than elsewhere in the world. Other operators, who already had existing information available, took five to seven years to implement the same costing systems. Regulatory costing team This team has empowered Telkom to generate more revenue due This team has empowered Telkom to less downtime, and thus better assurance to its customers. Global recognition for network fault management system team (NFMS) The implementation of the Network Fault Management System to manage its entire network end-to-end in a empowers Telkom truly world class fashion. It streamlines opeprations and enhances customer service not attainable. It to a level previously is in line with the International best practices. Human capital management continued

The role of training and development at Telkom is to build Accelerated development of women, blacks and competencies and enhance leadership capabilities required to young talent achieve business results and ensure corporate success, while During the year under review 257 candidates were trained in building a skills pipeline to meet future skills requirements. value chain management and technology management. A total of 50% of these participants were women, and 78% were black ASTD award with 56% being African. Out of the 40 internal full-time female Telkom is a leader in training and development in the ICT sector employees targeted, 15 (38%) achieved the internationally locally, and our CFL has been recognised globally by the recognised Cisco Certified Network Associate (CCNA) American Society for Training and Development (ASTD) for Best certification. This pool was reinforced by the permanent Practice in Training and Development. employment of 22 Internet Protocol (IP) female interns who have achieved the much sought-after professional certifications in Building on our achievement as a BEST award winner during various IP-related specialisations. 2006, Telkom’s CFL has once again been identified as a BEST award winner during the 2007 ASTD BEST awards. To date 18 graduates from the ICT General Manager Programme have successfully obtained their MSc degrees in management of What contributes to the prestige of this award is the fact that, for technology and innovation. This programme produces versatile 2007, Telkom was the only African company recognised for its efforts and achievements in enterprise-wide learning. A total of general management skills and the participants are skilled to 103 international companies participated in this competition and provide leadership across the ICT value chain. The race and Telkom, through the CFL, was recognised as one of the top 42 gender profile of graduates is 7 (39%) women, 11 (61%) black companies to excel in enterprise-wide learning. with 5 (28%) African.

Training and development distribution (EE/AA) ICT JIPSA A total of 10,935 black candidates and 4,194 women received Telkom participates in the Jobs Initiative on Priority Skills training during the year under review. This is depicted in the Acquisition (JIPSA), a Government initiative aimed at addressing following graph, reflecting Telkom’s commitment to developing a the skills shortage that exists in certain sectors in South Africa. diverse workforce: The goal of this initiative is to find ways to develop priority skills where a shortage exists.

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

72 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 73 shops. In addition, Direct ICT JIPSA is a long-termICT JIPSA is Telkom is being co-funded by project that which started The project, 2006 and in August and ISETT SETA. 1,000 is already benefiting approximately now in its second year, with engineering, science and technical unemployed graduates who has appointed 266 of these graduates qualifications. Telkom 12 month internshipssuccessfully completed March 2008. by their ICT graduates have completed date 310 unemployed To (NGN) internshipNext Generation Network 184 (59%) of and been offered permanentthese graduates have employment at of 430 students requiring mandatory A total industry Telkom. with internshipexposure were provided to qualify in the positions cable maintenance, faults and fitting, as following skills areas: well as data and advanced services. the pool that qualified, From with Telkom. 72 (17%) were offered fulltime employment Telkom Touch Telkom programme provides employees and their Touch The Telkom direct families with personal assistance to address personal needs, for example telephonic trauma counselling and assistance with school homework. Since its inception in August 2003, this Thuso wellness programmes at supportingThuso wellness programmes are aimed our programmes in their employees by providing focused wellness has invested Telkom date specific work environments. To R8.8 million in these programmes. including call Several environments have been covered directly centres, network centres and Telkom HIV/AIDS programme Since the inception of the Thuso programme, 19,896 employees from a target population of 31,720 have undergone voluntary counselling and testing (VCT). A total of 568 employees have tested positive for HIV through on-site VCT or self-identification, of which 396 are registered on the Thuso programme. This reflects a conversion rate of 69.7%. A total of 242 employees The Thuso HIV/AIDS workplace are on anti-retroviral therapy. programme is also available to all employees’ immediate families. Since January has been extended 2007 the programme to contract and temporary benefits are at no cost to workers. All employees or their family members. EMPLOYEE WELLNESS AND WORKPLACE The wellness of our employees is an important indicator of our and efficiently perform ability to effectively their roles. people’s which based on Our average absenteeism rate is 4.05%, African (1.3%) and benchmarks, is higher than both the South industry (2.8%) norms. employees’ wellness: The following initiatives aim to improve our specific interventions are aimed at supporting employees who are suffering trauma as a result of crime, including victims of hijackings and robberies. Leadership and management development; Customer service training; and training. Technical Supporting women in ICT a nation,” said “When you educate a woman, you educate operations, Peter Sekgololo, Senior Manager of network event. “Through one of many speakers at recent ICT JIPSA your conduct, you have changed the hearts and minds of make it woman can’t who still think that a those in Telkom have things: You have demonstrated three in this field. You myths and you shown it can be done, you have dispelled indeed being have ensured that gender equality is will not Telkom practised.” He concluded by saying that survive if it is dominated by men. performing the best student in her Keitumetse Tshabalala, and praised class, thanked her mentors for their hard work for training female students as technicians. “I’m Telkom of the best in proud to stand here today and say I’m one she said. Telkom,” engaged in a During the year under review we successfully by focusing on strategy to leverage our human capital by building required current and future competencies providing training programmes in the following areas: Telkom, through the CFL, has engaged in a collaborative long- the CFL, has engaged in a collaborative through Telkom, term partnership Department with the and of Communications the Information Systems, Electronics and Telecommunication Authority (ISETT Education and Training Sector Technologies and at the same time help to assist unemployed graduates SETA) initiative This for the broader ICT sector. build high-level skills under the ambit of the JIPSA. has been implemented priority ICT skills in fields such as networking, IP networking, skills in fields such priority ICT and service network operations broadband, management. Human capital management continued

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

EMPLOYEE ENGAGEMENT

It is important for us to remain aware of the state of mind and levels of engagement of our employees, as this will eventually impact service delivery to our customers.

The results of our annual employee engagement survey Heartbeat, conducted during February 2008 by research firm Synovate, indicate that 51.8% of our employees are fully engaged in their roles. This represents a slight increase from the previous year’s 50.3%. Although this increase is not a statistically significant improvement, it was attained with a new leadership team in place for less than six months.

One of the most successful interventions launched to positively impact employee engagement was the Green Shoe project, the Rebuilding relationships name of which refers to walking in someone else’s shoes. As part Productive relationships with organisations that represent of this project, top management was required to spend a day in employees are crucial to avoid disturbances in the workplace the life of an operational employee, observing and physically and general negativity among employees. A paradigm shift was performing tasks at hand. This created greater awareness required by both Telkom and organised labour in terms of how among management of work at all levels within the organisation. the two parties relate to each other. The mutual distrust that existed had to be addressed, and both parties had to accept UNION RELATIONS that, through representing different constituencies, their interests are inextricably intertwined. As at the end of the year under review, major progress had been made in developing a sense of As at March 31, 2008, 74.8% (73.7% in 2007) of employees partnership and shared vision. within the bargaining unit belonged to the three recognised trade unions. The breakdown of membership of trade unions is as follows: Simplifying employee relations processes and procedures CWU: 37.6% The existence of multiple collective agreements on similar issues SACU: 23.8% served to make our employee relations environment more complex, which often contributed to unnecessary tension between Solidarity: 13.2% both parties. It also made enforcing such agreements difficult as different interpretations of agreements would arise each time Non-affiliation: 0.2% they had to be implemented. The process of reviewing and simplifying our processes has begun and some of the Non-union membership: 25.2% arrangements and agreements are currently being renegotiated. It is envisaged that further progress will be made in this regard. The year under review was characterised by a steady 74 improvement in the relationship between Telkom and the three Labour action recognised trade unions. Although there are still points of During April and May 2007 about 35 members of Solidarity disagreement, the manner in which these disagreements are embarked on an industrial action due to their dissatisfaction with being processed is constructive. the implementation of a new shift roster, which lasted around five days. The implementation of a substantive agreement led to Considering the fragile nature of the relationship between Telkom a declaration of dispute by the trade unions and the matter was and the unions after the 2006 industrial action by the dealt with through private arbitration. Communication Workers Union (CWU), it is understandable that the employee relations climate was tense at the beginning of Achievements the year under review. In light of this, a number of priorities As mentioned above, the main objective we had set ourselves for were identified as crucial to rebuilding our relationships with the 2008 financial year related to rebuilding relationships with organised labour in general, which are discussed below. organised labour. With the establishment of the Organised WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 75 Global talent pool to ensure a sustainable has established a global talent Telkom Of the initial source of talent to staff global business operations. have already been 72 employees available for acquisitions, 19 seconded on long-term international assignments to Multi-Links and three to Africa Online, our African subsidiaries. indicate their interest In line with best practice, employees who on their role and the in possible expatriate positions are assessed expatriates. suitability of themselves and their family as Managed career development for high potential employees employees continues its focus on developing high-potential Telkom has to ensure business sustainability over the long term. Telkom both local and international programmes to facilitate the development of identified talent pools. Succession planning Succession process, clear succession planning has implemented a Telkom from our talent management Pool 1 illustrated by promotions as CEO and Motlatsi Nzeku, including Reuben September Ouma Rasethaba as Chief Officers. This Charlotte Mokoena and top management promotions of which constitutes 100% black four promotions to Group executive 50% are women. In addition career development one was black. Two level were made of which opportunities now acting as the were afforded to black women and corporate communication Group executives for procurement respectively. positions from Five candidates were also promoted to executive women and 40% talent management Pool 2, of which 25% are are black. high-potential will continue its focus on developing Telkom over the long term.employees to ensure business sustainability in the talent pool for At this time we have at least one candidate who can replace each Group executive and executive position, the current incumbent. expatriate Potential 429 321 1,241 replacement pool placements) potential development for Talent Pool Talent Pool 4: Specialised skills/managerial Pool 4: Pool 5: Young talent Pool 5: Young Pool 6: Potential hires (bursary students) 306 Total Pool 1: Top leadership successors Pool 1: Top Pool 2: Potential executive leadership 26 (Executives) Global talent/business Pool 3: 109 available 50 (Total The talent management programme consists of the following The talent management programme consists talent pools as at March 31, 2008: The aim of our talent management programme is to ensure a The aim of our talent management programme positions, especially continuous supply of talented individuals in key in order to build in categories of critical, core and scarce skills of the programme strong leadership capabilities. The objectives include creating development opportunities and accelerating skills acquisition for critical roles and succession planning. In an increasingly competitive industryIn an increasingly competitive the the organisation with talent in successful. Managing Telkom’s best talent will be most succession, retains scarce skills and is a manner that ensures is therefore a able to expand and grow the business globally critical business imperative. TALENT MANAGEMENT TALENT Labour Business InterfaceLabour Business for strategic as a forum Summit we have of organised labour, with the leadership engagement of developing a partnership,commenced the process and it is evolve into a shared vision between both envisaged that this will parties. there has been a Compared to the beginning of 2007, in relationships between both parties.marked improvement Human capital management continued

The following are the programs that were introduced: According to the Magnet Graduate Survey for 2007, which ascertains the top 30 technology employers, Telkom’s ranking Cornell University (New York): Six employees are studying improved from 19th position in 2006 to 5th in 2007, depicting towards their Masters degree in engineering and/or Telkom as one of the best employers in science, technology and computer science. These employees are on retention, and will engineering. be redeployed in growth areas within Telkom, in product/ solution development as well as research and development. Telkom continues to ensure that the depth of experience and They have specific executive mentors to ensure alignment of diversity of our workforce are aligned to current and future their Masters projects with critical business issues in the business needs. Specific interventions are put in place and organisation. resources allocated to ensure adequate capacity and capability Building on Talent (BOT): Four employees successfully in areas including network and systems, customer services and completed the BOT programme at IMD (Lausanne, marketing, management and leadership. The company’s Switzerland). The development programme is aimed at strategic focus informs talent requirements both locally and in preparing high-potential employees for more complex roles our operations in the rest of Africa. in the organisation.

Graduate and skills pipelines THE TELKOM CENTRES OF EXCELLENCE PROGRAMME Key players in the fast-growing ICT industry are responsible for ensuring a sustainable source of new talent to drive future Telkom’s Centres of Excellence (CoE) is a collaboration growth. Telkom, as one of the major industry players, has therefore developed the following initiatives to support itself, the programme between Telkom, the telecommunications industry industry and South Africa in building skills: and Government to:

Learnerships: A total of 22 unemployed learners graduated Promote research in communication technology; from Telkom’s wholesale and retail learnership, of which 68% were permanently employed by Telkom. Allied social sciences; and

Graduate internship programme: A total of 350 unemployed Provide facilities to encourage young scientists and engineers graduates participated in this programme, which aims to to pursue their interests in South Africa. accelerate ICT skills development. Of these candidates, 52% were permanently employed by Telkom. The CoEs are jointly funded through a partnership between Telkom, telecommunications players in the private sector and the Graduate development schemes (bursaries): A total of 1,070 Department of Trade and Industry (DTI) – through its Technology students benefited from various tertiary study opportunities, and Human Resource for Industry Programme (THRIP). There are of which 109 full-time students graduated and 101 were currently 16 CoEs, located at tertiary institutions around the permanently employed by Telkom. country with a total of 42 students (including 3 foreigners, Candidates who were not employed permanently by Telkom are 8 women and 22 EE candidates) for the current year. The available to the broader ICT industry, ensuring a sustainable programme provides partner institutions with additional funding supply of skills and reducing Telkom’s vulnerability to losing for facilities that they would not otherwise have been able to skilled staff to competitors. afford. Through the programme they are able to offer consultancy services. Telkom uses CoE lecturers to train employees on the latest technologies emerging from the CoE.

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

The programme’s showcase conference, SATNAC (Southern African Telecommunication Networks and Applications Conference) has become South Africa’s leading telecommuni - cation conference receiving widespread international recognition. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 77 Multi-Links, Nigeria’s first private telephone operator, has its first private telephone operator, Multi-Links, Nigeria’s headquarters heart in the financial centre on of the country’s Island, which is located offshore from Lagos. The Victoria of which 19 are company has approximately 770 employees, expatriates and one is South Africa, 52 are Indian from Telkom and by Telkom, from China. All expatriate costs are paid management and recovered from the subsidiaries via a expatriate fee. Africa Online is an Internet service in Nairobi, provider based in eight other countries throughout sub- Kenya and operates approximately 300 Saharan Africa. The organisation’s but also operate employees are predominantly based in Nairobi, Tanzania, in Cote d’Ivoire, Ghana, Namibia, Swaziland, expatriate employees Uganda, Zambia and Zimbabwe. Telkom and have been in Kenya have adapted to their new environment, unrest in some partsable to maintain operations despite recent of a high Facilities in Kenya are generally of the country. Africa, aiding the standard and similar to those in South their families. The adaptation of expatriate employees and to their lifestyle teams have embraced the changes Telkom positively and enthusiastically. Telkom has been deploying employees in its two newly acquired has been Telkom and Nigeria since April 2007. As at subsidiaries in Kenya top management employees are on long- March 31, 2008, three term and year) assignments at Africa Online (Nairobi), (three employees at Multi-Links (Lagos). Local 19 top management from long-termvacancies resulting have been assignments the impact on our minimising advertised and filled at Telkom, skills levels. AFRICA ONLINE AND MULTI-LINKS AFRICA ONLINE Safety, health and environment

Telkom’s safety, health and Telkom’s safety, health and environment (SHE) governance portfolio environment (SHE) is responsible for ensuring compliance with relevant legislation and establishing world-class best practices in employee safety governance portfolio is and wellbeing, and Telkom’s impact on the environment. We have made significant progress during the year under review in responsible for ensuring managing and mitigating various occupational health, safety compliance with relevant and employee wellness risk factors, as well as in improving and extending our SHE reporting structures. legislation and establishing world-class best OCCUPATIONAL INCIDENTS practices in employee The following table reflects occupational incidents for the year under review: safety and wellbeing,

2006 2007 2008 and Telkom’s impact on 78 the environment. Number of employees reporting incidents 1,163 1,125 1,043 Total number of days lost due to incidents 12,822 11 ,684 10,219 due to injuries for the year under review decreased by 12.5% Disabling incident (1,465 days) compared to the previous year. Telkom will continue frequency rate 2.0 1.8 1.7 its efforts to reduce the number of days lost due to injury by a further 8% over the next year. Injury on duty Days lost due to incidents have a significant impact on The four occupational fatalities that occurred during the year productivity and operational costs. The total number of days lost under review resulted mainly from motor vehicle accidents. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 During the year ended March 31, 2007, trip, slip and fall injuries were the highest cause of safety-related incidents at Telkom. We implemented an intensive awareness campaign to address such incidents, which resulted in a 10% reduction during the year under review. We hope that further initiatives will help reduce related incidents by a further 5% over the next year.

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

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

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

Vehicle accidents Welfare SETA, and are in the process of registering facilitators Of the 10,219 incident days lost during the year under review, and curriculum offerings. Four new courses have been made 140 days were lost as a result of motor vehicle accidents, available, and a new Occupational Health and Safety Act representing an increase of 7.9% compared to the previous year. course is being developed to form part of the new Certificate in In total, 3,177 vehicle accidents, including damage to the body of Telecommunication Technology (CiTT) qualification. To promote the vehicle, were reported. This indicates that, out of our total fleet SHE compliance by Telkom contractors, SHE training has been of 9,285 vehicles, 34% were involved in minor incidents (such as extended to all our BEE-compliant contractors. scratches to the body of the vehicle) to more serious accidents. Telkom extended its HIV/AIDS peer education programme, training

The National Road Safety Act de-merit system will be implemented 85 additional peer educators who educated 652 employees. Telkom over the next number of months. Telkom will embark on various initiatives to reduce vehicle accidents within the organisation by at

OCCUPATIONAL HEALTH AND EMPLOYEE 2008 Annual Report least 10%, as these have become the number one cause of WELLNESS occupational injury during the year under review. The occupational health and employee wellness team is SHE LEARNING AND DEVELOPMENT increasing its focus on prevention, moving from being remedial and therapy orientated towards a proactive preventative approach to managing health and employee wellness risks in To sustain our health profile and manage incidents and the organisation. This is in line with our commitment to being absenteeism holistically, a further 3,748 employees were compliant with occupational health and safety legislation, as well trained, spending a total of 6,599 training days. as social responsibility requirements for employee wellness. 79 Telkom deployed an intense awareness drive to support SHE We will continue to focus on increasing the impact of performance targets. Our strategy focused on awareness topics interventions in high-risk areas to ensure that business aligned to risks affecting absenteeism, as well as incident performance is improved, while remaining employee-centric and cause/effect trends. The virtual campus facility, which enables self- pursuing our employee engagement objectives. Telkom has paced SHE knowledge reviews, was further expanded to include invested R11.6 million in the wellbeing of our employees during 42 topics. Employees completed a total of 28,431 SHE the year under review. knowledge reviews online, a 43% increase over the previous year. Highlights and achievements for the 2008 A project was implemented to update our existing SHE financial year curriculum, to align it with existing unit standards of the Health The highlights and key achievements in our drive to maintain and Welfare Sector Education and Training Authority (SETA). We and improve occupational health and employee wellness are have established a close partnership with the Health and outlined below: WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Safety, health and environment continued

The annual Telkom employer of choice survey, conducted Areas of concern independently by an external research firm among a sample The following areas of concern were identified for the year of Telkom employees, indicated that the Thuso employee under review: wellness and HIV/AIDS workplace programme is regarded as the single largest contributor to employee engagement and Trauma and crises counselling, necessitated by hijackings and our employer of choice status. robberies aimed at Telkom employees while on duty, increased by more than 50%. These incidents are often violent, causing The results of our human resources and Centre for Learning severe trauma and high stress levels among employees. (CFL) customer satisfaction and effectiveness survey indicated that the Thuso employee wellness and HIV/AIDS workplace Increased stress levels were found at TelkomDirect shops, as programme achieved an 80% rating for relevance and a result of an increased number of enquiries due to customer applicability, and 70% for customer satisfaction and queries and complaints not being addressed via customer effectiveness. This is the second highest rating for all human contact centres. This risk is evidenced by, among others, an resources services and products (including Telkom Touch, the increased number of psychological referrals, increases in sick HR web services, performance management, remuneration leave indices and a growing number of incapacity hearings and benefits, etc). in this environment.

Telkom’s Thuso HIV/AIDS workplace programme was one of five South African company programmes invited to participate in the 2008 Global Business Coalition’s Awards for Business Excellence on HIV/AIDS in the workplace. More than 80 countries participated and Telkom received the award for Best HIV/AIDS Workplace Testing and Counselling programme.

In our drive to optimise psychological wellness, Telkom adopted a more preventative focus on stress and resilience interventions in various workplace environments including call centres, TelkomDirect shops, commercial and credit management, information technology services (ITS), the national business service centre (NBSC) and integrated system development (ISD). Workshops were conducted to provide participants with the necessary tools to deal with job pressures, customer expectations and business demands. These workshops, facilitated by Telkom’s in-house clinical psychologist, were attended by 520 employees. Additionally, an online electronic stress tool has been developed which employees can use to determine their stress profile and major contributing and causal factors. Over 3,000 employees have completed an electronic stress survey, which provides an immediate printed profile and interpretation sheet. This electronic tool was also supplemented by an educational theatre show on stress management, which was attended by 80 4,471 employees during the year under review.

Telkom has embarked on a focused occupational hygiene management programme. Over 205 surveys on indoor air quality, water quality and illumination were conducted at 154 sites and buildings, with the aim of improving the quality of physical environments for its employees. A variety of measurements were established to monitor compliance and corrective actions were formulated to address non-compliance. Currently 58% of all corrective actions have been completed through facility maintenance programmes and projects linked to specific business cases and/or capital projects. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 81 performing are and cable jointing faults checking fitting, interventiontargeted. This adapting include aligning and will policies to support employees Telkom human resources and security incidents such as hijacking, exposed to safety and robberies and assault. total employee wellness interventionImplementing the Thuso environments. and customer-facing in all technical operations integrated health profile report,Establishing the third which to track progress of the impact of, and will enable Telkom wellness interventions the Thuso employee value added by, to establish new implemented since September 2005, and key wellness baselines and prevalence figures for Telkom’s and health risk areas and indicators. concept, an initiative green building Developing the Telkom benign aimed at making our buildings more environmentally Telkom and not detrimental to the health of our employees. to comply buildings and facilities are classified and managed These areas of with world-class standards and practices. criteria include compliance against set occupational hygiene illumination, temperature and water quality, indoor air quality, high occupancy among others. Our initial focus will be on tracked monthly buildings and sites. Corrective actions will be gaps narrow. to establish to what extent the non-compliance and clinical The standardisation of health-risk assessments a pre-assessment protocols for the expatriate programme from perspective. health sustainment, evacuation and post-assessment for programme Optimising the peer education process as well as effectiveness indices and visibility in the workplace, evolving our focus on HIV/AIDS into a total wellness focus. Launching an aggressive lifestyle modification programme to focus on smoking, substance consumption and obesity. Managing absenteeism Measuring illness related absenteeism is a key indicator for understanding the health and wellness profile of the organisation, and for establishing and substantiating the impact of health and wellness interventions. Sick leave indices for the year under review indicate a slight sick leave should not just be increase against 2007. However, viewed against sick absence rates (SARs), but also in the context of severities, frequencies and utilisation. The table below depicts the sick leave indices for the 2007 and 2008 financial years. shops, to enable customer- Direct facing employees to cope with customer demands and strenuous work environments. Developing and implementing a trauma resilience interventionhigh-risk security areas in all high-incidence and within the operating environment where technical officers Overall absenteeism rates as a result of illness (SAR) have result of illness (SAR) rates as a Overall absenteeism 2.5%, year under review is 4.1%. SAR for the increased by SAR of 2.4%. This increase is mainly as higher than the 2007 for July 2007 (2.6%), August 2007 a result of increased SAR 2007 (2.8%), due to the high number (3.4%) and September influenza and colds. of incidents related to assessments indicate that unhealthy Results from health risk Overweightlifestyle factors are increasing. and obesity levels 54.2% to 63.5% among women, in 2005 increased from among men. This is particularlyand from 53.2% to 64.3% concerning cause of considering that obesity is a major such as heartcardiovascular diseases and strokes. attacks hygiene The high rate of non-compliance in occupational temperature including factors such as illumination (100%), of highly volatile (48%), ergonomics (96%) and the presence buildings organic compounds (33%) in densely populated needs to be addressed urgently. work-life balance Increased stress-related incidents and poor resilience in resulting from a lack of physical and emotional the workplace, dealing with change and restructuring in demands were customer expectations and operational assistance evidenced by an increase of 32.9% in employee stress-related programme referrals for counselling and interventions, against a target of 15%. Although penetration and participation targets for health screening assessments and HIV voluntary counselling and exceeded, there testing have been met and in some cases target population continues to be approximately 35% of the that have not participated in these wellness events, which are families. This can presented at no cost to employees and their mainly be attributed to lifestyle factors, concerns regarding stigmatisation and cultural factors. confidentiality and privacy, Continuing to implement the Thuso total employee wellness intervention, stress management including resilience and workshops in the Telkom To optimise employee health and wellness, Telkom will, over the optimise employee health and wellness, Telkom To factors and areas of concern address the high risk next year, identified above by: Challenges for the year ahead Safety, health and environment continued

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 the Health-risk assessments drastic increase in SARs for the months of July, August and Health-risk assessments (HRA) were conducted on-site as part of September 2007. This is indicative of the severity of the influenza the rollout of the Thuso total employee wellness intervention. The season, causing employees to be off sick on two to three or more table below depicts participation levels: occasions, which further influenced frequencies. Number of The increase of 10.2% in monthly SUR indicates that more Rollout Target employees % employees utilised sick leave, particularly during August 2007 phase population participated Uptake when 23.5% of employees utilised sick leave, against a monthly average that fluctuates between 15 and 18%. No significant Phase IX (9) 1,627 1,021 63 reduction can be expected in minor increases in ASR and AFR, Phase X (10) 4,054 2,594 64 but viewed in conjunction with the increased monthly SUR, it is Phase XI (11) 1,839 1,360 73.9 (1) evident that more people utilised sick leave. The total number of Total 7,520 4,975 66.1 man-days or shifts lost also increased significantly by 9.9%, (1) Exceeds target of 60% implying that 17,569 more man-days were lost due to sick leave. The HRA results regarding cholesterol indicate that 70.8% of Physical health and wellness employees who participated in health screenings are within the normal cholesterol range. This is very similar to the integrated This component of employee wellness contains an occupational 82 health profile baseline for 2005 at 74.8%, as well as the health component which ensures Telkom’s compliance with elevated range of 12% compared to 12.2% in 2005. In the at- occupational health legislation and protocols such as health risk risk category there is a slight increase from 11.7% in 2005 to the assessments and medical surveillance, and an individual or current measure of 14.2%. personal wellness component reflecting the acute (such as influenza and colds) and chronic (including diabetes and The average age of the 684 employees in the at-risk category hypertension) disease profile of Telkom employees. is 40 years, with the youngest being a 19 year old woman. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 83 employees as a particular concern, need for a and the formalised programme that includes lifestyle modification exercise and nutrition. Audiometry Another intervention in the call and that has been introduced screens for which contact centre environment is audiometry, hearing impairment. been piloted at three sites where This has is important380 employees were screened. This screening in good accuracy, the call centre environment to ensure data comprehension of customer information and communication, and overall effectiveness of the customer experience. This intervention will be extended to all call centres and network centre operations Preliminary that 13% of employees results indicate at Telkom. tested for hearing impairment showed defective hearing or hearing loss and required further interventions such as hearing aids and instrumentation which can be requested via the This policy is deployed to reasonable accommodation policy. cater for employees who have a physical impairment or disability, and aimed at assisting employees to adapt better to the physical work environment or any possible risk factors in the workplace. Occupational hygiene management In support of the occupational health and safety compliance requirements and the employee Thuso wellness strategic initiative, has embarked on a programme to reduce the effects and Telkom consequences of sick building syndrome (SBS). SBS is an occupational health risk whereby the health and wellbeing of the air quality, building occupants can be affected by poor airflow, inconsistent temperatures, humidity levels, poor illumination and pollutants. Our focus is on a preventative strategy that adopts the Green building concept, identifies the critical buildings, Eye screening employee wellness A new assessment of the Thuso total intervention which is is the screening of visual capabilities, environment where extremely relevant in the call centre hours. Since Telkom employees work with computers for long rolled out the total wellness interventions 1,820 employees were 328 (18%) required screened for visual capabilities, of which interventions such as spectacles. In the Body Mass Index (BMI) results, 579 (42.1%) of the 1,375 obese employees also suffer from high blood pressure, once more attesting to the role of lifestyle factors in the development of chronic diseases. In the normal weight range there was a decrease from 38% to 31.9% in high blood pressure, further emphasising the increase in obesity levels amongst Telkom The HRA results regarding hypertension or high blood pressure indicate that men are suffering more from high blood pressure In comparing than women, at 31.8% and 28.7% respectively. these ranges with the data as reflected in the 2005 integrated health profile, the normal to low blood pressure range decreased from 82.9% to 67.6%, which is significant in terms of indicating a deterioration in the blood pressure status of employees. In the raised category or high diastolic there against either high systolic was an increase from 5.2% to 16.8%, and in the high range (both high in systolic and diastolic) there was an increase from 10.6% to 13.8%. This is very significant and again emphasises as well as lifestyle the high cardiovascular disease risk in Telkom causal factors. The HRA results for glucose testing (diabetes) revealed that 5.5% The HRA results for glucose testing (diabetes) risk of developing (29.5% in 2005) of men screened are at in 2005) of women. diabetes, compared to only 4.6% (33.7% are 43.7 and 38.9 The average ages of men and women at risk Comparing the current at-risk category with years respectively. profile, there is a data from the 2005 integrated health be ascribed to a verysignificant improvement of 311%. This can through various aggressive awareness and education campaign blood sugar or mediums with regard to the risk of increased risks. In the at- glucose levels and the associated cardiovascular tested suffer 132 (47.5%) of the 278 employees risk category, from hypertension,again emphasising the exposure to more than one chronic disease due to lifestyle factors. In this category, 296 (43.2%) of the 684 employees also have 296 (43.2%) of the 684 employees In this category, cardiovascular high blood pressure, indicating an increased disease risk and stressing the importance of a lifestyle modification intervention. It is notable that the number of women in this category exceeds the number of men, at 16.8% and 12.7% respectively. Safety, health and environment continued

maintains these buildings and upgrading infrastructure where necessary to eliminate any effects of SBS.

The occupational hygiene management programme is a key driver to promote an enhanced physical environment and quality of 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. Approximately 70% of all audits were conducted based on a planned schedule, which catered for seasonal cycles to ensure that variations in temperature, humidity and other factors due to seasonal changes were accounted for. The remaining 30% of audits consisted of ad-hoc requests received by occupants of buildings based on identified risks. These results present indicators that substantiate the need to A number of the high occupancy buildings audited had minor contribute towards the improvement of a healthy physical deviations in facility regulations and standards, especially against workplace. Of note is that all non-compliances regarding criteria such as indoor air quality (including humidity, temperature, illumination have been addressed. As this is a baseline, a target volatile organic compounds and dust) and illumination of 75% will be set for the next performance cycle to close the measurements. These deviations are being addressed through corrective action gap. planned preventative maintenance of facilities as well as capital projects where required. The results of these audits presented Factors that will negatively impact progress in closing the gaps Telkom with indicators to inform building alterations and space on corrective action as depicted above include the willingness of planning adjustments, which contributed to enhancing the work property owners of Telkom-leased buildings to invest capital in environment of Telkom employees. building upgrades without further contract extensions, as well as the availability of capital to fund upgrades and renovation to A total of 205 surveys were conducted from April 2007 to Telkom buildings. January 2008. The breakdown of the nature of these surveys is presented in the graph below: Case management and health risk assessments To meet legislative requirements, Telkom appointed an occupational health professional to manage its clinical cases involving disability and incapacity incidents, reasonable accommodation requests, and to conduct health-risk assessments as necessitated by emerging and significantly increasing health risks in the workplace. During the period between March 2007 and January 2008, 248 cases were handled by the Telkom network doctor of which 107 cases (43.1%) and 46 cases (18.5%) were conducted in the Free State and Northern Cape regions respectively. A total of 865 hours were spent conducting these clinical cases, of which 805 hours (93%) were spent on physical and clinical case evaluations for disability or incapacity inquiries. 84

The following health risk assessments were concluded between March 2007 and January 2008:

The results of the surveys indicate that a number of buildings have An assessment of multiple and extreme drug resistant tuberculosis (TB) in a TB hospital in Port Elizabeth, to establish minor deviations from accepted industry standards, including the feasibility for Telkom employees to work at this facility, in those of the American Society of Heating, Refrigerating and Air order to ensure that exposure to this risk is minimised. This Conditioning Engineers (ASHRAE) for temperature and indoor air guideline is now utilised countrywide at all related facilities. quality, SANS 241 for water purity and SABS 0114 for illumination. Buildings were tested for temperature and showed a Conducting health risk assessments in Cape Town amongst non-compliance rate of 48%, which remains a focus point. shift workers at the radio transmission station that deals with WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 85 (%) (0.9) 14.2 (10.5) (%) 6.8 41.3 17.6 2008 7.6 2007 Diagnosis (%) Stress related Psychological wellness employees to be more is focusing on preparing our Telkom resilient in terms of their mental wellness as required by changing This is to enable operational, business and customer demands. our employees to manage these challenges through lifestyle changes that will optimise their ability to cope with these stressors. The counselling approach will remain in place to ensure that we care for and support our people through necessary therapeutic interventions. Psychological counselling a total of 1,337 (2007: 1,008) During the year under review, employees were referred to clinical and counselling psychologists and social workers. This has led to an increase of 32.6% in the annual EAP utilisation rate among employees and their family members. The following table shows the major diagnoses in the various categories. Crisis and traumaFamily relationships and divorce 41.7 15.4 health nurses in all regions where Telkom operates conducted operates Telkom in all regions where health nurses the year under review. screenings during 1,588 medical medical screenings to assess the fitness Conducting annual periodic represents 67.8% of all medical screenings. of employees for work (58.4%), network infrastructure The network field operations and procurement servicesprovisioning (33.8%) the (3.9%) are screenings. main users of medical Expatriate clinical support programme continent necessitates growing presence on the African Telkom’s protocols to manage the health and clinical and medical a wellness of employees on international assignments. With African countries, presence already established in, among other were required for Nigeria and Kenya, medical risk assessments the completion of a 23 expatriate employees. This entailed medical history blood tests, and profile, a range of pathological as a first aid and providing pre-exposure prophylaxis as well medical kit that contains medicines for opportunistic diseases among others. A such as malaria, cholera and yellow fever, Thuso information kit was also provided to inform employees about various chronic and opportunistic diseases. our intention is to In extending the expatriate programme, health profiling, develop standardised pre-assessment, employee protocols to ensure emergency evacuation and post-assessment managed. that health risks affecting expatriates are proactively “ship to shore” network operations. The assessment shore” network operations. “ship to skills on shift due to the risk of long hours highlighted shortages in this environment. was conducted among employees A health-risk assessment network and infrastructure the Telkom exposed to asbestos in correct personal protective clothing environment, to ensure protocols are in place to protect and specific health screening exposure. at-risk employees against was also conducted on the impact of A health risk assessment other telecommunications infrastructure masts and towers and on externalenvironments, especially networks such wireless as those of the cellular service Due to an increase providers. risk impact, the in the significance of this infrastructure related has medical assessment protocol for this infrastructure The inclusion of third- changed from three years to one year. mast and tower generation network cables within the this reduces the infrastructure also poses a new risk as risk has been climbing space. The management of the Mast and Tower addressed through the establishment of a safety and Forum, which consist of a line specialist, consultant and occupational health specialist, a training The focus of the forum is to occupational health doctor. and towers are oversee that all risks related to masts the necessarymanaged, measured and monitored with forum has also corrective and preventative actions. The proceedings and revised all current training modulars, work protective wear instructions and usage of specific personal and equipment to mitigate the risk. into the exposure An investigation and health risk assessment mobile and Next employees working on of Telkom radiation Generation Networks to radiation. A non-ionising assessment was conducted on all applicable infrastructure and Next Generation Networks, to test the levels of radiation (International Commission on Non- against the ICNIRP ionising Radiation Protection) world standard. Findings indicated that current radiation levels at these networks are well below the stated levels in the ICNIRP standard and therefore do not pose any risk to the employee or environment. All the assessment results are placed on the Current Intranet web site for employees to view. Telkom awareness and communication drives to all applicable employees and line management are launched to inform all parties that the risk exposure is within required standards. Medical surveillance Medical surveillance by occupational protocols are followed health nurses to ensure the adequate management of critical technical and procurement safety and health risks in Telkom’s operations. Furthermore, medical screenings are conducted in compliance with human resource requirements when employees The aim is to ensure that are hired and exit from the company. the company is not held liable for medical conditions that may has ended. Occupational arise after employment with Telkom Safety, health and environment continued

Trauma and crises remain the primary precipitating factors of Number of employees mental and emotional illnesses among Telkom employees, with stress caused by family relationships remaining significant. Total number of HIV positive employees 584 HIV positive status established via VCT 423 Although there is an insignificant decrease in most service HIV positive status established via organisations, it is evident that the majority of psychological self-identification 166 counselling referrals are within the technical operations HIV positive employees registered on environment (including field technical officers and call centre CDM (percentage of HIV agents), comprising 64.4% of all counselling cases. positive employees) 399 HIV positive employees on other Preventative stress management approved NGO or government An online stress management tool was developed to enable programmes or medical aids 75 employees to measure stress levels and establish their stress HIV positive on treatment (ETP) 240 profile. More than 3,000 employees completed the electronic questionnaire and received their printed profile. The actual HIV/AIDS prevalence rate among Telkom employees is 4.3%. The registration of 68% of HIV positive employees on A resilience and stress management workshop was developed the Thuso CDM programme and 12.8% on other approved to assist employees in the TelkomDirect shops and credit programmes implies that approximately 20% of HIV positive management divisions in the commercial environment to better employees are not accounted for. The challenge remains to keep deal with workload, customer demand, teamwork and changing this figure as low as possible, as it implies that approximately environment pressures. A total of 21 workshops have been 20% of employees’ disease progression is not monitored, and conducted to date, resulting in better stress management by that they do not receive antiretroviral therapy. Telkom’s conversion employees. rate of 68% compares favourably to available benchmarks in South Africa, although we continue to strive to get as close to Thuso HIV/AIDS workplace programme 100% as possible. Since the inception of the Thuso HIV/AIDS workplace programme, which provides voluntary counselling and testing as Currently, of the 240 employees on the ETP, 109 (45.4%) are on well as treatment, 21,038 employees have been tested from a highly active antiretroviral therapy (HAART) and 131 (54.6%) are on pre-HAART, receiving nutritional supplements and immune target population of 31,720, including 5,200 contract and boosters. temporary workers. This equates to an uptake rate of 66.3%. Furthermore, 4,519 employees took the repeat test, equating to The programme is extended to immediate family members and a retesting uptake rate of 21.5%. The target for VCT uptake was spouses or partners. A total of 62 spouses and four children are set at 50%, and at 15% for retesting uptake. These results currently registered on the programme, being eligible for the full indicate that both targets have been exceeded. The VCT rollout array of benefits; from testing to treatment, and receiving for the year under review was planned over three phases and the antiretrovirals at an address of their choice through the services table below reflects the participation rate in terms of uptake. of a drug dispensing courier at no cost to the employee or family member. The programme was also extended to Telkom contract Number of and temporary workers in September 2006, and currently Rollout Target employees % 42 contract workers are registered on the programme. phase population tested Uptake Thuso call centre Phase IX (9) 1,627 910 56 Phase X (10) 4,054 2,255 56 Since the inception of the call centre in October 2004, 23,821 86 Phase Xi (11) 1,839 1,245 67.7 calls were routed through the Thuso helpline. Of these calls, Total target 7,520 4,410 58.6(1) 14,111 (59.2%) were outbound in terms of case management, personal health advice and VCT follow-up, and 9,710 (40.8%) (1) Exceeds target of 50% were inbound in terms of case management, health advice and Three phases are planned over the next year, focusing on chronic disease management. In the year under review, 6,596 TelkomDirect shops and the technical operations environment. calls were made of which 4,343 (65.8%) were outbound and These phases will target 8,000 employees with an uptake target 2,253 (34.2%) were inbound calls. Some 812 non-intervention of 60% for HIV testing and 70% for health risk assessments. outbound calls were made to affected employees without any contact. The average number of calls made to registered The following table shows the number of employees participating employees on the CDM programme in the year under review was in the Thuso chronic disease management (CDM) and expert 10.3, and the average duration of calls by the counsellors was ten treatment programmes (ETP). minutes and 29 seconds. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 87 - 1.9 3.6 3.0 2.5 2.5 2.5 ETP CDM Telkom 1.9 2.9 2.7 17.4 20.7 17.3 population population population Sick absence indicators spread of HIV and to keep its prevalence rate low. During the During rate low. HIV and to keep its prevalence spread of to all were dispensed review 650,000 condoms year under remaining on hand. This indicates that regions, with 268,800 its via taken by employees. Telkom, 381,200 condoms were programme, has importedThuso HIV/AIDS workplace 1.6 meet the necessarymillion condoms that ISO international R650,000. standards at a cost of ment and disregard could arise from negative affects to reputation and brand, and our image as a responsible Telkom’s corporate citizen. SAR (%) ASR (days) AFR (incidents) SUR monthly (%) against those of population In comparing the SAR of the Telkom Thuso programme, our HIV positive employees registered on the is that, in no significant deviances are evident. Of significance population, it Telkom comparing the AFR with that of the greater the ETP population is significantly lower at 1.9 incidents for in general. In employees against 3.6 incidents for Telkom CDM (2.5 days), comparing the ASR for the ETP (2.7 days) and it is evident that the wellness of our HIV positive employees is extremely high in comparison to actuarial case studies that indicate the average number of sick leave days taken by HIV positive employees is between 25 and 40 man days. MANAGEMENT TELKOM ENVIRONMENTAL are considered to have a ICT service providers such as Telkom environmental risks limited impact on the environment. However, arising from indirect or direct activities associated with the behalf are still services conducted by third parties on Telkom’s pertinent. complies with all applicable environmental legislation as Telkom far as is reasonably practicable, to minimise possible direct financial implications associated with legislated penalties, contraventions, prohibitions and liability suits. Indirect financial consequences of environmental mismanage HIV related absenteeismamong our HIV positive employees are Absenteeism indices tracked quarterly Alexander by an external service provider, solutions, to ensure adherence to Forbes health management for our employees confidentiality and privacy guidelines programmes. The registered on the CDM and the ETP a nine month period absenteeism indicators are reflected over table compares the from April to December 2007. The following average Telkom HIV absenteeism indicators against the current for the year under review: Condom dispensing The dispensing of condoms has remained one of the key endeavour to prevent the preventative mechanisms in Telkom’s A peer educator evaluation process was conducted among peer educators, master trainers and peer education mentors to establish process bottlenecks and identify areas where the process can be improved. The overall effectiveness was 74% against a target of 80%. A project was initiated to renew the current process and implement the necessary corrective action from the feedback received. Attention is also given to new roles well as to evolve the role of the as of the peer education mentor, peer educator into a wellness peer educator rather than having a singular focus on HIV/AIDS. A total of 97 peer educators were trained during the year under bringing the total number of trained peer educators to 689. review, However due to natural attrition and voluntary retirement from peer educator duties, we currently have 564 active peer educators. Peer education Post exposure prophylaxis (PEP) is used when employees are Post exposure prophylaxis (PEP) is used when HIV infection, accidentally or by incident exposed to possible infected blood and including vehicle accidents, exposure to are supplied to sexual assault. Antiretroviral therapy and drugs Our approach also prevent possible infection of the individual. includes psychological counselling and further laboratory testing to determine has taken place. In the whether infection nine PEP cases performance cycle for the year under review, being exposed to were registered due to employees or families needle exposure, possible HIV infection, either through used also provided PEP vehicle accidents or sexual assault. Thuso are HIV positive to treatment to two pregnant mothers who Both infants tested negative transmission. prevent mother-to-child for the disease after birth. Post exposure prophylaxis The actual prevalence as derived from the VCT programme over The actual prevalence reflected a prevalence that fluctuates the 11 rollout phases Currently the prevalence as derived between 3.6% and 4.5%. is at 4.3%. The latter is not used as the from the latest VCT results employees in official prevalence rate as more than 10,000 of an actuarial still require testing. The conducting Telkom financial year to prevalence study is planned for the coming current projected prevalence based on the validate Telkom’s recent demographic latest VCT uptake statistics and the most profile of Telkom. HIV/AIDS prevalence is currently rate at Telkom 2010 projected prevalence The official 6.3% for permanent contract and employees, rising to 7% when temporary the are included. It is projected that due to workers the prevalence will be between Thuso HIV/AIDS programme It is also projected that management’s 5.5% and 6% by 2010. be at 1.7% and supervisorsprevalence rate will at 3.3% by 2010. Safety, health and environment continued

Environmental governance Our environmental policy Environmental governance is integrated into the Telkom SHE The Telkom environmental policy is in line with ISO 14001 governance structure, and the CEO is ultimately accountable for requirements and has been approved by the SHE governance ensuring the effective implementation of environmental council. Telkom employs a dedicated environmental manage - ment specialist whose responsibilities include, among others, the management throughout the organisation. To ensure maximum effective implementation of the Telkom environmental manage- effectiveness, the CEO has delegated the responsibility of ment system (EMS) including the management of identified environmental management to the various levels of top aspects and impacts of all associated activities. In ensuring management as part of their service delivery, which in turn policy effectiveness, all environmental incidents are reported, ensures that qualitative environmental management is sustained investigated and corrective actions implemented. To sustain ISO through every employee’s performance contract. 14001 specifications, the Telkom environmental policy is reviewed as and when technological and human resource Telkom has a dedicated corporate division to research factors are influenced to support the philosophy of continual environmental needs and develop appropriate solutions improvement. throughout the company. This division’s responsibilities include the assurance of all statutory requirements pertaining to SHE Environmental management system management. Each area of service delivery in Telkom is Telkom has a dedicated SHE website which is accessible to all supported by dedicated SHE consultants whose mandate is to employees. This internal web portal consists of a SHE incident ensure the management of effective means to mitigate, as far as prevention plan which incorporates the Telkom EMS. Our reasonably possible, all environmental risks and impacts employees have access to the EMS strategy and associated policy guidelines, methods and procedures, forms, awareness topics and associated with Telkom activities. applicable legislative compliance requirements on this site. During Environmental strategy the year under review, Telkom’s EMS achieved ISO 14001 re-certification, as well as the international DEKRA certification. Telkom’s strategy and objectives in environmental management Telkom has strategically identified other national key point sites are to ensure a uniform and fair approach to the effective to be considered for ISO 14001 certification, as part of our management of any activities affecting the environment within commitment to continuous improvement. Telkom, among all employees, and outside the organisation including Telkom’s subsidiaries, vendors and any newly acquired Environmental awareness businesses. The key objectives that will be pursued over the next As an effective means to communicate the requirements of the year include: Telkom environmental strategy all relevant awareness topics are accessible via the SHE website. Additionally, management is Ensuring compliance with all relevant environmental laws and required to promote awareness of this strategy among their regulations; subordinates. Telkom supports all Government environmental initiatives and is currently embarking on a Group-wide energy Conducting environmental education and awareness saving awareness campaign. Telkom, as a model corporate programmes; citizen, ensures alignment to both local and international environmental awareness calendars (e.g. the International and Sustaining the reduction of resource consumption (energy, National Health Observances Calendar 2008) and implements water and fuel) by an average of 2%; applicable topics associated with both the organisation’s and Minimising pollution including waste generation through South Africa’s environmental sustainability initiatives. training, education and awareness; Environmental risk and impact management 88 Conducting education and awareness programmes to inspire Telkom will sustainably manage its environmental risks and our employees to effectively uphold our environmental policy; impacts not only for our own benefit, but for the broader benefit of South Africa and the world. This will be done through the Sustaining the reduction of resource consumption and support of national and international initiatives against global minimising pollution, as well as the generation of waste, and warming and emissions, as well as those supporting proper promoting appropriate resale, reuse and recycling of waste management. recovered material; and In recognising that Telkom’s communication network demands a Promoting adherence to our environmental policy by continuous energy supply, and in view of the current national contractors and service providers acting on our behalf, where energy crisis affecting South Africa, Telkom’s CEO has made a appropriate, and binding them contractually to comply with commitment to the national energy supplier that it will embark relevant environmental legislation and standards. on a company-wide energy reduction drive over the next year. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 89 ) emissions are calculated against the 2 annual amount of coal burned by Eskom to provide energy to The increase in for sustainable business operations. Telkom energy consumption emissions is relative to the increase in required for the NGN. Water consumption Water kilolitres of water during consumed a total of 2,067,843 Telkom to 2,327,814 kilolitres during compared the year under review, This represents an overall water saving of the previous year. 11%. A primary contributing factor in the reduction in water intensive measuring, consumption is the implementation of more including behaviour monitoring and corrective action initiatives, based awareness campaigns. Further projects and initiatives will an overall reduction be implemented over the next year to ensure of 2%. Emissions Carbon Dioxide (CO - Energy consumption consumed a total of 585,682,377 kWh operations Telkom’s compared to the (normalised) during the year under review, consumption of 527,447,007 kWh (2006: previous year’s 470,911,288 kWh), an increase of 11.04%. A major contributing factor to the increase in consumption over the past two years is the expansion of the Next Generation Network (NGN), particularly to keep NGN required the air-cooling CEO’s support the Telkom systems in optimal operation. To commitment to a reduction in energy consumption, various projects and initiatives will be implemented to ensure an improvement during the next year. Indirect environmental impacts to be a medium is considered as part of the ICT sector, Telkom, utilises external service to low impact organisation. Telkom providers to conduct certain business activities on our behalf, for example propertyand fleet management companies. As the ensures that all outsourced activities Telkom ultimate risk owner, environ are measured, monitored and conform to the Telkom mental policy and applicable legislative requirements. In support of this commitment, Telkom has already established a In support Telkom of this commitment, it is to ensure the National Utilities Forum (NUF) whose mandate waste and water, effective and efficient management of energy, emission initiatives. Status reports are escalated to the CEO on action, if necessary. a monthly basis for review and for required Safety, health and environment continued

Telkom acknowledges the commitment and dedication of Bennie Kotze from Total Facility Management Company (TFMC) in extrapolating information from local municipal accounting systems to calculate Telkom’s energy, emissions and water utility consumption.

Biodiversity Although activities undertaken by Telkom to render ICT services are considered as low to medium risk, the impact of the national footprint of its associated network infrastructure is considerable. To this end it is imperative to take into account all business activity influences on the natural biodiversity of existing ecosystems, fauna and flora which Telkom interacts with, and to initiate meaningful and effective conservation protocols to ensure consistent, sustainable development.

Conservation project As previously reported Telkom, in association with Bradley Gibbons from the endangered wildlife trust Karoo Crane Conservation Working Group, embarked on an initiative to minimise the effect of our above-ground infrastructure on blue crane collision incidents in certain high population areas of the Free State and Eastern Cape. Telkom produced a flapper device, manufactured from recyclable optic fibre piping, which enhanced the visibility of the infrastructure thereby reducing the probability of further collisions. To date no further incidents have been reported in these areas and Telkom has received letters from members of the local communities thanking us for our conscientious approach towards the conservation of the national bird of South Africa. One of the letters of appreciation from a member of the local community reads:

“Dear Telkom, Just a very short note to thank you for putting up the markers on the telephone wires next to the Suurberg road. As you

know these conductors are directly in Similar projects will be implemented by Telkom in future, as and the flight path of hundreds of blue crane when potential areas for concern are identified by the various that settle on my farm particularly during provincial crane conservation working groups. 90 the breeding season. The markers are Vegetation management project very clear and look good on the The preferred industrial method for vegetation management for the conductors. We do not expect to have purpose of fire prevention beneath critical overhead infrastructure is the application of environmentally benign herbicidal treatment. any more cranes strung up in this area. At the inception of the project, Telkom consulted with industries experiencing similar infrastructure risks and who have experience Thank you for the good work – much in the application of herbicides as a means of vegetation manage- appreciated. ment. From the research conducted it was evident that herbicidal treatment over the long term will be environmentally acceptable, provided that all anticipated risks are identified, mitigated as far as Mr John Bennie” reasonably practicable, and managed in strict accordance with all applicable environmental legislation. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 91 emissions. 2 Total fuel consumed branded fleet of 9,285 vehicles consumed a combined Telkom’s total of 28.6 million litres of fuel during the year under review. branded This results in an average consumption per Telkom will fleet vehicle of 6.53 km/litre. During the next year Telkom institute a technical forum to monitor and measure the overall Fleet management has contracted an external fleet management company to Telkom thus leases its 9,285 branded vehicles. Telkom manage Telkom’s fleet from debis Fleet Management, an ISO 14001 accredited This accreditation demonstrates commitment towards company. all considerations associated with those aspects of the activities required to render a service incurring an impact on the are regularly serviced and replaced as environment. Vehicles prescribed by the service between debis and level agreement thereby to ensure that vehicles are running efficiently, Telkom resulting in a relative reduction of CO Copper wire copper wire recovered more year under review Telkom During the as a result of progress in establishing than in the previous year, of recovered a total under review Telkom the NGN. For the year (2007: 2,489 tons). As more wireless radio 5,136 tons of copper is installed, fewer underground and microwave infrastructure required. copper cables will be Optic fibre cable a total of 298 tons of optic fibre cable during recovered Telkom (2007: 167 tons). This increase is largely the year under review radio and microwave technology due to progress in NGN has reached the installations. The optic fibre cable technology limits. This has “end of life” cycle and associated capacity resulted in the recovery and replacement of older technology smaller cables with new optic fibre technology which requires with higher data-carrying capacity. Batteries requirements and adheres to all applicable legislative Telkom of hazardous associated municipal bylaws when disposing is batteries utilised waste products. One such hazardous product network infrastructure. as standby power supplies for Telkom’s disposed of 351 tons of During the year under review Telkom accredited servicebatteries. The batteries are disposed of at safe disposal providers whose responsibility it is to ensure processes. The practices and implement recycling/re-use attributed to the end increase in recycled batteries can also be of old batteryof product life cycle and the replacement technology with new technology. The Telkom branded fleet of 9,285 vehicles travelled a combined The Telkom total of 186.5 million kilometres during the year under review. Printer cartridges contain ink which consists of various hazardous printer cartridges are collected when substances. At Telkom, empty by an approved and certified external service provider. is The cartridges are cleaned, repaired and then refilled. Telkom remunerated for the resale of recyclable printer cartridges. recovered R13,969 spent During the year under review Telkom on printer cartridges (2007: R13,581) Although a slight increase believes that through more internal awareness is evident, Telkom drives on the benefits of similar recycling initiatives, a significant increase in this figure can be realised in future. Other material recycled Printer cartridge and relatedA range of plastics is used in the manufacture of printer cartridge items casings, which can take more than 100 years to biodegrade in toner powder can be landfills. If handled inappropriately, inhaled by people, potentially leading to health problems. If allowed to leak from landfills, ink and toner residuals can pollute soil and groundwater. The increase in recycled paper for the year under review is The increase in recycled paper for the year processes including largely due to improved vendor collection effective education and awareness campaigns regarding the importance of discarding wasted paper into recycling boxes. Recyclable paper in Telkom workplaces is disposed of each day workplaces Recyclable paper in Telkom regularly by a in recyclable waste receptacles, and is collected The contracted external paper recycling service provider. at the end of each volumes collected for recycling are calculated year to determine the amount of paper recycled. During the 142 tons of paper, recycled previous financial year Telkom From an review. increasing to 322 tons in the year under paper recycled into estimated conversion calculation of tons of to saving approximately contributed actual trees saved, Telkom 5,474 trees. Paper recycling an environmental consultant from Dekra Norisko Ian Minnaar, the impact of the South Africa, helped put into perspective by sketching the responsible management of paper recycling 10.9 million hectares of following factual scenario. Each year, CEO supports the tropical rainforests are destroyed. Telkom’s paper drive to mitigate this impact through implementing recycling initiatives. Another anticipated project to contain and manage associated Another anticipated project SHE specialists training of Telkom herbicidal risks is the the externalresponsible for overseeing service providers during is researching various training Telkom the application process. will be to train the associated SHE options, one of which level of Limited Pest Control Officer. specialists to a minimum To further mitigate potential risks, Telkom initiated a pilot project initiated further risks, Telkom mitigate potential To (EWT), as an Trust Wildlife with the Endangered in consultation the effectiveness of the identified and experiment to ensure measures. implemented risk control Safety, health and environment continued

effectiveness of the fleet. This will include further research and in audits, and reviews are used to measure such effectiveness. investigation into more efficient modes of transport and The fact that, to date, Telkom has not incurred any environmental alternative fuel requirements. An indirect advantage of legal liability suits proves the efficiency of the management implementing alternatives is an automatic reduction in associated system in mitigating, as far as is reasonably practicable, emissions. The challenge for the year ahead is to improve fuel negative impacts on the environment. consumption through a process of driver awareness and behaviour modification to meet a desired, average vehicle Key successes consumption of 7km/litre. The primary success during this reporting cycle is the ISO 14001 re-certification of the Telkom EMS. Another key strategic CO2 emissions from Telkom branded vehicles achievement has been the approval and successful implemen -

The calculation of the total fuel consumed converted into CO2 tation of the recently revised three year Telkom EMS. emissions reveals a total of 66.6 tons during the year under

review. The disclosure of CO2 emissions in annual reports The key environmental drivers for the next year will be retaining ultimately demonstrates to investors the company’s commitment the ISO 14001 system certification, and the successful ISO towards decreasing the amount of air pollutants emitted into the 14001 certification of selected national key point sites. The atmosphere, which in turn contribute towards global warming and successful reduction in energy consumption and associated the green house effect. Please note that a comparison for this human behaviour modification towards holistic environmental particular reporting category is not available as this is a new index sustainability is also an imperative to be implemented over the to the Telkom annual report. It may prove difficult to set a tangible next year. reduction target as this would be directly associated with the company business plan going forward in relation to customer The green building concept currently forms part of SHE services demand and the implementation of the NGN, with governance’s key projects for the 2009 financial year. This respect to the efficiency and effectiveness thereof. For example, if project is currently in the design phase. The objective of the the NGN proves effective and more self-sufficient it would require project is to develop Telkom buildings and facilities in less fault maintenance, which would require less travelling. This would result in less fuel consumption and relative emissions. compliance with set occupational hygiene criteria, including those for indoor air quality, illumination, temperature and water Environmental compliance liabilities quality. The project will ensure that these criteria are classified Telkom did not incur any environmental contraventions, and managed towards compliance as defined by world-class prohibitions, penalties or liability suits during the year under standards and practices. The initial focus will be on high review. This is largely due to effective internal and external occupancy buildings and sites. stakeholder engagement, as well as communication of and adherence to Telkom’s EMSs. Stakeholders include national and VODACOM OCCUPATIONAL SAFETY AND local Government as external stakeholders and technical ENVIRONMENTAL IMPACT REVIEW operations as internal stakeholders. Telkom’s due regard for all applicable environmental legislation is also a contributing factor. Certification EMS compliance and management review Following an audit by DEKRA in October 2007, all three ISO certifications were retained by Vodacom Group (Proprietary) Telkom reserves the right to ensure that all major companies that Limited, Vodacom (Proprietary) Limited, and Vodacom Service render services to Telkom are ISO 14001 accredited. To measure Provider Company (Proprietary) Limited. These certifications are environmental management implementation effectiveness, an internal statutory compliance audit and management review ISO 9001 (quality), ISO 14001 (environmental) and OHSAS 18001 (Occupational Health and Safety Assessment Series). 92 process is in place. Environmental statutory compliance audits are conducted at least once during a cycle of two years. Environmental management reviews are conducted once every Vodacom achieved a rating of 90.8% following an external 18 months on a stratified sample of Telkom’s management audit measuring compliance with South African environmental employees to verify the effectiveness of implementation within legislation, as conducted by Lexis Nexis Butterworths in February their respective areas of responsibility. A requirement of the ISO 2008. Given that few companies achieve a rating above 80%, 14001 standard is to ensure effective implementation of the EMS this represents an outstanding achievement for Vodacom. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 93 160,000 kg 1.3 million litres 2008 335,990 kl 679,577 litres 74 million kWh 163 million kWh 105,482 kg 466,681 litres 137,502 kl 940,903 litres 2007 Resource The growth in Vodacom’s network and the scope of their network The growth in Vodacom’s operations has led to the increases in the metrics above. Petrol Paper Diesel Electricity (sites)Water 112 million kWh Electricity (buildings) 61 million kWh Consumption of resources for Vodacom’s South African Consumption of resources for Vodacom’s operations for the year under review is as follows: Environmental data 94 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 connectivity is the heart of development Telkom Annual Report 2008 Annual Report

95 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Corporate social investment

Initiatives that contribute to the communities in which our Contributing to the customers and employees live and work form the basis of Telkom’s social investment strategy. We have continued to upliftment of South African emphasise programmes supporting education, entrepreneurship and social upliftment. In line with our core business, we are communities is an essential increasing our focus on bridging the digital divide in South ingredient to promoting Africa and the continent. long term, sustainable TELKOM FOUNDATION growth in South Africa. The Telkom Foundation (the Foundation) is responsible for managing our corporate social investment (CSI) programmes. During the year under review the Foundation made significant progress in increasing its focus on programmes that reflect our commitment to help bridge the digital divide. We anticipate that 96 this focus will continue to gather momentum over the 2009 Social care and upliftment; financial year.

Our multimedia community centres, school connectivity Skills training; programmes and our technological and entrepreneurial programmes constitute the educational and entrepreneurial Education and knowledge building; and development components of our strategy, and our social upliftment programmes emphasise the need for sustainable growth. Tools and infrastructure, including ICT.

The Foundation’s budget for the year under review was R52.5 million (2007: R51.1 million), allocated to the following The Foundation has contributed to the transformation and key focus areas: development of various villages across South Africa. These include: WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Eastern Cape Free State KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West

Alice Maluti-a- Bergville Sekhukhune Elukwatini Frances Makwasi Phofung Baard District

Uitenhage Villiers Kwamncane Manyeleti (Inanda)

In these communities, the main programmes that were rolled out Borne of our commitment to take a holistic approach to are: A total of 50 new computer centres, each comprising a full community development, Beacon of Hope gives high potential lab of 20 computers, desks, chairs and peripheral equipment; learners access to a higher quality of education by sponsoring 157 full science kits donated to various schools; two new food their full tuition, boarding fees, travel and living expenses at gardens; equipped seven bakeries and trained teachers and better resourced private schools. This particular initiative was community members to manage them; established five new started in 2007 specifically to invest in developing future leaders, sewing businesses; provided 10,777 learners across South Africa with a primary focus on mathematics and science. with school uniforms; and provided PC literacy training at several schools. The Foundation’s goal has been to empower people to To date all 198 learners who have benefited from the project help themselves and its efforts have had discernable results. show considerable potential, particularly in mathematics, science and ICT. By providing these youths with an opportunity to realise CSI achievements their full potential, the Foundation is making a difference in the lives of individuals as well as their communities, which will Since its inception in 1999, the Foundation has: Telkom benefit over the longer term from having well educated members. Spent over R372 million over the course of nine years, (excluding other contributions such as computers and Developing teachers 2008 Annual Report communication equipment); Under-qualified teachers, particularly in the fields of mathematics and science, remain one of the biggest challenges facing rural Established 650 computer centres in primary and secondary and impoverished schools, and contribute to poor academic schools across South Africa, including schools for the hearing performance and high matriculation failure rates. By investing in and visually impaired, and community centres; initiatives aimed at improving the abilities and capacity of teachers, the Foundation recognises the value in developing Deployed over 16,000 computers in impoverished sustainable skills that will benefit many generations of learners. communities; and 97 Through our partnership with the Mathematics Centre for Assisted in food security and poverty alleviation in Professional Teachers, we have assisted in improving teaching impoverished communities by establishing 25 food gardens. methods and content comprehension among mathematics teachers, and have contributed to teachers being certified. Beacon of Hope The Foundation continues to invest significantly in education, The Aggrey Klaaste Maths, Science and Technology Educator of steadfast in our belief that education is one of the most effective the Year Awards promote high quality teaching among educators routes to empowerment. As a flagship initiative, our Beacon of by recognising and rewarding those who show excellence Hope schools project leverages the Foundation’s long standing despite limited resources. The three winning teachers in each relationships with some of the most under-resourced schools in province are rewarded with a fully equipped computer centre South Africa. for their school. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Corporate social investment continued

Giving from the heart ICT village initiatives, for example Internet cafés, computer laboratories and kiosks to drive exposure to ICT; and During the year under review, Telkom employees continued to help those less fortunate than themselves by donating time, Mathematics and science projects in identified areas to resources and personal funds to various socially responsible enhance computer based education, thus contributing to projects and initiatives. Telkom’s employee volunteer programme, narrowing the digital divide in rural areas. Giving from the Heart, was incorporated into the Telkom Foundation during 2006 from being part of the overall Telkom corporate employee contributions due to natural synergies with SPONSORSHIPS the Foundation’s goals. Sponsorships form an important part of Telkom’s brand building This volunteer programme entails some employees donating and reputation management activities. They are a platform for us funds monthly, while others offer their time and skills to various to communicate with our customers and the general public to Foundation projects. Employees are also given the opportunity to promote loyalty to the Telkom brand. Our sponsorship activities donate time or funds to a charity of their choice, and these supplement advertising by breaking through the noise of donations are matched by the Foundation. The generosity of thousands of consumer focused messages to differentiate the Telkom brand, and create experiences for existing and potential Telkom’s employees reflects the spirit of giving embodied in the customers that will be remembered to our benefit. many projects in which the Foundation is invested.

Rising to meet the challenge Telkom’s sponsorship activities include a wide variety of projects, ranging from sports to entertainment. Highlights of key activities The Foundation has adopted a holistic and integrated approach for the year under review include: to social development, to address the diverse challenges in our CSI focus areas comprehensively and effectively. While The Lion King education, skills development and ICT remain our primary As one of the most successful, international theatrical productions investment focus, these are complemented by other interventions ever produced, The Lion King brings to life the characters and that help to meet a broader range of needs in impoverished communities.

Our new transformation programme is geared towards the African continent as a whole, with a specific focus on countries Telkom operates in. In South Africa we will maintain our focus on presidential nodal points as set out by the Government of South Africa, as well as communities in the Government’s rural integrated development strategy.

CONTINUING TO ALIGN CSI WITH OUR CORE BUSINESS

We are proud and passionate about the assistance Telkom gives to less fortunate people, and believe that this will grow from strength to strength as the Telkom Foundation’s momentum and reach moves into Africa.

98 Future initiatives will increasingly be aimed at assertively addressing the digital divide, in line with our core business. In support of this goal, we will focus on the following interventions in the next year:

Global projects focusing on Telkom’s African subsidiaries;

Our obligations as defined by ICASA and in the objectives of the Electronic Communications Act;

Public interest initiatives around access, quality, pricing and service, among others; WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 99 association with the sportassociation serve.the broad markets we in And water safety our contribution to teaching through importantly, drownings. skills we help to prevent SOCIAL RESPONSIBILITY BUILDING VODACOM’S FRAMEWORK Group enhanced its Vodacom In line with best practice, social investment (CSI) platformestablished corporate by creating This unit during the year under review. a corporate responsibility way the Group earnsunit will ensure that the profits is guided its by predetermined of this unit ethics and values. The establishment corporate social responsibility offering, completes the Group’s with those of listed enabling it to align its “caring credentials” or sustainable companies mandated to produce social development reports that reflect their non-financial assets. to continues to pursue CSI programmes that contribute Vodacom groups within the improving the quality of life of vulnerable people in these communities it operates in, and assist in the economy. communities to become more active players These contributions generally take the form of cash, in-kind support,skills, and are primarily within the areas of time and education and health. for various charities, and has shops. Direct The Lion King sponsorship allowed Telkom to create significant The Lion King sponsorship allowed Telkom by bringing contact with, and give back to our customers an internationally acclaimed show to South Africa under the umbrella of an internationally recognised, world class brand. Swimming involvement in swimming has helped produce Olympic Telkom’s gold medallists for South Africa, and has enabled thousands of learners to gain swimming and water safety skills through the Learn to Swim programme. Our goal is to develop long-term interest in the sport and promote swimming as a recreational remain a key sponsor of the sport in South Africa, We activity. and are being rewarded by an increased awareness of our In terms of organisational growth, we believe today’s soccer fan In terms of organisational growth, we believe today’s will be making decisions in their business in the future, and we when deciding on an ICT hope that they will consider Telkom and show-casing its capabilities will be proving Telkom provider. Cup during which it will yet again in the 2010 Football World be an official national supporter focussing on providing the fixed- line infrastructure. created strong associations with the Telkom brand among millions created strong associations with the Telkom can of fans. In the competitive South African ICT market, Telkom effectively and efficiently communicate its brand values and brand with “the promise to a fervent Telkom audience that associates beautiful game”. Soccer is one of South Africa’s favourite sports. Telkom’s ongoing favourite sports. Telkom’s Soccer is one of South Africa’s Knockout and the Telkom Charity Cup sponsorship of the Telkom since 2006 has helped raise funds Soccer The Lion King production ran for 40 weeks, with two shows per The Lion King production ran for 40 weeks, brand leveraging reinforced the Telkom Additional day. association through advertising, merchandising, public relations serviceexercises and Lion King-themed product and offers in the related Telkom Telkom’s sponsorship has created positive attitude shifts among sponsorship has created positive Telkom’s LSM 7-10, who represent the primary target audience for the These groups in turn for represent potential customers show. Closer packages and Telkom services such as ADSL, Telkom Business services and products. Telkom’s sponsorship of the South African production creates a sponsorship of the South African Telkom’s number of opportunitiescorporate image, as for enhancing our linkage opportunities.well as CSI and product The show is which holds significant first content sponsorship, Telkom’s alliances with content providers potential in that it establishes Disney Company. such as the Walt story capacity film. It has played to the original Disney of to be the world, and continues in major cities around audiences it is still being performedsold out in cities where including Sydney and Shanghai. London, New York, Corporate social investment continued

CSI provides a channel through which Vodacom can share the Rustenburg and Migdol near Wolmaransstad. In partnership with profits it has been fortunate to realise with the communities in the Department of Education in the North West province, each which it operates. Thus the better the Group’s financial results, party contributed an equal amount to infrastructure at these the more it has available to share with communities. CSI schools. Both schools were officially opened in April 2007. This contributes to the expression of the Group’s social responsibility, partnership follows a previous partnership with the Free State which in turn builds the trust that communities have in Vodacom, Provincial Department of Education, in which R5 million was and thereby contributes to its long-term sustainability. invested to upgrade the Thuto Lesedi Secondary School.

Vodacom’s CSI spending continues to focus on projects that DRC exhibit a high multiplier effect and are transformational in The Vodacom Congo Foundation provides schools with character, giving these projects priority when allocating the equipment and rehabilitation of their premises, in addition to limited financial resources available through the CSI programme. managing a bursary programme. In particular, Vodacom endeavours to support projects that use ICT to address social issues, aligned to our core business. This foundation launched its school benches project in 2003 to help ensure that children in the DRC attend classes in an The Vodacom Foundation is Vodacom’s primary vehicle for environment conducive to learning. Each year, 1,000 benches implementing its CSI initiatives. Vodacom invests in socially are ordered at a cost of USD47,000 from Don Bosco, a non- responsible projects in South Africa, The Democratic Republic of profit religious organisation offering vocational training to the Congo (DRC), Tanzania, Lesotho and Mozambique through underprivileged youth. The manufacture of these benches foundations based in each country. provides income which contributes to their school fees. In general, the primary focus areas for each operating company The Vodacom Congo Foundation also invests in the rehabilitation within Vodacom are education, health and the environment. of school and university buildings. In most cases, benches and However, additional focus areas for each operating company are determined in accordance with the needs of the particular books are also supplied. communities within which they operate. On July 8, 2004 Vodacom Congo launched the Motomolo The following is a discussion of each of the Vodacom Foundation’s Bursary Programme, which provides the ten top performing focus areas within the countries Vodacom operates in. students with an opportunity to study at the Tshwane University of Technology in Pretoria, South Africa. This programme will run Education for ten years. Education is a major priority for the Vodacom Foundation in all Tanzania Vodacom’s operating companies. The Vodacom Tanzania Foundation focuses its education South Africa initiatives on providing school desks and solar power, and The Open Bursary Scheme awards bursaries to underprivileged completing the construction of classrooms. high school students who perform well in their final year examinations. A total of 50 bursaries are awarded per annum, The Amani Centre in the Mikese Morogoro region caters for which are tenable at local universities and technikons. Valued at 300 youths and children with mental disabilities. The Vodacom R50,000, the bursaries are intended to cover all relevant costs Tanzania Foundation constructed four classrooms at a cost of encountered by students during their studies. To date about 800 TSH40 million. students have benefited from this scheme. The Kibondo district in the Kigoma region is not connected to 100 Vodacom also offers sizeable bursaries to the three best the national electric grid, and few people can afford generators. performing students in their final high school examinations The Vodacom Tanzania Foundation approved the installation of through the Vodacom CEO Scholarship Award. Additionally, solar power at the Moyowosi Secondary School at a cost of Vodacom recently renewed its partnership with the Nelson TSH12 million. The success of this project is evidenced by the Mandela Metropolitan University to provide financial support to fact that students had to be persuaded to leave their classrooms Masters and Doctoral students from disadvantaged backgrounds at night to go home and sleep! for a further three years. In the 2007 academic year, Vodacom increased its share of the contribution towards the Masters and The Vodacom Tanzania Foundation also donated TSH5 million to Doctoral programmes from R300,000 to R500,000 per annum. the Nguvu Mali Secondary School in Tanga, to complete the construction of classrooms to alleviate overcrowding. This The Vodacom Foundation invested R7.5 million in infrastructure donation enabled the school to complete four classrooms at two schools in the North West province at Freedom Park, accommodating 200 students. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 101 R6.2 million in the project. The system developed for this system developed in the project. The R6.2 million captured in a user-friendly data to be initiative enables solutions address way through a mobile phone. Cell-Life’s prevention, treatment, dispensing antiretroviral treatment and voluntary and testing. counselling Tanzania health projects focus on Foundation’s Tanzania The Vodacom renovating hospitals and supplying equipment, as well as sponsoring cataract operations. Hospital is a public hospital in Mwanza. The Sekou Toure hospital is the most affordable health service provider for many The people in the lake region, serving800 patients daily. Foundation donated a modern, fully Tanzania Vodacom ward to the hospital. A total of TSH30 renovated children’s million was invested in the project, which also provided hospital beds, mattresses and linen. The Mawenzi Hospital is the main referral public hospital in the Tanzania Kilimanjaro region. Through funding from the Vodacom Foundation, ward number 7 was renovated to provide a modern, hygienic environment conducive to patient recovery. Foundation, Tanzania During the year under review the Vodacom in its second partnership with Comprehensive Community Based Hospital and the Lions Club, assisted Rehabilitation in Tanzania in coordinating and organising eye screening camps and subsequent surgeries for patients requiring treatment. A total of 450 people received cataract surgery during the year under DRC rehabilitates public hospitals Congo Foundation The Vodacom hospital equipment and assists the and medical centres, provides for HIV/AIDS. Staff members also assist national programmes with blood donations. hospital in the DRC. The Kinshasa General Hospital is the biggest 20 blocks, Congo renovated two of its During 2007 Vodacom as well as the surgery of USD28,000. The block, at a total cost Congo Foundation also donated beds, mattresses, Vodacom linen and bedside tables. region was one Renovating the Boma Hospital in the Bas Congo health-related projects in 2007. The biggest of the Foundation’s for Congo Foundation provided around USD88,000 Vodacom the Foundation the renovation. In addition to the renovations, tables. provided beds, mattresses, linen and bedside 2007, more than During blood donation day on June 14, campaign employees joined in the Government’s 70 Vodacom also to donate blood in support of women giving birth. Vodacom Minister of Health to supplied banners and merchandise to the assist with publicising the campaign. Vodacom Sight For You is a partnership between Vodacom Sight For You Vodacom from the and the Pretoria Eye Institute, in which surgeons Institute offer their services funding from at cost. With 400 cataract operations were performed on Vodacom, patients from the Gauteng and Mpumalanga provinces Week. during the 2007 Eye Care Awareness The Smile Foundation and the Johannesburg General Hospital at the end of October Smile Week hosted the first Vodacom 2007, followed by another week in May 2008. The Foundation funded these events to the value of Vodacom R2 million. During each week, up to 40 children receive free world-class reconstructive surgery for facial anomalies. in partnership Netcare Group, helped with the Vodacom, sponsor 155 cataract operations countrywide. Foundation Day 2008, the Vodacom On Valentine’s announced a R4 million donation to enable 27 disadvantaged children to receive corrective heart surgery through the Walter Sisulu Paediatric Cardiac Centre for Africa. Cell-Life is a pioneering initiative providing effective technology based solutions to manage HIV/AIDS. Since Foundation has invested more than 2002, the Vodacom Health South Africa is committed to helping Government meet its priorities Vodacom in the area of health. The Group supports various initiatives in this regard: Vodacom Mozambique constructed and furnished a new Vodacom secondary suburb of Maputo. school in the Chamanculo walked long distances to attend classes as students Previously, of the project was there was no school in the area. The total cost the Um Olhar de USD1.25 million. Built in cooperation with Esperanca project of the Ministry of Education and Culture, the Armando Emilio Guebuza Secondary School caters for approximately 7,000 students with morning, afternoon and evening classes. Mozambique Mozambique participates development in the country’s Vodacom through its support of education initiatives. Lesotho National Lesotho include the initiatives in Existing education internshipUniversity of Lesotho and Vodacom programme Enterprise students. sponsorship of Students in Free Lesotho’s top twelve support Lesotho also provided to Lesotho’s Vodacom Junior Certificate Nokia handset, starter students by sponsoring a to the value of M2 thousand as pack and free airtime for a year, well as school fees. Corporate social investment continued

review; many patients who were living with blindness have had Foundation to support children from five orphanages in Dar their vision restored. Es Salaam.

Lesotho Lesotho Following demands by the public to separate tuberculosis and Vodacom Lesotho annually donates blankets to the value of children’s wards, Vodacom is sponsoring the construction of TB M30,000 to orphanages under the patronage of Her Majesty and children’s wards at a total cost of M1 million at the Queen Masenate Bereng Seeiso. The donation is distributed Mamohau Roman Catholic Church Hospital in Leribe. Construction through the Queen’s National Trust Fund. More than 4,000 was initiated in January 2008. orphans throughout the country benefit from the Queen’s Fund.

Water projects Safety and security Tanzania South Africa Many communities in Tanzania do not have access to safe In June 2007 the Vodacom Foundation contributed R576,000 drinking water. Water projects therefore form an important focus to the Committee for Crime Prevention, a project that reintegrates for the Vodacom Tanzania Foundation. at-risk street children into communities. Also in 2007, the Vodacom Foundation funded training projects in woodwork and The Vodacom Tanzania Foundation funded water projects at a needlework that will provide skills to 48 learners over a period cost of TSH30 million, which will ensure that around 4,000 of one year. residents of the Manguamitogho and Kimpungua villages in Singida have access to clean water close to their homes. Tanzania

The Foundation also donated TSH15 million towards a heavy The Ruangwa district has the highest crime rate in the Lindi duty water pump capable of delivering 50,000 litres of water region. Of particular concern is the high incidence of rape of per hour to give over 5,000 residents of Tunguu, Kikungwi and young school girls. The villagers of Ruangwa approached the Bungi Shehias of Kibele in Zanzibar access to safe drinking Vodacom Tanzania Foundation to assist them in completing a water. police post which would increase the police presence in the area. The Vodacom Tanzania Foundation donated TSH5 million Welfare to complete the project. DRC The Foundation also donated TSH15 million worth of airtime and The Vodacom Congo Foundation donated food and materials Simu Ya Watu units to the anti-robbery unit of the Tanzania Police to the value of USD5,000 to the Association pour l’Assistance in October 2007 at a ceremony at the police head quarters. de la Femme Célibataire Congolaise, a non-governmental organisation that creates employment for women and provides Income generation food for the destitute. Tanzania Tanzania Mwanza Samaritans is a NGO based in Mwanza which The Vodacom Tanzania Foundation hosted a special iftar (a meal provides support to orphans. The group operates several income that breaks the fast) for 170 orphaned children from several generating projects including a small-scale secretarial service. Islamic orphanages in Dar Es Salaam. A total of 17 Islamic Through these projects, women are able to support their families orphanages received four tons of food supplies. Furthermore, as well as 42 orphans. The Vodacom Tanzania Foundation Vodacom employees teamed up with the Vodacom Tanzania donated computers and related hardware to the group. 102 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 103 Approach specific NGOs to investigate which of their investigate which of specific NGOs to Approach the on a good match with be funded, based projects can priorities and criteria; and Foundation’s capacity to develop the skills Assist NGOs that demonstrate necessary resources towards their projects. to mobilise Proactively call on NGOs to submit proposals for the delivery of projects that have been identified by the Foundation; Projects that provide the greatest impact from investments made Congo Foundation enjoy priority for funding. The Vodacom therefore chooses to partner with a handful of NGOs with a Congo Foundation this end, the Vodacom sound track record. To aims to adopt the following practices going forward: DRC December cares and shares” campaign during The “Vodacom and joy to employees to bring hope 2007 enabled Vodacom 70 centres for underprivileged people. During the campaign, orphans across the people living with HIV/AIDS, the elderly and provided clothes DRC were visited once a week. The Foundation and food to the value of USD50,000. Tanzania Tanzania Vodacom Throughout the month of December 2007 the with the Cares campaign, Foundation implemented the Vodacom aim of supportingorphans, children living in poverty and the visited over 26 centres and provided The Foundation elderly. employees Vodacom oil and sugar. food including rice, flour, from all departments contributed to the campaign. The first platform created under the Yebo Heroes banner is The first platformunder the Yebo created to be made Payroll-Giving, whereby employees allow deductions selected charities. from their salaries on a monthly basis towards The next platform was the inclusion of a CSI to be created component for various departmental team building programmes. South Africa provides Heroes programme Yebo Foundation’s The Vodacom the employees contribute to a platform through which Vodacom Heroes they live. As far as possible, Yebo communities in which the projects supportedactivities complement by the Vodacom Heroes participants were involved Yebo Foundation. In 2007, Week, National Employee Volunteer in activities during for the annual Cansa Shavathon that collecting nearly R70,000 raises awareness of cancer. Employee involvement in Vodacom Foundation Foundation involvement in Vodacom Employee CSI projects Global reporting initiative (GRI) content index

Telkom has opted for an incremental adoption of the guidelines to the GRI index, the full adoption will include a quality assurance, and compliance audit report. In many cases, Telkom’s internal reporting frameworks pre-date external frameworks, hence this is presented as a navigation aid as opposed to a “tick-box” compliance exercise.

Item Comment and page reference

Vision and strategy 1.1 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.

Profile Organisational profile 2.1 Name of reporting organisation. Telkom SA Limited 2.2 Major products and/or services including brands if appropriate. Operational review – page 110 Further details of products and service can be accessed on the website www.telkom.co.za 2.3 Operational structure of the organisation. Group structure – page 2 2.4 Description of major divisions, operating companies, subsidiaries. Group structure – page 2 2.5 Countries in which the organisation’s operations are located. The Telkom footprint – page 2 2.6 Nature of ownership; legal form. Telkom Group structure – page 3 2.7 Nature of markets served. The telecommunications industry – page 11

Report scope 2.10 Contact person(s) for the report, including e-mail and web addresses. Administration page and www.telkom.co.za/ir 2.11 Reporting period for information provided. Year ended March 31, 2008 2.12 Date of most recent previous report. Year ended March 31, 2007

Report profile 2.17 Decisions not to apply GRI principles or protocols. Sustainability review – page 36 2.18 Criteria/definitions used in any accounting for economic environment. Notes to the consolidated annual financial 104 statements – page 190 2.19 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 105 Sustainability review – page 36 Sustainability review – page 36 Consolidated statement of changes in equity – page 188 See Telkom’s website: telkom.co.za/ir See Telkom’s Sustainability review – page 36 Comment and page reference statements – page 190 statements – page 190 Corporate social investment report – page 96 shows; AGM and the IR website www.telkom.co.za/ir Sustainability review – page 36 Consolidated income statement – page 186 Consolidated statement of changes in equity – page 188 Corporate governance report – page 44 Notes to the consolidated annual financial Consolidated income statement – page 186 Consolidated income statement – page 186 Chief officers and management team – pages 30 and 32 Chief officers and management team – pages Corporate governance report – page 26 non-executive directors. social risks and opportunities. Board of Directors. EC10 civil society and other groups. Donations to community, 3.6 of conduct. Mission and values statements and codes 3.7 shareholders to provide recommendations to the Mechanisms for Company Secretary (see contact details on ibc) IR road- 3.9 Approaches to stakeholder consultation. 3.10 of information generated by stakeholder consultations. Type EC1 Net sales. EC2 Geographic breakdown of markets. EC3 Cost of all goods, material and services purchased. EC5 payroll benefits. Total EC6 Distributions to providers of capital. EC7 Increase/decrease in retained earnings at end of period. EC8 sum of taxes of all types paid broken down by country. Total Notes to the consolidated annual financial 3.3 for overseeing economic environmental and Board-level processes 3.4 Corporate governance report – page 78 and achievement of goals. Linkage between executive compensation 3.5 report Human capital management – page 69 Organisational structure and key responsibilities. 3.8 Major stakeholders. 3.11 Use of information resulting from stakeholder engagements. Economic performance indicators Stakeholder engagement Governance structure and management systems Structure and governance3.1 Governance structure, including major Board committees. Item 3.2 Board of Directors that are independent, Percentage of the Global reporting initiative continued

Item Comment and page reference

Environmental performance indicators Materials EN1 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 78 EN6 Land owned, leased, or managed in biodiversity-rich habitats. Safety, health and environment report – page 78 EN7 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 indicators Labour practices and decent work LA1 Breakdown of workforce. Human capital management report – page 68 LA2 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 79 LA4 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 68 LA8 Composition of senior management and corporate Chief officers and management team – pages 30 and 32 governance bodies. Corporate governance report – page 44

106 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo

Performance review

Telkom Annual Report 2008 108 109 139 147 146 Five year operational review Operational review review Chief of finance’s Five year financial review Financial review Performance review Telkom is aggressively building on the strengths is aggressively Telkom Africa and of its fixed-line network in South growing its presence in Africa 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 107 Page 16:12 4/8/08 1 dividers••:Layout Telkom 8968 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 108

FIVE YEAR OPERATIONAL REVIEW

for the years ended March 31

2004 2005 2006 2007 2008 CAGR (%)

Fixed-line operational data Fixed 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 5.8 Prepaid 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 1.2 International outgoing 427 415 515 558 635 10.4 International VoIP 25 89 83 38 43 14.5 Interconnection 3,347 3,524 3,654 3,740 3,895 3.9 Subscription based calling plans – – – 1,896 2,997 n/a Managed data network sites(1) 9,061 11,961 16,887 21,879 25,112 29.0 Internet dial-up subscribers(1) 142,208 202,410 228,930 210,453 242,732 14.3 Internet ADSL subscribers(1) 8,559 22,870 53,997 92,140 115,334 91.6 ADSL subscribers(1) 20,145 58,278 143,509 255,633 412,190 112.7 Calling plan subscribers – – 62,803 266,300 451,122 168.0 Fixed-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 data Total mobile customers (thousands) 11,217 15,483 23,520 30,150 33,994 31.9 South Africa Mobile 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 25.7 Prepaid 8,282 10,941 16,770 19,896 21,177 26.5 Community 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 3.7 Contract 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 0.5 Mobile penetration (%) 39.0 49.5 70.6 84.2 94.3 3.2 Total 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 19.0 Incoming 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 6.0 Number of mobile customers per mobile employee 2,527 3,276 4,451 4,867 5,119 19.3 Other African countries Total mobile customers (thousands) 1,492 2,645 4,358 7,146 9,173 57.5 Lesotho 80 147 206 279 395 49.1 Tanzania 684 1,201 2,091 3,247 4,207 57.5 Democratic Republic of Congo 670 1,032 1,571 2,632 3,289 48.8 Mozambique 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 11.0 Democratic Republic of Congo 20.2 23.1 28.1 30.4 48.0 24.2 108 Mozambique 0.3 11.3 32.2 41.7 58.7 274.0 Gross connections (thousands) Lesotho 51 70 98 119 176 36.3 Tanzania 404 746 1,353 2,092 2,645 60.0 Democratic Republic of Congo 513 565 892 1,688 2,141 42.9 Mozambique 58 225 342 797 951 101.2 Penetration (%) Lesotho 5 7 13 17 26 51.0 Tanzania 3 5 9 16 20 60.7 Democratic Republic of Congo 2 4 6 9 12 56.5 Mozambique 3 4 8 14 16 52.0 ARPU Lesotho 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 27.2 Lesotho 68 63 67 63 97 9.3 Tanzania 316 356 438 527 766 24.8 Democratic Republic of Congo 334 538 479 745 919 28.8 Mozambique 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 109 Senior management revised its top 1, 2007, Telkom effect from November With current company’s management structure to better match the to facilitate business needs. The revised structure is designed execution, smoother faster decision-making and more effective to ensure that multi- integration of various operating entities, and servednational and wholesale customers are better through 2007, the Board appropriate channels. On November 22, September as Chief announced the appointment of Reuben In appointing the CEO, the Board followed a Executive Officer. rigorous evaluation process including international benchmarking and consultation with the Department of Communications, the articles of association. latter a requirement specified by Telkom's In addition, on November 1, 2007, Motlatsi Nzeku was appointed 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 Deon Fredericks of Corporate Governance. Additionally, 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 Group, effective from step down as CEO of the Vodacom September 30, 2008. He is expected to remain as consulting Mr Pieter Uys has CEO until the end of the 2009 financial year. Group been appointed Chief Executive Officer of the Vodacom effective from October 1, 2008. At the end of the 2008 financial Leon Crouse ended his term as Chief Financial Officer of year, is currently acting Group. Johan van der Watt the Vodacom Chief Financial Officer of Vodacom. Consortium entire issued an offer for the was considering making of conditions, subject to a number of Telkom, share capital Board things, confirmationincluding, among other the Telkom by as unbundle its entire 50% stake in Vodacom would that Telkom part of the offer. on May 14, 2008, and commenced Discussions with Vodafone the approached received from the are independent from consortium. issued a further cautionary statement On July 15, 2008, Telkom and independently with the Vodafone that its discussions with consortium are advised to are still ongoing and shareholders securities. in Telkom continue to exercise caution when dealing does not intend to consider disposing of Telkom Board Telkom’s or assets without or any of its subsidiaries, joint venture no assurance that compelling strategic rationale. There can be or will ultimately elect to divest of its interest in Vodacom Telkom and its shareholders the structure or the ultimate value to Telkom mobile strategy will interest, or that Telkom’s of its Vodacom any new mobile change or that it will be successful in pursuing opportunities. - - - Separately, on May 30, 2008, Telkom received a letter from on May 30, 2008, Telkom Separately, a consortium comprising Mvelaphanda Holdings (Pty) Ltd, affiliated funds of Och-Ziff Capital Management Group and other strategic investors (the Consortium), stating that the On May 30, 2008, Telkom received a non-binding proposal by On May 30, 2008, Telkom Group Plc to acquire a a wholly-owned subsidiary of Vodafone Group, subject to, stake in the Vodacom portion of Telkom's distributing its remaining stake in among other things Telkom shareholders. to Telkom Vodacom Telkom has made a decision to invest in the built out of a fixed- Telkom is currently limited in wireless and mobile data network. Telkom its ability to pursue or provide full mobile services in South Africa joint and sub-Saharan Africa by the provision of the Vodacom venture agreement with Vodafone. Recent developments Non-binding proposals received nications of South Africa exclusively provided telecommu nications of South Africa exclusively provided nications and postal services in South Africa. In 1991, the Government of South Africa transferred the entire telecommu nications enterprise of the Department of Posts and as Telkom, a new entity, of South Africa to Telecommunications part process intended to liberalise certain of a commercialisation remained a wholly Telkom economy. sectors of South Africa’s 1997, when the state-owned enterprise until May 14, Government of South Africa sold a 30% equity interest in Telkom equity investor to Thintana Communications LLC, a strategic Inc. and Telekom beneficially owned by SBC Communications we completed Malaysia S.D.N. Berhard. On March 7, 2003, the JSE and NYSE, our initial public offering and listing on pursuant to which the Government of South Africa sold a total of 154,199,467 ordinary shares, including 14,941,513 ordinary option. shares through the exercise of an over-allotment Historical background Prior to 1991, the former Department of Posts and Telecommu Telkom Towers North Towers Telkom 152 Proes Street Pretoria 0002 Gauteng Province South Africa 3566 number: +27 (0) 12 311 Telephone address: http://www.telkom.co.za Website The company’s principal executive offices are located at: principal executive offices are The company’s Registration number: 1991/005476/06 Registration number: Telkom was incorporated on September 30, 1991 as a public on September 30, 1991 as a was incorporated Telkom registered under the South African limited liability company of 1973, as amended. Companies Act No. 61 HISTORY AND DEVELOPMENT OF THE COMPANY OF AND DEVELOPMENT HISTORY OPERATIONAL REVIEW OPERATIONAL Operational review continued

OPERATIONAL REVIEW We were the first fixed-line operator globally to provide a prepaid service on a fixed-line network. Our prepaid service Overview offers customers an alternative to the conventional postpaid fixed- Our fixed-line segment is our largest business segment and line telephone service. All costs including installation, telephone includes our fixed-line voice, data and Internet businesses. equipment, line rental and call charges are paid in advance, Telkom’s fixed-line services comprise: eliminating the need for monthly telephone bills. We target our prepaid service mainly at first-time residential customers who do Fixed-line subscription and connection services to postpaid, not have sufficient credit history, and are located in areas where prepaid and private payphone customers using PSTN lines we can provide access to our network without significant including ISDN lines, and the sale of subscription based additional investment. Customers who have previously had their value-added voice services and customer premises equipment telephone service disconnected due to non-payment are also (CPE) rental and sales; encouraged to migrate to our prepaid service option in order to reduce future non-payments while satisfying demand for our Fixed-line traffic services to postpaid, prepaid and payphone services. In the 2007 financial year we introduced Waya Waya, customers including local, long distance, fixed-to-mobile, our most affordable fixed-line offer yet. Existing customers are international outgoing and international Voice over Internet required to pay R120 in advance to cover line rental for a period Protocol (VoIP) traffic services; of one year, thereby ensuring that our customers stay connected.

Interconnection services, including terminating and transiting Telkom also offers a broad range of value-added voice services traffic from South African mobile operators and international on a subscription or usage basis including call forwarding, call operators, as well as transiting traffic from mobile to waiting, conference calling, voicemail, toll-free calling, ShareCall international destinations; and which permits callers and recipients to share call costs, speed dialling, enhanced fax services and calling card services for Fixed-line data and Internet services, including domestic and payphones. These services complement our basic voice services international data transmission services such as point to point and provide us with additional revenue while satisfying customer leased lines, ADSL services, packet based services, managed demand, enhancing our brand and increasing customer loyalty. data networking services, as well as Internet access and Value-added voice services such as our CallAnswer voicemail related information technology services. service are also bundled with value-added calling plans such as Telkom Closer, to further enhance the value of these services to Products and services our customers. Subscriptions and connections Telkom provides postpaid, prepaid and private payphone We provide payphone services throughout South Africa. As at customers with digital and analogue fixed-line access services March 31, 2008, Telkom operates approximately 138,344 public including PSTN lines, ISDN lines, and wireless access between payphones and approximately 4,538 private payphones, of a customer’s premises and our fixed-line network. Each analogue which approximately 41% are coin-operated and combination PSTN line includes one access channel, each basic rate ISDN payphones, and the remainder being card-operated payphones. line includes two access channels and each primary rate ISDN line includes 30 access channels. Each ISDN line transmits The following table presents information regarding our postpaid signals at speeds of 64 Kbps per channel. Subscriptions to ADSL and prepaid lines as well as payphones as at the dates are included in our data services revenue. indicated, excluding our internal lines:

As at March 31, 2006 2007 2008 2007/2006 2008/2007 110 (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 0.2 Residential 1,584 1,545 1,464 (2.5) (5.2) Prepaid PSTN 854 795 743 (6.9) (6.5) ISDN channels 693 718 754 3.6 5.0 Payphones(2) 165 158 142 (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 includes 30 access channels. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 111 the (1.4) (4.9) (2.4) (2.2) (13.1) (66.7) % change 2008/2007 7.0) 0.4) 0.8 1.4) 1.5 266.7) % change 2007/2006 497 ( (110)(607) ( 13.3 2008 4,642 ( 4,532 ( and long-distance calls subject to a minimum charge, as well as reduced rates to selected internationaland pure per destinations second billing for fixed to mobile calls since August 2007. All the benefits of Telkom Closer 3 bundled All the benefits of Telkom with DSL 384. Closer 3 bundled All the benefits of Telkom with DSL 4096. As at March 31, Actively offer value based calling plans and bundles to extend value and savings to our customers; Telkom Closer 4 Telkom Closer 5 Telkom Telkom Closer plans 1 to 3 have an option to purchase 150 or Closer plans 1 to 3 have an option Telkom 75 local Internet hours during call more time. The Closer packages have performed exceptionally well, with to 451,122 plans. the usage base increasing by 69.4% Subscriptions to the supreme call packages, targeted at the small, medium and micro enterprise (SMME) segment, have continues to be increased by 149.2% to 12,916. Telkom successful in tying in large corporate customers to term and volumes 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% to will seek to continue converting traditional R6.9 billion. Telkom revenue streams to annuity revenues. This will mainly be done through bundling call minutes with access line rental in attractive subscription based value propositions, an important strategy for delivering greater value to our customers. Pricing is a key element of the value proposition and our pricing strategy is aimed at improving our competitiveness in areas where competition is expected to intensify and where arbitrage strategy to counter pricing pressures opportunities exist. Telkom’s is as follows: (18) (66) 615 572 (633) (638) 13.4 13.6 2006 2007 4,726 4,708 4,708 4,642 Includes line rental, Call Answer, unlimited Includes line rental, Call Answer, free calls during off-peak time up to one for local a discounted per record rate hour, and long-distance calls subject to a minimum charge, as well as 30 free local minutes during standard time introduced in August 2007. In addition, with effect from August 2008, this package includes 60 free local Internet minutes during off-peak time. 1,000 Includes line rental, Call Answer, inclusive free peak-time minutes, unlimited free calls during off peak time up to one for local a discounted per second rate hour, Includes line rental, Call Answer, a minimum Includes line rental, Call Answer, flat-rate charge for calls during off-peak time record rate a discounted per up to one hour, for local and long-distance calls subject to a minimum charge, as well as 30 free local minutes during standard time introduced since August 2007. In addition, with effect from August 2008, this package includes 60 free local Internet minutes during off-peak time. (in thousands, except percentages) (in thousands, except Connections Opening balance Net line growth Telkom Closer 3 Telkom Telkom Closer 2 Telkom Telkom Closer 1 Telkom Value-enhancing bundles continued to focus on During the year under review Telkom and continuously offering value for money by launching Closer, and Telkom enhancing packages such as PC bundles including the following: periods indicated. Churnperiods indicated. lines in number of fixed access by the average number of disconnections by dividing the is calculated service during the period. primarily from Connections include new line orders resulting changes in service and, to a lesser extent, new line roll-out. disconnections Disconnections include both customer-initiated Included in disconnections disconnections. and Telkom-initiated and churn who have terminated are those customers their service to a new service and subsequently subscribed with with Telkom of subscription to a as a result of relocation or change Telkom different type of service. Closing balance Churn (%) Disconnections The following table presents informationThe following lines in service,number of fixed-access related to the churn net line growth and for Operational review continued

Reduce international and long distance rates to reduce bandwidth and functionality. This, together with the alignment of arbitrage opportunities; the residential and business DSL product and the upgrading of DSL 192 to DSL 384 without any additional cost to customers, Rebalance standard/off-peak local rates, to better align has added to the positive growth in ADSL services. ISDN services these with international norms and improve our competitive grew by approximately 5.0% in the 2008 financial year, mainly position; and due to Telkom’s primary rate service which grew 9.5%, while the basic rate service declined 3.2%. Reduce and rebalance national and international data prices to improve our competitive position. We also offer telecommunications equipment rentals and sales such as telephones and private branch exchange (PABX) systems, Despite these campaigns, Telkom’s fixed-line base declined by as well as related post-sales maintenance and service for 2.4% in the 2008 financial year and 1.4% in the 2007 financial residential and business customers in South Africa. The market in year. The decrease in the number of subscriber lines was mainly South Africa for such equipment and systems, commonly known in the lower revenue generating areas such as prepaid PSTN as customer premises equipment (CPE), is characterised by high lines and residential postpaid PSTN lines, partially offset by an competition and low profit margins. We believe, however, that increase in ISDN channels and business postpaid PSTN lines. the supply and servicing of CPE is an essential part of providing The higher revenue generating areas, such as business lines, a full service to our customers. showed a positive growth of 0.2% in the 2008 financial year and 1.0% in the 2007 financial year. Traffic minutes

The decrease in the number of residential postpaid PSTN lines Pure voice or traffic revenue remains the largest contributor was primarily as a result of customer migration to mobile and to fixed-line revenue. Traffic revenue decreased 4.7% to higher bandwidth products such as ADSL and lower connections, R15.9 billion contributing 49.0% to fixed-line revenue. This while the decrease in prepaid PSTN lines was primarily as a decrease is largely as a result of continued fixed to mobile result of customer migration to mobile services and our residential substitution and price decreases. postpaid PSTN services to enable access to subscription based calling plans. The decline in prepaid services in the 2008 The following table presents information regarding our fixed-line financial year was offset in part by “Waya-Waya”, which traffic minutes, excluding interconnection traffic, for the periods accounted for approximately 32.5% of prepaid services as at indicated. We calculate fixed-line traffic by dividing fixed-line March 31, 2008. The increase in ISDN channels and ADSL traffic revenues for the particular category by the weighted services was primarily driven by increased demand for higher average 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 1.6 International outgoing 515 558 635 8.3 13.8 International VoIP 83 38 43 (54.2) 13.2 Subscription based calling plans(2) – 1,896 2,997 – 58.1

Total traffic 27,361 25,583 23,031 (6.5) (10.0)

112 (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 mobile services, dial-up Internet traffic being substituted by our ADSL service, the decrease in the number of prepaid and residential postpaid PSTN lines, as well as increased competition in our payphone business. The decrease in international VoIP traffic in the 2007 financial year is primarily due to the relocation of the international call centre business by one of our customers outside South Africa. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 113 - 3.4 4.1 n/a (3.1) d on the h category % change 2008/2007 – 5.2 2.4 (2.5) % change 113 2008 1,280 2,502 3,895 – Year ended March 31, ended March Year 2007/2006 Data Leased lines A large number of leased lines are provided to the mobile operators at negotiated wholesale rates for the build-out of their the growth in traffic carried on the mobile networks. With networks, a need was identified for the deployment within these networks of transmission links with speeds higher than the 2 Mbps nications Act, revenue generated from services where we have subsidise competitive significant market power may not be used to services. Early in 2008, ICASA commissioned a review of the however, to Telkom, existing price control regulations applicable ICASA has not initiated the statutory process of reviewing public is awaiting communications from the existing regulations. Telkom the review. ICASA in respect of proposed timelines for overall tariffs for ICASA approved a 3.0% reduction in the services 1, 2005, a 2.1% in the basket effective September reduction in the overall tariffs for services in the basket effective August 1, 2006 and a 1.2% reduction on its regulated basket of products and services effective August 1, 2007. On June 20, filed with ICASA proposed average price 2008, Telkom increases on its regulated basket of products and services of 2.4% as a result of inflation increases, effective August 1, 2008. to apply The price control formula would have permitted Telkom for a 17.2% price increase due to the high consumer price index in South Africa and excess carryover of lower price increases for prior periods. Our tariffs are subject to approval by the at regulatory authorities. All tariffs include value added tax (VAT) a rate of 14%. Historically, the annual permitted the increase in revenues percentage Historically, sub-basket was from both the whole basket and the residential 1, 2005 through July 1.5% below inflation. Effective from August 31, 2008, the annual permitted increase in revenues from both the was lowered to 3.5% whole basket and the residential sub-basket servicesbelow inflation, and ADSL products and have been no individual serviceadded to the basket. In addition, the price of by more than within the residential sub-basket can be increased approval has been 5% above inflation except where specific Electronic Commu received from ICASA, and pursuant to the – 2006 2007 3,654 3,740 1,355 1,321 2,299 2,419 (in millions, except percentages) Domestic mobile interconnection traffic Domestic mobile interconnection Domestic fixed interconnection traffic Domestic fixed interconnection Regulations under the Telecommunications Act, which remain Regulations under the Telecommunications specified in effect, impose a price cap on a basket of Telkom’s services and postpaid line rental, including installations, prepaid local, long distance and international calls, fixed-to-mobile calls, public payphone calls, ISDN services, our Diginet product and our Megaline product. A similar cap applies to a sub-basket of those servicescustomers, including leased provided to residential lines up to and including lines of 2 Mbps of capacity and the rental and installation of business exchange lines. Approximately operating revenue for the year ended March 31, 64% of Telkom’s 2007 was included in this basket, compared to approximately 57% in the year ended March 31, 2008. Our tariffs for these services The price cap operates are filed with ICASA for approval. by restricting the annual percentage increase in revenues from all services attributable solely to price included in the basket that are changes to annual inflation, measured by changes in the consumer price index, less three and a half percent. Telkom made significant progress in rebalancing its fixed-line made significant progress in Telkom historically aimed tariffs. Our tariff rebalancing programme was with underlying at better aligning our fixed-line traffic charges expects that its tariff costs and international norms. Telkom rebalancing in future will focus more on the relationship between the actual costs and tariffs of subscriptions, connections and traffic in order to more accurately reflect underlying costs, and in response to increased competition. Tariff rebalancing Total International interconnection traffic The following table sets forthThe following information traffic terminating regarding interconnection our network for the on or transiting through international traffic, other than interconnection calculate international mobile traffic and outgoing We periods indicated. particular by dividing interconnection revenue for the interconnection traffic, category by the weighted average tariff for suc during the relevant period. Fixed-line internationalduring the relevant period. outgoing mobile traffic and international are base interconnection traffic International traffic decreased in the 2008 interconnection as a result of loss of financial year due to a decrease in volumes illegal operators volumes to Neotel, Sentech, the USALs and International interconnection terminating traffic in the country. due to a decrease traffic decreased in the 2007 financial year in international traffic. switch hubbing Domestic fixed interconnection traffic includes traffic from Neotel, Domestic fixed interconnection traffic includes USALs and VANS. traffic registered through the respective exchanges and reflected in international the respective exchanges and reflected traffic registered through invoices. interconnection traffic in the The increase in domestic mobile interconnection was primarily due to years ended March 31, 2008 and 2007 of growth in the an overall increase in mobile calls as a result mobile market, partially offset by increased mobile-to-mobile calls bypassing our network. Operational review continued

provided by existing agreements. We entered into broadband Broadcasting fixed link leasing agreements with Vodacom and MTN in the Analogue audio 7.5 or 15 KHz 2004 financial year and with Cell C in the 2005 financial year. Analogue video 70 MHz These agreements have been enhanced over time, and we Digital 2 Mbps to 155 Mbps currently provide broadband links at speeds of 45 Mbps, 155 Mbps and 622 Mbps, and anticipate that we will soon be Managed data networking services providing links at speeds of 2.5 Gbps. Formalised service level Our managed data networking services combine our data agreements as well as term and volume based discount structures, transmission services discussed above with active network as a counter to the competitive challenges that are occurring in management provided through our state-of-the-art national this area of the business, have been implemented. network operations centre. We offer a wide range of integrated and customised networking services, including planning, These agreements have been enhanced over time, and we installation, management and maintenance of corporate-wide anticipate that we will soon be providing links at speeds of 45 data, voice and video communications networks, as well as other Mbps, 155 Mbps and 622 Mbps. Agreements and term and value-added services such as capacity, configuration and volume based discount structures have been put in place as a software version management on customers’ networks. To support counter to competition challenges that are occurring in this area our service commitment, we offer guaranteed service level of the business. agreements on a wide range of our products, which include guaranteed availability, or uptime, of the network through the Recognising the increasing threat of competition in the provision use of our national network operations centre. of leased lines to the mobile operators, Telkom introduced further discounting structures in the 2007 and 2008 financial years to Our managed data networking services include our customer enhance the attractiveness of Telkom’s product offerings to this network care service, which facilitates the network management rapidly growing market. Fixed-link leasing agreements were also of all our data transmission services using the leased lines or entered into with some of the smaller operators, including VANS packet based services discussed above, and our Spacestream and USALs, as well as with Neotel. Vodacom and MTN have and IVSat products, which are satellite based products. both indicated that they intend to self-provide some of the leased Spacestream is a high quality, flexible satellite networking lines, which they require for the build-out of their networks, as an service that supports data, voice, fax, video and multimedia alternative to leasing from Telkom. We are currently negotiating applications, both domestically and in the rest of Africa. improved leased line prices with the mobile operators in order to retain revenue from leased lines. Managed data networking services are billed on a monthly basis and vary by customer depending on the particular services The following table indicates the bandwidth capacity of our provided and the number of network sites under management. Diginet, Diginet Plus, ATM Express and broadcasting data The following table presents information regarding the number transmission services: of managed network sites for each of our managed data networking services as at the dates indicated. Leased line Bandwidth Diginet 2.4 Kbps to 64 Kbps Diginet Plus 128 Kbps to 2 Mbps ATM Express 2 Mbps to 155 Mbps

Year ended March 31, 2007/2006 2008/2007 2006 2007 2008 % change % change 114 Terrestrial based 9,492 12,905 17,237 36.0 33.6 Satellite based 7,395 8,974 7,875(1) 21.4 (12.2)

Total managed network sites 16,887 21,879 25,112 29.6 14.8 (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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 115 15.3 17.1 25.2 (38.8) icated: % change 2008/2007 (8.1) 14.3 70.6 (11.1) % change DSL DSL DSL 384 512 4096 2008 7,010 22,541 242,732 115,334 Year ended March 31,Year 2007/2006 The following table indicates our product offerings as at our product offerings table indicates The following 2008: March 31, Downstream speed Up to 384 KbpsUpstream speed 512 Kbps Kbps 4096 Up to 128 Kbpsoption is expected to continue to improve The ADSL Self Install 256 KbpsAs at March 31, 2008, 57% of all ADSL the installation times. 384 Kbps through the Self Install option. installations were done has footprint, Telkom In extending and complementing our ADSL from 27 sites at September 30, base stations increased its WiMAX remains committed to its 2007 to the current 56 sites. Telkom stations. base target of 71 WiMAX information technology services Internet access services and other related is one of the leading Internet access providers in South Telkom Africa in the retail and wholesale Internet access provision markets. product with personal also package our TelkomInternet We computers, ADSL and ISDN services, as well as our satellite access Office. products, SpaceStream Express and SpaceStream Our South African Internet eXchange (SAIX) is South Africa’s offering dedicated and dial-up, largest Internet access provider, ADSL and satellite Internet connectivity to Internet service SAIX has offered providers and value-added network providers. fixed-line network Internet access through dial-up service since 1995. SAIX derives revenue for its access services primarily from subscription fees paid by Internet service providers and value- added network providers for access services. In order to grow the portfolio, an opportunity identified to develop a has been service users of the SAIX ADSL targeted mainly at night-time service. as heavy users as they These customers can be regarded use the service and movie downloading. mainly for games, music The SAIX customer base has expanded beyond service providers and value-added network providers, and now includes Vodacom and other operators in Africa. These include incumbents in Mozambique, Namibia, Angola, Zimbabwe and Lesotho. 2006 2007 16,83212,889 19,247 11,462 53,997 92,140 228,930 210,453 Retail Internet dial-up subscribers Wholesale Internet leased lines-equivalent 64 Kbps Dial-up ports Internet ADSL subscribers ADSL allows provisioning of high speed connections over have existing copper wires using digital compression. We different ADSL services at the distinct needs of available, aimed our customers. In an attempt to simplify our DSL offering and to increase value to customers, we have aligned the residential and business DSL product offerings and upgraded all DSL 192 customers to DSL 384 without any additional cost to customers. ADSL services Broadband and Converged is aggressively expanding its ADSL footprint, increasing Telkom Services such as the bandwidth offered in order to host applications video services and using the Next Generation Network (NGN) footprint now to facilitate innovative solutions. The ADSL total network and our coverage in covers 92% of Telkom’s underserviced areas has increased to 76%. ADSL subscribers internal lines. We grew 61.2% to 412,190, excluding Telkom fell short target of 420,000. Nevertheless, of our aggressive the commoditisation this strong growth was achieved through Option, DSL portof ADSL, Do Broadband, the Self Install automation and wholesale services. Broadband packages Do ADSL servicesincreased by 245.6% to 119,288. Wholesale to achieving our remains committed grew to 18,722. Telkom fixed access lines by targeted ADSL penetration of 15 to 20% of This will continue to offset the end of the 2011 financial year. by 2.4% to the decrease in access lines which have decreased 4,531,752 access lines. Telkom’s focus on bringing new innovative products to the new innovative focus on bringing Telkom’s data usage and converged cater for increased market that services in our new VPN products gaining increased has resulted to have increased VPN sites by 58% We traction in the market. Lite products, which are delivered over 12,741. Our new VPN include advanced self-help and online the ADSL network, product was launched during November charging solutions. This of is in the process of building on a culture 2007. Telkom and fast time-to-market, in order to cater research and innovation increasingly looking for innovative, easy for customers who are to use products. The following table presents information regarding our wholesale and retail Internet services and customers as at the dates ind Operational review continued

Voice over Internet Protocol network Our expansion to date has been through Multi-Links, a private Softswitch capability is initially being deployed as an overlay telecommunications operator operating in Nigeria and Africa network to enable the communication of VoIP services. Our Online, an Internet services provider with its head-office in Kenya current VoIP network terminates calls for numerous international and operating in eight other African countries. voice carriers into our fixed-line network. Call centres from around the world that have relocated to South Africa due to Our other operations segment provides directory services through our TDS Directory Operations Group, fixed mobile, data favourable economic conditions and lower resource costs are and other international communications services in Nigeria also hosted on our VoIP network. Telkom has points of presence through our newly acquired Multi-Links subsidiary, Internet for connectivity to the VoIP network in Amsterdam, London, services outside South Africa through our Africa Online New York, Ashburn (Washington D.C.), Hong Kong, Zambia, subsidiary, and wireless data services through our Swiftnet Zanzibar, Tanzania, Senegal and Madagascar. The network can subsidiary, and includes Telkom Media and the Telkom terminate 69 media gateways, or approximately 32,700 voice Management Service Company which will provide consulting circuits. The media gateways compress the traditional voice and management services in South Africa and Africa. TDS channels of 64 Kbps to 8 Kbps channels thus enabling us to Directory Operations and Swiftnet were previously included in reduce the cost of international calls, while maintaining the our fixed-line segment. perceived voice quality of a 64 Kbps call.

TDS Directory Operations WiFi Telkom owns 64.9% of TDS Directory Operations, the largest In February 2005 Telkom launched a hot spot service that directory publisher in South Africa providing white and yellow provides wireless data access through 802.11b/g WiFi pages directory services and electronic white pages. During the technology. Any user with a wireless-enabled notebook computer 2008 financial year, TDS Directory Operations published or personal digital assistant can connect to the service while in approximately 2,460 million white, 2,078 million yellow and the coverage area. WiFi is mainly targeted at restaurants, hotel 3,375 million combined directories. TDS Directory Operations groups, major shopping malls and some sites on national routes. also provides electronic yellow pages and value-added content At March 31, 2008 Telkom has 237 hotspots, up from 75 at through full-colour advertisements. TDS Directory Operations has March 31, 2007. improved the accessibility and distribution of directories through WiMAX door-to-door delivery and electronic media. We also provide national telephonic inquiries and directory services. The remaining Telkom has launched services based on fixed (IEEE 802. 16- 35.1% of TDS Directory Operations is owned by Maister 2004) WiMAX technology. This technology is a standard based Directories (Pty) Ltd. On January 23, 2007, TDS Directory broadband wireless access technology that provides throughput Operations acquired a 100% shareholding in a shell company connectivity in a point-to-multipoint configuration. The technology and subsequently renamed it TDS Directory Operations (Namibia) is designed to enable Telkom to complement its ADSL service (Pty) Ltd, which provides directory services in Namibia. On offering in peri-urban and rural areas, and in areas where ADSL October 31, 2007, TDS Directory Operations sold a 25% interest services are not yet available. Telkom is also pursuing the in TDS Directory Operations (Namibia) (Pty) Ltd to Ripanga provision of a voice service to complement the broadband Investment Holdings (Pty) Ltd, a black economic empowerment service offering and a trial is currently in progress. If successful, partner in Namibia, for two million Namibian dollars. this will be used to provide services in areas where Telkom experiences problems with the fixed-line copper network due TDS Directory Operations’ capital expenditure was R42 million primarily to thefts and breakages. in the 2008 financial year, as the company sought to continue expanding access and distribution into new markets. TDS Telkom has a memorandum of understanding in place with Intel Directory Operations invested in a new online platform in order 116 Corporation for the interchange of information pertaining to to combat declining revenue from printed products. WiMAX, in order to keep pace with the latest WiMAX developments. Telkom is a member of the WiMAX Forum and TDS Directory Operations’ primary competitors for print actively monitors the Forum for any developments. materials include Caxton, Easy Info and Brabys. TDS Directory Operations’ primary Internet competitors include Yahoo, Google Geographic Expansion and other operations and Ananzi, as well as vertical search capabilities such as Auto Telkom aims to establish itself as a regional voice and data Trader and Supersport. TDS Directory Operations’ estimated player through providing a range of hosting services, managed market share as at March 31, 2008 is approximately 9% with solutions, mobile voice and wireless broadband services. We respect to print media, and approximately 11% with respect to are also entering the field of management consulting to Internet directory services. operators. In addition, we are positioning Telkom as a wholesale facilities and infrastructure enabler for regional incumbents. TDS Directory Operations had 610 employees as at March 31, 2008. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 117 Commissioned its first Huawei packet exchange in Abuja with Commissioned its first 300Kbps capacity; by 250Kbps capacity to 600Kbps Extended its Lagos switch capacity; 223; Extended the number of towers from 91 to 134 to 269; Extended the number of base stations from Lagos; and Established a new main network site in Gbagada, resulting in a Added 1,300km of national backbone fibre, total of 2,500km. due to logistical difficulties. The average revenue per user (ARPU) revenue per user difficulties. The average due to logistical was March 31, 2008 for the 11 months ended achieved expected that ARPU will fall below USD30 USD32. It is however year. during the 2009 financial Multi-Links’ build and expansion year, In the 2008 financial the following: programme achieved Plans are underway to deploy Metro Ethernet rings in Kanu, will be built in the Kaduna and the Delta region. Six NGN nodes greatly extending Multi-Links’ ability to 2009 financial year, In May 2008, the provide data products to corporate customers. links between first South African organisation commissioned through Multi-Links. and Nigeria South Africa through Telkom This ability to provide end-to-end services throughout Africa is a customers to key strength. Multi-Links expects more corporate come on board in the near future. awareness and Multi-Links’ strategy will focus on brand of fixed-wireless promotional campaigns to increase the revenue and mobile customers, and will seek to offer easy to understand high-value bundles, differentiated by voice quality and service levels. Broadband Internet with Internet service provider services will target high value bundles. High quality Internet protocol NGN services in Lagos to attract are planned to be deployed high-end corporate users, and carrier class wholesale products and services are planned to be introduced by establishing an earth station to provide international connectivity. The prospects for Multi-Links are good and the company intends brand and access to international to capitalise on Telkom’s The resilience and quality of international connectivity. connectivity provides great opportunities in servicing corporate, wholesale and retail markets. Africa Online acquired 100% of the issued On February 23, 2007 Telkom share capital of Africa Online from African Lakes Corporation, at a total cost of R150 million. Africa Online is an Internet service provider active in Cote d’Ivoire, Ghana, Kenya, Namibia, Uganda, Zambia and Zimbabwe. Africa Swaziland, Tanzania, strategy focuses on brand development, creation and Online’s The majority of new subscribers were added in late February and March 2008 as a result of equipment being delayed As a result of the CDMA technology, Multi-Links subsidised As a result of the CDMA technology, handsets which was the largest contributor to SG&A expenses. New CDMA customer premise equipment allows for CDMA technology to be embedded on SIM cards which enables CDMA to work on any telephone. This is expected to substantially change Multi-Links’ operating expenditure going forward. Voice and data revenue contributed 81% to total revenue, handset and Voice sales 12%, interconnect revenue 6.8% and short message service (SMS) 0.2%. Operating expenses were R941.8 million with payments to other operators contributing 66%, selling, general and administrative (SG&A) expenses contributing 15%, employee expenses 4%, operating leases 4%, services rendered 2% and depreciation contributing 9%. Multi-Links reported revenue of R845.4 million, a loss before tax of R63.5 million and a profit after tax of R49 million due to a tax credit. The pioneer tax status ended on December 31, 2007, and the company is liable for tax of 30% and an educational levy of 2% going forward, of tax credits. subject to the utilisation The company reported total subscribers of 262,431 at an aggressive subscriber placed September 30, 2007. We 31, 2008 on the target of 812,000 for the year ending March exceeded this target and delivered Multi-Links company. At the end of May 813,392 subscribers as at March 31, 2008. Subscriber 2008, Multi-Links recorded 1,000,251 subscribers. dependant on the additions are not linear and are entirely is determinedcapacity that Multi-Links has available. Multi-Links service.to provide all its subscribers with a premium In the 2008 financial year, Multi-Links generated R845.4 million In the 2008 financial year, million. Telkom in revenue and had total assets of R2,206 expenditure at anticipates spending USD533 million in capital Multi-Links in the 2009 financial year. Multi-Links’ Unified Access Licence was granted on November 1, Multi-Links’ Unified Access 2006 and has a term remaining. of ten years, with eight years with Unified There are currently nine operators licensed Access Services Licences in Nigeria, making the Nigerian as operators telecommunications market extremely competitive data and video may use any access technology to deliver voice, services to their customers. Multi-Links 75% of acquired May 1, 2007, Telkom effect from With for Ltd (Multi-Links) in Nigeria Multi-Links Telecommunications billion). The remaining 25% of Multi- USD280 million (R1,985 Kenston Investment Ltd, an investment Links is owned by Isle of Man in the United Kingdom. Multi- company based in the operator with a Unified Links is a private telecommunications fixed, mobile, data, long distance and Access Licence allowing international telecommunications services focused primarily on corporate clients in Nigeria. Operational review continued

development of customer channels, improving network systems, links and consumer wireless services were the highest revenue human resources development and an expansion drive targeting streams followed closely by dial-up business. Dial-up packages, other African countries. In the 2008 financial year, Africa Online however, are the most popular and accounted for approximately generated revenue of R110 million, and had assets totalling 60% of Africa Online’s total customers as at March 31, 2008. R122 million. Consumer wireless customers are expected to continue to grow

Africa Online offers wireless and fixed-line technologies, hosting in line with Africa Online’s continued investment in infrastructure. and domain registration to both consumer and corporate The following table presents Africa Online’s customer base as at customers. During the year under review dedicated corporate the periods indicated:

As at March 31, 2008/2007 2007 2008 % change

Dial-up 11,599 8,936 (23.0) Consumer wireless 1,939 4,340 123.8 Unbundled local loop 100 174 74.0 ADSL 300 257 (14.3) VSAT 26 84 223.1 Dedicated corporate 578 602 4.2

Total customers 14,542 14,393 (1.0)

The reason for the decrease in the number of dial-up and ADSL are still regulated, limiting the services Africa Online can provide customers is that Africa Online has shifted its marketing to its customers. West Africa is a fairly liberalised market and approach to focus on increasing the number of customers on its Africa Online is presently seeking to take further advantage of own wireless network infrastructure, as opposed to dial-up and opportunities presented by this. ADSL networks. Africa Online increased its revenue from R46 million in the six Africa Online’s distribution is conducted through various months ended September 30, 2007 to R110.0 million as at channels including direct sales and different types of resellers March 31, 2008. The major contributors to revenue were dial- depending on the customer segment. Customers are serviced up, consumer wireless and dedicated corporate links. The through customer relationship managers and a 24-hour call decline in earnings before interest, taxes, depreciation and centre. Africa Online’s primary competitors include former amortisation (EBITDA) margin is largely as a result of the Telkom telecommunications companies that have entered the Internet management fee, payments to other operators and SG&A expenses. The company reported an operating loss of R63.2 million service provider market and other private companies. largely as a result of foreign exchange losses. As at March 31, 2008, Africa Online’s network has 31 points of Africa Online’s infrastructure roll-out has not progressed as fast presence, 46 mobile broadband transceiver stations, 25 fixed as hoped due to the long equipment lead times and unrest in broadband wireless access transceiver stations, 13 network Kenya during December 2007 and January 2008. However, operation and support centres and 12 data centres across nine Africa Online has capitalised on its relationship with Telkom in countries. Africa Online’s capital expenditure was USD5.7 million the pursuit of multinational clients and has 124 Pan-African in the 2008 financial year as compared to USD0.8 million in the multinational customers. 2007 financial year. The increase in capital expenditure was 118 primarily due to the improvement of service quality and an Telkom has migrated 115 corporate VSAT sites to African increase in the range of ICT services offered in the market. Online. This migration has allowed for the joint tendering of business to large multinational customers and opened the Africa Online has 379 employees as at March 31, 2008. A new Southern African region to Africa Online. The company is also CEO, John Joseph, and a new chief financial officer, Munaff now in a position to compete with the likes of MWEB and AFSAT. Cassim, were appointed to Africa Online during May 2007. In addition to the affiliates Africa Online currently works with in Africa Online’s footprint covers East Africa, Southern Africa and Senegal, Benin, Nigeria, Angola, Botswana and Mozambique, West Africa. The regulatory environments are fairly different new affiliates have been signed up in Malawi, Mauritius and in each of Africa Online’s different regions. East Africa is Sudan including additional affiliates in Namibia, Angola and liberalised and Africa Online provides services across the ICT Mozambique. The company is extending its coverage across the spectrum, including VoIP services. Markets in Southern Africa continent to aggressively target the Pan-African corporate market. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 119 and conditions to ICASA that 2008. It was decided that the draft percentages for all licensees. ICASA indicated that State owned incumbent operators in sub Saharan Africa; and including green Numerous new entrants into the ICT industry, field entrants that need operational expertise to scale up and be effective operators. There is a need for consultants in the ICT industry with relevant expertise and support from reputable telecommunications operators that understand the African operational environment and are able to provide such services. the shareholding issue for the Swiftnet licence would need to be similar licensees. in line with BEE values applicable to other Swiftnet met with ICASA on January 28, 2008 to discuss its specific licence terms and conditions. Swiftnet has submitted its comments on the draft licence terms Swiftnet, assisted by ICASA sent to Swiftnet during October 2007. has had a further meeting with as its sole shareholder, Telkom ICASA on February 27, amended licence that ICASA sent to Swiftnet during October 2007 would not form of the conversion process, but the basis instead the original licence issued to Swiftnet in August 1995 would be used as the basis for licence conversion. The transaction is still subject to ICASA approval. in the 2008 financial year, with strong competition from its three with strong competition financial year, in the 2008 New X-Link and Datalink. ConnectNet, main competitors, services ADSL router services such as to are being developed broaden revenue streams. as CEO as of July 9, 2007, and John Myers was appointed appointed as Chief Financial Officer as of Nokuthula Ngubeni was has 85 employees as at March 31, 2008. April 4, 2008. Swiftnet of its licence which requires it to have at Swiftnet is in breach held by BEE individuals or entities. ICASA least 30% of its shares to remedy this breach in its licence, which has required Swiftnet 2006. On Februaryexpired on August 24, 14, 2007 Telkom to sell a 30% announced that it had entered into an agreement stake in Swiftnet to the Radio Surveillance Consortium, group a of empowerment investors, for R55 million following a competitive The transaction sale process run by an independent adviser. would not have required any financial support or facilitation from Commission The transaction received Competition Telkom. approved by ICASA. approval on May 28, 2007, but was not empowered Swiftnet is currently seeking black economic to ICASA. With individuals or entities who would be acceptable is that there regard to shareholder issues, ICASA indicated currently no agreement within the industry as to acceptable BEE shareholding Other developments Telkom Management Services Board has approved the establishment of the Telkom The Telkom Company Management Services Opportunities Company (TMSC). exist in sub Saharan Africa for a reputable and acknowledged telecommunications operator to provide telecommunications management services. for such services The target markets are: - Swiftnet has a number of regional offices nationally that manage more than 160 contractors. Customers are serviced through a tier 1 and tier 2 technical call centre as well as in-house sales team technicians and external contractors. Swiftnet’s supports various retail and wholesale relationships. The company had an estimated 33% market share in the point of sale communications market based on the number of customers Swiftnet’s network has 180 base transceiver stations and one Swiftnet’s base station network management centre. Swiftnet currently operates a short message service over its network that feeds back into a third party operator connected to the mobile operators. Swiftnet currently operates two sites for redundancy purposes, one in Centurion and one in Rosebank, for modem and router based services. Swiftnet operates under the name owns 100% of Swiftnet, which Telkom Service.Fastnet Wireless Fastnet is a wireless network providing asynchronous wireless access on our X.25 network, Saponet-P, to its customer base. This service expanded by Swiftnet has been to include a GPRS-driven solution using a dual SIM card allowing and MTN GPRS customers to roam on both the Vodacom South African networks. Services retail credit card and include security and check point of sale terminal verification, telemetry, vehicle tracking. Telkom Media has 142 employees as at March 31, 2008. Media has 142 employees Telkom were appointed as Mandla Ngcobo and Lourens van Niekerk Officer respectively. Chief Executive Officer and Chief Financial We acknowledge that the expansion of content rich services acknowledge that the expansion is We but act as a major crucial as it will not only drive future revenue, market space. product differentiator in a crowded broadband other operators and Content can however be sourced from options with respect to is in the process of investigating Telkom providers. acquiring content from a number of content Telkom announced on March 31, 2008, its decision to reduce its on March 31, 2008, its decision to reduce announced Telkom will be Telkom Media substantially. shareholding in Telkom investigating all opportunities in the best interest of to do this confirms shareholders and all other stakeholders. Telkom Telkom announced Telkom’s that it has received proposals relating to Media. No Telkom intention to substantially reduce its stake in is currently Telkom decision has been made to date and a decision in reviewing the proposals and anticipates making the near future. ment (BEE) shareholding. On August 31, 2006 Telkom Media On August 31, 2006 Telkom ment (BEE) shareholding. for a commercial satellite and cable applied to ICASA licence. On September 12, 2007, ICASA subscription broadcast Media a commercial satellite and cable granted Telkom licence, the issuance of which is subject subscription broadcast satisfaction of certainto the negotiation and conditions. Telkom Media Media (Proprietary)private Limited as a launched Telkom Telkom have a 30% black economic empower company intended to Operational review continued

It is envisaged that TMSC will be a wholly-owned subsidiary South Africa is currently in the build phase, and we anticipate providing the full range of strategic and operational services. this to be completed during the 2009 financial year. Its relationship with Telkom holds advantages in terms of expertise in technology innovation and integration, independence Automatic self-healing re-routing of bandwidth on the national from equipment manufacturers, experience of a large number of layer has commenced. supplier platforms as well as firsthand experience in transforming from a state-owned monopoly, through commercialisation to The national and local transport network increased by privatisation and listing. 377 nodes, growing the network bandwidth by 1.2 Tbps or 21%. The management contracts of Multi-Links and Africa Online will be handled by TMSC. Total international bandwidth has increased to 4.5 Gbps or by 88%. Fixed wireless and mobile data network ATM network available bandwidth on the core and metro Telkom has decided to utilise W-CDMA technology and has layers has increased to a combined 147 Gbps or by 41%. appointed Huawei as our vendor to build out our fixed wireless and mobile data network. National IP Network bandwidth has increased to 32.2 Gbps or by 11%. W-CDMA technology will provide Telkom with the following benefits: Network Interactive Voice Response Systems have been deployed which offer advanced speech services. Automated Telkom will gain portable and mobile data as well as fixed speech recognition and text-to-speech applications enable and nomadic voice capability; corporate customers and Telkom to enhance their voice systems. As W-CDMA has the capability of supporting full mobility, the above services can be further augmented with mobile Diginet and Diginet Plus network bandwidth has increased to voice services should Telkom be successful in concluding its 27 Gbps, a growth of 20%. mobile strategy, and no longer be bound to the current A total of 237 WiFi hotspots have been deployed at strategic shareholders agreement with Vodafone; and partner locations. The technology will alleviate the negative impact of Thefts, Fibre deployment has increased by 8.7%. Breakages and Incidences (TBIs) on service delivery. In order to satisfy demand for services in high theft and high IMAX has been introduced into the system and is ready to maintenance areas, Telkom has acquired W-CDMA to carry traffic. IMAX has the ability to carry narrowband and decrease exposure to the losses being incurred. broadband services for wire line legacy and converged Key Next Generation Network, capacity and product services. developments Telkom spent R6.8 billion on its capital expenditure programme Telkom is in the third year of its Next Generation Network (NGN) during the year under review for the fixed-line business. It is build out programme. Customer demand and global standards estimated that we will spend approximately R11.3 billion in the necessitate the provision of services and particularly bandwidth financial year ended March 31, 2009 on both the fixed-line and that is only possible utilising the intelligence of an NGN system. other segment.

Our NGN build out achievements are as follows: Cost, efficiency and productivity management 120 Faced with increasing competition eroding our revenue base, cost An increase of the ADSL footprint to 2,660 DSLAMs, covering management continues to be a key element in maintaining 92% of Telkom’s existing customer footprint. shareholder value.

A total of 84 Metro Ethernet nodes have been deployed in The Telkom fixed-line business managed to contain its operating major cities using 10 Gigabit and 1 Gigabit line systems. expense growth to a 3.6% increase, despite the high inflationary environment with CPIX recorded at 10.1% in March 2008. The first Dense Wave Division Multiplexing (DWDM) system Employee expenses increased by 4.2% to R7.4 billion, SG&A capable of 40 10 Gbps signals over a single pair of fibre expenses decreased by 1.9% to R3.9 billion, services rendered has been deployed between Gauteng and Durban. This has increased by 9.4% to R2.4 billion and operating leases significantly increased transport bandwidth capability. A decreased by 18.8% to R619 million. Depreciation, amortisation, significant roll-out of this system between all major cities in impairment and write-offs increased by 4.2% to R3.7 billion. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 121 Network service quality have made significant investments in our national network We operations centre and our data centre, designed to increase our ability to identify and anticipate future customer needs more and to provide appropriate solutions and services. In rapidly, order to take advantage of economies of scale in scheduling, we have consolidated our six voice installation and fault management centres into two centres to address faults, installation and service appointment scheduling, and have consolidated our six data installation and fault management centres into two centres. The sustained employability and wellbeing of Telkom staff is of wellbeing of Telkom employability and The sustained importance.paramount Maintaining the qualityImproved customer service is vital to the future success of Telkom. of services to our growth in the customer base requires Sustainable and profitable customers capabilities focused on managing creating and strengthening and learningcustomer relationships customer from acquired manage the customer to information. This will enable Telkom customer needs. experience and anticipate to based on value should enable Telkom Customer segmentation additional in order to provide better, understand customer equity value and services.individual customer’s Understanding an requirements will breakeven point and anticipating their future to intelligently determine value enhancers and cross allow Telkom selling opportunities. to complement A call centre masterplan has been designed agents for high value customer segmentation through dedicated of complex calls to customers, upfront identification and routing of high volume the specialised agents and upfront resolution element in making simple calls by universal agents. This is a vital us. it easier for our customers to do business with operations under one have consolidated all call centre We In addition, structure creating a single point of accountability. of call we have ensured redundancy through the interconnection and rerouting of centres allowing a reduction of bottlenecks overflow traffic. and high theft In areas of high cost, high maintenance is occurrence, particularly copper and fibre theft, Telkom to restore and deploying a wireless network using W-CDMA improve service quality. shops, which entails that certain Direct An increased focus on customer service; Faster delivery of improved services to the market; and Improving cost management and capital productivity; Increasing shareholder returns. To ensure that capability management, which includes elements To of outsourcing, is inclusive, we are engaging with organised labour in line with transparency and labour regulations. Many interactions have taken place with union leadership over the past few months to achieve the appropriate levels of awareness, education and strategic insight on the aspects of capability management. This included international benchmarking visits to other operators and professional services providers in Germany, Australia, New Zealand and Brazil. elements will be outsourced to professional serviceelements will be outsourced to professional providers. requests for proposals has commenced with issuing closed Telkom for professional services in this regard. Furthermore, Telkom is currently consolidating its service is currently consolidating Furthermore, Telkom providers to deliver network services. A critical factor in the new moves towards a more contract process is to ensure that Telkom consolidated interface with the service and provider market of scale and volume. obtains maximum efficiencies in the areas A capability management process is underway to identify partners operations, information for network technology management and Telkom Our continued focus on cost management, efficiency and Our continued focus implementing has resulted in Telkom productivity management programme. Professional servicesits capability management particularly in the information technology have grown globally, to environments. This enables Telkom and telecommunications focus on services that differentiate us from our competitors, including: Telkom did not achieve its fixed-line EBITDA margin target of fixed-line EBITDA margin did not achieve its Telkom from at 36.3%, decreasing with the EBITDA margin 37% to 40% of Media provision 2007. If the Telkom 37.7% as at March 31, the EBITDA margin target of 37% R217 million was excluded would have been achieved. Operational review continued

The following table presents information regarding Telkom’s service delivery measurements during the periods indicated.

Year ended March 31, 2006 2007 2008

Residential voice % cleared in 24 hours 47 50 38 Faults per 1,000 lines 470 485 476 % installed within 5 days 49 81 54 Business voice % cleared in 24 hours 61 66 50 Faults per 1,000 lines 300 328 264 % installed within 5 days 63 83 63 Data subrate % cleared in 24 hours 92 84 93 Faults per 1,000 lines 801 870 875 % installed within 10 days 40 41 19 ADSL business % cleared in 24 hours 54 33 42 Faults per 1,000 lines 480 575 575 % installed within 20 days 56 76 56

Residential and business voice orders installed within five days We have changed the measurements of the installation measures and faults cleared in 24 hours declined during the year under as indicated in the table below. The change in methodology review due to the increased focus on ADSL services. The ADSL serves to more accurately reflect the demands placed on us by installed base grew by 61% during the 2008 financial year and customers. In addition we have differentiated between those 78% during the 2007 financial year. This growth resulted in an services that require network or infrastructure build activity increase in the number of reported faults and impacted on the time compared to those that can be provided by flow-through means, taken to clear faults. This growth also impacted on data sub rate where no network or infrastructure build is required. This services as these share ADSL resources. The increase of separation provides insight into how Telkom is addressing the approximately 20% in network failures during the 2007 financial year contributed to the increased sub rate faults per 1,000 lines. demands of both flow-through and build instances, and provides Network failures consist of cable breaks, cable theft and failures focus on the two processes with the objective to reduce cycle on other core network elements. We implemented a self-install times for both processes. It removes the potential masking of the option for ADSL, which had a positive impact on ADSL installation. one process over the other.

Year ended March 31, 2007 2008

Residential voice % installed within 28 working days initial timeframe – No build 84 91 122 % installed within 80 working days initial timeframe – Build 73 82 Business voice % installed within 21 working days initial timeframe – No build 77 85 % installed within 70 working days initial timeframe – Build 81 84 Data subrate % installed within 30 working days initial timeframe – No build 49 48 % installed within 90 working days initial timeframe – Build 54 79 ADSL business % installed within 21 working days initial timeframe – No build 56 79 % installed within 60 working days initial timeframe – Build 68 66

We anticipate that we will continue to change the method in which we measure performance to align with changes in the ICT industry that focus more on broadband and data services, and also to support Telkom’s customer centricity drive. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 123 158 255 99.9 2008 4,463 79 76 As at March 31, 70 Data competition in the data market from also faces increased competition Telkom and private mobile operators, value added network operators network operators as a result of determinations by the Minister and the Electronic of Communications in September 2004 on July 19, 2006. Communications Act, which came into effect providers such as Internet Solutions are our Neotel and VANS main competitors in the data market. Neotel is entering the market through competitive pricing and niche products such as providers offer competitive fibre connections and rings. VANS IP virtual private networks and Internet service provider services to the business segment. Consumer orientated Internet service providers such as MWEB are our main competitors in the consumer Internet market. In addition, our data services have faced increased competition from iBurst, a wireless competitor that offers competing broadband services and, to a lesser extent, Sentech, which owns and operates satellite transmission systems, a packaged, always- on bidirectional broadband service via satellite and a wireless the mobile high-speed Internet service offering. Similarly, and EDGE networks also enable operators’ 3G, HSDPA customers 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 significantly believe leading to price competition in our data markets. We operators and Internet service will providers that VANS increasingly move into the corporate and voice services market, and Cell C entered into a joint venture with Virgin Mobile which Virgin and Cell C entered into a joint venture with with also competes has further increased competition. Telkom service providers who use least cost routing technology that private branch enables fixed-to-mobile calls from corporate by being transferred exchanges to bypass our fixed-line network our fixed-line directly to mobile networks. In recent periods, migration to business has experienced significant customer mobile services, as well as substitution of calls placed using mobile services rather than our fixed-line service. ICASA has initiated a review process of mobile termination rates aimed at which, once reducing high mobile interconnect charges own termination rates completed, is also likely to impact Telkom’s and interconnection revenues. 32 189 202 212 228 99.9 99.9 99.9 99.9 - - 2004 2005 2006 2007 4,321 4,339 4,427 4,448 nications facilities that they obtain from Telkom; operators are permitted to allow their services to carry VANS voice traffic, including VoIP; is no longer the sole provider of facilities to VANS Telkom operators; and Licensing for the provision of payphone services has been expanded. Mobile cellular operators are permitted to obtain fixed telecommunications links from parties other than Telkom; operators and private network services (VANS) Value-added network operators are permitted to resell the telecommu Telkom competes for voice customers with the three existing Telkom our 50% owned joint venture, MTN mobile operators, Vodacom, and Cell C. MTN is a public company listed on the JSE Limited, Mobile competition We compete primarily on the basis of customer service, quality, We dependability and price in those areas where we currently face competition and where we expect to compete for public-switched intend to introduce telecommunications services We in the future. new products and services tariff structures with the as well as aim of maintaining and gaining revenue. nications Act and determinations issued by the Minister of Communications: The new licensing framework included in the Electronic The new licensing framework included becoming more Communications Act is resulting in the market licences being horizontally layered, with a number of separate services,issued for electronic communications network electronic communications services, broadcasting services and the radio increase competition frequency spectrum. This will substantially to the Telecommu in our fixed-line business. In addition, pursuant Competition in the South African fixed-line communications Competition in the South African fixed-line of the Electronic market is intense and is increasing as a result Communications Act and determinations issued by the Minister of Communications. Competition IP routers Infrastructure and technology table presents informationThe following dates indicated. of our network at the and upgrade related to the digitisation Digitisation (% of lines) ATM switches ATM Digital exchange units Operational review continued

while telecommunications service providers aim to expand into On April 25, 2008 Neotel announced that the first of its the managed data network and international traffic markets. We consumer products were available in limited parts of Johannesburg anticipate that alliances will be forged between VANS operators, and Pretoria. Government has created an infrastructure company, telecommunications service providers and content providers to Infraco, which stated that it will provide inter-city bandwidth at concentrate on the delivery of converged services within the next cost based prices to Neotel, and later to the rest of the industry. few years. This will further compete with our existing communications network. Infraco was established by an Act of parliament: the Domestically, expansion into new markets by VANS and mobile Broadband Infraco Act, No. 33 of 2007. The Electronic Commu - companies will occur, while the development of new products nications Act, No 36 of 2005, has been amended by the and services will intensify competition. We expect competition to Electronic Communications Amendment Act, No. 37 of 2007, to further increase as a result of consolidation in the market, with competitors growing through mergers, acquisitions and alliance- permit electronic communications licences to be issued to Infraco. forming activity. The entry of multinational corporations into South Africa is expected to be a further incentive for global A process to issue additional licences to small business operators communications operators, which already service these to provide telecommunications services in underserviced areas corporations abroad, to establish or enhance their presence in with a teledensity of less than 5% commenced in 2005 and is South Africa. continuing. The Minister of Communications has identified 27 of these underserviced areas. ICASA has issued licences to successful Competition in the data market is expected to increase as a result bidders in seven of these areas and the Minister has issued of the VANS providers’ ability to deliver complex managed data invitations to apply for licences in 14 additional areas. In August solutions and integrated information communications technology 2006 ICASA recommended to the Minister that licences be solutions, as well as expected future alliances between the VANS granted to successful applicants in 13 of these areas. While it was and fixed and mobile operators. Technological advances will expected that further licences will be issued in the 2007 calendar also enable more and more convergence and integration which year, none were issued. The Minister of Communications has in turn will enable more effective competition and usage of issued a policy direction to ICASA directing it to, where there is bandwidth. more than one licence in a province, merge the licences and issue one Provincial Under-Serviced Area Network Operator As competition increases in the South African market, South African telecommunication service providers, including Telkom, (PUSANO) licence. None of these consolidated licences have yet are expected to increasingly look to other developing markets been issued by ICASA. for new revenue streams, particularly in sub-Saharan Africa. Internationally, Telkom’s new Africa Online business already Telkom’s fixed-line voice business is expected to be further competes with Internet Solutions and MTN Network Solutions. impacted by continuing developments of Voice over Internet In addition, Verizon is already present in a number of other Protocol and by the roll-out of limited mobility services. Wireless African markets. operator iBurst has started to offer portable voice services over its wireless network. Additionally, VoIP and other operators with Fixed-line voice competition international gateway licences are expected to create increased In September 2004, the Minister of Communications granted an competition for Telkom’s fixed-line voice business in carrying additional licence to provide public-switched telecommunications international traffic in and out of South Africa. services to Neotel. Neotel is 30% owned by Transtel and Esitel, which are beneficially owned by the South African Government We expect that the introduction of number portability and carrier and other strategic equity investors including 26% beneficially- pre-selection could further enhance competition in our fixed-line owned by TATA Africa Holdings (Pty) Limited, a member of the voice business and increase our churn rates. As competition large Indian conglomerate with information and communications intensifies, the main challenges our fixed-line voice business 124 operations. On March 19, 2008 Neotel announced that the Competition Tribunal of South Africa had approved its faces are continuing to improve customer loyalty through acquisition of Transtel without any conditions. Neotel was improved services and products, and maintaining our leadership licensed on December 9, 2005 and commercially launched on in the South African communications market. As a result of August 31, 2006. Neotel commenced providing services to increasing competition, we anticipate pressure on our overall large corporations and other licensees at the beginning of the average tariffs, a reduction in our market share and an increase 2007 calendar year to large corporations and other licensees. in costs in our fixed-line business. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 125 0.2 (8.7) (3.8) 17.1 % change 2008/2007 0.0 3.8 6.9 1.1 % change 2007/2006 2008 4,982 1,968 17,929 24,879 As at March 31, Confirm the right of employees to belong to trade unions; Guarantee employees the right to strike, the right to picket and the right to participate in secondary strikes in prescribed circumstances; Provide for mandatory in the event of compensation termination of employment due to redundancy; Limit the maximum ordinaryovertime hours of work; Increase the rate of pay for overtime; to implement Require large employers such as Telkom employment equity policies to benefit previously disadvantaged groups and impose significant monetary penalties for non compliance; and Provide for the financing of training programmes by means of a levy grant system and a national skills fund. Our ability to achieve the planned cost reductions through Our ability to achieve the planned cost capability management is further subject to our ability to outsource necessary services and source strategic partners with the necessaryrequired information, benefits of scale and to enable continued communications and technology capabilities our outsourcing alignment and transformation. In particular, South African labour initiatives will be subject to compliance with with labour and employment laws and successful negotiations unions and our workforce. including the trade A number of South African trade unions, to various political unions of our employees, have close links parties. trade unions have had a significant influence In the past, reformin South Africa as vehicles for social and political and in South Africa has the collective bargaining process. Since 1995, the rights of enacted various labour laws that enhance compliance costs. employees that have resulted in increased These laws: believe that investment in employee training and development We is essential to implementing corporate cultural change and improving customer satisfaction. In order to improve the skill levels 2006 2007 4,099 4,254 1,839 1,965 25,575 25,864 19,637 19,645 Marketing and sales Network and technology Telkom is a party to a collective agreement on substantive matters Telkom covering the terms and conditions of employment of its fixed-line unionised employees and other non-management employees in and CWU for the period bargaining unit with ATU Telkom’s signed a April 1, 2006 to March 31, 2009. In addition, Telkom and CWU in mid new collective recognition agreement with ATU 2004, designed to enhance the relationship between shop stewards and management. The long-term substantive agreement provides for the re-opening of negotiations in the event that the consumer price index varies from the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, re-opened the negotiations in December 2007 and thus Telkom far have not reached settlement. Given the rapidly changing economic conditions as evidenced by an increase in the consumer price index from 7.9% in December 2007 to 11.6% in notably Union Federations, June 2008, the various Trade have have requested a double-digit increase. We COSATU, of its intention to received a notice from CWU advising Telkom had placed embark on some unspecified industrial action. Telkom a moratorium on employee reductions until March 31, 2007. Employee related expenses are a significant component of our Employee related expenses are a significant employee expenses total fixed-line operating costs. Fixed-line financial year to increased 4.2% from R7.1 billion in the 2007 The number of Telkom R7.4 billion in the 2008 financial year. positions from employees declined by approximately 31,236 increased by 289 March 31, 1997 to March 31, 2006, and decreased by positions in the year ended March 31, 2007 As at March 31, 985 positions during the year under review. has a total of 24,879 employees. 2008 Telkom In addition to our full-time employees, Telkom has 3,801 Telkom In addition to our full-time employees, temporary employees as at March 31, 2008. Our employees Union (CWU), are represented by the Communication Workers and the MWU- the South African Communications Union (SACU) disbanded Unions (ATU) Solidarity Union. The Alliance of Telkom Some of our year. during the course of the 2007 financial are not recognised employees also belong to other unions that purposes, including the for collective bargaining by Telkom the South African Engineers, Postal Union, the Society of Telkom the United Association of Union and Steel and Allied Workers 70% of our South Africa. As at March 31, 2008, approximately total workforce are union members. Support and other Total The following table indicates the number of full time employees in our fixed-line segment. the number of full time employees The following table indicates Our employees Fixed-line employees Operational review continued

of our employees, Telkom invested R283.1 million in employee launched a number of initiatives designed to train our employees training and development during the year under review. and encourage employee retention.

Leadership development continues to remain a priority, with specific focus on previously disadvantaged groups. We have

Mobile employees The following table presents the number of Vodacom employees as at the dates indicated.

As at March 31, 2007/2006 2008/2007 2006 2007 2008 % change % change

South Africa 4,305 4,727 4,849 9.8 2.6 Other African 1,154 1,522 1,992 31.9 30.9

Total(1) 5,459 6,249 6,841 14.5 9.5 (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 outsourced employees. Employees seconded to other African countries are included in the number of other African countries and excluded from Vodacom South Africa’s number of employees.

Vodacom is an equal opportunity employer committed to empowerment, and has developed an employment equity policy that is available to all employees. Vodacom’s South African employees’ participation in unions was approximately 13.9% as at March 31, 2008, approximately 12.3% as at March 31, 2007 and approximately 10.2% as at March 31, 2006. Vodacom believes that the relationship 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.

As at March 31, 2007/2006 2008/2007 2006 2007 2008 % change % change

TDS Directory Operations(1) 514 549 610 6.8 11.1 Swiftnet 67 76 85 13.4 11.8 Africa Online – 317 379 – 19.6 Multi-Links – – 680 – – Telkom Media – – 142 – –

Total 581 942 1,896 62.1 101.3 (1) TDS Operations’ employees increased in the 2008 financial year primarily in order to expand its marketing capacity.

126 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 127 st 6.4 8.4 0.0 2.6 5.2 7.9 (3.4) (6.0) (1.6) (8.5) (2.1) (3.7) (4.3) 100% 10.4 10.9 12.4 29.0 27.7 17.5 11.1 11.7 17.4 25.1 (14.4) (23.6) (23.3) (85.5) % change 2008/2007 9.8 9.3 (3.0) (9.6) (8.7) (8.7) (4.1) (6.8) 18.1 18.8 20.1 29.2 99.5 22.9 27.6 18.6 17.5 19.4 23.0 31.6 91.0 20.1 (49.8) (50.5) (10.1) 216.7 331.3 % change 62 46 10 66 4.0 8.3 486 689 103 172 883 125 782 47.9 11.4 10.3 42.3 2008 7,446 3,541 4,849 5,119 12,040 15,323 21,177 11,248 22,769 24,821 63 95 47 69 69 3.1 9.7 Year ended March 31, ended March Year 2007/2006 69 30 49 16 74 2.4 8.79.6 10.7 11.8 139 125 506 666 572 517 206 188 17.718.8 33.8 37.5 10.0 2006 2007 5,712 6,745 9,140 10,859 8,618 10,124 4,3054,451 4,727 4,867 1,796 902 2,362 3,013 2,327 1,151 11,354 13,638 17,066 20,383 19,162 23,004 16,770 19,896 (8) (1) (2) (8) (5) (7) (6) (4) (3) (3) South Africa ARPU (ZAR) Contract Incoming Prepaid Prepaid mobile traffic (millions of minutes) Total MOU Average Gross connections (thousands) Prepaid Community services Prepaid Community services telephones Total inactive mobile customers (%) (at year end) Total Number of mobile employees (at year end) Prepaid Community services Churn (%) Community services Outgoing Total mobile customers (thousands) (at year end) Total Contract Prepaid Contract Contract Number of mobile customers per mobile employee Contract Contract Telkom participates in the South African mobile communications market through our 50% interest in Vodacom. Vodacom is the large Vodacom participates our 50% interest in Vodacom. mobile communications market through in the South African Telkom Mobile communications Overview The following table sets forth non financial operational data of Vodacom for the periods indicated. The amounts stated reflect for the periods indicated. forthThe following table sets operational data of Vodacom non financial mobile communications network operator in South Africa with an estimated market share of approximately 55% as at March 31, an estimated market share of approximately network operator in South Africa with mobile communications in Lesotho, mobile communications network operators has investments in estimated customers. Vodacom 2008, based on total which beneficially is Vodafone, other shareholder Vodacom’s Republic of the Congo and Mozambique. the Democratic Tanzania, owns 50% of Vodacom. customers and traffic minutes. of Vodacom’s Operational review continued

Year ended March 31, 2007/2006 2008/2007 Other 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 28.4 Lesotho 206 279 395 35.4 41.6 Tanzania 2,091 3,247 4,207 55.3 29.6 Democratic Republic of Congo 1,571 2,632 3,289 67.5 25.0 Mozambique 490 988 1,282 101.6 29.8 Gross connections (thousands) Lesotho 98 119 176 21.4 47.9 Tanzania 1,353 2,092 2,645 54.6 26.4 Democratic Republic of Congo 892 1,688 2,141 89.2 26.8 Mozambique 342 797 951 133.0 19.3 Churn(%)(4) Lesotho 22.3 19.0 17.8 (14.8) (6.3) Tanzania 28.5 35.6 45.5 24.9 27.8 Democratic Republic of Congo 28.1 30.4 48.0 8.2 57.9 Mozambique 32.2 41.7 58.7 29.5 40.8 ARPU (ZAR)(6) Lesotho 78 75 73 (3.8) (2.7) Tanzania 67 52 49 (22.4) (5.8) Democratic Republic of Congo 86 77 59 (10.5) (23.4) Mozambique 36 28 29 (22.2) 3.6 Number of employees (at year end)(8) 1,154 1,522 1,992 31.9 30.9 Lesotho 67 63 97 (6.0) 54.0 Tanzania 438 527 766 20.3 45.4 Democratic Republic of Congo 479 745 919 55.5 23.4 Mozambique 170 187 210 10.0 12.3 Number of mobile customers per mobile employee (at year end)(8) 3,776 4,695 4,605 24.3 (1.9) (1) Vodacom’s customer totals are based on the total number of customers registered on Vodacom’s network, which have not been disconnected, including inactive customers, as of the end of the period indicated. (2) Vodacom’s inactive customers are defined as all customers registered on Vodacom’s network for which no revenue generating activity has been recorded for a period of three consecutive months. Vodacom’s contract customers are disconnected when they terminate their contract, or their service is disconnected due to non- payment. Up to June 15, 2006, calls forwarded to voicemail were regarded as revenue generating activity and such SIM cards were classified as active customers. Because a large number of SIM cards have calls forwarded to voicemail as their only revenue generating activity and a majority of such messages are never retrieved by the customer, resulting in estimated ARPUs of less than R1 per month, Vodacom changed its definition of active customers to exclude calls forwarded to voicemail from the definition of revenue generating activity effective June 15, 2006. Vodacom deleted approximately 3 million customers during the period of this rule change. As a result of the rule change, prepaid churn rates and ARPUs increased during the 2007 financial year. Vodacom subsequently changed its definition of revenue generating activity back to include calls forwarded to voicemail effective September 1, 2006. Such SIM cards were disconnected from the network after being inactive for a 215 consecutive day period. Since implementing this change, prepaid SIM cards remaining in an active state on the network, with only call forwarding to voicemail and no other revenue generating activities, increased significantly. Vodacom therefore implemented a supplementary disconnection rule in September 2007 to disconnect inactive prepaid SIM cards after 13 months of being kept in an active state, by call forwarding to voicemail only, and not having has any other revenue generating activity on Vodacom’s network. The implementation of the supplementary disconnection rule led to the disconnection of an additional 2.9 million prepaid SIM cards in September 2007, increasing churn on the prepaid customer base to 47.9% in the 2008 financial year and resulted in higher prepaid ARPU than would have otherwise occurred. For other African countries, each subsidiary has its own disconnection rule to disconnect inactive prepaid customers. Vodacom Lesotho disconnects its prepaid customers at the expiration of time window lock of 210 days. Vodacom Tanzania, Vodacom DRC and Vodacom Mozambique disconnect their prepaid customers if they record no revenue generating activity within a period of 215 consecutive days. 128 (3) Gross connections have been restated in the 2006 financial year due to a change in Vodacom’s reporting policy. Conversions between categories have now been excluded from gross connections. Based on the previous policy, contract connections would have been 702 thousand in the 2006 financial year and prepaid connections would have been 8,422 thousand in the 2006 financial year. (4) Vodacom’s churn is calculated by dividing the average monthly number of disconnections during the year by the average monthly total reported customer base during the year. Vodacom’s South African market share is derived from Vodacom’s total customers, and the total estimated mobile customers of MTN, Cell C and Virgin Mobile. (5) Vodacom’s traffic comprises total traffic registered on Vodacom’s network, including bundled minutes, outgoing international roaming calls and calls to free services, but excluding national and incoming international roaming calls. Vodacom has changed the calculation of traffic in the 2006 financial year to exclude packet switch data traffic. (6) Vodacom’s average monthly revenue per customer, or ARPU, is calculated by dividing the average monthly revenue during the year by the average monthly total reported customer base during the year. ARPU excludes revenue from equipment sales, other sales and services and revenue from national and international users roaming on Vodacom’s networks. (7) Vodacom’s average monthly minutes of use per customer, or average MOU, is calculated by dividing the average monthly minutes during the period by the average monthly total reported customer base during the year. MOU excludes calls to free services, bundled minutes and data minutes. (8) Vodacom had a total of 732, 581 and 469 temporary and contract employees as of March 31, 2008, 2007 and 2006, respectively. Headcount excludes outsourced employees. Employees seconded to other African countries are included in the number of employees of other African countries and excluded from Vodacom South Africa’s number of employees. (9) Includes 100% of Vodacom’s operations in the Democratic Republic of the Congo. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 129 customer base Vodacom Business created Vodacom During the 2007 financial year Vodacom Converged Solutions, which was intended to become a significant supplier of converged information, communications and technology services market, including the across the entire bundling of products across previously separate markets into a single converged solution for customers. It further involved the expansion of the existing network to provide both fibre and wireless solutions as may be required. restructured Vodacom Vodacom During the 2008 financial year, Business. Converged Solutions and renamed it Vodacom and provide security for future costs. While Telkom has announced While Telkom security for future costs. and provide that it supports final terms a BEE deal, the of are in the process is expected Vodacom Telkom. and being approved by Vodafone of its broad based BEE transaction in the to announce the details third quarter of 2008. Changes in Vodacom’s SouthAfrican prepaid as South African operations define active customers Vodacom’s card that have revenue generating activity customers with a SIM leading up to the reportingin the three months date. Up to forwardedJune 15, 2006, calls to voicemail were regarded as and such SIM cards were classified revenue generating activity base, based on as active customers. An analysis of the customer number of SIM statistical sampling, has revealed that a large cards have calls forwarded to voicemail as their only revenue messages are never generating activity and a majority of such resulting in estimated ARPUs of less retrieved by the customer, than R1 per month. customers changed its definition of active As a result, Vodacom to exclude calls forwarded to voicemail from the definition of deleted Vodacom revenue activity effective June 15, 2006. period of this rule approximately 3 million customers during the churnchange. As a result of the rule change, prepaid and ARPU increased during the 2007 financial year. revenue subsequently changed its definition of Vodacom generating activity back to include calls forwarded to voicemail were disconnected effective September 1, 2006. Such SIM cards consecutive days. from the network after being inactive for 215 cards remaining in Since implementing this change, prepaid SIM call forwardingan active state on the network, with only to activities, increased voicemail and no other revenue generating therefore implemented a supplementary Vodacom significantly. disconnection rule in September 2007 to disconnect inactive prepaid SIM cards after 13 months of being kept in an active and not having had state by call forwardingonly, to voicemail network. any other revenue generating activity on Vodacom’s Implementing the supplementary rule led to the disconnection disconnection of an additional 2.9 million prepaid SIM cards in September 2007, increasing churn on the prepaid customer base to 47.9% in the 2008 financial year and resulting in a higher prepaid ARPU than would otherwise have occurred. In June 2008, Tiger Consortium, one of the losing bidders, filed In June 2008, Tiger On June 6, 2008 the a court interdict against Vodacom. application was dismissed by the South Africa High Court without decision on the merits and ordered costs payable for Consortium to proceed wishes counsel. If the Tiger Vodacom’s costs it would be required to pay these with this matter further, Vodacom’s black economicis in the process of finalising a R7.5 billion BEE equity Vodacom empowerment equity South Africa, deal for an interest of less than 10% in Vodacom deal whereby 30% of the BEE shares are expected to be made black business available to black South Africans and Vodacom’s partners in a public share offer that will specifically be targeted staff are expected to take a at low income groups. Vodacom further 25%, and the remaining 45% is expected to be taken up announced that it had by two BEE strategic partners. Vodacom selected Thebe Investment Corporation (Pty) Ltd and Royal Bafokeng Holdings (Pty) Ltd as preferred parties and signed transaction agreements with these two parties on June 26, 2008. Dispositions interest disposed of its 100% On September 3, 2007 Vodacom in Stand 13 Eastwood Road Dunkeld (Proprietary) Limited for R16 million. Vodacom Ventures (Proprietary) (Proprietary) Limited was formed with the Ventures Vodacom Limited products purpose of generating innovative telecommunications by investing in companies. In and services for Vodacom acquired an additional Ventures September 2007, Vodacom Limited, a Wi-Fi 16% equity stake in G-Mobile Holdings This resulted in corporation, by exercising its call option. holding 26% of the aggregate issued Ventures Vodacom During November share capital of G-Mobile Holdings Limited. acquired a 35% stake in Xlink Ventures 2007, Vodacom Communications (Proprietary) Limited, a value added service and servicesprovider of wireless data transfer systems using GPRS, EDGE, 3G and HSDPA. Subsequent to the above acquisitions, the operations of Subsequent to the above acquisitions, (Proprietary) Limited Smartphone, Smartcom and Cointel V.A.S. Service Provider were integrated into the operations of Vodacom Company (Proprietary) Limited. On September 1, 2007, Vodacom increased its interest in the Vodacom On September 1, 2007, equity of Smartcom (Proprietary) to 100% by acquiring Limited R18 million, with goodwill amounting to an additional 12% for R18.0 million. On August 31, 2007, Vodacom purchased an additional Vodacom On August 31, 2007, Smartphone30% shareholding in SP (Proprietary) Limited for amounting to R931.2 million. This R935 million, with goodwill in Smartphoneincreased its shareholding 70 to 100%. from Vodacom’s acquisitions andService dispositions provider acquisitions Operational review continued

Vodacom Business was established to provide converged business products were also launched, ranging from e-mail and solutions and services to corporate customers. The strategic aim enhanced voicemail to corporate access points which enhance of the division is to play a role in the broadband access services the security of mobile customers using a 3G/HSDPA data card space, capitalise on transmission and self-provisioning remotely, and in May 2008 Vodacom launched High Speed opportunities, grow revenue through managed services Uplink Packet Access (HSUPA), an enhancement of its existing opportunities and enhance the retention of corporate clients. The HSDPA service. intention is to gain market traction and an increased customer base while developing a Next Generation Network. Vodacom As discussed previously, Vodacom Converged Solutions, Business developed a service portfolio that includes Next subsequently renamed Vodacom Business, was formed in the Generation Internet Protocol voice services, managed networks 2007 financial year to provide converged solutions and services and infrastructure services, access services, hosting and to corporate customers. Additionally, our pay-TV agreement with applications. The platforms, systems and organisation have been MultiChoice further extends our product offerings in South Africa. created and the initial commercial products are being marketed, with the balance of the service portfolio expected to become In order to achieve company growth, Vodacom diversified available during the course of the 2008 calendar year. horizontally into the Internet service provider and information technology services industries in the 2008 financial year. Vodacom’s agreement with MultiChoice On May 8, 2007 Vodacom formalised its entry into the Vodacom will seek to continue to grow data revenues by broadcasting and multimedia market by announcing that it launching useful office tools and software applications such as had secured an exclusive pay-TV agency agreement with 3G, HSDPA, HSUPA, Mobile TV, Vodafone Mobile Connect MultiChoice. With DStv Select, Vodacom and non-Vodacom Cards and BlackBerry® at competitive prices. BlackBerry® customers have a choice between two DStv Select bouquets, Connect, as well as BlackBerry® Built-In, which enable customers each offering a variety of the latest entertainment, news, sport, to access BlackBerry® services without a traditional BlackBerry® movies, documentaries and music channels. Vodacom has device, have become available on high-range handsets approximately 31,000 Unique Mobile TV users as at March 31, produced by manufacturers including HTC, Nokia and Sony 2008, compared to approximately 33,000 Unique Mobile TV Ericsson. In future, Vodacom intends to continue to focus on users as at March 31, 2007. offering premier interactive voice response, premium short messaging services, general packet radio services, multimedia Vodacom’s operations in South Africa services, HSDPA services, HSUPA services, Internet services, e- Market overview mail services and fixed-to-mobile products. Vodacom had approximately 24.8 million customers in South Africa as at March 31, 2008. As at March 31, 2008, Prepaid services Vodacom’s 7,300 base stations are capable of reaching As at March 31, 2008, approximately 85.3% of Vodacom’s approximately 98% of the country’s population based on the last South African customers were prepaid customers. Vodacom has official census conducted in 2001, and covers approximately two prepaid products, Vodago and 4U. Vodago was Vodacom’s 72% of the total land surface of the country. The estimated initial prepaid product and offers two tariff plans, Vodago penetration rate for mobile communications in South Africa has Standard and Vodago Smartstep. Vodacom’s 4U is a prepaid increased to approximately 94% as at March 31, 2008. per second billing product targeted at the youth market who have higher usage of SMS and a need for per second billing. Products and services Since its inception, the number of 4U customers has increased Vodacom offers a wide range of mobile voice and data significantly and as at March 31, 2008, approximately 92.7% communications products and services, including value-added of Vodacom’s prepaid customers are 4U customers. Vodago and services. Vodacom’s services also include the sale of handsets. 4U provide instant access to the Vodacom network and enable Vodacom has a history of innovation as illustrated by its record low volume customers to control mobile telephone costs based on 130 of product offerings. It was the first mobile communications usage as there are no long term contracts. Fax and certain data network operator globally to offer prepaid mobile commu - services became available to Vodago customers in the 2006 nications services on an intelligent network platform and to offer financial year. its customers coverage across the whole of Africa where commercial GSM roaming is available. A wide variety of retail outlets sell recharge vouchers for Vodacom’s prepaid customers. Recharging can also take place Significant products launched include data, voice and SMS electronically and through the use of banking networks. Because bundles for prepaid, Top Up and contract customers. Vodacom prepaid customers pay in advance for their mobile service, the continued to launch and support Vodafone products such as risk of bad debts is eliminated and the risk of fraud is Vodafone Simply, welcome tones, extended Mobile TV to 26 substantially reduced. In addition, prepaid services provide cost channels and Vodafone live! release seven with its simple, savings to Vodacom as bills do not need to be sent to prepaid tabular, user friendly approach. A number of corporate and customers and handsets for prepaid customers are not WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 131 network due to their low roll-out costs to Vodacom and low costs to Vodacom to their low roll-out network due entrybarriers to Community service for customers. phone ARPUs to R689 per month in the 2008 financial decreased by 23.6% month in the 2007 financial year due to year from R902 per from Cell C and other products that have increased competition to community servicetariff structures competitive plans. Value-added mobile voice of value-added mobile voice offers an extensive range Vodacom and data services and data services including caller identification, call forwarding, entertainment,call waiting, voicemail, information mobile and commerce services, short services, messaging mobile multimedia services, data services, mobile Internet access, fax services, e- twin call services,Billing, video mail, missed call keeper and the mobile phones under latter of which enable customers to use two the same number. Business ten percent investment in Wireless Through Vodacom’s in the to Telkom Solutions, also known as iBurst, a competitor continued now supplies customers with wireless area, Vodacom Internethigh speed connectivity through broadband and email services. Business Solutions has a licence that enables Wireless that complements Vodacom’s network it to build a WiMAX wireless broadband service. HSDPA enables contract customers to Call Sponsor offering Vodacom’s In the 2005 sponsor the calls of up to three prepaid customers. entered into an alliance with Vodafone, Vodacom financial year, branded is able to market Vodafone pursuant to which Vodacom has experienced substantial products and services. Vodacom and data services,growth in the use of its value-added voice network. resulting in increased traffic revenue on its total revenue in Data revenue contributed 10.4% to Vodacom’s the year ended March 31, 2008, up from 8.1% in the year ended March 31, 2007 and 6.0% in the year ended March 31, increased primarily due to data revenue 2006. Vodacom’s higher penetration levels influenced by more affordable product transmitted 4.7 billion SMSs offerings. In South Africa, Vodacom compared to over its network in the 2008 financial year, 4.5 billion SMSs in the 2007 financial year. There was an increase in users of GPRS in the 2008 financial increasing to approximately with the number of GPRS users year, 4.7 million as at March 31, 2008 from approximately 2.8 million as at March 31, 2007 and approximately 1.4 million as at March 31, 2006. The number of active data users includes approximately 1.4 million MMS users, approximately 370,000 data card and USB modem users, approximately 1.3 million live! handsets, approximately 1.4 million Vodafone 3G/HSDPA users and approximately 31,000 Unique Mobile TV users as at March 31, 2008, compared to approximately 1.2 million MMS users, approximately 149,000 data card and USB modem users, handsets, approximately approximately 584,000 3G/HSDPA live! users and approximately 33,000 899,000 Vodafone Unique Mobile TV users as at March 31, 2007. As at March 31, The demand for community service has been strong since units had deployed approximately 103,024 introduction. Vodacom community service phones as at March 31, 2008, exceeding its initial aggregate licence target of 22,000 community service phones. The development of community service phones has made it possible to provide mobile access to the more than 20 million South Africans who live in rural communities where there is less than one telephone line per hundred people, and have improved the quality of life for many South Africans who previously had no access to telecommunications services. Community service been a cost-effective phones have also method of significantly increasing traffic revenue on Vodacom’s Community services has developed a number of community service Vodacom telephone units that are installed throughout communities either on an individual basis or grouped in a container with the brand. Community service phones are purchased by Vodacom local entrepreneurs who resell community phone services. Community service with airtime phones are preloaded and can be recharged electronically by telephone shop operators when the airtime on the phone expires. Vodacom offers two broad categories of contract subscription Vodacom and Everyday, packages: Consumer packages such as Weekend Additional packages business packages such as Business Call. in the 2007 financial 1500 were launched such as Shared Talk and medium sized year to address the requirements of the small Up Top launched the Family enterprises (SME) market. Vodacom a hybrid contract product package in the 2004 financial year, servicewhich combines the benefits of a contract with the financial control offered by a prepaid service, and is designed from existing to facilitate migrations to contract packages Up package has Family Top prepaid packages. Vodacom’s to contribute to the proven highly successful and continues the introduction revenue growth in contract customers, although Up packages representing in Top packages resulted of lower-end As at March 31, a smaller percentage of total contract packages. Up contract customers were Top 2008, 26.4% of Vodacom’s 31, 2007 and customers compared to 30.0% as at March 27.6% at March 31, 2006. Contract subscription services approximately 14.3% of Vodacom’s As at March 31, 2008, are contract customers compared to South African customers 2007. This increase is due to contracts 13.1% as at March 31, to different market becoming more affordable and tailored segments. subsidised. There are less servicesubsidised. the prepaid offerings for contract- than there are for the market mobile communications the launch of 4U and Vodago based market. Following initiatives to is continuing to implement Smartstep, Vodacom communications serviceexpand its prepaid mobile and offerings of its prepaid customer base to gain a greater understanding and its requirements. Operational review continued

2008, Vodacom had 32,273 Blackberry® users registered on its Customers network, compared to approximately 23,328 as at March 31, Vodacom has experienced substantial growth in its mobile 2007. Vodacom expects that the broad introduction of always-on customer base since its inception in 1994. As at March 31, connectivity, faster response and generally higher speed packet- 2008, there are an estimated 45 million mobile customers in switched data services such as GPRS and universal mobile South Africa, which represents an estimated penetration rate of telecommunications system (UMTS), will provide the platform for 94% of the population. As at March 31, 2008, Vodacom future value-added services. estimated that its customers represent approximately 55% of South African mobile customers, making Vodacom the leading Handset sales mobile communications network provider in South Africa based on total estimated customers. Vodacom Service Provider Company (Pty) Limited (Vodacom Service Provider) sells handsets to its distribution channel and The South African customer base has continued to grow in the other service providers. Service providers in South Africa 2008 and 2007 financial years with the majority of the growth generally subsidise handsets when a contract customer enters resulting from the prepaid market, partially offset by an increase into a new contract or renews an existing contract, depending on in prepaid churn due to the implementation of the supplementary the airtime and tariff plan and type of handset purchased. disconnection rule. The strong growth in contract customers was Handset sales amounted to approximately 5.1 million units, a direct result of the large number of gross connections achieved 4.6 million units and 3.8 million units in the 2008, 2007 and with continued levels of handset support to service providers with 2006 financial years respectively, representing increases of respect to the contract base, coupled with decreased churn in approximately 10.9%, 21.1% and 58.3% in the 2008, 2007 the contract base. Loyalty and retention programmes continue to and 2006 financial years respectively. play an integral role in achieving the strategy of retaining market share and attracting new customers. Interconnection services Prepaid gross connections increased 11.1% to approximately Vodacom has interconnection agreements with national mobile 11.2 million in the 2008 financial year compared to operators MTN and Cell C, as well as with Telkom, Neotel and approximately 10.1 million in the 2007 financial year. Contract carrier-of-carriers licensee, Sentech. In addition, Vodacom has an gross connections increased 17.4% to approximately 782,000 interconnection agreement in place with eight VANS operators. in the 2008 financial year compared to approximately 666,000 in the 2007 financial year. Growth in contract customers was Roaming services largely due to the increase in connections, Family Top Up, 3G Vodacom has national roaming agreements in place with data card packages, Messenger data packages and Weekend national mobile network operator Cell C, which is terminable Everyday consumer packages. As at March 31, 2008, 26.4% of Vodacom’s contract customers are Top Up customers, fifteen years after commencement on or after November 14, compared to 30.0% as at March 31, 2007 and 27.6% as at 2016, as well as with USALs Amatole, iTel, BTel, Karabotel and March 31, 2006. Kingdom Communications, which are terminable three years after commencement. These agreements unilaterally enable the Vodacom expects that the number of contract customers in South customers of Cell C and the USALs to make use of Vodacom’s Africa will eventually level off, and that the number of prepaid network to originate and terminate calls as well as to access customers in South Africa will continue to grow in the medium other telecommunications services. In addition to allowing the term driven by the continued demand for basic voice telephone USALs’ customers to roam on Vodacom’s network, Vodacom services. Vodacom’s growth in prepaid customers could be provides the USALs with certain ancillary services such as SIM negatively impacted by restrictions contained in the Regulation card provisioning, recharge facilities and customer care. of Interception of Communication and Provision of Commu - nication-related Information Act (RICA), which may require a burdensome registration process for customers and may require 132 To enable Vodacom to provide its customers with telecommunications services while outside South Africa, and to provide services to Vodacom to disconnect prepaid customers if it is not able to customers of foreign network operators while outside South obtain such information. Africa, Vodacom has international roaming agreements with Vodacom believes that mobile communications services provide 397 foreign mobile network operators in 182 countries as at a cost-effective means of telephone services for customers in March 31, 2008. Of these, 149 allow for GPRS roaming, 54 underserviced and rural, outlying areas. Vodacom’s efforts will allow for 3G roaming, three allow for HSDPA roaming and 27 therefore continue to focus on growing customer numbers while allow for prepaid roaming. Objectives for the 2009 financial carefully managing its existing customer base, marginal revenue year will continue to focus on increasing the footprint for per customer and customer-related acquisition and retention Vodafone Passport, prepaid and GPRS networks as well as costs. Vodacom, MTN and Cell C each provide connection maintaining reductions in the inter-operator tariffs charged to commissions to service providers and dealers or agents. These Vodacom by other networks. are often utilised by agents to subsidise handsets as an incentive WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 133 12.4 10.4 11.7 ndicated. % change 2008/2007 20.1 18.1 19.4 % change 2008 7,446 15,323 22,769 Year ended March 31,Year 2007/2006 manages churnmanages relationship management through customer and logistics capabilities its own distribution systems, developing initiatives. Prepaid customer churnand other retention is the high rate of unemployment in South negatively affected by of access. Africa and the low cost R0.04 off-peak to commercial calls and from R0.04 peak and serviceR0.06 peak and R0.06 off-peak for community calls, in each case exclusive of VAT. Customer care services customer needs through a variety of channels Vodacom in Bloemfontein, such as call centres, walk-in centres established Midrand and Port Durban, Johannesburg, Cape Town, web and Vodacom’s Elizabeth, interactive voice response, e-mail key focus for the 2008 financial year has been sites. Vodacom’s on call handling with the primary focus being the distribution of accompanied by customer calls to appropriately skilled agents, a redesign of the customer care interactive voice response. 2007 financial year was to key focus areas for the Vodacom’s grow capacity in its call centres and concentrate on customer retention following the implementation of mobile number customer queries in the 2008 Approximately 70% of portability. financial year were handled by the interactive voice response system and more than 80% of customer queries were resolved with the first call. has become increasingly proactive in developing Vodacom relationships with its customers, particularly in the high revenue segment of the market. Seven centres are currently active, and one more is planned in the Gauteng Province. As data services centres were upgraded to all of these became more popular, assist customers with queries of a technical nature and in the centre, a dedicated data centre was case of the Vodaworld created where customers receive personalised attention to resolve their highly technical data-related queries. A new strategic call handling approach was developed to consolidate skills and move customer care from a multi-skilled environment to a specialised single-skilled environment. This project was closely aligned with the redesign of the existing 5,712 6,745 11,354 13,638 17,066 20,383 (millions of minutes, except percentages) 2006 2007 Outgoing Vodacom and MTN are parties to an amended interconnection Vodacom new interconnection agreements and agreement with each other, with Cell C. Effective January the mobile-to-mobile 2005, interconnection rates for both commercial and community service telephone originated calls were increased from R1.23 peak and R0.73 off-peak to R1.25 peak and R0.77 off-peak for Vodacom’s tariffs are subject to regulatory tariffs are subject to scrutiny and, in Vodacom’s certain circumstances, approval by ICASA. The contract tariff packages are designed to appeal to consumers and business sets its contract subscription package tariffs customers. Vodacom utilising a balanced mix of access and usage. For those tariff rate is packages where voice usage is high, the per-minute lowered and the monthly subscription tariff is raised. For those tariff rate the per-minute packages where the voice usage is low, is increased and the monthly subscription tariff is lowered. For those users for whom the monthly subscription tariff is a barrier offers prepaid packages with no monthly Vodacom to entry, subscription tariff, but sets the per minute voice tariff rate higher. Tariffs Growth in traffic in the 2008 financial year was primarily due to Growth in traffic in the 2008 financial year in South Africa from the 7.9% growth in the total customer base to 24.8 million 23.0 million customers as at March 31, 2007 calling patternscustomers as at March 31, 2008. Customer with total mobile-to- continued the trend of the past few years, total mobile-to-fixed mobile traffic increasing by 13.5%, while 3.5% in the 2008 and fixed-to-mobile traffic only increased by Growth in traffic in the 2007 financial year was financial year. customer base in mainly due to the 20.1% growth in the total South Africa from 19.2 million customers as at March 31, 2006 to 23.0 million customers as at March 31, 2007, with total and total mobile- mobile-to-mobile traffic increasing by 23.9% by 2.9% in the to-fixed and fixed-to-mobile traffic increasing 2007 financial year. Total traffic Total Incoming (interconnection) Traffic i customers in South Africa for the periods informationThe following table presents to the traffic volume of Vodacom’s related Traffic comprises outgoing calls made in South Africa and abroad and incoming calls received by Vodacom’s customers in South calls received by Vodacom’s made in South Africa and abroad and incoming comprises outgoing calls Traffic roaming and incoming internationalAfrica, excluding national roaming calls. for customers to switch operators to obtain a new handset and to obtain a new handset to switch operators for customers is seeking to a result, Vodacom cost of access. As to reduce the lower its contract churn value customers rate and retain high upgrade policies, loyalty programmes through focused handset measures, while continuously monitoring and other retention also actively retention costs. Vodacom customer acquisition and Operational review continued

customer care interactive voice response unit. Customers from continent, using and deploying digital GSM technology within across the country from four language groups were interviewed the GSM 900/1800/2100 MHz frequency band. to design an effective customer interface. Changes included new interactive voice response menu structures, the re-scripting of In South Africa, the network’s core infrastructure is characterised interactive voice response prompts, and more effective call by mobile switching centres (including visitor location registers routing designed to provide an improved overall customer and gateways), while the radio network consists of radio network experience. Call volume to agents has subsequently decreased controllers, Node Bs (UMTS base transceiver stations), base due to fewer repeat calls. station controllers and base transceiver stations. At this point Vodacom has deployed GPRS in all areas of its GSM network, Infrastructure and technology whereas EDGE is deployed to a lesser degree and UMTS is in Vodacom operates one of the largest mobile communications turn deployed to an even lesser degree, largely in major networks based on total estimated customers on the African metropolitan areas, key towns and resorts only.

As at March 31, 2006 2007 2008

Macro base transceiver stations 4,873 5,231 5,603 Micro base transceiver stations 1,528 1,634 1,697

Total 6,401 6,865 7,300

The Vodacom network’s UMTS 3G infrastructure as at March 31, extensive effort to implement sites in the most discrete manner 2008 consists of 29 radio network controllers, 2,559 UMTS possible. Furthermore, attention has been given to management base transceiver stations (Node B), 13,731 UMTS transceivers of electromagnetic emissions to ensure compliance with recognised and HSDPA functionality across the 3G network. international environmental standards such as those developed by the International Commission on Non Ionizing Radiation During the 2008 year, Vodacom commenced with deploying a Protection. WiMAX network on behalf of Wireless Business Solutions. Phase 1 of this network was deployed in Johannesburg, Pretoria, Cape Competition Town and Durban. As at March 31, 2008, 60 WiMAX base The current South African mobile telecommunications market stations were ready for network switch-on. Vodacom is planning consists of three mobile communications network operators: user trials in the second quarter of the 2009 financial year. Vodacom, MTN (a wholly owned subsidiary of MTN Group Limited, a public company listed on the JSE) and Cell C, which Vodacom embarked on the self-provisioning of transmission announced in June 2006 that it entered into a joint venture with capability towards the end of the 2007 calendar year. A total of Virgin Mobile. As at March 31, 2008, Vodacom is the market 145 microwave links have been installed and are operational. leader with an estimated 55% market share based on the total Vodacom is currently deploying core fibre rings in Gauteng, the estimated customers in the South African mobile communications northern borders of Gauteng, Kwa-Zulu Natal, the Western market, while MTN has an estimated 34% market share, Cell C Cape, the Eastern Cape and the Central region for the self- an estimated 11% market share and Virgin Mobile, through its provisioning of a regional transmission core network. joint venture with Cell C, holding less than 1% of the estimated market share. Vodacom competes primarily on the basis of 134 This network enables Vodacom to provide value-added voice and product quality, availability and network coverage. Vodacom data services supported by voicemail platforms, short messaging believes that increased competition could have an adverse impact service centres, a wireless application protocol platform, a mobile on its tariffs and churn rate. Internet gateway platform supporting advanced SIM toolkit applications and an intelligent network platform. Vodacom’s operations in other African countries Vodacom intends to increase revenue from its other African As at March 31, 2008, approximately 36% of Vodacom’s base operations by continuing to grow its existing operations in sub- stations are 3G enabled and Vodacom has installed dual band Saharan Africa through converged infrastructure and services (GSM900/GSM1800 MHz) base transceiver stations in 2,532 and, to the extent available, by selectively acquiring additional locations, including 19,081 GSM1800 MHz transceivers. In the telecommunications licences or operators in other African design of its network, Vodacom has paid careful attention to the markets in future. Investments outside South Africa are evaluated needs of customers and to the environment by making an and monitored against key investment criteria, focusing primarily WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 135 has recently introduced an ultra low cost product, Motsamai low cost product, introduced an ultra has recently public and increase to promote entrepreneurship Payphone, phone distribution. Products its current package offerings are Vodago, Tanzania’s Vodacom its contract product, and prepaid product, Vodachoice, Employees employees Lesotho increased to 97 The headcount for Vodacom employees as at as at March 31, 2008, compared to 63 31, 2006. The March 31, 2007 and 67 employees as at March continued expansion. The increase resulted from the company’s number of customers per employee, including temporary employees, decreased from 4,429 customers per employee as at March 31, 2007 to 4,072 customers per employee as at March 31, 2008 due to an increase in the number of temporary employees. Tanzania Limited. Tanzania owns a 65% interest in Vodacom Vodacom market profile was 99.4% prepaid as Tanzania The Vodacom at March 31, 2008, compared to 99.3% prepaid as at March 31, 2007 and 99.5% prepaid as at March 31, 2006. This profile is not expected to change significantly in the near future. had a churn rate of 45.5% in the 2008 Tanzania Vodacom financial year and 28.5% in 35.6% in the 2007 financial year, the 2006 financial year due to the high and increasing levels of estimated market Tanzania’s Vodacom competition in Tanzania. share was approximately 52% as at March 31, 2008. Infrastructure has 77 base transceiver stations, Lesotho network The Vodacom one mobile service switching centre, three base station controllers, one short message service centre, one intelligent base network platform and one voicemail platform. WiMAX in various towns in the lowlands of stations have been installed connections for enterprise clients. Lesotho to facilitate fixed-data million, capital expenditures were R39 Lesotho’s Vodacom million in the 2008, 2007 and 2006 R25 million and R26 The continued investment is an financial years respectively. drive to expand and optimise the indication of the company’s widest coverage and existing infrastructure in order to provide the superior network quality and service levels to its customer base. Regulatory environment The regulatory continues to prove environment in Lesotho challenging. The regulatory in Lesotho issued a authorities in JanuaryCommunications Sector Liberalisation Framework 2007. In terms of this framework, there is to be no limit on the number of participants in any service. All existing network operators will be allowed to operate international gateways and voice and data services are to be fully liberalised. Further specified classes of proposals in the framework that will allow Internet service to have gateway licences were not providers implemented during the 2008 financial year. ch 31, 2008, compared The recently launched Super Talk Dual 500 and 1000 packages The recently launched Super Talk offer free bundled minutes and SMSs in Lesotho, South Africa and other selected countries worldwide. Additional contract packages include Corporate Executive, Master Plan, Budget Plan and Family Plan, which provide connectivity options without bundled services or subsidised handsets, except for the Corporate Executive plan, Lesotho also which offers free or subsidised handsets. Vodacom offers public phone services and a direct-connect service allowing Lesotho network directly from customers to access the Vodacom also offers community services Lesotho and Vodacom their PABX. to 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. Products Lesotho offers a variety of prepaid and contract products Vodacom prepaid plans are consistently Lesotho’s to customers. Vodacom the most popular packages and accounts for 97.0% of Vodacom total customer base as at Mar Lesotho’s Lesotho Lesotho (Pty) Ltd. owns an 88.3% interest in Vodacom Vodacom Lesotho is a very small operation by South Although Vodacom launched its Lesotho operations due African standards, Vodacom to the strategic geographical importance of Lesotho in terms of South Africa. market share in neighbouring Vodacom’s Vodacom has investments in mobile communications network has investments in mobile communications Vodacom Republic of the the Democratic operators in Lesotho, Tanzania, customers servedCongo and Mozambique. The number of by operations outside South Africa has grown Vodacom’s at March 31, 2008, significantly to approximately 9.2 million as 31, 2007 and from approximately 7.1 million as at March 2006. Revenue from approximately 4.4 million as at March 31, operations outside South Africa has grown to R5,394 Vodacom’s up from R4,139 million in the year ended March 31, 2008, and R2,974 million million in the year ended March 31, 2007 share of Vodacom’s in the year ended March 31, 2006. Our was R395 million operating profit from other African operations to R261 million in the year ended March 31, 2008, compared million in the year in the year ended March 31, 2007 and R144 ended March 31, 2006. Vodacom is also considering entering new markets by seeking is also considering entering Vodacom out alternative entry management strategies such as through and technical service agreements and acquiring non-traditional as InternetGSM operators such service providers and other telecommunications service providers. on countries with stable economic and political conditions or and political conditions with stable economic on countries leadership and profitability. for growth, market good prospects majority ability to gain Vodacom’s Other key factors include local partnershipsownership, develop strong and obtain non- is not available. Where Vodacom recourse financing, where financing, it seeks to fund operations able to obtain non-recourse from internally-generated operators are funds. Other African name. branded under the “Vodacom” Operational review continued

Vodajazza, a hybrid service that provides cost control to Employees postpaid customers. During the course of the 2006 financial Vodacom Tanzania had a total headcount of 766 employees as year, Vodacom Tanzania introduced Vodafasta, a recharge at March 31, 2008, compared to 527 employees as at product which allows prepaid customers to electronically March 31, 2007 and 438 as at March 31, 2006. Included recharge airtime via registered vendors. This product enhances in employees as at March 31, 2008, 2007 and 2006 are the availability of Vodago prepaid airtime and reduces the cost 15, 9 and 10 secondees respectively, who are seconded from of physical distribution. Vodachoice continues to be the preferred Vodacom International Limited. contract package although Vodajazza, offered on the prepaid billing platform, has gained popularity in the corporate market, The Democratic Republic of the Congo and was re-launched during the 2008 financial year into Vodacom owns a 51% interest in Vodacom Congo. Improved bundled packages. affordability during the 2006 financial year, and the increase in spending power as a result of a positive economic outlook during Infrastructure 2007 and 2008, fuelled expansion of Vodacom Congo’s Vodacom Tanzania became the largest mobile communications customer base as the penetration rate of mobile customers in network operator in Tanzania within one year of launching. Congo increased from 6% as at March 31, 2006 to 9% as at Vodacom Tanzania’s capital expenditures were R713 million, March 31, 2007 and 12% as at March 31, 2008. ARPU was R958 million and R322 million in the 2008, 2007 and 2006 affected negatively as lower-end users constituted a large part of financial years respectively. Network coverage is at approximately the growth and the inactive customer base increased. The main 40% of the land surface of Tanzania and approximately 63% of contributing factors in achieving customer and profit growth the population as at March 31, 2008, compared to approximately during the 2008 financial year include coverage roll-out in 20% of the land surface and approximately 54% of the strategic areas, capacity upgrades, the launching of new population as at March 31, 2007. products and services and an effective and aggressive sales and distribution strategy. In 2007, Vodacom Tanzania commercially launched its mobile Internet offering over its 3G/HSDPA and 2.5G GPRS and EDGE Vodacom Congo’s customer base consisted of 97.6%, 98.3% and networks, which together with its leased line offering utilising 97.9% prepaid customers as at March 31, 2008, 2007 and WiMAX, have enhanced data revenues. The 3G/HSDPA data 2006 respectively. Vodacom competes on the basis of effective product covers Dar es Salaam, Dhoma and Arusha while the distribution channels, network coverage, network quality, launch GPRS and EDGE networks have national coverage. Core data of new products and services and a strong and respected brand. revenues continued to be primarily from SMS in the 2008 financial year, supported by Vodaflava, previously Vodatariffa, Vodacom Congo continued to be the market leader in the a premium rated SMS based information, ring tone and logo Democratic Republic of the Congo with an estimated market download service. share of approximately 41% as at March 31, 2008, compared to approximately 47% as at March 31, 2007 and approximately Regulatory environment 48% as at March 31, 2006, based on the total estimated mobile market. New telecommunications regulations were introduced, effective February 23, 2005. Vodacom Tanzania is currently regulated Products by the Tanzanian Communications Regulatory Authority (TCRA) under the Tanzania Communications Act, 1993, as well as the Vodacom Congo currently offers contract, prepaid, PABX, Tanzania Regulatory Authority Act, 2003 and it is under these Internet service provider and public phone services. The contract communications acts that the new telecommunications regulations product is aimed at the corporate market with a focus on value- were adopted, and the TCRA introduced a converged licensing added services and customer service. New business solutions framework otherwise referred to as the unified licensing such as ATM recharge and GPRS terminals have been launched framework, which is service and technology neutral. The new for banks and other corporate customers, to perform real time 136 regulations ended the fixed-line monopoly of TTCL, and lead transactions to enable their businesses in the DRC. The prepaid to the liberalisation of the telecommunications market within and public phone products are aimed at the broad Congolese the country. market with the main competitive advantage being coverage, network quality and distribution. The negotiation of the terms and conditions of migration of Vodacom Tanzania’s existing licence to the new regulatory To further enhance data revenue streams, Vodacom Congo framework was finalised during the 2007 year. Vodacom commercially launched GPRS in February 2006. The application Tanzania was granted new licences on July 26, 2006 in terms was introduced to support data transfer requirements during the of the migration to a new regulatory framework. These licences electoral process and meet the data demands of local businesses were for national and international network facilities, network and corporate clients. Vodacom Congo offers additional services application services and radio frequency spectrum products and services such as data and voice bundled packages resource usage. to new and existing customers. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 137 inancial year, offset in part inancial year, (Mauritius) sold an 8% stake in Vodacom evaluation, identifying and training local staff is a continuous identifying and training evaluation, company as partfocus of the process. The of its skills transfer employment market is currently very competitive with the DRC’s Congo staff are an companies. Vodacom arrival of multinational as a result of their highly valued attractive target for recruitment skills and training. an intensive programme of Congo embarked on Vodacom such as implementing the Vodacom training staff and projects and wellness programme. In Congo employees’ cooperative previous years, a bursaryat scheme was implemented, aimed students, and a retention scheme was targeting and developing at retaining key employees. Vodacom implemented aimed including Congo is focused on social responsibility programmes culture and arts.education, health, welfare, the environment, USD3.5 million in Since 2002, the company has invested about various social projects. Mozambique Vodacom owned 98% of VM (S.A.R.L.) trading as Vodacom was held by local Mozambique, and the remaining 2% consortium EMOTEL. Effective April 1, 2007, Vodacom International Limited being purchased by Mozambique to local investors, with 5% an additional Intelec Holdings Limitada and EMOTEL acquiring International Limited (Mauritius) 3%. On May 12, 2008, Vodacom stake in Vodacom entered into an agreement to sell 5% of its 90% to a number of Mozambique to local investors, which is subject suspensive conditions. Mozambique During the 2008 financial year Vodacom to approximately increased its customer base by 29.8% 2008, up from 1,282,000 customers as at March 31, 31, 2007. This approximately 988,000 customers as at March increase is primarily a result of approximately 951,000 gross compared to connections in the 2008 financial year, approximately 797,000 in the 2007 f by a churn rate of 58.7% in the 2008 financial year, compared by a churn rate of 58.7% in the 2008 financial year, to 41.7% in the 2007 financial year. Mozambique had an estimated market share of Vodacom approximately 40% as at March 31, 2008, compared to approximately 35% as at March 31, 2007 and 30% as at March 31, 2006, based on the total estimated mobile market. Mozambique is focusing on coverage expansion, Vodacom building sound distribution channels and delivering innovative value propositions underscored by a warm and receptive A unique point of differentiation for Vodacom brand identity. Mozambique has come from its corporate social investment projects, which sponsored the complete reconstruction of a school in Maputo, as well as the construction of an entirely new school in Maputo that opened in May 2007 and the donation of books During and encyclopaedias to more than 40 schools nationally. Mozambique implemented a Vodacom the year under review, revenue based corporate social investment fund whereby 0.02% of monthly prepaid and contract revenue is allocated to a A fine equivalent to between USD5,000 and USD10,000 per customer; 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. Employees Congo had 919, 745 and 479 employees as at Vodacom The process of March 31, 2008, 2007 and 2006 respectively. Vodacom is making every effort to obtain the required Vodacom information but management believes it is unlikely that Vodacom will meet all the requirements as prescribed in this decree by June 30, 2008. Management is engaging with the relevant ministries on this matter and is presently unable to reliably assess in the event of non-compliance the potential impact on Vodacom with this decree. The telecommunications industry in the Democratic Republic of ministerial decree the Congo is subject to a recently promulgated base of all requiring the registration of the entire customer particularsnetwork operators. This decree required prescribed of by June 30, 2008. all customers to be obtained and maintained who has not The sanction for non-compliance by any operator the requirements of identified its customers in accordance with this decree within three months from March 28, 2008 could result in: In the 2008 financial year, a Bill was initiated by the Minister of In the 2008 financial year, excise duties of 10% Finance that will subject mobile operators to with a total burden of taxes on services revenue amounting to and is awaiting 28%. This Bill was passed on May 8, 2008 promulgation by the Head of State. Regulatory environment Infrastructure and market share its current coverage believes that Vodacom with a strong position to benefit Congo levels provide Vodacom from an economic upturn. has been rolled Network coverage of the Democratic Republic of the out in all of the nine provinces towns and consisting of 425 base stations Congo, including 274 and six mobile service switching centres as at March 31, 2008, 368 base stations and four mobile compared to 238 towns, service as at March 31, 2007 and 184 towns, switching centres four mobile service373 base stations and as switching centres Network capacity in the main centres has at March 31, 2006. to maintain quality and service.also been upgraded Vodacom 11% of the geographical area of Congo covers approximately and approximately the Democratic Republic of the Congo 2008, compared to 53% of the population as at March 31, and approximately approximately 10% of the geographical area and approximately 53% of the population as at March 31, 2007 the population as at 8% of the geographical area and 44% of March 31, 2006. Operational review continued

corporate social investment fund administered by a board of to develop their own interconnect costing models, based on the trustees who will then allocate resources to charitable causes. long term prospective incremental costs methodology (LTPIC). If the results of such models clearly demonstrate to the remaining Products operators that there are substantial differences to the above- Vodacom Mozambique offers customers contract and prepaid mentioned tariffs for 2009, the rates may be reviewed. plans and continued to roll out public phones in the 2008 financial year. Prepaid packages accounted for 97.9%, 99.0% All operators have been informed by the INCM that all licences and 98.5% of gross connections in the 2008, 2007 and 2006 are to be re-issued in compliance with the new Telecommunications financial years respectively. Contract products are primarily Law of 2004. Vodacom Mozambique was invited to submit aimed at the corporate and business market, while prepaid suggestions to any amendments it wished to make to its existing products are aimed at the large informal market. Vodacom licence. To date, no new licences have been issued. However, Mozambique has interactive voice response in place and Vodacom Mozambique applied to expand its international customer care can handle customer queries in Portuguese gateway rights and to lease transmission capacity to entities and English. other than licensed telecommunication network operators, such as Internet service providers and satellite companies, during the Since prepaid continues to constitute the bulk of business in end of the 2006 calendar year but to date no formal response Mozambique, a range of new innovative services was launched has been received from the INCM. during the 2007 financial year to enhance the overall value proposition of the Bazza Bazza prepaid product. Launched in Vodacom continues to engage TDM with regard to excessive July 2007, Vodakool is an innovative illustration of how mobile transmission prices. Vodacom informed the INCM that it is communications can empower Mozambicans. Vodakool, the considering the sanctions available in terms of the law in respect news and information portal exclusive to Vodacom, links of the pricing that can lead to TDM being declared a dominant customers with breaking local and international news, sports operator. results, weather and financial information in partnership with local content providers. In a country where traditional media Vodacom Mozambique believes that its ability to strictly manage reach is generally restricted to large cities, this service helps to costs in the face of low ARPU and low minutes of usage, while bridge the information divide in a society where this divide is expanding coverage and distribution and intensifying still prevalent. promotional and product offerings, will be critical to achieving improved results. Infrastructure Employees Vodacom Mozambique’s infrastructure consists of two mobile Vodacom Mozambique employed 210, 187 and 170 people service switching centres, six base station controllers and 220 as at March 31, 2008, 2007 and 2006 respectively. Vodacom base transceiver stations as at March 31, 2008. Vodacom Mozambique continues to support the development of local Mozambique increased its network to a capacity of approximately skills. A succession plan and development programmes were 4.0 million customers as at March 31, 2008. Vodacom implemented to transfer skills and knowledge to local employees. Mozambique’s capital expenditure was R111 million, R85 million Staff issues are addressed via a consultative forum where they and R121 million in the 2008, 2007 and 2006 financial years are given a platform to address issues. respectively. GPRS/EDGE has been available since the end of June 2006 for contract and prepaid customers. EDGE is a data Vodacom annual report service that provides a faster version of GSM wireless service. In The full Vodacom annual report can be accessed at tandem with the launch of GPRS and MMS, Vodacom www.telkom.co.za/ir/financial/annualreports or on Vodacom’s Mozambique also launched VodaMail, a free e-mail service website at www.vodacom.co.za available to all contract customers. 138 Regulatory environment In February 2007 the Mozambican Telecommunications Regulator (INCM) appointed a consultant to facilitate the introduction of cost based interconnection. As a result of the study initiated by the INCM, asymmetrical interconnection rates have been introduced in Mozambique as of January 1, 2008, which have been agreed on by all operators for a period of two years ending December 31, 2009. The asymmetrical rates were proposed by the consultant as a result of Vodacom Mozambique’s late entry into the market and include an annual inflation adjustment. This two year period will allow operators WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 139 Deon Fredericks new, and leverage of finance’s review Telkom has been working has been Telkom very hard to position its tremendous telecommunications assets to deal with the highly competitive environment opportunities for growth maximum efficiencies from our service and capital equipment are reflective of the suppliers. Our results to March 31, 2008 above focus areas and particularly of the continuing growth of lower margin data business, the early stages of development for both Multi-Links and Africa Online and continued pressure on traditional voice revenue. Telkom’s structure comprises three segments, fixed-line, operating Telkom’s provides fixed-line voice The fixed-line segment mobile and other. and the and data communications servicesthrough Telkom mobile segment provides mobile services through our 50% joint The other operations segment provides interest in Vodacom. directory services through the TDS Directory Operations Group, fixed mobile, data and other international communications services acquired Multi-Links in Nigeria, through our newly internet servicessubsidiary, outside South Africa, through our and wireless data services,Africa Online subsidiary, through our Directory Media. TDS and includes Telkom Swiftnet subsidiary, Operations and Swiftnet were previously included in our fixed- line segment. Group’s Below please find a condensed summary of Telkom financial results for the year ended March 31, 2008. A detailed breakdown, including segmental information, can be found in the Financial review on page 147. Chief Chief Aggressive customer service and we are starting improvement to see the results especially in the corporate market and we will continue with this; Creating capacity and capability and improving the reliability of the network; and Continued bundling of services rates. at discounted Furthermore, Telkom has continued to leverage from the core Furthermore, Telkom strengths of the fixed-line network, continuing our migration toward a fully Internet Protocol based Next Generation Network, growing our data business, expanding geographically, realigning our product portfolio and working to achieve This year focused on on transforming the business to deal more effectively with competition, delivering innovative products expanding our networks including the maintenance thereof and These bedding down our growth drivers to our overall strategy. included: It is my pleasure to present Telkom’s financial review for the year It is my pleasure to present Telkom’s year with ended March 31, 2008. It has been a challenging of our strategy, significant changes including alignment competition, pricing increasing continued mobile substitution pressures and a high inflationary environment. 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-segmental eliminations, increased by 0.7% to R32,572 million primarily due to increased data services, interconnection and subscriptions and connections 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 significant customer growth, offset in part by declining ARPU’s as a result of increased lower spending customers connected.

Our defend and grow strategies to provide value to our customers and build loyalty through bundled products and volume discounts are bearing fruit. We will continue with these strategies to retain customers.

Telkom continues to actively focus its efforts on converting revenue streams into annuity revenue and we are pleased to announce that annuity revenue which include line installations, reconnection fees and CPE sales, increased by 14.1% to R6.9 billion. Another key revenue growth area is data. Again we have been successful in growing data revenue, before inter-segmental eliminations, by 10.9% to R8.3 billion. Whilst many of our revenue growth areas including; inter alia, data and our new ventures in Africa being Multi-Links and Africa Online are currently lower margin business segments, we are also continuing to leverage our traditional voice revenues towards those products and services that have higher margins.

Management will continue to focus on high growth potential revenue streams as well as high margin revenue streams. There is also a significant effort to align the cost structures of significant revenue streams throughout the business.

GROUP OPERATING EXPENSES

Group operating expenses increased by 12.8% to R42,337 million (March 31, 2007: R37,533 million) in the year ended March 31, 2008, primarily due to a 17.9% increase in operating expenses in the mobile segment to R17,898 million 140 (before inter-segmental eliminations). Fixed-line operating expenditure 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 offset by a decrease in operating leases and selling, general and administrative expenses. The increase in mobile operating expenses of 17.9%, before inter segmental eliminations, was primarily due to increase in employee expenses and gross connections resulting in increased cost to connect customers to the network. Mobile payments to other operators also increased as a result of the increased outgoing traffic and the higher WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 141 Telkom continues to focus on re-aligning its profile towards longer Telkom term debt. This is evident in the recent issuance of the TL12 and TL15 bonds. Finance charges include interest paid on local and foreign Finance charges include interest paid on borrowings, amortised discounts on bonds and commercial paper bills, fair value gains and losses on financial instruments and foreign exchange gains and losses on foreign currency denominated transactions and balances. Finance charges increased by 60.3% to R1,803 million (March 31, 2007: R1,125 million) in the year ended March 31, 2008, due to a 42.0% increase in interest expense to R1,885 million (March 31, 2007: R1,327 million) as a result of the 65.7% increase in net debt to R16,617 million (March 31, 2007: R10,026 million). Net debt increased mainly as a result of the issuance of commercial paper debt with a nominal value R18,806 million net debt for in Vodacom’s as well as an increase during the year, This was partly offset by the repayment of R15,773 the year. million nominal value of commercial paper bills. In addition to the increase in the interest expense, net fair value and exchange movements on financial instruments resulted in a gain of R82 million for the year ended March 31, 2008 (March 31, 2007: R202 million). FINANCE CHARGES INVESTMENT INCOME on short-termInvestment income consists of interest received income decreased investments and bank accounts. Investment R235 million), by 16.2% to R197 million (March 31, 2007: from fixed deposits largely as a result of lower interest received primarily due to lower cash balances. The telecommunications regulator, ICASA, limits Telkom’s price ICASA, limits Telkom’s regulator, The telecommunications regulated 3.5%. The prices for Telkom’s increase to CPIX minus products and service, are therefore decreasing in real terms. In are forcing price decreases across addition, competitive pressures revenues. In this pressure on Telkom’s the board resulting in with strong inflationaryenvironment, together our momentum on remains focused on maximising Telkom operating expenditure, align on cost structures with our revenue all cost efficiencies and of the initiatives to streams. Capability management is one that our cost increases aim to continue ensuring achieve this. We achievement in are below CPIX and are proud of the fixed-line’s to 3.7% in the year limiting operational expenditure increases recorded at 10.1% ending March 31, 2008 given that CPIX was at end March 2008. volume growth of more expensive outgoing traffic terminating of more expensive volume growth compared to traffic terminating networks when on other mobile network. on the lower cost fixed-line Chief of finance’s review continued

TAXATION GROUP BALANCE SHEET

The consolidated tax expense reduced to R4,704 million (March Interest bearing debt increased by R5,369 million (51.8%) in 31, 2007: R4,731 million) in the year ended March 31, 2008. the year ended March 31, 2008. Telkom company’s interest The consolidated effective tax rate for the year ended March 31, bearing debt increased with R4,279 million and Vodacom’s debt 2008, was 36.5% (March 31, 2007: 34.9%). Telkom Company’s increased with R538 million mainly due to investing in our fixed- effective tax rate was 24.6% for the year ended March 31, 2008 line and mobile networks. Our other segment’s debt increased (March 31, 2007: 24.2%) and Vodacom’s effective tax rate with R552 million in the current financial year due to our decreased to 34.1% (March 31, 2007: 36.9%). expansion into Africa.

The increase in the Telkom Group effective tax rate in the 2008 In the financial year ended March 31, 2008, the Group redeemed financial year was mainly due to higher non-deductible expenses the TK01 local bond with a nominal value of R4,680 million. relating mostly to the impairment of Telkom Media and Africa We increased our book value of Commercial paper bills with Online assets, the increase in STC tax credits utilised in respect R2,900 million and we entered into call loans and term facilities, of the repurchases of Telkom shares and the impact of the tax rate of which R5,600 million was outstanding at year end. change on deferred taxation from 29% to 28% with effect from Subsequent to year end, we successfully issued the TL12 (due April 1, 2008. April 29, 2012) and TL15 (due April 29, 2015) bonds listed on the Bond Exchange of South Africa with a combined nominal The higher effective tax rate for Telkom Company in the year value of R2.2 billion, and repaid the R1.6 billion bridge facility ended March 31, 2008 was primarily due to higher non- included in our interest bearing debt at March 31, 2008. deductable expenses relating to the R217 million impairment of the Telkom Media loan and an increase of R198 million in The increase in the other segment’s financial liabilities are mainly secondary tax on companies, partially offset by higher exempt contributed by the Multi-Links put option of R919 million due to income resulting from dividends received from Vodacom and the acquisition of Multi-Links in the current year. other subsidiaries. Multi-Link’s minorities have been granted a put option that Vodacom’s effective tax rate decreased in the 2008 financial requires Telkom to purchase all of the minorities’ shares. The put year primarily due to the decrease in the rate of secondary tax on option is exercisable within 90 days of the second anniversary companies from 12.5% to 10%. of signing of the sale agreement, being May 1, 2009.

In addition Vodacom’s subsidiary, Vodacom Congo (RDC) s.p.r.l PROFIT FOR THE YEAR AND EARNINGS PER SHARE has an option liability with a value of R397 million (Group share: Profit for the year attributable to the equity holders of the R198 million) as at March 31, 2008 for a period of maximum Group decreased by 7.8% to R7,975 million (March 31, 2007: 8 years after December 1, 2001. R8,646 million) for the year ended March 31, 2008. Telkom continue to focus on an efficient balance sheet structure. Group basic earnings per share decreased by 6.9% to 1,565.0 As such we have given the market guidance to the effect that we cents (March 31, 2007: 1,681.0 cents) and Group headline are targeting a net debt/EBITDA ratio of 1.3x over the following earnings per share decreased by 4.4% to 1,634.8 cents (March three years. We will continue to manage both our balance sheet 31, 2007: 1,710.7 cents). and cash to extract maximum efficiencies for the business.

Telkom will continue to focus on restructuring and consolidating GROUP CASH FLOW 142 its business while concentrating on ensuring continued returns for our shareholders through share buy backs and increasing the Cash flows from operating activities increased by 13.3% to ordinary dividend in the years going forward. For the year R10,603 million (March 31, 2007: R9,356 million), mainly ending March 31, 2008, Telkom bought back R1.6 billion of due to lower taxation as well as an increase in cash generated shares and increased the ordinary dividend by 10% to 660 from operations of R21,256 million (March 31, 2007: cents per share. We will also continue to drive profitable growth R20,520 million), partly offset by higher dividends paid. Cash through data, geographic expansion and exploiting the flows utilised in investing activities increased by 35.5% to opportunities presented by fixed and mobile integration. R14,106 million (March 31, 2007: R10,412 million), primarily WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 143 – 3.0 3.6 (4.1) 13.3 85.9 16.1 (35.5) 200.8 % change % change 2008/2007 2008/2007 4.0 (1.6) 34.6 40.3 36.5 25.7 (42.9) (302.7) (1,031.8) % change % change 2007/2006 2007/2006 ZAR ZAR (560) 2008 2008 6,794 3,460 2,943 1,646 21,256 10,603 11,900 (14,106) 44 Year ended March 31, Year Year ended March 31, ended March Year value of R4,680 million on March 31, 2008 and maturing 31, 2008 and million on March value of R4,680 during million nominal value paper debt of R15,773 commercial million was offset by the issuance of R18,806 This the year. paper bills, as well as entering into call nominal value commercial loans and termthe redemption facilities of R5,600 million to fund other cash flows from investing activities. of the TK01 bond and 35 ZAR ZAR ZAR ZAR (258) (2,920) 2006 2007 2006 2007 2,571 3,608 4,900 6,594 7,506 10,246 9,506 9,356 1,962 (3,976) (7,286) (10,412) 19,724 20,520 (in millions, except percentages) (in millions, except percentages) Mobile Fixed-line Cash generated from operations Cash from operating activities (after tax, interest, dividends) Investing activities Other Group Capital Expenditure of to R11,900 million (March 31, 2007: R10,246 million) and represents 21.1% Group capital expenditure increased by 16.1% Group revenue (March 31, 2007: 19.8%). Financing activities Net increase/(decrease) in cash Summary due to increased capital expenditure in both the fixed-line and in both the fixed-line capital expenditure due to increased of Multi- utilised for the purchase as well as cash mobile segments, (Proprietary) flows from Limited. Cash Links Telecommunications million (March 31, 2007: (R2,920) financing activities of R2,943 to the R1,647 million paid for share million) was mostly due of the TK01 bond with a nominal repurchases, the repayment Chief of finance’s review continued

Fixed-line capital expenditure, which includes spending on efficiently to ensure service delivery by focusing on the evolution intangible assets, increased by 3.0 % to R6,794 million (March of the network and providing infrastructure for future growth. 31, 2007: R6,594 million) and represents 20.9% of fixed-line revenue (March 31,2007: 20.4%). Our focus continue to be PROSPECTS AND GUIDANCE the expansion of our capacity for growth specially broadband. This include accelerated pre provisioning of ADSL and Telkom’s strategy is designed to deliver and guided by our backbone infrastructure. Baseline and revenue generating strategy, the creation of shareholders value is the underlying capital expenditure of R4,095 million (March 31, 2007: R3,568 driver of every decision. million) was largely for the deployment of technologies to support the growing data services business (including ADSL footprint), The next 3 years we will continue to focus on transforming the links to the mobile cellular operators, service on demand business to deal with competition, concentrating on delivering customer solutions and expenditure for access line deployment in innovative products and services to our customers, expanding selected high growth residential areas. The continued focus on our network and bedding down our growth drivers. We expect rehabilitating the access network and increasing the efficiencies that competition will continue to constrain revenue growth over in the transport network contributed to the network evolution and the next three years. Targets in a transforming industry such as sustainment capital expenditure of R1,369 million (March 31, ours are inherently risky, particularly in later years and investors 2007: R1,200 million). should not place undue reliance on such targets. We are targeting a compound annual growth rate (CAGR) of revenue Telkom continues to focus on its operations support system over the following three years in the 5% to 10% range as investment with current emphasis on workforce management, increased revenues from our data, broadband and converged provisioning and fulfillment, assurance and customer care, business and our newly acquired subsidiaries are projected to hardware technology upgrades on the billing platform and mitigate the impacts of increased competition. performance and service management. During the year ended March 31, 2008, R841 million (March 31, 2007: R1,141 million) The EBITDA margin relating to fixed-line and other segments is was spent on the implementation of systems. targeted to range between 32% and 36% over the next three

Mobile capital expenditure (50% of Vodacom’s capital years. This margin range reflects the increased operational expenditure) decreased by 4.1% to R3,461 million (March 31, expenditure that goes hand in hand with an aggressive customer 2007: R3,608 million) and represents 14.4% of mobile revenue service improvement and expansion programme, an increased (March 31, 2007: 17.5%) which was mainly spent on the contribution from lower margin business and the decline in cellular network infrastructure consisting of radio, switching and local and national voice traffic revenue. The early stages of transmission network infrastructure and computer software. The development in Multi-Links and Africa Online add to the decrease in capital expenditure in other African countries was expected decrease in the EBITDA margin. We expect to see largely as a result of decreased investment in Tanzania, improvements in the EBITDA margin within the range towards Democratic Republic of the Congo and Mozambique offset by the end of our three year planning period. an increase in investment in Lesotho. Capital expenditure for the fixed-line and other segments will Other capital expenditure consists of additions to property, plant range between 23% and 27% of revenue over the next two and equipment for our subsidiaries TDS Directory Operations years. In year three capex is targeted to range between 18% (Proprietary) Limited, Swiftnet (Proprietary) Limited, Telkom and 22%. Capital expenditure is expected to be R11.3 billion in Media (Proprietary) Limited, Africa Online Limited and Multi-Links the 2009 financial year. Fixed-line capital expenditure is 144 Telecommunications Limited. Other capital expenditure, which targeted at R7 billion and Multi-Links at USD533 million. includes spending on intangible assets, increased to R1,646 million (March 31, 2007: R44 million) and represents 84.9% of The targeted net debt to EBITDA for the fixed-line and other other revenue (March 31, 2007: 4.5%). segments will be 1.3 times.

Telecommunications is naturally a capital intensive business Targets in a transforming industry such as ours are inherently which requires continued investment and longer pay back risky, particularly in later years and investors should not place periods. It is imperative that capex is used effectively and undue reliance on such targets. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 145 Deon Fredericks Acting Chief of Finance I wish to express my appreciation to the staff of Telkom and appreciation to the staff of Telkom I wish to express my particularly team for the exemplary the finance over work done the past financial year. Our dividend policy remains that we progressively grow the we progressively policy remains that Our dividend in our network, Given the investment ordinarydividend each year. businesses, the potential acquisitionsexpansion in current and and other segments’ EBITDA margin, pressure on the fixed-line be paid in respect of the 2008 financial no special dividend will of dividend going forward The level based on a will be year. the consideration of the financial number of factors including debt level, opportunities,results, available growth the Group’s interest coverage, internal resources, the cash flows and shares and other future expectations. repurchase of Telkom 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 1.2 Operating 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 20.5 Operating profit 2,614 3,240 4,436 5,430 6,247 24.3 Operating profit margin (%) 22.9 23.7 26.1 26.4 25.9 3.1 EBITDA 3,879 4,796 5,908 7,123 8,217 20.6 EBITDA margin (%) 33.9 35.1 34.7 34.6 34.1 0.1 Capital 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 44.7 Operating 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 data Operating revenue 40,582 43,160 47,625 51,619 56,285 8.5 Operating expenses (including depreciation) 31,499 32,179 33,428 37,533 42,337 7.7 EBITDA 16,586 17,549 20,553 19,785 20,612 5.6 Operating profit 9,338 11,261 14,677 14,470 14,482 11.6 Profit before tax 6,396 9,917 13,851 13,580 12,876 19.1 Profit after tax/net profit 4,658 6,835 9,328 8,849 8,172 15.1 Basic earnings per share (cents) 823.9 1,246.9 1,746.1 1,681.0 1,565.0 17.4 Headline earnings per share (cents) 875.2 1,279.2 1,728.6 1,710.7 1,634.8 16.9 Dividends per share (cents) 90 110 900 900 1,100 87.0 Balance sheet data Total assets 53,174 57,597 57,544 59,146 70,372 7.3 Current assets 11,423 15,045 12,731 10,376 12,609 2.5 Non-current assets 41,751 42,552 44,813 48,770 57,763 8.5 Total liabilities 31,346 31,236 28,078 27,138 37,035 4.3 Current liabilities 14,639 17,366 15,687 18,584 21,931 10.6 Non-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 11.2 Total debt 17,821 15,225 12,051 11,034 18,365 0.8 Net debt 13,362 6,941 6,828 10,026 16,617 5.6 146 Cash flow data Cash 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) 27.0 Cash 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 19.6 Operating free cash flow 9,009 10,034 7,104 3,728 2,150 (30.1) Financial ratios Operating profit margin (%) 23.0 26.1 30.8 28.0 25.7 2.8 EBITDA 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 5.4 Net 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 0.6 Capital expenditure to revenue (%) 13.2 13.6 15.8 19.8 21.1 12.4 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 147 – 4.0 1.2 9.0 0.7 0.1 4.2 3.6 n/a (7.8) (1.9) (8.2) (6.4) (2.8) (5.7) (4.4) 17.1 15.4 24.1 17.9 15.0 39.1 48.8 33.3 87.0 12.8 (15.0) (74.7) (22.9) (48.2) 2007 103.6 210.7 2008/ % change – 8.6 2.8 1.1 4.4 8.4 1.6 7.3 n/a (5.9) (9.1) (1.4) (3.7) 20.9 10.3 20.6 11.6 20.2 22.4 12.3 (13.5) (13.9) (14.3) (20.0) (12.7) (28.2) (16.0) (11.3) 2006 440.0 2007/ % change rment loss of R53 million in the ts contained in our TL20 bond is le to other similarly titled measures ntinued growth. EBITDA is not a US nt income and depreciation, amortisation, dustry such as communications. It is also 2008 67 12.5 56 10.5 (86) (16.1) 2.2 183 0.9 373 1.8 230 1.6 534 100.0 497 93.1 ZAR % (102) (0.7) 14.2 11.5 25.9 25.7 24.9 36.6 7,975 100.0 1,993 3.5 1,830 4.3 8,217 39.9 6,247 43.1 8,107 56.0 (2,369) (4.2) 4.5 (2,353) (5.6) 4.4 24,089 42.8 56,28532,572 100.0 57.9 11,839 57.4 17,898 42.3 14,482 100.0 20,612 100.0 42,33724,962 100.0 59.0 2007 We proportionately consolidate Vodacom’s results into the results into proportionately Vodacom’s consolidate We This means financial statements. consolidated Group’s Telkom the line results in each of of Vodacom’s that we include 50% financial statements consolidated Group’s items in the Telkom fully consolidate We discussion below. and in the year to year our TDS Directory Operations, Multi-Links, Africa Online, Group’s Media subsidiaries in the Telkom Swiftnet and Telkom statements. consolidated financial CONSOLIDATED RESULTS CONSOLIDATED informationThe following table shows to our operating related operating profit, profit for the year, revenue, operating expenses, for the periods profit margin, EBITDA and EBITDA margin indicated. 16.7 45.4 26.4 28.0 26.6 Year ended March 31, Year 2006 –––– –––– 10 2.1 54 14.1 (45) (9.4) (46) (12.0) 952 2.0 979 1.9 439 2.1 484 2.4 564 1.7 589 1.6 398 2.7 444 3.1 480 100.0 384 100.0 465 96.9 334 87.0 19.3 41.8 30.8 30.9 43.2 38.3 9,189 100.0 8,646 100.0 47,625 100.0 51,619 100.0 31,832 66.8 32,345 62.7 20,553 100.0 19,785 100.0 14,677 100.0 14,470 100.0 33,428 100.0 37,533 100.0 22,454 67.2 24,083 64.1 (2) (1) (2) (3) 2006 financial year due to an increase in the fair value of the assets in Mozambique and an impairment loss of R30 million and R23 million in the 2008 and 2007 financial years respectively, in respect of the assets in Mozambique due to a decrease in the fair value of the assets. Other income includes profit and losses on disposal of investments, property, plant and equipment and intangible assets. EBITDA represents profit for the year, which includes profit on sale of investments, before taxation, finance charges, investme Total operating profit and EBITDA and mobile operating profit and EBITDA include our 50% share of a reversal of Vodacom’s impai impairments and write-offs. We believe that EBITDA provides meaningful additional information to investors since it is widely accepted by analysts and investors as a basis for comparing a company’s underlying operating profitability with that of other companies as it is not influenced by past capital expenditures or business acquisitions, a company’s capital structure or the relevant tax regime. This is particularly the case in a capital intensive in a widely accepted indicator of a company’s ability to service its long-term debt and other fixed obligations and to fund its co GAAP or IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash flows from operating activities determined in accordance with US GAAP or IFRS or as a measure of liquidity. EBITDA is not defined in the same manner by all companies and may not be comparab of other companies unless the definition is the same. In addition, the calculation of EBITDA for the maintenance of our covenan based on accounting policies in use, consistently applied, at the time the indebtedness was incurred. As a result, EBITDA for purposes of those covenants is not calculated in the same manner as it is calculated in the above table. (in millions, except percentages) ZAR % ZAR % EBITDA Profit margin (%) Profit for the year attributable to equity holders of Telkom Other income Intercompany eliminations (2,180) (4.5) (2,278) (4.4) Other Other Intercompany eliminations Fixed-line Mobile 26.1 Operating profit Intercompany eliminations (2,225) (6.7) (2,324) (6.2) Operating revenue Fixed-line Mobile 17,021 35.7 20,573 39.8 Intercompany eliminations Other Operating profit margin (%) Mobile 5,908 28.8 7,123 36.0 Intercompany eliminations Other Other Mobile 4,436 30.2 5,430 37.5 Fixed-line Mobile 50Other 10.4 42 10.9 Fixed-line 9,843Fixed-line 67.1 8,596 59.4 14,206 69.1 12,178 61.6 Operating expenses Fixed-line Mobile 12,635 37.8 15,185 40.5 (3) EBITDA margin (%) (1) (2) Telkom Group’s segmental results Group’s Telkom Our operating structure comprises three segments, fixed-line, Our operating structure voice Our fixed-line segment provides fixed-line mobile and other. mobile Our servicesand data communications through Telkom. servicessegment provides mobile in through its 50% joint interest directory Our other segment provides services through Vodacom. our TDS Directoryand Operations Group, fixed mobile, data other international communications services in Nigeria, through Internet services subsidiary, our newly acquired Multi-Links outside and wireless our Africa Online subsidiary, South Africa, through data services, and includes our Swiftnet subsidiary, through Media. TDS Directory Operations and Swiftnet were Telkom previously included in our fixed-line segment. As of the beginning of the year the Telkom Group added a new Group the Telkom of the year As of the beginning its financial reporting,segment to The the other segment. comparative information in this annual report has been updated reporting segments. to Telkom’s to reflect the changes FINANCIAL REVIEW FINANCIAL Financial review continued

EBITDA can be reconciled to operating profit as follows:

Year ended March 31, 2006 2007 2008 (in millions) ZAR ZAR ZAR

Fixed-line EBITDA 14,206 12,178 11,839 Depreciation, amortisation, impairments and write-offs (4,363) (3,582) (3,732) Operating profit 9,843 8,596 8,107 Mobile EBITDA 5,908 7,123 8,217 Depreciation, amortisation and impairments (1,472) (1,693) (1,970) Operating profit 4,436 5,430 6,247 Other EBITDA 439 484 373 Depreciation, amortisation, impairments and write-offs (41) (40) (143) Operating profit 398 444 230

Group operating revenue in data revenue and higher subscriptions and connections Operating revenue increased in the years ended March 31, revenue partially offset by lower average traffic tariffs, lower local 2008 and 2007 due to increased operating revenue in our and long distance traffic and lower interconnection revenue. mobile other and fixed-line segments. Vodacom’s operating These additional revenue streams were further supported by the revenue increased in the 2008 financial year primarily due to continued growth in advertising revenue from our subsidiary, TDS increased airtime, data, interconnection and equipment sales Directory Operations, offset in part by a slight reduction in revenue as a result of strong customer growth. Vodacom’s wireless data services revenue from our subsidiary, Swiftnet due operating revenue increased in the 2007 financial year primarily to increased competition in the wireless data environment. due to increased data, interconnection and equipment sales Revenue from directory services increased in the years ended revenue as a result of continued customer growth. The increase in March 31, 2007 and 2008 primarily due to annual tariff revenue in our other segment in the 2008 financial year was increases and increased marketing and online efforts, resulting in primarily due to the inclusion in the 2008 financial year of increased spending on advertising by existing customers and revenue generated by our newly acquired subsidiaries, Multi-Links additional advertising revenue from new customers. and Africa Online. Fixed-line operating revenue remained flat with a marginal increase of 0.7% in the 2008 financial year Fixed-line segment operating revenue primarily due to continued growth in data services, intercon - The following table shows operating revenue for our fixed-line nection revenues and higher revenue from subscription based segment broken down by major revenue streams and as a calling plans, partially offset by a decrease in local and long percentage of total revenue for our fixed-line segment and distance traffic. The increase in fixed-line operating revenue in the percentage change by major revenue stream for the the 2007 financial year was primarily due to continued growth periods indicated.

Fixed-line operating revenue

Year ended March 31, 2006 2007 2008 2007/ 2008/ 148 2006 2007 (in millions, except percentages) ZAR % ZAR % ZAR % % change % change

Subscriptions and connections 5,803 18.2 6,286 19.4 6,330 19.4 8.3 0.7 Traffic 17,563 55.2 16,740 51.8 15,950 49.0 (4.7) (4.7) Local 5,753 18.1 4,832 14.9 4,076 12.6 (16.0) (15.6) Long distance 3,162 9.9 2,731 8.5 2,252 6.9 (13.6) (17.5) Fixed-to-mobile 7,647 24.0 7,646 23.6 7,557 23.2 – (1.2) International outgoing 1,001 3.2 988 3.1 986 3.0 (1.3) (0.2) Subscription based calling plans – – 543 1.7 1,079 3.3 – 98.7 Interconnection 1,654 5.2 1,639 5.1 1,757 5.4 (0.9) 7.2 Data 6,674 21.0 7,489 23.1 8,308 25.5 12.2 10.9 Sundry revenue 138 0.4 191 0.6 227 0.7 38.4 18.8

Fixed-line operating revenue 31,832 100.0 32,345 100.0 32,572 100.0 1.6 0.7 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 149 0.7 5.0 (6.5) (2.1) (2.6) (16.7) 2007 2008/ % change 8.3 3.6 (6.9) (1.3) (0.8) (25.0) 2006 2007/ % change rnal lines in service and public payphones. 5 743 754 2008 6,330 4,395 2,893 6 Year ended March 31, Year operating leases to finance leases, resulting in the recognition of income from the lease of customer premises equipment at the time of sale as opposed to over the life of the contract. In addition, increased revenue was received from voice enhanced services, mainly as a result of increased penetration. The decrease in the number of residential postpaid PSTN lines in service in both the 2008 and 2007 financial years was primarily as a result of customer migration to mobile and higher bandwidth products such as ADSL and lower connections. The increased competition in our payphones business. As a result, business. As competition in our payphones increased financial the 2008 and 2007 4.7% in both traffic declined access line decreased 0.5% to R5,250 years. Revenue per fixed year from R5,275 in the 2007 financial in the 2008 financial the decline in traffic tariffs and local traffic year primarily due to volumes, partially based calling offset by increased subscription and subscriptions and connections tariffs. plans, interconnection decreased 0.5% to R5,275 in the Revenue per fixed access from R5,304 in the 2006 financial year 2007 financial year in traffic tariffs, lower local traffic primarily due to the decline revenue, partiallyvolumes and lower interconnection offset by and connection tariffs. increased subscriptions Subscriptions and connections consists of revenue Revenue from subscriptions and connections value added voice from connection fees, monthly rental charges, services and the sale and rental of customer premises equipment ISDN channels for postpaid and prepaid PSTN lines, including connections revenue and private payphones. Subscriptions and of residential and is principally a function of the number and mix business lines in service, the number of private payphones in service and the corresponding charges. The following table sets forth information related to our fixed-line subscription and connection revenue during the periods indicated. 8 693 718 854 795 - 2006 2007 5,803 6,286 4,5512,996 4,490 2,971 mprised of PSTN lines, including ISDN lines and private payphones, but excluding inte (1) (2) 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. Total subscription access lines (thousands, Total except percentages) Total subscriptions and connections revenue (ZAR millions, Total except percentages) Prepaid PSTN Postpaid PSTN ISDN channels (2) Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fibre. Revenue from subscriptions and connections increased in the years ended March 31, 2008 and 2007 mainly due to increased tariffs as well as an increase in the number of ISDN lines and, to a lesser extent, business postpaid PSTN lines, partially offset by lower residential postpaid PSTN lines and prepaid PSTN lines. The average monthly prices for subscriptions increased by 6.0% on September 1, 2005, 8.3% on August 1, 2006 and 12.0% revenue from the on August 1, 2007. In the 2007 financial year, sale of customer premises equipment increased as a result of the reclassification of the related leases previously accounted for as Private payphones (1) Total subscription access lines are co Fixed-line subscription and connection revenue Fixed-line subscription and connection Fixed-line operating revenue was adversely impacted in both the Fixed-line operating revenue years due to a decrease in the number 2008 and 2007 financial as a result of of residential postpaid PSTN lines primarily bandwidth products customer migration to mobile and higher a decrease in the such as ADSL and lower connections, and customer migration number of prepaid PSTN lines as a result of to mobile services and our residential postpaid PSTN services to plans and was enable access to subscription based calling channels, ADSL positively impacted by our increase in ISDN services and, to a lesser extent, business postpaid PSTN lines. In both years by the addition, traffic was adversely affected in mobile servicesincreasing substitution of calls placed using rather than our fixed-line service dial-up traffic being and substituted by our ADSL service, as well as the decrease in the PSTN lines and number of prepaid and residential postpaid nection and subscriptions and connections, partiallynection and subscriptions offset by a particularlydecrease in traffic revenue, and long distance local operating revenue increased in the traffic revenue. Fixed-line in data primarily due to continued growth 2007 financial year, services subscriptions and connections revenue, and higher partiallytariffs, lower local and offset by lower average traffic lower interconnection revenue. long distance traffic and Fixed-line operating revenue increased in the 2008 financial in the 2008 operating revenue increased Fixed-line growth in data services due to continued year primarily and based calling plans, intercon higher revenue from subscription Financial review continued

increase in the number of postpaid ISDN channels was driven by Traffic revenue from calling plan subscriptions was reported as increased demand for higher bandwidth and functionality. The part of local traffic revenue in financial years prior to the 2007 decrease in prepaid PSTN lines in both the 2008 and 2007 financial year, as most of these calling plans related to local calls financial years was primarily due to continued migration to only and the amounts were insignificant. The access line rentals mobile services and our residential postpaid PSTN services to and value added services revenue components of calling plan enable access to subscription based calling plans. In addition, arrangements are included in subscriptions and connections we relaxed our credit policies which led to fewer migrations of revenue. In response to the significant growth in calling plan our postpaid customers to prepaid service in the 2008 and arrangements, the need arose to separate traffic revenue resulting 2007 financial years. from subscription based calling plans into annuity revenue and the respective traffic revenue streams. Commencing in the 2007 Traffic financial year, subscription based on calling plans revenue Traffic revenue consists of revenue from local, long distance, includes traffic annuity revenue related to calling plans. fixed-to-mobile and international outgoing calls, international Discounted and out of plan traffic relating to these calling plans voice over Internet Protocol services and subscription based is disclosed under the applicable traffic revenue streams. calling plans. Traffic revenue is principally a function of tariffs and the volume, duration and mix between relatively more Traffic includes dial up Internet traffic. Telkom has reclassified expensive domestic long distance, international and fixed-to- calling plans from local, long distance and fixed-to-mobile traffic mobile calls and relatively less expensive local calls. into a separate line item to disclose traffic from subscription based calling plans in the 2007 and 2008 financial year. Traffic Telkom has in recent years introduced calling plans as a customer for the 2006 financial year was not restated. retention strategy in order to defend revenues. These calling plan arrangements comprise monthly subscriptions for access line The following table sets forth information related to our fixed-line rental, value added services and free or discounted rates on calls. traffic revenue for the periods indicated.

Fixed-line traffic revenue

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 % change % change

Local traffic revenue (ZAR millions, except percentages) 5,753 4,832 4,076 (16.0) (15.6) Local traffic (millions of minutes, except percentages)(1) 18,253 14,764 11,317 (19.1) (23.3) Long distance traffic revenue (ZAR millions, except percentages) 3,162 2,731 2,252 (13.6) (17.5) Long distance traffic (millions of minutes, except percentages)(1) 4,446 4,224 3,870 (5.0) (8.4) Fixed-to-mobile traffic revenue (ZAR millions, except percentages) 7,647 7,646 7,557 – (1.2) Fixed-to-mobile traffic (millions of minutes, except percentages)(1) 4,064 4,103 4,169 1.0 1.6 International outgoing traffic revenue (ZAR millions, except percentages) 1,001 988 986 (1.3) (0.2) International outgoing traffic (millions of minutes, except percentages)(1) 515 558 635 8.3 13.8 150 International Voice Over Internet Protocol (millions of minutes, except percentages)(2) 83 38 43 (54.2) 13.2 Subscription based calling plans revenue (ZAR millions, except percentages) – 543 1,079 – 98.7 Subscription based calling plans (millions of minutes, except percentages) – 1,896 2,997 – 58.1 Total traffic revenue (ZAR millions, except percentages) 17,563 16,740 15,950 (4.7) (4.7) Total traffic (millions of minutes, except percentages)(1) 27,361 25,583 23,031 (6.5) (10.0) Average total monthly traffic minutes per average monthly access line (minutes)(3) 482 456 417 (5.4) (8.6) (1) Traffic, other than international Voice Over Internet Protocol traffic, is calculated by dividing total traffic revenue by the weighted average tariff during the relevant period. Traffic includes dial up internet traffic. (2) International voice over Internet Protocol traffic is based on the traffic reflected in invoices. (3) Average monthly traffic minutes per average monthly access line are calculated by dividing the total traffic by the cumulative number of monthly access lines in the period. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 151 by 10% on September 1, 2005, a further September 1, 2005, by 10% on 1, 10% on August a further2006 and 1, 2007. 10% on August traffic consists of revenue from calls Revenue from fixed-to-mobile customers to the three mobile networks in made by our fixed-line a function of fixed-to-mobile tariffs South Africa and is primarily Fixed-to- the duration and the time of calls. and the number, decreased in the 2008 financial year due mobile traffic revenue to customers in order to retain traffic, to higher discounts offered Closer partially to the Telkom offset by higher traffic related traffic revenue was flat in the 2007 packages. Fixed-to-mobile partially Increased fixed-to-mobile traffic was financial year. offered to customers in order to retain offset by higher discounts traffic in the traffic on our network. The increase in fixed-to-mobile due to discounts 2008 and 2007 financial years was primarily calls. offered to larger customers on fixed-to-mobile Revenue from international outgoing traffic consists of revenue to internationalfrom calls made by our fixed-line customers destinations and from international voice over Internet Protocol duration and services and is a function of tariffs and the number, In the 2008 and mix of calls to destinations outside South Africa. 2007 financial years, international outgoing traffic revenue in the average declined primarily as a result of a decrease international outgoing tariffs, partially by an increase in offset international outgoing traffic primarily as a result of the reduced tariffs. The average tariffs to all international destinations and by 9.0% on decreased by 11.1% on August 1, 2006 August 1, 2007. include revenue Revenue from subscription based calling plans Closer and subscription based plans, Telkom from Telkom’s on post-paid PSTN Supreme Call, which are bundled products minutes for a fixed lines that include discounted rates and free revenue year, monthly subscription fee. In the 2008 financial from subscription based calling plans increased by 98.7% primarily due to a 69.4% increase in customers subscribing to these packages. Interconnection generate revenue from interconnection services for traffic We from calls made by other operators’ customers that terminate on or transit through our network. Revenue from interconnection services mobile, domestic fixed includes payments from domestic and international operators regardless of where the traffic originates or terminates. Long distance traffic revenue decreased in the 2008 financial year mainly due to a decrease in average long distance tariffs and, to a lesser extent, decreased long distance traffic, partially Closer packages and offset by increased traffic related to Telkom Long distance traffic revenue decreased in the 2007 Worldcall. financial year mainly due to a decrease in average long distance tariffs, which was partially offset by increased long distance decreased our fixed-line long distance traffic tariffs traffic. We Local traffic revenue decreased in the 2008 financial year Local traffic revenue decreased in the 2008 primarily from primarily due to significantly lower traffic resulting Internet call usage being substituted by our ADSL service, the substitution of calls placed using mobile services and discounts to business customers, partially offset by increased local off peak Closer packages. tariffs and traffic volumes related to Telkom financial year due Local traffic revenue decreased in the 2007 to lower traffic resulting primarily from Internet call usage being substituted by our ADSL service and the substitution of calls increased penetration of placed using mobile services. We to stimulate usage discount and subscription based calling plans to counteract mobile in the 2008 and 2007 financial years and On to the customer. substitution, which effectively lowers the cost of local peak calls September 1, 2005, we decreased the price per minute (VAT after the first unit by 5.0% to 38 SA Cents 1, 2006 and inclusive). This price was unchanged on August August 1, 2007. On August 1, 2007, the price of local off peak calls increased 4.1% on average. ICASA approved a 3.0% reduction in the overall tariffs for servicesICASA approved a 3.0% there is a price cap effective September 1, in the basket for which in the overall tariffs for services2005, a 2.1% reduction the in 1, 2006 and a 1.2% reduction in the basket effective August overall tariffs for services in the basket effective August 1, 2007. in both the 2008 and 2007 was adversely affected Traffic increasing substitution of calls placed using financial years by the mobile services rather than our fixed-line service and dialup traffic being substituted by our ADSL service, as well as the decrease in PSTN lines and the number of prepaid and residential postpaid increased competition in our payphone business. Traffic revenue declined in the 2008 and 2007 financial years in the 2008 and 2007 revenue declined Traffic local traffic tariffs and lower to lower average primarily due traffic volumes partially subscription based offset by increased internationalcalling plans and revenue, and fixed-to- outgoing mobile traffic. Financial review continued

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 2007 ZAR ZAR ZAR % change % change

Interconnection revenue (ZAR millions, except percentages) 1,654 1,639 1,757 (0.9) 7.2 Interconnection revenue from domestic mobile operators (ZAR millions, except percentages) 760 816 838 7.4 2.7 Domestic mobile interconnection traffic (millions of minutes, except percentages)(1) 2,299 2,419 2,502 5.2 3.4 Interconnection revenue from domestic fixed-line operators (ZAR millions, except percentages) ––28 – – Domestic fixed-line interconnection traffic (millions of minutes, except percentages)(2) ––113 – – Interconnection revenue from international operators (ZAR millions, except percentages) 894 823 891 (7.9) 8.3 International interconnection traffic (millions of minutes, except percentages)(2) 1,355 1,321 1,280 (2.5) (3.1) (1) Domestic mobile interconnection traffic, other than international outgoing mobile traffic, is calculated by dividing total domestic mobile and domestic fixed interconnection 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 on interconnection invoices.

Interconnection revenue from domestic mobile operators includes service providers. We expect interconnection revenue to increase revenue for call termination and international outgoing calls from as a result of the entrance of Neotel and the further liberalisation domestic mobile networks, as well as access to other services, of the South African telecommunications industry, which may such as emergency services and directory enquiry services. partially mitigate declines in revenue in other areas. Interconnection revenue from domestic mobile operators increased in the 2008 and 2007 financial years mainly due to Interconnection revenue from international operators includes increased traffic from domestic mobile operators, partially offset amounts paid by foreign operators for the use of our network to by lower average tariffs on mobile international outgoing calls. terminate calls made by customers of such operators and Domestic mobile interconnection traffic increased in the years payments from foreign operators for interconnection hubbing ended March 31, 2008 and 2007 primarily due to an overall traffic through our network to other foreign networks. increase in mobile calls as a result of a growing mobile market, Interconnection revenue from international operators increased in partially offset by increased mobile-to-mobile calls bypassing our the year ended March 31, 2008 primarily due to the weakening network. Interconnection revenue from domestic mobile of the Rand against the SDR, the notional currency in which operators includes fees paid to our fixed-line business by international rates are determined, and increased switched Vodacom of R468 million in the year ended March 31, 2008, hubbing traffic volumes due to a reduction in tariffs to stimulate R468 million in the year ended March 31, 2007 and R464 competitiveness, partially offset by lower volumes and settlement million in the year ended March 31, 2006. Fifty percent of these rates. Interconnection revenue from international operators amounts were attributable to our interest in Vodacom and were decreased in the year ended March 31, 2007 primarily due to eliminated from the Telkom Group’s revenue on consolidation. decreased settlement rates and volume discounts and decreased 152 switched hubbing traffic volumes, partially offset by increased Interconnection revenue from domestic fixed-line operators international termination tariffs and the weakening of the Rand. includes fees paid by Neotel, underserviced area licence holders and value added network service providers for call termination Data and international outgoing calls, as well as access to other services, such as emergency services and directory inquiry Data services comprise data transmission services, including services. With effect from May 23, 2007, ICASA approved leased lines and packet based services, managed data networking interconnection rates with Neotel, underserviced area licence services and Internet access and related information technology holders and value added network service providers for services. In addition, data services include revenue from ADSL. interconnection on our fixed-line network. In October 2007, Revenue from data services is mainly a function of the number of Neotel commenced interconnection with Telkom. In July 2007, subscriptions, tariffs, bandwidth and distance. The following Telkom began interconnection with the underserviced area table sets forth information related to revenue from data services licence holders and in November 2007, value added network for the periods indicated. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 153 15.3 25.2 15.6 30.4 10.9 11.3 14.8 17.1 13.2 10.8 61.2 15.0 51.9 2007 2007 2008/ 2008/ % change % change 39.2 19.1 20.9 20.5 22.4 80.6 2006 9.9 2007/ (8.1) 70.6 12.2 21.2 29.6 78.1 2006 % change 2007/ % change erators. 2008 2008 8,308 1,848 6,460 25,112 242,732 115,334 412,190 395 6.3 ZAR % 2,697 11.2 5,852 93.7 6,247 100.0 21,392 88.8 24,089 100.0 2007 Year ended March 31, ended March Year Mobile segment operatingThe following table shows information related to our 50% share revenue operating revenue and operating profit broken of Vodacom’s South African operations and operations in down by Vodacom’s All amounts in other African countries for the periods indicated. this table and the discussion of our mobile segment that follows results of operations unless represent 50% of Vodacom’s otherwise of intercompany stated and are before the elimination transactions with Telkom. Sundry revenue Sundry revenue includes revenue relating to collocation of other properties, owned the sale of licensed operators on Telkom materials and revenue related to the recovery of costs for work performed on behalf of other licensed operators. Sundry revenue 2008 financial year increased by 18.8% to R227 million in the financial year from and 38.4% to R191 million in the 2007 primarily due to an R138 million in the 2006 financial year volumes, for year, increase in prices, and in the 2007 financial collocation and recoveries. 2006 2007 6,674 7,489 1,370 1,661 5,304 5,828 53,997 92,140 Year ended March 31, Year 143,509 255,633 228,930 210,453 2006 144 3.2 260 4.8 (2) 4,436 100.0 5,430 100.0 1,486 8.7 2,069 10.1 4,292 96.8 5,170 95.2 (1) 17,021 100.0 20,573 100.0 15,535 91.3 18,504 89.9 (1) increase in the fair value of the assets in Mozambique and an impairment loss of R23 million and R30 million in the 2007 and 2008 financial years, respectively, in respect of the assets in Mozambique due to a decrease in the fair value of the assets. Leased lines and otherExcludes data revenue Telkom includes internal all ADSL data services services of revenue 751, 523 other and than 249 leased as of lineMarch facilities 31, 2008, revenue 2007 from and mobile 2006, op respectively. (in millions, except percentages) ZAR % ZAR % Internet ADSL subscribers (at period end) Other African countries Operating profit Leased lines and other data revenue Leased lines and other Number of managed network sites (at period end)Number of managed Internet dial-up subscribers (at period end) 16,887 21,879 Operating revenue South Africa Data services except percentages) revenue (ZAR millions, Leased line facilities revenues from mobile operators Leased line facilities revenues South Africa Other African countries (1) Mobile operating profit and mobile EBITDA include our 50% share of a reversal of Vodacom’s impairment loss of R53 million in the 2006 financial year due to an Mobile operating revenue and profits (2) Total ADSL subscribers (at period end) Total (1) Data services revenue Operating revenue from our data services included R1,028 million, by our fixed- R907 million and R845 million in revenue received 31, in the years ended March line business from Vodacom These amounts were 2008, 2007 and 2006, respectively. and were eliminated from attributable to our interest in Vodacom revenue on consolidation. Group’s the Telkom Our data services the 2008 and 2007 revenue increased in both revenue from data financial years primarily due to increased connectivity service, including ADSL connectivity and SAIX, Internet access, and managed data networks, including VPN line facilities from Supreme and increased revenue from leased partiallymobile operators. These increases were offset by mobile operators and decreased tariffs for leased line facilities to data connectivity services. Revenue from leased line facilities ended March 31, from mobile operators increased in the years of third generation 2008 and 2007 primarily due to the roll-out products by the and universal mobile telecommunications system mobile operators. Financial review continued

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 total operating revenue for our mobile segment and the percentage change by revenue type for the periods indicated.

Mobile operating revenue

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 (in millions, except percentages) ZAR % ZAR % ZAR % % change % change

Airtime 10,043 59.0 11,854 57.6 13,548 56.3 18.0 14.3 Data 1,019 6.0 1,671 8.1 2,501 10.4 64.0 49.7 Interconnection 3,348 19.7 3,918 19.0 4,443 18.4 17.0 13.4 Equipment sales 1,993 11.7 2,350 11.4 2,526 10.5 17.9 7.5 International airtime 486 2.9 653 3.2 918 3.8 34.4 40.6 Other sales and services 132 0.7 127 0.7 153 0.6 (3.8) 20.5

Mobile operating revenue 17,021 100.0 20,573 100.0 24,089 100.0 20.9 17.1

Vodacom’s operating revenue increased in the 2008 and 2007 African prepaid ARPU decreased to R62 per month in the 2008 financial years primarily due to increased airtime, data, financial year from R63 per month in the 2007 financial year interconnection and equipment sales revenue as a result of and R69 per month in the 2006 financial year. In the 2008, continued customer growth. Vodacom’s equipment sales further 2007 and 2006 financial years, contract and prepaid customer increased in the 2008 financial year due to the added ARPU were also negatively impacted by the high growth in functionality of new phones based on new technologies and in Vodacom’s hybrid contract product, Family Top Up, which the 2007 financial year due to the continued uptake of new contributed to the migration of higher spending prepaid handsets in South Africa as a result of cheaper Rand-prices of customers, who tend to spend less than existing contract new handsets and the added functionality of new phones based customers, to contracts. In the 2007 financial year, Vodacom on new technologies. changed its definition of active customers to exclude calls forwarded to voicemail from the definition of revenue generating Our 50% share of Vodacom’s revenue from operations outside activity for a six-month period, resulting in the deletion of of South Africa increased to R2,697 million for the year ended approximately 3 million customers. Prepaid ARPU was positively March 31, 2008 from R2,069 million for the year ended March impacted by this temporary rule change in the 2007 financial 31, 2007 from R1,486 million in the year ended March 31, year. Vodacom subsequently changed its definition of revenue 2006. The increase in Vodacom’s operating revenue from other generating activity back to include calls forwarded to voicemail African countries in the 2008 and 2007 financial years was effective September 1, 2006. Such SIM cards were disconnected primarily due to substantial increases in the number of customers from the network after being inactive for a 215 consecutive day in Vodacom’s operations, particularly in Tanzania, the Democratic period. Since implementing this change, prepaid SIM cards Republic of the Congo and Mozambique, and the weakening of remaining in an active state on the network, with only call the Rand in the 2008 and 2007 financial year, which resulted forwarding to voicemail and no other revenue generating in higher Rand converted revenue, partially offset by lower ARPU activities, increased significantly. Vodacom therefore implemented resulting from the higher volume of lower spending prepaid a supplementary disconnection rule in September 2007 to customers. Revenue from Vodacom’s other African countries as 154 disconnect inactive prepaid SIM cards after 13 months of being a percentage of Vodacom’s total mobile operating revenue increased to 11.2% in the year ended March 31, 2008 from kept in an active state, by call forwarding to voicemail only, and 10.1% in the year ended March 31, 2007 and 8.7% in the year not having has any other revenue generating activity on ended March 31, 2006. Vodacom’s network. The implementation of the supplementary disconnection rule led to the disconnection of an additional 2.9 A large part of the growth in mobile services was due to the million prepaid SIM cards in September 2007, which resulted in success of prepaid services and the increased growth in contract higher prepaid ARPU than would have otherwise occurred. customers due to prepaid customers migrating to contracts. Approximately 85.3% of Vodacom’s South African mobile customers were prepaid customers at March 31, 2008 and South African contract ARPU decreased to R486 per month in the approximately 93.4% of all gross connections were prepaid 2008 financial year from R517 per month in the 2007 financial customers in the 2008 financial year. Vodacom expects the year and R572 per month in the 2006 financial year. South number of prepaid mobile users to continue to grow to a greater WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 155 users registered on its users registered on ® International airtime International airtime revenues are predominantly from roaming revenue from customers, international calls by Vodacom Equipment sales in the 2008 and 2007 equipment sales increased Vodacom’s financial years primarily due to the growth of Vodacom’s customer base and the continued uptake of new handsets in South Africa as a result of cheaper Rand-prices of new handsets and the added functionality of new phones based on new technologies such as 3G enabled phones, camera phones and live! handset increased colour screens. Sales of the Vodafone significantly to 2,793,710 handsets in the 2008 financial year The from 1,994,269 handsets in the 2007 financial year. average price per handset sold was R1,052 in the 2008 financial year compared to R1,067 in the 2007 financial year. and approximately 1.4 million as of March 31, 2006. The as of March 31, 2006. 1.4 million and approximately million approximately 1.4 active data users includes number of 370,000 data card and USB MMS users, approximately handsets, 1.3 million 3G/HSDPA modem users, approximately users and approximately Vodafonelive! approximately 1.4 million TV users as of March 31, 2008, 31,000 Unique Mobile 1.2 million MMS users, approximately compared to approximately and USB modem users, approximately 139,000 data card 899,000 handsets, approximately 584,000 3G/HSDPA 33,000 Unique Mobile users and approximately Vodafonelive! 31, 2007. As of March 31, 2008 TV users as of March had 32,273 Blackberry Vodacom Interconnection revenue interconnection revenue increased in the years ended Vodacom’s primarily due to an March 31, 2008 and March 31, 2007 increase in the number of calls terminating on Vodacom’s of Vodacom’s network as a result of the increased number The growth customers and South African mobile users generally. also attributable to in the 2008 and 2007 financial years was calls by mobile calls the growth in the substitution of fixed-line increase in the and incoming traffic resulting from an overall The increases were customer base of other mobile operators. partially a reduced number of fixed-line calls from offset by network. The terminating network on Vodacom’s Telkom’s and the mobile-to- pay to Vodacom termination rate Telkom in the three years mobile interconnection rates have not changed in our mobile ended March 31, 2008. Interconnection revenue segment included R1,482 million, R1,454 million and R1,409 million in the years ended March 31, 2008, 2007 and 2006, for calls received from our fixed-line business, respectively, revenue on Group’s which were eliminated from the Telkom consolidation. network, compared to approximately 23,328 as of March 31, network, compared to of “always expects that the broad introduction 2007. Vodacom speed packet- on” faster response and generally higher switched data services, such as GPRS and universal mobile provide the platformtelecommunications system, or UMTS, will for future value-added services. and the continued ® Vodacom derives data revenue from mobile data, including short Vodacom messaging services, multimedia messaging or SMSs, and services, services, or MMSs, general packet radio or GPRS, and third generation services, revenue contributed or 3G. Data in the year ended March 31, total revenue 10.4% of Vodacom’s 2008, up from 8.1% in the year ended March 31, 2007 and mobile 6.0% in the year ended March 31, 2006. Vodacom’s data revenue increased in the year ended March 31, 2008 primarily due to higher penetration levels influenced by more mobile data revenue affordable product offerings. Vodacom’s increased in the year ended March 31, 2007 primarily due to significant growth in SMS usage and the continued roll-out of Mobile Connect Cards, data initiatives such as Vodafone BlackBerry Live!, Mobile TV, Vodafone Data revenue Vodacom’s airtime revenue increased in the years ended March Vodacom’s due to continued 31, 2008 and March 31, 2007 primarily customer growth, partially offset in the 2007 financial year by an from the effect of overall continued decline in ARPU resulting As Vodacom’s growth in lower spending prepaid customers. primary market in South Africa continues to mature and in its continues to connect more marginal customers Vodacom growth in expects that South African operations, Vodacom customers Total airtime will continue to slow. in South Africa ended March 31, increased 12.7% and 28.2% in the years primarily due to strong prepaid 2008 and 2007, respectively, customer growth customer growth in South Africa and significant operations outside of South Africa, particularly in in Vodacom’s the Congo and Mozambique the Democratic Republic of Tanzania, products, packages in the 2008 and 2007 financial years. New customer growth in and services also had a role in Vodacom’s the 2007 financial year. Airtime revenue extent than contract mobile users. The increasing number of The increasing contract mobile users. extent than and the lower average usage, who tend to have prepaid users, the lower end of the market is penetrated lower overall usage as in decreasing overall average revenue have historically resulted stable at R125 South African ARPU remained Total per customer. in the after decreasing financial year, per month in the 2008 R125 per month from R139 per month in 2007 financial year to remained South African ARPU Total the 2006 financial year. African despite declining South year, stable in the 2008 financial ARPU, due to a shift in the customer mix to contract and prepaid customers, which represented 14.3% of higher spending contract as of March 31, 2008 compared total South African customers 31, 2007. to 13.1% as of March In South Africa, Vodacom transmitted 4.7 billion SMSs over its In South Africa, Vodacom compared to 4.5 billion network in the 2008 financial year, There was an increase in users SMSs in the 2007 financial year. with the number of GPRS of GPRS in the 2008 financial year, users increasing to approximately 4.7 million as of March 31, 2008 from approximately 2.8 million as of March 31, 2007 delivery of wireless application services. Financial review continued

Vodacom’s customers making and receiving calls while abroad reduction in inactivated starter packs which do not contain an and revenue from international customers roaming on Vodacom’s expiration date, partially offset by higher revenue of Cointel and networks. International airtime increased 40.6% to R918 million higher site rental income. in the year ended March 31, 2008 and 34.4% to R653 million in the year ended March 31, 2007 primarily as a result of an Other segment operating revenue increase in customers resulting in increased traffic. Our other operating revenue is derived principally from directory services, through our TDS Directory Operations Group, fixed, Other mobile revenue mobile, data, long distance and international communications Revenue from other sales and services includes revenue from services throughout Nigeria, through our 75% owned subsidiary, Vodacom’s cell captive insurance vehicle, wireless application Multi-Links, Internet services outside South Africa, through our services provider, or WASP, revenue, site sharing rental income Africa Online subsidiary, and wireless data services, through as well as other revenue from non core operations. Vodacom’s other sales and services revenue increased 20.5% to R153 million our Swiftnet subsidiary, and includes 100% of the losses of in the 2008 financial year primarily due to an increase in Telkom Media. inactivated starter packs which do not contain an expiration date, but which are recognised as income after a period of The following table shows the operating revenue for our other 36 months. Vodacom’s other sales and services revenue segment broken down by major revenue streams and the decreased 3.8% to R127 million in the 2007 financial year percentage change by major revenue stream for the periods primarily due to lower income recognised as a result of a indicated.

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 7.5 Multi-Links – – 845 n/a n/a Africa Online – 8 110 n/a n/a Swiftnet 118 106 94 (10.2) (11.3) Telkom Media – – 14 n/a n/a

Other operating revenue 952 979 1,993 2.8 103.6

Our other operating revenue increased in the 2008 financial year 2008 financial year, R4 million of revenue for TDS Directory primarily due the inclusion in the current year of revenue Operations was generated through the investment in TDS generated by our newly acquired subsidiaries, Multi-Links and Directory Operations Namibia, which was acquired in January Africa Online. Multi-Links, which was acquired with effect from 2007 to provide directory services in Namibia. May 1, 2007, contributed R845 million from its customers in the Nigerian market since its acquisition, and Africa Online, which Group other income was acquired with effect from February 23, 2007, increased the Other income includes profit on the disposal of investments, revenue contribution to the Group from R8 million during the 2007 property, plant and equipment and intangible assets. The 156 financial year to R110 million during the 2008 financial year. increase in fixed-line other income in the 2008 financial year was primarily due to the disposal of more properties at a higher These additional revenue streams were further supported by the value during the 2008 financial year. The decrease in fixed-line continued growth in advertising revenue from our subsidiary, TDS Directory Operations, offset in part by a slight reduction in other income in the 2007 financial year was primarily due to wireless data services revenue from our subsidiary, Swiftnet due lower sales of assets and properties as well as a decrease in to increased competition in the wireless data environment. profit on disposal of investments, which resulted from the Revenue from directory services increased in the years ended reclassification of assets held by the Cell captive to an annuity March 31, 2007 and 2008 primarily due to annual tariff policy that qualified as a plan asset, effective June 1, 2006. The increases and increased marketing and online efforts, resulting profits and losses that would have previously been included in in increased spending on advertising by existing customers and other income are now treated as movements in the plan assets additional advertising revenue from new customers. During the funding the post retirement medical aid obligation. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 157 The increase in fixed-line operating expenses in the 2008 expenses in in fixed-line operating The increase to other to increased payments was primarily due financial year expenses and servicesoperators, higher employee rendered, partiallyselling, general and offset by lower leases and Payments to other operators increased administrative expenses. calls from our fixed-line network to primarily due to increased mobile and international call volumes operators as result of higher to the mobile and internationalfrom our fixed-line network increased due to higher salaries networks. Employee expenses of average annual salaryand wages as a result increases and expenses, partiallyhigher share compensation offset by a team award and a reduction in the number reduced provision for of employees. Services to rendered increased primarily due increased propertymanagement costs mainly related to increased taxes, payments to electricity usage, electricity rates and consultants to explore local and international investment opportunities, security costs due to increases in contract higher of the cable alarmprices and maintenance and monitoring Operating leases system and legal fees related to Telcordia. primarily due to decreased in the year ended March 31, 2008 vehicle lease and a a discount received on the extension of our 9,694 at March 31, reduction in the number of vehicles from general and 2007 to 8,792 at March 31, 2008. Selling, due to the provision administrative expenses decreased primarily dispute in the 2007 for probable liabilities in the Telcordia which were not increased significantly in the 2008 financial year, and lower marketing expense, partially offset by financial year, Media loan in the the R217 million impairment of the Telkom and maintenance 2008 financial year – increased materials amortisation,expenses and higher bad debts. Depreciation, impairments and write-offs increased in the year ended March 31, 2008 primarily as a result of higher amortisation of intangible ongoing investment assets and increased depreciation due to the and data processing in telecommunications network equipment equipment, partially offset by lower asset write-offs. The increase in fixed-line operating expenses in the 2007 financial year was primarily attributable to increased selling, general and administrative expenses, employee expenses, payments to other operators, and services rendered, partially offset by lower depreciation, amortisation, impairments and write- offs as a result of an increase in the useful lives of certain assets. Selling, general and administrative expenses increased primarily as a result of the provision raised for possible liabilities in the dispute, higher materials and maintenance expenses, Telcordia increased marketing and sponsorships, and increased costs of sales due to the reclassification of finance leases associated with customer premises equipment in selling, general and administrative that was reversed expenses, partially offset by a provision for VAT due to a revenue ruling from SARS. Employee expenses increased due to higher salaries and wages as a result of average annual salary increases of 7.0% and related benefits, an increase in the number of employees and increased payments to part time employees and contractors. Payments to other network operators increased primarily due to higher call volumes from our fixed-line network to the mobile networks and higher payments to The increase in these operating expenses in the 2008 financial year was primarily due to the inclusion of operating expenses relating to our newly acquired subsidiaries, Multi-Links and Media, all of which Africa Online, and the creation of Telkom impacted all expense categories. Increases in other operating expenses in the 2008 financial year were primarily driven by significant increases in payments to other operators, employee expenses, depreciation, amortisation and impairments, operating leases and services rendered. Operating expenses increased in the years ended March 31, Operating expenses increased in the years expenses in 2008 and 2007 as a result of increased operating increase in mobile our mobile, other and fixed-line segments. The year was primarily operating expenses in the 2008 financial due to inflationary factors and growth in the business, which led expenses to to increased selling, general and administrative South support of 3G, growth in Vodacom’s the expansion competition, African and African operations and increased due to higher increased payments to other network operators of outgoing traffic outgoing traffic and the increased percentage terminating networks, higher employee costs on other mobile well as increased as a result of increased headcount as depreciation, amortisation and impairment. increase in The mobile operating expenses in the 2007 financial year was primarily due to increased selling, general and administrative expenses to support the expansion of 3G, growth in Vodacom’s South African and other African operations and increased competition, increased payments to other network operators due to higher outgoing traffic and the increased percentage of outgoing traffic terminating on other mobile networks, increased depreciation, amortisation and impairment, higher employee costs as a result of increased headcount, average 7.5% annual salary increases, an increase in the provision for bonus schemes and an increase in the provision for long term incentives for executives and increased operating leases. Group operating expenses million 12.8% to R42,337 expenses increased Group operating million) in the year ended March (March 31, 2007: R37,533 due to a 17.9% increase in operating 31, 2008, primarily segment to R17,898 million (before expenses in the mobile expenditure eliminations). Fixed-line operating inter-segmental R24,962 million (before inter-segmental increased by 3.6% to employee expenses, payments to eliminations) due to increased amortisation,other operators, depreciation, impairment and write-offs and services rendered, partially offset by a decrease in selling, general and administrative operating leases and expenses of 17.9%, before inter segmental expenses. Operating in employee eliminations, was primarily due to increase in increased cost to expenses and gross connections resulting payments to other connect customers to the network. Mobile increased outgoing operators also increased as a result of the expensive outgoing traffic and the higher volume growth of more traffic terminatingmobile networks when compared to on other traffic terminating cost fixed-line network. on the lower Financial review continued

international network operators as a result of higher international Fixed-line segment operating expenses outgoing volumes and a weaker exchange rate. Services The following table shows the operating expenses of our fixed- rendered increase in the year ended March 31, 2007 primarily line segment broken down by expense category as a percentage due to increased payments to consultants to explore local and of total revenue and the percentage change by operating international investment opportunities, customer centricity and expense category for the years indicated. higher security and property management costs at TFMC.

Fixed-line operating expenses

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 ZAR % 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 4.2 Payments to other network operators 6,140 19.3 6,461 20.0 6,902 21.2 5.2 6.8 Selling, general and administrative expenses(2) (3) 2,837 8.9 3,976 12.3 3,899 11.9 40.1 (1.9) Services rendered 2,045 6.4 2,206 6.8 2,413 7.4 7.9 9.4 Operating leases 755 2.4 762 2.4 619 1.9 0.9 (18.8) Depreciation, 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 legal fees, of which R510 million is included in selling, general and administrative expenses and R11 million for interest and R6 million for foreign exchange rate effect is included in finance charges. In the year ended March 31, 2008 we recorded a provision of R569 million for probable liabilities related to Telkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million and foreign exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional payment made in respect of specific sub-claims within the Telcordia claim. (3) Includes a R217 million impairment relating to Telkom Media in the 2008 financial year.

158 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 159 8.1 4.2 (0.1) (3.8) 12.9 (87.5) 2007 2008/ % change 1.1 12.2 14.1 12.4 (71.8) 2006 2007/ % change 3 ZAR (786) 12.3 2008 2,671 5,509 7,397 24,879 24 Year ended March 31, ended March Year and lower training expenses, partially offset by increased share number of shares option grant expenses as a result of the higher Benefits increased in the 2007 allocated during the year. and wages, higher financial year due to increases in salaries the movement of pension fund contributions resulting from fund and the employees from the pension fund to the retirement telephone funding of the related deficit, increased post-retirement training and benefits, increased sales commissions, increased increased critical skills retention. the cost of voluntary reduction expenses include early Workforce retirement, termination packages offered to employees severance and the cost of social plan expense to prepare affected employees reduction expenses Workforce for new careers outside Telkom. decreased substantially in the years ended March 31, 2008 and 2007 due to the moratorium on voluntary severance packages reduction expenses Workforce taken in the 2007 financial year. in the 2007 financial year included social planning expenses as program. An additional four workforce reduction part of Telkom’s 13 employees in the 2007 employees in the 2008 financial year, financial year and 245 employees in the 2006 financial year left workforce reduction as part of the conclusion of Telkom’s Telkom initiatives for the 2005 financial year. Employee related expenses capitalised include employee related expenses associated with construction and infrastructure development projects. Employee related expenses capitalised increased in the years ended March 31, 2008 and March 31, 2007 primarily due to annual salary increases and increased capital expenditures on projects during the year. 85 (620) (696) 2006 2007 2,383 2,673 4,466 5,095 6,314 7,096 25,575 25,864 (in millions, except percentages and number of employees) (in millions, except percentages ZAR ZAR Workforce reduction expenses Workforce Salaries and wages Benefits Benefits include allowances, such as bonuses, company contributions to medical aid, pension and retirement funds, leave compensation and levies payable for skills provisions, workmen’s development. Benefits decreased in the 2008 financial year primarily due to lower team awards, a lower provision for medical aid for pensioners as a result of the annuity policy qualifying as a plan asset in June 2006, a lower provision for leave as a result of the decrease in the number of employees Salaries and wages increased in the year ended March 31, Salaries and wages increased in the year 2008 primarily due to average annual salary increases of 7.0% and was further impacted by increased payments to contractors from original equipment manufacturers. Salaries and wages increased in the year ended March 31, 2007 primarily due to average annual salary increases of 7.0% and a 1.1% increase in the number of fixed-line employees and increased payments to part time employees and contractors to meet customer centricity objectives and the deployments of next generation network objectives. Employee expenses increased in the year ended March 31, Employee expenses increased in the year wages as a result of 2008 primarily due to higher salaries and average annual salary increases of 7.0%, and increased share number of shares option grant expenses as a result of the higher partially awards. offset by lower team granted in the year, ended March 31, Employee expenses increased in the year wages as a result of 2007 primarily due to higher salaries and average annual salary and related benefits, increases of 7.0% employees and a 1.1% increase in the number of fixed-line increased payments to part time employees and contractors. Number of full-time, fixed-line employees Employee related expenses capitalised Employee expenses Fixed-line employee expenses Fixed-line employee The following table sets forthThe following table sets information for the years indicated. related to our employee expenses Employee expenses benefits and and other incentives, including bonuses wages for employees, of salaries and expenses consist mainly Employee workforce reduction expenses. Financial review continued

Payments to other network operators The following table sets forth information related to our payments to other network operators for the periods indicated.

Fixed-line payments to other network operators

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Payments to mobile communications network operators 5,220 5,425 5,460 3.9 0.6 Payments to international and other network operators 920 1,036 1,208 12.6 16.6 Payments to fixed-line operators – – 234 n/a n/a

Payments to other network operators 6,140 6,461 6,902 5.2 6.8

Payments to fixed-line operators in the 2008 financial year were international tariffs and a weaker exchange rate in the 2008 as a result of interconnection commencing with Neotel, USALS and 2007 financial years. The termination rate we pay to mobile and VANS during the year. operators and our retention have not changed in the three years ended March 31, 2008 while our international outgoing tariffs Payments to mobile and international network operators have generally decreased during this period. Payments to other increased in the 2008 and 2007 financial years primarily due network operators include payments made by our fixed-line to higher call volumes from our fixed-line network to the mobile business to Vodacom, which were R3,017 million, R2,954 million networks, resulting from discounts offered on our CellSaver and and R2,855 million in the years ended March 31, 2008, 2007 Telkom Closer products, increased fixed-to-mobile calls by business and 2006, respectively. These amounts were attributable to our customers due to growth in the mobile market, increased interest in Vodacom and were eliminated from the Telkom international outgoing traffic arising from our reduced average Group’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/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Materials and maintenance 1,608 1,900 1,996 18.2 5.1 Marketing 378 604 583 59.8 (3.5) Bad debts 154 137 217 (11.0) 58.4 Other(1) (2) 697 1,335 1,103 91.5 (17.4)

160 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 a provision of R527 million for probable liabilities related to Telkom’s arbitration with Telcordia, excluding legal fees, of which R510 million is included in selling, general and administrative expenses and R11 million for interest and R6 million for foreign exchange rate effect is included in finance charges. In the year ended March 31, 2008 we increased the provision to R569 million for probable liabilities related to Telkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million and foreign exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional payment made in respect of specific sub-claims within the Telcordia claim. (2) Includes a R217 million impairment relating to Telkom Media in the 2008 financial year. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 161 7.1 9.4 11.8 2007 2008/ % change 2.9 7.9 13.8 2006 2007/ % change ZAR 2008 1,222 2,413 1,191 Year ended March 31, Year Payments to consultants increased in the year ended March 31, 2007 primarily due to increased payments to consultants to explore local and international investment opportunities, customer centricity and higher security costs. in the year ended March 31, 2007 primarily due to increased primarily due to ended March 31, 2007 in the year increased costs and higher market research sponsorships, expect marketing advertisingWe and media campaigns. to increased competition, including from expenses in response Neotel, and the further the South African liberalisation of and the marketing of our communications industry generally, and sponsorships will decrease. packages will increase the year ended March 31, 2008 due to Bad debt increased in provisions for higher international certain bad debts in countries, and the United Kingdom. Bad debt including Nigeria, Gaban ended March 31, 2007 resulting primarily decreased in the year management and credit vetting policies, from improved credit of debtors. Bad targeted line roll-out and an improved profiling 0.4% and 0.5% in debt as a percentage of revenue was 0.7%, respectively. the 2008, 2007 and 2006 financial years, March 31, 2008 Other expenses decreased in the year ended liabilities in the primarily due to the provision for probable which were not year, dispute in the 2007 financial Telcordia partially offset year, increased significantly in the 2008 financial Media loan in the by the R217 million impairment of the Telkom Other expenses increased in the year 2008 financial year. provision raised for ended March 31, 2007 primarily due to the and increased costs dispute probable liabilities in the Telcordia leases associated of sales due to the reclassification of finance general and with customer premises equipment in selling, administrative expenses. Operating leases Operating leases decreased in the year ended March 31, 2008 primarily due to a discount received on the extension of our vehicle lease and a reduction in the number of vehicles from 9,694 at March 31, 2007 to 8,792 at March 31, 2008. Operating leases was relatively flat in the year ended March 31, 2007. ZAR ZAR 936 1,065 2006 2007 1,109 1,141 2,045 2,206 (in millions, except percentages) Property management Property management increased in the year ended March 31, 2008 primarily as a result of increased property payment costs, mainly related to increased electricity usage, electricity rates and taxes, payments to consultants to explore local and international investment opportunities, higher security costs due to increases in contract prices and maintenance and monitoring of the cable Property alarm system and legal fees related to Telcordia. management increased in the year ended March 31, 2007 wages, maintenance, primarily as a result of increased salary, rates and taxes at TFMC, which are passed through to us. Consultants, security and other Services rendered The following table sets forth information relating to services rendered expenses for the periods indicated. Fixed-line services rendered Services rendered Marketing expenses decreased in the year ended March 31, Marketing expenses decreased in the year decreased calling 2008 primarily due to lower sponsorships and increased Marketing expenses plan advertising the year. during Materials and maintenance expenses increased in the year Materials and maintenance expenses increased increased operating ended March 31, 2008 primarily due to in the number of maintenance projects as result of an increase higher fuel costs as a technologies employed in the network and and maintenance result of the increased price of fuel. Materials 31, 2007 primarily expenses increased in the year ended March increased operating due to higher incidents of copper theft, of maintenance maintenance projects and a higher number contracts as result of new technology roll-out. Selling, general and administrative expenses decreased primarily expenses decreased and administrative Selling, general dispute liabilities in the Telcordia for probable due to the provision which were not increased significantly in the 2007 financial year, expense, and lower marketing year, in the 2008 financial partially offset by the R217 million impairment of the Telkom financial year – increased materials and Media loan in the 2008 and higher bad debts. Selling, general maintenance expenses increased in the year ended March and administrative expenses due to the provision raised for probable 31, 2007 primarily and dispute, higher materials liabilities in the Telcordia increased marketing and sponsorships maintenance expenses, sales due to the reclassification of finance and increased costs of customer premises equipment in selling, leases associated with general and administrative expenses. Financial review continued

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) 2.3 Amortisation of intangibles 387 305 409 (21.2) 34.1 Write-offs of property, plant and equipment and intangible assets 187 284 262 51.9 (7.7)

Depreciation, 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 higher amortisation of intangible assets and increased depreciation due to the ongoing investment in telecommunications network equipment and data processing equipment, partially offset by lower asset write-offs. Depreciation, amortisation, impairments and write-offs decreased in the year ended March 31, 2007 primarily as a result of an increase in the useful life of certain assets, partially offset by ongoing investment in telecommunications network equipment and data processing equipment.

Mobile 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/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Employee expense 1,019 1,186 1,488 16.4 25.5 Payments to other network operators 2,317 2,818 3,279 21.6 16.4 Selling, general and administrative expenses 7,327 8,777 10,271 19.8 17.0 Services rendered 65 82 115 26.2 40.2 Operating leases 435 629 775 44.6 23.2 Depreciation, 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 financial impairment. The increase in mobile operating expenses in the year was primarily due to inflationary factors and growth in the 2007 financial year was primarily due to increased selling, business, which led to increased selling, general and general and administrative expenses to support the expansion 162 administrative expenses to support the expansion of 3G, growth of 3G, growth in Vodacom’s South African and African in Vodacom’s South African and African operations and operations and increased competition, increased payments to increased competition, increased payments to other network other network operators due to higher outgoing traffic and the operators due to higher outgoing traffic and the increased increased percentage of outgoing traffic terminating on other percentage of outgoing traffic terminating on other mobile mobile networks, increased depreciation, amortisation and networks, higher employee costs as a result of increased impairment, higher employee costs as a result of increased headcount as well as increased depreciation, amortisation and headcount, average 7.5% annual salary increases, an increase WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 163 7.6 or the 10.3 17.7 17.0 2007 345.5 2008/ % change 17.4 20.7 20.1 19.8 (38.9) 2006 2007/ % change 49 632 527 ZAR 2008 9,063 10,271 11 Year ended March 31, Year from Vodacom South Africa’s number of employees. Employee number of Africa’s South from Vodacom as other African countries, in South Africa and productivity per employee, increased 3.0% to 4,969 measured by customers as of March 31, 2008 and 12.0% to customers per employee employee as of March 31, 2007 from 4,825 customers per employee as of March 31, 2006. 4,308 customers per Payments to other networknetwork operators consist mainly of Payments to other operators African South made by Vodacom’s interconnection payments for terminatingand other African operations calls on other network payments to other Vodacom’s operators’ networks. in the years ended March 31, operators increased significantly traffic in line 2008 and 2007 as a result of increased outgoing percentage with increased customer growth and the increasing of outgoing traffic terminating on the other mobile networks fixed-line network as the cost of terminating rather than Telkom’s calls terminatingcalls on other mobile networks is higher than on network. As the mobile communications fixed-line Telkom’s that expects market continues to grow in South Africa, Vodacom and adversely interconnection charges will continue to increase profit margins. impact Vodacom’s our mobile segment Payments to other network operators in R232 million in the included R234 million, R234 million and for respectively, years ended March 31, 2008, 2007 and 2006, which were interconnection fees paid to our fixed-line segment, operating expenses on Group’s eliminated from the Telkom consolidation. 18 ZAR ZAR 488 573 406 490 2006 2007 6,415 7,703 7,327 8,777 (in millions, except percentages) Regulatory and licence fees Marketing Selling, distribution and other Selling, general and administrative expenses Bad debts Mobile selling, general and administrative expenses Selling, general and administrative f selling, general and administrative expenses The following table sets forth information related to our 50% share of Vodacom’s expenses periods indicated. Total headcount in Vodacom’s South African operations headcount in Vodacom’s Total 31, 2008 and increased 2.6% to 4,849 employees as of March 2007 from 4,305 9.8% to 4,727 employees as of March 31, headcount in Vodacom’s employees as of March 31, 2006. Total 1,992 employees as other African countries increased 30.9% to employees as of of March 31, 2008 and 31.9% to 1,522 of March 31, 2006. March 31, 2007 from 1,154 employees as headcount includes temporary agency employees. Total are included in Employees seconded to other African countries and excluded the number of employees of other African countries Vodacom’s employee expenses increased in the year ended employee expenses increased in the year Vodacom’s as a result of a 9.5% increase in March 31, 2008 primarily headcount to support care operations, the expansion of customer management structures to supportthe strengthening of senior the operations and the launch of Vodacom growth in ongoing Business. Annual salary increases and increased provisions for long termthe increase in incentive schemes also contributed to in the employee expenses increased staff expenses. Vodacom’s a result of an 14.5% year ended March 31, 2007 primarily as increase in the number of employees to support the growth in salaryoperations as well as a 7.5% average annual increases, schemes and an an increase in the provision for deferred bonus increase in the provision for long term incentives for executives. Employee expenses in the provision for deferred bonus schemes and an increase in schemes and an increase for deferred bonus in the provision for long termthe provision and for executives incentives increased operating leases. Financial review continued

Vodacom’s selling, general and administrative expenses Services rendered increased in the years ended March 31, 2008 and 2007 Services rendered increased in the years ended March 31, primarily due to an increase in selling, distribution and other 2008 and 2007 primarily due to higher consultancy costs expenses, incentive costs, regulatory and licence fees and relating to facility management and special projects. marketing expenses to support the launch and expansion of 3G, growth in Vodacom’s South African and African operations and Operating leases increased competition. The increase in Vodacom’s operating leases in the years ended Selling, distribution and other expenses include cost of goods sold, March 31, 2008 and 2007 was primarily due to an increase in commissions, customer acquisition and retention expenses, the lease of transmission lines and other accommodation. distribution expenses and insurance. The increase in selling Operating leases in our mobile segment included R514 million, distribution and other expenses in the 2008 and 2007 financial R453 million and R423 million in the years ended March 31, years was primarily due to increased customer connections, 2008, 2007 and 2006, respectively, for operating lease competition, revenue, cost of equipment as a result of increased handset sales and maintenance of the GSM infrastructure and payments to our fixed-line segment, which were eliminated from billing systems as well as due to the Vodafone global alliance fee. the Telkom Group’s operating expenses on consolidation.

The increase in marketing expenses in the 2008 and 2007 Depreciation, amortisation and impairments financial years was mainly due to promoting new technologies, Depreciation, amortisation and impairments increased in the including 3G and Vodafone live!, promoting number portability years ended March 31, 2008 and 2007 primarily due to higher in the 2007 financial year and further promoting the Vodacom capital expenditure as a result of the implementation and brand in all operations. The increases in regulatory and licence expansion of 3G/HSDPA networks, the weakening of the Rand fees during the reporting periods were directly related to the increase in operating revenues and corresponding payments against the other functional currencies of Vodacom and the under Vodacom’s existing licences. The increase in bad debts in impairment of assets in Vodacom Mozambique. Amortisation of the 2008 financial year resulted from a clean-up of Smartphone intangibles was higher in the year ended March 31, 2007 due debtors following the increase in shareholding to 100%. 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 percentage change for the periods indicated.

Other operating expenses

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Employee expense 156 173 340 10.9 96.5 Payments to other operators 9 10 698 11.1 6,880.0 Selling, general and administrative expenses 325 336 532 3.4 58.3 164 Services rendered 5 5 45 – 800.0 Operating leases 28 25 72 (10.7) 188.0 Depreciation, amortisation and impairments 41 40 143 (2.4) 257.5

Other operating expenses 564 589 1,830 4.4 210.7 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 165 5.2 n/a n/a 15.6 2007 210.7 2008/ segment 1,375.0 % change 1.3 3.3 4.4 n/a n/a n/a 2006 2007/ % change 89 118 942 530 151 ZAR 2008 1,830 – – 8 77 Year ended March 31, ended March Year resulted in a significant increase in depreciation, amortisationresulted in a significant increase in depreciation, The and impairments in this segment in the 2008 financial year. cost in Multi- increase primarily related to R86 million depreciation Links and R12 million from Africa Online. Finance charges include interest paid on local and foreign borrowings, amortised discounts on bonds and commercial paper bills, fair value gains and losses on financial instruments and foreign exchange gains and losses on foreign currency denominated transactions and balances. Services rendered and operatingThe increases in services rendered and operating leases were leases subsidiaries, Multi- also directly related to our newly acquired that were not previously Media, Links, Africa Online and Telkom Group results. included in the Telkom Group investment incomeInvestment income consists of interest received on short term investments and bank accounts and income received from our investments. Investment income decreased 16.2% to R197 million in the 2008 financial year and decreased 40.8% to R235 million in the 2007 financial year from R397 million in the 2006 the 2008 financial year was The decrease in financial year. primarily due to lower interest received from fixed deposits and repurchase agreements mainly due to lower cash balances. The decrease in the 2007 financial year was primarily due to lower interest received as a result of lower cash balances available for short term investments and increased taxation payments. Group finance charges was primarily due to the inclusion of operating expenses relating of operating expenses due to the inclusion was primarily Africa Multi-Links and acquired subsidiaries, to our newly Media, all of which impacted of Telkom Online, and the creation all expense categories. – – – 76 488 504 564 589 2006 2007 expenses by each of the five subsidiaries contained in our other expenses by each of (in millions, except percentages) ZAR ZAR Swiftnet Africa Online Multi-Links TDS Directory Operations and the percentage change for the periods indicated. and the percentage change The increased investment in property, plant and equipment by The increased investment in property, Multi-Links in Nigeria and Kenya to establish a new main network site in Gbagada, Lagos, enhance the switching capacity in Lagos, expand base stations and towers, and to extend fiber deployment, Depreciation, amortisation, impairments and write-offs Selling, general and administrationThe 58.3% increase in selling, general and administrative expensesexpenditure in the 2008 financial year primarily related to R141 million spent at Multi-Links, mainly on materials and maintenance to enable the further development and maintenance of its CDMA network in order to achieve subscriber growth and network reliability. Employee expenses increased by 96.5% in the 2008 financial year due to a significant investment in workforce during the expenses of R88 million in Employee 2008 financial year. Media, R39 million by Multi-Links and R28 million by Telkom Africa Online were required to attract and develop the necessary skilled workforce in each of these new operating environments. Employee expenses Telkom Media Telkom Other operating expenses contributors to the Multi-Links and Africa Online were the main in the 2008 significant increase in payments to other operators with R624 million payments made by Multi-Links financial year, Online to enable and R141 million payments made by Africa of operation to their respective networks in the nine countries supply data transmission services, managed data networking services and Internet access and related information technology services in these newly acquired markets. The following table shows the contributions to other operating The following table shows Increases in other operating expenses in the 2008 financial year in the 2008 financial other operating expenses Increases in to increases in payments driven by significant were primarily expenses, depreciation, amortisationother operators, employee and impairments, operating leases and services rendered. The expenses in the 2008 financial year increase in these operating Financial review continued

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/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Interest expense 1,346 1,327 1,885 (1.4) 42.1 Local loans 1,506 1,488 2,041 (1.2) 37.2 Foreign loans 9 – 19 – n/a Finance charges capitalised (169) (161) (175) (4.7) 8.7 Foreign exchange (gains) losses and fair value movements (123) (202) (82) (64.2) 59.4 Fair value (adjustments) on derivative instruments (170) (448) (196) (163.5) 56.3 Foreign exchange losses 47 246 114 423.4 (53.7)

Total finance charges 1,223 1,125 1,803 (8.0) 60.3

During the year ended March 31, 2008, finance charges Taxation increased primarily due to a higher interest expense resulting Our consolidated tax expense decreased 0.6% to R4,704 from higher debt levels in the fixed-line, mobile and other million in the year ended March 31, 2008 and increased segments, and foreign exchange losses and fair value movements 4.6% to R4,731 million in the year ended March 31, 2007 from decreased primarily due to currency movements and fair value R4,523 million in the year ended March 31, 2006. The losses on the put option we have in place relating to Multi-Links decrease in the 2008 financial year was primarily due to higher and Vodacom Congo. This was partially offset by fair value non-deductable expenses relating mostly to the impairment of adjustments as a result of the significant weakness of the Telkom Media and Africa Online assets, the increase in STC tax Rand against international currencies. During the year ended credits utilised in respect of the repurchase of Telkom Shares, the March 31, 2007, finance charges decreased due to a slightly utilisation of the Multi-Links assessed losses and the impact of the reduced interest expense resulting from lower interest bearing tax rate change on deferred taxation from 29% to 28% with debt levels, and an increase in the net fair value and exchange effect from April 1, 2008. The increase in the 2007 financial gains due to currency movements and fair value adjustments of year was mainly due to the higher capital gains tax liability our consolidated special purpose entity used to fund Telkom’s created and higher non-deductable expenses in Telkom company post retirement medical benefit obligation. and Vodacom.

166 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 167 or 4.6 1.7 (7.6) 2007 2008/ % change 6.7 (3.2) (1.6) 2006 2007/ % change % 36.5 24.6 34.1 2008 Year ended March 31, ended March Year operating profit in our fixed-line and other segments, partiallyoperating profit in our fixed-line and other segment. Higher offset by increased operating profit in our mobile were partiallyfinance charges and lower investment income offset to equity holders by lower taxation. Profit for the year attributable year primarily due to decreased in the 2007 financial of Telkom segment, partiallydecreased operating profit in our fixed-line segment. Lower offset by increased operating profit in our mobile partiallyinvestment income and higher taxation was offset by an increase in net fair value and exchange gains. Group basic earningsshare decreased 6.9% to 1,565.0 per and Group headline cents (March 31, 2007: 1,681.0 cents) earnings 4.4% to 1,634.8 cents (March 31, per share decreased 2007: 1,710.7 cents). Operating performance across the Group has seen the balance financial assets and sheet retain its strength with net debt, after million (March 31, liabilities, increasing 65.7% to R16,617 resulting in a net 2007: R10,026 million) as at March 31, 2008, debt to equity of 49.9% from 31.3% at March 31, 2007. On March 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 were repurchased for R1.65 billion, to be cancelled from the issued share 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, increased 58.0% to R17,075 million (March 31, 2007: R10,805 million) in the year ended March 31, 2008. The Group raised commercial paper bills with a nominal value of R18,806 million for the year ended March 31, 2008 of which R15,773 million was redeemed by March 31, 2008. Credit facilities from our portion of subsidiaries increased by R901 million, and Telkom’s increased by R490 million. interest bearing debt Vodacom’s %% 25.037.5 24.2 36.9 32.7 34.9 2006 2007 Effective tax rate Group Telkom Telkom Company Telkom Profit for the year attributable to equity holders of Telkom decreased in the 2008 financial year primarily due to decreased Profit for the year and earningsProfit for the year attributable to the equity holders of the Group per share decreased by 7.8% to R7,975 million (March 31, 2007: R8,646 million) for the year ended March 31, 2008. The higher effective tax rate for Telkom Company in the year The higher effective tax rate for Telkom due to higher non- ended March 31, 2008 was primarily million impairmentdeductable expenses relating to the R217 of of R198 million in Media loan and an increase the Telkom secondary tax on companies, partiallyexempt offset by higher and from Vodacom income resulting from dividends received tax rate for Telkom other subsidiaries. The lower effective was primarily due Company in the year ended March 31, 2007 to higher exempt income resulting mainly from dividends partially offset by higher non- received primarily from Vodacom dispute. deductable expenses relating to the Telcordia in the 2008 financial effective tax rate decreased Vodacom’s year primarily due to the decrease in the rate of secondary tax on companies from 12.5% to 10%. The lower effective tax rate in the 2007 financial year was mainly due to the for Vodacom capital expenditure Congo’s utilisation of the Vodacom allowances. The increase in the Telkom Group effective tax rate in the 2008 Group effective The increase in the Telkom expenses financial year was mainly due to higher non-deductible Media and Africa relating mostly to the impairment of Telkom utilised in respect Online assets, the increase in STC tax credits and the impact of the tax shares of the repurchases of Telkom to 28% with effect rate change on deferred taxation from 29% Group effective from April 1, 2008. The increase in the Telkom due to higher tax rate in the 2007 financial year was mainly expenses in Telkom capital gains tax and higher non-deductable company and Vodacom. Vodacom The following table sets forth information related to our effective tax rate for the Telkom Group, Telkom Company and Vodacom f and Vodacom Company Telkom Group, table sets forthThe following information Telkom tax rate for the related to our effective the periods indicated: the periods Financial review continued

Interest Outstanding payment Interest as of March 31, dates rate (%) 2008 (in millions) ZAR

TELKOM Bonds 10% 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 facilities R459 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

168 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 169 – – – – – – – – – ZAR 766 – – – – – – – – – – 2,500 36 ZAR – – – – – – – – – – 17 ZAR – – – – – – – – – Maturing ZAR 430 Year ended March 31, ended March Year – – – – – – 1,350 – – 11 ZAR 900 – – – – – 3,000 – – – 26 ZAR ––––––– ZAR 856 430 2008 2009 2010 2011 2012 2013 After 2013 3,000 2,600 2,600 4,383 3,483 1,350 2,500 Nominal Not utilised Not utilised Not utilised Not utilised outstanding as of March 31, Financial review continued

Outstanding Interest 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% to Backed 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 Operations Various finance leases(10) Various 3 Telkom Media Various loans 8 Multi-Links USD14 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 Online Various loans 12

170 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 171 – – – – – – 2 2 75 82 98 ZAR – – – – – – 9 39 45 3,364 84 3,521 39 ZAR – – – – – 3 42 30 75 42 13 ZAR – – – 7––– 2 – – – 81 21 Maturing 603 340 ZAR 319 500 Year ended March 31, ended March Year – – – – – 01 22 82 49 802 ZAR 731 – – – – 5––––– 1––––– 51 97 ZAR 150 ––––––– ––––––– ––––––– 23621–– 312–––– 8–422–– 54 7–7 2–––––8 7 32 44––––– 3–––––3 14 2–––––7 22––––– 1 4 8 8 4 4 7 558 ZAR 319 308 150 500 731 141 2008 2009 2010 2011 2012 2013 After 2013 3,113 1,552 1,298 1,298 15,301 6,150 3,911 1,801 18,972 7,753 4,795 2,744 Nominal outstanding as of March 31, Financial review continued

Group capital expenditure The following table shows the Telkom Group’s investments in property, plant and equipment including intangible assets, including our 50% share of Vodacom’s investments, for the periods indicated.

Year ended March 31, 2006 2007 2008 2007/ 2008/ 2006 2007 (in millions, except percentages) ZAR ZAR ZAR % change % change

Group capital expenditure Fixed-line 4,900 6,594 6,794 34.6 3.0 Baseline 2,128 3,409 4,038 60.2 18.5 Revenue generating 374 159 57 (57.5) (64.2) Network evolution 330 784 1,092 137.6 39.3 Sustainment 596 416 277 (30.2) (33.4) Effectiveness and efficiencies 1,080 1,141 841 5.6 (26.3) Company support 375 497 451 32.5 (9.3) Regulatory 17 188 37 1,005.9 (80.3) Mobile 2,571 3,608 3,460 40.3 (4.1) Other 35 44 1,646 25.7 3,640.9

Total investment in property, plant and equipment and intangible assets 7,506 10,246 11,900 36.5 16.1

Fixed-line capital expenditure, which include spending on year. Mobile capital expenditure (50% of Vodacom’s capital intangible assets, increased 3.0% to R6,794 million in the 2008 expenditure) decreased by 4.1% to R3,460 million in the 2008 financial year from R6,594 million in the 2007 financial year financial year from R3,608 million in the 2007 financial year and represented 20.9% of fixed-line revenue compared to and represents 14.4% of mobile revenue compared to 17.5% 20.4% in the 2007 financial year. The increase in baseline and in the 2007 financial year which was mainly spent in the revenue generating capital expenditure to R4,095 million in the cellular network infrastructure consisting of radio, switching and 2008 financial year from R3,568 million in the 2007 financial transmission network infrastructure and computer software. The year was largely for the deployment of technologies to support decrease in capital expenditure in other African countries was the growing data services business, including ADSL footprint, largely as a result of decreased investment in Tanzania, links to the mobile cellular operators and expenditure for access Democratic Republic of the Congo and Mozambique offset by line deployment in selected high growth residential areas. The an increase in investment in Lesotho. continued focus on rehabilitating the access network and increasing the efficiencies in the transport network contributed Our capital expenditure of R6,594 million on fixed-line capital to the network evolution and sustainment capital expenditure expenditure in the year ended March 31, 2007 was higher than increasing to R1,369 million in the 2008 financial year from the budgeted fixed-line capital expenditure for the 2007 R1,200 million in the 2007 financial year. financial year of R6.5 billion largely due to investment in broadband services and an unfavourable exchange rate. The Telkom continues to focus on its operations support system 34.6% increase in fixed-line capital expenditure in the 2007 172 investment with current emphasis on workforce management, financial year was primarily due to higher expenditure for provisioning and fulfilment, assurance and customer care business and residential broadband services, wholesale services hardware technology upgrades on the billing platform and to the mobile cellular operators, access line deployment in performance and service management. During the year ended selected high growth residential areas, technologies to support March 31, 2008, R841 million was spent on the implementation the continued growth in our data services business, the ongoing of systems compared to R1,141 million in the 2007 financial rehabilitation of our access network and increasing the efficiencies WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 173 13.3 35.5 85.9 51.7 (92.8) 2007 200.8 2008/ (167.5) % change – (1.6) 42.9 84.9 (92.8) 2006 2007/ (302.7) (462.5) % change 44 308 ZAR (560) (208) 2008 2,943 10,603 (14,106) 29 Year ended March 31, Year approximately R15.2 billion, of which approximately R7.0 billion approximately R7.0 R15.2 billion, of which approximately and our fixed-line segment, to be spent in is budgeted is budgeted to be spent in our mobile approximately R5.2 billion capital budgeted 50% share of Vodacom’s segment, which is our R10.4 billion, and approximately expenditure of approximately to be spent in our other segment. Our R3.0 billion is budgeted are continuously examined and evaluated capital expenditures economic benefit and may be revised in against the perceived conditions, regulatorylight of changing business requirements, investment opportunities factors. and other business Cash flows from investing to investments Cash flows from investing activities relate primarily activities networks and our in our fixed-line network, our other segment’s in its mobile networks in investments 50% share of Vodacom’s South Africa and other African countries. The increase in cash flows used in investing activities in the 2008 financial year was mainly the result of R1, 985 million cash utilised for the purchase of Multi-Links and increased equity investments in Smartphone, increased capital expenditures in our fixed-line, mobile and other segments and lower proceeds on the disposal of investments, partially offset by higher proceeds on the disposal of property, plant and equipment and intangibles. The increase in cash flows used in investing activities in the 2007 financial year was mainly the result of increased capital expenditure in both the fixed-line and mobile segments and acquisitions of subsidiaries and reduced disposals and additions to investments. (8) ZAR ZAR (258) (2,920) 2006 2007 9,506 9,356 (7,286) (10,412) (in millions, except percentages) Cash flows from operating activities Cash flows from investing activities Net (decrease)/increase in cash and cash equivalentsNet (decrease)/increase in cash and cash 1,962 (3,976) Cash flows from financing activities Effect of foreign exchange rate differences Cash flows from operatingOur primary sources of liquidity are cash flows from operating activities intend to fund our expenses, activities and borrowings. We indebtedness and working capital requirements from cash generated from our operations and from capital raised in the markets. The increase in cash flows from operating activities in the 2008 financial year is mainly due to lower taxation payments as well as an increase in cash generated from operations, partially offset by higher dividends paid. The decrease in cash flows from operating activities in the 2007 financial year is mainly due to higher taxation payments, partially offset by the increase in cash generated from operations. Net cash and cash equivalents at the end of the yearNet cash and cash equivalents at the end 4,255 308 Net cash and cash equivalents at the beginning of the yearNet cash and cash equivalents at the beginning 2,301 4,255 The following table shows informationcash flows for the periods indicated. regarding our consolidated Group cash flow Our consolidated capital expenditures in property, plant and expenditures in property, Our consolidated capital financial year is budgeted to be equipment for the 2009 and redundancies in our transportand redundancies with our network in line to an Internetplanned migration next generation network. Protocol mobile capital expenditure in the 2007 The 40.3% increase in the increased investment in South Africa financial year reflects in network infrastructure due primarily and other African countries base and higher traffic and to furtherto the increased customer support 3G technologies. Financial review continued

Cash flows from financing activities Working capital Cash flows from financing activities are primarily a function of We had negative consolidated working capital of approximately borrowing and share buy back activities. R9.3 billion as of March 31, 2008, compared to negative consolidated working capital of approximately R8.2 billion as of In the 2008 financial years, loans raised and the decrease in March 31, 2007 and approximately R3.0 billion as of March net financial assets exceeded loans repaid, shares bought back 31, 2006 and Vodacom had negative working capital of and cancelled and finance lease obligation repaid. In the 2008 approximately R7.9 billion as of March 31, 2008, compared to financial year, cash flows from financing activities was primarily negative working capital of approximately R7.4 billion as of due to the issuance of R18,806 million nominal value of March 31, 2007 and approximately R5.2 billion as of March commercial paper bills, as well as entering into call and term 31, 2006. Negative working capital arises when current loans of R5,600 million to fund the redemption of the TK01 bond liabilities are greater than current assets. The increase in negative and other cash flows from investing activities, including working capital in the 2008 financial year was primarily due to R1.6 billion of additional bank borrowings and interest bearing an increase in the current portion of interest bearing debt due to debt by Vodacom. This was partially offset by the maturing the repayment of the TK01 local bond with a short term debt that commercial paper debt of R15, 773 million nominal value, was subsequently partially refinanced by the TL12 and TL15 the repayment of the TK01 bond with a nominal value of bonds after year end, a reduction in cash available due to R4,680 million and R1,647 million paid for the repurchase of acquisition activities, increased capital expenditure, increased shares during the year. dividends paid, shares repurchased and an increase in trade and other payables. The increase in negative working capital in In the 2007 financial year, loans and finance leases repaid the 2007 financial year was primarily due to a reduction in cash and shares repurchased and cancelled exceeded loans raised used to pay dividends, tax and capital expenditures and an and the decrease in net financial assets, by R2,920 million. In increase in the current portion of interest bearing debt, as a result the 2007 financial year cash flows used in financing activities of the TK01 local bond becoming due on March 31, 2008. increased primarily due to the lower sale of repurchase Telkom is of the opinion that the Telkom Group’s cash flows from agreements and derivative instruments that were sold in the operations, together with proceeds from liquidity available under 2006 financial year to fund dividends and tax payments. On credit facilities and in the capital markets, will be sufficient to October 31, 2006, we repaid the TL06 local bond having a meet the Telkom Group’s present working capital requirements nominal value of R2,100 million and during the 2007 financial for the twelve months following the date of this annual report. year, we repaid R3,731 million in nominal value of commercial We intend to fund current liabilities through a combination of paper bill debt. Commercial paper bills having a nominal value operating cash flows and with new borrowings and borrowings of R4,651 million were issued in the 2007 financial year. available under existing credit facilities. We had R7.6 billion available under existing credit facilities as of March 31, 2008. In the 2006 financial year, loans and finance lease repaid and shares repurchased and cancelled exceeded loans raised and Legal proceedings the decrease in financial assets by R258 million. On April 11, Telcordia 2005, we repaid Euro 500 million of our 7.125% unsecured Telcordia instituted arbitration proceedings against Telkom in Euro bond that was issued on April 12, 2000 by issuing March 2001 before a single arbitrator of the International Court commercial paper bills ranging in maturities from one month to of Arbitration, operating under the auspices of the International one year, with yields of between 7.00% and 7.51% and by Chamber of Commerce. Telcordia is seeking to recover issuing a further R600 million 10.5% unsecured local bond approximately USD130 million for monies outstanding and (TL06) due October 31, 2006 at a yield to maturity of 8.18%. damages, plus costs and interest at a rate of 15.5% per year In addition, we repaid a net of R2,720 million of commercial which was increased by Telcordia to USD172 million in the 2007 174 paper bills and utilised R1,502 million for the share buy-back. financial year and subsequently decreased to USD128 million. Cash inflows from maturing financial assets amounted to R4,544 The arbitration proceeding relates to the cancellation of an million in the 2006 financial year. agreement entered into between Telkom and Telcordia during WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 175 the arbitrator prior to his partialthe arbitrator was award. This application also made a ruling The arbitrator by the arbitrator. dismissed to provide certain particulars by requested compelling Telcordia his ruling, In to the claims by Telcordia. with regard Telkom out a list of issues for determinationthe arbitrator also set of the damages. in London in FebruaryThe mediation took place and April of In the interim the parties2008 without success. have agreed to arbitrator of a third partythe appointment by the expertdeal to in relation with the software that was with the technical issues a who will make by Telcordia, required to be provided with the amount of recommendation to the arbitrator in dealing later in 2008. the claims. The arbitration is expected to continue predict the exact amount is currently unable to Although Telkom it has made that it may eventually be required to pay Telcordia, claim of the Telcordia provisions for estimated liabilities in respect including interest in the sum of USD70 million (R569 million), to fund any payments to will be required and legal fees. Telkom of debt and the from cash flows or the incurrence Telcordia provision would amount of any damages above Telkom’s liabilities and decrease its net profit, which increase Telkom’s financial condition, could have a material adverse effect on its cash flows and results of operations. Competition Commission are parties to a number of legal and arbitration proceedings We filed by parties with the South African Competition Commission If Telkom below. alleging anti-competitive practices described as contained were found to have committed prohibited practices could be Telkom in the Competition Act, 1998, as amended, required to cease these practices, divest these businesses and annual turnover, be fined a penalty of up to 10% of Telkom’s excluding the turnover of subsidiaries and joint ventures, for each complaint for the financial years prior to the dates of the complaints. The Competition Commission has to date not imposed the maximum penalty on any offender. As competition continues to increase, we expect that we will become involved in an increasing number of disputes regarding the legality of servicesprovided by us and third and products parties. These disputes may range from court lawsuits to complaints lodged by or against us with various regulatory are currently unable to predict the amount that we bodies. We The second hearing was held in London at the IDRC on June 25 for the and 26, 2007 and dealt with the application by Telcordia on the basis that Telkom defence striking out of part of Telkom’s had raised issues in its defence that had already been heard by The appeal by Telcordia in the Supreme Court in the Supreme of Appeals was The appeal by Telcordia October 31, 2006. set down for and heard on October 30 and filed appeal, Telkom Following the successful upholding of the Courtan application for leave to appeal to the Constitutional on Courtonly the issue revolving around the Supreme of Appeals’ rights of access to the courts under failure to recognise Telkom’s Courtthe South African Arbitration Act. The Constitutional has appeal with costs. The Constitutional since dismissed Telkom’s Court to finality the dispute over the merits of judgment brought and the parties reconvened the against Telkom claim Telcordia’s arbitration in May 2007 to deal with the amount of damages to hearings were held at the is entitled. Two which Telcordia International Dispute Resolutions Centre, or IDRC. The first hearing was held in London on May 21, 2007 and was a ‘directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of proposals and issues to form part of the damages hearing. June 1999 for the development and supply of an integrated end- supply of an integrated for the development and June 1999 In system by Telcordia. assurance and activation to-end customer had the arbitrator found that Telkom September 2002, the contract and a partialwrongfully repudiated award was subsequently Telkom in favor of Telcordia. issued by the arbitrator the South African High Courtfiled an application in to review and set aside the partial 27, 2003, the award. On November South African High Court set aside the partial award and issued On May 3, 2004, the South of Telkom. a cost order in favor for African High Court by Telcordia dismissed an application costs of to pay the legal Telcordia leave to appeal and ordered 29, 2004 the Supreme Court On November of Appeals Telkom. filed a notice of leave to appeal. Telcordia granted Telcordia District Courtappeal and also petitioned the United States for the District of Columbia to confirm the partial award, which subsequent appeal. petition was dismissed, along with a filed a similar Following the dismissal of the appeal, Telcordia The petition in the United States District Court of New Jersey. United States District Court of New Jersey also dismissed reaffirming petition, the decision of the United States Telcordia’s appealed this dismissal, District Court Telcordia of Columbia. Courtwhich was later dismissed by the Appeals of New Jersey. Financial review continued

may eventually be required to pay in these proceedings, facilities to certain VANS providers to construct their networks, however, we have not included provisions for any of these claims refusal to lease access facilities to VANS providers, provision in our financial statements. In addition, we may need to spend of bundled and cross subsidised competitive services with substantial amounts defending or prosecuting these claims even monopoly services, discriminatory pricing with regard to leased if we are ultimately successful. If Telkom is required to cease these line services and alleged refusal to peer with certain VANS practices, divest itself of the relevant businesses or pay significant providers. fines, Telkom’s business and financial condition could be materially adversely affected and its revenue and net profit could Telkom brought an application for review against the Competition decline. We may be required to fund any penalties or damages Commission and the Competition Tribunal in the South African from cash flows or drawings on our credit facilities, which could High Court, in respect of the decision by the Competition cause our indebtedness to increase. Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the Competition Tribunal does not have Independent Cellular Service Provider Association jurisdiction to adjudicate these matters and argues that ICASA of South Africa (ICSPA) has the requisite jurisdiction. In the review application Telkom In 2002, the ICSPA filed a complaint against Telkom at the also sought to set aside the decision by the Competition Competition Commission in terms of the Competition Act, Commission to refer the complaints to the Competition Tribunal alleging that Telkom had entered into contracts with large on the basis that the Competition Commission was biased, that corporations, providing large discounts with the effect of the referral was out of time and that the Competition Commission discouraging the corporates from using the ‘premicell’ device had not adhered to the memorandum of understanding between installed by their members. ICSPA alleged various contraventions it and ICASA. Only the Competition Commission opposed the of the Competition Act. Telkom provided the Competition application and filed an answering affidavit. Commission with certain information requested. Telkom also The main complaint at the Competition Commission was held referred the Competition Commission to its High Court over pending the outcome of the review application. application in respect of utilisation of the ‘premicell’ device. The Competition Commission declined to refer the matter to the The application for review was heard on April 24 and 25, 2008. Competition Tribunal. ICSPA then referred the matter to the The South African High Court Judge set aside the decision of the Competition Tribunal on September 18, 2003. Telkom filed its Competition Commission to refer the SAVA complaints and the answering affidavit on November 28, 2003. ICSPA has taken Omnilink complaint against Telkom discussed below to the no further action since then. Competition Tribunal. The decision was made based on three grounds, namely that: The South African Value Added Network Services (SAVA) The Competition Commission failed to comply with the On May 7, 2002, the South African Value Added Network peremptory provisions of the memorandum of understanding Services Providers’ Association, an association of VANS between the Competition Commission and ICASA; providers, filed complaints against Telkom at the Competition Commission of the Republic of South Africa under the South The referral was out of time, on the basis that the agreements African Competition Act, 89 of 1998, alleging, among other with the complainants to extend the time in which the things, that Telkom was abusing its dominant position in Competition Commission was allowed to investigate the contravention of the Competition Act, 89 of 1998, and that it complaints were invalid; and was engaged in price discrimination. The Competition Commission determined, among other things, that several The Competition Commission’s reliance on a report by the aspects of Telkom’s conduct contravened the Competition Act, Link Centre created a reasonable apprehension of bias, since 176 89 of 1998, and referred certain of the relevant complaints to some of the complainants contribute financially to the Link the Competition Tribunal for adjudication. The referred complaints Centre and the Link Centre’s advisory board includes deal with Telkom’s alleged refusal to provide telecommunications employees of the complainants in the SAVA complaints. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 177 Internet Service Association of ISPs, filed an association 2005, the ISPA, In December (ISPA) at the Competition Commission Telkom complaints against practices on the partregarding alleged anti-competitive of the deal with the cost of access to SAIX, The complaints Telkom. delay in provision the alleged prices offered by TelkomInternet, and the alleged favourable installation of facilities to ISPs The Competition customers. timelines offered to TelkomInternet to provide it with Commission has formally requested Telkom certaincertain records of orders placed for services, in an the latter aspects of the complaint. attempt to first investigate the Competition Commission with the information provided Telkom response. and is awaiting the Commission’s M-Web and Internet Solutions and Internet Solutions, or IS, jointly On June 29, 2005, M-Web (IS) Commission against lodged a complaint with the Competition relief at the Competition and also requested interim Telkom complaint at the Competition Commission mainly The Tribunal. and its IP pricing for ADSL retail products deals with Telkom’s Connect products, the termination of the peering link between of SAIX bandwidth for and IS, the wholesale pricing Telkom ADSL users of other Internet service providers, the architecture access route and the manner in which Internet ADSL of Telkom’s service edge service providers can only connect to Telkom’s excessive pricing for router via IP Connect as well as alleged international undersea cable. The bandwidth on Telkom’s dealt Tribunal application for interim relief at the Competition maintain the peering link should with allegations that Telkom in terms of its current peering agreement, between IS and Telkom traffic generated by ADSL treat the and demanded that Telkom for the peering link and as traffic destined customers of M-Web upgrade its peering link to accommodate the that Telkom and maintain a increased ADSL traffic emanating from M-Web filed its answering affidavit, maximum of 65% utilisation. Telkom replying affidavit. and is awaiting IS and M-Web’s has entered into a new peering agreement Since then, Telkom with IS and has responded to numerous documentation and date information requests from the Competition Commission. To either in there has been no further developments on this matter, in the interim the filing of a replying affidavit by IS/M Web relief application or in the investigation of the matter by the Competition Commission. The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the Competition Act. Orion however referred in terms of section 51 of the matter to the Competition Tribunal the Competition Act, which allows for parties to refer matters to not yet filed its has themselves. Telkom the Competition Tribunal answering affidavit in the main complaint before the Competition date there has been no further developments on To Tribunal. this matter. Orion/Telkom (Standard Standard Telkom, In April 2003, Orion filed a complaint against Bank and Edcon) concerningBank and Edcon at the Competition Commission offered on public switched telecommunication discounts Telkom’s services to corporate customers. In terms of the rules of the Commission, who Competition Commission, the Competition had one year to investigate the acts as an investigator, of the complaint, complaint. Orion simultaneously with the filing Standard Bank and also filed an application against Telkom, for an interim order Edcon at the Competition Tribunal, from offering Orion’s interdicting and restraining Telkom corporate customers reduced rates associated with Telkom’s Cellsaver discount plan. Omnilink Omnilink filed a complaint against Telkom On August 22, 2002 was abusing alleging that Telkom at the Competition Commission in its price for Diginet servicesits dominance by discriminating to and the price charged to VANS as against those charged IVPN solution. The Competition a Telkom customers who apply for Commission conducted an enquiry and subsequently referred the complaint, to the Competition complaint, together with the SAVA adjudication. This matter is currently being dealt with for Tribunal above and formed matter discussed part together with the SAVA to Courtof the application to the South African High by Telkom Commission to refer set aside the decision by the Competition this complaint to the Competition Tribunal. The Judge did not make a decision on the question of jurisdiction not make a decision The Judge did has the Competition Tribunal ICASA or the (i.e., whether competition matters in the electronic jurisdiction to deal with date, the Competition Commission communications industry). To South African High Courthas not appealed the ruling. Financial review continued

M-Web On June 5, 2007, M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner in which Telkom provides wholesale ADSL Internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief against Telkom to charge M-Web a wholesale price for the provision of ADSL Internet connections which is not higher than the lowest retail price. M-Web further applied for an order that Telkom implement the migration of end customers from Telkom PSTS ADSL access to M-Web without interruption of the service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also filed an application in the Transvaal Provincial Division of the South African High Court on July 3, 2007 for an order declaring that the Competition Tribunal does not have jurisdiction to hear the application for interim relief made to it by M-Web. The application before the High Court was set down for hearing during the first quarter of the 2009 financial year. The parties however entered into settlement negotiations, which resulted in the withdrawal of the interim relief application at the Competition Tribunal by M-Web as well as a withdrawal of the jurisdictional challenge filed at the South African High Court by Telkom. The parties are in further negotiations.

We are not currently able to predict when these disputes may be resolved or the amount that we may eventually be required to pay, however, we have not included provisions for all of these claims in our consolidated financial statements. In addition, we may need to spend substantial amounts defending or prosecuting these claims even if we are ultimately successful. If we were to lose these or future legal and arbitration proceedings, we could be prohibited from engaging in certain business activities and could be required to pay substantial penalties and damages, which could cause our revenue and net profit to decline and have a material adverse impact on our business and financial condition. We may be required to fund any penalties or damages from cash flows or drawings on our credit facilities, which could cause our indebtedness to increase.

We are parties to various additional proceedings and lawsuits in the ordinary course of our business, which our management 178 does not believe will have a material adverse impact on us. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 179

Growing shareholder returns remains our focus Annual financial statements

Consolidated financial statements 179 Company financial statements 283 Supplementary information 353

Annual financial statements WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 180

CONSOLIDATED FINANCIAL STATEMENTS COMPANY FINANCIAL STATEMENTS

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

180 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Directors’ responsibility statement

The directors are responsible for the preparation of the annual financial The directors are satisfied that the Company and the Group have adequate statements of the Company and the Group. The directors are also resources to continue in operational existence for the foreseeable future. responsible for maintaining a sound system of internal control to Accordingly, Telkom SA Limited continues to adopt the going concern safeguard shareholders’ investments and the Group’s assets. basis in preparing the annual financial statements. In presenting the accompanying financial statements, International Against this background, the directors of the Company accept Financial Reporting Standards with appropriate reconciliations to responsibility for the annual financial statements, which were approved accounting principles generally accepted in the United States of America by the Board of Directors on July 11, 2008 and are signed on their have been followed and applicable accounting policies have been used behalf by: incorporating prudent judgements and estimates. The external auditors are responsible for independently auditing and reporting on the annual financial statements. In order for the directors to discharge their responsibilities, management continues to develop and maintain a system of internal control aimed at Shirley Lue Arnold reducing the risk of error or loss in a cost-effective manner. Chairman The internal controls include a risk-based system of internal auditing and administrative controls designed to provide reasonable but not absolute assurance that assets are safeguarded and that transactions are executed and recorded in accordance with generally accepted business practices and the Group’s policies and procedures. Reuben September The directors, primarily through the Audit and Risk Management Chief Executive Officer Committee, which consists of non-executive directors, meet periodically with the external and internal auditors, as well as executive management to evaluate matters concerning accounting policies, internal controls, auditing and financial reporting. The directors are of the opinion, based on the information and Deon Fredericks explanations given by management and internal audit that the internal Acting Chief Financial Officer accounting controls are adequate, so that the financial records may be relied on for preparing the financial statements and maintaining Pretoria accountability for assets and liabilities. July 11, 2008 Telkom Annual Report 2008 Annual Report

Certificate from Group Company Secretary

181 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Ernst & Young Inc. Wanderers Office Park 52 Corlett Drive, Illovo Private Bag X14 Northlands 2116 Tel: 00 27 (0) 11 772-3000 Fax: 00 27 (0) 11 772-4000 Docex 123 Randburg Website www.ey.com/za

Co. Reg. No. 2005/002308/21

Report of the Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Telkom SA Limited

We have audited the accompanying consolidated balance sheets of Telkom SA Limited (‘Telkom’) and its subsidiaries (together ‘the Group’) as of March 31, 2008, 2007 and 2006, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended set out on pages 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, which statements reflect total assets constituting 24%, 24% and 22% at March 31, 2008, 2007 and 2006, respectively, and total revenues constituting 43%, 40% and 36% for the years ended March 31, 2008, 2007 and 2006, respectively of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Vodacom Group (Proprietary) Limited, is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, and the report of the other auditors, provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Telkom SA Limited and its subsidiaries at March 31, 2008, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with International Financial Reporting Standards. As described in Note 2 to the consolidated annual financial statements, in 2008 the Group adopted new and amended accounting standards, IAS 1 Presentation of Financial Statements (Revised) and IFRS 7 Financial Instruments: Disclosures We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Telkom SA Limited’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated July 11, 2008 expressed an unqualified opinion thereon.

182 Ernst & Young Inc. Pretoria Republic of South Africa

July 11, 2008 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 183 e sheet as at of significant n reasonable ancial Reporting whether due to fraud reasonable in the tatements. The procedures selected aterial misstatement, cies used and the Ernst & Young Inc. & Young Ernst Park Office Wanderers Illovo 52 Corlett Drive, Private Bag X14 Northlands 2116 Tel:Fax:Docex 00 27 (0) 11 772-3000 123 Randburg Website 00 27 (0) 11 772-4000 www.ey.com/za Co. Reg. No. 2005/002308/21 Ernst & Young Inc. Ernst & Young Pretoria Republic of South Africa July 11, 2008 In our opinion, the Group and Company financial statements present fairly, in all material respects, the financial position of the company as of In our opinion, the Group and Company financial statements present fairly, March 31, 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Fin Standards, and in the manner required by the Companies Act of South Africa. Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance conducted our with International financial statements based on our audit. We Our responsibility is to express an opinion on these that we comply with ethical requirements and plan and performStandards on Auditing. Those standards require the audit to obtai Auditor’s Responsibility Auditor’s The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International statements in accordance with directors are responsible for the preparation and fair presentation of these financial The company’s implementing Financial Reporting Act of South Africa. This responsibility includes: designing, Standards, and in the manner required by the Companies and maintaining internal of financial statements that are free from m control relevant to the preparation and fair presentation Directors’ Responsibility for the Financial Statements Directors’ Responsibility for the Financial Report on the Financial Statements SA Limited, which comprise, the balanc the accompanying Group and Company annual financial statements of Telkom have audited We of changes in equity and cash flow statement for the year then ended, a summaryMarch 31, 2008, the income statement, statement accounting policies and other explanatory notes, as set out on pages 184 to 281 and 284 to 351. whether due to fraud or error; policies; and making accounting estimates that are selecting and applying appropriate accounting circumstances. free from material misstatement. assurance whether the financial statements are An audit involves performing the financial statements. procedures to obtain audit evidence about the amounts and disclosures in of the financial statements, judgement, including the assessment of the risks of material misstatement depend on the auditor’s presentation of the preparation and fair assessments, the auditor considers internal In making those risk control relevant to the entity’s or error. but not for the purpose of expressing an opinion financial statements in order to design audit procedures that are appropriate in the circumstances, internal the appropriateness of accounting poli control. An audit also includes evaluating on the effectiveness of the entity’s presentation of the financial s reasonableness of accounting estimates made by the directors, as well as evaluating the overall believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We To the Board of Directors and Shareholders of Telkom SA Limited of Telkom the Board of Directors and Shareholders To Independent Auditor’s report Auditor’s Independent Directors’ report

To the members of Telkom SA Limited Borrowing powers The directors have pleasure in submitting the annual financial statements In terms of the Company’s articles of association, Telkom has unlimited of the Company and the Group for the year ended March 31, 2008. borrowing powers subject to the restrictive financial covenants of the TL 20 loan. Nature of business Telkom is an integrated communications group with fixed and mobile Capital expenditure and commitments services in South Africa and other African countries. Until December 9, Details of the Company’s capital expenditure on property, plant and 2005 when Neotel was issued a license, Telkom was the only fixed-line equipment as well as intangibles are set out in notes 9 and 10 of the operator in South Africa. Telkom is also a leading provider of mobile accompanying financial statements, while details of the Company’s services through its 50% shareholding in Vodacom Group (Pty) Limited. capital commitments are set out in note 33. Financial results Details of the Group’s capital expenditure on property, plant and equipment as well as intangibles are set out in notes 10 and 11 of Earnings attributable to equity holders of Telkom for the year ended accompanying financial statements, while details of the Group’s capital March 31, 2008 were R7,975 million (2007: R8,646 million) commitments are set out in note 37. representing basic earnings per share of 1,565.0 cents (2007: 1,681.0 cents). Full details of the financial position and results of the Events subsequent to balance sheet date Group are set out in the accompanying Company and Group financial Events subsequent to the balance sheet date are set out in note 45 of statements. the accompanying Group financial statements and note 37 of the Company financial statements. Dividends Directorate The following dividend was declared in respect of the year ended March 31, 2008: The following changes occurred in the composition of the Board from April 1, 2007 to date of this report. • ordinary dividend number 13 of 660 per share (2007:600 cents). It remains policy to declare dividends annually at the time of announcing Appointments the Group’s results each year. The objective of the Board is to RJ September May 8, 2007 progressively increase ordinary dividend payments. The level of dividend MJ Lamberti May 29, 2007 will be based upon a number of factors, including the assessment of RJ Huntley September 20, 2007 financial results, the Group’s debt level, interest coverage and future Dr VB Lawrence September 20, 2007 expectations, including internal cash flows. Dr E Spio-Garbrah September 20, 2007 B Molefe January 30, 2008 Subsidiaries, associates, other investments and AG Rhoda March 5, 2008 joint ventures B Molefe April 22, 2008 (as alternate to AG Rhoda) Particulars of the significant subsidiaries and the joint venture of the B Molefe July 3, 2008 Group are set out in notes 43 and 44 of the accompanying Group Resignations financial statements. LLR Molotsane April 5, 2007 The attributable interest of the Group in the income of its subsidiaries PL Zim April 11, 2007 for the year ended March 31, 2008 is: M Mostert September 19, 2007 2008 2007 DD Tabata September 19, 2007 R million R million YR Tenza September 19, 2007 TF Mosololi October 26, 2007 Aggregate amount of income after taxation (186) 564 TD Mahloele January 30, 2008 Share capital B Molefe March 5, 2008 MJ Lamberti June 3, 2008 Details of the authorised, issued and unissued share capital of the Company 184 AG Rhoda July 3, 2008 as at March 31, 2008, are contained in note 21 and note 19 of the B Molefe July 3, 2008 (as alternate to AG Rhoda) accompanying Group and Company financial statements respectively. The Board of Directors at date of this report are as follows: Share repurchase ST Arnold (Chairman) Shareholders approved a special resolution granting a general authority RJ September (Chief Executive Officer) for the repurchase of shares by the Company at its annual general B du Plessis meeting of October 26, 2007. The Company repurchased 12,071,344 RJ Huntley ordinary shares at a value of R1,647 million (including costs) during the VB Lawrence year under review. As of March 31, 2008, 4,444,138 of these shares PCS Luthuli had not yet been cancelled from the issued share capital by the Registrar KST Matthews of Companies. The remainder of these shares have been cancelled as B Molefe issued share capital and restored as authorised but unissued share capital. E Spio-Garbrah WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Directors report (continued)

Details of each director may be found on page 26 in the Management review section. Directors’ interests At March 31, 2008, none of Telkom’s directors other than Mr RJ September held any direct and indirect, beneficial and non-beneficial interests in the share capital of the company. Mr RJ September directly holds 7,155 ordinary shares in the capital of Telkom. At January 28, 2008 Mr MJ Lamberti sold 175,000 shares that he held in an indirect non beneficial capacity. Details of the Company Secretary’s business address and the company’s registered office are set out on the ibc page in the administration section and on page 109. Telkom Annual Report 2008 Annual Report

185 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Consolidated income statement

for the three years ended March 31, 2008

2006 2007 2008 Notes Rm Rm Rm

Total revenue 3.1 48,260 52,157 56,865

Operating revenue 3.2 47,625 51,619 56,285 Other income 4 480 384 534 Operating expenses 33,428 37,533 42,337

Employee expenses 5.1 7,489 8,454 9,220 Payments to other operators 5.2 6,826 7,590 9,169 Selling, general and administrative expenses 5.3 10,273 12,902 14,409 Service fees 5.4 2,114 2,291 2,571 Operating leases 5.5 850 981 838 Depreciation, amortisation, impairment and write-offs 5.6 5,876 5,315 6,130

Operating profit 14,677 14,470 14,482 Investment income 6 397 235 197 Finance charges and fair value movements 7 1,223 1,125 1,803

Interest 1,346 1,327 1,885 Foreign exchange and fair value movement (123) (202) (82)

Profit before taxation 13,851 13,580 12,876 Taxation 8 4,523 4,731 4,704

Profit for the year 9,328 8,849 8,172

Attributable to: Equity holders of Telkom 9,189 8,646 7,975 Minority interest 139 203 197

9,328 8,849 8,172

Basic earnings per share (cents) 9 1,746.1 1,681.0 1,565.0 Diluted earnings per share (cents) 9 1,736.6 1,676.3 1,546.9 Dividend per share (cents) 9 900.0 900.0 1,100.0

186 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Consolidated balance sheet at March 31, 2008

2006 2007 2008 Notes Rm Rm Rm Assets Non-current assets 44,813 48,770 57,763

Property, plant and equipment 10 37,274 41,254 46,815 Intangible assets 11 3,910 5,111 8,468 Investments 13 2,894 1,384 1,448 Deferred expenses 14 254 270 221 Finance lease receivables 15 – 158 206 Deferred taxation 16 481 593 605

Current assets 12,731 10,376 12,609

Short-term investments 13 69 77 51 Inventories 17 814 1,093 1,287 Income tax receivable 33 – 520 9 Current portion of deferred expenses 14 226 287 362 Current portion of finance lease receivables 15 – 88 166 Trade and other receivables 18 6,399 7,303 8,986 Other financial assets 19 275 259 614 Cash and cash equivalents 20 4,948 749 1,134

Total assets 57,544 59,146 70,372

Equity and liabilities Equity attributable to equity holders of Telkom 29,165 31,724 32,815

Share capital and premium 21 6,791 5,329 5,208 Treasury shares 22 (1,809) (1,774) (1,638) Share-based compensation reserve 23 151 257 643 Non-distributable reserves 24 1,128 1,413 1,292 Retained earnings 25 22,904 26,499 27,310 Telkom Minority interest 26 301 284 522

29,466 32,008 Total equity 33,337 2008 Annual Report

Non-current liabilities 12,391 8,554 15,104

Interest-bearing debt 27 7,655 4,338 9,403 Other financial liabilities 19 – 36 919 Provisions 28 2,677 1,443 1,675 Deferred revenue 14 991 1,021 1,128 Deferred taxation 16 1,068 1,716 1,979

Current liabilities 15,687 18,584 21,931

Trade and other payables 30 6,103 7,237 8,771 187 Shareholders for dividend 34 4 15 20 Current portion of interest-bearing debt 27 3,468 6,026 6,330 Current portion of provisions 28 1,660 2,095 2,181 Current portion of deferred revenue 14 1,975 1,983 2,593 Income tax payable 33 1,549 594 323 Other financial liabilities 19 235 193 371 Credit facilities utilised 20 693 441 1,342

Total liabilities 28,078 27,138 37,035

Total equity and liabilities 57,544 59,146 70,372 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Consolidated statement of changes in equity

for the three years ended March 31, 2008

Attributable to equity holders of Telkom Share- based Non- compen- distri- Share Share Treasury sation butable Retained Minority Total capital premium shares reserve reserves earnings Total interest equity Rm Rm Rm Rm Rm Rm Rm Rm Rm

Balance at April 1, 2005 5,570 2,723 (1,812) 68 360 19,232 26,141 220 26,361 Total income and expense for the year 52 9,189 9,241 132 9,373 Profit for the year 9,189 9,189 139 9,328 Foreign currency translation reserve (net of tax of RNil) (refer to note 24) 52 52 (7) 45 Dividend declared (refer to note 34) (4,801) (4,801) (78) (4,879) Transfer to non-distributable reserves (refer to note 24) 716 (716) – – Shares vested and re-issued (refer to note 23) 3 (3) – – Increase in share-based compensation reserve (refer to note 23) 86 86 86 Acquisition of subsidiaries and minorities (refer to note 35) – 27 27 Shares bought back and cancelled (refer to note 21) (121) (1,381) (1,502) (1,502)

Balance at March 31, 2006 5,449 1,342 (1,809) 151 1,128 22,904 29,165 301 29,466 Total income and expense for the year 46 8,646 8,692 217 8,909 Profit for the year 8,646 8,646 203 8,849 Foreign currency translation reserve (net of tax of R4 million) (refer to note 24) 46 46 14 60 Dividend declared (refer to note 34) (4,678) (4,678) (166) (4,844) Transfer to non-distributable reserves (refer to note 24) 239 (239) – – Increase in share-based compensation reserve (refer to note 23) 141 141 141 Shares vested and re-issued (refer to note 23) 35 (35) – – Acquisition of subsidiaries and minorities (refer to note 35) – (68) (68) Shares bought back and cancelled (refer to note 21) (120) (1,342) (134) (1,596) (1,596)

Balance at March 31, 2007 5,329 – (1,774) 257 1,413 26,499 31,724 284 32,008 Total income and expense for the year 529 7,975 8,504 226 8,730 Profit for the year 7,975 7,975 197 8,172 Revaluation of available-for-sale investment (net of tax of R1 million) 888 188 Foreign currency translation reserve (net of tax of R6 million) (refer to note 24) 521 521 29 550 Dividend declared (refer to note 34) (5,627) (5,627) (65) (5,692) Transfer to non-distributable reserves (refer to note 24) 11 (11) – – Increase in share-based compensation reserve (refer to note 23) 522 522 522 Shares vested and re-issued (refer to note 23) 136 (136) – – Acquisition of subsidiaries and minorities (refer to note 35) –7777 Shares 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Consolidated cash flow statement for the three years ended March 31, 2008

2006 2007 2008 Notes Rm Rm Rm

Cash flows from operating activities 9,506 9,356 10,603

Cash receipts from customers 46,958 50,979 55,627 Cash paid to suppliers and employees (27,234) (30,459) (34,371)

Cash generated from operations 31 19,724 20,520 21,256 Interest received 482 422 433 Dividends received 6 50 3 – Finance charges paid 32 (1,316) (1,115) (1,077) Taxation paid 33 (4,550) (5,690) (4,277)

Cash generated from operations before dividend paid 14,390 14,140 16,335 Dividend paid 34 (4,884) (4,784) (5,732)

Cash flows from investing activities (7,286) (10,412) (14,106)

Proceeds on disposal of property, plant and equipment and intangible assets 92 54 169 Proceeds on disposal of investments 493 77 8 Additions to property, plant and equipment and intangible assets (7,396) (10,037) (11,657) Acquisition of subsidiaries and minorities 35 – (445) (2,462) Additions to other investments (475) (61) (164)

Cash flows from financing activities (258) (2,920) 2,943

Loans raised 4,123 5,624 23,877 Loans repaid (7,399) (6,922) (19,315) Shares bought back and cancelled (1,502) (1,596) (1,647) Finance lease obligation repaid (24) (37) (61) Decrease in net financial assets 4,544 11 89

Net increase/(decrease) in cash and cash equivalents 1,962 (3,976) (560) Net cash and cash equivalents at beginning of the year 2,301 4,255 308 Effect of foreign exchange rate differences (8) 29 44 Telkom

Net cash and cash equivalents at end of the year 20 4,255 308 (208) Annual Report 2008 Annual Report

189 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements

for the three years ended March 31, 2008

1. Corporate information • adoption of amendment to IAS1; Telkom SA Limited (‘Telkom’) is a company incorporated and • adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10, IFRIC11 and domiciled in the Republic of South Africa (‘South Africa’) whose Circular 8/2007; and shares are publicly traded. The main objective of Telkom, its • identification of a new segment. subsidiaries and joint ventures (‘the Group’) is to supply The principal effects of these changes are discussed below. telecommunication, broadcasting, multimedia, technology, information and other related information technology services to Adoption of amendments to standards and new the general public, as well as mobile communication services interpretations through the Vodacom Group (Proprietary) Limited (‘Vodacom’) in The following revised standards and interpretations have been South Africa and certain other African countries. The Group’s adopted during the year under review: services and products include: Amendment to IAS1 Presentation of Financial Statements • fixed-line subscription and connection services to postpaid, prepaid and private payphone customers using PSTN lines, This amendment is effective for annual periods beginning on or including ISDN lines, and the sale of subscription based value- after January 1, 2007. As a result of the pronouncement of IFRS7 added voice services and customer premises equipment rental Financial Instruments: Disclosures, IAS1 has been amended to and sales; require the disclosure of the entity’s objective, policies and processes for managing capital, quantitative data about what the • fixed-line traffic services to postpaid, prepaid and payphone entity regards as capital, whether the entity has complied with customers, including local, long distance, fixed-to-mobile, any capital requirements and if it has not complied, the international outgoing and international voice-over-internet consequences of such non-compliance. The impact of this protocol traffic services; amendment has been disclosed under note 12. • interconnection services, including terminating and transiting traffic from South African mobile operators, as well as from IFRS7 Financial Instruments: Disclosures international operators and transiting traffic from mobile to This standard is effective for annual periods beginning on or after international destinations; January 1, 2007. IFRS7 supersedes disclosure in IAS32. All • fixed-line data services, including domestic and international financial instruments disclosures will now be provided in terms of data transmission services, such as point-to-point leased lines, IFRS7. One of the main disclosure requirements added by IFRS7 ADSL services, packet-based services, managed data is that an entity must group its financial instruments into classes networking services and internet access and related information of similar instruments, and when disclosures are required, make technology services; disclosures by class. IFRS7 also requires information about the significance of financial instruments and information about the • e-commerce, including internet access service provider, nature and extent of risks arising from financial instruments. The application service provider, hosting, data storage, e-mail and impact of this standard is to expand on certain disclosures relating security services; to financial instruments and requires certain additional disclosures • mobile communications services, including voice services, data (refer to note 12). services, value-added services and handset sales through Vodacom; and IFRIC8 Scope of IFRS2 • other services including directory services, through our TDS The interpretation is effective for annual periods beginning on or Directory Operations Group, wireless data services, through our after May 1, 2006. The interpretation clarifies that IFRS2 applies Swiftnet (Proprietary) Limited subsidiary, television media to transactions in which an entity receives goods or services as services through our Telkom Media Group, internet services consideration for equity instruments of the entity. This includes outside South Africa, through our Africa Online Limited subsidiary transactions in which the entity cannot identify specifically some or and information, communication and telecommunication all of the goods or services received. The impact of the interpretation operating services in Nigeria, through our newly acquired Multi- on the consolidated annual financial statements is not material Links Telecommunications Limited subsidiary. since the Group has not transacted with other parties using equity as a purchase consideration for the transaction, other than those 190 2. Significant accounting policies paid to employees in share-based payment transactions. Basis of preparation IFRIC9 Reassessment of Embedded Derivatives The consolidated annual financial statements comply with The interpretation is effective for annual periods beginning on or International Financial Reporting Standards (‘IFRS’) of the after June 1, 2006. The interpretation clarifies that an entity International Accounting Standards Board (‘IASB’) and the should assess whether an embedded derivative is required to be Companies Act of South Africa, 1973. separated from the host contract and accounted for as a derivative The financial statements are prepared on the historical cost basis, when the entity first becomes a party to the contract. It further with the exception of certain financial instruments and share-based clarifies that reassessment is only allowed when there is a change payments which are measured at grant date fair value. in the terms of the contract which significantly modifies the cash Details of the Group’s significant accounting policies are set out flows that would otherwise be required under the contract. The below, and are consistent with those applied in the previous interpretation does not have a material impact on the consolidated financial year except for the following: annual financial statements. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) arrangement other than service conditions and performance Adoption of amendments to standards and new conditions will be considered to be non-vesting conditions. IFRS2 interpretations (continued) (as revised) specifies that, when estimating the fair value of equity IFRIC10 Interim Financial Reporting and Impairment instruments granted, an entity shall take into account all non-vesting conditions (i.e. all conditions other than service and performance The interpretation is effective for annual periods beginning on or conditions) and vesting conditions that are market conditions after November 1, 2006. The interpretation clarifies that an entity (i.e. conditions that are related to the market price of the entity’s should not reverse an impairment loss recognised in a previous equity instruments – for example, attaining a specified share price). interim period in respect of goodwill or an investment in either The impact of this amendment is currently being evaluated. an equity instrument classified as available-for-sale or financial asset carried at cost. The interpretation does not have a material IFRS3 Business Combinations-comprehensive revision on impact on the consolidated annual financial statements. applying the acquisition method

IFRIC11 IFRS2 – Group and Treasury Share Transactions The revised standard is effective for annual periods beginning on or after July 1, 2009. The revised IFRS3 requires the consideration The interpretation is effective for annual periods beginning on or for the acquisition, including the fair value of any contingent after March 1, 2007. The interpretation clarifies that regardless consideration payable to be measured at fair value at the of whether the entity chooses or is required to buy equity instruments from another party to satisfy its obligations to its acquisition date. The revised standard only permits subsequent employees under the share-based payment arrangement by changes to the measurement of contingent consideration as a delivery of its own shares, the transaction should be accounted for result of additional information about facts and circumstances that as equity settled. This interpretation also applies regardless of existed at the acquisition date. All other changes (e.g. changes whether the employee’s rights to the equity instruments were resulting from events after the acquisition date such as the granted by the entity itself or by its shareholders or was settled acquiree meeting an earnings target, reaching a specified share by the entity itself or its shareholders. Share-based payments price, or meeting a milestone on a research and development involving the Group’s own equity instruments in which the Group project) are recognised in profit or loss. chooses or is required to buy its own equity instruments to settle Acquisition-related costs are now required to be expensed. the share-based payment obligation are currently accounted for as Business combinations involving only mutual entities and business equity-settled share-based payment transactions under IFRS2. The combinations achieved by contract alone have also been included interpretation has had no impact on the consolidated annual in IFRS3. financial statements. Consequential amendments arising from revisions to IFRS3 Circular 8/2007 Headline earnings

on IAS27 Consolidated and separate financial statements Telkom The circular was issued by the South African Institute of Chartered The revised IAS27 specifies that changes in a parent’s ownership Accountants (SAICA) and is applicable for financial periods ending interest in a subsidiary that do not result in the loss of control

on or after August 31, 2007. Circular 8/2007 supersedes Circular 2008 Annual Report must be accounted for as equity transactions. No gain or loss is 7/2002 and it defines rules for calculating headline earnings per recognised on such transactions and goodwill is not re- share, which is an additional per share measure permitted by measured. Any difference between the change in the Non IAS33 Earnings per Share. It further requires a disclosure of a Controlling Interest and the fair value of the consideration paid detailed reconciliation of headline earnings to the earnings or received is recognised directly in equity and attributed to the numbers used in the calculation of basic earnings per share in owners of the parent. accordance with the requirements of IAS33. The Group adopted the provisions of Circular 8/2007 in the reporting period Consequential amendments arising from revisions to IFRS3 beginning on April 1, 2007 and the adoption has had no impact on IAS28 Investments in Associates; IAS31 Interests in other than additional disclosure as required by the Circular. Joint Ventures 191 Accounting pronouncements not yet adopted Amendments to IAS28 and IAS31 extend the treatment required for loss of control to these standards. For partial disposals of The Group has not early adopted the following standards, associates and joint ventures, the amended standards stipulate interpretations and amendments that have been issued and are that if an investor loses significant influence over an associate, it not yet effective: derecognises that associate and recognises in profit or loss the IFRS2 Vesting Conditions and Cancellations difference between the sum of the proceeds received and any This amendment is effective for annual periods beginning on or retained interest, and the carrying amount of the investment in the after January 1, 2009. The amendments to IFRS2 Share-based associate at the date significant influence is lost. A similar Payment clarifies the definition of vesting conditions and the treatment is required when an investor loses joint control over a accounting treatment of cancellations by the counterparty to a jointly controlled entity. The possible impact of this standard is share-based arrangement. All features of a share-based payment currently being evaluated. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) IFRIC12 Service Concession Arrangements Accounting pronouncements not yet adopted (continued) The interpretation is effective for annual periods beginning on or after January 1, 2008. The interpretation clarifies that contractual IFRS8 Operating Segments service arrangements do not convey the right to control the use This standard is effective for annual periods beginning on or after of the public service infrastructure to the operator, instead the January 1, 2009. The significant change to the standard is that operator acts as a service provider. The infrastructure under these it requires segments to be disclosed based on the information that arrangements shall therefore not be recognised as the property, management uses to make decisions about operating matters. plant and equipment of the operator. The operator shall recognise IFRS8 sets out the requirements for disclosure of information and measure revenue in accordance with IAS11 and IAS18 for the about an entity’s operating segments and also about the entity’s services it performs. The operator should recognise the asset as products and services, the geographical areas in which it operates, an intangible asset for the right (or licence) it receives to charge and its major customers. IFRS8 further requires the entity to the users of the public service or as a financial asset when it has disclose factors used to identify the entity’s operating segments the right to receive cash from the grantor for construction services. and type of products and services from which each operating The interpretation provides guidance on the recognition and segment derives its revenues. The impact of this standard is measurement of the various aspects of service concession currently being evaluated. arrangements from an operator’s perspective. The impact of this interpretation is currently being evaluated. IAS1 Presentation of Financial Statements (revised) The revised standard is effective for annual periods beginning on IFRIC13 Customer Loyalty Programmes or after January 1, 2009. The changes made to IAS1 require The interpretation is effective for annual periods beginning on or information in financial statements to be aggregated on the basis after July 1, 2008. The interpretation addresses accounting by of shared characteristics and to introduce a statement of entities that grant loyalty award credits (such as ‘points’ or travel comprehensive income. This will enable users to analyse changes miles) to customers who buy other goods or services. It specifically in a Group’s equity resulting from transactions with owners in their requires these entities to recognise the obligation to provide free capacity as owners (such as dividends and share repurchases) or discounted goods or services (‘awards’) to customers who separately from ‘non-owner’ changes (such as transactions with redeem award credits. The interpretation requires companies to third parties). The revised standard gives preparers of financial estimate the value of the points to the customer and defer this statements the option of presenting items of income and expense amount of revenue and recognise a liability until they have fulfilled and components of other comprehensive income either in a single their obligations to supply awards. In effect, the award is statement of comprehensive income with subtotals, or in two accounted for as a separate component of the sale transaction. The separate statements. possible impact of this interpretation is currently being evaluated. The revisions include changes in the titles of some of the financial IFRIC14 The Limit on a Defined Benefit Asset, Minimum statements to reflect their function more clearly. The new titles Funding Requirements and their Interaction will be used in accounting standards, but are not mandatory for The interpretation is effective for annual periods beginning on or use in financial statements. The impact of this standard will be that after January 1, 2008. The interpretation addresses the interaction the presentation of the financial statements will change. between a minimum funding requirement and the limit placed by IAS23 Borrowing Costs paragraph 58 of IAS19 on the measurement of the defined benefit asset. When determining the limit on a defined benefit The revised standard requires all borrowing costs that are directly asset in accordance with IAS19.58, IFRIC14 requires an entity to attributable to the acquisition, construction or production of a measure any economic benefits available to them in the form of qualifying asset to be capitalised. The revised Standard applies to refunds or reductions in future contributions at the maximum borrowing costs relating to qualifying assets for which the amount that is consistent with the terms and conditions of the commencement date for capitalisation is on or after January 1, plan and any statutory requirements in the jurisdiction of the plan. 2009. The Group does not expect the adoption of the standard The interpretation states that the employer only needs to have to have a material impact since the Group has always applied the an unconditional right to use the surplus at some point during the allowed alternative of capitalising borrowing costs under the life of the plan or on its wind up in order for a surplus to be current standard. 192 recognised. The Group is currently evaluating the potential impact Amendment to IAS32 Financial Instruments Presentation that the interpretation will have on the financial position or results and IAS1 Presentation of Financial Statements, puttable of operations. financial instruments Significant accounting judgements and estimates The amendment is effective for annual periods beginning on or The preparation of financial statements requires the use of after January 1, 2009. In January 2008, the IASB amended estimates and assumptions that affect the reported amounts of IAS32 and IAS1 Presentation of Financial Statements with respect assets and liabilities and disclosure of contingent assets and to the balance sheet classification of puttable financial instruments liabilities at the date of the financial statements and the reported and obligations arising only on liquidation. As a result of the amounts of revenue and expenses during the reporting periods. amendments, some financial instruments that currently meet the Although these estimates are based on management’s best definition of a financial liability will be classified as equity because knowledge of current events and actions that the Group may they represent the residual interest in the net assets of the entity. undertake in the future, actual results may ultimately differ from The impact of this amended standard is currently being evaluated. those estimates. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) Asset retirement obligations Significant accounting judgements and Management judgement is exercised when determining whether estimates (continued) an asset retirement obligation exists, and in determining the present value of expected future cash flows and discount rate The presentation of the results of operations, financial position when the obligation to dismantle or restore the site arises, as well and cash flows in the financial statements of the Group is as the estimated useful life of the related asset. dependent upon and sensitive to the accounting policies, assumptions and estimates that are used as a basis for the Impairments of property, plant and equipment and preparation of these financial statements. Management has made intangible assets certain judgements in the process of applying the Group’s Management is required to make judgements concerning the accounting policies. These, together with the key assumptions cause, timing and amount of impairment. In the identification concerning the future, and other key sources of estimation of impairment indicators, management considers the impact uncertainty at the balance sheet date, are as follows: of changes in current competitive conditions, cost of capital, availability of funding, technological obsolescence, discontinuance Revenue recognition of services and other circumstances that could indicate that an To reflect the substance of each transaction, revenue recognition impairment exists. The Group applies the impairment assessment criteria are applied to each separately identifiable component of to its separate cash-generating units. This requires management a transaction. In order to account for multiple-element revenue to make significant judgements concerning the existence of arrangements in developing its accounting policies, the Group impairment indicators, identification of separate cash-generating considered the guidance contained in the United States Financial units, remaining useful lives of assets and estimates of projected Accounting Standards Board (‘FASB’) Emerging Issues Task Force cash flows and fair value less costs to sell. Management No 00-21 Revenue Arrangements with Multiple Deliverables. judgement is also required when assessing whether a previously Judgement is required to separate those revenue arrangements recognised impairment loss should be reversed. that contain the delivery of bundled products or services into Where impairment indicators exist, the determination of the individual units of accounting, each with its own earnings process, recoverable amount of a cash-generating unit requires management when the delivered item has stand-alone value and the undelivered to make assumptions to determine the fair value less costs to sell item has fair value. Further judgement is required to determine the and value in use. Key assumptions on which management has relative fair values of each separate unit of accounting to be based its determination of fair value less costs to sell include the allocated to the total arrangement consideration. Changes in the existence of binding sale agreements, and for the determination relative fair values could affect the allocation of arrangement of value in use include projected revenues, gross margins, average consideration between the various revenue streams. revenue per asset component, capital expenditure, expected Judgement is also required to determine the expected customer customer bases and market share. The judgements, assumptions Telkom relationship period. Any changes in these assessments may have and methodologies used can have a material impact on the fair a significant impact on revenue and deferred revenue. value and ultimately the amount of any impairment. Annual Report 2008 Annual Report Property, plant and equipment and intangible assets Impairment of other financial assets The useful lives of assets are based on management’s estimation. At each balance sheet date management assesses whether there Management considers the impact of changes in technology, are indicators of impairment of financial assets, including equity customer service requirements, availability of capital funding and investments. If such evidence exists, the estimated present value required return on assets and equity to determine the optimum of the future cash flows of that asset is determined. Management useful life expectation for each of the individual categories of judgement is required when determining the expected future cash property, plant, equipment and intangible assets. Due to the rapid flows. To determine whether the decline in fair value is prolonged, technological advancement in the telecommunications industry as reliance is placed on an assessment by management regarding the well as Telkom’s plan to migrate to a next generation network future prospects of the investee. In measuring impairments, over the next few years, the estimation of useful lives could differ quoted market prices are used, if available, or projected business 193 significantly on an annual basis due to unexpected changes in the plan information from the investee is used for those financial roll-out strategy. The impact of the change in the expected useful assets not carried at fair value. life of property, plant and equipment is described more fully in Impairment of receivables note 5.6. The estimation of residual values of assets is also based An impairment is recognised on trade receivables that are assessed on management’s judgement whether the assets will be sold or to be impaired. The impairment is based on an assessment of the used to the end of their useful lives and what their condition will extent to which customers have defaulted on payments already be like at that time. due and an assessment on their ability to make payments based For intangible assets that incorporate both a tangible and on their credit worthiness and historical write-offs experience. intangible portion, management uses judgement to assess which Should the assumptions regarding the financial condition of the element is more significant to determine whether it should be customer change, actual write-offs could differ significantly from treated as property, plant and equipment or intangible assets. the impaired amount. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) Group entities are regularly subject to evaluation, by the relevant Significant accounting judgements and tax authorities, of its historical tax filings and in connection with estimates (continued) such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules to the Leases business of the relevant Group entities. These disputes may not The determination of whether an arrangement is, or contains a necessarily be resolved in a manner that is favourable for the lease is based on whether, at the date of inception, the fulfilment of the arrangement is dependent on the use of a specific asset or Group. Additionally the resolution of the disputes could result in assets or the arrangement conveys a right to use the asset. an obligation for the Group that exceeds management’s estimate. The Group has historically filed, and continues to file, all required Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating income tax returns. Management believes that the principles leases. Payments made under operating leases (net of any applied in determining the Group’s tax obligations are consistent incentives received from the lessor) are charged to the income with the principles and interpretations of the relevant countries’ statement on a straight-line basis over the period of the lease. A tax laws. lease is classified as a finance lease if it transfers substantially all Deferred taxation rate the risks and rewards incident to ownership. Management makes judgements on the tax rate applicable based Deferred taxation asset on the Group’s expectations at balance sheet date on how the asset Management judgement is exercised when determining the is expected to be recovered or the liability is expected to be settled. probability of future taxable profits which will determine whether deferred tax assets should be recognised or derecognised. The Employee benefits realisation of deferred tax assets will depend on whether it is The Group provides defined benefit plans for certain post- possible to generate sufficient taxable income, taking into account employment benefits. The Group’s net obligation in respect of any legal restrictions on the length and nature of the taxation defined benefits is calculated separately for each plan by estimating asset. When deciding whether to recognise unutilised taxation the amount of future benefits earned in return for services rendered. credits, management needs to determine the extent that future The obligation and assets related to each of the post-retirement payments are likely to be available for set-off. In the event that benefits are determined through an actuarial valuation. The the assessment of future payments and future utilisation changes, actuarial valuation relies heavily on assumptions as disclosed in the change in the recognised deferred tax asset must be note 29. The assumptions determined by management make use recognised in profit or loss. of information obtained from the Group’s employment agreements Taxation with staff and pensioners, market related returns on similar The tax rules and regulations in South Africa as well as the other investments, market related discount rates and other available African countries within which the Group operates are highly information. The assumptions concerning the expected return on complex and subject to interpretation. Additionally, for the assets and expected change in liabilities are determined on a foreseeable future, management expects South African tax laws uniform basis, considering long-term historical returns and future to further develop through changes in South Africa’s existing tax estimates of returns and medical inflation expectations. In the event structure as well as clarification of the existing tax laws through that further changes in assumptions are required, the future published interpretations and the resolution of actual tax cases. amounts of post-retirement benefits may be affected materially. Management has made a judgement that all outstanding tax credits will be available for utilisation before the tax regime change The discount rate reflects the average timing of the estimated is effective, despite the change of “secondary tax on companies” defined benefit payments. The discount rate is based on long term to withholding tax. South African government bonds with the longest maturity period The growth of the Group, following its geographical expansion as reported by the Bond Exchange of South Africa. The discount 194 into other African countries over the past few years, has made rate is expected to follow the trend of inflation. the estimation and judgement required in recognising and The overall expected rate of return on assets is determined based measuring deferred taxation balances more challenging. The on the market prices prevailing at that date, applicable to the resolution of taxation issues is not always within the control of the period over which the obligation is to be settled. Group and it is often dependent on the efficiency of the legal Telkom provides equity compensation in the form of the Telkom processes in the relevant taxation jurisdictions in which the Group Conditional Share Plan to its employees. The related expense and operates. Issues can, and often do, take many years to resolve. Payments in respect of taxation liabilities for an accounting period reserve are determined through an actuarial valuation which relies result from payments on account and on the final resolution of heavily on assumptions. The assumptions include employee open items. As a result there can be substantial differences turnover percentages and whether specified performance criteria between the taxation charge in the consolidated income statement will be met. Changes to these assumptions could affect the amount and the current taxation payments. of expense ultimately recognised in the financial statements. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) Minority shareholders are treated as equity participants and, Significant accounting judgements and therefore, all acquisitions of minority interest by the Group in estimates (continued) subsidiary companies are accounted for using the parent entity extension method. Under this method, the assets and liabilities of Provisions and Contingent liabilities the subsidiary are not restated to reflect their fair values at the Management judgement is required when recognising and date of the acquisition. The difference between the purchase price measuring provisions and when measuring contingent liabilities and the minority interest’s share of the assets and liabilities as set out in notes 28 and 38 respectively. The probability that reflected within the consolidated balance sheet at the date of the an outflow of economic resources will be required to settle the acquisition is therefore reflected as goodwill. Minority interests obligation must be assessed and a reliable estimate must be made are separately presented in the consolidated financial statements. of the amount of the obligation. Provisions are discounted where the effect of discounting is material based on management’s Operating revenue judgement. The discount rate used is the rate that reflects current The Group provides fixed-line communication services, mobile market assessments of the time value of money and, where communication services and other services. Other includes data appropriate, the risks specific to the liability, all of which requires services, directory services and communication related products. management judgement. The Group is required to recognise The Group provides such services to business, residential, provisions for claims arising from litigation when the occurrence payphone and mobile customers. Revenue represents the fair of the claim is probable and the amount of the loss can be value of fixed or determinable consideration that has been reasonably estimated. Liabilities provided for legal matters require received or is receivable. judgements regarding projected outcomes and ranges of losses Revenue for services is measured at amounts invoiced to based on historical experience and recommendations of legal customers and excludes Value Added Tax. counsel. Litigation is however unpredictable and actual costs Revenue is recognised when there is evidence of an arrangement, incurred could differ materially from those estimated at the collectability is reasonably assured, and the delivery of the product balance sheet date. or service has occurred. In certain circumstances revenue is split Held-to-maturity financial assets into separately identifiable components and recognised when the Management have reviewed the Group’s held-to-maturity financial related components are delivered in order to reflect the substance assets in the light of its capital management and liquidity of the transaction. The value of components is determined using requirements and have confirmed the Group’s positive intention verifiable objective evidence. The Group does not provide and ability to hold those assets to maturity. customers with the right to a refund. Summary of significant accounting policies Fixed-line and Other

Basis of consolidation Subscriptions, connections and other usage Telkom The consolidated financial statements include those of Telkom, its The Group provides telephone and data communication services foreign and domestic subsidiaries and joint ventures. Subsidiaries under post paid and prepaid payment arrangements. Revenue Annual Report 2008 Annual Report are those entities over which financial and operating policies the includes fees for installation and activation, which are deferred Group has the ability to exercise control, so as to obtain majority over the expected customer relationship period. Costs incurred on of the benefits from their activities. Joint ventures are those first time installations that form an integral part of the network are enterprises over which the group exercises joint control in terms capitalised and depreciated over the expected average customer of a contractual agreement. Joint ventures are accounted for using relationship period. All other installation and activation costs are the proportionate consolidation method on a line by line basis. expensed as incurred. Intra-group balances and transactions, and any unrealised gains Post paid and prepaid service arrangements include subscription and losses arising from intra-group transactions, are eliminated in fees, typically monthly fees, which are recognised over the preparing the consolidated financial statements. Transactions with subscription period. jointly controlled entities together with related unrealised gains 195 Revenue related to sale of communication equipment, products and losses and resulting balances are eliminated to the extent of and value-added services is recognised upon delivery and the Group’s interest in the entities. Consolidation commences from acceptance of the product or service by the customer. the date that effective control passes to the Group. Traffic (Domestic, Fixed-to-mobile and International) Business combinations Prepaid On acquisition of a subsidiary or joint venture, any excess of the purchase price over the fair value of the Group’s interest in the net Prepaid traffic service revenue collected in advance is deferred assets is recognised as goodwill. Minority interests are calculated and recognised based on actual usage or upon expiration of the on the fair value of assets and liabilities. Where there is loss of usage period, whichever comes first. The terms and conditions of control of a subsidiary, the consolidated financial statements certain prepaid products allow the carry over of unused minutes. include the results for the part of the reporting year during which Revenue related to the carry over of unused minutes is deferred the Group has control. until usage or expiration. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) administrative fees. The Group receives in cash, the net amount Operating revenue (continued) equal to the gross revenue earned less the administrative fees payable to the agents. Fixed-line and Other (continued) Traffic (Domestic, Fixed-to-mobile and Contract products International) (continued) Contract products that may include deliverables such as a handset Payphones and 24-month service are defined as arrangements with multiple deliverables. The arrangement consideration is allocated to each Payphone service coin revenue is recognised when the service deliverable, based on the fair value of each deliverable on a stand is provided. alone basis as a percentage of the aggregated fair value of the Payphone service card revenue collected in advance is deferred individual deliverables. Revenue allocated to the identified and recognised based on actual usage or upon expiration of the deliverables in each revenue arrangement and the cost applicable usage period, whichever comes first. to these identified deliverables are recognised based on the same Telkom provides incentives to its retail payphone card distributors recognition criteria of the individual deliverable at the time the as trade discounts. Revenue for retail payphone cards is recorded product or service is delivered. as traffic revenue, net of these discounts as the cards are used. Vodacom revenue from the handset is recognised when the Postpaid product is delivered limited to the amount of cash received. Revenue related to local, long distance, network-to-network, Monthly service revenue received from the customer is recognised roaming and international call connection services is recognised in the period in which the service is delivered. Airtime revenue is when the call is placed or the connection provided. recognised on the usage basis. The terms and conditions of the bundled airtime products, where applicable, allow the carry over Interconnection of unused airtime. The unused airtime is deferred in full. Deferred Interconnection revenue for call termination, call transit, and revenue related to unused airtime is recognised when utilised by network usage is recognised as the traffic flow occurs. the customer. Upon termination of the customer contract, all deferred revenue for unused airtime is recognised in revenue. Data The Group provides data communication services under post paid Prepaid products and prepaid payment arrangements. Revenue includes fees for Prepaid products that may include deliverables such as a SIM-card installation and activation, which are deferred over the expected and airtime are defined as arrangements with multiple average customer relationship period. Costs incurred on first time deliverables. The arrangement consideration is allocated to each installations that form an integral part of the network are deliverable, based on the fair value of each deliverable on a stand capitalised and depreciated over the life of the expected average alone basis as a percentage of the aggregated fair value of the customer relationship period. All other installation and activation individual deliverables. Revenue allocated to the identified costs are expensed as incurred. Post paid and prepaid service deliverables in each revenue arrangement and the cost applicable arrangements include subscription fees, typically monthly fees, to these identified deliverables are recognised based on the same which are recognised over the subscription period. recognition criteria of the individual deliverable at the time the Directory services product or service is delivered. Included in other are directory services. Revenue is recognised • Revenue from the SIM-card representing activation fees is when paper directories are released for distribution, as the recognised over the average useful life of a prepaid customer. significant risks and rewards of ownership have been transferred • Airtime revenue is recognised on the usage basis. Unused to the buyer. Electronic directories’ revenue is recognised on a airtime is deferred in full. monthly basis, as earned. • Deferred revenue related to unused airtime is recognised when Sundry revenue utilised by the customer. Upon termination of the customer 196 Sundry revenue is recognised when the economic benefit flows to relationship, all deferred revenue for unused airtime is the Group and the earnings process is complete. recognised in revenue. Upon purchase of an airtime voucher the customer receives the Dealer incentives right to make outgoing voice and data calls to the value of Telkom provides incentives to its retail payphone card distributors the airtime voucher. Revenue is recognised as the customer utilises as trade discounts. Incentives are based on sales volume and the voucher. value. Revenue for retail payphone cards is recorded as traffic Deferred revenue and costs related to unactivated starter packs revenue, net of these discounts as the cards are used. which do not contain any expiry date, is recognised in the period Mobile when the probability of these starter packs being activated by a The Vodacom Group invoices its independent service providers for customer becomes remote. In this regard the Group applies a the revenue billed by them on behalf of the Group. The Group, period of 36 months before these revenue and costs are released within its contractual arrangements with its agents, pays them to the consolidated income statement. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) combination and at the time of the transaction affects neither Operating revenue (continued) accounting nor taxable profit or loss. Mobile (continued) A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the Data associated unused tax losses, unused tax credits and deductible Revenue, net of discounts, from data services is recognised when temporary differences can be utilised. The carrying amount of the Group has performed the related service and depending on the deferred tax assets is reviewed at each balance sheet date and is nature of the service, is recognised either at the gross amounts reduced to the extent that it is no longer probable that the related billed to the customer or the amount receivable by the Group as tax benefit will be realised, except in respect of deductible commission for facilitating the service. temporary differences associated with investments in subsidiaries, Equipment sales associates and interest in joint ventures. Deferred income tax All equipment sales are recognised only when delivery and assets are recognised only to the extent that it is probable that acceptance has taken place. Equipment sales to third party service temporary differences will reverse in the foreseeable future and providers are recognised when delivery is accepted. No rights of taxable profit will be available against which temporary differences return exist on sales to third party service providers. can be utilised. Deferred tax relating to items recognised directly in equity are Mobile number portability recognised in equity and not in the income statement. Revenue transactions from mobile number portability are Deferred tax assets and liabilities are measured at the tax rates that accounted for in terms of current business rules and revenue recognition policies above. 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 Interest on debtors’ accounts enacted or substantively enacted by the balance sheet date. Interest is raised on overdue accounts on an effective interest rate Deferred tax assets and deferred tax liabilities are offset, if a method and recognised in the income statement. legally enforceable right exists to set off current tax assets against Marketing current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Marketing costs are recognised as an expense as incurred. Exchange differences arising from the translation of foreign Incentives deferred taxation assets and liabilities of foreign entities where the Incentives paid to service providers and dealers for products functional currency is different to the local currency, are classified delivered to the customer are expensed as incurred. Incentives as a deferred taxation expense or income. paid to service providers and dealers for services delivered are expensed in the period that the related revenue is recognised. Secondary taxation on companies

Distribution incentives paid to service providers and dealers for Secondary taxation on companies (‘STC’) is provided for at a rate Telkom exclusivity are deferred and expensed over the contractual of 10% (12.5% before October 1, 2007) on the amount by relationship period. which dividends declared by the Group exceeds dividends received.

Deferred tax on unutilised STC credits is recognised to the extent 2008 Annual Report Investment income that STC payable on future dividend payments is likely to be Dividends from investments are recognised on the date that the available for set-off. Group is entitled to the dividend. Interest is recognised on a time proportionate basis taking into account the principal amount Property, plant and equipment outstanding and the effective interest rate. At initial recognition acquired property, plant and equipment are recognised at their purchase price, including import duties and Taxation non-refundable purchase taxes, after deducting trade discounts Current taxation and rebates. The recognised cost includes any directly attributable The charge for current taxation is based on the results for the year costs for preparing the asset for its intended use. The cost of an and is adjusted for non-taxable income and non-deductible item of property, plant and equipment is recognised as an asset 197 expenditure. Current taxation is measured at the amount expected if it is probable that the future economic benefits associated with to be paid to the taxation authorities, using taxation rates and the item will flow to the Group and the cost of the item can be laws that have been enacted or substantively enacted by the measured reliably. balance sheet date. Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Deferred taxation Each component of an item of property, plant and equipment with Deferred taxation is accounted for using the balance sheet liability a cost that is significant in relation to the total cost of the item is method on all temporary differences at the balance sheet date depreciated separately. Depreciation is charged from the date the between the tax bases of assets and liabilities and their carrying asset is available for use on a straight-line basis over the estimated amounts for financial reporting purposes. useful life and ceases at the earlier of the date that the asset is Deferred tax is not provided on the initial recognition of goodwill classified as held for sale and the date the asset is derecognised. or initial recognition of assets or liabilities which is not a business Idle assets continue to attract depreciation. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) Intangible assets Property, plant and equipment (continued) Goodwill The estimated useful life of individual assets and the depreciation Goodwill on acquisition is initially measured as being the excess method thereof are reviewed on an annual basis at balance sheet of the cost of the business combination over the Group’s interest date. The depreciable amount is determined after taking into in the net fair value of the identifiable assets, liabilities and account the residual value of the asset. The residual value is the contingent liabilities, allocated to cash-generating units where estimated amount that the Group would currently obtain from the relevant. Goodwill on the acquisition of subsidiaries and joint disposal of the asset, after deducting the estimated cost of ventures is included in intangible assets. Following initial disposal, if the asset were already of the age and in the condition recognition, goodwill is measured at cost less any accumulated expected at the end of its useful life. The residual values of assets impairment losses, once the impairment is recognised it is not are reviewed on an annual basis at balance sheet date. reversed. Goodwill is tested for impairment annually, or more Assets under construction represents freehold buildings, integral frequently if events or changes in circumstances indicate that the operating software, network and support equipment and includes carrying value may be impaired. Gains and losses on the disposal all direct expenditure as well as related borrowing costs capitalised, of an entity include the carrying amount of goodwill relating to the but excludes the costs of abnormal amounts of waste material, entity sold. labour, or other resources incurred in the production of self- constructed assets. Licences, software, trademarks, copyrights and other Freehold land is stated at cost and is not depreciated. Amounts At initial recognition acquired intangible assets are recognised at paid by the Group on improvements to assets which are held in their purchase price, including import duties and non-refundable terms of operating lease agreements are depreciated on a straight- purchase taxes, after deducting trade discounts and rebates. The line basis over the shorter of the remaining useful life of the recognised cost includes any directly attributable costs for preparing applicable asset or the remainder of the lease period. Where it is the asset for its intended use. Internally generated intangible assets reasonably certain that the lease agreement will be renewed, the are recognised at cost comprising all directly attributable costs lease period equals the period of the initial agreement plus the necessary to create and prepare the asset to be capable of operating renewal periods. in the manner intended by management. Licences, software, The estimated useful lives assigned to groups of property, plant trademarks, copyrights and other intangible assets are carried at and equipment are: cost less accumulated amortisation and any accumulated impairment Years losses. Amortisation commences when the intangible assets are available for their intended use and is recognised on a straight-line Freehold buildings 15 to 40 basis over the assets’ expected useful lives. Amortisation ceases at Leasehold buildings 7 to 25 the earlier of the date that the asset is classified as held for sale and Network equipment the date that the asset is derecognised. Cables 20 to 40 The residual value of intangible assets is the estimated amount Switching equipment 2 to 18 that the Group would currently obtain from the disposal of the Transmission equipment 5 to 18 asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end Other 1 to 20 of its useful life. Due to the nature of the asset the residual value Support equipment 5 to 13 is assumed to be zero unless there is a commitment by a third Furniture and office equipment 2 to 15 party to purchase the asset at the end of its useful life or when Data processing equipment and software 3 to 10 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 198 Other 2 to 15 values. The residual values of intangible assets, amortisation An item of property, plant and equipment is derecognised upon methods and their useful lives are reviewed on an annual basis at disposal or when no future economic benefits are expected from balance sheet date. its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal Intangible assets with indefinite useful lives and intangible assets proceeds and the carrying amount of the asset) is included in the not yet available for use, are tested for impairment annually either income statement in the year the asset is derecognised. individually or at the cash-generating unit level. Such intangible Assets held under finance leases are depreciated over their assets are not amortised. The useful life of an intangible asset expected useful lives on the same basis as owned assets or, where with an indefinite life is reviewed annually to determine whether shorter, the term of the relevant lease if there is no reasonable indefinite life assessment continues to be supportable. If not, the certainty that the Group will obtain ownership by the end of the change in the useful life assessment from indefinite to finite is lease term. made on a prospective basis. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) market, economic, legal and operating environments occur and could result in changes of the asset’s or cash-generating unit’s Intangible assets (continued) estimated recoverable amount, an impairment test is performed. Licences, software, trademarks, copyrights and The recoverable amount of assets or cash-generating units is other (continued) measured using the higher of the fair value less costs to sell and Assets under construction represent application and other non its value in use, which is the present value of projected cash flows integral software and includes all direct expenditure as well as covering the remaining useful lives of the assets. Impairment related borrowing costs capitalised, but excludes the costs of losses are recognised when the asset’s carrying value exceeds its abnormal amounts of waste material, labour, or other resources estimated recoverable amount. Where applicable, the recoverable incurred in the production of self-constructed assets. amount is determined for the cash-generating unit to which the Intangible assets are derecognised when they have been disposed asset belongs. of or when the asset is permanently withdrawn from use and no Previously recognised impairment losses, other than goodwill, are future economic benefit is expected from its disposal. Any gains reviewed annually for any indication that it may no longer exist or losses on the retirement or disposal of assets are recognised in or may have decreased. If any such indication exists, the the income statement in the year in which they arise. recoverable amount of the asset is estimated. Such impairment The expected useful lives assigned to intangible assets are: losses are reversed through the income statement if the recoverable amount has increased as a result of a change in the Years estimates used to determine the recoverable amount, but not to Licences 5 to 30 an amount higher than the carrying amount that would have been determined (net of depreciation or amortisation) had no Software 2 to 10 impairment loss been recognised in prior years. Impairment on Trademarks, copyrights and other 3 to 15 goodwill is not reversed. Asset retirement obligations Repairs and maintenance Asset retirement obligations related to property, plant and The Group expenses all costs associated with repairs and equipment and intangible assets are recognised at the present maintenance, unless it is probable that such costs would result in value of expected future cash flows when the obligation to increased future economic benefits flowing to the Group, and the dismantle or restore the site arises. The increase in the related costs can be reliably measured. asset’s carrying value is depreciated over its estimated useful life. Borrowing costs The unwinding of the discount is included in finance charges and Financing costs directly associated with the acquisition or construction fair value movements. Changes in the measurement of an existing of assets that require more than three months to complete and place liability that result from changes in the estimated timing or amount in service are capitalised at interest rates relating to loans specifically Telkom of the outflow of resources required to settle the liability, or a raised for that purpose, or at the weighted average borrowing rate change in the discount rate are accounted for as increases or where the general pool of Group borrowings was utilised. Other decreases to the original cost of the recognised assets. If the borrowing costs are expensed as incurred. 2008 Annual Report amount deducted exceeds the carrying amount of the asset, the excess is recognised immediately in profit or loss. Deferred revenue and expenses Non-current assets held for sale Activation revenue and costs are recognised in accordance with the principles contained in Emerging Issues Task Force Issue No Non-current assets and disposal groups are classified as held for 00-21, Revenue Arrangements with Multiple Deliverables (‘EITF sale if their carrying amount will be recovered through a sale 00-21’), issued in the United States. This results in activation transaction rather than through continuing use. This condition is revenue and costs up to the amount of the deferred revenue being regarded as met only when the sale is highly probable and the deferred and recognised systematically over the expected duration asset (or disposal group) is available for immediate sale in its of the customer relationship because it is considered to be part of present condition. Management must be committed to the sale, the customers’ ongoing rights to telecommunication services and 199 which should be expected to qualify for recognition as a complete the operator’s continuing involvement. The excess of the costs sale within one year from the date of classification. Assets are no over revenues is expensed immediately. longer depreciated when they are classified into the category. Non-current assets (and disposal groups) classified as held for Inventories sale are measured at the lower of the assets’ previous carrying Installation material, maintenance and network equipment amount and fair value less cost to sell. inventories are stated at the lower of cost, determined on a weighted average basis, or estimated net realisable value. Impairment of property, plant and equipment and Merchandise inventories are stated at the lower of cost, intangible assets determined on a first-in first-out (‘FIFO’) basis, or estimated net The Group regularly reviews its assets, other than financial realisable value. Write-down of inventories arises when, for instruments, and cash-generating units for any indication of example, goods are damaged or when net realisable value is impairment. When indicators, including changes in technology, lower than carrying value. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) Loans and receivables Financial instruments Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Recognition and initial measurement Such assets are carried at amortised cost using the effective All financial instruments are initially recognised at fair value, plus, interest rate method. Trade receivables are subsequently measured in the case of financial assets and liabilities not at fair value at the original invoice amount where the effect of discounting is through profit or loss, transaction costs that are directly attributable not material. to the acquisition or issue. Financial instruments are recognised when the Group becomes a party to their contractual arrangements. Available-for-sale financial assets All regular way transactions are accounted for on settlement date. Available-for-sale financial assets are those non-derivative assets Regular way purchases or sales are purchases or sales of financial that are designated as available-for-sale, or are not classified in any assets that require delivery of assets within the period generally of the three preceding categories. Equity instruments are all established by regulation or convention in the marketplace. treated as available-for-sale financial instruments. After initial recognition, available-for-sale financial assets are measured at fair Subsequent measurement value, with gains and losses being recognised as a separate Subsequent to initial recognition, the Group classifies financial component of equity. assets as ‘at fair value through profit or loss’, ‘held-to-maturity Changes in the fair value of monetary securities denominated in investments’, ‘loans and receivables’, or ‘available-for-sale’. The a foreign currency and classified as available-for-sale are analysed measurement of each is set out below and presented in a table between translation differences resulting from changes in in note 12. amortised cost of the security and other changes in carrying The fair value of financial assets and liabilities that are actively amount of the security. The translation differences on monetary traded in financial markets is determined by reference to quoted securities are recognised in profit or loss, while translation market prices at the close of business on the balance sheet date. differences on non-monetary securities are recognised in equity. Where there is no active market, fair value is determined using Changes in the fair value of monetary and non-monetary securities valuation techniques such as discounted cash flow analysis. classified as available-for-sale are recognised directly in equity. When an investment is derecognised or determined to be Financial assets at fair value through profit or loss impaired, the cumulative gain or loss previously recorded in equity The Group classifies financial assets that are held for trading in is recognised in profit or loss. the category ‘financial assets at fair value through profit or loss’. This category includes bills of exchange and promissory notes. Financial liabilities at fair value through profit or loss Financial assets are classified as held for trading if they are Financial liabilities are classified as at fair value through profit or acquired for the purpose of selling in the future. Derivatives not loss (‘FVTPL’) where the financial liability is either held for trading designated as hedges are also classified as held for trading. On or it is designated as at FVTPL. remeasurement to fair value the gains or losses on held for trading A financial liability is classified as held for trading: financial assets are recognised in net finance charges and fair • if it is acquired for the purpose of settling in the near term; or value movements for the year. • if it is a derivative that is not designated and effective as a Gains and losses arising from changes in the fair value of the hedging instrument. ‘financial assets at fair value through profit or loss’ category are Financial liabilities at a FVTPL are stated at fair value, with any presented in the income statement within ‘finance charges and fair resultant gains or losses recognised in profit or loss. The net gain value movements’ in the period which they arise. Dividend income or loss recognised in profit or loss incorporates any interest paid from financial assets at fair value through profit or loss is on the financial liability. recognised in the income statement as part of other income when the Group’s right to receive payment is established. Other financial liabilities

Held-to-maturity financial assets Other financial liabilities are subsequently measured at amortised 200 cost using the effective interest rate method, with interest expense The Group classifies non-derivative financial assets with fixed or recognised in finance charges and fair value movements, on an determinable payments and fixed maturity dates as held-to- effective yield basis. maturity when the Group has the positive intention and ability to hold to maturity. This category includes bills of exchange and The effective interest rate is the rate that accurately discounts promissory notes. These assets are subsequently measured at estimated future cash payments through the expected life of the amortised cost. Amortised cost is computed as the amount initially financial liability, or, where appropriate, a shorter period. recognised minus principal repayments, plus or minus the Financial guarantee contracts cumulative amortisation using the effective interest rate method. Financial guarantee contracts are subsequently measured at the This calculation includes all fees paid or received between parties higher of the amount determined in accordance with IAS37 to the contract. For investments carried at amortised cost, gains Provisions, Contingent Liabilities and Contingent Assets or the and losses are recognised in net profit or loss when the amount initially recognised less, when appropriate, cumulative investments are sold or impaired. amortisation, recognised in accordance with IAS18 Revenue. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) through the income statement. The recoverable amount of Financial instruments (continued) financial assets carries at amortised cost is calculated as the present value of expected future cash flows discounted at the Put option original effective interest rate of the asset. A contract that contains an obligation for the Group to purchase If, in a subsequent period, the amount of the impairment loss for its own equity instruments for cash or another financial asset gives financial assets decreases and the decrease can be related rise to a financial liability and is accounted for at the present value objectively to an event occurring after the impairment was of the redemption amount. On initial recognition its fair value is recognised, the previously recognised impairment loss is reversed reclassified directly from equity. Subsequent changes in the liability except for those financial assets classified as available-for-sale and are included in profit or loss. On expiry or exercise of the option carried at cost that are not reversed. Any subsequent reversal of the carrying value of the liability is reclassified directly to equity. an impairment loss is recognised in the income statement, to the Cash and cash equivalents extent that the carrying value of the asset does not exceed its Cash and cash equivalents are measured at amortised cost. This amortised cost at the reversal date. Reversals in respect of equity comprise cash on hand, deposits held on call and term deposits with instruments classified as available-for-sale are not recognised. an initial maturity of less than three months when entered into. Reversals of impairment losses on debt instruments classified as available-for-sale are reversed through the income statement, if the For the purpose of the cash flow statement, cash and cash increase in fair value of the instrument can be objectively related equivalents consist of cash and cash equivalents defined above, net of credit facilities utilised. to an event occurring after the impairment loss was recognised through the income statement. Capital and money market transactions Foreign currencies New bonds and commercial paper bills issued are subsequently measured at amortised cost using the effective interest rate method. Each entity within the Group determines its functional currency. The Group’s presentation currency is the South African Rand (‘ZAR’). Bonds issued where Telkom is a buyer and seller of last resort are carried at fair value. The Group does not actively trade in bonds. Transactions denominated in foreign currencies are measured at the rate of exchange at transaction date. Monetary items Derecognition denominated in foreign currencies are remeasured at the rate of A financial instrument or a portion of a financial instrument will be exchange at settlement date or balance sheet date whichever derecognised and a gain or loss recognised when the Group’s occurs first. Exchange differences on the settlement or translation contractual rights expire, financial assets are transferred or of monetary assets and liabilities are included in finance charges financial liabilities are extinguished. On derecognition of a financial and fair value movements in the period in which they arise. asset or liability, the difference between the consideration and the The annual financial statements of foreign operations are translated carrying amount on the settlement date is included in finance into South African Rand, the Group’s presentation currency, for Telkom charges and fair value movements for the year. For available-for- incorporation into the consolidated annual financial statements. sale assets, the fair value adjustment relating to prior revaluations Assets and liabilities are translated at the foreign exchange rates of assets is transferred from equity and recognised in finance ruling at the balance sheet date. Income, expenditure and cash 2008 Annual Report charges and fair value movements for the year. flow items are measured at the actual foreign exchange rate or Bonds and commercial paper bills are derecognised when the average foreign exchange rates for the period. All resulting unrealised obligation specified in the contract is discharged. The difference exchange differences are classified as equity. On disposal, the between the carrying value of the bond and the amount paid to cumulative amounts of unrealised exchange differences that have extinguish the obligation is included in finance charges and fair been deferred are recognised in the consolidated income statement value movements for the year. as part of the gain or loss on disposal. Impairment of financial assets All gains and losses on the translation of equity loans to foreign At each balance sheet date an assessment is made of whether operations that are intended to be permanent whether they are denominated in one of the entities functional currencies or in a there are any indicators of impairment of a financial asset or a 201 group of financial assets based on observable data about one or third currency, are recognised in equity. more loss events that occurred after the initial recognition of the Goodwill and intangible assets arising on the acquisition of a foreign asset or the group of assets. In the case of equity securities operation are treated as assets of the foreign operation and classified as available-for-sale, a significant or prolonged decline translated at the foreign exchange rates ruling at balance sheet date. in the fair value of the security below its cost is considered as an Treasury shares indicator that the securities are impaired. If any such evidence exists for available-for-sale assets, the cumulative loss – measured Where the Group acquires, or in substance acquires, Telkom as the difference between the acquisition cost and the current fair shares, such shares are measured at cost and disclosed as a value, less any impairment loss on that financial asset previously reduction of equity. No gain or loss is recognised in profit or loss recognised in profit or loss – is removed from equity and on the purchase, sale, issue or cancellation of the Group’s own recognised in the income statement. Impairment losses recognised equity instruments. Such shares are not remeasured for changes in the income statement on equity instruments are not reversed in fair value. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) finance lease, any excess of sale proceeds over the carrying Insurance contracts amount is deferred and recognised in the income statement over the term of the lease. Premiums written comprise the premiums on insurance contracts entered into during the year, irrespective of whether they relate Lessor in whole or in part to a later accounting period. Premiums are Operating lease revenue is recognised in the income statement on disclosed gross of commission to intermediaries and exclude Value a straight-line basis over the lease term. Added Tax. Premiums written include adjustments to premiums Assets held under a finance lease are recognised in the balance written in prior accounting periods. Outward reinsurance premiums sheet and presented as a receivable at an amount equal to the net are accounted for in the same accounting period as the premiums investment in the lease. The recognition of finance income is based for the related direct insurance business assumed. The net earned portion of premiums received is recognised as revenue. Premiums on a pattern reflecting a constant periodic rate of return on the net are earned from the date of attachment of risk, over the indemnity investment in the finance lease. period, based on the pattern of risks underwritten. Outward Employee benefits reinsurance premiums are recognised as an expense in accordance with the pattern of indemnity received. Post-employment benefits The provision for unearned premiums comprises the proportion of The Group provides defined benefit and defined contribution plans premiums written which is estimated to be earned in subsequent for the benefit of employees. These plans are funded by the financial years, computed separately for each insurance contract employees and the Group, taking into account recommendations using a time proportionate basis or another suitable basis for of the independent actuaries. The post-retirement telephone rebate uneven risk contracts. liability is unfunded. Claims incurred consist of claims and claims handling expenses Defined contribution plans paid during the financial year together with the movement in the The Group’s funding of the defined contribution plans is charged provision for outstanding claims. Claims outstanding comprise to employee expenses in the same year as the related service provisions for the Group’s estimate of the ultimate cost of settling is provided. all claims incurred but unpaid at the balance sheet date whether reported or not, and an appropriate risk margin. Defined benefit plans A reserve in equity is made for the full amount of the contingency The Group provides defined benefit plans for pension, retirement, reserve as required by the regulatory authorities in South Africa. post-retirement medical aid benefits and telephone rebates to Transfers to and from this reserve are treated as appropriations of qualifying employees. The Group’s net obligation in respect of retained earnings. defined benefits is calculated separately for each plan by Leases estimating the amount of future benefits earned in return for services rendered. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. All other leases The amount recognised in the balance sheet represents the present are classified as operating leases. value of the defined benefit obligations, calculated by using the projected unit credit method, as adjusted for unrecognised actuarial Where the Group enters into a service agreement as a supplier or gains and losses, unrecognised past service costs and reduced by a customer that depends on the use of a specific asset, and conveys the fair value of the related plan assets. The amount of any surplus the right to control the use of the specific asset, the arrangement recognised and reflected as deferred expenses is limited to is assessed to determine whether it contains a lease. Once it has unrecognised actuarial losses and past service costs plus the present been concluded that an arrangement contains a lease, it is assessed against the criteria in IAS17 to determine if the arrangement should value of available refunds and reductions in future contributions to be recognised as a finance lease or operating lease. the plan. To the extent that there is uncertainty as to the entitlement to the surplus, no asset is recognised. No gain is The land and buildings elements of a lease of land and buildings recognised solely as a result of an actuarial loss or past service cost are considered separately for the purposes of lease classification in the current period and no loss is recognised solely as a result of 202 unless it is impracticable to do so. an actuarial gain or past service cost in the current period. Lessee Actuarial gains and losses are recognised as employee expenses Operating lease payments are recognised in the income statement when the cumulative unrecognised gains and losses for each on a straight-line basis over the lease term. individual plan exceed 10% of the greater of the present value of Assets acquired in terms of finance leases are capitalised at the the Group’s obligation and the fair value of plan assets at the lower of fair value or the present value of the minimum lease beginning of the year. These gains or losses are amortised on a payments at inception of the lease and depreciated over the lesser straight-line basis over ten years for all the defined benefit plans, of the useful life of the asset or the lease term. The capital element except gains or losses related to the pensioners in the Telkom of future obligations under the leases is included as a liability in Retirement Fund or unless the standard required faster recognition. the balance sheet. Lease finance costs are amortised in the income For the Telkom Retirement Fund pensioners, the cumulative statement over the lease term using a constant periodic rate of unrecognised actuarial gains and losses in excess of the 10% interest. Where a sale and leaseback transaction results in a corridor at the beginning of the year are recognised immediately. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2. Significant accounting policies (continued) Long-term incentive provision Employee benefits (continued) The Vodacom Group provides long-term incentives to eligible employees payable on termination or retirement. The Group’s Defined benefit plans (continued) liability is based on an actuarial valuation. Actuarial gains and Past service costs are recognised immediately to the extent that the losses are recognised as employee expenses. benefits are vested, otherwise they are recognised on a straight-line basis over the average period the benefits become vested. Provisions Provisions are recognised when the Group has a present obligation Leave benefits (legal or constructive) as a result of a past event, it is probable Annual leave is provided for over the period that the leave accrues that an outflow of resources will be required to settle the and is subject to a cap of 22 days. obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date Workforce reduction and adjusted to reflect the current best estimate. Where the effect Workforce reduction expenses are payable when employment is of the time value of money is material, the amount of the terminated before the normal retirement age or when an provision is the present value of the expenditures expected to be employee accepts voluntary redundancy in exchange for benefits. required to settle the obligation. Workforce reduction benefits are recognised when the entity is demonstrably committed and it is probable that the expenses will Segmental reporting be incurred. In the case of an offer made to encourage voluntary As of the beginning of the year the Group identified a new redundancy, the measurement of termination benefits is based segment called ‘Other’, and is now managed in three business on the number of employees expected to accept the offer. segments, which form the primary segment reporting basis: Fixed-line, Mobile and Other. The Other business segment Deferred bonus incentives includes newly acquired Multi-Links Telecommunications Limited Employees of the wholly owned subsidiaries of Vodacom, including and Africa Online Limited, as well as the Telkom Media Group. executive directors, are eligible for compensation benefits in the It also includes TDS Directory Operations Group and Swiftnet form of a Deferred Bonus Incentive Scheme. The benefit is (Proprietary) Limited, which were previously included in the recorded at the present value of the expected future cash outflows. Fixed-line segment. The corporate information has also been updated to reflect the above changes. Share-based compensation The Group’s three segments operate in South Africa, and other The grants of equity instruments, made to employees in terms of African countries. The geographical location of the Group’s customers the Telkom Conditional Share Plan, are classified as equity-settled has been identified as the secondary basis for segment reporting. share-based payment transactions. The expense relating to the services rendered by the employees, and the corresponding The Fixed-line business segment provides local telephony and data, domestic and international long-distance services as well as increase in equity, is measured at the fair value of the equity Telkom instruments at their date of grant based on the market price at leased lines, data transmission and internet access. grant date, adjusted for the lack of entitlement to dividends during The Mobile business segment provides mobile telephony services

the vesting period. This compensation cost is recognised over the as well as the sale of mobile equipment. 2008 Annual Report vesting period, based on the best available estimate at each The Other business segment provides directory services, fixed, balance sheet date of the number of equity instruments that are mobile, data and international telecommunication services expected to vest. throughout other African countries. Short-term employee benefits Inter-segment transactions are accounted for in the same way as transactions to third parties at current market prices. The cost of all short-term employee benefits is recognised during the year the employees render services, unless the Group uses the services of employees in the construction of an asset and the benefits received meet the recognition criteria of an asset, at which stage it is included as part of the related property, plant and 203 equipment or intangible asset item. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 3. Revenue 3.1 Total revenue 48,260 52,157 56,865

Operating revenue 47,625 51,619 56,285 Other income (excluding profit on disposal of property, plant and equipment, intangible assets and investments, refer to note 4) 238 303 383 Investment income (refer to note 6) 397 235 197

3.2 Operating revenue 47,625 51,619 56,285

Fixed-line 31,832 32,345 32,572 Mobile 17,021 20,573 24,089 Other 952 979 1,993 Eliminations (2,180) (2,278) (2,369)

Fixed-line 31,832 32,345 32,572

Subscriptions, connections and other usage 5,803 6,286 6,330 Traffic 17,563 16,740 15,950

Domestic (local and long distance) 8,915 7,563 6,328 Fixed-to-mobile 7,647 7,646 7,557 International (outgoing) 1,001 988 986 Subscription based calling plans* – 543 1,079

Interconnection 1,654 1,639 1,757 Data 6,674 7,489 8,308 Sundry revenue 138 191 227

Mobile 17,021 20,573 24,089

Airtime and access 10,043 11,854 13,548 Data revenue 1,019 1,671 2,501 Interconnect revenue 3,348 3,918 4,443 Equipment sales 1,993 2,350 2,526 International airtime 486 653 918 Other 132 127 153

*The Group has reclassified calling plans from domestic traffic into a separate revenue line item to disclose revenue earned from subscription based calling plans. Amounts for the year ended March 31, 2006 were not restated as they were considered to be immaterial. Fixed-line revenue has been restated as a result of changes in the segment structure.

4. Other income 480 384 534

Other income (included in Total revenue, refer to note 3) 238 303 383 204 Interest received from trade receivables 136 190 257 Sundry income 102 113 126

Profit on disposal of property, plant and equipment and intangible assets 79 29 147 Profit on disposal of investment and subsidiary 163 52 4

The increase in profit on disposal of property, plant and equipment and intangible assets is due to the increased volumes and values on the sale of Telkom properties in alignment with Telkom’s strategy of disposing of non-core assets. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 5. Operating expenses Operating expenses comprise: 5.1 Employee expenses 7,489 8,454 9,220

Salaries and wages 5,566 6,362 7,144 Medical aid contributions 371 385 417 Retirement contributions 435 496 598 Post-retirement pension and retirement fund (refer to note 29) (58) 33 5

Current service cost 4 5 5 Interest cost 364 329 509 Expected return on plan assets (454) (508) (713) Actuarial loss/(gain) 78 (136) (16) Settlement loss – 21 (2) Asset limitation (50) 322 222

Post-retirement medical aid (refer to note 28 and 29) 361 330 278

Current service cost 48 83 84 Interest cost 249 286 322 Expected return on plan asset – (188) (257) Actuarial loss 63 149 129 Settlement loss 7 – – Curtailment gain (6) – –

Telephone rebates (refer to note 28 and 29) 19 104 27

Current service cost 3 4 3 Interest cost 16 19 22 Past service cost – 76 2 Actuarial loss – 5 – Telkom Share-based compensation expense (refer to note 23) 127 141 522 Other benefits* 1,288 1,299 1,015

Employee expenses capitalised (620) (696) (786) 2008 Annual Report

*Other benefits Other benefits include skills development, annual leave, performance incentive and service bonuses. 5.2 Payments to other operators 6,826 7,590 9,169 Payments to other network operators consist of expenses in respect of interconnection with other network operators.

5.3 Selling, general and administrative expenses 10,273 12,902 14,409

Selling and administrative expenses 7,240 9,248 10,352 205 Maintenance 1,928 2,286 2,508 Marketing 899 1,215 1,249 Bad debts (refer to note 18) 206 153 300 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

5. Operating expenses (continued) 5.4 Service fees 2,114 2,291 2,571

Facilities and property management 1,110 1,142 1,228 Consultancy services 182 266 291 Security and other 772 821 982 Auditors’ remuneration 50 62 70

Audit services 38 61 69

Company auditors 28 48 46

Current year 26 47 43 Prior year underprovision 2 1 3

Other auditors – current year 10 13 23

Audit related services 9 – 1

Company auditors – current year 6 – – Other auditors 3 – 1

Other services 3 1 –

The increase in security costs is mainly attributable to Telkom’s drive to minimise cable theft.

5.5 Operating leases 850 981 838

Land and buildings 221 284 170 Transmission and data lines 42 63 187 Equipment 78 80 50 Vehicles 509 554 431

5.6 Depreciation, amortisation, impairment and write-offs 5,876 5,315 6,130

Depreciation of property, plant and equipment (refer to note 10) 5,154 4,483 4,855 Amortisation of intangible assets (refer to note 11) 560 536 746 Impairment of property, plant and equipment and intangible assets (refer to note 10 and 11) – 12 244 Reversal of impairment of property, plant and equipment (refer to note 10) (26) – – Write-offs of property, plant and equipment and intangible assets (refer to note 10 and 11) 188 284 285

In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Group reviewed their remaining useful lives as at March 31. The assets affected were certain items included in Network equipment, Support equipment, Furniture 206 and office equipment, Data processing equipment and software and Intangible assets. The revised estimated useful lives of these assets as set out below, resulted in a decrease of the current year depreciation and amortisation charges of R198 million (2007: R983 million). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

Previous life Revised life Years Years

5. Operating expenses (continued) 5.6 Depreciation, amortisation, impairment and write-offs (continued) Property, plant and equipment Network equipment Switching equipment 5 – 18 2 – 18 Other 2 – 20 1 – 20 Support equipment 8 – 13 5 – 13 Furniture and office equipment 4 – 15 2 – 15 Data processing equipment and software 5 – 10 3 – 10 Intangible assets Subscriber bases 3 – 8 4 – 10 Software 5 – 10 2 – 10

2006 2007 2008 Rm Rm Rm

6. Investment income 397 235 197

Interest received 347 232 197 Dividends received from investments 50 3 –

Included in investment income is an amount of R169 million (2007: R222 million; 2006: R347 million) which relates to interest earned from financial assets not measured at fair value through profit or loss.

7. Finance charges and fair value movements 1,223 1,125 1,803

Finance charges on interest-bearing debt 1,346 1,327 1,885

Local debt 1,506 1,488 2,041 Telkom Foreign debt 9 – 19 Less: Finance costs capitalised (169) (161) (175)

Foreign exchange gains and losses and fair value movement (123) (202) (82) 2008 Annual Report

Foreign exchange losses 47 246 114 Fair value adjustments on derivative instruments (170) (448) (196)

Capitalisation rate 13.91% 14.77% 12.60% During the year gains of R8 million (2007: RNil; 2006: RNil) from available-for-sale instruments were recognised directly in equity. Included in finance charges is an amount of R1,831 million (2007: R1,321 million; 2006: R1,341 million) which relates to interest paid on financial liabilities not measured at fair value through profit or loss.

207 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

8. Taxation 4,523 4,731 4,704

South African normal company taxation 3,763 3,528 3,756

Current tax 3,754 3,564 3,764 Underprovision/(overprovision) for prior year 9 (36) (8)

Deferred taxation 173 516 219

Temporary differences – normal company taxation 229 584 141 Temporary difference – Secondary Taxation on Companies (‘STC’) tax credits utilised/(raised) 51 (69) 190 Change in tax rate – – (59) (Overprovision)/underprovision for prior year (107) 1 (53)

Secondary Taxation on Companies 585 670 678 Foreign taxation 2 17 51

The net deferred taxation expense results mainly from the extension of useful lives, offset slightly by an increase in the STC tax credits. The STC expense was provided for at a rate of 10% (12.5% before October 1, 2007) on the amount by which dividends declared exceeded dividends received. Deferred tax expense relating to STC credits are provided for at a rate of 10%.

Reconciliation of taxation rate %%% Effective rate 32.7 34.9 36.5 South African normal rate of taxation 29.0 29.0 29.0 Adjusted for: 3.7 5.8 7.5

Change in tax rate – – (0.5) Exempt income (1.3) (0.2) (0.5) Disallowable expenditure 0.9 1.2 2.9 Tax losses not utilised 0.6 – (0.7) STC tax credits utilised/(raised) 0.4 (0.3) 1.5 STC tax charge 4.2 4.9 5.3 Capital gains tax – 0.8 – Net overprovision for prior year (1.1) (0.5) (0.5) Utilisation of assessed loss – (0.1) –

Where required, provisions have been made or adjusted for anticipated obligations related to various ongoing investigations by tax authorities on indirect taxes. The provisions made include estimates of anticipated interest and penalties where appropriate. As of March 31, 2008, the Group has accrued for tax obligations in the amount of RNil (2007: RNil; 2006: R199 million). These amounts represent what management believes will be the probable outcome of such disputes for all tax years for which additional taxes can be assessed. 208 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008

9. Earnings per share Basic earnings per share (cents) 1,746.1 1,681.0 1,565.0 The calculation of earnings per share is based on profit attributable to equity holders of Telkom for the year of R7,975 million (2007: R8,646 million; 2006: R9,189 million) and 509,595,092 (2007: 514,341,284; 2006: 526,271,095) weighted average number of ordinary shares in issue.

Diluted earnings per share (cents) 1,736.6 1,676.3 1,546.9 The calculation of diluted earnings per share is based on earnings for the year of R7,975 million (2007: R8,646 million; 2006: R9,189 million) and 515,541,968 diluted weighted average number of ordinary shares (2007: 515,763,581; 2006: 529,152,320). The adjustment in the weighted average number of shares is as a result of the expected future vesting of shares already allocated to employees under the Telkom Conditional Share Plan.

Headline earnings per share (cents)* 1,728.6 1,710.7 1,634.8 The calculation of headline earnings per share is based on headline earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million) and 509,595,092 (2007: 514,341,284; 2006: 526,271,095) weighted average number of ordinary shares in issue.

Diluted headline earnings per share (cents)* 1,719.2 1,706.0 1,616.0 The calculation of diluted headline earnings per share is based on headline earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million) and 515,541,968 (2007: 515,763,581; 2006: 529,152,320) diluted weighted average number of ordinary shares in issue. The adjustment in the weighted average number of shares is as a result of Telkom the expected future vesting of shares already allocated to employees under the Telkom Conditional Share Plan.

Reconciliation of weighted average number of ordinary shares: 2008 Annual Report Ordinary shares in issue (refer to note 21) 557,031,821 544,944,901 532,855,530 Weighted average number of shares bought back (7,211,710) (7,442,253) (1,594,241) Weighted average number of treasury shares (23,549,016) (23,161,364) (21,666,197)

Weighted average number of shares outstanding 526,271,095 514,341,284 509,595,092

*The disclosure of headline earnings is a requirement of the JSE Limited and is not a recognised measure under IFRS. It has been calculated in accordance with the South African Institute of Chartered Accountants’ circular issued in this regard. The effect of the increase in the interest expense as a result of the increase in borrowings is a reduction in the basic earnings per share of 63.4 cents and a reduction in headline earnings per share of 62.7 cents. 209 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Gross* Net Rm Rm

9. Earnings per share (continued) 2008 Reconciliation between earnings and headline earnings: Earnings as reported 7,975 Profit on disposal of investments (Available-for-sale) (4) (3) Profit on disposal of property, plant and equipment and intangible assets (147) (104) Impairment loss on property, plant and equipment and intangible assets 248 244 Write-offs of property, plant and equipment and intangible assets 285 219

Headline earnings 8,331

2007 Reconciliation between earnings and headline earnings: Earnings as reported 8,646 Profit on disposal of investments (Available-for-sale) (52) (37) Profit on disposal of property, plant and equipment and intangible assets (29) (21) Impairment loss on property, plant and equipment and intangible assets 12 9 Write-offs of property, plant and equipment and intangible assets 284 202

Headline earnings 8,799

2006 Reconciliation between earnings and headline earnings: Earnings as reported 9,189 Profit on disposal of investments (Available-for-sale) (163) (116) Profit on disposal of property, plant and equipment and intangible assets (79) (56) Reversal of impairment loss on property, plant and equipment and intangible assets (26) (18) Write-offs of property, plant and equipment and intangible assets 188 133 Acquisition of subsidiary (35) (35)

Headline earnings 9,097

*These are the gross amounts, before deducting taxation and minority interests.

2006 2007 2008

Reconciliation of diluted weighted average number of ordinary shares: Weighted average number of share outstanding 526,271,095 514,341,284 509,595,092 Expected future vesting of shares 2,881,225 1,422,297 5,946,876

Dilluted weighted average number of shares outstanding 529,152,320 515,763,581 515,541,968 210 Dividend per share (cents) 900.0 900.0 1,100.0 The calculation of dividend per share is based on dividends of R5,627 million (2007: R4,678 million; 2006: R4,801 million) declared on June 8, 2007 and 511,513,239 (2007: 519,711,238; 2006: 533,465,573) number of ordinary shares outstanding on the date of dividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Accumulated Carrying Accumulated Carrying Accumulated Carrying Cost depreciation value Cost depreciation value Cost depreciation value Rm Rm Rm Rm Rm Rm Rm Rm Rm

10. Property, plant and equipment Freehold land and buildings 4,510 (1,811) 2,699 4,594 (1,837) 2,757 4,931 (2,010) 2,921 Leasehold buildings 940 (322) 618 926 (362) 564 1,052 (418) 634 Network equipment 59,418 (30,477) 28,941 63,003 (31,820) 31,183 69,572 (35,214) 34,358 Support equipment 3,740 (2,419) 1,321 4,045 (2,436) 1,609 4,355 (2,635) 1,720 Furniture and office equipment 469 (335) 134 536 (366) 170 568 (377) 191 Data processing equipment and software 5,612 (3,530) 2,082 5,836 (3,707) 2,129 6,279 (3,904) 2,375 Under construction 1,320 – 1,320 2,536 – 2,536 4,200 – 4,200 Other 552 (393) 159 860 (554) 306 1,046 (630) 416

76,561 (39,287) 37,274 82,336 (41,082) 41,254 92,003 (45,188) 46,815

A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build program with focus on Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continue over the next few years. Fully depreciated assets with a cost of R498 million (2007: R1,225 million; 2006: R3,724 million) were derecognised in the 2008 financial year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment. Property, plant and equipment with a carrying value of R681 million (2007: R574 million; 2006: R624 million) are pledged as security. Details of the loans are disclosed in note 27. The carrying amounts of property, plant and equipment can be reconciled as follows:

Impair- Carrying Foreign ment, Carrying value at Business currency write-offs value at beginning combi- trans- and Depre- end of Telkom of year Additions nations Transfers lation reversals Disposals ciation year Rm Rm Rm Rm Rm Rm Rm Rm Rm Annual Report 2008 Annual Report

2008 Freehold land and buildings 2,757 300 22 27 2 (3) (8) (176) 2,921 Leasehold buildings 564 136 26 32 1 (67) (1) (57) 634 Network equipment 31,183 5,167 404 1,301 272 (136) (107) (3,726) 34,358 Support equipment 1,609 316 1 116 3 (8) – (317) 1,720 Furniture and office equipment 170 78 3 1 1 (8) (1) (53) 191 Data processing equipment and software 2,129 525 31 150 6 (19) (2) (445) 2,375 Under construction 2,536 3,416 135 (1,737) 2 (152) – – 4,200 211 Other 306 170 8 11 7 (2) (3) (81) 416

41,254 10,108 630 (99) 294 (395) (122) (4,855) 46,815 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Impair- Carrying Foreign ment, Carrying value at Business currency write-offs value at beginning combi- trans- and Depre- end of of year Additions nations Transfers lation reversals Disposals ciation year Rm Rm Rm Rm Rm Rm Rm Rm Rm

10. Property, plant and equipment (continued) 2007 Freehold land and buildings 2,699 209 – – 2 17 (1) (169) 2,757 Leasehold buildings 618 – – 1 – – (14) (41) 564 Network equipment 28,941 5,154 1 849 240 (199) (270) (3,533) 31,183 Support equipment 1,321 442 – 109 2 (15) – (250) 1,609 Furniture and office equipment 134 51 3 8 1 – – (27) 170 Data processing equipment and software 2,082 466 12 (36) 8 (10) (2) (391) 2,129 Under construction 1,320 2,165 – (912) – (37) – – 2,536 Other 159 161 – 58 4 (1) (3) (72) 306

37,274 8,648 16 77 257 (245) (290) (4,483) 41,254

2006 Freehold land and buildings 2,665 105 – 174 – (22) (21) (202) 2,699 Leasehold buildings 618 75 – (1) – – – (74) 618 Network equipment 28,336 2,622 – 2,228 (122) (49) (21) (4,053) 28,941 Support equipment 1,355 130 – 106 (1) (6) (5) (258) 1,321 Furniture and office equipment 155 19 – 4 – – – (44) 134 Data processing equipment and software 2,035 381 1 153 (2) (10) (1) (475) 2,082 Under construction 1,084 2,933 – (2,622) – (75) – – 1,320 Other 200 45 – (29) (1) – (8) (48) 159

36,448 6,310 1 13 (126) (162) (56) (5,154) 37,274

Full details of land and buildings are available for inspection at the registered offices of the Group. In March 2006 the Group started a process of determining whether an asset which incorporates both a tangible and an intangible element, should be recognised as tangible or intangible assets, based on management judgement and on facts available and the significance of each element to the total value of the asset. This ongoing process has resulted in further assets with a carrying value to the net amount of R99 million (2007: R77 million ; 2006: R13 million) being reclassified between intangible assets and property, plant and equipment in the current year. The Group does not have temporary idle property, plant and equipment. During the current year, the Group recognised an impairment loss relating to Telkom Media assets. The recoverable amount for certain items of property, plant and equipment and intangible assets were estimated, and an impairment loss of R217 million was recognised in order to reduce the carrying amount of those assets to their recoverable amount. The impairment has been included in impairment, write-offs 212 and reversals. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Accumulated Carrying Accumulated Carrying Accumulated Carrying Cost amortisation value Cost amortisation value Cost amortisation value Rm Rm Rm Rm Rm Rm Rm Rm Rm

11. Intangible assets Goodwill 305 – 305 673 – 673 3,255 – 3,255 Trademarks, copyrights and other 685 (472) 213 761 (521) 240 1,127 (633) 494 Licences 155 (95) 60 222 (116) 106 311 (140) 171 Software 5,607 (3,338) 2,269 6,720 (3,737) 2,983 8,106 (4,298) 3,808 Under construction 1,063 – 1,063 1,109 – 1,109 740 – 740

7,815 (3,905) 3,910 9,485 (4,374) 5,111 13,539 (5,071) 8,468

The carrying amounts of intangible assets can be reconciled as follows:

Carrying Foreign Impair- Carrying value at Business currency ment value at beginning combi- trans- and Dis- Amorti- end of of year Additions nations Transfers lation write-offs posals sation year Rm Rm Rm Rm Rm Rm Rm Rm Rm

2008 Goodwill 673 492 1,727 – 375 (12) – – 3,255 Trademarks, copyrights and other 240 174 165 – 20 – – (105) 494 Licences 106 32 36 – 15 (3) – (15) 171 Software 2,983 739 – 713 9 (10) – (626) 3,808 Under construction 1,109 354 – (614) – (109) – – 740

5,111 1,791 1,928 99 419 (134) – (746) 8,468

2007

Goodwill 305 186 173 – 9–––673 Telkom Trademarks, copyrights and other 213 8 69––––(50) 240 Licences 60 47 1 – 8 – – (10) 106 Annual Report 2008 Annual Report Software 2,269 628 – 559 7 (4) – (476) 2,983 Under construction 1,063 729 – (636) – (47) – – 1,109

3,910 1,598 243 (77) 24 (51) – (536) 5,111

2006 Goodwill 269 – 37 – (1) – – – 305 Trademarks, copyrights and other 199 2 91 2–––(81) 213 Licences 64 1 – – (1) – – (4) 60 Software 1,745 219 – 801 (2) – (19) (475) 2,269 213 Under construction 905 974 – (816) ––––1,063

3,182 1,196 128 (13) (4) – (19) (560) 3,910

Intangible assets that are material to the Group consist of Software and Goodwill. The average remaining amortisation period for Software is between 2 and 10 years.

Telkom Goodwill has been allocated for impairment testing purposes to twelve cash-generating units of which one in South Africa, one in Nigeria being Multi-Links Telecommunications Limited and ten being Africa Online Limited in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia, operations (Mauritius) and Zimbabwe. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

11. Intangible assets (continued) Nigeria The carrying amount of goodwill is R2,072 million. The recoverable amount for Multi-Links Telecommunications Limited (‘Multi-Links’) has been determined on the basis of a value in use calculation. The value in use calculation uses cash flow projections and a discount rate of 18.43%. It was concluded that Multi-Links is not impaired. The valuation was based on cash flow projections based on financial budgets approved by management covering a ten year period and a 1% terminal growth rate was used. A ten year period was used as the expected growth rates are in excess of the long-term average growth rates beyond a five year period.

Kenya The carrying amount of goodwill is R155 million. The recoverable amounts of goodwill relating to Africa Online Limited have been determined on the basis of value in use calculations. Goodwill was only tested against the three cash-generating units namely; Kenya, Tanzania and Ghana, which amongst them share 82% of the total goodwill per the allocation. The value in use calculations use cash flow projections and a discount at a rate of 11.59% in US Dollar terms. It was determined that goodwill associated with two cash-generating units; Tanzania and Ghana was impaired. The value in use calculations use cash flow projections based on financial budgets covering a three year period and a terminal growth rate of 0% was used. By the Group’s 50% joint venture, Vodacom Goodwill has been allocated for impairment testing purposes to six cash-generating units of which four are in South Africa, one in the Democratic Republic of the Congo and one in Tanzania.

South Africa The carrying amount of goodwill is R1,739 million (Group share: R870 million). The recoverable amounts of goodwill relating to Vodacom Service Provider Company (Proprietary) Limited, Smartphone SP (Proprietary) Limited, Smartcom (Proprietary) Limited and Cointel VAS (Proprietary) Limited have been determined on the basis of value in use calculations. These companies operate in the same economic environment for which the same key assumptions were used. These value in use calculations use cash flow projections based on financial budgets approved by management covering a ten year period and discount rates of between 12.0% and 15.0% in South African Rand terms. The terminal growth rate applicable is between 4.0% and 6.0%. Management believes that any reasonable change in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed the aggregate recoverable amount of these units.

Democratic Republic of Congo The carrying amount of goodwill is R148 million (Group share: R74 million). The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Congo (RDC) s.p.r.l. The calculation uses cash flow projections based on financial budgets approved by management covering a ten year period and a discount rate which ranged between 16.0% and 19.0% in US Dollar terms. Cash flows beyond this period have been extrapolated using annual nominal growth rates which ranged between 2.0% and 5.0%. A ten year period is used where expected growth rates are in excess of the long-term average growth rates beyond an initial five year period, for the markets in which they operate. Management believes that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. Key assumptions used in the testing of goodwill for impairment: Applicable to all cash-generating units Expected customer base: The basis for determining value(s) assigned to key assumptions is based on the closing customer base in the period immediately preceding the budget period and increased for expected growth. The value assigned to key assumptions reflects past experience, and has an element of potential growth. The growth is based on market assumptions. Gross Margin: The basis for determining value(s) assigned to key assumptions is based on the average gross margin achieved in the 214 period immediately before the budget period and increased to expected efficiencies. The value assigned reflects past experience and efficiency improvements. Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achieved in the period immediately before the budget period and adjusted for expected network coverage roll out. The value assigned is based on management’s expected network coverage roll out. Applicable to all cash-generating units except for the Africa Online cash-generating units ARPU: The basis for determining value(s) assigned to key assumptions is based on past experience and expected growth which is based on market forces and external sources of information. Applicable to all non South African cash-generating units Exchange rates: The basis for determining value(s) assigned to key assumptions is based on the average market forward exchange rate over the budget period in respect of the ZAR/USD. The value assigned to the key assumption is consistent with external sources of information. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management Exposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limits and control procedures are continuously monitored by the Board of Directors through its audit and risk management committee. The Group holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage currency and interest rate risks. In addition, financial instruments for example trade receivables and payables arise directly from the Group’s operations. The Group finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The Group uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The derivatives used for this purpose are principally interest rate swaps, currency swaps and forward exchange contracts. The Group does not speculate in derivative instruments. The table below sets out the Group’s classification of financial assets and liabilities

At fair value Financial through profit liabilities or loss at Total held for amortised Held-to- Available- Loans and carrying Fair trading cost maturity for-sale receivables value value Notes Rm Rm Rm Rm Rm Rm Rm

2008 Classes of financial instruments per Balance Sheet Assets 1,991 – 372 55 9,783 12,201 12,201

Investments 13 1,377 – – 55 67 1,499 1,499 Trade and other receivables* 18 – – – – 8,582 8,582 8,582 Other financial assets 19 614 – – – – 614 614

Interest rate swaps 19 9––––99 Forward exchange contracts 19 589 – – – – 589 589 Other financial assets 19 16 – – – – 16 16

Finance lease receivables 15 – – 372 – – 372 372

Cash and cash equivalents 20 – – – – 1,134 1,134 1,134 Telkom

Liabilities (1,290) (25,846) – – – (27,136) (27,672)

Interest-bearing debt 27 – (15,733) – – – (15,733) (16,269) 2008 Annual Report 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)

215 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 2007 Classes of financial instruments per Balance Sheet Assets 1,608 – 246 47 7,861 9,762 9,762

Investments 13 1,349 ––47 65 1,461 1,461 Trade and other receivables* 18 ––––7,047 7,047 7,047 Other financial assets 19 259––––259259

Bills of exchange 19 98 ––––98 98 Interest rate swaps 19 16 ––––16 16 Forward exchange contracts 19 145 ––––145 145

Finance lease receivables 15 ––246 ––246 246 Cash and cash equivalents 20 ––––749 749 749 Liabilities (327) (17,944) – – – (18,271) (19,661)

Interest-bearing debt 27 (98) (10,266) –––(10,364) (11,754) Trade and other payables 30 – (7,237) –––(7,237) (7,237) Other financial liabilities 19 (229) ––––(229) (229)

Put option (Vodacom DRC) 19 (125) ––––(125) (125) 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 Sheet Assets 3,149–––11,26914,41814,418

Investments 13 2,874 ––– 89 2,963 2,963 Trade and other receivables* 18 ––––6,232 6,232 6,232 Other financial assets 19 275––––275275

Bills of exchange 19 107 ––––107 107 Interest rate swaps 19 19 ––––19 19 216 Forward exchange contracts 19 149 ––––149 149

Cash and cash equivalents 20 ––––4,948 4,948 4,948 Liabilities (343) (17,811) – – – (18,154) (20,180)

Interest-bearing debt 27 (108) (11,015) –––(11,123) (13,149) Trade and other payables 30 – (6,103) –––(6,103) (6,103) Other financial liabilities 19 (235) ––––(235) (235)

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). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.1 Fair value of financial instruments Fair value of all financial instruments noted in the balance sheet approximates carrying value except as disclosed below. The estimated net fair values as at March 31, 2008, have been determined using available market information and appropriate valuation methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course of business. Derivates are recognised at fair value. The fair value of derivatives approximate their carrying amounts. The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying amount due to the short-term maturities of these instruments. The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments discounted at market interest rates. The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is used. These amounts reflect the approximate values of the net derivative position at the balance sheet date. The fair values of listed investments are based on quoted market prices. 12.2 Interest rate risk management Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new borrowings and the refinancing of existing borrowings. The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt represents approximately 51.88% (2007: 90.37%; 2006: 92.04%) of the total debt. There were no material changes in the policies and processes for managing and measuring risk in the 2008 financial year. The table below summarises the interest rate swaps outstanding as at March 31:

Notional Weighted Average amount average maturity Currency Rm coupon rate

2008 Telkom Interest rate swaps outstanding Receive fixed <1 year ZAR 27 13.62%

1 – 5 years ZAR 58 13.30% 2008 Annual Report >5 years ZAR – – 2007 Interest rate swaps outstanding Pay fixed < 1 year ZAR 1,000 14.67% Receive fixed 1 – 5 years ZAR 38 11.45% >5 years ZAR 61 11.44% 2006 Interest rate swaps outstanding Pay fixed < 1 year ZAR 1,000 14.67% 217 Receive fixed 1 – 5 years ZAR 47 9.15% >5 years ZAR 62 9.43% Pay fixed The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest rate risk on debt instruments.

Receive fixed The Group swapped its fixed rate for a floating rate linked to the BA (Banker’s Acceptance) rate plus a margin of between 2% and 2.25%. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.3 Credit risk management Credit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Group is not exposed to significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterparties is a net favourable position of R438 million (2007:R144 million; 2006: R158 million). No collateral is required when entering into derivative contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits the exposure to any counterparty and exposures are monitored daily. The Group expects that all counterparties will meet their obligations. With respect to credit risk arising from other financial assets of the Group, which comprises held-to-maturity investments, financial assets held at fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a potential default by counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management seeks to reduce the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counter party failure, limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles. Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where appropriate. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well as expected future cash flows. The Group has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2008 there was R23 million (2007: RNil) outstanding. For Vodacom’s exposure to guarantees refer to note 36. Telkom guarantees a certain portion of employees’s housing loans. The amount guaranteed differs depending on facts such as employment period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before any pension payout can be made to the employee. There is no provsision outstanding in respect of these contingencies. The fair value of the guarantee at March 31, 2008 was RNil (2007: RNil; 2006: RNil). There were no material changes in the exposure to credit risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was:

Carrying amount 2006 2007 2008 Rm Rm Rm

Business and residential 1,955 1,924 1,824 Global, corporate and wholesale 1,381 1,643 1,875 Government 369 318 368 Other customers 35 41 334 Fixed-line 3,740 3,926 4,401 Mobile 1,834 2,299 2,880 Other 514 567 704 Impairment of trade receivables (290) (235) (290) Subtotal for trade receivables 5,798 6,557 7,695 Other receivables* 434 490 887 218 Investments and loans receivable 2,963 1,461 1,499 Other financial assets 275 259 614 9,470 8,767 10,695 The ageing of trade receivables at the reporting date was: Not past due/current 5,342 5,829 6,840 Ageing of past due but not impaired 21 to 60 days 217 331 384 61 to 90 days 42 80 110 91 to 120 days 24 59 71 120+ days 173 258 290 5,798 6,557 7,695

*Other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

248 197 249 Mobile 42 38 41

290 235 290

The average credit period for March 2008, 2007 and 2006 on sales of goods and services is between 30 and 60 days from date of invoice for the South African operations and between 20 and 75 days from the date of invoice for the non-South African operations. Generally no interest is charged on trade receivables. Mobile operations have provided fully for all receivables over 120 days due for their South African operations and 90 days due for their non-South African operations because historical experience is such that receivables that are due beyond these days are generally not recoverable. Trade receivables of the South African operations due between 60 and 120 days are provided for based on estimated irrecoverable amounts, determined by reference to past default experience. The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 18. Included in the allowance for doubtful debts, for fixed-line are individually impaired receivables with a balance of R32 million (2007: R49 million; 2006: R55 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances except for Mobile which holds collateral for financial assets past due but not impaired to the value of R1,086 million (2007: R796 million; 2006: R433 million) (Group share: R543 million; 2007: R398 million; 2006: R217 million). Telkom 12.4 Liquidity risk management Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity risk

as a result of uncertain trade receivable related to cash flows as well as capital commitments of the Group. Liquidity risk is managed by the 2008 Annual Report Group’s various Corporate Finance divisions in accordance with policies and guidelines formulated by the Group’s Executive Committees. In terms of its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term liquidity risk, the Group maintains a reasonable balance between the period over which assets generate funds and the period over which the respective assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills. There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year.

219 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.4 Liquidity risk management (continued) The table below analyses the Group’s financial liabilities which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.

Carrying Contractual 0 – 12 1 – 2 2 – 5 > 5 Note amount cash flows months years years years Rm Rm Rm Rm Rm Rm

2008 Non-derivative financial liabilities Finance lease liabilities* 27 1,167 2,198 165 294 589 1,150 Interest-bearing debt (excluding finance leases) 27 14,566 16,672 6,350 4,835 2,733 2,754 Trade and other payables 30 8,771 8,771 8,771 – – – Bank borrowings 20 1,342 1,342 1,342 – – – Derivative financial liabilities Put option (Multi-Links) 19 919 919 – 919 – – Put option (Vodacom DRC) 19 198 198 198 – – – Forward exchange contracts 19 173 173 173 – – –

27,136 30,273 16,999 6,048 3,322 3,904

2007 Non-derivative financial liabilities Finance lease liabilities* 27 1,220 2,424 231 276 585 1,332 Interest-bearing debt (excluding finance leases) 27 9,144 11,329 6,133 1 2,551 2,644 Trade and other payables 30 7,237 7,237 7,237––– Bank borrowings 20 441 441 441––– Derivative financial liabilities Put option (Vodacom DRC) 19 125 125 125––– Interest rate swaps 19 26 26 26––– Forward exchange contracts 19 42 42 42––– Other financial liability 19 36 36 36–––

18,271 21,660 14,271 277 3,136 3,976

2006 Non-derivative financial liabilities Finance lease liabilities* 27 1,272 2,644 217 236 672 1,519 Interest-bearing debt (excluding finance leases) 27 9,851 12,415 3,425 4,581 1,792 2,617 Trade and other payables 30 6,103 6,103 6,103––– Bank borrowings 20 693 693 693––– 220 Derivative financial liabilities 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.4 Liquidity risk management (continued) Put and call options In terms of various shareholders’ agreements, put and call options exist for the acquisition of shares in the following companies: Call options Period VM, S.A.R.L call option Four years from August 23, 2003. Replaced with a new option for a period of 5 years after April 1, 2007. The Somnium Family Trust The Trust granted Vodacom Ventures (Proprietary) Limited a call option to purchase such number of shares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issued share capital of the company on the date upon which the option is exercised. The option will lapse after 36 months following the month in which the triggering events, as stipulated in the option agreement, occurs. The option price is specified in the option agreement. WBS Holdings (Proprietary) Limited Until February 27, 2009, subject to fulfilment of conditions, which will result in the Group holding and beneficially owning in aggregate 25.5% of the total issued ordinary share capital. G-Mobile Holdings Limited Irrevocable call option to subscribe for such number of further shares as specified in the agreement. The option was exercised on September 20, 2007.

Put Options Multi-Links Telecommunications The minorities have been granted a put option that requires Telkom to purchase all of the minorities’ Limited shares. The put option is exercisable within 90 days of the second anniversary of signing of the sale agreement, being May 1, 2009. A liability of R919 million has been recognised in this regard and is included in other non-current financial liabilities. R661 million was initially recognised in equity and R258 million subsequent re-measurement through finance charges and fair value movements. Smartphone SP (Proprietary) Limited This put option was cancelled with the acquisition of the minorities of Smartphone SP (Proprietary) Limited. Smartcom (Proprietary) Limited This put option was cancelled with the acquisition of the minorities of Smartcom (Proprietary) Limited. Congolese Wireless Network s.p.r.l. Maximum 8 years after December 1, 2001. The option liability had a value of R397 million (2007: R249 million; 2006: RNil) (Group share: R198 million; 2007: R125 million; 2006: RNil) as at March 31, 2008. Except as separately disclosed, none of the above put and call options have any value at any of the periods presented.

12.5 Insurance risk management Telkom Vodacom is exposed to insurance risk as a result of its asset base as well as its customer commitments. In terms of its insurance risk profile

the company ensures that there is adequate insurance cover through the utilisation of a special purpose insurance vehicle. 2008 Annual Report

221 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.6 Foreign currency exchange rate risk management The Group manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial instruments suitable to the Group’s risk exposure. Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Group’s operations and liabilities. The Group also enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitments denominated in foreign currencies (primarily United States Dollars and Euros). The purpose of the Group’s foreign currency hedging activities is to protect the Group from the risk that the eventual net flows will be adversely affected by changes in exchange rates. There were no material changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year. The following table details the foreign exchange forward contracts outstanding at year end:

Foreign contract value Forward value Fair value To buy m Rm Rm

2008 Currency USD 139 1,042 109 Euro 252 2,826 444 Pound Sterling 19 281 30 Other 31 32 6

4,181

2007 Currency USD 181 1,329 (1) Euro 196 1,899 23 Pound Sterling 19 261 6 Other 66 49 (1)

3,538

2006 Currency USD 178 1,157 (51) Euro 156 1,235 (46) Pound Sterling 28 321 (21) Other 89 48 (1)

2,761

222 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 223 ) 1 1 2 – – (1) (5) (3) 88 (68) 9 ( (continued) 22 23 17 51 56 1,555 1,567 1,342 58 4 5 m Rm Rm 787317 596 848 (103) 52 505 41 309 54 29 122 994 128 954 140 Foreign contract valueForeign contract Forward value Fair value (continued) (continued) To sell To USD Other Other 2006 2007 USD Euro Pound Sterling Euro Pound Sterling USD Euro Pound Sterling Other 2008 Currency Currency Currency 12.6 rate risk management currency exchange Foreign 12. instruments and risk management Financial for the three years ended March 31, 2008 years ended March for the three Notes to the consolidated annual financial statements statements financial annual to the consolidated Notes Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.6 Foreign currency exchange rate risk management (continued) The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table represents the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the different foreign currencies.

South United African Pound States Rand Euro Sterling Dollar Other Rm Rm Rm Rm Rm

2008

Net foreign currency monetary assets/(liabilities) Functional currency of company operation ZAR – 481 (133) 224 (13) USD – 8 – – (17) Naira – – – (446) –

2007

Net foreign currency monetary assets/(liabilities) Functional currency of company operation ZAR – 475 (166) 159 32 USD 26 (25) – – (17)

2006

Net foreign currency monetary assets/(liabilities) Functional currency of company operation ZAR – 376 (165) 42 99 USD (28) (13) – – 13

Currency swaps There were no currency swaps in place at March 31, 2008, 2007 and 2006. 12.7 Sensitivity analysis Interest rate risk The sensitivity analyses below have been determined based on the exposure to interest rates for derivatives and other financial liabilities at the balance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, Telkom’s profit for the year ended March 31, 2008 would decrease/increase by R3 million (2007: decrease/increase by RNil; 2006: decrease/increase by R9 million). This is attributable to the fixed-line’s segment exposure to interest rates on its derivative and floating rate debt portfolios.

224 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.7 Sensitivity analysis (continued) Interest rate risk (continued) The table below illustrates Mobile’s sensitivity (Group share) to a 100 basis point increase/decrease in the interest rate.

2006 2007 2008

RSA prime rates, JIBAR rates, Money market rates, and RSA BA rates Basis points increase 100 100 100 Profit/(loss) before tax (Rm) 37 24 (12)

LIBOR Basis points increase 100 100 100 Profit/(loss) before tax (Rm) 0 0 (5)

EURIBOR Basis points increase 100 100 100 Profit/(loss) before tax (Rm) 0 0 1

Lesotho prime rates Basis points increase 100 100 100 Profit/(loss) before tax (Rm) 0 0 1 Foreign exchange currency risk The following table illustrates the sensitivity to a reasonably possible change in the foreign exchange rate, with all other variables held constant, to the Group’s profit before tax (excluding the Mobile segment).

Increase/decrease Effect on profit in foreign before tax exchange currency increase/(decrease) %Rm

2008 Telkom Rand appreciates USD +10 (25)

EURO +10 (42) 2008 Annual Report Rand depreciates USD –10 25 EURO –10 42

2007 Rand appreciates USD +10 (18) EURO +10 (27)

Rand depreciates 225 USD –10 18 EURO –10 27

2006 Rand appreciates USD +10 (11) EURO +10 (17)

Rand depreciates USD –10 11 EURO –10 17 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.7 Sensitivity analysis (continued) Foreign exchange currency risk (continued) The following table details Mobile’s sensitivity to the below-mentioned percentage strengthening and weakening in the functional currency against the relevant foreign currencies. A positive number indicates an increase in profit before taxation where the functional currency is expected to strengthen against the relevant currency in a net financial liability position. A negative number indicates a decrease in profit before taxation where the functional currency is expected to strengthen against the relevant currency in a net financial asset position. The Group is exposed to 50% of the following:

South United African Pound States Rand Euro Sterling Dollar %%%%

2008 South African Rands – 7.6 6.5 9.5 United States Dollar 9.5 5.1 2.6 – Tanzanian Shilling 11 7.5 5 2.5 Mozambican Meticals 0.1 3.8 6.5 9.4 Profit before tax (Rm) 2 (54.4) (1.0) (7.7)

2007 South African Rands – 31.9 13.1 11.5 United States Dollar 11.5 18.3 1.4 – Tanzanian Shilling 11 17.4 0.6 0.8 Mozambican Meticals 17.7 8.6 6.9 8.2 Profit before tax (Rm) 6.3 (36.8) (2.6) 2.1

2006 South African Rands – 29.3 32.5 17.7 United States Dollar 17.7 9.8 12.5 – Tanzanian Shilling 13.7 11.5 14.3 1.5 Mozambican Meticals 17 7.4 10 2.2 Profit before tax (Rm) 3.2 (16.9) (38.3) 4.1

226 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008

12. Financial instruments and risk management (continued) 12.7 Sensitivity analysis (continued) Exchange rate table (closing rate) USD 6.180 7.248 8.132 Euro 7.482 9.649 12.854 Pound Sterling 10.737 14.189 16.166 Swedish Krona 0.793 1.033 1.370 Japanese Yen 0.052 0.061 0.082 Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group monitors capital using net debt to equity ratio. Telkom’s policy is to keep the net debt to equity ratio between 50% and 70%. Vodacom’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. Included in net debt are interest bearing loans and borrowings, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets. Telkom plans on continuing its share buy back strategy based on certain criteria, including market conditions, availability of cash and other investments opportunities and needs. All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their investment, while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from time to time. The determination to pay dividends, and the amount of the dividends, will depend upon, among other things the earnings, financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy back plans. The Group has access to financing facilities, the total unused amount which is R7,565 million at the balance sheet date. Capital comprises equity attributable to equity holders of Telkom. There were no changes in the Group’s approach to capital management during the year. Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements. The net debt to equity ratio at year end was as follows: Telkom

2006 2007 2008 Rm Rm Rm Annual Report 2008 Annual Report Non-current portion of interest-bearing debt 7,655 4,338 9,403 Current portion of interest -bearing debt 3,468 6,026 6,330 Credit facilities utilised 693 441 1,342 Non-current portion of other financial liabilities – 36 919 Current portion of other financial liabilities 235 193 371 Less: Cash and cash equivalents (4,948) (749) (1,134) Less: Other financial assets (275) (259) (614)

Net debt 6,828 10,026 16,617 227 Equity attributable to equity holders of Telkom 29,165 31,724 32,815

Net debt to equity ratio 23.4% 31.6% 50.6% WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

13. Investments 2,894 1,384 1,448

Available-for-sale –4755 Unlisted investments Rascom ––– 0.69% (2007: 0.69%, 2006: 0.70%) interest in Regional African Satellite Communications Organisation, headquartered in Abidjan, Ivory Coast, at cost.

Cost 1 1 1 Impairment (1) (1) (1)

The fair value of this unlisted investment cannot be practicably determined. The directors’ valuation is based on the Group’s interest in the entity’s net asset value converted at year-end exchange rates. The directors’ valuation of the above unlisted investment is RNil (2007: RNil; 2006: RNil).

WBS Holdings (Proprietary) Limited –4023 2,500 ordinary shares at R0.01 each The directors’ valuation of this unlisted investment is not materially different from the carrying amount as it is recognised at fair value. The investee company also granted the Group an option to subscribe for additional shares (refer to note 12) from the 10% currently held up to an aggregate of 25.5%.

Other investments – 7 32 The Group purchased a 10% equity stake in G-Mobile Holdings Limited and a 25.93% equity stake in Gogga Tracking Solutions (Proprietary) Limited. The investee companies also granted the Group an option to increase the investments (refer to note 27). During 2008 the Group purchased a 50% equity stake in Waterberg Lodge (Proprietary) Limited, a 35% equity stake in X-Link Communications (Proprietary) Limited and increased its interest in G-Mobile Holdings Limited from 10% to 26% by exercising the call option granted in 2007.

Loans and receivables 89 65 67

Mirambo Limited ––60 Mirambo Limited bought the 16% and 19% equity stake of Planetel Communications Limited and Caspian Limited respectively in Vodacom Tanzania Limited on November 30, 2007. The shareholder loans with a 228 combined nominal value of USD14.9 million, were transferred to Mirambo Limited in order to meet its obligations to Vodacom Tanzania Limited in respect of shareholder contributions. The loan bears interest at LIBOR plus 5% and shall be repaid from any cash distributions by Vodacom Tanzania Limited to Mirambo Limited. The loan and capitalised interest are collateralised by cession over all shareholder distributions and a pledge over the shares of Vodacom Tanzania Limited. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

13. Investments (continued) Loans and receivables (continued) Planetel Communications Limited 21 25 – The loan with a nominal value of USD7 million (Group share: USD3,5 million) issued during the 2003 year, bore interest at LIBOR plus 5%. Planetel Communications Limited utilised this loan to ensure sufficient shareholder loan funding by itself as a shareholder of Vodacom Tanzania Limited. The loans and capitalised interest were collateralised by cession over all shareholder distributions and a pledge over their shares of Vodacom Tanzania Limited. All the shareholders subordinated their loans to Vodacom Tanzania Limited for the duration of the project finance funding period, which expired at the end of the current financial year (refer to note 27). On November 30, 2007, Planetel Communications sold it’s 16% shareholding in Vodacom Tanzania Limited to Mirambo Limited.

Caspian Limited 25 29 – The loan with a nominal value of USD8 million (Group share: USD4 million) issued during the 2003 year, bore interest at LIBOR plus 5%. Caspian Limited utilised this loan to ensure sufficient shareholder loan funding by itself as a shareholder of Vodacom Tanzania Limited. The loans and capitalised interest were collateralised by cession over all shareholder distributions and a pledge over the shares of Vodacom Tanzania Limited. All the shareholders subordinated their loans to Vodacom Tanzania Limited for the duration of the project finance funding period, which expired at the end of the current financial year (refer to note 27). On November 30, 2007, Caspian sold its 19% shareholding in Vodacom Tanzania Limited to Mirambo Limited.

Number Portability Company (Proprietary) Limited –33 Telkom The shareholder loan made to Number Portability Company (Proprietary) Limited (‘NPC’) for an amount of R6 million (Group share: R3 million) at March 2007, is subordinated and ranks behind the claims of all 2008 Annual Report creditors of NPC for repayment until such time as the assets of NPC fairly valued exceed its liabilities and in such case, the loan shall cease to be subordinated to the extent that the assets of NPC exceed its liabilities from time to time. The shareholder loan bears no interest and has no fixed repayment terms.

Sekha-Metsi Investment Consortium Limited –8– The loan was advanced to Sekha-Metsi Investment Consortium Limited and bore interest at South African overdraft interest rates plus a margin 229 of 2%. Interest was payable monthly in arrears. The loan was repayable on demand, should Sekha-Metsi Investment Consortium Limited be able to obtain a loan externally. Sekha-Metsi Investment Consortium Limited pledged their shares in Sekha-Metsi Enterprises (Proprietary) Limited as security for the loan. During the current financial year the loan was repaid. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

13. Investments (continued) Loans and receivables (continued) Empresa Moçambicana de Telecommuniç˜acoes S.A.R.L. (‘Emotel’) ––4 The loan with a nominal value of USD0.9 million issued during the 2008 financial year bears interest at LIBOR plus 2%. Interest is capitalised on a monthly basis. The loan and capitalised interest are repayable upon the expiry of 5 years following the advance date, being March 31, 2012. Emotel utilised this loan to meet its obligations to V.M, S.A.R.L. in respect of its 2% shareholding in V.M, S.A.R.L. The loan and capitalised interest are collateralised by cession over all cash distributions and a pledge over their shares in V.M, S.A.R.L. Tel.One (Pvt) Limited 32 – – The loan to Tel.One (Pvt) Limited was unsecured, interest-free and was repayable through traffic revenue from June 2004 over 5 years. R41 million traffic was set off against the loan in the 2007 financial year, hence settling the full amount of the loan in advance. Other receivables 11 – –

Held for trading 2,874 1,349 1,377

Linked insurance policies – Coronation 1,182 1,280 1,291 Linked insurance policies – Investec 24 – – Ordinary shares – listed 1,059 – – Cash 229 – – Other money market investments 284 69 51 Government stock 44 – – Other unlisted investments 52 – 35

Less: Short-term investments (69) (77) (51)

Tel.One (Pvt) Limited (13) – – Sekha-Metsi Investment Consortium Limited – (8) – WBS Holdings (Proprietary) Limited (included in Other unlisted investments) – – (13) Other money market investments (56) (69) (38)

Included in held for trading investments is R1,290 million (2007: R1,279 million, 2006: R2,819 million) that will be used to fund the post- retirement medical aid liability. These investments are made through a cell captive, in which Telkom holds 100% of the preference shares of the cell captive, and represent the fair value of the underlying investments of the cell captive. The initial cost of the investment amounts to R535 million (2007: R535 million; 2006: R1,891 million). Telkom bears all the risks and rewards of the investment, as the returns/losses on the preference shares are dependant on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preference shareholder, receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of the 230 risks and rewards. The cell captive has been consolidated in full. The cell captive has an investment in a sinking fund and an annuity policy. In the financial year ended March 31, 2007 an addendum to the cell captive annuity policy was signed, which resulted in the annuity policy qualifying as a plan asset. This resulted in a reduction in the investment of R1,961 million in the financial year ended March 31, 2007 (refer to note 29). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 14. Deferred revenue and Deferred expenses Deferred expenses 480 557 583

Deferred expenses 254 270 221 Current portion of deferred expenses 226 287 362

Included in long-term deferred expenses and revenue is Vodacom unactivated starter packs. The current portion of deferred expenses represents the deferral of connection costs. Deferred revenue 2,966 3,004 3,721

Deferred revenue 991 1,021 1,128 Current portion of deferred revenue 1,975 1,983 2,593

Included in deferred revenue is profit on the sale and lease-back of certain Telkom buildings of R118 million, consisting of a long-term portion of R107 million and a short-term portion of R11 million (2007: R129 million; 2006: R140 million). A profit of R11 million per annum is recognised in income on a straight-line basis, over the period of the lease ending 2019 (refer to note 37).

15. Finance lease receivables The Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to specific customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms of IAS17.

In terms of IFRIC4 the Group 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 IFRS is presented on the basis of facts and circumstances existing at the beginning of that period. The effect of the application of this interpretation was not considered material for 2006, and therefore all cumulative adjustments were made during the 2007 financial year.

Total < 1 year 1 – 5 years > 5 years Rm Rm Rm Rm Telkom 2008 Minimum lease payments Annual Report 2008 Annual Report 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) – 231

Present value of minimum lease payments 246 88 158 –

Lease receivables 246 88 158 – WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

16. Deferred taxation (587) (1,123) (1,374)

Opening balance (435) (587) (1,123) Income statement movements (173) (516) (219)

Temporary differences (280) (515) (331) Over provision/(under provision) prior year 107 (1) 53 Change in tax rate – – 59

Business combinations 21 (16) (65) Foreign currency translation reserve and foreign equity revaluation – (4) 33

The balance comprises: (587) (1,123) (1,374)

Capital allowances (2,682) (3,325) (3,841) Provisions and other allowances 1,682 1,719 2,008 Tax losses 112 113 276 STC tax credits 301 370 183

Deferred tax balance is made up as follows: (587) (1,123) (1,374)

Deferred tax assets 481 593 605 Deferred tax liabilities (1,068) (1,716) (1,979)

Unutilised STC credits 2,393 2,958 1,830 Under South African tax legislation, tax losses for companies continuing to do business do not expire. The unused taxation losses available to reduce the net deferred taxation liability is R1,615 million of which R1,456 relates to Vodacom (2007: R1,134 million; 2006: R876 million) (Group share: R728 million; 2007: R567 million; 2006: R438 million). The full effect of this would be a R511 million of which R466 million relates to Vodacom (2007: R363 million; 2006: R279 million) (Group share: R233 million; 2007: R182 million; 2006: R140 million) reduction in the net deferred taxation liability. The deferred tax asset represents amongst other items STC credits on past dividends received. The deferred tax asset for the current period is calculated using the revised STC rate of 10% (previously 12,5%) as announced by the Minister of Finance. The deferred tax asset is recognised as it is considered probable that it will be utilised in the future, given Telkom’s dividend policy. The asset will be released as a tax expense when dividends are declared. The deferred tax liability increased mainly due to the increase in the difference between the carrying value and tax base of assets, resulting from the change in the estimate of useful lives of the assets as well as from the acquisition of Multi-Links Telecommunications Limited.

232 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

17. Inventories 814 1,093 1,287

Gross inventories 916 1,275 1,535 Write-down of inventories to net realisable value (102) (182) (248)

Inventories consist of the following categories: 814 1,093 1,287

Installation material, maintenance material and network equipment 487 811 895 Merchandise 327 282 392

Write-down of inventories to net realisable value 102 182 248

Opening balance 67 102 182 Charged to selling, general and administrative expenses 64 154 164 Inventories written-off (29) (74) (98)

Inventory levels as at March 31, 2008 and 2007 have increased due to the roll-out of the Next Generation Network and increased inventory levels, required to improve customer service. The increase in merchandise in the current year is due to the accelerated acquisition of merchandise to limit the Group’s exposure to foreign currency fluctuations.

18. Trade and other receivables 6,399 7,303 8,986

Trade receivables 5,798 6,557 7,695

Gross trade receivables 6,088 6,792 7,985 Impairment of receivables (290) (235) (290)

Prepayments and other receivables 601 746 1,291

Impairment of receivables 290 235 290

Opening balance 285 290 235 Telkom Charged to selling, general and administrative expenses 206 153 300 Receivables written-off (201) (208) (245) Annual Report 2008 Annual Report Refer to note 12 for detailed credit risk analysis. The increase in the charged to selling, general and administrative expenses is as a result of increased revenues which resulted in a higher provision for doubtful debts.

233 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 19. Other financial assets and liabilities Other financial assets consist of: At fair value through profit or loss 275 259 614

Bills of exchange 107 98 – Interest rate swaps 19 16 9 Forward exchange contracts 149 145 589 Other financial assets – – 16

Bills of exchange The fair value of bills of exchange has been derived at with reference to BESA quoted prices.

Other financial liabilities consist of: (235) (229) (1,290)

Long-term portion of other financial liabilities Other (refer to note 12) – (36) – Put option at fair value through profit or loss (refer to note 12) – – (919) Current portion of other financial liabilities At fair value through profit or loss (235) (193) (371)

Put option at fair value through profit or loss (refer to note 12) – (125) (198) Interest rate swaps (105) (26) – Forward exchange contracts (130) (42) (173)

Change in comparative Derivative instruments in other financial liabilities category increased by R125 million in 2007 (2006: RNil) due to the reclassification of the Vodacom DRC put option from trade and other payables.

234 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

20. Net cash and cash equivalents 4,255 308 (208) Cash shown as current assets 4,948 749 1,134 Cash and bank balances 1,853 649 664 Short-term deposits 3,095 100 470 Credit facilities utilised (693) (441) (1,342) Undrawn borrowing facilities 9,519 8,658 7,565 The undrawn borrowing facilities are unsecured, when drawn bear interest at a rate that will be mutually agreed between the borrower and lender at the time of drawdown, have no specific maturity date and are subject to annual review. The facilities are in place to ensure liquidity. At March 31, 2008, R2,000 million of these undrawn facilities were committed. Borrowing powers To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the borrowing powers of Telkom are unlimited, but are subject to the restrictive financial covenants of the TL20 and the conditions and covenants of the Bridge Loan facility indicated on note 27. 21. Share capital and premium Authorised and issued share capital and share premium are made up as follows: Authorised 10,000 10,000 10,000 999,999,998 ordinary shares of R10 each 10,000 10,000 10,000 1 Class A ordinary share of R10 – – – 1 Class B ordinary share of R10 – – – Telkom

Issued and fully paid 6,791 5,329 5,208

520,784,184 (2007: 532,855,528; 2006: 544,944,899) 2008 Annual Report 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) 235 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

21. Share capital and premium (continued) Share buy-back During the financial year Telkom bought back 12,071,344 ordinary shares at a total consideration of R1,647 million. This reduced Share capital by R121 million and Retained earnings by R1,526 million. During the financial year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of R1,596 million. This reduced Share capital by R120 million, Share premium by R1,342 million and Retained earnings by R134 million. During the financial year ended March 31, 2006, Telkom bought back 12,086,920 ordinary shares at a total consideration of R1,502 million. This reduced the Share capital by R121 million and Share premium by R1,381 million. Capital Management Refer to note 12 for a detailed capital management disclosure.

22. Treasury shares (1,809) (1,774) (1,638) At March 31, 2008, 10,493,141 (2007: 12,237,016; 2006: 12,687,521) and 10,849,058 (2007: 10,849,058; 2006: 10,849,058) ordinary shares in Telkom, with a fair value of R1,377 million (2007: R2,031 million; 2006: R2,038 million) and R1,423 million (2007: R1,801 million; 2006: R1,743 million) are held as treasury shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, respectively. The shares held by Rossal No 65 (Proprietary) Limited are reserved for issue in terms of the Telkom Conditional Share Plan (‘TCSP’). In addition, the Board of directors agreed that, subject to the JSE Listing requirements, the treasury shares held by Acajou Investments (Proprietary) Limited be made available to the TCSP to make up for the current shortfall in the share scheme after the additional grants made in the current year (refer to note 23). The reduction in the number of treasury shares is due to 1,743,785 shares (2007: 450,505; 2006: 29,669) shares that vested in terms of the TCSP during the year. The fair value of these shares at the date of vesting was R301 million (2007: R63 million; 2006: R4 million).

236 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 23. Share-based compensation reserve This reserve represents the cumulative fair value of the equity-settled share-based payment transactions recognised in employee expenses over the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 29). The Telkom Board approved the fourth enhanced allocation of shares to employees on September 4, 2007, with a grant date of September 27, 2007, the day that the employees and Telkom shared a common understanding of the terms and conditions of this grant. A total of 6,089,810 shares were granted. The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007, with a grant date of September 27, 2007. The number of additional shares granted with respect to the 2006 allocation is 4,966,860. No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of shares granted, commencing on the grant date. The following table illustrates the movement within the Share-based compensation reserve: Balance at beginning of year 68 151 257 Net increase in equity 83 106 386

Employee cost* 120 141 522 Accelerated vesting of shares (37) – –

Vesting and transfer of shares – (35) (136) Telkom

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: 2008 Annual Report R580 million; 2006: R381 million), of which R522 million (2007: R141 million; 2006: R120 million) was recognised in employee expenses for the year. *The increase in the employee costs in the current financial year is mainly as a result of the additional share allocations (refer to note 29).

237 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

24. Non-distributable reserves 1,128 1,413 1,292

Opening balance 360 1,128 1,413 Movement during the year 768 285 (121)

Foreign currency translation reserve (net of tax of R6 million; 2007: R4 million; 2006: RNil) 52 46 521 Minority put option (refer to note 12) – – (661) Revaluation of an available-for-sale investment (net of tax of R1 million) – – 8 Available-for-sale financial asset Life fund reserve (Cell captive) 716 239 11

The balance comprises: 1,128 1,413 1,292

Foreign currency translation reserve (104) (58) 463 Cell Captive reserve 1,232 1,471 1,482 Available-for-sale investment – – 8 Minority put option – – (661)

The Group has two consolidated cell captives, one used as an investment to fund Telkom’s post-retirement medical aid liability and the other is for Vodacom’s short-term insurance obligation in respect of handsets. In terms of the Short-term Insurance Act, 1998, the Vodacom Group’s cell captive partner, Nova Risk Partners Limited is required to recognise a contingency reserve equal to 10% of premiums written less approved reinsurance (as defined in the Act). This reserve can be utilised only with the prior permission of the Registrar of Short-term Insurance. The earnings from the cell captives are recognised in the income statement and then transferred to Non-distributable reserves. Gains and losses from changes in the fair value of available-for-sale investments are recognised directly in equity until the financial asset is disposed of.

25. Retained earnings 22,904 26,499 27,310

Opening balance 19,232 22,904 26,499 Movement during year 3,672 3,729 2,337

Net profit for the year 9,189 8,646 7,975 Transfer to non-distributable reserves (refer to note 24) (716) (239) (11) Dividend declared (refer to note 34) (4,801) (4,678) (5,627)

Shares bought back (refer to note 21) – (134) (1,526)

The balance comprises: 22,904 26,499 27,310 238 Company 18,534 21,906 22,484 Joint venture 4,293 4,762 5,697 Subsidiaries 568 786 428 Eliminations (491) (955) (1,299) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

26. Minority interest 301 284 522 Opening balance 220 301 284 Movement during the year 81 (17) 238 Reconciliation: 301 284 522 Balance at beginning of year 220 301 284 Share of earnings 139 203 197 Acquisition of subsidiaries and minorities 27 (68) 77 Foreign currency translation reserves (7) 14 29 Dividend declared (78) (166) (65)

27. Interest-bearing debt Long-term interest-bearing debt 7,655 4,338 9,403 Total interest-bearing debt 11,123 10,364 15,733 Gross interest-bearing debt 13,686 12,549 17,839 Discount on debt instruments issued (2,563) (2,185) (2,106) Less: Current portion of interest-bearing debt (3,468) (6,026) (6,330) Local debt (2,642) (5,772) (6,001) Locally registered Telkom debt instruments (2,211) (4,432) – Commercial paper bills (429) (1,339) (3,401) Short-term interest-free loans (2) (1) – Call borrowings – – (2,600) Foreign debt (786) (193) (202) Finance leases (40) (61) (124) Licence obligation – – (3)

Total interest-bearing debt is made up as follows: 11,123 10,364 15,733

(a) Local debt 8,938 8,131 12,923 Telkom Locally registered Telkom debt instruments 8,507 6,786 8,164

Name, maturity, rate p.a., nominal value 2008 Annual Report TK01, 2008, 10%, RNil (2007: R4,680 million; 2006: R4,689 million) 4,230 4,432 – TL06, 2006, 10.5%, RNil (2007: RNil; 2006: R2,100 million) 2,103 – – TL20, 2020, 6%, R2,500 million (2007: R2,500 million; 2006: R2,500 million) 1,214 1,246 1,283 PP02, 2010, 0%, R430 million (2007: R430 million; 2006: R430 million) 230 264 304 PP03, 2010, 0%, R1,350 million (2007: R1,350 million; 2006: R1,350 million) 730 844 977 Call borrowings, 2009, 11.58%, R2,600 million (2007: RNil; 2006: RNil) – – 2,600 Term loans, 2010, 12.22%, R3,000 million (2007: RNil; 2006: RNil) – – 3,000 239 Local bonds The local Telkom bonds are unsecured, but a side letter to the subscription agreement (as amended) of the TL20 bond, and the R1,600 million Bridge Loan facility, included in Call borrowings, contain a number of restrictive financial covenants to be maintained by the Group at the following ratios: EBITDA to net interest expense ratio of no less than 3.5:1 and net interest bearing debt to EBITDA ratio of no greater than 3.0:1 which, if not met, could result in the early redemption of the loan. The R1,600 million Bridge Loan facility and R2,000 million Term loan agreement agreements limit the Group’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without the prior written consent of the Lenders, which will not be unreasonably withheld. The TL20, PP02, and PP03 local bonds limit Telkom’s ability to create encumbrances on revenues or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

27. Interest-bearing debt (continued) (a) Local debt (continued) Commercial paper bills 429 1,339 4,202 Rate p.a., nominal value 2008, 11.71% (2007: 9.04%; 2006: 7%), R4,383 million (2007: R1,350 million; 2006: R430 million)

Asset Backed Arbitraged Securities (Proprietary) Limited ––500 On December 5, 2007 Vodacom (Proprietary) Limited entered into a subscription agreement with Asset Backed Arbitraged Securities (Proprietary) Limited (‘ABACAS’). In terms of the agreement Vodacom (Proprietary) Limited issued debt instruments in the form of two promissory notes with a nominal value of R500 million (Group shares: R250 million) each to which ABACAS subscribed. The debt instrument will bear interest based on JIBAR plus credit margin and funding margin. The repayment term is three years with interest being paid quarterly. The credit margin is 0.4% and the funding margin is 0.18% and 0.15% respectively.

Licence Obligation ––47 On December 9, 2004, ICASA amended the Vodacom South Africa licence to allow for access to the 1800 Megahertz frequency spectrum band and the 3G radio spectrum band. The costs to the Group for the 1800 Megahertz frequency band obligations is estimated at R68.8 million (Group share R34.4 million). The net present value, at a discount rate of 8%, over three years amounts to R64 million (Group share: R32 million). The cost to the Group for the 3G radio sprectrum band obligation is estimated at R36.8 million (Group share: R18.4 million). The net present value, at a discount rate of 8%, over three year amounts to R32.2 million (Group share: R16.1 million). Other debt 2610 Other debt includes Vodacom Group shareholders’ loans with variable payment terms. Group share is 50% on the respective balances.

(b) Foreign debt 913 1,013 1,643

Maturity, rate p.a., nominal value 85 106 141 Euro: 2010 – 2025, 0.1% – 0.14% (2007: 0.10% – 0.14%; 2006: 0.10% – 6.81%), 511 million (2007: 511 million; 2006: 511 million)

Mirambo Limited ––72 Mirambo Limited bought the 16% and 19% equity stake of Planetel 240 Communications Limited and Caspian Limited respectively in Vodacom Tanzania Limited on November 30, 2007. The shareholder loans with a combined nominal value of USD18 million (Group share: USD9 million), were transferred to Mirambo Limited in order to meet its obligations to Vodacom Tanzania Limited in respect of shareholder contributions. The loan bears interest at LIBOR plus 5% and shall be repaid by approval of at least 60% of the shareholders of Vodacom Tanzania Limited. The loan and capitalised interest are unsecured and surbordinated. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

27. Interest-bearing debt (continued) (b) Foreign debt (continued) Planetel Communications Limited 21 27 – The shareholder loan of USD8 million (2007: USD8 million; 2006: USD8 million) (Group share: USD4 million; 2007: USD4 million; 2006: USD4 million) was subordinated for the duration of the project finance funding period of Vodacom Tanzania Limited, which expired at the end of the current financial year, bore no interest from April 1, 2002, and was thereafter available for repayment, by approval of at least 60% of the shareholders of Vodacom Tanzania Limited. The loan became non-interest bearing and was remeasured at amortised cost at an effective interest rate of LIBOR plus 5%. The gain on remeasurement was included in equity. On November 30, 2007 Planetel Communications Limited sold its 16% shareholding in Vodacom Tanzania Limited to Mirambo Limited.

Caspian Limited 25 32 – The shareholder loan of USD10 million (2007: USD10 million; 2006: USD10 million) (Group share: USD5 million; 2007: USD5 million; 2006: USD5 million) was subordinated for the duration of the project finance funding period of Vodacom Tanzania Limited, bears no interest from April 1, 2002, and was thereafter available for repayment, by approval of at least 60% of the shareholders of Vodacom Tanzania Limited. The loan became non-interest bearing and was remeasured at amortised cost at an effective interest rate of LIBOR plus 5%. The gain on remeasurement was included in equity. On November 30, 2007 Caspian Limited sold its 19% shareholding in Vodacom Tanzania Limited to Mirambo LImited.

Loan to Vodacom International Limited 557 655 731 The loan provided by Standard Bank Plc and RMB International (Dublin) Limited that amounts to USD180 million (2007: USD180 million; 2006:

USD180 million) (Group share: USD90 million; 2007: USD90 million 2006; Telkom USD90 million)) is collateralised by guarantees provided by the Vodacom Group. The loan originally repayable on July 19, 2006, was refinanced

during the 2007 financial year. The loan is now repayable on July 26, 2008 Annual Report 2009 and bears interest at an effective interest rate of LIBOR plus 0.35%.

Project finance funding for Vodacom Tanzania Limited 92 47 – The drawn down portions of the project finance funding from external parties include the following: (a) Netherlands Development Finance Company USDNil (2007: USD4 million; 2006: USD8 million) (Group share: USDNil; 2007: USD2 million; 2006: USD4 million) (b) Deutsche Investitions – und Entwicklungsgesellschaft mbH 5Nil (2007: 54 million; 2006: 58 million) (Group share: 5Nil; 2007: 241 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, the license and Vodacom Tanzania Limited’s tangible assets and intangible assets. The loans bore interest based upon the foreign currency denomination of the project financing between 6% and 14.4% per annum and was fully repaid in the 2008 financial year. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

27. Interest-bearing debt (continued) (b) Foreign debt (continued) Vodacom Congo (RDC) s.p.r.l. 19 11 4 Vodacom’s share of the short-term facilities amount to USD1 million (2007: USD3 million; 2006: USD6 million) (Group share: USD1 million; 2007: USD2 million; 2006: USD3 million) bears interest at 18% per annum with no fixed repayment terms. USD2 million (Group share: USD1 million) of these facilities was repaid on June 30, 2007 and bore interest at LIBOR plus 6% per annum. Preference shares issued by Vodacom Congo (RDC) s.p.r.l. 114 135 150 The preference shares of USD37 million (2007: USD37 million; 2006: USD37 million) (Group share: USD19 million; 2007: USD19 million; 2006: USD19 million) bear interest at a rate of 4% per annum. The preference shares are redeemable at the discretion of the shareholders and on the basis that the shareholders are repaid simultaneously and in proportion to their shareholding. Zenith Bank – – 45 Multi-Links Telecommunications Limited has taken out a loan from Zenith Bank. The original loan amounted to USD14 million against which repayments amounting to USD8.4 million have already been made. The loan bears interest at LIBOR plus 3.5% and will be repaid during 2008. FCMB Loan – – 87 Multi-Links Telecommunications Limited has taken out a FCMB loan.The original loan amounted to Naira 1,500 million against which repayments amounting to Naira 250 million have already been made. The loan bears interest at 13% and will be fully repaid during 2010. This loan is secured by a charge on assets registered in the form of a debenture trust deed. The deed 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 in place with Export Development Bank of Canada (EDC), through First Bank of Nigeria Plc. The original funding amounted to USD18 million against which USD8 million repayments have already been made. The loan bears interest at LIBOR plus 2.5%, and will be fully repaid during 2014. Huawei Vendor Financing Facility VFF – – 319 Multi-Links Telecommunications Limited entered into a Bridge Financing agreement with Huawei Tech Investment Co. Limited for the supply of telecommunications equipment and services. The original funding amounted to USD41.6 million against which repayments of USD2 million have already been made. The loan bears interest at LIBOR plus 2% and will be repaid by 2010. The above arrangement is temporary until financing facilities are 242 obtained from China Development Bank. PTA Bank and Barclays Bank – – 12 Africa Online Group has taken out a loan from PTA Bank and Barclays Bank that in total amounts to USD1,5 million. Of this amount USD0.8 million bears interest at LIBOR plus 6% and the remaining USD0.4 million bears interest at 11.5%.

(c) Finance leases 1,272 1,220 1,167 The finance leases are secured by buildings with a carrying value of R634 million (2007: R564 million; 2006: R618 million) and office equipment with a book value of R14 million (2007: R10 million; 2006: R6 million) (refer to note 10). These amounts are repayable within periods ranging from 1 to 12 years. Interest rates vary between 13% and 38%. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

27. Interest-bearing debt (continued) Included in long-term and short-term debt is: Debt guaranteed by the South African Government 4,315 4,537 141 A major portion of the guaranteed debt for the years ended March 31, 2007 and 2006 relates to the TK01 debt instrument, however, this instrument has been redeemed in full during the year ended March 31, 2008. Telkom may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. The borrowing powers of Telkom are set out as per note 20.

Repayments/refinancing of current portion of interest- bearing debt The repayment/refinancing of R6,330 million of the current portion of interest-bearing debt will depend on the market circumstances at the time of repayment. Management believes that sufficient funding facilities will be available at the date of repayment/refinancing. Loans raised and loans repaid on the cash flow statement increased due to raising and redemption of the Commercial Paper Bills in Telkom, as well as newly acquired Asset Backing finance in Vodacom.

28. Provisions 2,677 1,443 1,675 Employee related 4,293 3,005 3,186 Annual leave 356 413 438 Balance at beginning of year 337 356 413 Charged to employee expenses 88 66 44 Leave paid (69) (9) (19) Post-retirement medical aid (refer to note 29) 2,607 1,139 1,356 Telkom Balance at beginning of year 2,430 2,607 1,139 Interest cost 249 286 322 Current service cost 48 83

84 2008 Annual Report 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 22 243 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) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 all levels of staff.

Deferred bonus incentive Vodacom’s deferred bonus incentive provision represents the present value of the expected future cash outflows of the entitlement value at the balance sheet date less the value at which the entitlements were issued, multiplied by the number of entitlements allocated to a participant. Periodically, a number of entitlements are issued to employees, the value of which depends on the seniority of the employee. The participating rights of employees vest at different stages and employees are entitled to cash in their entitlements within one year after the participating rights have vested. The provision is utilised when eligible employees receive the value of vested entitlements.

Supplier dispute

244 Telkom provided R569 million (2007: R527 million; 2006: RNil) for its estimate of the probable liability as discussed in note 38. The net movement in the provision of R42 million (2007: R17 million; 2006: R Nil) consists of finance charges and fair value movements offset by provisional payments made during the current year.

Warranty provision The warranty provision in Vodacom covers manufacturing defects in the second year of warranty on handsets sold to customers. The estimate is based on claims notified and past experience. The suppliers of the various handsets assumed responsibility for the second year warranty subsequent to March 31, 2007 and accordingly there is no remaining provision.

Other Included in other provisions is an amount provided for asset retirement obligations. Other provisions also include advertising received from suppliers of handsets and various other smaller provisions. *In the previous year the long-term incentive provision was included in other provisions. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

29. Employee benefits The Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund and the Vodacom Group Pension Fund. Membership of one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate. The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory funding valuations for the retirement and pension funds are performed at intervals not exceeding three years. At March 31, 2008, the Group employed 33,616 employees (2007: 33,047; 2006: 31,458). Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension and retirement funds for each of the financial periods presented. The Telkom Pension Fund The latest actuarial valuation performed at March 31, 2008 indicates that the pension fund is in a surplus position of R84 million after unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised). The last statutory funding valuation of the fund performed in March 2007, indicated that the fund is fully funded. The current contributions (plus an annual top-up lump sum if necessary) are based on that valuation. Management expects to complete the next statutory valuation in November 2008. With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007, a settlement event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund. The funded status of the Telkom Pension Fund is disclosed below.

2006 2007 2008 Rm Rm Rm

The Telkom Pension Fund The net periodic pension costs includes the following components: Interest and service cost on projected benefit obligations 22 22 21 Expected return on plan assets (24) (19) (27) Recognised actuarial loss/(gain) 78 9 (16) Settlement loss/(gain) – 21 (2) Asset Limitation – – 29

Net periodic pension expense recognised 76 33 5 Telkom 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 2008 Annual Report 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 231 243 284 245 Expected return on plan assets 24 19 27 Benefits paid (20) (2) (3) Contributions 26 10 8 Settlements – (61) (15) Actuarial (loss)/gain (18) 75 10

Plan assets at end of year 243 284 311 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 is based on the portfolio as a whole and not the sum of the returns of individual asset categories. The expected return takes into account the asset allocation of the Telkom pension fund and expected long-term return of these assets, of which South African equities and foreign investments are the largest contributors. The assumed rates of mortality are determined by reference to the SA85- 90 (Light) ultimate table, as published by the Actuarial Society of South Africa, for pre-retirement purposes and the PA(90) ultimate table, minus one year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Funding level per statutory actuarial valuation (%) 99.8 100.0 100.0 The number of employees registered under the Telkom Pension Fund 255 153 146 246 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

29. Employee benefits (continued) The Telkom Retirement Fund The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees occurred. The Telkom Retirement Fund is a defined contribution fund with regards to in-service members. On retirement, an employee is transferred from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom Retirement Fund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. Telkom is unable to benefit from the excess in the form of future reduced contributions. Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the retirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding position of R1,368 million after unrecognised losses. The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan assets, Telkom would be required to fund the statutory deficit. The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that Telkom has a potential asset with regards to this Fund. The funded status of the Telkom Retirement Fund is disclosed below:

2006 2007 2008 Rm Rm Rm

The Telkom Retirement Fund The net periodic retirement costs include the following components: Interest and service cost on projected benefit obligations 346 312 493 Expected return on plan assets (430) (489) (686) Recognised actuarial gain – (145) –

Net periodic pension expense not recognised (Asset limitation) (84) (322) (193)

Retirement fund contributions (refer to note 5.1) 383 439 460 Telkom

Benefit obligation:

At beginning of year 4,020 4,377 6,581 2008 Annual Report 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 431 489 686 247 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

29. Employee benefits (continued) The Telkom Retirement Fund (continued) Present value of funded obligation 4,377 6,581 7,101 Fair value of plan assets (5,973) (7,661) (7,991)

Fund Status (1,596) (1,080) (890) Unrecognised net actuarial gain/(loss) 742 (96) (478)

Unrecognised net asset (854) (1,176) (1,368)

Expected return on plan assets 430 489 686 Actuarial gain on plan assets 1,442 1,641 118

Actual return on plan assets 1,872 2,130 804

Included in the fair value of plan assets is: Office buildings occupied by Telkom 274 371 596 Telkom bonds 56 21 10 Telkom shares 287 284 141

The Telkom Retirement Fund invests its funds in South Africa and internationally. Twelve fund managers invests in South Africa and five of these managers specialise in trades with bonds on behalf of the Retirement Fund. The international investment portfolio consists of global equity and hedged funds.

Principal actuarial assumptions were as follows:

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 is based on the portfolio as a whole and not the sum of the returns of individual asset categories. The expected return takes into account the asset allocation of the Retirement Fund and expected long-term return on these assets, of which South African equities, foreign investments and SA fixed interest bonds are the largest contributors. 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 248 one year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Funding level per statutory actuarial valuation (%) 100 100 100 The number of pensioners registered under the Telkom Retirement Fund 14,323 14,451 14,255 The number of in-service employees registered under the Telkom Retirement Fund 25,320 25,766 24,939 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008

29. Employee benefits (continued) The Telkom Retirement Fund (continued) The fund portfolio consists of the following: Equities (%) 72 59 70 Property (%) 4 2 2 Bonds (%) 21 19 11 Cash (%) 3 7 1 Foreign investments (%) – 13 16

The total expected contributions payable to the Retirement Fund for the next financial year are R514 million. Vodacom Group Pension Fund All eligible employees of the Vodacom Group are members of the Vodacom Group Pension Fund, a defined contribution pension scheme. Certain executive employees of the Group are also members of the Vodacom Executive Provident Fund, a defined contribution provident scheme. Both schemes are administered by ABSA Consultants and Actuaries (Proprietary) Limited. The Group’s share of the current contributions to the pension fund amounted to R57 million (2007: R42 million; 2006: R38 million). The Group’s share of the current contributions to the provident fund amounted to R7 million (2007: R6 million; 2006: R6 milllion). South African funds are governed in terms of the Pension Fund Act of 1956. Medical benefits Telkom makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit plan. The expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical benefits to current and retired employees have been actuarially determined and provided for as set out in note 29. Telkom has terminated future post- retirement medical benefits in respect of employees joining after July 1, 2000. There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (‘Pre-94’); those who retired after 1994 (‘Post-94’); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap, which increases annually with the average salary increase.

Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent Telkom actuarial valuation of the benefit was performed as at March 31, 2008. Telkom has allocated certain investments to fund this liability as set out in note 13. The cell captive annuity policy qualified as a plan asset in terms of IAS19, effective June 1, 2006. 2008 Annual Report

249 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

29. Employee benefits (continued) Medical benefits (continued) Medical aid Benefit obligation: At beginning of year 3,079 3,904 4,384 Interest cost 249 286 322 Current service cost 48 83 84 Actuarial loss 712 283 246 Settlement gain (2) – – Termination settlement (29) – – Benefits paid from plan assets – (94) (125) Contributions paid by Telkom (153) (78) (61)

Benefit obligation at end of year 3,904 4,384 4,850

Plan assets at fair value: At beginning of year – – 1,961 Plan asset – initial recognition – 1,720 – Expected return on plan assets – 188 257 Benefits paid from plan assets – (94) (125) Actuarial gain/(loss) – 147 (164)

Plan assets at end of year – 1,961 1,929

Present value of funded obligation 3,904 4,384 4,850 Fair value of plan assets – (1,961) (1,929)

Funded status 3,904 2,423 2,921 Unrecognised net actuarial loss (1,297) (1,284) (1,565)

Liability as disclosed in the balance sheet (refer to note 28) 2,607 1,139 1,356

Expected return on plan asstes – 188 257 Actuarial return on plan assets – 147 (164)

Actual return on plan assets – 335 93

Principal actuarial assumptions were as follows:

2006 2007 2008

Discount rate (%) 7.5 7.5 9.0 Expected return on plan assets (%) – 13.5 12.0 250 Salary inflation rate (%) 6.0 6.0 7.5 Medical inflation rate (%) 6.5 6.5 8.0

The assumed rates of mortality are determined by reference to the SA85- 90 (Light) ultimate table, as published by the Actuarial Society of South Africa, for pre-retirement purposes and the PA(90) ultimate table, minus one year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Contractual retirement age 65 65 65 Average retirement age 60 60 60 Number of members 17,872 17,119 15,526 Number of pensioners 8,665 8,494 8,430

The valuation results are extremely sensitive to changes in the underlying assumptions. The following table provides an indication of the impact of changing some of the valuation assumptions above: WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

29. Employee benefits (continued) Medical benefits (continued) The TDS benefit obligation of R19 million has been excluded from the sensitivity analysis below.

Current assumption Decrease Increase Rm Rm Rm

Medical cost inflation rate 8.0% (1.0%) 1.0% Benefit obligation 4,831 (672) 845 Percentage change (13.9%) 17.5% Service cost and interest cost 2008/2009 521 (76) 97 Percentage change (14.6%) 18.6% Discount rate 9.0% (1.0%) 1.0% Benefit obligation 4,831 855 (670) Percentage change 17.7% (13.9%) Service cost and interest cost 2008/2009 521 41 (35) Percentage change 7.9% (6.7%) PA(90) Post-retirement mortality rate Ultimate-1 (10.0%) 10.0% Benefit obligation 4,831 196 (173) Percentage change 4.1% (3.6%) Service cost and interest cost 2008/2009 521 19 (17) Percentage change 3.6% (3.3%) The fund portfolio consists of the following:

2007 2008

Equities (%) 59 56 Bonds (%) 3 2 Cash and money markets investments (%) 21 33 Foreign investments (%) 9 9 Insurance policies (%) 8 –

Telephone rebates Telkom Telkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2008. Eligible employees must be employed by Telkom until retirement age to qualify for the telephone rebates. The scheme is a defined benefit plan. Annual Report 2008 Annual Report The status of the telephone rebate liability is disclosed below:

2006 2007 2008 `RmRmRm

Present value of unfunded obligation 251 307 443 Unrecognised net actuarial loss* (53) (25) (156) Liability as disclosed in the balance sheet (refer to note 28) 198 282 287 Principal actuarial assumptions were as follows:

251 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 of South Africa, for pre-retirement purposes and the PA(90) ultimate table, minus one year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Number of members 19,164 19,515 18,766 Number of pensioners 11,148 10,918 10,680 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued) Telkom Conditional Share Plan Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the vesting period. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of the 3 years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after 3 years. Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may differ based on certain performance conditions being met (Refer note 22). The weighted average remaining vesting period for the shares outstanding as at March 31, 2008 is 1.25 years (2007: 1.75 years; 2006: 1.75 years).

2006 2007 2008

The following table illustrates the movement of the maximum number of shares that will vest to employees for the August 2004 grant: Outstanding at beginning of the year 2,943,124 2,414,207 1,883,991 Granted during the year 90 1,212 252 Forfeited during the year (67,573) (80,923) (43,790) Vested during the year (17,341) (450,505) (1,419,863) Settled during the year (444,093) – –

Outstanding at end of the year 2,414,207 1,883,991 420,590

The following table illustrates the movement of the maximum number of shares that will vest to employees for the June 2005 grant: Outstanding at beginning of the year – 1,930,687 1,864,041 Granted during the year 2,024,465 1,005 3,469 Forfeited during the year (62,354) (67,651) (108,177) Vested during the year (12,328) – (323,946) Settled during the year (19,096) – –

Outstanding at end of the year 1,930,687 1,864,041 1,435,387

The following table illustrates the movement of the maximum number of shares that will vest to employees for the November 2006 grant: Outstanding at beginning of the year – – 1,773,361 Granted during the year – 1,825,488 833 Forfeited during the year – (52,127) (133,214)

Outstanding at end of the year – 1,773,361 1,640,980

The following table illustrates the movement of the maximum number of shares that will vest to employees for the additional November 2006 grant:

252 Outstanding at beginning of the year – – – Granted during the year – – 4,984,693 Forfeited during the year – – (172,388)

Outstanding at end of the year – – 4,812,305

The following table illustrates the movement of the maximum number of shares that will vest to employees for the September 2007 grant: Outstanding at beginning of the year – – – Granted during the year – – 6,117,163 Forfeited during the year – – (270,527)

Outstanding at end of the year – – 5,846,636 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

29. Employee benefits (continued) Telkom Conditional Share Plan (continued) The fair value of the shares granted have been calculated by an actuary using the Black-Scholes-Merton model and the following values at grant date:

August 8, June 23, November 2, September 4, 2004 Grant 2005 Grant 2006 Grant 2007 Grant*

Market share price ( R) 77.50 111.00 141.25 173.00 Dividend yield (%) 2.60 3.60 3.50 3.50 *The same information was used for the November 2006 additional grant.

2006 2007 2008

The principal assumptions used in calculating the expected number of shares that will vest are as follows: Employee turnover (%) 5 5 5 Meeting specified performance criteria (%) 100 100 100

Long-term incentive provision The long-term incentive provision represents the present value of the expected future cash outflows to eligible employees that qualify. The amount of the liability is based on an actuarial valuation. The provision is utilised when eligible employees of the Vodacom Group receive the value of vested benefits.

2006 2007 2008 Rm Rm Rm

The Group exposure is 50% of the following items: Net liability at beginning of year – 122 161 Interest cost 7 10 15

Current service cost 9 18 20 Telkom Past service and interest costs 76 – – Actuarial loss 47 13 62 Annual Report 2008 Annual Report Net cost 139 163 258 Total benefit payments (17) (2) (33)

Net liability at end of year 122 161 225

The amounts for the current and previous four years are as follows:

2004 2005 2006 2007 2008 Rm Rm Rm Rm Rm

Telkom Pension Fund 253 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) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2004 2005 2006 2007 2008 Rm Rm Rm Rm Rm

29. Employee benefits (continued) Telkom Retirement Fund Defined benefit obligation (3,162) (4,020) (4,377) (6,581) (7,101) Plan assets 3,540 4,477 5,973 7,661 7,991

Surplus 378 457 1,596 1,080 890 Unrecognised actuarial gain/(loss) 382 312 (742) 96 478

Unrecognised net asset 760 769 854 1,176 1,368

Experience adjustment on assets* 1,641 118 Experience adjustment on liabilities* 1,234 485 Medical benefits Defined benefit obligation (2,378) (3,079) (3,904) (4,384) (4,850) Plan assets – – – 1,961 1,929

Deficit (2,378) (3,079) (3,904) (2,423) (2,921) Unrecognised actuarial (gain)/loss (42) 649 1,297 1,284 1,565

Liability recognised (2,420) (2,430) (2,607) (1,139) (1,356)

Experience adjustment on assets 147 (164) Experience adjustment on liabilities 28 193 Telephone rebates Defined benefit obligation (164) (177) (251) (307) (443) Unrecognised actuarial (gain)/loss – (2) 53 25 156

Liability recognised (164) (179) (198) (282) (287)

Experience adjustment on liabilities (25) 2

*During the March 31, 2007 year end Telkom actuaries have performed a full valuation while for the March 31, 2006 year end a roll forward method was used, as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005 statutory valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair value of 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 the 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. The experience adjustments on asset and liabilities for each of the financial periods ended March 31, 2004, 2005 and 2006 has not been disclosed due to the fact that it was impractical to determine the information.

2006 2007 2008 Rm Rm Rm

254 30. Trade and other payables 6,103 7,237 8,771

Trade payables 4,371 5,511 6,768 Finance cost accrued 141 22 39 Accruals and other payables 1,591 1,704 1,964

Accruals and other payables mainly represent amounts payable for goods received, net of Value-added Tax obligations and licence fees. Change in comparatives Trade payables have decreased by R125 million in 2007 (2006: RNil) due to the reclassification of the Vodacom DRC put option from trade and other payables to other financial liabilities. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 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 Telkom

33. Taxation paid (4,550) (5,690) (4,277) Annual Report 2008 Annual Report 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 9 255 Income tax payable (1,549) (594) (323) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

34. Dividend paid (4,884) (4,784) (5,732)

Dividend payable at beginning of year (7) (4) (15) Declared during the year – Dividend on ordinary shares: (4,801) (4,678) (5,627)

Final dividend for 2005: 400 cents (2,134) – – Special dividend for 2005: 500 cents (2,667) – – Final dividend for 2006: 500 cents – (2,599) – Special dividend for 2006: 400 cents – (2,079) – Final dividend for 2007: 600 cents – – (3,069) Special dividend for 2007: 500 cents – – (2,558)

Dividends paid to minorities (80) (117) (110) Dividend payable at end of year 4 15 20

35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests 35.1 Acquisitions By Telkom Africa Online Limited (‘Africa Online’) On February 23, 2007 Telkom acquired a 100% shareholding of Africa Online from African Lakes Corporation for a total cost of R150 million, with a resulting goodwill of R145 million. Africa Online is an internet service provider active in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Africa Online is incorporated in the Republic of Mauritius. At acquisition date the company was not IFRS compliant and thus no fair value information based on IFRS was available. The process of calculating a fair value of the identified assets, liabilities and contingent liabilities continued after the preceding year end and has now been finalised. The fair value of the assets and liabilities acquired were determined as follows: Fair value of intangible assets (Licences R1 million, Brand R42 million) 43 Less: Deferred taxation raised on intangible assets (12) Less: Net liabilities acquired (excluding fair value of intangible assets) (26)

Fair value of net assets acquired 5 Goodwill 145

Purchase price 150 256 The goodwill has been allocated to the various cash-generating units (‘CGU’) representative of the countries in which Africa Online Limited operates. An impairment loss of R12 million was recognised relating to the Tanzanian and Ghana cash-generating units in 2008 in order to write down goodwill to the recoverable amount. The recoverable amount represents the value in use of the CGU’s and has been determined using 11.6% discount rate. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests (continued) 35.1 Acquisitions (continued) By the Group’s 50% joint venture, Vodacom Smartphone SP (Proprietary) Limited and subsidiaries (‘Smartphone SP’) On August 30, 2006 the Vodacom Group acquired a further 19% interest, 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 equity of Smartphone SP from 70% to 100%. The acquisition was accounted for using the parent entity extenstion method. Minority interest acquired 11 3 Goodwill 157 466

Purchase price (including capitalised cost) 168 469 Less: Capitalised costs payable – (1)

Purchase price 168 468

Smartcom (Proprietary) Limited (‘Smartcom’) On September 13, 2006 the Vodacom Group increased its interest 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 the equity of Smartcom from 88% to 100%. The acquisition was accounted for using the parent entity extension method. Minority interest acquired (

Goodwill 4 9 Telkom

Purchase price 4 9

The purchase price of R18 million (Group’s share: R9 million) was paid on 2008 Annual Report September 6, 2007.

Africell Cellular Services (Proprietary) Limited Effective October 1, 2006 the Vodacom Group acquired the cellular business of Africell Cellular Services (Proprietary) Limited. The fair value of the assets and liabilities acquired were determined as follows: Fair value of assets acquired 25 Less: Deferred taxation liability (including taxation effect on intangible assets) (7)

Fair value of net assets acquired 18 257 Goodwill 22

Purchase price 40

The customer base was not previously recorded in the accounting records of Africell Cellular Services (Proprietary) Limited as it was an internally generated intangible asset. The goodwill related to the acquisition represents future synergies and the ability to directly control Vodacom Group’s customers in South Africa. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests (continued) 35.1 Acquisitions (continued) By the Group’s 50% joint venture, Vodacom (continued) InterConnect s.p.r.l Effective November 1, 2006 the Vodacom Group acquired the internet service provider business of InterConnect s.p.r.l. The fair values of the assets and liabilities acquired were determined as follows: Fair value of assets acquired 6 Less: Deferred taxation liability (2)

Fair value of net assets acquired 4 Goodwill 6

Purchase price 10

The initial purchase price of R21 million (USD3 million) (Group share: R10 million) excluding capitalised costs was paid on November 1, 2006. The goodwill related to the acquisition represents future synergies and are allocated to the Democratic Republic of Congo cash-generating unit.

Cointel V.A.S. (Proprietary) Limited On August 1, 2005 the Vodacom Group acquired a 51% interest in the equity of Cointel V.A.S. (Proprietary) Limited. On October 4, 2006 the Vodacom Group increased its interest to 100% by acquiring 49% from the minority shareholders. The acquisition was accounted for using the parent entity extention method. The goodwill related to the acquisition represents future synergies and are allocated to the mobile South African cash-generating unit. Fair value of net assets acquired 47 – Minority interest (23) 28 Goodwill 18 45

Purchase price (including capitalised costs) 42 73 Cash and cash equivalents (42) –

Cash consideration – 73

On October 9, 2006 Smartphone SP (Proprietary) Limited, acquired a 100% shareholding of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited for R300 million (Group share: R150 million). As a result of the sale of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited to Smartphone SP (Proprietary) Limited, R38 million (Group share: R19 million) goodwill was realised, which resulted in the realisation of R17.4 million profit (Group share: 258 R8.7 million) on consolidation. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests (continued) 35.1 Acquisitions (continued) By the Group’s subsidiaries One Africa Television (Proprietary) Limited (‘One Africa Television’) and Downlink (Proprietary) Limited (‘Downlink’) On August 13, 2007 Telkom Media acquired a 49% shareholding in One Africa Television and Downlink respectively, two companies registered in the Republic of Namibia, for a total cost of R18 million. Telkom Media has management control and therefore the entities are consolidated into Telkom Media Group.

Purchase price 18

The purchase price allocation will be completed in the 2009 financial year as not all the information was available at year end to finalise it. Goodwill has not been tested for impairment as the accounting is provisional and has not been allocated to the various cash-generating units.

Multi-Links Telecommunications Limited (‘Multi-Links Telecommunications’) On May 1, 2007 Telkom acquired a 75% shareholding in Multi-Links Telecommunications through Telkom International, a wholly owned South African subsidiary, for a total cost of R1,985 million. Multi-Links Telecommunications is a Nigerian Private Telecommunications Operator with a Unified Access License providing fixed, mobile, data, long distance and international telecommunications services throughout Nigeria. Multi-Links is domiciled and incorporated in Nigeria.

At this stage Telkom has not taken a decision to dispose of any operations Telkom as a result of the combination. At acquisition date the company was not IFRS compliant and thus no fair Annual Report 2008 Annual Report value information based on IFRS was available. The purchase price allocation has been completed during the current year under review, and has resulted in goodwill being adjusted since the interim results has been released. The following intangible assets were identified and valued at the end of the year: Customer relationship 61 Licence 36 Brand 105 259 Fair value of intangible assets 202 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 35. Acquisition and disposals of subsidiaries, joint ventures and minority shareholders’ interests (continued) 35.1 Acquisitions (continued) By the Group’s subsidiaries (continued) Multi-Links Telecommunications Limited (‘Multi-Links Telecommunications’) (continued) The fair value of the assets and liabilities acquired were determined as follows: Net assets acquired (excluding fair value of intangible assets) 236 Fair value of intangible assets 202 Less: Contingencies recognised (35) Less: Deferred taxation raised on intangible assets (65)

Fair value of net assets acquired 338 Less: Minority interest (80) Goodwill 1,727

Purchase price* 1,985

*The purchase price was settled in cash.

Revenue amounting to R845 million and a profit of R23 million are included in the consolidated annual financial statements, since acquisition date. The factors that lead to goodwill recognised is a combination of premium paid and intangible assets not separately identifiable at acquisition. 35.2 Disposals of Subsidiaries By the Group’s 50% joint venture, Vodacom Ithuba Smartcall (Proprietary) Limited (‘Ithuba Smartcall’) On September 3, 2007 the Group disposed of its 52% interest in Ithuba Smartcall. The fair value of the assets and liabilities disposed of was less than R1 million.

Stand 13 Eastwood Road Dunkeld (Proprietary) Limited On September 3, 2007 the Group disposed of its 100% interest in Stand 13 Eastwood Road Dunkeld (Proprietary) Limited. The fair value of the assets and liabilities disposed were as follows: Carrying amount of net assets disposed of: 4 Gain on disposal 4

Selling price 8

260 The consideration was received on September 6, 2007. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

36. Undrawn borrowing facilities and guarantees 36.1 Rand denominated facilities and guarantees Telkom has general banking facilities of R5,935 million with R41 million utilised at March 31, 2008. The facilities are unsecured. When drawn bear interest at a rate linked to prime, have no specific maturity date and are subject to annual review. R2,000 million of these undrawn facilities were committed. The Group exposure is 50% of the following items: Vodacom has Rand denominated credit facilities totalling R5,788 million with R2,456 million utilised as at March 31, 2008. The facilities that are uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an annual basis). Certain of the facilities are still subject to the Group’s final acceptance.

2006 2007 2008 Guarantor Details Beneficiary Currency Rm Rm Rm

Vodacom (Proprietary) Limited All guarantees individually Various 3 3 2 less than R2 million. Vodacom Service Provider All guarantees individually Various 3 3 3 Company (Proprietary) Limited less than R2 million. Vodacom Service Provider Guarantee in respect of receipt SA Insurance Association 21 27 32 Company (Proprietary) Limited of independent intermediaries for benefit of insurers of premiums on behalf of short- term insurers and Lloyd’s under- writers, and relating to short-term insurance business carried on in RSA. Renewable annually. Smartcom (Proprietary) Limited Guarantees for salary bank Various 3 3 – account and debit orders. Cointel VAS (Proprietary) Limited Guarantees for operating lease Various – 1 – and debit orders. Vodacom (Proprietary) Limited Letter of undertaking Attorneys – 7 17 in respect of land. 30 44 54

36.2 Foreign denominated facilities

and guarantees Telkom Telkom SA Limited Punctual payment and Various USD3 million – – 23 performance by Africa Online

under the Trade Finance Facility. 2008 Annual Report 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 Canada Telecommunications Nortel Networks for the purchase Limited) of Telecommunications equipment phases – 9a, 9b, 9c and 9d. Zenith Bank Plc Guarantee payment to Gilat Gilat Satcom USD0.1 million – – 1 (on behalf of Multi-Links Satcom Limited in respect of Limited Telecommunications interconnect service (standby Limited) letter of credit). 261 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 wire Limited) 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 Limited Limited) 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 Limited Limited) telecommunications services. ––510 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

36. Undrawn borrowing facilities and guarantees (continued) 36.2 Foreign denominated facilities and guarantees (continued) The Group exposure is 50% of the following items: Vodacom Congo (RDC) s.p.r.l. has various facilities of USD19 million of which USD9 million was fully utilised as at March 31, 2008. Vodacom International Limited has a revolving term loan of USD180 million which was fully utilised at March 31, 2008. Vodacom Lesotho (Proprietary) Limited has overdraft facilities with various banks of M40 million of which MNil was utilised at March 31, 2008. VM, S.A.R.L. has an overdraft facility of USD0.5 million of which USDNil million was utilised at March 31, 2008. Foreign currency term facilities are predominantly US Dollar based, at various maturities and are utilised for bridging and short-term working capital needs.

2006 2007 2008 Guarantor Details Beneficiary Currency Rm Rm Rm

Nedbank on behalf of Unsecured standby Alcatel CIT 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. Commitments Capital commitments authorised 10,265 11,167 15,198

Fixed-line 6,500 7,000 7,000 Mobile 3,746 4,159 5,211 Other 19 8 2,987

Commitments against authorised capital expenditure 842 1,099 3,504

Fixed-line 197 506 652 Mobile 642 591 800 262 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

37. Commitments (continued) 2010 FIFA World Cup Commitments The FIFA World Cup commitments is an executory contract which requires Telkom to develop the fixed-line components of the necessary telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-line telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning, management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services. Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional and marketing rights that are exercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amounted to USD35 million.

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

Operating lease commitments and receivables

2008 Buildings 2,061 341 913 807 Rental receivable on buildings (266) (94) (169) (3) Transmission and data lines 709 134 490 85 Vehicles 1,444 233 1,211 – Equipment 13 10 3 – Sport and marketing contracts 680 282 395 3 Customer premises equipment receivables (84) (45) (39) –

Total 4,557 861 2,804 892

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 Telkom Customer premises equipment receivables (57) (30) (27) –

Total 2,438 974 1,026 438 Annual Report 2008 Annual Report

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 9 263

Customer premises equipment receivables The disclosed information relates to those arrangements which were assessed to be operating leases in terms of IAS17. The comparative information for 2006 is not disclosed as it was not considered to be material. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

37. Commitments (continued) Operating leases The Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are ten years with other leases signed for five and three years. The bulk of non-equipment related premises are for leases of three years to ten years. The majority of the leases normally contain an option clause entitling Telkom to renew the lease agreements for a period usually equal to the main lease term. The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%. Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the lease agreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of the premises. Future minimum lease payments under operating leases are included in the above note. Onerous leases for buildings, of which Telkom has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions. The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in the lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating lease commitments for vehicles are based on the new agreement which expires on March 31, 2013. In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other service provider during the five year period except for the rentals at airport which are utilised in cases of subsistence and travel as well as vehicles which are not part of the agreement. The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however, replaced by a new similar vehicle, the lease costs of the newest vehicle, will increase by the Consumer Price Index. All leased vehicles are, however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South African Reserve Bank. The leases of individual vehicles are renewed annually. The increase in the current year transmission and data line is attributable to Vodacom increasing their operating leases. The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25, 2005. In terms of these agreements the leases of individual equipment shall be valid for 36 months at a fixed fee for the entire period.

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

Finance lease commitments 2008 Building Minimum lease payments 2,182 161 871 1,150 Finance charges (1,029) (43) (603) (383)

Finance lease obligation 1,153 118 268 767

Equipment Minimum lease payments 16 4 12 – Finance charges (2) – (2) –

Finance lease obligation 14 4 10 –

Vehicles* Minimum lease payments 242 48 194 – Finance charges (59) (20) (39) –

264 Finance lease obligation 183 28 155 –

2007 Building Minimum lease payments 2,412 227 853 1,332 Finance charges (1,198) (166) (540) (492)

Finance lease obligation 1,214 61 313 840

Equipment Minimum lease payments 6 – 6 – Finance charges ––––

Finance lease obligation 6 – 6 –

*The finance lease commitments disclosed above are future commitments commencing April 1, 2008. Thus not recognised as interest-bearing debt. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

37. Commitments (continued) Finance lease commitments (continued) 2006 Building Minimum lease payments 2,644 217 908 1,519 Finance charges (1,372) (172) (587) (613)

Finance lease obligation 1,272 45 321 906

Finance leases Finance leases on vehicles relates to the lease of Swap bodies. Swap bodies are detachable parts of the vehicle, designed according to Telkom specifications, which are used as mobile storage. The lease term for the Swap bodies which have been classified as finance leases and vehicles which have been classified as operating leases has been renewed from April 2008 to April 2013. A major portion of the finance leases relates to the sale and lease-back of the Group’s office buildings. The lease term negotiated for the buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkom has the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claim damages. Finance charges accruing on one of the Group’s building leases exceed the lease payments for the next three years. Minimum lease payments for the next five years do not result in any income accruing to the Group. Finance leases on equipment relates to the reclassification of operating leases as the result of Telkom adopting IFRIC4, which requires assessment of whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfer significant risks and rewards of ownership to Telkom. Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for a period of 3 years ending in 2011. Other The group exposure is 50% of the following items: Global Alliance fees The Vodacom Group pays annual fees from February 18, 2005 for the services provided by Vodafone Group Plc. The fee is calculated as Telkom a percentage of revenue and amounts to R304 million (2007: R250 million; 2006: R175 million).

Retention incentives 2008 Annual Report The Vodacom Group has committed a maximum of R1,317 million (2007: R652 million; 2006: R456 million) in respect of customers already beyond their normal 24 month contract period, but who have not yet upgraded to new contracts, and therefore have not utilised the incentive available for such upgrades. The Group has not recognised the liability, as no legal obligation exists, since the customers have not yet entered into new contracts. Activation bonuses The Vodacom Group has a potential liability in respect of activation bonuses payable related to starter packs sold which have not yet been validated. The exposure is estimated at approximately R14 million (2007: R8 million; 2006: R9 million).

Activation commissions 265 The Vodacom Group has a commitment to a maximum of R119 million (2007: R116 milllion; 2006: R142 million) in terms of activation commissions on gross prepaid connections in excess of the legal liability recorded in the financial statements. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 38. Contingencies Third parties 35 28 27

Fixed-line 27 19 18 Mobile 3 4 4 Other 5 5 5

Third parties These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle. Supplier dispute Expenditure of R594 million was incurred up to March 31, 2002 for the development and installation of an integrated end-to-end customer assurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and in that year, Telkom wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of the Telcordia investment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia was seeking approximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plus interest at a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised by Telcordia to USD128 million. The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Following the ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was held in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of proposals and issues to form part of the quantum hearing. In the second hearing in London at the IDRC on June 25 and 26, 2007 the arbitrator set out a list of issues for determination of the damages. At a subsequent hearing during July 2007 in London the arbitrator ruled that the rate in terms of the Prescribed Rate of Interest will apply on both damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’s claim, where applicable, and set out an agreed timetable for the future conduct of proceedings. A mediation took place, without success, during February and April 2008. In the interim the parties have agreed to the appointment by the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. The arbitrator confirmed certain dates for the compliance of precedural steps to be taken by all the parties before final dates could be agreed upon for a hearing of the evidence on the quantum. A provision has been raised based on management’s best estimate of the probable payments in this regard.

2006 2007 2008 Rm Rm Rm

Supplier dispute liability included in current portion of provisions – 527 569* For the net increase in the provision refer to note 28.

* USD70 million. 266 Competition Commission If found guilty Telkom could be required to cease these practices, divest these businesses and a maximum administrative penalty of up to 10%, calculated with reference to Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for the financial year prior to the complaint date, may be imposed if it is found that Telkom has committed a prohibited practice as set out in the Competition Act, 1998 (as amended). The Competition Commissions has to date not imposed the maximum penalty on any offender. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

38. Contingencies (continued) Competition Commission (continued) This applies to the following cases: Independent Cellular Service Provider Association of South Africa ('ICSPA') This is a complaint in terms of the Competition Act, which was brought in 2002. ICSPA alleged that Telkom had entered into contracts with large corporations, providing large discounts with the effect of the discouraging the corporates from using the ‘premicell’ device installed by their members. ICSPA alleged various contraventions of the Act. Telkom provided the Competition Commission with certain information requested. Telkom also referred the Competition Commission to it's High Court application in respect of utilisation of the 'premicell' device. The Competition Commission declined to refer the matter to the Competition Tribunal. ICSPA then referred the matter to the Competition Tribunal on September 18, 2003 but has done nothing since, notwithstanding that Telkom filed its answering affidavit on November 28, 2003. ICSPA has taken no further action since then.

The South African Value Added Network Services (‘SAVA’) On May 7, 2002 SAVA, an association of Value Added Network Services (VANS) providers, filed complaints against Telkom at the Competition Commission Competition Act, 89 of 1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of 1998, and that it was engaged in price discrimination. The Competition Commission determined, among other things, that several aspects of Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the Competition Tribunal for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain VANS providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with certain VANS providers. Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the High Court, in respect of the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that the Independant Communications Authority of South Africa (‘ICASA’) has the requisite jurisdiction. Only the Competition Commission opposed the application and filed an answering affidavit. The application for review was heard on April 24 and 25, 2008. The High Court Judge agreed with Telkom’s arguments and set aside the decision of the Competition Commission to refer the SAVA complaints (and the Omnilink complaint against Telkom discussed below) to the Competition Tribunal. The decision was made based on three grounds: • The Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the Competition Commission and ICASA; Telkom • The referral was out of time; • The Competition Commission’s reliance on a report by the Link Centre created a reasonable apprehension of bias, since some of the

complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in the 2008 Annual Report SAVA complaints. The Judge did not make a decision on the matter of jurisdiction (whether ICASA or the Competition Tribunal has the right to rule on the competition matters in the communications industry). To date, the Competition Commission has not appealed the High Court ruling.

Omnilink Omnilink alleged that Telkom was abusing its dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter discussed above. 267 Orion/Telkom (Standard Bank and Edcon): Competition Tribunal In April 2003, Orion filed a complaint against Telkom, Standard Bank, and Edcon at the Competition Commission concerning Telkom offering discounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, the Competition Commission, who acts as an investigator, has one year to investigate the complaint. Orion simultaneously with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver discount plan. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

38. Contingencies (continued) Competition Commission (continued) Orion/Telkom (Standard Bank and Edcon): Competition Tribunal (continued) The Competition Commission completed its investigation and decided that there was no prima facie evidence on any contravention of the Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint before the Competition Tribunal. To date there has been no further developments on this matter. The Internet Service Providers Association (‘ISPA’) In December 2005, ISPA, an association of Internet Service Providers (‘ISPs’), filed complaints against Telkom at the Competition Commission regarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South African Internet Exchange (‘SAIX’), the prices offered by TelkomInternet, the alleged delay in provision of facilities to ISP’s and the alleged favourable installation timelines offered to TelkomInternet customers. The Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt to first investigate the latter aspects of the complaint. Telkom has provided the Competition Commission with the information and is awaiting the Commissions’ response.

M-Web and Internet Solutions (‘IS’) On June 29, 2005 M-Web and IS jointly lodged a complaint with the Competition Commission against Telkom and also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users of other ISP’s, the architecture of the ADSL access route and the manner in which ISP’s can only connect to the ESR via IP Connect as well as alleged excessive pricing for bandwidth on the international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom should maintain the peering link between IS and Telkom in terms of the current peering agreement, and demanded that Telkom treat traffic generated by the ADSL customers of M-Web as traffic destined for the peering link and that Telkom upgrades the peering link to accommodate the increased ADSL traffic emanating from M-Web and maintain a maximum of 65% utilisation. Telkom filed its answering affidavit, and is awaiting IS/M-Web’s replying affidavit. Since then Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information requests. To date there has been no further movement on this matter, either in the filing of a replying affidavit by IS/M-Web in the interim relief application or in the investigation of the matter by the Competition Commission.

M-Web On June 5, 2007 M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner in which Telkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief against Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not higher than the lowest retail price. M-Web further applied for an order that Telkom implement the migration of end customers from Telkom PSTS (ADSL access) to M-Web without interruption of the service. Although Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to ‘plead over’ as to the merits of the matter. Telkom also filed an application in the Transvaal Provincial Division of the High Court on July 3, 2007 for an order declaring that the Competition Tribunal does not have jurisdiction to hear the application made to it by M-Web. This application has been set down for hearing during the first quarter of the 2009 financial year. The parties have entered into settlement negotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as withdrawal of the jurisdictional challenge by Telkom. The parties are in further negotiations. 268 Salary negotiations Telkom is a party to a collective agreement on substantive matters covering the terms and conditions of employment of its fixed-line unionised employees and other non-management employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006 to March 31, 2009. The long term substantive agreement provides for the re-opening of negotiations in the event the consumer price index varies from the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations in December 2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade Union Federations especially COSATU have requested a double-digit increase. If Telkom is unable to implement workforce reductions as necessary or outsourcing as planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increased employee expenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted and our net profit could be reduced. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

38. Contingencies (continued) Negative working capital ratio At each of the financial periods ended March 31, 2008, 2007 and 2006 Telkom had a negative working capital ratio. A negative working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cash flows, new borrowings and borrowings available under existing credit facilities. The Group’s exposure is 50% of the following items: Equity investment The Vodacom Group through Vodacom Ventures (Proprietary) Limited has acquired a 35% equity stake in a X-Link Communications (Proprietary) Limited R12 million, which is subject to Competition Commission approval. The Board of Vodacom Group (Proprietary) Limited has also approved the exercise of the option to acquire a further 15.5% equity investment in WBS Holdings (Proprietary) Limited should certain suspensive conditions be fulfilled.

Customer registration The telecommunications industry in the Democratic Republic of the Congo is subject to a recently promulgated ministerial decree requiring the registration of the entire customer base of all network operators. This decree requires prescribed particulars of all customers to be obtained and maintained by June 30, 2008. The sanction for non-compliance by any operator who has not identified its customers in accordance with the requirements of this decree within three months from March 28, 2008 could result in: • a fine equivalent to between USD5 thousand and USD10 thousand per customer; and • suspension of the licence for a period not exceeding three months in the event of repetition; and • suspension of the licence in the event of a likely disturbance of law and order/safety. The Group is making every effort to obtain the required information but management believes it is unlikely that the Group will meet all the requirements as prescribed in this decree by June 30, 2008. Management is engaging with the relevant ministries on this matter and are presently unable to reliably assess the potential impact on the Group in the event of non-compliance with this decree.

The Group would be entitled to 50% of the following item: Contingent Asset Litigation is being instituted for the recovery of certain fees paid by the Vodacom Group. The information usually required by IAS37 Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation. The directors are of the opinion that a claim may be successful and that the amount recovered could be significant.

39. Directors’ interest DD Tabata, one of Telkom’s Board members is a director and shareholder of Vuwa Investments (Proprietary) Limited which acquired a 40%

interest in SAIL Group Limited, with effect from October 1, 2006. SAIL Group Limited is a sports marketing company that does business with Telkom Telkom. Telkom paid R17,094,884 for the financial year for these goods and services (2007: R18,682,568). The outstanding creditor’s balance in Telkom at March 31, 2008 was R855,000 (2007: R151,924). Vodacom paid R592,474,403 for goods and services from the SAIL

Group (2007: R599,958,860). The outstanding creditor’s balance in Vodacom as at March 31, 2008 was R21,260,584 (2007: 2008 Annual Report R18,951,705). Vuwa Investments is a consortium member of Amandla Omoya, who has bid to acquire a 10% stake in Vodacom. SL Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s board members, are the South African Government’s representatives on Telkom’s Board of Directors. At March 31, 2008 the Government held 39.42% (2007: 38.83%; 2006: 37.99%) of Telkom’s shares. As at March 31, 2008 A Rhoda (B Molefe resigned March 5, 2008; T. Mahloele resigned on January 30, 2008) was the Public Investment Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2008 the PIC held 15.23% (2007: 15.27%; 2006: 15.73%) of Telkom’s shares. On July 3, 2008 A Rhoda resigned and was replaced by B Molefe.

Beneficial Non-beneficial Number of shares Direct Indirect Direct Indirect 269

Directors shareholding 2008 Executive RJ September 7,155 – – – Total 7,155 – – –

2007 Non-executive TF Mosololi 455––– Total 455––– WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Beneficial Non-beneficial Number of shares Direct Indirect Direct Indirect

39. Directors’ interest (continued) Directors shareholding (continued) 2006 Non-executive NE Mtshotshisa – – – 88 TF Mosololi 455––– Total 455 – – 88

The directors’ shareholding did not change between the balance sheet date and the date of issue of the financial statements.

2006 2007 2008 Rm Rm Rm

Directors’ emoluments 15 7 36 Executive For other services 12 4 31 Non-executive For services as directors 3 3 5

Fringe Performance and other Fees Remuneration bonus benefits Total RRRRR

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 – – – 14,286 270 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

Fringe Performance and other Fees Remuneration bonus benefits Total RRRRR

39. Directors’ interest (continued) Directors’ emoluments 2007 Emoluments per director: Non-executive 2,641,168–––2,641,168 NE Mtshotshisa 463,050–––463,050 SL Arnold 353,719–––353,719 TCP Chikane 32,670–––32,670 B du Plessis 213,367–––213,367 PSC Luthuli 205,417–––205,417 TD Mahloele 166,667–––166,667 KST Matthews 109,643–––109,643 TF Mosololi 214,417–––214,417 M Mostert 232,417–––232,417 DD Tabata 175,367–––175,367 YR Tenza 321,767–––321,767 PL Zim 152,667–––152,667

Executive – 2,272,785 – 1,653,202 3,925,987 LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987

Total emoluments – paid by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155

2006 Emoluments per director: Non-executive 2,969,158–––2,969,158 Telkom NE Mtshotshisa 759,500–––759,500 TCP Chikane 181,022–––181,022

B du Plessis 254,391–––254,391 2008 Annual Report 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 12,247,587 271 LRR Molotsane* – 1,250,747 3,442,573 909,675 5,602,995 SE Nxasana – 935,713 3,627,689 2,081,190 6,644,592

Total emoluments – paid by Telkom 2,969,158 2,186,460 7,070,262 2,990,865 15,216,745

*Included in fringe and other benefits is a pension contribution for LRR Molotsane of R4,690 (2007: R295,462; 2006: R162,597), as well as a pension contribution for RJ September of R280,261 paid to the Telkom Retirement Fund, and a payment made in terms of a restraint of trade agreement. Included in remuneration for LRR Molotsane is a payment pursuant to a settlement agreement with Telkom. LRR Molotsane resigned from Telkom in April 2007 and RJ September was appointed CEO during November 2007. **Foreign Directors. #In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the best interest of the company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make recommendations to the Board on major transactions. During the year M Mostert led all efforts in this regard and was remunerated accordingly. Moreover in compliance with the principles of good governance, the Board took legal advice and established that there was not conflict of interest arising out of his involvement in the transaction evaluated. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 40. Segment information Eliminations represent the inter-segmental transactions that have been eliminated against segment results. Business Segment Consolidated operating revenue 47,625 51,619 56,285

Fixed-line 31,832 32,345 32,572 Elimination (737) (772) (830) Mobile 17,021 20,573 24,089 Elimination (1,435) (1,494) (1,519) Other 952 979 1,993 Elimination (8) (12) (20)

Consolidated other income 480 384 534

Fixed-line 465 334 497 Elimination (45) (46) (86) Mobile 50 42 56 Elimination – – – Other 10 54 67 Elimination – – –

Consolidated operating expenses 33,428 37,533 42,337

Fixed-line 22,454 24,083 24,962 Elimination (1,443) (1,495) (1,709) Mobile 12,635 15,185 17,898 Elimination (710) (755) (805) Other* 564 589 2,115 Elimination (72) (74) (124)

Consolidated operating profit 14,677 14,470 14,482

Fixed-line 9,843 8,596 8,107 Elimination 661 677 793 Mobile 4,436 5,430 6,247 Elimination (725) (739) (714) Other 398 444 (55) Elimination 64 62 104

Consolidated investment income 397 235 197

Fixed-line 2,720 3,041 3,975 Elimination (2,398) (2,850) (3,832) 272 Mobile 64 36 27 Other 11 8 27

Consolidated finance charges 1,223 1,125 1,803

Fixed-line 839 856 1,277 Mobile 384 269 240 Other – – 320 Elimination – – (34)

Consolidated taxation 4,523 4,731 4,704

Fixed-line 2,836 2,652 2,630 Mobile 1,542 1,918 2,055 Other 145 161 19 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

40. Segment information (continued) Business Segment (continued) Minority interests 139 203 197 Mobile 58 109 73 Other 81 94 124 Profit attributable to equity holders of Telkom 9,189 8,646 7,975 Fixed-line 8,888 8,129 8,175 Elimination (1,737) (2,173) (3,039) Mobile 2,516 3,170 3,906 Elimination (725) (739) (714) Other 183 197 (491) Elimination 64 62 138 Operating expenses* Other 2,115 Prior to consolidation adjustments 1,830 Consolidation adjustments 285

Consolidated assets 54,306 57,426 68,259 Fixed-line 43,121 44,224 47,829 Elimination (1,598) (1,547) (1,604) Mobile 12,263 14,026 16,743 Elimination (258) (353) (278) Other 905 1,188 5,734 Elimination (127) (112) (165) Investments 2,963 1,461 1,499 Fixed-line 3,093 1,621 4,917

Elimination (232) (341) (3,607) Telkom Mobile 102 181 176 Other – – 13 Annual Report 2008 Annual Report 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) 273 Mobile 6,466 7,416 8,871 Elimination (1,441) (1,468) (1,542) Other 319 374 971 Elimination (107) (67) (8) Interest-bearing debt 11,123 10,364 15,733 Fixed-line 9,888 9,082 13,362 Mobile 1,234 1,278 1,815 Other 1 4 556 Other financial liabilities 235 229 1,290 Fixed-line 205 58 167 Mobile 30 158 204 Other – 13 919 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

40. Segment information (continued) Business Segment (continued) Tax liabilities 1,549 594 323 Fixed-line 1,186 – 7 Mobile 315 556 290 Other 48 38 26

Total liabilities 28,078 27,138 37,035

Other segment information Capital expenditure for property, plant and equipment 6,310 8,648 10,108 Fixed-line 3,926 5,545 6,044 Mobile 2,350 3,069 2,475 Other 34 34 1,589 Capital expenditure for intangible assets 1,196 1,598 1,791 Fixed-line 974 1,049 749 Mobile 221 539 985 Other 1 10 57 Depreciation and amortisation 5,714 5,019 5,601 Fixed-line 4,176 3,298 3,470 Mobile 1,498 1,681 1,955 Other 40 40 176 Impairment and asset write-offs 162 296 529 Fixed-line 187 284 262 Mobile (26) 12 15 Other 1 – 252 Workforce reduction expense – Fixed-line 88 24 3

Geographical segment Consolidated operating revenue 47,625 51,619 56,285 South Africa 46,154 49,558 52,668 Other African countries 1,487 2,099 3,653 Eliminations (16) (38) (36) Consolidated operating profit 14,677 14,470 14,482 South Africa 14,665 14,366 14,343 Other African countries 131 294 245 Eliminations (119) (190) (106) 274 Consolidated assets 57,544 59,146 70,372 South Africa 56,479 56,797 63,772 Other African countries 2,015 3,489 8,785 Eliminations (950) (1,140) (2,185) Capital expenditure for property, plant and equipment and intangible assets* 7,506 10,246 11,899 South Africa 7,135 9,459 9,780 Other African countries 371 787 2,119 ‘South Africa’, which is also the country of domicile for Telkom, comprises the segment information relating to Telkom and its South African subsidiaries as well as Vodacom’s South African-based mobile communications network, the segment information of its service providers. Other African countries’ comprises Telkom’s subsidiaries Africa Online Limited and Multi-Links Telecommunications Limited as well as Vodacom’s mobile communications network in Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique. *The Geographical segment capital expenditure has been restated to include capital expenditure on intangible assets. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 41. Related parties Details of material transactions and balances with related parties not disclosed separately in the consolidated annual financial statements were as follows: With joint venture: Vodacom Group (Proprietary) Limited Related party balances Trade receivables 48 61 51 Trade payables (256) (353) (346) Related party transactions Revenue (710) (755) (816) Expenses 1,435 1,494 1,525 Audit fees 3 3 3 Revenue includes interconnect fees and lease and installation of transmission lines Expenses mostly represent interconnect expenses With shareholders: Government Related party balances Trade receivables 247 271 326 Related party transactions Revenue (2,304) (2,458) (2,623) With entities under common control: Major public entities Related party balances Trade receivables 39 59 28 Telkom Trade payables (2) (6) (25) The outstanding balances are unsecured and will be settled in cash in Annual Report 2008 Annual Report the ordinary course of business Related party transactions Revenue (370) (435) (486) Expenses 172 238 243 Rent received (17) (29) (21) Rent paid 56 27 22

275 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

41. Related parties (continued) Key management personnel compensation: (Including directors’ emoluments) Related party transactions Short-term employee benefits 157 176 231 Post-employment benefits 7 14 12 Termination benefits 12 – 27 Equity compensation benefits 6 8 29 Other long-term benefits 16 27 16 The fair value of the shares that vested in the current year is R12 million (2007: RNil; 2006: R3 million). Terms and conditions of transactions with related parties The sales to and purchases from related parties of telecommunication services are made at arms length prices. Except as indicated above, outstanding balances at the year-end are unsecured, interest free (except for interest charged on overdue telephone accounts) and settlement occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there have been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year ended March 31, 2008 the Group has not made any impairment of amounts owed by related parties (2007: RNil; 2006: RNil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

42. Investments in joint ventures Vodacom Group (Proprietary) Limited (‘Vodacom’) Telkom owns 5,000 shares of 1c each at cost. This amounts to a 50% shareholding in Vodacom. Vodacom is an entity that is jointly controlled by its venturers, Telkom and Vodafone Plc through a contractual agreement. Telkom applies joint venture accounting in recognising its investment in Vodacom since it shares control of Vodacom with Vodafone, as set out in the joint venture agreement between the two parties, and has chosen to proportionately consolidate Vodacom on a line-by-line basis. Some of the provisions in the joint venture agreement that indicate how the venturers jointly control the activities of Vodacom are as follows: • The venturers have the right to appoint the 8 non-executive directors of Vodacom. A further 4 executive directors are appointed to the Board; • A Directing committee has been established that holds all powers, functions and authority of the directors to act for and on behalf of the Company. This Directing committee constitutes only the directors as appointed by the venturers; • All decisions made by the Directing committee are mandatorily ratified by the Board of Directors as the ultimate decision lies with the Directing committee; and • The Directing committee, which is composed entirely of venturer appointed directors, is the ultimate oversight committee of, and controls the activities of, Vodacom.

276 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 Telkom Effect of exchange rate on cash and cash equivalents (8) 29 44 Cash and cash equivalent at beginning of year 1,085 880 (54) Annual Report 2008 Annual Report

Cash and cash equivalents at end of year 880 (54) 418

277 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

43. Interest in subsidiaries Country of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republic of Congo; MAU – Mauritius; NIG – Nigeria Nature of business: C – Cellular; S – Satellite; MSC – Management services company; PROP – Property company; OTH – Other. *Dormant at March 31, 2008.

Interest in issued Issued share capital ordinary share capital Country of 2006 2007 2008 2006 2007 2008 incorporation % % % Directory advertising (OTH) TDS Directory Operations (Proprietary) Limited RSA R100,000 R100,000 R100,000 64.9 64.9 64.9 Data application services (OTH) Swiftnet (Proprietary) Limited RSA R25,000,000 R5,000,000 R5,000,000 100 100 100 Other (OTH) Q-Trunk (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100 Intekom (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100 Rossal No 65 (Proprietary) Limited RSA R100 R100 R100 100 100 100 Acajou Investments (Proprietary) Limited RSA R100 R100 R100 100 100 100 Telkom Media (Proprietary) Limited RSA – R100 R100 –7575 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 100 100 100 278 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 279 – – – – – – % 99 30 26 74 Rm 100 100 100 100 100 100 100 100 100 100 100 100 100 100 841 326 2008 2 – 3 – – 100 –63 –– –––– –– –– Interest in issued Interest in issued 51 70 99 99 34 30 (continued) Rm Rm 100 100 100 100 100 100 100100 100 100 100 100 100100 100 100 100 100 100100 100 100 100 100 100 100 26.5 36.4 2006 2007 – – – 2008 R100 R100 R100 R100 R100 R810 R100 R120 R100 R100 R1,023 R1,200 R1,000 USD100 TZS10,000 Issued share capital ordinary share capital RSA R100 R100 RSA R100 R100 RSA R100 R100 RSA R100 R100 RSA R100 R100 RSA R1,000 R1,000 RSA RSA RSA MAU Country of 2006 2007 incorporation % % (continued) Intekom (Proprietary) Limited Acajou Investments (Proprietary) Limited RSA Swiftnet (Proprietary) Limited Vodacom International Limited (MSC)Vodacom MAU USD100 USD100 Vodacare (Proprietary) Limited (OTH)*Vodacare RSA R100 R100 Vodacom Satellite Services (Proprietary)Vodacom Limited (OTH)* RSAGSM Cellular (Proprietary) Limited (OTH)* No.1 (Proprietary) (OTH)* Limited Venture Vodacom R100 RSA RSA R100 R810 R1,200 R810 R1,200 Q-Trunk (Proprietary) Limited Q-Trunk Rossal No 65 (Proprietary) LimitedAfrica Online Limited RSA Telkom Media (Proprietary) LimitedTelkom RSA Indebtness of Telkom subsidiary companies Indebtness of Telkom Vodacom Ventures (Proprietary) Limited (OTH) Ventures Vodacom Skyprops 134 (Proprietary) Limited (PROP) RSA RSA R120 R120 – R100 Ithuba Smartcall (Proprietary) Limited (OTH)Smartcall Smartlife (Proprietary) Limited (OTH) Limited (Zanzibar) (OTH)* Tanzania Vodacom RSA RSAJoycell Shops (Proprietary) Limited (OTH)* TZN R100 TZS10,000 RSA – TZS10,000 R100 R100 R100 R100 Vodacom Properties No.2 (Proprietary) Vodacom Limited (PROP) Vodacom International Holdings Vodacom (Proprietary) Limited (MSC) Properties No.1 (Proprietary) Vodacom Limited (PROP) Vodacom Equipment Company (Proprietary) Vodacom Limited (OTH)* Other subsidiaries of the Group’s the Group’s Other subsidiaries of Joint Venture Service Provider Holdings Company Vodacom (Proprietary) (MSC)* Limited RSA R1,020 R1,020 Multi-Links Telecommunications LimitedMulti-Links Telecommunications NIG Stand 13 Eastwood Road Dunkeld West Stand 13 Eastwood Road Dunkeld West (Proprietary) Limited (PROP) Marble Gold Investments (Proprietary) Limited (OTH)* 43. Interest in subsidiaries for the three years ended March 31, 2008 years ended March for the three Notes to the consolidated annual financial statements financial annual to the consolidated Notes Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

44. Significant events Swiftnet (Proprietary) Limited Swiftnet is in breach of its 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 announced that it had entered into an agreement to sell a 30% stake in Swiftnet to the Radio Surveillance Consortium, a group of empowerment investors, for R55 million following a competitive sale process run by an independent adviser. The transaction would not have required any financial support or facilitation from Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not approved by ICASA. Swiftnet is currently seeking black economic empowered individuals or entities who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to discuss its specific licence terms and conditions. Swiftnet has submitted its comments on the draft licence terms and conditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkom as its sole shareholder, has had a further meeting with ICASA on February 27, 2008. It was decided that the draft amended licence that ICASA sent to Swiftnet during October 2007 would not form the basis of the conversion process, but instead the original licence issued to Swiftnet in August 1995 would be used as the basis for licence conversion. The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there is currently no agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholding issue for the Swiftnet 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 taken the decision to substantially reduce its investment in Telkom Media (Proprietary) Limited and will be investigating all opportunities to do this in the best interest of Telkom shareholders and all other stakeholders. Vodacom’s BBBEE equity deal Vodacom is in the process of finalising a R7.5 billion BBBEE (Broad-Based Black Economic Empowerment) equity deal whereby strategic business partners, employees and the black public will have an opportunity to share in the success of Vodacom South Africa going forward. Vodacom announced that transaction agreements were signed on June 20, 2008. Telkom is supportive of this transaction but is not in a position to comment on the impact of the proposed transaction on Telkom as the details relating to the transaction are expected to be announced by Vodacom in the third quarter of this calender year. Global Telematics SA (Proprietary) Limited On October 26, 2007 Vodacom Service Provider Company (Proprietary) Limited (‘VSPC’), entered into an agreement with Global Telematics SA (Proprietary) Limited (‘Global Telematics’). In terms of the agreement Glocell Service Provider Company (Proprietary) Limited (‘GSPC’), will cede, transfer and assign its agreements together with all of its obligations and its rights attaching to its customers connected to the Vodacom Network to Global Telematics. GSPC connects all voice contract customers and sells pre-paid packs on behalf of Global Telematics. VSCP will acquire the consolidated customers base from Global Telematics which will consist of active prepaid customers, active contract customers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive conditions are met the transactions would be effective.

280 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the consolidated annual financial statements (continued) for the three years ended March 31, 2008

45. Subsequent events Dividends The Telkom Board declared an annual dividend of R3,437 million or 660 cents per share on June 6, 2008 payable on July 7, 2008 for shareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge of R161 million. Mobile strategy and unlocking shareholder value Telkom informed the shareholders that on Friday, May 30, 2008, Telkom received a non-binding proposal from a wholly-owned subsidiary of Vodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, inter alia, the Company unbundling its remaining stake in Vodacom to Telkom shareholders. Separately, on Friday, May 30, 2008 Telkom received a letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Limited, affiliated funds of Och-Ziff Capital Management Group and other strategic funders (‘the Consortium’), which states that the Consortium is considering making an offer for the entire issued share capital of Telkom. The letter makes it clear that the offer will only be made if a number of pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacom as part of the offer. The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciary duties, will evaluate all bona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisite shareholder approvals. Telkom will advise shareholders of further developments in this regard in due course. VM, S.A.R.L. trading as Vodacom Mozambique Effective May 12, 2008 Vodacom International Limited sold 5% of its 90% owned equity investment in Vodacom Mozambique, leaving Vodacom International Limited with an 85% equity investment in Vodacom Mozambique. Certain suspensive conditions are to be met before the transaction will be effective. Capability Management Telkom will seek to manage costs by realigning its structure, employees and resources to better match its transforming information, communications and technology business and to improve customer service. The transformation of the communications industry and increasing market and competitive pressure has put communications companies such as Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result a capability management initiative has been launched which is designed to ensure that the capabilities needed to succeed in a converged communications market are established through the optimal utilisation of external Telkom as well as internal capabilities, extracting effiencencies, where possible, through scale of a rapidly maturing retail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market. The capability management initiative includes the internal consolidation of certain functional areas and the selection of strategic long-term partners with proven performance for other Annual Report 2008 Annual Report functional areas. The areas which are expected to be impacted are the call centers, operations, ancillary services, network service providers, network field operations, network core operations, information technology operations and retail outlets. Telkom Management Services On July 2, 2008, Telkom received confirmation from Cipro for the approval and reservation of a newly set-up company. The approved and reserved 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. 281 Other matters The directors are not aware of any other matters or circumstances since the consolidated annual financial statements for the financial year ended March 31, 2008 and the date of this report, or otherwise dealt with in the consolidated annual financial statements, which significantly affects the financial position of the Group and the results of it operations. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 282 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 283

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 annual financial statements WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 284

Company income statement

for the three years ended March 31, 2008

2006 2007 2008 Notes Rm Rm Rm

Total revenue 3.1 34,772 35,818 36,641

Operating revenue 3.2 31,829 32,340 32,571 Other income 4 534 655 498 Operating expenses 22,423 24,089 24,953

Employee expenses 5.1 6,310 7,077 7,386 Payments to other operators 5.2 6,140 6,461 6,902 Selling, general and administrative expenses 5.3 2,832 3,970 3,904 Service fees 5.4 2,022 2,236 2,410 Operating leases 5.5 755 762 619 Depreciation, amortisation, impairment and write-offs 5.6 4,364 3,583 3,732

Operating profit 9,940 8,906 8,116 Investment income 6 2,733 3,202 3,739 Finance charges and fair value movements 7 1,320 1,027 1,289

Interest 1,222 1,142 1,499 Foreign exchange and fair value movement 98 (115) (210)

Profit before taxation 11,353 11,081 10,566 Taxation 8 2,838 2,690 2,599

Profit for the year 8,515 8,391 7,967

284 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Company balance sheet at March 31, 2008

2006 2007 2008 Notes Rm Rm Rm Assets Non-current assets 35,867 37,533 43,360

Property, plant and equipment 9 30,488 32,614 35,273 Intangible assets 10 2,867 3,502 3,806 Investments 11 2,133 887 3,883 Finance lease receivables 13 – 136 160 Deferred taxation 14 299 340 183 Deferred expenses 24 80 54 55

Current assets 9,658 7,754 8,722

Short-term investments 11 16 – – Inventories 15 526 839 873 Income tax receivable 30 – 519 – Current portion of finance lease receivables 13 – 71 105 Trade and other receivables 16 5,628 5,920 6,859 Other financial assets 17 256 229 443 Cash and cash equivalents 18 3,232 176 442

Total assets 45,525 45,287 52,082

Equity and liabilities Capital and reserves 23,690 25,714 26,693

Share capital and premium 19 6,791 5,329 5,208 Treasury share reserve 20 (1,786) (1,778) (1,642) Share-based compensation reserve 21 151 257 643 Retained earnings 18,534 21,906 22,484

Non-current liabilities 11,413 6,580 11,181 Telkom Interest-bearing debt 22 7,245 3,308 7,336 Provisions 23 2,631 1,203 1,445 Deferred revenue 25 769 739

870 2008 Annual Report Deferred taxation 14 768 1,330 1,530

Current liabilities 10,422 12,993 14,208

Trade and other payables 26 4,040 4,333 4,923 Shareholders for dividend 31 4 15 20 Current portion of interest-bearing debt 22 2,643 5,775 6,026 Current portion of provisions 23 1,149 1,706 1,640 Current portion of deferred revenue 25 1,216 1,107 1,424 Income tax payable 30 1,164 – 7 Other financial liabilities 17 206 57 168 285

Total liabilities 21,835 19,573 25,389

Total equity and liabilities 45,525 45,287 52,082 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Company statement of changes in equity

for the three years ended March 31, 2008

Treasury Share-based Share Share share compensation Retained capital premium reserve reserve earnings Total Rm Rm Rm Rm Rm Rm

Balance at April 1, 2005 5,570 2,723 (1,789) 68 15,033 21,605 Total income and expense – Profit for the year 8,515 8,515 Dividend declared (refer to note 31) (5,014) (5,014) Increase in share-based compensation reserve (refer to note 21) 86 86 Shares 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 23,690 Total income and expense – Profit for the year 8,391 8,391 Dividend 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) 141 141 Shares 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 25,714 Total income and expense – Profit for the year 7,967 7,967 Dividend declared (refer to note 31) (5,863) (5,863) Increase in share-based compensation reserve (refer to note 21) 522 522 Shares 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

286 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Company cash flow statement for the three years ended March 31, 2008

2006 2007 2008 Notes Rm Rm Rm

Cash flows from operating activities 6,783 6,349 7,722

Cash receipts from customers 31,683 32,109 32,375 Cash paid to suppliers and employees (18,329) (19,483) (20,163)

Cash generated from operations 27 13,354 12,626 12,212 Interest received 469 385 390 Dividends received 28 1,901 2,950 3,536 Finance 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 13,580 Dividend 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 4 164 Additions 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 23,878 Loans 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) 266 Net 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 Telkom Annual Report 2008 Annual Report

287 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements

for the three years ended March 31, 2008

1. Corporate information The principal effects of these changes are discussed below. Telkom SA Limited (’the Company’) is a company incorporated Adoption of amendments to standards and new and domiciled in the Republic of South Africa (’South Africa’) interpretations whose shares are publicly traded. The Company’s main objective The following revised standards and interpretations have been and main business is to supply telecommunication, broadcasting, adopted during the year under review: multimedia, technology, information and other related information technology services to the general public. The principal activities Amendment to IAS1 Presentation of Financial Statements of the Company’s services and products include: This amendment is effective for annual periods beginning on or after January 1, 2007. As a result of the pronouncement of IFRS7 • fixed-line subscription and connection services to postpaid, Financial Instruments: Disclosures, IAS1 has been amended to prepaid and private payphone customers using PSTN lines, require the disclosure of the entity’s objective, policies and including ISDN lines, and the sale of subscription based value- processes for managing capital, quantitative data about what the added voice services and customer premises equipment rental entity regards as capital, whether the entity has complied with and sales; any capital requirements and if it has not complied, the • fixed-line traffic services to postpaid, prepaid and payphone consequences of such non-compliance. The impact of this customers, including local, long distance, fixed-to-mobile, amendment has been disclosed under note 12. international outgoing and international voice-over-internet protocol traffic services; IFRS7 Financial Instruments: Disclosures • interconnection services, including terminating and transiting This standard is effective for annual periods beginning on or after January 1, 2007. IFRS7 supersedes disclosures in IAS32. All traffic from South African mobile operators, as well as from financial instruments disclosures will now be provided in terms of international operators and transiting traffic from mobile to IFRS7. One of the main disclosure requirements added by IFRS7 international destinations; is that an entity must group its financial instruments into classes • fixed-line data services, including domestic and international of similar instruments, and when disclosures are required, make data transmission services, such as point-to-point leased disclosures by class. IFRS7 also requires information about the lines, ADSL services, packet-based services, managed data significance of financial instruments and information about the networking services and internet access and related information nature and extent of risks arising from financial instruments. The technology services; and impact of this standard is to expand on certain disclosures relating • e-commerce, including internet access service provider, to financial instruments and requires certain additional disclosures application service provider, hosting, data storage, e-mail and (refer to note 12). security services. IFRIC8 Scope of IFRS2 These separate annual financial statements are prepared in The interpretation is effective for annual periods beginning on or compliance with the South African Companies Act, 1973. In after May 1, 2006. The interpretation clarifies that IFRS2 applies addition, the Group presents consolidated financial statements to transactions in which an entity receives goods or services as which include all subsidiaries, special purpose entities and joint consideration for equity instruments of the entity. This includes ventures, which are included in these financial statements transactions in which the entity cannot identify specifically some as investments. or all of the goods or services received. The impact of the 2. Significant accounting policies interpretation on the annual financial statements is not material since the Company has not transacted with other parties using Basis of preparation equity as a purchase consideration for the transaction, other than The financial statements comply with the International Financial those paid to employees in share-based payment transactions. 288 Reporting Standards (’IFRS’) of the International Accounting Standards Board (’IASB’) and the Companies Act of South IFRIC9 Reassessment of Embedded Derivatives Africa, 1973. The interpretation is effective for annual periods beginning on or after June 1, 2006. The interpretation clarifies that an entity The financial statements are prepared on the historical cost basis, should assess whether an embedded derivative is required to be with the exception of certain financial instruments and share-based separated from the host contract and accounted for as a derivative payments which are measured at grant date fair value. Details of when the entity first becomes a party to the contract. It further the Company’s significant accounting policies are set out below, clarifies that reassessment is only allowed when there is a change and are consistent with those applied in the previous financial in the terms of the contract which significantly modifies the cash year except for the following: flows that would otherwise be required under the contract. The • adoption of the amendment to IAS1; and interpretation does not have an impact since the Company does • adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10 and IFRIC11. not have embedded derivatives. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 289 (continued) Joint Ventures on IAS28 Investments in Associates; IAS31 Interests in on IAS27 Consolidated and Separate Financial Statements Consequential amendments arising from revisions to IFRS3 required Amendments to IAS28 and IAS31 extend the treatment 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 investment in the amount of the associate at the date significant influence is lost. A similar treatment is required when an investor loses joint control over a IFRS8 Operating The possible impact of this standard is jointly controlled entity. Segments This standard is effective for annual periods beginning on or after currently being evaluated. 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 the entity’s operating segments and also about about an entity’s products and services, the geographical areas in which it operates, and its major customers. IFRS8 further requires the entity to segments operating disclose factors used to identify the entity’s and type of products and services from which each operating segment derives its revenues. The impact of this standard is currently being evaluated. Consequential amendments arising from revisions ownership The revised IAS27 specifies that changes in a parent’s to IFRS3 interest in a subsidiary that do not result in the loss of control gain or loss is must be accounted for as equity transactions. No not re-measured. recognised on such transactions and goodwill is Interest Any difference between the change in the Non Controlling or received is and the fair value of the consideration paid the owners of recognised directly in equity and attributed to the parent. for the acquisition, including the fair value of any contingent including the fair for the acquisition, to be measured at fair value at the consideration payable standard only permitsacquisition date. The revised subsequent of contingent consideration as a changes to the measurement result of additional information that about facts and circumstances date. All other changes (e.g. changes existed at the acquisition after the acquisition date such as the resulting from events acquiree meeting an earnings share target, reaching a specified on a research and development price, or meeting a milestone project) are recognised in profit or loss. expensed. Acquisition-related costs are now required to be and business Business combinations involving only mutual entities been included combinations achieved by contract alone have also in IFRS3. (continued) (continued) IFRIC10 Interim Financial Reporting and Impairment applying the acquisition method IFRS3 Business Combinations-comprehensive revisionThe revised standard is effective for annual periods beginning on on or after July 1, 2009. The revised IFRS3 requires the consideration The Company has not early adopted the following standards, The Company has not early adopted the following interpretations and amendments that have been issued and are not yet effective: IFRS2 Vesting Conditions andThis amendment is effective for annual periods beginning on or Cancellations after January 1, 2009. The amendment to IFRS2 Share-based Payment clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based arrangement. All features of a share-based payment arrangement other than service conditions and performance conditions will be considered to be non-vesting conditions. IFRS2 (as revised) specifies that, when estimating the fair value of equity instruments granted, an entity shall take into account all non-vesting conditions (i.e. all conditions other than service and performance conditions) and vesting conditions that are market conditions (i.e. equity conditions that are related to the market price of the entity’s instruments – for example, attaining a specified share price). The impact of this amendment is currently being evaluated. Accounting pronouncements not yet adopted IFRIC11, IFRS2 – Group beginning on or The interpretation is effective for annual periods and Treasury Share Transactions that regardless after March 1, 2007. The interpretation clarifies to buy equity of whether the entity chooses or is required instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement by delivery of its own shares, the transaction should be accounted regardless for as equity settled. This interpretation also applies instruments rights to the equity were of whether the employee’s or was settled granted by the entity itself or by its shareholders payments by the entity itself or its shareholders. Share-based own equity instruments in which the Group involving the Group’s chooses or is required to buy its own equity instruments to settle the share-based payment obligation are currently accounted for under IFRS2. as equity-settled share-based payment transactions The interpretation has had no impact on the Company annual financial statements. Adoption of amendments to standards and new Adoption of amendments interpretations for annual periods beginning on or The interpretation is effective The interpretation clarifies that an entity after November 1, 2006. should not reverse an impairmentin a previous loss recognised of goodwill or an investment in either interim period in respect an equity instrument or financial classified as available for sale asset carried at cost. The interpretation has had no impact on the annual financial statements. for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) the right to receive cash from the grantor for construction services. The interpretation provides guidance on the recognition and Accounting pronouncements not yet adopted (continued) measurement of the various aspects of service concession IAS1 Presentation of Financial Statement (revised) arrangements from an operator’s perspective. The impact of this The revised standard is effective for annual periods beginning interpretation is currently being evaluated. on or after January 1, 2009. The changes made to IAS1 require IFRIC13 Customer Loyalty Programmes information in financial statements to be aggregated on the basis The interpretation is effective for annual periods beginning on or of shared characteristics and to introduce a statement of after July 1, 2008. The interpretation addresses accounting by comprehensive income. This will enable users to analyse changes entities that grant loyalty award credits (such as ’points’ or travel in a company’s equity resulting from transactions with owners in miles) to customers who buy other goods or services. It specifically their capacity as owners (such as dividends and share repurchases) requires these entities to recognise the obligation to provide free or separately from ’non-owner’ changes (such as transactions with discounted goods or services (’awards’) to customers who redeem third parties). The revised standard gives preparers of financial award credits. The interpretation requires companies to estimate the statements the option of presenting items of income and expense value of the points to the customer and defer this amount of and components of other comprehensive income either in a single revenue and recognise a liability until they have fulfilled their statement of comprehensive income with subtotals, or in two obligations to supply awards. In effect, the award is accounted for separate statements. as a separate component of the sale transaction. The possible The revisions include changes in the titles of some of the financial impact of this interpretation is not expected to be significant as the statements to reflect their function more clearly. The new titles Company does not have customer loyalty programmes. will be used in accounting standards, but are not mandatory for use in financial statements. The impact of this standard will be that IFRIC14 The Limit on a Defined Benefit Asset, Minimum the presentation of the financial statements will change. Funding Requirements and their Interaction The interpretation is effective for annual periods beginning on IAS23 Borrowing Costs or after January 1, 2008. The interpretation addresses the The revised standard requires all borrowing costs that are directly interaction between a minimum funding requirement and the limit attributable to the acquisition, construction or production of a placed by paragraph 58 of IAS19 on the measurement of the qualifying asset to be capitalised. The revised Standard applies to defined benefit asset. When determining the limit on a defined borrowing costs relating to qualifying assets for which the benefit asset in accordance with IAS19.58, IFRIC14 requires an commencement date for capitalisation is on or after January 1, entity to measure any economic benefits available to them in the 2009. The Company does not expect the adoption of the standard form of refunds or reductions in future contributions at the to have a material impact since the Company has always applied maximum amount that is consistent with the terms and conditions the allowed alternative of capitalising borrowing costs under the of the plan and any statutory requirements in the jurisdiction of current standard. the plan. The interpretation states that the employer only needs to have an unconditional right to use the surplus at some point Amendment to IAS32 Financial Instruments Presentation during the life of the plan or on its wind up in order for a surplus and IAS1 Presentation of Financial Statements, puttable to be recognised. The Company is currently evaluating the financial instruments potential impact that the interpretation will have on the financial The amendment is effective for annual periods beginning on or position or results of operations. after January 1, 2009. In January 2008, the IASB amended IAS32 and IAS1 Presentation of Financial Statements with respect Significant accounting judgements and estimates to the balance sheet classification of puttable financial instruments The preparation of financial statements requires the use of and obligations arising only on liquidation. As a result of the estimates and assumptions that affect the reported amounts of amendments, some financial instruments that currently meet the assets and liabilities and disclosure of contingent assets and definition of a financial liability will be classified as equity because liabilities at the date of the financial statements and the reported they represent the residual interest in the net assets of the entity. amounts of revenue and expenses during the reporting periods. The impact of this standard is currently being evaluated. Although these estimates are based on management’s best 290 IFRIC12 Service Concession Arrangements knowledge of current events and actions that the Company may undertake in the future, actual results may ultimately differ from The interpretation is effective for annual periods beginning on or those estimates. after January 1, 2008. The interpretation clarifies that contractual service arrangements do not convey the right to control the use The presentation of the results of operations, financial position of the public service infrastructure to the operator, instead the and cash flows in the financial statements of the Company is operator acts as a service provider. The infrastructure under these dependent upon and sensitive to the accounting policies, arrangements shall therefore not be recognised as the property, assumptions and estimates that are used as a basis for the plant and equipment of the operator. The operator shall recognise preparation of these financial statements. Management has made and measure revenue in accordance with IAS11 and IAS18 for the certain judgements in the process of applying the Company’s services it performs. The operator should recognise the asset as accounting policies. These, together with the key assumptions an intangible asset for the right (or licence) it receives to charge concerning the future, and other key sources of estimation the users of the public service or as a financial asset when it has uncertainty at the balance sheet date, are as follows: WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 291 (continued) Leases The determination of whether an arrangement is, or contains a the fulfilment at the date of inception, lease is based on whether, of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. A lease is Deferred taxationclassified as a finance lease if it transfers substantially all the risks asset Management judgement is exercised when determining the and rewards incident to ownership. probability of future taxable profits which will determine whether deferred tax assets should be recognised or derecognised. The realisation of deferred tax assets will depend on whether it is possible to generate sufficient taxable income, taking into account any legal restrictions on the length and nature of the taxation asset. When deciding whether to recognise unutilised taxation credits, management needs to determine the extent that future payments are likely to be available for set-off. In the event that the assessment of future payments and future utilisation changes, the change in the recognised deferred tax asset must be recognised in profit or loss. Impairment of other financial management assesses whether there At each balance sheet date assets are indicators of impairment equity of financial assets, including exists, the estimated present value investments. If such evidence that asset is determined.of the future cash flows of Management judgement is required when determining the expected future cash determine is prolonged, whether the decline in fair value flows. To regarding the reliance is placed on an assessment by management impairments,future prospects of the investee. In measuring business quoted market prices are used, if available, or projected Impairment of receivablesplan information from the investee is used for those financial An impairment is recognised on trade receivables that are assessed assets not carried at fair value. to be impaired. The impairment is based on an assessment of the already extent to which customers have defaulted on payments payments based due and an assessment on their ability to make on their credit worthiness and historical write-offs experience. condition of the Should the assumptions regarding the financial from customer change, actual write-offs could differ significantly the impaired amount. value in use include projected revenues, gross margins, average value in use include projected capital expenditure, expected revenue per asset component, share. The judgements, assumptions customer bases and market can have a material impact on the fair and methodologies used value and ultimately the amount of any impairment. (continued) (continued) intangible assets Property, plant and equipment and intangible assets Impairment of property, plant and equipment andManagement is required to make judgements concerning the cause, timing and amount of impairment. In the identification of impairment indicators, management considers the impact of changes in current competitive conditions, cost of capital, availability of funding, technological obsolescence, discontinuance of services and other circumstances that could indicate that an impairment exists. The Company applies the impairment assessment to its separate cash-generating units. This requires management to make significant judgements concerning the existence of impairment indicators, identification of separate cash- generating units, remaining useful lives of assets and estimates of projected cash flows and fair value less costs to sell. Management judgement is also required when assessing whether a previously recognised impairment loss should be reversed. Where impairment indicators exist, the determination of the recoverable amount of a cash-generating unit requires management to make assumptions to determine the fair value less costs to sell and value in use. Key assumptions on which management has based its determination of fair value less costs to sell include the existence of binding sale agreements, and for the determination of Asset retirement obligationsManagement judgement is exercised when determining whether determiningan asset retirement obligation exists, and in the discount rate present value of expected future cash flows and arises, as well when the obligation to dismantle or restore the site as the estimated useful life of the related asset. Significant accounting judgements and Significant accounting estimates estimation. are based on management’s The useful lives of assets the impact of changes in technology, Management considers customer service of capital funding and requirements, availability required return on assets and equity to determine the optimum for each of the individual categories of useful life expectation assets. Due to the plant and equipment and intangible property, rapid technological advancement in the telecommunications plan to migrate to a next industry as well as the Company’s estimation of generation network over the next few years, the basis due to useful lives could differ significantly on an annual of the The impact unexpected changes in the roll-out strategy. plant and equipment change in the expected useful life of property, of residual is described more fully in note 5.6. The estimation judgement values of assets is also based on management’s of their useful whether the assets will be sold or used to the end time. lives and what their condition will be like at that a tangible and For intangible assets that incorporate both intangible portion, management uses judgement to assess which element is more significant to determine whether it should be or intangible assets. plant and equipment treated as property, for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) on the market prices prevailing at that date, applicable to the Significant accounting judgements and period over which the obligation is to be settled. estimates (continued) The Company provides equity compensation in the form of the Telkom Conditional Share Plan to its employees. The related Taxation expense and reserve are determined through an actuarial valuation. The Company has historically filed, and continues to file, all The assumptions include employee turnover percentages and required income tax returns. Management believes that the whether specified performance criteria will be met. Changes to principles applied in determining the Company’s tax obligations are these assumptions could affect the amount of expense ultimately consistent with the principles and interpretations of South Africa’s recognised in the financial statements. An actuarial valuation relies tax laws. heavily on the actual plan experience assumptions as disclosed in Management has made a judgement that all outstanding tax note 24. credits relating to Secondary Tax on Companies (‘STC’) will be available for utilisation before the tax regime change is effective, Provisions and contingent liabilities despite the change of STC to withholding tax. Management judgement is required when recognising and measuring provisions and when measuring contingent liabilities The tax rules and regulations in South Africa are highly complex as set out in notes 23 and 34 respectively. The probability that and subject to interpretation. Additionally, for the foreseeable an outflow of economic resources will be required to settle the future, management expects South African tax laws to further obligation must be assessed and a reliable estimate must be made develop through changes in South Africa’s existing tax structure as of the amount of the obligation. Provisions are discounted where well as clarification of the existing tax laws through published the effect of discounting is material based on managements interpretations and the resolution of actual tax cases. judgement. The discount rate used is the rate that reflects current The Company is regularly subject to evaluation, by the South African market assessments of the time value of money and, where tax authorities, of its historic income tax filings and in connection appropriate, the risks specific to the liability, all of which requires with such reviews, disputes can arise with the taxing authorities management judgement. The Company is required to recognise over the interpretation or application of certain tax rules to the provisions for claims arising from litigation when the occurrence Company’s business. These disputes may not necessarily be of the claim is probable and the amount of the loss can be resolved in a manner that is favourable for the Company. reasonably estimated. Liabilities provided for legal matters require Additionally the resolution of the disputes could result in an judgements regarding projected outcomes and ranges of losses obligation for the Company that exceeds management’s estimate. based on historical experience and recommendations of legal Deferred taxation rate counsel. Litigation is however unpredictable and actual costs incurred could differ materially from those estimated at the Management makes judgements on the tax rate applicable based balance sheet date. on the Company’s expectations at balance sheet date on how the asset is expected to be recovered or the liability is expected to Held-to-maturity financial assets be settled. Management has reviewed the Company’s held-to-maturity Employee benefits financial assets in the light of its capital management and liquidity requirements and have confirmed the Company’s positive intention The Company provides defined benefit plans for certain post- and ability to hold those assets to maturity. employment benefits. The Company’s net obligation in respect of defined benefits is calculated separately for each plan by estimating Revenue recognition the amount of future benefits earned in return for services rendered. To reflect the substance of each transaction, revenue recognition The obligation and assets related to each of the post-retirement criteria are applied to each separately identifiable component of benefits are determined through an actuarial valuation. The a transaction. In order to account for multiple-element revenue assumptions determined by management make use of information arrangements in developing its accounting policies, the Company obtained from the Company’s employment agreements with staff considered the guidance contained in the United States Financial and pensioners, market related returns on similar investments, Accounting Standards Board (’FASB’) Emerging Issues Task Force 292 market related discount rates and other available information. The No 00-21 Revenue Arrangements with Multiple Deliverables. assumptions concerning the expected return on assets and expected Judgement is required to separate those revenue arrangements change in liabilities are determined on a uniform basis, considering that contain the delivery of bundled products or services into long-term historical returns and future estimates of returns and individual units of accounting, each with its own earnings process, medical inflation expectations. In the event that further changes in when the delivered item has stand-alone value and the undelivered assumptions are required, the future amounts of post-retirement item has fair value. Further judgement is required to determine the benefits may be affected materially. relative fair values of each separate unit of accounting to be The discount rate reflects the average timing of the estimated allocated to the total arrangement consideration. Changes in the defined benefit payments. The discount rate is based on long-term relative fair values could affect the allocation of arrangement South African government bonds with the longest maturity period consideration between the various revenue streams. as reported by the Bond Exchange of South Africa. The discount Judgement is also required to determine the expected customer rate is expected to follow the trend of inflation. relationship period. Any changes in these assessments may have The overall expected rate of return on assets is determined based a significant impact on revenue and deferred revenue. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 293 (continued) Deferred taxation is accounted for using the balance sheet liability method on all temporary differences at the balance sheet date between tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is not provided on the initial recognition of goodwill or initial recognition of assets or liabilities which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss. Sundry revenue Sundry is recognised when the economic benefit flows to revenue the Company and the earnings process is complete. Interest on debtors’ accounts the effective Interest is raised on overdue accounts by using statement. interest rate method and recognised in the income incurred.Marketing costs are recognised as an expense as Investment income date that the Dividends from investments are recognised on the Company is entitled to the dividend. Interest is recognised on a time proportionate basis taking into account the principal amount outstanding and the effective interest rate. Taxation Current taxation The charge for current taxation is based on the results for the year and is adjusted for non-taxable income and non-deductible expenditure. Current taxation is measured at the amount expected to be paid to the taxation authorities, using taxation rates and laws that have been enacted or substantively enacted by the Deferredbalance sheet date. taxation Postpaid long distance, network-to-network, Revenue related to local, roaming and international call connection services is recognised the connection provided. when the call is placed or Interconnection for call termination,Interconnection revenue transit and call as the traffic flow occurs. network usage is recognised Data servicesThe Company provides data communication under postpaid and prepaid payment arrangements. Revenue includes fees for installation and activation, which are deferred over the incurredexpected average customer relationship period. Costs on first time installations that form an integral part of the network are average capitalised and depreciated over the life of the expected and activation customer relationship period. All other installation costs are expensed as incurred. Postpaid and prepaid service arrangements include subscription fees, typically monthly fees, which are recognised over the subscription period. and recognised based on actual usage or upon expiration of the and recognised based on comes first. usage period, whichever (continued) Payphones Payphone service coin revenue is recognised when the service is provided. Payphone service card revenue collected in advance is deferred Prepaid traffic service revenue collected in advance is deferred and recognised based on actual usage or upon expiration of the usage period, whichever comes first. The terms and conditions of certain prepaid products allow the carry over of unused minutes. Revenue related to the carry over of unused minutes is deferred until usage or expiration. Traffic (Domestic, Fixed-to-mobile and International) Subscriptions, connections andcommunication The Company provides telephone and data other usage services postpaid and prepaid payment arrangements. under which are Revenue includes fees for installation and activation, deferred and recognised over the expected customer relationship period. Costs incurred on first time installations that form an integral part of the network are capitalised and depreciated over the expected average customer relationship period. All other installation and activation costs are expensed as incurred. Postpaid and prepaid service arrangements include subscription fees, typically monthly fees, which are recognised over the subscription period. Revenue related to sale of communication equipment, products and value-added services is recognised upon delivery and acceptance of the product or service by the customer. Dealer incentives payphone card The Company provides incentives to its retail based on sales distributors as trade discounts. Incentives are cards is recorded volume and value. Revenue for retail payphone cards are used. as traffic revenue, net of these discounts as the Summary policies of significant accounting Operating revenue and data communication servicesThe Company provides fixed-line products. The Company provides such and communication-related services customers. Revenue to business, residential and payphone of fixed or determinablerepresents the fair value consideration is receivable. that has been received or Revenue for servicesat amounts invoiced to is measured Added Tax. customers and excludes Value an arrangement,Revenue is recognised when there is evidence of collectability is probable, and the delivery of the product or service has occurred. In certain into circumstances, revenue is split when the separately identifiable components and recognised the substance related components are delivered in order to reflect of the transaction. The value of components is determined using not provide verifiable objective evidence. The Company does customers with the right to a refund. Prepaid for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) asset is available for use on a straight-line basis over the estimated Taxation (continued) 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. Deferred taxation (continued) Idle assets continue to attract depreciation. A deferred tax asset is recognised to the extent that it is probable The estimated useful life of individual assets and the depreciation that future taxable profits will be available against which the method thereof are reviewed on an annual basis at balance sheet associated unused tax losses, unused tax credits and deductible date. The depreciable amount is determined after taking into temporary differences can be utilised. The carrying amount of account the residual value of the asset. The residual value is the deferred tax assets is reviewed at each balance sheet date and is estimated amount that the Company would currently obtain from reduced to the extent that it is no longer probable that the related the disposal of the asset, after deducting the estimated cost of tax benefit will be realised, except in respect of deductible disposal, if the asset were already of the age and in the condition temporary differences associated with investments in subsidiaries, expected at the end of its useful life. The residual values of assets associates and interest in joint ventures. Deferred income tax are reviewed on an annual basis at balance sheet date. assets are recognised only to the extent that it is probable that Assets under construction represent freehold buildings, operating temporary differences will reverse in the foreseeable future, and software, network and support equipment and includes all direct taxable profit will be available against which the temporary expenditure as well as related borrowing costs capitalised, but differences can be utilised. excludes the costs of abnormal amounts of waste material, Deferred tax relating to items recognised directly in equity is labour, or other resources incurred in the production of self- recognised in equity and not in the income statement. constructed assets. Deferred tax assets and liabilities are measured at the tax rates Freehold land is stated at cost and is not depreciated. Amounts paid by the Company on improvements to assets which are held that are expected to apply to the period when the asset is in terms of operating lease agreements are depreciated on a realised or the liability is settled, based on tax rates (and tax straight-line basis over the shorter of the remaining useful life of laws) that have been enacted or substantively enacted by the the applicable asset or the remainder of the lease period. Where balance sheet date. it is reasonably certain that the lease agreement will be renewed, Deferred tax assets and deferred tax liabilities are offset, if a the lease period equals the period of the initial agreement plus the legally enforceable right exists to set off current tax assets against renewal periods. current tax liabilities and the deferred taxes relate to the same The estimated useful lives assigned to groups of property, plant taxable entity and the same taxation authority. and equipment are:

Secondary taxation on companies Years Secondary taxation on companies (’STC’) is provided for at a Freehold buildings 15 to 40 rate of 10% (12.5% before October 1, 2007) on the amount by Leasehold buildings and improvements 7 to 25 which dividends declared by the Company exceeds dividends Network equipment received. Deferred tax on unutilised STC credits is recognised to the Cables 20 to 40 extent that STC payable on future dividend payments is likely to Switching equipment 5 to 18 be available for set-off. Transmission equipment 5 to 18 Property, plant and equipment Other 2 to 20 Support equipment 5 to 13 At initial recognition acquired property, plant and equipment are Furniture and office equipment 11 to 15 recognised at their purchase price, including import duties and Data processing equipment and software 5 to 10 non-refundable purchase taxes, after deducting trade discounts Other 2 to 15 294 and rebates. The recognised cost includes any directly attributable costs for preparing the asset for its intended use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from The cost of an item of property, plant and equipment is recognised its use or disposal. Any gain or loss arising on derecognition of the as an asset if it is probable that the future economic benefits asset (calculated as the difference between the net disposal associated with the item will flow to the Company and the cost proceeds and the carrying amount of the asset) is included in the of the item can be measured reliably. income statement in the year the asset is derecognised. Property, plant and equipment is stated at historical cost less Assets held under finance leases are depreciated over their accumulated depreciation and any accumulated impairment losses. expected useful lives on the same basis as owned assets or, where Each component of an item of property, plant and equipment with shorter, the term of the relevant lease if there is no reasonable a cost that is significant in relation to the total cost of the item is certainty that the Company will obtain ownership by the end of depreciated separately. Depreciation is charged from the date the the lease term. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 295 (continued) Impairment of property, plant and equipment and Impairment of property, intangible assets than financial The Company regularly reviews its assets, other instruments, and cash-generating units for any indication of impairment. When indicators, including changes in technology, market, economic, legal and operating environments occur and unit’s or cash-generating could result in changes of the asset’s estimated recoverable amount, an impairment test is performed. The recoverable amount of assets or cash-generating units is measured using the higher of the fair value less costs to sell and its value in use, which is the present value of projected cash flows covering the remaining useful lives of the assets. Impairment carrying value exceeds its losses are recognised when the asset’s estimated recoverable amount. Where applicable, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Previously recognised impairment losses, other than for goodwill, are reviewed annually for any indication that it may no longer exist or may have decreased. If any such indication exists, the recoverable amount of the asset is estimated. Such impairment losses are reversed through the income statement if the recoverable amount has increased as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying would have been amount that determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years. Impairment on goodwill is not reversed. Asset retirement obligations Asset retirement plant and related to property, Asset retirement obligations assets are recognised at the present equipment and intangible cash flows when the obligation to value of expected future site arises. The increase in the related dismantle or restore the carrying depreciated over its estimated useful life. value is asset’s is included in finance charges and The unwinding of the discount in the measurement of an existing fair value movements. Changes in the estimated timing or amount liability that result from changes or a liability, of the outflow of resources required to settle the as increases or change in the discount rate, are accounted for Non-current assets held for sale assets. If the decreases to the original cost of the recognised Non-current assets and disposal groups are classified as held for amount deducted exceeds the carrying of the asset, the amount sale if their carrying amount will be recovered through a sale excess is recognised immediately in profit or loss. This condition is transaction rather than through continuing use. and the regarded as met only when the sale is highly probable sale in its asset (or disposal group) is available for immediate to the sale, present condition. Management must be committed as a complete which should be expected to qualify for recognition Assets are no sale within one year from the date of classification. this category. longer depreciated when they are classified into Non-current assets (and disposal groups) classified as held for carryingsale are measured at the lower of the assets’ previous amount and fair value less costs to sell. Years 4 to 5 to 4 5 to 10 (continued) Trademarks and copyrights Trademarks The expected useful lives assigned to intangible assets are: Intangible assets intangible assets are recognised at At initial recognition acquired importtheir purchase price, including duties and non-refundable trade discounts and rebates. The purchase taxes, after deducting any directly attributable costs for recognised cost includes its intended use. Internallypreparing the asset for generated at cost comprising all directly intangible assets are recognised attributable costs necessary prepare the asset to be to create and management. capable of operating in the manner intended by other intangible Licenses, software, trademarks, copyrights and assets are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisationwhen commences use and is the intangible assets are available for their intended expected recognised on a straight-line basis over the assets’ useful lives. Amortisation at the earlier of the date that ceases that the asset the asset is classified as held for sale and the date is derecognised. amount The residual value of intangible assets is the estimated that the Company would currently obtain from the disposal of the if the asset asset, after deducting the estimated cost of disposal, at the end were already of the age and in the condition expected residual value of its useful life. Due to the nature of the asset the by a third is assumed to be zero unless there is a commitment 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 the residual useful life, which can be used to estimate asset’s values. The residual values of intangible assets 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 intangibles 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. Assets under construction represent application and other non integral software and includes all direct expenditure as well as related borrowing costs capitalised, but exclude the costs of or other resources abnormal amounts of waste material, labour, incurred in the production of self-constructed assets. Intangible assets are derecognised when they have been disposed of or when the asset is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of assets are recognised in the income statement in the year in which they arise. Software for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) Financial assets at fair value through profit or loss Repairs and maintenance The Company classifies financial assets that are held for trading in the category ’financial assets at fair value through profit or The Company expenses all costs associated with repairs and loss’. This category includes bills of exchange and promissory maintenance, unless it is probable that such costs would result in notes. Financial assets are classified as held for trading if they are increased future economic benefits flowing to the Company, and acquired for the purpose of selling in the future. Derivatives not the costs can be reliably measured. designated as hedges are also classified as held for trading. On Borrowing costs remeasurement to fair value the gains or losses on held for trading financial assets are recognised in net finance charges and fair Financing costs directly associated with the acquisition or value movements for the year. construction of assets that require more than three months to Gains and losses arising from changes in the fair value of the complete and place in service are capitalised at interest rates ’financial assets at fair value through profit or loss’ category are relating to loans specifically raised for that purpose, or at the presented in the income statement within ’finance charges and fair weighted average borrowing rate where the general pool of value movements’ in the period which they arise. Dividend income Company borrowings was utilised. Other borrowing costs are from financial assets at fair value through profit or loss is expensed as incurred. recognised in the income statement as part of other income when the Company’s right to receive payment is established. Subsidiaries and joint venture Investments in subsidiaries, special purpose entities and joint Held-to-maturity assets ventures are carried at cost and adjusted for any impairment losses. The Company classifies non-derivative financial assets with fixed or determinable payments and fixed maturity dates as held-to- Inventories maturity when the Company has the positive intention and ability Installation material, maintenance and network equipment to hold to maturity. This category includes bills of exchange and inventories are stated at the lower of cost, determined on a promissory notes. These assets are subsequently measured at weighted average basis, or estimated net realisable value. amortised cost. Amortised cost is computed as the amount Merchandise inventories are stated at the lower of cost, initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method. determined on a first-in first-out (’FIFO’) basis, or estimated net This calculation includes all fees paid or received between parties realisable value. Write-down of inventories arises when, for to the contract. For investments carried at amortised cost, example, goods are damaged or when net realisable value is gains and losses are recognised in net profit or loss when the lower than carrying value. investments are sold or impaired.

Financial instruments Loans and receivables Recognition and initial measurement Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. All financial instruments are initially recognised at fair value, plus, Such assets are carried at amortised cost using the effective in the case of financial assets and liabilities not at fair value interest rate method. Trade receivables are subsequently measured through profit or loss, transaction costs that are directly attributable at the original invoice amount where the effect of discounting is to the acquisition or issue. Financial instruments are recognised not material. when the Company becomes a party to their contractual arrangements. All regular way transactions are accounted for on Available-for-sale financial assets settlement date. Regular way purchases or sales are purchases Available-for-sale financial assets are those non-derivative assets or sales of financial assets that require delivery of assets within that are designated as available-for-sale, or are not classified in any the period generally established by regulation or convention in of the three preceding categories. Equity instruments are all treated as available-for-sale financial instruments. After initial 296 the marketplace. recognition, available-for-sale financial assets are measured at fair Subsequent measurement value, with gains and losses being recognised as a separate Subsequent to initial recognition, the Company classifies financial component of equity, net of tax. assets as ’at fair value through profit or loss’, ’held-to-maturity Changes in the fair value of monetary securities denominated in investments’, ’loans and receivables’, or ’available-for-sale’. The a foreign currency and classified as available-for-sale are analysed measurement of each is set out below. between translation differences resulting from changes in amortised cost of the security and other changes in carrying The fair value of financial assets and liabilities that are actively amount of the security. The translation differences on monetary traded in financial markets is determined by reference to quoted securities are recognised in profit or loss, while translation market prices at the close of business on the balance sheet date. differences on non-monetary securities are recognised in equity. Where there is no active market, fair value is determined using Changes in the fair value of monetary and non-monetary securities valuation techniques such as discounted cash flow analysis. classified as available-for-sale are recognised in equity. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 297 (continued) Derecognition A financial instrument or a portionfinancial instrument of a will be or loss recognised when the Company’s derecognised and a gain financial assets are transferredcontractual rights expire, or On derecognition of a financial financial liabilities are extinguished. between the consideration and the the difference asset or liability, carrying settlement date is included in finance amount on the For available-for- for the year. charges and fair value movements revaluations sale assets, the fair value adjustment relating to prior of assets is transferred from equity and recognised in finance charges and fair value movements for the year. when the Bonds and commercial paper bills are derecognised The difference obligation specified in the contract is discharged. Impairment of financialbetween the carrying value of the bond and the amount paid to assets of whether At each balance sheet date an assessment is made charges and fair extinguish the obligation is included in finance there are any indicators of impairment of a financial asset or a value movements for the year. group of financial assets based on observable data about one or more loss events that occurred after the initial recognition of the equity securities asset or the group of assets. In the case of decline classified as available for sale, a significant or prolonged considered as an in the fair value of the security below its cost is such evidence indicator that the securities are impaired. If any loss – exists for available-for-sale financial assets, the cumulative 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. (continued) (continued) if it is acquired for the purpose of settling in the near term;if it is acquired for the purpose or if it is a derivative that is not designated and effective as a if it is a derivative that hedging instrument. New bonds and commercial paper bills issued are subsequently measured at amortised cost using the effective interest rate method. Bonds issued where the Company is a buyer and seller of last resort are carried at fair value. The Company does not actively trade in bonds. Capital and money market transactions Cash and cash equivalents Cash and cash equivalents are measured at amortised cost. This comprise cash on hand, deposits held on call and term deposits with an initial maturity of less than three months when purchased. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents defined above, net of credit facilities utilised. Put option A contract that contains an obligation for the Company to purchase its own equity instruments for cash or another financial asset gives rise to a financial liability and is accounted for at the present value of the redemption amount. On initial recognition its fair value is Subsequent changes in the liability reclassified directly from equity. are included in profit or loss. On expiry or exercise of the option the carrying directly to equity. value of the liability is reclassified Financial guarantee contractsmeasured at the Financial guarantee contracts are subsequently higher of the amount determined in accordance with IAS37 Assets or the Provisions, Contingent Liabilities and Contingent cumulative amount initially recognised less, when appropriate, amortisation, recognised in accordance with IAS18 Revenue. Other financial liabilities at amortisedOther financial liabilities are subsequently measured interest expense cost using the effective interest rate method, with on an recognised in finance charges and fair value movements, effective interest rate basis. discounts The effective interest rate is the rate that accurately life of the estimated future cash payments through the expected where appropriate, a shorter period. or, financial liability, • • Financial instruments as at fair value through profit or Financial liabilities are classified liability is either held for trading where the financial loss (’FVTPL’) FVTPL. or it is designated as at as held for trading: A financial liability is classified Financial liabilities at a FVTPL are stated at fair value, with any Financial liabilities at a FVTPL are stated at fair The net gain resultant gains or losses recognised in profit or loss. any interest paid or loss recognised in profit or loss incorporates on the financial liability. Financial liabilities at fair value through profit or loss for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2. Significant accounting policies (continued) Assets held under a finance lease are recognised in the balance Foreign currencies sheet and presented as a receivable at an amount equal to the net investment in the lease. The recognition of finance income is based The functional and presentation currency of the Company is the on a pattern reflecting a constant periodic rate of return on the net South African Rand (’ZAR’). investment in the finance lease. Transactions denominated in foreign currencies are measured at Employee benefits the rate of exchange at transaction date. Monetary items denominated in foreign currencies are remeasured at the rate of Post-employment benefits exchange at settlement date or balance sheet date whichever The Company provides defined benefit and defined contribution occurs first. Exchange differences on the settlement or translation plans for the benefit of employees. These plans are funded of monetary assets and liabilities are included in finance charges by the employees and the Company, taking into account and fair value movements in the period in which they arise. recommendations of the independent actuaries. The post- Treasury shares retirement telephone rebate liability is unfunded. Where the company acquires, or in substance acquires, its own Defined contribution plans shares, such shares are measured at cost and disclosed as a The Company’s funding of the defined contribution plans is reduction of equity. No gain or loss is recognised in profit or loss charged to employee expenses in the same year as the related on the purchase, sale, issue or cancellation of the Company’s own service is provided. equity instruments. Such shares are not remeasured for changes Defined benefit plans in fair value. The Company provides defined benefit plans for pension, Leases retirement, post-retirement medical aid benefits and telephone A lease is classified as a finance lease if it transfers substantially rebates to qualifying employees. The Company’s net obligation all the risks and rewards incidental to ownership. All other leases in respect of defined benefits is calculated separately for each plan are classified as operating leases. by estimating the amount of future benefits earned in return for Where the Company enters into a service agreement as a supplier services rendered. or a customer that depends on the use of a specific asset, and The amount recognised in the balance sheet represents the present conveys the right to control the use of the specific asset, the value of the defined benefit obligations, calculated by using the arrangement is assessed to determine whether it contains a projected unit credit method, as adjusted for unrecognised actuarial lease. Once it has been concluded that an arrangement contains gains and losses, unrecognised past service costs and reduced by a lease, it is assessed against the criteria in IAS17 to determine the fair value of the related plan assets. The amount of any surplus if the arrangement should be recognised as a finance lease or recognised and reflected as deferred expenses is limited to operating lease. unrecognised actuarial losses and past service costs plus the present value of available refunds and reductions in future The land and buildings elements of a lease of land and buildings contributions to the plan. To the extent that there is uncertainty are considered separately for the purposes of lease classification as to the entitlement to the surplus (i.e. no economic benefits unless it is impractical to do so. are available), no asset is recognised. No gain is recognised solely Lessee as a result of an actuarial loss or past service cost in the current Operating lease payments are recognised in the income statement period and no loss is recognised solely as a result of an actuarial on a straight-line basis over the lease term. gain or past service cost in the current period. Assets acquired in terms of finance leases are capitalised at the Actuarial gains and losses are recognised as employee expenses lower of fair value or the present value of the minimum lease when the cumulative unrecognised gains and losses for each payments at inception of the lease and depreciated over the lesser individual plan exceed 10% of the greater of the present value of 298 of the useful life of the asset or the lease term. The capital element the Company’s obligation and the fair value of plan assets at the of future obligations under the leases is included as a liability in beginning of the year. These gains or losses are amortised on a straight-line basis over ten years for all the defined benefit plans, the balance sheet. Lease finance costs are amortised in the income except gains or losses related to the pensioners in the Telkom statement over the lease term using a constant periodic rate of Retirement Fund or unless the standard requires faster recognition. interest. Where a sale and leaseback transaction results in a For the Telkom Retirement Fund, the cumulative unrecognised finance lease, any excess of sale proceeds over the carrying actuarial gains and losses in excess of the 10% corridor at the amount is deferred and recognised in the income statement over beginning of the year are recognised immediately. the term of the lease. Past service costs are recognised immediately to the extent Lessor that the benefits are vested, otherwise they are recognised on Operating lease revenue is recognised in the income statement on a straight-line basis over the average period the benefits a straight-line basis over the lease term. become vested. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 299 (continued) Short-term employee benefitsThe cost of all short-term benefits is recognised during employee services,the year the employees render unless the Company uses the services of employees in the construction of an asset and the recognition criteria of an asset, at which benefits received meet the plant and partstage it is included as of the related property, Provisions asset item. equipment or intangible when the Company has a present Provisions are recognised obligation (legal or constructive) it is as a result of a past event, to settle probable that an outflow of resources will be required of the amount the obligation, and a reliable estimate can be made balance sheet of the obligation. Provisions are reviewed at each date and adjusted to reflect the current best estimate. Where the amount of the effect of the time value of money is material, the expected to be provision is the present value of the expenditures required to settle the obligation. (continued) (continued) Share-based compensationThe grants of equity instruments, made to employees in terms of Conditional Share Plan, are classified as equity-settled the Telkom relating to the share-based payment transactions. The expense services by the employees, and the corresponding rendered the equity is measured at the fair value of increase in equity, instruments at their date of grant based on the market price at dividends during grant date, adjusted for the lack of entitlement to over the the vesting period. This compensation cost is recognised at each vesting period, based on the best available estimate balance sheet date of the number of equity instruments that are expected to vest. Workforce reduction when employment is reduction expenses are payable Workforce terminated before the normal retirement age or when an employee accepts voluntary in exchange for benefits. redundancy reduction benefits are recognised when the Company Workforce the expenses is demonstrably committed and it is probable that will be incurred. In the case of an offer made to encourage the measurement of termination benefits voluntary redundancy, accept theis based on the number of employees expected to offer. Employee benefits for over the period that the leave accruesAnnual leave is provided 22 days. and is subject to a cap of Leave benefits for the three years ended March 31, 2008 years ended March for the three 2. policies Significant accounting Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 3. Revenue 3.1 Total revenue 34,772 35,818 36,641

Operating revenue 31,829 32,340 32,571 Other income (excluding profit on disposal of property, plant and equipment, investments and intangible assets, refer to note 4) 210 276 331 Investment 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 6,330 Traffic 17,563 16,740 15,949

Domestic (local and long distance) 8,915 7,563 6,327 Fixed-to-mobile 7,647 7,646 7,557 International (outgoing) 1,001 988 986 Subscription based calling plans* – 543 1,079

Interconnection 1,654 1,639 1,757 Data 6,674 7,489 8,308 Sundry revenue 135 186 227

*The company has reclassified calling plans from domestic traffic into a separate revenue line item to disclose revenue earned from subscription based calling plans. Amounts for the year ended March 31, 2006 were not restated as they were considered to be immaterial.

4. Other income 534 655 498

Other income (included in Total revenue, refer to note 3) 210 276 331

Interest received from trade receivables 127 181 211 Other interest 7 8 37 Sundry income 76 87 83

Profit on disposal of property, plant and equipment and intangible assets 93 15 167 Profit 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 on the sale of Telkom properties in alignment with Telkom’s strategy of disposing non-core assets.

300 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 5. Operating expenses Operating expenses comprise:

5.1 Employee expenses 6,310 7,077 7,386

Salaries and wages 4,463 5,076 5,505 Medical aid contributions 357 377 407 Retirement contributions 383 439 460 Post-retirement pension and retirement fund (refer to note 24) (58) 33 5

Current service cost 4 5 5 Interest cost 364 329 509 Expected return on plan assets (454) (508) (713) Actuarial loss/(gain) 78 (136) (16) Settlement loss/(gain) – 21 (2) Asset limitation (50) 322 222

Post-retirement medical aid (refer to note 23) 362 329 277

Current service cost 47 83 84 Interest cost 247 285 321 Expected return on plan asset – (188) (257) Actuarial loss 64 149 129 Settlement loss 4 – –

Telephone rebates (refer to note 23) 19 104 27

Current service cost 3 4 3 Interest cost 16 19 22 Past service cost – 76 2 Actuarial loss – 5 –

Share-based compensation expense (refer to note 21 and 24) 127 141 522 Telkom Other benefits* 1,277 1,274 969 Employee expenses capitalised (620) (696) (786) Annual Report 2008 Annual Report *Other benefits include skills development, annual leave, performance incentive, 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 of interconnection with other network operators.

5.3 Selling, general and administrative expenses 2,832 3,970 3,904

Selling and administrative expenses 692 1,329 1,108 301 Maintenance 1,608 1,900 1,996 Marketing 378 604 583 Bad debts (refer to note 16) 154 137 217 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

5. Operating expenses (continued) 5.4 Services fees 2,022 2,236 2,410

Facilities and property management 1,107 1,140 1,221 Consultancy services 104 209 160 Security and other 772 833 978 Auditors’ remuneration 39 54 51

Audit services 31 53 51

Company auditors 28 47 46

Current year 26 47 43 Prior 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’s drive to minimise cable theft.

5.5 Operating leases 755 762 619

Land and Buildings 169 131 142 Equipment 77 79 49 Vehicles 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 3,062 Amortisation of intangible assets (refer to note 10) 387 305 408 Write-offs of property, plant and equipment and intangible assets 187 284 262

In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Company reviewed their remaining useful lives as at March 31. The assets affected were certain items included in Support equipment. The revised estimated useful lives of these assets as set out below, resulted in a decrease of the current year depreciation and amortisation charges of R196 million (2007: R942 million).

Previous life 302 Revised life Years Years

Property, plant and equipment Support equipment 8 – 13 5 – 13 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

6. Investment income 2,733 3,202 3,739

Interest received 335 196 142 Dividend received from joint venture 2,250 2,700 2,970 Dividend 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 from financial assets not at fair value through profit or loss. The increase in investment income is as a result of higher dividends being received 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 1,675 Foreign 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) 58 116 Fair 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 on financial liabilities not measured at fair value through profit or loss. Telkom Annual Report 2008 Annual Report

303 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 1,879 Overprovision for prior year (10) (33) –

Deferred taxation 113 521 357

Temporary differences – normal company taxation 148 561 255 Temporary difference – Secondary taxation on companies (’STC’) tax credits utilised/(raised) 51 (41) 157 Change 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 of useful lives, offset slightly by an increase in the STC tax credits.

The STC expense was provided for at a rate of 10% (12.5% before October 1, 2007) on the amount by which dividends declared by the Company exceeds dividends received. Deferred tax expense relating to STC credits are provided for at a rate of 10%.

Reconciliation of taxation rate %%% Effective rate 25.0 24.2 24.6 South African normal rate of taxation 29.0 29.0 29.0 Adjusted 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 1.8 STC tax credits utilised/(raised) 0.4 (0.4) 1.5 STC tax charge 2.5 2.7 3.4 Net 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 in determining the Company’s tax obligations are consistent with the principles and interpretations of South Africa’s tax laws.

304 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Accumulated Carrying Accumulated Carrying Accumulated Carrying Cost depreciation value Cost depreciation value Cost depreciation value Rm Rm Rm Rm Rm Rm Rm Rm Rm

9. Property, plant and equipment Freehold land and buildings 4,419 (1,809) 2,610 4,381 (1,829) 2,552 4,581 (1,988) 2,593 Leasehold buildings 509 (269) 240 496 (299) 197 534 (348) 186 Network equipment 48,220 (24,967) 23,253 49,780 (25,774) 24,006 52,952 (27,366) 25,586 Support equipment 3,396 (2,262) 1,134 3,584 (2,209) 1,375 3,863 (2,377) 1,486 Furniture and office equipment 330 (226) 104 345 (236) 109 372 (265) 107 Data processing equipment and software 4,712 (2,933) 1,779 4,758 (3,022) 1,736 4,951 (3,103) 1,848 Under construction 1,316 – 1,316 2,530 – 2,530 3,362 – 3,362 Other 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 focus on Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continue over the next few years. Fully depreciated assets with a cost of R498 million (2007: R1,225 million; 2006: R3,724 million) were derecognised in the 2008 financial year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment. Property, plant and equipment with a carrying value of R188 million (2007: R203 million; 2006: R246 million) are pledged as security. Details of 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 of

of year Additions Transfers reversals Disposals ciation year Telkom Rm Rm Rm Rm Rm Rm Rm

2008 2008 Annual Report Freehold land and buildings 2,552 198 22 (3) (8) (168) 2,593 Leasehold buildings 197 7 30 – – (48) 186 Network equipment 24,006 2,693 1,308 (96) (88) (2,237) 25,586 Support equipment 1,375 257 117 (7) – (256) 1,486 Furniture and office equipment 109 26 1 – – (29) 107 Data processing equipment and software 1,736 268 161 (14) – (303) 1,848 Under construction 2,530 2,588 (1,725) (31) – – 3,362 Other 109 7 10 – – (21) 105

32,614 6,044 (76) (151) (96) (3,062) 35,273 305

2007 Freehold land and buildings 2,610 102 (8) 17 – (169) 2,552 Leasehold buildings 240–––(14) (29) 197 Network equipment 23,253 2,599 847 (190) (240) (2,263) 24,006 Support equipment 1,134 352 105 (13) – (203) 1,375 Furniture and office equipment 104 11 5 – – (11) 109 Data processing equipment and software 1,779 303 (48) (9) – (289) 1,736 Under construction 1,316 2,163 (912) (37) – – 2,530 Other 52 16 72 (1) – (30) 109

30,488 5,546 61 (233) (254) (2,994) 32,614 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

Carrying Carrying value at Write-offs value at beginning and Depre- end of of year Additions Transfers reversals Disposals ciation year Rm Rm Rm Rm Rm Rm Rm

9. Property, plant and equipment (continued)

2006 Freehold land and buildings 2,627 56 172 (22) (21) (202) 2,610 Leasehold buildings 231 75 – – – (66) 240 Network equipment 23,554 552 2,035 (75) – (2,813) 23,253 Support equipment 1,138 53 166 (7) – (216) 1,134 Furniture and office equipment 124 7 3 (1) – (29) 104 Data processing equipment and software 1,734 251 241 (7) – (440) 1,779 Under construction 1,084 2,933 (2,626) (75) – – 1,316 Other 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 disposals are as a result of the Company applying IFRIC4 which requires assessment of whether an arrangement contains a lease. The leases are classified as a finance lease in terms of IAS17 since they transfer significant risks and rewards of ownership to the customer.

2006 2007 2008 Accumulated Carrying Accumulated Carrying Accumulated Carrying Cost amortisation value Cost amortisation value Cost amortisation value Rm Rm Rm Rm Rm Rm Rm Rm Rm

10. Intangible assets Trademarks and copyrights 52 (52) – 52 (52) – 197 (59) 138 Software 4,420 (2,616) 1,804 5,306 (2,913) 2,393 6,239 (3,312) 2,927 Under 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

306 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

Carrying Carrying value at Write-offs value at beginning and Amorti- end of of year Additions Transfers reversals Disposals sation year Rm Rm Rm Rm Rm Rm Rm

10. Intangible assets (continued) The carrying amounts of intangible assets can be reconciled as follows:

2008 Trademarks and copyrights – 144 – – – (6) 138 Software 2,393 250 688 (2) – (402) 2,927 Under construction 1,109 353 (612) (109) – – 741

3,502 747 76 (111) – (408) 3,806

2007 Software 1,804 323 575 (4) – (305) 2,393 Under construction 1,063 729 (636) (47) – – 1,109

2,867 1,052 (61) (51) – (305) 3,502

2006 Software 1,393 – 816 – (18) (387) 1,804 Under 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). No intangible asset has been assessed as having an indefinite useful life. Telkom Annual Report 2008 Annual Report

307 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

11. Investments 2,133 887 3,883 Joint venture Vodacom Group (Proprietary) Limited 50% shareholding at cost (R50) – – – Special purpose entity – cell captive Cost 1,891 535 535 Subsidiaries 215 352 3,348

TDS Directory Operations (Proprietary) Limited 64.90% shareholding at cost 167 167 167 Swiftnet (Proprietary) Limited 48 25 25

100% shareholding at cost 26 25 25 Prime minus 1% cumulative redeemable preference shares 20 – – Loan 2 – –

Rossal No 65 (Proprietary) Limited ––– 100% shareholding at cost (R100) – – – Acajou Investments (Proprietary) Limited 100% shareholding at cost (R100) – – – Intekom (Proprietary) Limited –1010

100% shareholding at cost 10 10 10 Loan 3 – – Impairment (13) – –

Q-Trunk (Proprietary) Limited –––

100% shareholding at cost 10 10 10 Loan 34 30 26 Impairment (44) (40) (36)

Telkom Media (Proprietary) Limited ––109

75% shareholding at cost (R2,868) – – – Loan – – 326 Impairment of loan – – (217)

Africa Online Limited – 150 212

100% shareholding at cost – 150 150 Impairment of investment – – (12) Loan – – 74

Multi-Links Telecommunications Limited* 308 Loan – – 840

Telkom Communications International (Proprietary) Limited 100% 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 net asset values. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

11. Investments (continued) Telkom Media (Proprietary) Limited (’Telkom Media’) On August 31, 2006 Telkom created a new subsidiary, Telkom Media with a Black Economic Empowerment (’BEE’) shareholding. The Independent Communications Authority of South Africa (‘ICASA’) awarded Telkom Media a commercial satellite and cable subscription broadcast licence 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 the board has taken the decision to substantially reduce its investment in Telkom Media and will be investigating all opportunities to do this in the best 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 announced that it had entered into an agreement to sell a 30% stake in Swiftnet to the Radio Surveillance Consortium, a group of empowerment investors, for R55 million following a competitive sale process run by an independent adviser. The transaction would not have required any financial support or facilitation from Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not approved by ICASA. Swiftnet is currently seeking black economic empowered individuals or entities who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to discuss its specific licence terms and conditions. Swiftnet has submitted its comments on the draft licence terms and conditions to ICASA that ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkom as its sole shareholder, has had a further meeting with ICASA on February 27, 2008. It was decided that the draft amended licence that ICASA sent to Swiftnet during October 2007 would not form the basis of the conversion process, but instead the original licence issued to Swiftnet in August 1995 would be used as the basis for licence conversion. The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there is currently no agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholding issue for the Swiftnet 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 Telecommunications Limited which is incorporated in Nigeria.

2006 2007 2008 Rm Rm Rm

Available-for-sale Telkom

Unlisted investment

Rascom 2008 Annual Report 0.69% (2007: 0.69%; 2006: 0.70%) interest in Regional African Satellite Communications Organisation, headquartered in Abidjan, Ivory Coast, at cost. – – –

Cost 1 1 1 Impairment (1) (1) (1)

Loans and receivables 43 – –

Tel.One (Pvt) Limited 32 – – The loan to Tel.One (Pvt) Limited was unsecured, interest-free and 309 was repayable through traffic revenue from June 2004 over five years. R41 million traffic was set off against the loan in the 2007 financial year, hence settling the full amount of the loan in advance.

Other receivables 11 – –

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) – – – WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management Exposure to continuously changing market conditions has made management of financial risk critical for the Company. Treasury policies, risk limits 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 manage currency and interest rate risks. In addition, financial instruments for example trade receivables and payables arise directly from the Company’s operations. The Company finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The Company 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 does not speculate in derivative instruments. The table below sets out the classification of financial assets and liabilities

At fair value through profit Financial or loss liabilities at Total held for ammortised Held-to- Loans and carrying Fair trading cost maturity receivables value Value Notes Rm Rm Rm Rm Rm Rm

2008 Classes of financial instruments per Balance Sheet Assets 443 – 265 7,035 7,743 7,743

Trade and other receivables* 16 – – – 6,593 6,593 6,593 Finance lease receivable 13 – – 265 – 265 265 Other 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)

310 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

At fair value through profit Financial and loss liabilities at Total held for ammortised Held-to- Loans and carrying Fair trading cost maturity receivables value Value Notes Rm Rm Rm Rm Rm Rm

12. Financial instruments and risk management (continued) Classification of financial assets and liabilities (continued) 2007 Classes of financial instruments per Balance Sheet Assets 229 – 207 5,931 6,367 6,367

Trade and other receivables* 16–––5,7555,7555,755 Finance lease receivable 13 – – 207 – 207 207 Other financial assets 229–––229229

Bills of exchange 17 98–––9898 Forward exchange contracts 17 131–––131131

Cash and cash equivalents 18–––176176176

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) Telkom

2006

Classes of financial instruments 2008 Annual Report per Balance Sheet Assets 256 – – 8,785 9,041 9,041

Trade and other receivables* 16–––5,5535,5535,553 Other financial assets 256–––256256

Bills of exchange 17 107–––107107 Forward exchange contracts 17 149–––149149

Cash and cash equivalents 18–––3,2323,2323,232 311 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). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.1 Fair value of financial instruments Fair value of all financial instruments noted in the balance sheet approximates carrying value except as disclosed below. The estimated net fair values as at March 31, 2008, have been determined using available market information and appropriate valuation methodologies as outlined below. This value is not necessarily indicative of the amounts that the Company could realise in the normal course of 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 carrying amount due to the short-term maturities of these instruments. The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments discounted at market interest rates. The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is used. These amounts reflect the approximate values of the net derivative position at the balance sheet date. The fair values of listed investments are based on quoted market prices. 12.2 Interest rate risk management Interest rate risk arises from the repricing of the Company’s forward cover and floating rate debt as well as incremental funding or new borrowings 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 mix in a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak additional borrowings, the Company makes use of interest rate derivatives as approved in terms of the Company policy limits. Fixed rate debt represents approximately 57.03% (2007: 98.83%; 2006: 99.14%) of the total debt. The debt profile of mainly fixed rate debt has been maintained to limit the Company’s exposure to interest rate increases given the size of the Company’s debt portfolio. There were no material changes in the policies and processes for managing and measuring interest rate risk in the 2008 financial year. The table below summarises the interest rate swaps outstanding as at March 31:

Notional Weighted Average amount average maturity Currency Rm coupon rate

2008 Interest rate swaps outstanding Pay fixed Zero ZAR – 0.00%

2007 Interest rate swaps outstanding Pay fixed < 1 year ZAR 1,000 14.67%

2006 Interest rate swaps outstanding Pay fixed 1 – 5 years ZAR 1,000 14.67%

Pay fixed 312 The floating rate is based on the three months JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest rate risk on debt instruments. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 12.3 Credit risk management Credit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Company is not exposed to significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Company from counterparties is a net favourable position of R289 million (2007: R103 million; 2006: R139 million). No collateral is required when entering into derivative contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Company limits the exposure to 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, financial assets held at fair value through profit or loss, loans and receivables and available-for-sale assets, (other than equity investments), the Company’s exposure to credit risk arises from a potential default by a counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management seeks to reduce the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counter party failure, limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles. Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where appropriate. The 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 future cash 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 period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before any pension payout can be made to the employee. There is no provision outstanding in respect of these contingencies. The fair value of the guarantee at March 31, 2008 was RNil (2007: RNil; 2006: RNil). There were no material changes in the exposure to credit risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year. The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:

Carrying amount 2006 2007 2008

Rm Rm Rm Telkom Trade receivables 3,709 3,831 4,316

Business and residential 1,955 1,924 1,824 2008 Annual Report Global, corporate and wholesale 1,533 1,701 1,950 Government 369 318 368 Other 35 41 334 Impairment of trade receivables (183) (153) (160)

Derivatives 256 229 443 Loans receivable 45 – 3,008 Other 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). 313 The ageing of trade receivables at the reporting date was:

2006 2007 2008 Rm Rm Rm

Not past due/current 3,372 3,250 3,654 Ageing of past due but not impaired 21 to 60 days 194 290 320 61 to 90 days 30 70 83 91 to 120 days 15 41 55 120+ days 98 180 204 3,709 3,831 4,316 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

12. Financial instruments and risk management (continued) 12.3 Credit risk management (continued) The ageing in the allowance for the impairment of trade receivables at reporting date was: Ageing of impaired trade receivables: Current defaulted 25 24 26 21 to 60 days 43 21 25 61 to 90 days 17 14 23 91 to 120 days 16 13 16 120+ 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 difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Company does not hold any collateral over these balances. 12.4 Liquidity risk management Liquidity 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 liquidity risk as a result of uncertain trade receivable related to cash flows as well as capital commitments of the Company. Liquidity risk is managed by Telkom’s Corporate Finance division in accordance with policies and guidelines formulated by Telkom’s Executive Committee. In terms of its borrowing requirements the Company ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term liquidity risk, the Company maintains a reasonable balance between the period over which assets generate funds and the period over which the respective assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills. There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year. The table below analyses the Company’s financial liabilities which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.

Carrying Contractual < 6 6 – 12 1 – 2 2 – 5 > 5 amount cash flows months months years years years Notes Rm Rm Rm Rm Rm Rm Rm

2008 Non-derivative financial liabilities Finance lease liabilities* 33 857 1,794 17 17 215 395 1,150 Interest bearing debt (excluding finance leases) 22 12,505 14,403 4,882 1,200 3,900 1,823 2,598 Trade and other payables 26 4,923 4,923 4,609 314 – – – Bank overdraft 18 414141–––– Derivative financial liabilities Forward exchange contracts 17 168 168 83 85 – – –

314 18,494 21,329 9,632 1,616 4,115 2,218 3,748 2007 Non-derivative financial liabilities Finance lease liabilities 33 852 1,903 59 61 137 356 1,290 Interest bearing debt (excluding finance leases) 22 8,231 10,416 1,350 4,680 – 1,806 2,580 Trade and other payables 26 4,333 4,333 3,887 446––– Derivative financial liabilities 175757516––– 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

Carrying Contractual < 6 6 – 12 1 – 2 2 – 5 > 5 amount cash flows months months years years years Notes Rm Rm Rm Rm Rm Rm Rm

12. Financial instruments and risk management (continued) 12.4 Liquidity risk management (continued) 2006 Non-derivative financial liabilities Finance lease liabilities 33 867 2,039 60 61 131 359 1,428 Interest bearing debt (excluding finance leases) 22 9,021 11,584 540 2,101 4,581 1,792 2,570 Trade 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 instruments suitable 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. The Company also enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitments denominated in foreign currencies (primarily USDs and Euros). The purpose of the Company’s foreign currency hedging activities is to protect the 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 managing and measuring the risk during the 2008 financial year. The following table details the foreign exchange forward contracts outstanding at year end:

Foreign contract value Forward value Fair value To buy m Rm Rm

2008 Telkom Currency USD 123 915 107 Annual Report 2008 Annual Report Euro 173 1,923 319 Other 40 166 17

3,004

2007 Currency USD 165 1,209 2 Euro 102 991 12 Other 68 80 2 315 2,280

2006 Currency USD 174 1,134 (51) Euro 79 631 (29) Other 96 130 (9)

1,895 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

Foreign contract value Forward value Fair value To sell m Rm Rm

12. Financial instruments and risk management (continued) 12.5 Foreign currency exchange rate risk management (continued) 2008 Currency USD 78 593 (67) Euro 69 803 (98) Other 22 105 (3)

1,501

2007 Currency USD 122 994 88 Euro 50 483 (5) Other 31 40 1

1,517

2006 Currency USD 128 954 140 Euro 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 table represents the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Company according to the different foreign currencies.

Euro USD Other Rm Rm Rm

2008 Net foreign currency monetary assets/(liabilities) Functional currency of company operation South African Rand 219 1 117 51

2007 Net foreign currency monetary assets/(liabilities) Functional currency of company operation South African Rand 282 90 70

2006 Net foreign currency monetary assets/(liabilities) 316 Functional currency of company operation South African Rand 213 (4) 148

Currency swaps There were no currency swaps in place at March 31, 2008, 2007 and 2006. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

12. Financial instruments and risk management (continued) 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 the balance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s profit for the year ended March 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, to the Company’s profit before tax.

Increase/decrease Effect on profit in foreign before tax exchange currency increase/(decrease) %Rm

2008 Rand appreciates USD +10 (117) EURO +10 (42)

Rand depreciates USD –10 117 EURO –10 42

2007 Rand appreciates USD +10 (18) EURO +10 (27)

Rand depreciates USD –10 18 Telkom EURO –10 27

2006 2008 Annual Report Rand appreciates USD +10 (11) EURO +10 (17)

Rand depreciates USD –10 11 EURO –10 17

317 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

12. Financial instruments and risk management (continued) 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 future development of the business. The Company monitors capital using net debt to equity ratio. The Company’s policy is to keep the debt equity ratio between 50% and 70%. Included in net debt are interest bearing loans and borrowings, other financial liabilities, less cash and cash equivalents 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 other investments opportunities and needs. All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their investment, while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from time to time. The determination to pay dividends, and the amount of the dividends, will depend upon, among other things the earnings, financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy back plans. The Company has access to financing facilities, the total unused amount which is R5,894 million at the balance sheet date. Capital comprises equity 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 2008 Rm 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% 318 47% WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

13. Finance lease receivables The Company provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to specific customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms of IAS17. 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 IFRS is presented on the basis of facts and circumstances existing at the beginning of that period. The effect of the application of this interpretation was not considered material for 2006, and therefore all cumulative adjustments were made during the 2007 financial year.

Total < 1 year 1 – 5 years > 5 years Rm Rm Rm Rm

2008 Minimum lease payments Lease payments receivable 345 135 210 – Unearned finance income (80) (30) (50) –

Present value of minimum lease payments 265 105 160 –

Lease receivables 265 105 160 –

2007 Minimum lease payments Lease payments receivable 273 92 181 – Unearned finance income (66) (21) (45) –

Present value of minimum lease payments 207 71 136 –

Lease receivables 207 71 136 –

14. Deferred taxation (469) (990) (1,347)

Opening balance (356) (469) (990) Income statement movements (113) (521) (357) Telkom Temporary differences (199) (520) (412)

Capital allowances 109 (467) (446) Provisions and other allowances (257) (94) 191 2008 Annual Report 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 299 340 183 319 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 tax expense when the dividends are declared. The asset is recognised as it is considered probable that it will be utilised in the future, given the Company’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, resulting from the change in the estimate of useful lives of assets. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 Trade receivables 3,709 3,831 4,316 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 liabilities Other 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 exchange The fair value of bills of exchange has been derived at with reference to BESA quoted prices.

Other financial liabilities consist of: At fair value through profit or loss 320 Derivative instruments (206) (57) (168) Derivative instruments are made up of forward exchange contracts of R168 million (2007: R26 million interest rate swaps and R31 million forward exchange contracts; 2006: R106 million interest rate swaps and R100 million forward exchange contracts). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 and lender at the time of drawdown, have no specific maturity date and are subject to annual review. The facilities are in place to ensure liquidity. At March 31, 2008, R2,000 million of these undrawn facilities were committed. Borrowing powers To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the borrowing powers of Telkom are unlimited, but are subject to restrictive financial covenants of the TL20 loan and the conditions and covenants of the Bridge Loan facility indicated on note 22.

2006 2007 2008 Rm Rm Rm 19. Share capital and premium Authorised and issued share capital and share premium are made up as follows:

Authorised 10,000 10,000 10,000 999,999,998 ordinary shares of R10 each 10,000 10,000 10,000 1 Class A ordinary share of R10 – – – 1 Class B ordinary share of R10 – – – Issued and fully paid 6,791 5,329 5,208 Telkom 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 – – – 2008 Annual Report 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 544,944,901 532,855,530 520,784,186 321 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-back During the financial year Telkom bought back 12,071,344 ordinary shares at a total consideration of R1,647 million. This reduced Share capital by R121 million and Retained earnings by R1,526 million. During the year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of R1,596 million. This reduced Share capital by R120 million, Share premium by R1,342 million and Retained earnings by R134 million. During the year ended March 31, 2006, Telkom bought back 12,086,920 ordinary shares at a total consideration of R1,502 million. This reduced 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 management Refer to note 12 for detailed capital management disclosure. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 Acajou Investments (Proprietary) Limited, respectively. The shares held by Rossal No 65 (Proprietary) Limited are reserved for issue in terms of the Telkom Conditional Share Plan (“TCSP”). In addition the Board of directors agreed that, subject to JSE Listings Requirements, the treasury shares held by Acajou Investments (Proprietary) Limited be made available to the TCSP to make up for the current shortfall in the share scheme after the additional grants made 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 the TCSP 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 reserve This reserve represents the cumulative fair value of the equity-settled share-based payment transactions recognised in employee expenses over the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 24). The Telkom Board approved the fourth enhanced allocation of shares to employees on September 4, 2007, with a grant date of September 27, 2007, the day that the employees and the Company shared a common understanding of the terms and conditions of this grant. A total of 6,089,810 shares were granted. The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007, with a grant date of September 27, 2007. The number of additional shares granted with respect to the 2006 allocation is 4,966,860. No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of the shares granted, commencing on the grant date. 322 The following table illustrates the movement within the Share-based compensation reserve:

Balance at beginning of year 68 151 257 Net increase in equity 83 106 386 Employee cost* 120 141 522 Accelerated vesting of shares (37) – – Vesting and transfer of shares – (35) (136)

Balance at end of year 151 257 643 At March 31, 2008 the estimated total compensation expense to be recognised over the vesting period was R2,151 million (2007: R580 million; 2006: R381 million), of which R522 million (2007: R141 million; 2006: R120 million) was recognised in employee expenses for the year. *The increase in the employee cost in the current financial year is mainly a result of the additional share allocations (refer to note 24). WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 22. Interest-bearing debt Long-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 14,403 Discount 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 1,283 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 Telkom 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

Total interest bearing debt is made up of R13,362 million debt at amortised 2008 Annual Report cost (2007: R8,985 million debt at amortised cost and R98 million debt at fair value through profit or loss; 2006: R9,780 million debt at amortised cost 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 subscription agreement (as amended) of the TL20 bond and the R1,600 million Bridge Loan facility, included in Call borrowings contains a number of restrictive financial covenants to be maintained by the Company at the following ratios: EBITDA to net interest expense ratio of no less than 3.5:1 and net interest bearing debt to EBITDA ratio of no greater than 3.0:1 which, if not 323 met, could result in the early redemption of the loan. The R1,600 million Bridge Loan facility and R2,000 million Term loan agreements limit the Company’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without the prior written consent of the Lenders, which will not be unreasonably withheld. The TL20, PP02, and PP03 local bonds limit Telkom’s ability to create encumbrances on revenues or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness.

Commercial paper bills 429 1,339 4,201 Rate p.a., nominal value 2008, 11.71% (2007: 9.04%; 2006: 7%), R4,383 million (2007: R1,350 million; 2006: R430 million) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

22. Interest-bearing debt (continued) (b) Foreign debt 85 106 140 Maturity, rate p.a., nominal value Euro: 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 of R174 million (2007: R197 million; 2006: R240 million) and office equipment with a book value of R14 million (2007: R6 million; 2006: R6 million) (refer to note 9). These amounts are repayable within periods ranging 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 4,537 140 A major portion of the guaranteed debt for the years ended March 31, 2007 and 2006 related to the TK01 debt instrument, however, this instrument has been redeemed in full during the year ended March 31, 2008. The Company may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. The borrowing powers of 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 of interest-bearing debt will depend on the market circumstances at the time of repayment. Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.

324 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

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 301 316 363 Charged to employee expenses 76 53 10 Leave 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 1,120 Interest cost 247 285 321 Current service cost 47 83 84 Expected return on plan asset – (188) (257) Actuarial loss 64 149 129 Settlement loss 4 – – Termination settlement (29) – – Plan asset – initial recognition – (1,720) – Contributions paid (153) (78) (61)

Telephone rebates (refer to note 24) 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 637 586 490

Balance at beginning of year 507 637 586 Telkom Charged to employee expenses 637 656 473 Payments made (507) (707) (569) Annual Report 2008 Annual Report Non-employee related 40 558 608

Supplier dispute (refer to note 34) – 527 569

Balance at beginning of year – – 527 Net movements – 527 42

Other 40 31 39

Less: Current portion of provisions (1,149) (1,706) (1,640)

Annual leave (316) (363) (364) 325 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) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

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 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 bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets. The bonus 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 of R42 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 benefits The Company provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund. Membership of one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate. The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory funding valuations for the retirement and pension funds are performed at intervals not exceeding three years. At March 31, 2008, the 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 and retirement funds for each of the financial periods presented. The Telkom Pension Fund The latest actuarial valuation performed at March 31, 2008 indicates that the pension fund is in a surplus position of R84 million after unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised). The last statutory funding valuation of the fund performed in March 2007, indicated that the fund is fully funded. The current contributions (plus an annual top-up lump sum if necessary) are based on that valuation. Management expects to complete the next statutory valuation in November 2008. With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007 a settlement event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund.

The funded status of the Telkom Pension Fund is disclosed below.

2006 2007 2008 Rm Rm Rm

The Telkom Pension Fund The net periodic pension costs includes the following components: Interest and service cost on projected benefit obligations 22 22 21 Expected return on plan assets (24) (19) (27) Recognised actuarial loss/(gain) 78 9 (16) 326 Settlement loss/(gain) – 21 (2) Asset limitation – – 29

Net periodic pension expense recognised 76 33 5

Pension fund contributions 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

24. Employee benefits (continued) The Telkom Pension Fund (continued) Plan assets at fair value: At beginning of year 231 243 284 Expected return on plan assets 24 19 27 Benefits paid (20) (2) (3) Contributions 26 10 8 Settlements – (61) (15) Actuarial (loss)/gain (18) 75 10

Plan assets at end of year 243 284 311

Present value of funded obligation 281 205 204 Fair 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 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 Telkom 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 2008 Annual Report Salary inflation rate (%) 6.0 6.0 7.5 Pension increase allowance (%) 2.9 2.9 4.3 The overall long-term expected rate of return on assets is 9.75%. This is based on the portfolio as a whole and not the sum of the returns of individual asset categories. The expected return takes into account the asset allocation of the Telkom Pension Fund and expected long-term return of these assets, of which South African Equities and foreign investments are the largest contributors. The assumed rates of mortality are determined by reference to the SA85-90 (Light) ultimate table, as published by the Actuarial Society of South Africa, for pre-retirement purposes and the PA(90) ultimate table, minus one year age rating as published by 327 the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%) 99.8 100.0 100.0 The number of employees registered under the Telkom Pension Fund 255 153 146

The fund portfolio consists of the following: Equities (%) 84 74 54 Bonds (%) 9 5 5 Cash (%) 7 3 23 Foreign investments (%)* – 16 18 Insurance policies (%) – 2 – The total expected contributions payable to the pension fund for the next financial year are R7 million.

*Includes offshore unit trusts. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

24. Employee benefits (continued) The Telkom Retirement Fund The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees occurred. The Telkom Retirement Fund is a defined contribution fund with regards to in-service members. On retirement, an employee is transferred from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom Retirement Fund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. The Company is unable to 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 the retirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding position of R1,368 million after unrecognised losses. The Telkom Retirement Fund is governed by the Pension Funds Act, No. 24 of 1956. In terms of section 37A of this Act, the pension benefits payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan assets, Telkom would be required to fund the statutory deficit. The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that the Company 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

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

328 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

24. Employee benefits (continued) The Telkom Retirement Fund (continued) 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

Present value of funded obligation 4,377 6,581 7,101 Fair 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 430 489 686 Actuarial gain on plan assets 1,442 1,641 118

Actual return on plan assets 1,872 2,130 804

Included in the fair value of plan assets is: Office buildings occupied by Telkom 274 371 596 Telkom bonds 56 21 10 Telkom shares 287 284 141

The Telkom Retirement Fund invests its funds in South Africa and internationally. Twelve fund managers invest in South Africa and five of these managers specialise in trades with bonds on behalf of the Retirement Telkom Fund. The international investment portfolio consists of global equity and hedged funds.

Principal actuarial assumptions were as follows: 2008 Annual Report

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 excepted rate of return on assets is 10.3%. This is 329 based on the portfolio as a whole and not the sum of the returns of individual asset categories. The expected return takes into account the asset allocation of the The Telkom Retirement Fund and expected long-term return on these assets, of which South African equities, foreign investments and South African fixed interest bonds are the largest contributors. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008

24 Employee benefits (continued) The Telkom Retirement Fund (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 year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Funding level per statutory actuarial valuation (%) 100 100 100 The number of pensioners registered under the Telkom Retirement Fund 14,323 14,451 14,255 The number of in-service employees registered under the Telkom Retirement Fund 25,320 25,766 24,939

The fund portfolio consists of the following: Equities (%) 72 59 70 Property (%) 4 2 2 Bonds (%) 21 19 11 Cash (%) 3 7 1 Foreign investments (%) – 13 16 The total expected contributions payable to the Retirement Fund for the next financial year are R514 million.

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 benefits to current and retired employees have been actuarially determined and provided for as set out in note 23. The Company has terminated future post-retirement medical benefits in respect of employees joining after July 1, 2000. There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (‘Pre-94’); those who retired after 1994 (‘Post-94’); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap, which increases annually with the average salary increase. Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent actuarial valuation of the benefit was performed as at March 31, 2008. The Company has allocated certain investments to fund this liability as set out in note 11. The cell captive annuity policy qualified as a plan asset in terms of IAS19, effective June 1, 2006.

330 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

24. Employee benefits (continued) Medical benefits (continued) Benefit obligation: At beginning of year 3,057 3,889 4,366 Interest cost 247 285 321 Current service cost 47 83 84 Actuarial loss 716 281 246 Settlement loss 4 – – Termination settlement (29) – – Benefits paid from plan assets – (94) (125) Contributions paid by the Company (153) (78) (61)

Benefit obligation at end of year 3,889 4,366 4,831

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 3,889 4,366 4,831 Fair value of plan assets – (1,961) (1,929)

Funded status 3,889 2,405 2,902 Unrecognised 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 – 188 257 Telkom Actuarial return on plan assets – 147 (164)

Actual return on plan assets – 335

93 2008 Annual Report

Principal actuarial assumptions were as follows:

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 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, 331 for pre-retirement purposes and the PA(90) ultimate table, minus one year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Contractual retirement age 65 65 65 Average retirement age 60 60 60 Number of members 17,872 17,119 15,526 Number of pensioners 8,665 8,494 8,430 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

24. Employee benefits (continued) Medical benefits (continued) The valuation results are sensitive to changes in the underlying assumptions. The following table provides an indication of the impact of changing some of the valuation assumptions:

Current assumption Decrease Increase Rm Rm Rm

Medical cost inflation rate 8.0% (1.0%) 1.0%

Benefit obligation 4,831 (672) 845 Percentage change (13.9%) 17.5% Service cost and interest cost 2007/2008 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 2007/2008 521 41 (35) Percentage change 7.9% (6.7%)

Post-retirement mortality rate PA(90) ultimate -1 (10.00%) 10.00%

Benefit obligation 4,831 196 (173) Percentage change 4.1% (3.6%) Service cost and interest cost 2007/2008 521 19 (17) Percentage change 3.6% (3.3%)

The fund portfolio consists of the following:

2006 2007 2008

Equities (%) – 59 56 Bonds (%) – 3 2 Cash and money market investments (%) – 21 33 Foreign investments (%) – 9 9 Insurance policies (%) – 8 –

Telephone rebates The Company provides telephone rebates to its pensioners. The most recent actuarial valuation was performed at March 31, 2008. Eligible employees must be employed by the Company 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 332 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

Principal actuarial assumptions were as follows:

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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008

24. Employee benefits (continued) 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 year age rating as published by the Institute and Faculty of Actuaries in London and Scotland, for retirement purposes. Number of members 19,164 19,515 18,766 Number of pensioners 11,148 10,918 10,680

Telkom Conditional Share Plan Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the vesting period. The vesting period for the operational employees awarded in 2004 and 2005 is 0% in year one and 33% in each of the 3 years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after 3 years. Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may differ based on certain performance conditions being met. (refer to note 20).

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).

The following table illustrates the movement of the maximum number of shares that will vest to employees for the August 2004 grant: Telkom 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) 2008 Annual Report Vested during the year (17,341) (450,505) (1,419,863) Settled during the year (444,093) – –

Outstanding at end of the year 2,414,207 1,883,991 420,590

The following table illustrates the movement of the maximum number of shares that will vest to employees for the June 2005 grant:

Outstanding at beginning of the year – 1,930,687 1,864,041 Granted during the year 2,024,465 1,005 3,469 Forfeited during the year (62,354) (67,651) (108,177) 333 Vested during the year (12,328) – (323,946) Settled during the year (19,096) – –

Outstanding at end of the year 1,930,687 1,864,041 1,435,387

The following table illustrates the movement of the maximum number of shares that will vest to employees for the November 2006 grant:

Outstanding at beginning of the year – – 1,773,361 Granted during the year – 1,825,488 833 Forfeited during the year – (52,127) (133,214)

Outstanding at end of the year – 1,773,361 1,640,980 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008

24. Employee benefits (continued) Telkom Conditional Share Plan (continued) The following table illustrates the movement of the maximum number of shares that will vest to employees relating to the additional November 2006 grant:

Outstanding at beginning of the year – – – Granted during the year – – 4,984,693 Forfeited during the year – – (172,388)

Outstanding at end of the year – – 4,812,305

The following table illustrates the movement of the maximum number of shares that will vest to employees for the September 2007 grant:

Outstanding at beginning of the year – – – Granted during the year – – 6,117,163 Forfeited during the year – – (270,527)

Outstanding at end of the year – – 5,846,636

The fair value of the shares granted have been calculated by an actuary using the Black-Scholes-Merton model and the following values at grant date:

August 8, June 23, November 2, September 4, 2004 Grant 2005 Grant 2006 Grant 2007 Grant*

Market share price (R) 77.50 111.00 141.25 173.00 Dividend yield (%) 2.60 3.60 3.50 3.50

*The same information was used for November 2006 additional grant.

2006 2007 2008

The principal assumptions used in calculating the expected number of shares that will vest are as follows: Employee turnover (%) 5 5 5 Meeting specified performance criteria (%) 100 100 100

334 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

24. Employee benefits (continued) The amounts for the current and previous four years are as follows:

2004 2005 2006 2007 2008 Rm Rm Rm Rm Rm

Telkom Pension Fund Defined benefit obligation (190) (186) (281) (205) (204) Plan assets 219 231 243 284 311

Surplus/(deficit) 29 45 (38) 79 107 Asset limitation ––––(29) Unrecognised actuarial loss/(gain) 100 89 118 (25) (23)

Unrecognised/recognised net asset 129 134 80 54 55

Experience adjustment on assets 75 10 Experience adjustment on liabilities 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 1,080 890 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 (2,359) (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) Telkom Unrecognised actuarial (gain)/loss (46) 648 1,300 1,285 1,566

Liability recognised (2,405) (2,409) (2,589) (1,120) (1,336) Annual Report 2008 Annual Report 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 been 335 disclosed 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 was used, 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 statutory valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair value of plan assets. This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair value of the plan assets of R350 million in the respect of the 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

25. Deferred revenue 1,985 1,846 2,294

Long-term deferred revenue 769 739 870 Current portion of deferred revenue 1,216 1,107 1,424

Included in deferred revenue is profit on the sale and leaseback of certain Telkom buildings of R118 million, consisting of a long-term portion of R107 million and a short-term portion of R11 million (2007: R129 million; 2006: R140 million). A profit of R11 million per annum is recognised in income on a straight-line basis, over the period of the lease ending 2019 (refer to note 33).

26. Trade and other payables 4,040 4,333 4,923

Trade payables 2,304 2,761 3,267 Finance cost accrued 113 22 39 Accruals and other payables 1,623 1,550 1,617

Accruals and other payables mainly represent amounts payable for goods received, net of Value-added Tax obligations and licence fees. Included in accruals and other payables are amounts owed to Rossal No 65 (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 7,967 Finance charges and fair value movements 1,320 1,027 1,289 Taxation 2,838 2,690 2,599 Investment 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 3,732 Cost of equipment disposed when recognising finance leases – 240 88 Increase in provisions 451 1,103 757 Profit 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 2 Impairment of investments and loans (11) (17) (225)

(Increase)/decrease in working capital (936) (622) 157 336 Inventories (202) (459) (202) Accounts receivable (147) (319) (196) Accounts payable (587) 156 555 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

28. Dividend received 1,901 2,950 3,536

Dividend received per income statement 2,398 3,006 3,597 Dividend accrued for the previous year 982 1,479 1,535 Dividend 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 2,825 Dividend 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) 49 Net discount amortised 423 409 568 Fair 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) 519 South 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) – – Telkom Special dividend for 2005: 500 cents (2,786) – – Final dividend for 2006: 500 cents – (2,714) –

Special dividend for 2006: 400 cents – (2,171) – 2008 Annual Report 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

337 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 32. Acquisition of subsidiaries Africa Online Limited (‘Africa Online’) On February 23, 2007 Telkom acquired a 100% shareholding in Africa Online from African Lakes Corporation for a total cost of R150 million, with a resulting goodwill of R145 million. Africa Online is an internet service provider active in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Africa Online Limited is incorporated in the Republic of Mauritius. Fair value of intangible assets 43 Less: Deferred taxation raised on intangible assets (12) Less: Net liabilities acquired (excluding fair value of intangible assets) (26)

Fair value of net assets acquired 5 Goodwill 145

Purchase price 150

The goodwill has been allocated to the cash-generating units (CGU) representative of the countries in which Africa Online Limited operates. An impairment loss of R12 million was recognised in order to write goodwill down to the recoverable amount. The recoverable amount represents the value in use of the CGUs and has been determined using 11.6% discount rate.

33. Commitments Capital 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 necessary telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of fixed-line telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning, management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services. Furthermore as a National Supporter the Company owns a tier 3 sponsorship that grants the Company a package of advertising, promotional and marketing rights that are exercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amounted to USD35 million.

338 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

33. Commitments (continued) Operating lease commitments and receivables 2008 Cash flow Land and buildings 366 141 224 1 Rental 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 relating to operating leases expected during the periods specified. However, due to the straight-lining effect of operating leases, the amounts that would be recognised in the income statement in the periods specified, would be as follows:

Land and buildings 330 133 196 1 Rental 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 equipment have no fixed annual escalation, therefore the cash flows and income statement recognition would be the same. Telkom Customer premises equipment receivable The disclosed information relates to those arrangements which were assessed to be operating leases in terms of 2008 Annual Report IAS17. The comparative information for 2006 is not disclosed as it was not considered to be material.

2007 Cash flow Land and buildings 371 134 236 1 Rental receivable on buildings (269) (91) (174) (4) Vehicles 564 564 – – Equipment 23 6 17 – 339 Customer premises equipment receivable (57) (30) (27) –

Total cash flow 632 583 52 (3)

Income statement Land and buildings 332 128 203 1 Rental 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) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

33. Commitments (continued) Customer premises equipment receivable (continued) 2006 Cash flow Land and buildings 265 97 167 1 Rental 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 1 Rental 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 are ten years with other leases signed for five and three years. The bulk of non-equipment related premises are for leases of three years to ten years. The majority of the leases normally contain an option clause entitling Telkom to renew the lease agreements for a period usually equal to the main lease term. The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%. Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the lease agreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of the premises. Future minimum lease payments under operating leases are included in the note below. Onerous leases for buildings, of which the Company has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions. The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in the lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating lease commitments for vehicles are based on the new agreement which expires on March 31, 2013. In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other service provider during the five year period except for the rentals at airports which are utilised in cases of subsistence and travel as well as vehicles which are not part of the agreement. The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however, replaced by a new similar vehicle, the lease costs of the newest vehicle will increase by the Consumer Price Index. All leased vehicles are, however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South African Reserve Bank. The leases of individual vehicles are renewed annually.

340 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. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

Total <1 year 1 – 5 years >5 years Rm Rm Rm Rm

33. Commitments (continued) Operating leases (continued) Finance leases Finance lease commitments Vehicles* 2008 Minimum lease payments 242 48 194 – Finance charges (59) (20) (39) –

Finance lease obligation 183 28 155 –

Buildings 2008 Minimum lease payments 1,778 30 598 1,150 Finance charges (935) (4) (548) (383)

Finance lease obligation 843 26 50 767

2007 Minimum lease payments 1,897 120 487 1,290 Finance charges (1,051) (116) (446) (489)

Finance lease obligation 846 4 41 801

2006 Minimum lease payments 2,039 121 490 1,428 Finance charges (1,172) (116) (452) (604)

Finance lease obligation 867 5 38 824 Telkom Equipment 2008

Minimum lease payments 16 – 16 – 2008 Annual Report Finance charges (2) – (2) –

Finance lease obligation 14 – 14 –

2007 Minimum lease payments 6 – 6 – Finance charges – – – –

Finance lease obligation 6 – 6 –

*The finance lease commitments disclosed above are future commitments commencing April 1, 2008. Thus not recognised as interest-bearing debt. 341 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

33. Commitments (continued) Finance leases Finance leases on vehicles relates to the lease of Swap bodies. Swap bodies are detachable parts of the vehicle, designed according to Telkom specifications which are used as mobile storage. The lease term negotiated for the Swap bodies, which is classified as finance lease and vehicles, 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 negotiated for the buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkom has the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claim damages. Finance charges accruing on one of the Company’s building leases exceed the lease payments for the next three years. Minimum lease payments for the next five years do not result in any income accruing to the Company. Finance leases on equipment relates to the reclassification of operating leases as a result of the Company applying IFRIC4, which requires assessment of whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfer significant risks and rewards of ownership to 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 years ending in 2011.

2006 2007 2008 Rm Rm Rm

34. Contingencies Third 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 customer assurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and in that year, the Company wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of the Telcordia investment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia was seeking approximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plus interest at a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised by Telcordia to USD128 million. The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Following the ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was held in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of proposals and issues to form part of the quantum hearing. In the second hearing in London at the IDRC on June 25 and 26, 2007 the arbitrator set out a list of issues for determination of the damages. At a subsequent hearing during July 2007 in London the arbitrator ruled that the rate in terms of the Prescribed Rate of Interest will apply on both damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’s claim, where applicable, and set out an agreed timetable for the future conduct of proceedings. 342 A mediation took place, without success, during February and April 2008. In the interim the parties have agreed to the appointment by the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. The arbitrator confirmed certain dates for the compliance of procedural steps to be taken by all the parties before final dates could be agreed upon for a hearing of the evidence on the quantum. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 343 he the tition Rm 569* petition on the 2008 taken no nts in the requested. ompetition Act, 1998 determined, vit. refusal to peer on September cial year prior to installed by their telecommunications on of bundled and cross – 527 Rm Rm 2006 2007 (continued) (continued) (continued) SAVA complaints. SAVA complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complaina complainants contribute financially to the Link Centre and the Link Centre’s The referral was out of time; reliance on a report a reasonable apprehension of bias, since some of t by the Link Centre created The Competition Commission’s The Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the Compe Commission and ICASA; USD 70 million Supplier dispute liability included in currentSupplier dispute liability portion of provisions • • • The South African Value Added Network Services (‘SAVA’) Independent Cellular Services Association of South Africa (‘ICSPA’) * Competition Commission Supplier dispute For the net increase in the provision refer to note 23. For the net increase in the This applies to the following cases: The Judge did not make a decision on the matter of jurisdiction whether ICASA or the Competition Tribunal has the right to rule Tribunal The Judge did not make a decision on the matter of jurisdiction whether ICASA or the Competition competition matters in the communications industry. To date, the Competition Commission has not appealed the High Court ruling. To competition matters in the communications industry. On May 7, 2002 SAVA, an association of Value Added Network Services (‘VANS’) providers, filed complaints against the Company at providers, filed Added Network Services (‘VANS’) an association of Value On May 7, 2002 SAVA, This is a complaint in terms of the Competition Act, which was brought in 2002. ICSPA alleged that Telkom had entered into contracts with had entered into contracts alleged that Telkom This is a complaint in terms ICSPA of the Competition Act, which was brought in 2002. the effect of discouraging the corporates from using the ‘premicell’ device large corporations, providing large discounts with If found guilty, Telkom could be required to cease these practices, divest these businesses and a maximum administrative penalty of up to 10%, and a maximum administrative penalty could be required to cease these practices, divest these businesses Telkom If found guilty, excluding the turnover of subsidiaries and joint ventures, for the finan annual turnover, calculated with reference to Telkom’s a prohibited practice as set out in the Competition has committed that Telkom the compliant date, may be imposed if it is found to date not imposed the maximum penalty on any offender. (as amended). The Competition Commissions has provided the Competition Commission with certain information various contraventions of the Act. Telkom alleged members. ICSPA They also referred the Competition Commission to its High Court The competition ‘premicell’ device. application in respect of utilisation of the then referred the matter to the Competition Tribunal ICSPA Tribunal. commission declined to refer the matter to the Competition has its answering affidavit on November 28, 2003. ICSPA filed that Telkom 18, 2003 but has done nothing since, notwithstanding further action since then. was abusing its dominant position Act 89 of 1998, alleging, among other things, that Telkom Competition Commission under the Competition and that it was engaged in price discrimination. The Competition Commission in contravention of the Competition Act 89 of 1998, conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant among other things, that several aspects of Telkom’s alleged refusal to provide adjudication. The referred for complaints deal with Telkom’s complaints to the Competition Tribunal providers, provisi providers to construct their networks, refusal to lease access facilities to VANS facilities to certain VANS subsidised competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged providers. with certain VANS in the High Court, in respect of brought an application for review against the Competition Commission and the Competition Tribunal Telkom is of the view that the Com Telkom the decision by the Competition Commission to refer the matters to the Competition Tribunal. A provision has been raised based on management’s best estimate of the probable payments in this regard. best estimate of the based on management’s A provision has been raised Tribunal does not have jurisdiction to adjudicate these matters and argued that the Independent Communications Authority of South Africa Tribunal has the requisite jurisdiction. Only the Competition Commission opposed the application and filed an answering affida (‘ICASA’) arguments and set aside the decision The application for review was heard on April 24 and 25, 2008. The High Court Judge agreed with Telkom’s discussed below) to the C complaints (and the Omnilink complaint against Telkom of the Competition Commission to refer the SAVA The decision was made based on three grounds: Tribunal. for the three years ended March 31, 2008 years ended March for the three 34. Contingencies Notes to the annual financial statements statements financial to the annual Notes Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

34. Contingencies (continued) Competition Commission (continued) Omnilink Omnilink alleged that Telkom was abusing its dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter discussed above.

Orion/Telkom (Standard Bank and Edcon): Competition Tribunal In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the Competition Commission concerning Telkom offering discounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, the Competition Commission, who acts as an investigator, had one year to investigate the complaint. Orion simultaneously with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver discount plan. The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint before the Competition Tribunal. To date there has been no further developments on this matter.

The Internet Service Providers Association (‘ISPA’) In December 2005, the ISPA, an association of Internet Service Providers (‘ISPs’), filed complaints against Telkom at the Competition Commission regarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South African Internet Exchange (‘SAIX’), the prices offered by TelkomInternet, the alleged delay in provision of facilities to ISPs and the alleged favourable installation timelines offered to TelkomInternet customers. The Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt to first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information and is awaiting the Commission’s response. M-Web and Internet Solutions (‘IS’) On June 29, 2005 M-Web and IS jointly lodged a complaint with the Competition Commission against Telkom and also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users of other 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 alleged excessive pricing for bandwidth on the international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom should maintain the peering link between IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the traffic generated by ADSL customers of M-Web as traffic destined for the peering link and that Telkom upgrade its peering link to accommodate the increased ADSL traffic emanating from M- Web and maintain a maximum of 65% utilisation. Telkom filed its answering affidavit, and is awaiting IS/M-Web’s replying affidavit. Since then Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information requests. To date there has been no further movement on this matter, either in the filing of a replying affidavit by IS/M-Web in the interim relief application or in the investigation of the matter by the Competition Commission. M-Web On June 5, 2007, M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner in 344 which Telkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief against Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not higher than the lowest retail price. M-Web further applied for an order that Telkom implement the migration of end customers from Telkom PSTS (ADSL access) to M-Web without interruption of the service. Although Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also filed an application in the Transvaal Provincial Division of the High Court on July 3, 2007 for an order declaring that the Competition Tribunal does not have jurisdiction to hear the application 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 settlement negotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as withdrawal of the jurisdictional challenge by Telkom. The parties are in further negotiations. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

34. Contingencies (continued) Salary negotiations Telkom is a party to a collective agreement on substantive matters covering the terms and conditions of employment of its fixed-line unionised employees and other non-management employees in Telkom’s bargaining unit with 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 the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations in December 2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade Union Federations especially COSATU have requested a double-digit increase. If Telkom is unable to implement workforce reductions as necessary or outsourcing as planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increased employee expenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted and our net profit could be reduced. 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 negative working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cash flows, new borrowings and borrowings available under existing credit facilities.

35. Directors’ interest DD Tabata, one of Telkom’s board members is a director and shareholder of Vuwa Investments (Proprietary) Limited which acquired a 40% interest in SAIL Group Limited, with effect from October 1, 2006. SAIL Group Limited is a sports marketing company that does business with Telkom. Telkom paid R17,094,844 (2007: R18,682,568) in the 2008 financial year for these goods and services. The outstanding creditors balance 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’s representatives on Telkom’s Board of Directors. At March 31, 2008, the Government held 39.42% (2007: 38.83%; 2006: 37.99%) of Telkom’s shares. As at March 31, 2008 A Rhoda (B Molefe resigned March 5, 2008 and T Mahloele resigned on January 30, 2008) was the Public Investment Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2008 the PIC held 15.23% (2007: 15.27%, 2006: 15.73%) of Telkom’s shares. On July 3, 2008 A Rhoda resigned and was replaced by B Molefe.

Beneficial Non-beneficial Number of shares Direct Indirect Direct Indirect Telkom Directors shareholding 2008 Annual Report 2008 Annual Report Executive RJ September 7,155 – – –

7,155 – – –

Non-executive At March 31, 2008 there was no directors’ shareholding. 2007 Non-executive TF Mosololi 455––– 345 Total 455–––

2006 Non-executive NE Mtshotshisa – – – 88 TF Mosololi 455–––

Total 455 – – 88

The directors’ shareholding did not change between the balance sheet date and the date of issue of the financial statements. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

35. Directors’ interest (continued) Directors’ emoluments 15 7 36 Executive For other services 12 4 31 Non-executive For services as directors 3 3 5

Performance Fringe and Fees Remuneration bonus other benefits Total RRRRR

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 Dr 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

346 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

Performance Fringe and Fees Remuneration bonus other benefits Total RRRRR

35. Directors’ interest (continued) Directors’ emoluments (continued) 2007 Emoluments per director:

Non-executive 2,641,168–––2,641,168

NE Mtshotshisa 463,050–––463,050 SL Arnold 353,719–––353,719 TCP Chikane 32,670–––32,670 B du Plessis 213,367–––213,367 PSC Luthuli 205,417–––205,417 TD Mahloele 166,667–––166,667 KST Matthews 109,643–––109,643 TF Mosololi 214,417–––214,417 M Mostert 232,417–––232,417 DD Tabata 175,367–––175,367 YR Tenza 321,767–––321,767 PL Zim 152,667–––152,667

Executive – 2,272,785 – 1,653,202 3,925,987

LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987

Total emoluments – paid by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155

2006 Emoluments per director:

Non-executive 2,969,158–––2,969,158 Telkom NE Mtshotshisa 759,500–––759,500 TCP Chikane 181,022–––181,022

Executive – 2,186,460 7,070,262 2,990,865 12,247,587 347

LRR Molotsane* – 1,250,747 3,442,573 909,675 5,602,995 SE Nxasana – 935,713 3,627,689 2,081,190 6,644,592

Total emoluments – paid by Telkom 2,969,158 2,186,460 7,070,262 2,990,865 15,216,745

* Included in fringe and other benefits is a pension contribution for LRR Molotsane of R4,690 (2007: R295,462; 2006: R162,597), as well as a pension contribution for RJ September of R280,261 at March 31, 2008 paid to the Telkom Retirement Fund, and a payment made in terms of a restraint of trade agreement. LRR Molotsane resigned from Telkom in April 2007 and RJ September was appointed CEO during November 2007. Included in remuneration for 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 recommendations to the Board on major transactions. During the year M Mostert led all efforts in this regard and was remunerated accordingly. Moreover in compliance with the principles of good governance, the Board took legal advice and established that there was not conflict of interest arising out of his involvement in the transaction evaluated. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm 36. Related parties Details of material transactions and balances with related parties not disclosed separately in the annual financial statements were as follows: With joint venture: Vodacom Group (Proprietary) Limited Related party balances Trade receivables 96 122 99 Dividend receivable 1,400 1,450 1,595 Trade payables (512) (706) (691) Related party transactions Revenue (1,420) (1,510) (1,632) Expenses 2,870 2,974 3,050 Dividend received (2,250) (2,700) (2,970) Audit fees 6 6 5 Revenue 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 Public Investment Corporation.

Government Related party balances Trade receivables 247 271 326 Related party transactions Revenue (2,304) (2,458) (2,623) With subsidiaries: TDS Directory Operations (Proprietary) Limited Related party balances Trade receivables 6 6 7 Trade payables (120) (100) (151) Dividend receivable 78 84 – Related party transactions Revenue (57) (57) (59) Expenses 8 12 20 Dividend received (143) (149) (120) Swiftnet (Proprietary) Limited Related party balances Trade payables (14) (14) (12)

348 Related party transactions Revenue (14) (16) (18) Income includes data calls and billing fees.

Rossal No 65 (Proprietary) Limited Related party balances Accruals 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 transactions Dividend paid 114 110 115 Dividend received – (56) (290) WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

36. Related parties (continued) With subsidiaries: (continued) Acajou Investments (Proprietary) Limited Related party balances Accruals and other payables (100) (98) – Related party transactions Dividend paid 98 98 119 Dividend received – (100) (217) Intekom (Proprietary) Limited Related party balances Accruals and other payables – (5) (13) Related party transactions Expenses 7 7 8

Q-Trunk (Proprietary) Limited Related party balances Loan to subsidiary 34 30 26 Impairment 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 favour of all other creditors in the event of the liquidation of the Company or similar event.

Related party transactions Expenses 6 6 6 Special purpose entity – cell captive Related party balances Investment (refer to note 11) 1,891 535 535 Telkom Related party transactions Investment income (106) (19) –

Africa Online Limited (‘Africa Online’) 2008 Annual Report Related party balances Loan to subsidiary – – 74 Impairment of investment – – (12) Trade payables – – (4) Related party transactions Revenue – – (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. 349

Multi-Links Telecommunications Limited Related party balances Loan to subsidiary – – 840 Trade payables (21) Related party transactions Revenue – – (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 part prepayment may not be less than USD1 million. The advances must be repaid on May 01, 2009, July 01, 2009 and January 29, 2010. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued)

for the three years ended March 31, 2008

2006 2007 2008 Rm Rm Rm

36. Related parties (continued) With subsidiaries: (continued) Telkom International (Proprietary) Limited Related party transactions Loan to subsidiary – – 1,985 The loan has been used to purchase a 75% shareholding in Multi-Links Telecommunications Limited . The loan is unsecured, interest-free and has no fixed repayment terms.

Telkom Media (Proprietary) Limited Related party transactions Loan to subsidiary – – 326 Impairment of loan – – (217) The loan is interest free and has no repayment terms.

Telkom Foundation Related party transactions Expenses 51 54 58 With entities under common control: Major public entities Related party balances Trade receivables 37 51 26 Trade payables (2) (2) (5) The outstanding balances are unsecured and will be settled in cash in the ordinary course of business. Related party transactions Revenue (362) (400) (485) Expenses 162 206 201 Rent received (17) (29) (21) Rent paid 56 18 18 Income with major public entities for the year ended March 31, 2007 has been restated due to additional BAN numbers being included in our calculation of income with major public entities. The effect of this is only on the disclosure of the related party note and has a RNil effect on the Company’s profit. Key management personnel compensation: (Including directors’ emoluments) Related party transactions Short-term employee benefits 89 108 114 350 Post-employment benefits 3 3 3 Termination benefits 12 – 27 Equity 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 settlement occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there have been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year ended March 31, 2008, the Company has not made any impairment of amounts owed by related parties (2007: RNil; 2006: RNil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Notes to the annual financial statements (continued) for the three years ended March 31, 2008

37. Subsequent events Dividends The Telkom Board declared an annual dividend of R3,437 million or 660 cents per share on June 6, 2008 payable on July 7, 2008 for shareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge of R161 million. Telkom Media (Proprietary) Limited (‘Telkom Media’) On August 31, 2006 Telkom created a new subsidiary, Telkom Media with a Black Economic Empowerment (‘BEE’) shareholding. ICASA awarded 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 taken the decision to substantially reduce its investment in Telkom Media and will be investigating all opportunities to do this in the best interests of Telkom 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 of Vodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, inter alia, the Company unbundling its remaining stake in Vodacom to Telkom shareholders. Separately, on Friday, May 30, 2008 Telkom received a letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Limited, affiliated funds of Och-Ziff Capital Management Group and other strategic funders (‘the Consortium’), which states that the Consortium is considering making an offer for the entire issued share capital of Telkom. The letter makes it clear that the offer will only be made if a number of pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacom as part of the offer. The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciary duties, will evaluate all bona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisite shareholder approvals. Telkom will advise shareholders of further developments in this regard in due course. Capability Management Telkom will seek to manage costs by realigning its structure, employees and resources to better match its transforming information, communications and technology business and to improve customer service. The transformation of the communications industry and increasing market and Telkom competitive pressure has put communications companies such as Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result a capability management initiative has been launched which is designed to ensure that the capabilities

needed to succeed in a converged communications market are established through the optimal utilisation of external as well as internal capabilities, 2008 Annual Report extracting effiencencies, where possible, through scale of a rapidly maturing retail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market. The capability management initiative includes the internal consolidation of certain functional areas and the selection of strategic long-term partners with proven performance for other functional areas. The areas which are expected to be impacted are the call centres, operations, ancillary services, network service providers, network field operations, network core operations, information technology operations and retail outlets. Telkom Management Services On July 2, 2008, Telkom received confirmation from the Companies and Intellectual Property Registration Office (‘CIPRO’) for the approval and reservation of a newly set-up company. The approved and reserved name is ‘Telkom Management Services’. 351 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, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Company and the results of its operations. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Supplementary information

for the three years ended March 31, 2008

Year ended March 31, 2006 2007 2008

In connection with the US Securities Exchange Commission Rules relating to “Conditions for use of Non-GAAP Financial Measures”, EBITDA and headline earnings have been reconciled to net profit below:

EBITDA Earnings before interest, taxation, depreciation and amortisation (EBITDA) can be reconciled as follows: EBITDA 20,553 19,785 20,612 Depreciation, amortisation, impairment and write-offs (5,876) (5,315) (6,130) Investment income 397 235 197 Finance 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 7,975 Profit 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) 12 244 Write-offs of property, plant and equipment 188 284 285 Acquisition 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 for comparing a company’s underlying operating profitability with that of other companies as it is not influenced by past capital expenditures or business acquisitions, a company’s capital structure or the relevant tax regime. EBITDA is not a US GAAP or IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash flows from operating activities determined in accordance with US GAAP or IFRS or as a measure of liquidity. US DOLLAR CONVENIENCE

March 31, March 31, 2008 2008

Operating revenue 6,915 352 Operating profits 1,779 Net profit 980 EBITDA 2,532 EPS (cents) 192.3 Net debt 2,041 Total assets 8,645 Cash flow from operating activities 1,267 Cash flow used in investing activities (1,733) Cash flow used in financing activities 362 Exchange rate Period end1 US$1 = ZAR 8.14

1. Noon buying rate. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 353

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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 8968 Telkom dividers••:Layout 1 4/8/08 16:12 Page 354

Shareholder analysis

at March 31, 2008

Number of Number of of shareholders % shares %

Range of shareholders 1 – 100 shares 65,248 71.94 2,196,619 0.42 101 – 1 000 shares 23,098 25.47 6,274,870 1.19 1 001 – 10 000 shares 1,529 1.69 4,292,565 0.82 10 001 – 50 000 shares 395 0.44 9,732,517 1.85 50 001 – 100 000 shares 170 0.19 12,376,570 2.36 100 001 – 1 000 000 shares 226 0.25 65,814,997 12.53 1 000 001 and more shares 38 0.04 424,540,184 80.83

90,704 100.00 525,228,322 100.00

Type of shareholder Banks 152 0.17 56,403,002 10.74 Close corporations 107 0.12 62,780 0.01 Empowerment 1 0.00 30,467,930 5.80 Endowment funds 106 0.12 635,815 0.12 Individuals 86,729 95.62 9,969,122 1.90 Insurance companies 66 0.07 25,603,552 4.88 Investment companies 73 0.08 21,733,144 4.14 Medical aid schemes 22 0.02 759,430 0.14 Mutual funds 367 0.40 38,427,179 7.32 Nominees and trusts 2,146 2.37 2,289,478 0.44 Other corporations (including the Government of the Republic of South Africa) 337 0.37 207,475,300 39.50 Own holdings 3 0.00 25,786,403 4.91 Pension funds 371 0.41 104,598,767 19.91 Private companies 210 0.23 841,546 0.16 Public companies 13 0.01 166,528 0.03 Share trusts 1 0.00 8,346 0.00

90,704 100.00 525,228,322 100.00

Geographical holdings by owner South Africa 90,334 99.60 458,288,214 87.25 United States 100 0.11 44,311,058 8.44 United Kingdom 91 0.10 16,674,394 3.17 Europe 48 0.05 4,282,438 0.82 Other 131 0.14 1,672,218 0.32

90,704 100 525,228,322 100.00

Public and non-public shareholders Non-public shareholders 13 0.02 263,328,045 50.14

354 The Government of the Republic of South Africa 1 0.00 207,038,058 39.43 Empowerment 1 0.00 30,467,930 5.80 Government buffer account 1 0.00 9,461 0.00 Diabo share trust 1 0.00 8,346 0.00 Telkom Treasury Stock (Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited) 3 0.01 25,786,403 4.91 Executive and Non-executive directors* 1 0.00 7,155 0.00 Subsidiaries 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 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Shareholder analysis (continued)

Number of shares %

Beneficial shareholders of more than 2% The Government of the Republic of South Africa 207,038,058 39.42 Public Investment Corporation 80,002,249 15.23 Elephant Consortium NewShelf 772 (Proprietary) Limited 30,467,930 5.80 Liberty Group 15,574,374 2.97 Sanlam 11,408,885 2.17 Telkom Treasury Stock (Acajou Investments) 10,849,058 2.07 Telkom 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. Telkom Annual Report 2008 Annual Report

355 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Definitions

3G distinguish it. The mobile phone is then instructed to decipher only a particular The generic term, 3G, is used to denote the next generation of mobile code to pluck, as it were, the right conversation off the air. CDMA is the systems designed to support high-speed data transmission (144 Kbps and technology of choice for 3G mobile systems. CDMA, however, also refers to a higher) and Internet Protocol (IP)-based services in fixed, portable and particular air-interface standard (a fact that is often a source of confusion). mobile environments. As envisaged by the ITU, the 3G system will integrate Circuit different service coverage zones and be a global platform and the necessary A circuit is a connection or line between two points. This connection can infrastructure for the distribution of converged service, whether mobile or be made through various media, including copper, coaxial cable, fibre or fixed, voice or data, telecommunications, content or computing. microwave. A telephone exchange is a circuit switch. ADSL (Asymmetrical Digital Subscriber Line) DECT (Digital Enhanced Cordless Telecommunications) ADSL is a broadband access standard which uses existing copper lines to DECT is the standard for cordless telephones. DECT phones communicate offer high-speed digital connections over the local loop. ADSL transmits using the PSTN (public switched telephone network) through a small base data asymmetrically, meaning that the bandwidth usage is much higher station in the home or office and have a working radius of between 50 and in one direction than the other. ADSL provides greater bandwidth from the 300 metres. exchange to the customer (ie. downloading) than from the customer to the exchange (ie. sending). EBITDA EBITDA represents profit for the year before taxation, finance charges, ARPU investment income and depreciation, amortisation, impairment and write-offs. Vodacom’s average monthly revenue per customer, or ARPU, is calculated by dividing the average monthly revenue during the period by the average EDGE (Enhanced Data for GSM evolution) monthly total reported customer base during the period. ARPU excludes EDGE is a technology designed to enhance GSM and TDMA systems with revenue from equipment sales, other sales and services and revenue respect to data rates and is widely considered to be the GSM evolution from national and international users roaming on Vodacom’s networks. beyond GPRS. It enhances the data capabilities of GSM and TDMA systems by altering the RF modulation scheme to allow greater data ATM (Asynchronous Transfer Mode) rates per time slot. Because it uses a different modulation technique ATM is a high-speed Wide Area Network (WAN), connection-oriented, across the air-interface, EDGE requires different mobile terminals/ packet-switching data communications protocol that allows voice, data handsets than those designed for the GSM air-interface. and video to be delivered across existing local and Wide Area Networks. ATM divides data into cells and can handle data traffic in bursts. It is Effective tax rate asynchronous, in that the stream of cells from one particular user is not The effective tax rate is the tax charge in the income statement divided necessarily continuous. by pre-tax profit. Bandwidth Ethernet Bandwidth is a measure of the quantity of signals that can travel over a Ethernet is a protocol that defines how data is transmitted to and received transmission medium such as copper or a glass fibre strand. It is the available from LANs. It is the most prevalent LAN protocol, with speeds of up to space available to carry a signal. The greater the bandwidth, the greater the 10 Mbps. information carrying capacity. Bandwidth is measured in bits per second. Fibre optics Broadband Fibre optics is where messages or signals are sent via light rather than Broadband is a method of measuring the capacity of different types of electrical signals down a very thin strand of glass. Light transmission transmission. Digital bandwidth is measured in the rate of bits transmitted enables much higher data rates than conventional wire, coaxial cable per second (bps). For example, an individual ISDN channel has a and many forms of radio. Signals travel at the speed of light and do not bandwidth of 64 kilobits per second (Kbps), meaning that it transmits generate nor are subject to interference. 64,000 bits (digital signals) every second. Fibre rings CAGR Fibre rings have come to be used in many fibre networks as it provides 356 Compound Annual Growth Rate. more network resiliency: if there is a failure along a route and a ring is broken, the direction of the traffic can be reversed and the traffic will Carrier pre-selection still reach its final destination. Carrier pre-selection is usually initiated by the telecoms Regulator. It enables individuals to choose which telecom will carry their traffic Fixed access lines (mainly long distance) by a signalling contract rather than having to dial Fixed access lines are comprised of public switched telecommunications extra digits. network lines, or PSTN lines, including integrated services digital network channels, or ISDN channels, and public and private payphones, but CDMA (Code Division Multiple Access) excluding internal lines in service. CDMA is one of many technologies for digital transmission of radio signals between, for example, mobile telephones and radio base stations. In CDMA, Fixed access lines per employee which is a spread-spectrum modulation technology, each call is assigned a To calculate the number of access lines per employee the total number of unique “pseudorandom” sequence of frequency shifts that serve as a code to access lines is divided by the number of employees at the end of the period. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 357 Mobile traffic network, traffic comprises total traffic registered on Vodacom’s Vodacom’s including bundled minutes, outgoing international roaming calls and calls to free services, but excluding national and incoming international roaming calls. A leased line is a telecommunications transmission circuit that is reservedA leased line is a telecommunications transmission of a customer. by a communications provider for the private use LIBOR London Interbank Offer Rate. Local loop the exchange and the The local loop is the final connection between home or office. It is also known as the last mile. Microwave Microwave is radio transmission using very short wavelengths. MMS (Multimedia Messaging Services) allows users to MMS is a service developed jointly together with 3GPP, combine sounds with images and text when sending messages, much like the text-only SMS. Mobile churn churn by dividing the average monthly number is calculated Vodacom’s of disconnections during the period by the average monthly total reported customer base during the period. Mobile penetration based on the total number calculates penetration, or teledensity, Vodacom of customers at the end of the period per 100 persons in the population of South Africa. Population is the estimated South African population at the mid-year in the periods indicated as published by Statistics South Africa, a South African Governmental department. Interest cover Interest cover by dividing EBIT by the net interest charge in Interest cover is calculated is a measure of income gearing. the income statement. It ISDN (Integrated Services Digital Network) standard used to transmit digital signals ISDN is a data communications over ordinary This is one technology for copper telephone cables. of copper cables from the local exchange to overcoming the “last mile” which has proved a bottleneck for Internetthe subscribers premises, allows to carryaccess, for example. ISDN voice and data simultaneously, in each of at least two channels capable of carrying 64 Kbps. It provides Union) ITU (International Telecommunications exist. up to 128 Kbps and a total capacity of 144 Kbps for telecommunications ITU is the global technical standard-setting body services. LAN (Local Area Network) each other within a A LAN is a group of devices that communicate with limited geographic area, such as an office. Leased line (continued) Interconnection Interconnection refers to the joining of two or more networks. Networks need to interconnect to enable traffic to be transmitted to and from destinations. The amounts paid and received by the operators vary according to distance, time, the direction of traffic, and the type of networks involved. IFRS International Financial Reporting Standards. High Speed Downlink Packet Access. IAS International Accounting Standards. HSDPA GSM is a second generation digital mobile cellular technology using a combination of frequency division multiple access (FDMA) and time division multiple access (TDMA). GSM operates in several frequency bands: 400 MHz, 900 MHz and 1800 MHz. On the TDMA side, there are eight timeslots or channels carrying on the same frequency. calls, which operate Unlike other cellular systems, GSM provides a high degree of security by using subscriber identity module (SIM) cards and GSM encryption. GSM (Global System for Mobile) GPRS is a packet rather than a circuit-based technology. GPRS allows for GPRS is a packet rather than a circuit-based technology. (IS-136) networks. faster data transmission speed to both GSM and TDMA the circuit-switched GPRS is a packet-switched technology that overlays GSM network. The serviceintroduced to cellular networks can be by infrastructure. GPRS (General Packet Radio Service) Frame relay serviceFrame relay is a widely implemented telecommunications traffic between local designed for cost-efficient data transmission for data area network. The area networks and between end-points in a wide network effectively provides a permanent circuit, which means that the but does not pay for customer sees a continuous, dedicated connection, a full-time leased line. Fixed-line traffic, other than internationalFixed-line traffic, other mobile traffic, outgoing over Internet international interconnection traffic and international Voice by dividing traffic operating revenue for the Protocol traffic, is calculated particular category by the weighted average tariff for such category during the relevant period. Fixed-line international outgoing mobile traffic and international interconnection traffic are based on the traffic registered in internationalthrough the respective exchanges and reflected over Internet Protocol traffic interconnection invoices. International Voice is based on the traffic reflected in invoices. Fixed-line traffic Fixed-line penetration or teledensity is based on the total number of Fixed-line penetration or telephone lines in service the period per 100 persons in the at the end of Population is the estimated South African population of South Africa. in the periods indicated as published by population at the mid-year South African GovernmentStatistics South Africa, a department. Fixed-line penetration Fixed-line Definitions Definitions Definitions (continued)

MOU (Mobile Minutes of Use) SDH (Synchronous Digital Hierarchy) Vodacom’s average monthly minutes of use per customer, or average SDH is used in most modern systems, where multimedia can be MOU, is calculated by dividing the average monthly minutes during transmitted at high speeds. The networks are shaped in a ring, so that the period by the average monthly total reported customer base during if there is a problem, the traffic can be redirected in the other direction the period. MOU excludes calls to free services, bundled minutes and and the caller will not detect the interruption. data minutes. SMS (Short Message Service) Net debt SMS refers to short, usually text-based messages sent by or to a wireless Net debt is all interest-bearing debt finance (long-term and short-term) subscriber. They are not delivered to the recipient instantly and have less cash and marketable securities. some degree of transmission time delay. SMS messages are usually Net debt to total equity limited to total character lengths of 140 to 160 characters. Net debt to total equity is a measure of book leverage (gearing): net debt Switch in the balance sheet divided by total equity (the sum of shareholders’ funds plus minority interests). A switch is a computer that acts as a conduit and director of traffic. It is a means of sharing resources as a network. Operating free cash flow Operating free cash flow is defined as cash flow from operating activities, Total interest-bearing debt after interest and taxation, before dividends paid, less cash flow from Total interest-bearing debt is defined as short- and long-term interest- investing activities. bearing debt, including credit facilities, finance leases and other Packet switching financial liabilities. Packet switching is designed specifically for data traffic, as it cuts the UMTS (Universal Mobile Telecommunications System) information up into small packets, which are each sent across the network UMTS is the Western European name for the 3G WCDMA standard separately and are then reassembled at the final destination. This allows adopted as an evolutionary path by the GSM world. However, it utilises more users to share a given amount of bandwidth. X.25, ATM and frame the radio spectrum in a fundamentally different manner than GSM. relay are all packet switching techniques. UMTS is based on DCMA technology and the GSM standard is based on POP (Point of Presence) TDMA technology. A POP is a service provider’s location for connecting to users. Generally, VoIP (Voice over Internet Protocol) POPs refer to the location where people can dial into the provider’s computer. Most providers have several POPs to allow low-cost local access Voice over Internet Protocol is a protocol enabling voice calls to be via telephone lines. made over the Internet. Rather than a dedicated circuit being set up between the caller and receiver, as with ordinary phone calls, the voice PSTN (Public Switched Telephone Network) conversation is digitised and transmitted over Internet Protocol using The PSTN is a collection of interconnected voice telephone networks, packet-switched data 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 (indeed WAN (Wide Area Network) in many developed countries digitisation has reached 100%), these A WAN comprises LANs in different geographic locations that are networks can be either state-owned or commercially owned. PSTN is connected, often over the public network. distinct from closed private networks (although these may interconnect to the PSTN) and from public data networks (PDN). WAP (Wireless Application Protocol) WAP is an application environment designed to bridge the gap between Revenue per fixed access line the mobile and Internet worlds. It is a set of communication protocols for Revenue per fixed access line is calculated by dividing total fixed-line wireless devices designed to provide vendor-neutral and technology- revenue during the period, excluding data and directories and other 358 neutral access to the Internet and advanced telecommunications services. revenue, by the average number of fixed access lines during the period. WiMAX RICA WiMAX is a standard for extending broadband wireless access to new Regulation of Interception of Communication and Provision of Communication- related Information Act. locations and over longer distances. The technology is expected to enable multimedia applications with wireless connectivity and typically with a ROA (Return on Assets) range of up to 30 km. It is a standard for fixed wireless access with Return on Assets is calculated by dividing net profit (annualised) by substantially higher bandwidth capabilities than cellular networks. total assets. The emergence of further enhancements to the standard wil enable nomadic ROE (Return on Equity) data communications accross an entire metropolitan area network linking Return on Equity is calculated by dividing net income by the average of homes and businesses to the core telecommunications network. WiMAX can the shareholders’ funds. be viewed as a technology complementing existing ADSL broadband offerings. WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 Telkom Annual Report 2008 d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo 359 the use of raud and lost eve”, “hope”, personnel and nd reductions in ion and its other and acquisitions pital; changes in our actual results , labour laws and t forward looking. attributable to us, or the provision of otherwise imposes rated; the outcome Municipal Property flexibility and ability as projected levels of ransforming from basic entified in Item 3. “Key m them to actual results tion Reform Act of 1995, Many of the statements included in this annual report, statements included in this Many of the officers, directors be made by us or by oral statements that may as well as acting or employees or are based on forwardon behalf of us, constitute of the U.S. Private Securities Litiga looking statements within the meaning specifically Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of and Section 21E of the U.S. Securities Exchange of the U.S. Securities Act of 1933, as amended, specifically Section 27A 1934, as amended. strategies, future financial others, statements regarding our mobile and other statements of historical facts, including, among All statements, other than well anticipated cost savings and financing plans, as capital expenditures, projected costs and position and plans, objectives, market, are forwardgrowth in the communications looking statements. Forward can generally be identified by looking statements terminology “estimate”, “anticipate”, “beli “envisage”, “intend”, “plan”, “project”, such as “may”, “will”, “should”, “expect”, is no words does not necessarily mean that a statement or similar phrases, although the absence of such “can”, “is designed to” These forward a number of known and unknown risks, uncertainties looking statements involve cause and other factors that could forward future results expressed or implied by such different from historical results or from any and outcomes to be materially looking statements. or outcomes to differ materially from our expectations are those risks id Among the factors that could cause our actual results report most recent annual on Form 20F filed with the US Securities and Exchange Commiss Information – Risk Factors” of Telkom’s to, any changes to including, but not limited website at www.telkom.co.za/ir, on Telkom’s filings and submissions with the SEC which are available strategy and organisational changes thereto, holdings and our ability to successfully implement such increased our mobile strategy and Vodacom and data communications markets; our ability to implement our strategy of t competition in the South African fixed-line, mobile solutions, developments in the regulatoryvoice and data connectivity to fully converged mobile growth a environment; continued operations and make investments ability to expand their and Vodacom’s net interconnect margins; Telkom’s and Telkom’s Vodacom’s and Vodacom where Telkom political, social and legal conditions in South Africa and in other countries in other African countries and the general economic, management informationinvest; our ability to improve and maintain our key and other systems; our ability to attract and retain limit our may consensus approval rights at Vodacom directors and the partners; our inability to appoint a majority of Vodacom’s dividends or distributions to us; our negative working ca continued payment of to implement our preferred strategies; Vodacom’s new technologies; our ability to reduce theft, vandalism, network and payphone f technology and delays in the implementation of Incorpo Technologies required to pay to Telcordia is ultimately damages Telkom revenue to non-licensed operators; the amount of hearings before the Competition Commission and arbitration proceedings, including tariff approvals, and the outcome of Telkom’s legal of regulatory, the local loop, our ability to negotiate favourable terms,and others; any requirements that we unbundle rates and conditions f interconnection services have significant market power or and facilities leasing services or if ICASA finds that we or Vodacom unfavourable terms the substantial capital and operational costs associated and conditions on us; our ability to implement and recover with carrier preselection, number portability registration requirements contained in the South and the monitoring, interception and customer African Regulation of Communication-Related InformationInterception of Communications and Provisions of our business; Telkom’s Act and the impact of these requirements on Audit Act and the impact of the ability to comply with the South African Public Finance Management Act and South African Public crime, HIV infection poverty, Rates Act; fluctuations in the value of the Rand and inflation rates; the impact of unemployment, not yet known to us or notlabour relations, exchange control restrictions and power outages in South Africa; and other matters currently considered material by us. caution you not to place undue reliance on these forward All written and oral forward looking statements. We looking statements unless we are required by law to update or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Moreover, report,these statements, we will not necessarily update any of these statements after the date of this annual either to confor or to changes in our expectations. Special note regarding forward-looking note regarding Special statements Administration

Company registration number Corporate Communications 1991/005476/06 Nabinto Petsana Tel: +27 12 311 7461 Head office [email protected] Telkom Towers North 152 Proes Street Regulatory and Public Policy Pretoria 0002 Adv. Ouma Rasethaba Tel: +27 12 311 4785 Postal address [email protected] Telkom SA Limited Private Bag X881 Auditors Pretoria 0001 Ernst & Young Inc. Wanderers Office Park Telkom share register helpline 52 Corlett Drive 0861 100 948 Illovo 2196

Private Bag X14 Customer call centre Northlands 2116 10219 Tel: +27 11 772 3000 Fax: +27 11 772 4000 Company secretary Sandi Linford Transfer agents Tel: +27 12 311 7743 Computershare Investor Services 2004 (Pty) Ltd [email protected] 70 Marshall Street Johannesburg, 2001 Media relations Pynee Chetty PO Box 61051 Tel: +27 12 311 5247 Marshalltown 2107 [email protected] Business call centre United States ADR depositary 10217 The Bank of New York Shareholder Relations Department Investor Relations PO Box 11258 Nicola White New York Tel: +27 12 311 5720 NY 10286-1258 [email protected] Tel: +1 888 643 4269 [email protected] e-mail: [email protected] Sponsors UBS Securities South Africa (Pty) Limited 64 Wierda Road East Wierda valley Sandton 2196 360 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 WorldReginfo - d064004a-e82f-471a-aba1-04f426cce752 - WorldReginfo we do business Telkom is one of Africa’s Telkom largest integrated communication service providers. aim to be Africa’s We preferred ICT solutions provider. Changing the way Changing report 2008 Annual Telkom SA Limited Telkom

Telkom SA Limited Annual Report 2008 www.telkom.co.za 8968 Telkom cover:Layout 1 4/8/08 16:09 Page 1 Page 16:09 4/8/08 1 cover:Layout Telkom 8968