South African telephone operator Telkom has reported a rise in profits in its last set of results before the company is privatised.

It saw annual earnings rise 17% to 1.915bn rand (�123m; $188m) boosted by greater efficiency in its fixed line business.

The privatisation of Telkom will be South Africa's biggest sell-off to date.

A competitor is also due to be licensed later this year but is likely to target the lucrative corporate market, leaving most residential users in the hands of Telkom.

Cutting back

The company said it was making savings in its fixed line business.

And it had continued to reduce its workforce, which has been cut by more than a third since 1998.

But operating expenses grew faster than revenue, largely because of the cost of restructuring the company and the growing number of bad debts.

Increases in fixed line tariffs saw bad debts rise by 44% because some residents were unable to pay the higher prices.

A dispute over price rises between Telkom and the industry regulator ICASA (Independent Communications Authority of South Africa) was settled last month, paving the way for the company's privatisation.

Telkom is controlled by the government, and other shareholders include SBC Communications of the United States and Telekom Malaysia which hold 30% between them.