Another chance for Telkom - TechCentral

Another chance for Telkom

Duncan McLeod

Duncan McLeod

Telkom is a shadow of the company it once was. As little as 10 years ago, it thoroughly dominated SA’s telecommunications landscape. Today, it’s not even among the top 40 companies listed on the JSE. Its market value has dwindled to such as extent that, at R7,8bn, it’s worth less than 5% of Vodacom, in which it once held a 50% stake.

There are many reasons for this destruction of market value. One is government interference. Communications minister Dina Pule’s decision last year to block the sale of 20% of Telkom’s equity to Korea’s KT Corp, in direct opposition to the strategy adopted by management, is just one example of this.

Another reason for Telkom’s poor performance is the fact that it continued to behave like an arrogant monopoly even after it was clear that it was no longer the only game in town. This has begun to change in recent years, but not enough.

Then there was its calamitous push into other African markets, notably Nigeria, where it sank more than R10bn into Multi-Links for zero return. This will go down as one of the biggest disasters in SA corporate history.

The past few years have been about fixing the damage. Under Nombulelo Moholi, group CEO for the past 18 months, Telkom has cultivated a friendlier image. Anecdotal evidence suggests customer service levels have improved and it’s no longer as hostile to rivals, especially the Internet service providers that play a key role in ensuring demand for fixed lines, as it once was.

However, on Moholi’s watch several key performance indicators have continued to slip. The number of fixed lines in service, for example, has dropped below 4m for the first time in decades, with an accelerating trend away from fixed lines to mobile alternatives.

There are many reasons for this but it’s supported by the fact that mobile alternatives are convenient — consumers don’t have to wait to have a line installed, for example — and, perhaps more importantly, they are becoming more affordable relative to fixed broadband.

Yet, presented with this data, Telkom continues to push up the cost of line rental year after year when it’s clear what it should be doing is cutting costs to ensure it can offer fixed lines profitably at lower prices. Maseko should make it a top priority to arrest the decline in fixed lines and to accelerate the growth in adoption of broadband digital subscriber lines. It won’t be easy, but it must be done.

Fixed lines still have many advantages over mobile alternatives. They provide consistent throughput, for example, and it’s possible (desirable, even) to offer uncapped products that mobile operators can’t.

In mobile, Telkom also has a big advantage in that it has access to vast tracts of spectrum that are ideally suited for delivering fourth-generation (4G) mobile broadband. Telkom’s rivals may have to wait years to get access to new spectrum, limiting their 4G plans. Maseko can use this to Telkom’s advantage.

Telkom’s board, arguably the strongest in its history, may also prove key in turning around the operator’s fortunes. Chairman Jabu Mabuza is no pushover. He’s already made it clear the board won’t tolerate operational interference from government. Good.

There’s no doubt the operator is facing big challenges, and the competitive pressures will continue to grow. But if he plays it right, Maseko, backed by a strong board, has a chance to get Telkom back on track and hopefully, in the process, deliver affordable and world-class broadband to consumers.  — (c) 2013 NewsCentral Media

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