A tougher competitive environment and the slowdown in economic activity have added to Telkom’s difficulties in the past year, says analyst group Frost & Sullivan.

The telecommunications group has struggled to assert itself since the unbundling of its 50% stake in Vodacom and continues to be beset by trouble at its Nigerian subsidiary, Multi-Links, the firm says.

Telkom released annual results today, revealing an 11,2% decrease in normalised headline earnings per share from continuing operations.

“With a new CEO coming in at the end of this year or early next year, hopefully things will improve for Telkom,” says Frost & Sullivan ICT industry analyst Spiwe Chireka.

“However, this hinges on the new appointee’s willingness to start on a fresh page and adopt a brave turnaround strategy. If that doesn’t happen, whoever takes over will simply continue a legacy of what has not really worked, especially in terms of Telkom’s African strategy.”

Chireka says Telkom’s pan-African ISPs, Africa Online and MWeb, continue to perform “dismally”. Three years after acquiring Africa Online, the subscriber numbers have stalled and MWeb may also be headed in that direction.

In addition, the decrease in interconnection fees, and subsequently tariffs, is expected to continue exerting pressure on the company’s top and bottom line in SA.

“Competition in the SA market has become cutthroat, especially due to the new licensing regime and the arrival of Seacom,” Chireka says.

“Neotel is also slowly but surely gaining momentum. Telkom therefore needs to start shopping outside of these borders and do so fast. The rest of Africa is still a potentially lucrative growth area for the operator, but opportunities are becoming scarce.”

The Multi-Links acquisition continues to be a thorn in the group’s side, she adds. Telkom’s Nigerian operations reported an earnings loss (before interest, tax, depreciation and amortisation) of R659m for the year, following the loss of R226m for the prior 12 months.

“Multi-Links was supposed to be a breath of life for Telkom, but it is increasingly becoming a liability,” Chireka says. “A turnaround strategy is critical. We do not however think that pulling out of Nigeria completely is advisable, as the market still presents a great deal of growth opportunity if it is properly addressed.”

Chireka insists that Telkom still has significant potential if properly managed. In its results commentary, the group indicated that the repositioning of the group is imperative in the current operating environment. It will focus on growing other revenue streams through data centres, mobile communications and looking for opportunities in Africa outside of SA.

“Fixed-line services are not dead,” Chireka says. “We have seen unprecedented growth by fixed-wireless access providers especially on CDMA networks elsewhere in Africa. This could present a frontier for expansion for Telkom, as the mobile and broadband markets are increasingly becoming saturated.”

In addition, she feels that Telkom’s mobile venture could be key in expanding the group’s revenue and customer base.

“It will be interesting to see if Telkom’s mobile services will take off to become something noteworthy,” she says. “The market is already quite saturated, even in the data and Internet segment, so it’s likely to be very challenging for the company to hit the ground running with its mobile offering.” — Staff reporter, TechCentral