By Duncan McLeod

Telkom released another set of shocking financial results this week, prompting some commentators to wonder if the company is sliding into irrelevance. But behind the dismal numbers is a more positive story. It’s one of a management team, under CEO Nombulelo Moholi, starting to capitalise on Telkom’s opportunities in a competitive telecommunications industry.

For many years, SA’s incumbent fixed-line operator has been abused. It’s been undermined by bad management decisions, an unstable senior management team, boardroom politics, a failure to execute on plans and a monopolistic mind-set. This week’s results are a legacy of this.

Telkom is continuing to pay the price for ruinous acquisitions and investments, like its purchase of Nigeria’s Multi-Links. It finally hived off the Nigerian company last month but not before pouring billions of rand down the toilet. Multi-Links will continue to weigh it down in the second half of the financial year.

The number of regulatory and legal disputes Telkom is facing is also of grave concern. It’s being sued for billions of rand. It is also facing the threat of billions more in fines from the competition authorities, related to alleged abuses of its monopoly dating back to the late 1990s and early 2000s.

It’s easy, then, to think that Telkom is a lost cause, a stock around which investors would be advised to steer a wide berth. On Monday, after the interim results were released, the share continued its years-long downward spiral, touching levels below R29. It’s fallen 17,2% in the past year and is down 21,6% in the past six months alone. That’s hardly a good investment, even with dividends factored into the equation.

Given all of this, you might be surprised to learn that I am relatively upbeat about Telkom ’s medium- and long-term prospects. Why? Because, under Moholi, Telkom is making the right noises about the predicament it’s in and what is needed to turn around before the ship runs aground on the rocks.

The company has finally admitted it needs to steer away from African adventures, at least for the time being, and to concentrate on its home market of SA, where competition has intensified dramatically in recent years.

Its decision to launch a mobile network into a mature market has attracted many naysayers, but it’s the right strategy in a market where fixed-to-mobile substitution continues unabated and where fixed-mobile convergence is a big future revenue generator.

It has not done a great job with 8ta so far, but at least it’s admitted that and is promising to change its approach to the market, especially in prepaid services, where it has missed its targets.

But Telkom’s real strength lies in fixed lines. Instead of milking a captive audience for all it is worth — and providing lousy service to boot — it is finally starting to make noises about leveraging its competitive advantage in this space. It’s going to pour billions into boosting broadband speeds, to offer value-added services like video on demand that the mobile players can’t offer because of the nature of their networks.

Telkom must focus on reversing a decade-long decline in the number of fixed lines in service. This number may soon fall below 4m (from 5,5m 10 years ago), but the rot can be stopped by offering retail and business customers alike the services they demand and expect — faster connections, cheaper data, bundled products and integrated services — with improved service levels.

A closer reading of Telkom’s strategic plans shows the management team understands what is required. If Moholi can pull off a turnaround — admittedly it’s a big “if” in a company as large and unwieldy as Telkom — then its future is far from bleak.