Telkom, arguably the biggest telecommunication operator on the continent, is facing trouble on all fronts.
There’s a looming R3.5bn (or even R4.5bn if the authorities get their way) fine proposed by the Competition Commission for “transgressions” from almost a decade ago.
Its been forced to make a hasty retreat from its colonisation attempts in Africa (especially Nigeria). It lost over R10bn on Multi-Links, and one senses management has no appetite (or capital) for further conquests on the continent.
8.ta is costing far more to start up than the (optimistic) business plan suggested. In 2011, it posted a R1.1bn operating loss, and expects the charge for 2012 to be higher. Last year, it also indicated that the target for break-even would be shifted out by a year to 2014. 8.ta faces intense competition for customers, more so with Alan Knott-Craig’s attempted revival of Cell C.
In its traditional market, competition is perhaps even tougher than in the mobile space. Liberalisation of the market (which ironically makes the Competition Commission’s investigation and proposed fine even more ludicrous) has meant an explosion of backhaul and access services. Neotel, which is finding traction in the market, has meant genuine competition in the enterprise and consumer space.
And all the while, “fixed-mobile substitution” as Telkom execs from yesteryear euphemistically called the switch to mobile has all but decimated the fixed-line business.
But the situation is not completely dire.
There are signs of significant improvement.
Every single person I speak to who has interacted with Telkom recently (for ADSL installation/services or even service repairs) has had only good things to say. My personal experience with ADSL installation at the start of this year was overwhelmingly positive. Although you still wait an absurdly long time for your call to be attended to, major improvements to its call centres mean that queries are actually answered and resolved.
It has ambitious plans for its network too, with 40mbps high-speed DSL trials as well as an ambitious fibre to the home proof of concept both targeted for later this year. The realisation by Telkom’s executive team, led by CEO Pinky Moholi, that its future is fibre is good news for Telkom and South Africa
Moholi has continued the operational transformation begun under previous CEO Reuben September (who has received scant recognition for beginning the process to make Telkom more efficient). September was not perhaps classic CEO material but it’s undeniable that he understood the business from top to bottom.
And, 8.ta’s network is actually pretty darn good. Its offers are competitive (perhaps not aggressive enough), albeit a few of its deals and packages have an air of Johnny-come-lately about them. 8.ta still has an opportunity to really innovate in the mobile market.
It’s the unique position Telkom finds itself in that makes it attractive to foreign suitors.
Yet, you couldn’t make up the bombshell Telkom was forced to dump on the market on Friday. It was government which introduced both Korea Telecom and the transaction where it would buy a 20% stake in the telecommunications operator to Telkom!
And government (through Cabinet) has refused to bless the transaction after being presented with it on Wednesday. Remember, this is a deal that’s been in the making for nearly eight months, and counting!
The signs of discontent were there a few weeks ago. On May 8, when Telkom provided its most recent update about the deal (which only highlighted the fact that the price would drop materially), the Public Investment Corporation refused once more to comment on the deal. All it would say, rather ominously, was: “Since we are one of the significant shareholders in Telkom,” – the PIC owns 10% – “we believe our vote can swing the outcome, and therefore respectfully decline to comment at this stage of the process”.
We can only guess what the transaction details are. There’s talk of a five-year “co-source management services” agreement. Of course there needs to be scrutiny as Techcentral’s Duncan McLeod points out, and we should be suspicious of the details. After all, we’ve been here before: The sale of a 30% stake in Telkom to SBC Communications and Telekom Malaysia in the late 1990s was a disaster.
Yes, the foreigners brought their management expertise but they completely abused Telkom’s monopoly position to the detriment of both Telkom and the country. Maybe this is why Cabinet shot down the deal? We may know as details emerge in the coming days.
There’s no doubt Telkom needs KT Corp. Without a capital injection and foreign expertise, Telkom’s journey into irrelevance will continue. It’s hard to imagine why government wouldn’t want an injection of money and ideas, especially since Telkom, in its current state, is not what you’d call a cash cow.
This is classic, and unhelpful, meddling by government. A government which has repeatedly publicly “welcomed” foreign direct investment only to find a quiet way of stifling it.
There are two ways to ensure Telkom remains relevant and competitive. A deal such as the one envisioned with KT Corp, ensures that at least government remains a shareholder.
The other option is for government to privatise Telkom; it can’t be a semi-parastatal in the same way you can’t be semi-pregnant. There is no reason in 2012 for government to own a telecommunications business.
Even Brazil – which we have a love affair with as part of the Brics alliance – broke up and privatised its telecoms monopoly (Telebrás) in 1998! Government must sell its 39% holding in Telkom before it (and that the other 61%) is worthless.
* Hilton Tarrant contributes to “Broadband”, a column on Moneyweb covering the ICT sector in South Africa. He doesn’t know whether to laugh or cry at government’s latest meddling in telecoms.