Life after 8ta
Telkom announced its interim results on November 22 2010 for its 2010/11 financial year. The company reported revenue loss of 5.4% and profits declined by 9.3% to R1.4bn. Furthermore, the company’s headline earnings per share (Heps) were down by 5.3% from the previous financial period and salary costs increased by 7.5% after the company reported 23% increase in salary costs for its financial year ending March 2010. Multi-links continues to ‘leak’ the company money and its pan African ISP operations – Africa Online and MWEB (now iWayAfrica) have stagnated and not made much of a difference on the company’s overall performance.
Telkom’s poor results over the past three years are a result of misaligned and mistimed strategies in a highly evolving telecommunications industry. Furthermore, the company appears to operate in silos with limited sound integration of its various operations and services. This has raised a number of challenges for Telkom.
Critical challenges that threaten Telkom include the need for a thriving mobile telecoms entity in a saturated market, the need to transform Multi-Links from the loss making entity that it currently is, to develop a sound and concrete plans for its pan African intentions. Underlying the need to address these areas is the need for Telkom to finalize the leadership structure to ensure stability and improvements to Telkom’s current financial performance.
Thriving 8.ta
Telkom has announced 8.ta’s intentions to gain between 12% to 15% market share in the next five years. This is a mammoth target given the fact that South Africa has three well established mobile operators that will fiercely defend their market shares. Furthermore, Telkom’s aggressive subscriber acquisition strategy based on price penetration can only work in the short term if it is not supported by real customer value proposition. Price penetration strategies are a risky maneuver and more often than not places pressure on the operators’ margins.
Critical to 8.ta’s position is Telkom’s ability to offer strong fixed mobile converged services.
Telkom should therefore focus on subscriber growth via areas such as differentiated offerings especially on converged products, distribution channels that match network coverage, handset exclusivity deals, and promotions to encourage competitor churn. Telkom should aim to stay away from price based strategies as these can be replicated and if implemented for too long, could result in margin stresses on Telkom. Alternatively, 8.ta could ditch the market share KPI and focus on the entity’s revenue contributions to overall group revenues, proportion of customer based contribution and/ or number of fixed -mobile subscribers.
Multi-Links
Multi-Links has enabled Telkom to play in the Nigerian mobile market, one of the most lucrative and yet most challenging markets in Sub Saharan Africa. Multi-Links’ dismal financial performance can be partly attributed to the company’s focus on the mobile services – a market which was already entrenched by GSM and other CDMA operators in that country such as Starcomms. It is therefore a good start that Telkom has decided to do away with the mobile operations part of the operation. Furthermore, kudos to Telkom for opting to stay within the Nigerian market despite pressures to get rid of Multi-Links altogether and exit the Nigerian market. Multi-Links is still in a position to offer competitively international and other wholesale connectivity services, as well as data services through its vast fibre optic network across Nigeria. In addition, Telkom can leverage its South African experience to competitively offer enterprise data services – an area that is grossly underserved in the Nigerian market. Given that the mobile operations have been the main culprit in escalating Multi-Links’ costs, this move could be instrumental in turning around Multi-Links after all.
Pan African Operations
To date, Telkom’s African expansion plans have been fuzzy to say the least. Despite attempts to expand into Africa through acquisitions of AfricaOnline and MWEB – two pan African ISPs, none of these initiatives have gained notable footholds. Telkom needs to revise, in the short-term, these operations and reposition them away from ISP operations. ISP operators across Africa that are non-incumbents or do not hold extensive infrastructure are at an inherent price disadvantage and often lack the service agility that holders of infrastructure often have. Telkom has decided to reposition its ISP entities to deliver services on its behalf to its South African MNC clients expanding into the rest of Africa. This is a good move on the company’s part as it allows easier transition for Telkom to deliver services to global carriers looking for partners within Sub Saharan Africa.
However, Telkom still needs to expand its geographic presence into other markets which exhibit high demand for services but are not crowded. These include DRC, Mozambique Ghana, Cameroon and Zambia to name a few. Telkom should also look to investing in infrastructure development outside of South Africa as ‘he who holds infrastructure is king in this market’.
Leadership
Telkom’s challenges are not at the strategic level but mainly on the operational and implementation level. Telkom has over the years developed sound strategies for its operations but has often been caught short at rolling these out. For example Multi-Links was a good idea, providing the entry platform into the Nigerian market. However, the initial focus of services was wrong. The acquisition of iWayAfrica positioned Telkom well to take advantage of the growing demand for data access in Sub Saharan Africa but the company failed to reinvent itself and its position in the market. While Telkom’s disposal of its shareholding in Vodacom was a necessary one, it has taken the company too long to launch 8.ta.
Telkom’s turnaround and success over the next five years hinges on finding a long term solution to the leadership void created by the absence of a permanent CEO.
While in the short term, the leadership issue at Telkom has been resolved through the appointment of Jeffrey Hedberg as the acting CEO, Telkom needs to appoint a permanent CEO and do so soon. But the question that remains is who will take over Telkom and what kind of person should they be?
Telkom needs a CEO who does not only understand the key operational challenges that the group is facing but has practical hands-on operational experience not only in South Africa but more so in the rest of Africa. Given the number of leadership issues that have besieged Telkom over the past three years across its operating units, it is most likely that a number of factions have developed within the organisation. This is likely to make an external candidate unsuitable. Telkom needs an insider who understands the current culture, battles and is capable of inspiring and bringing the various factions together to achieve the key objectives of the group.
There are several key contenders that have emerged as prime candidates to take over the reigns as CEO of Telkom. Each brings several key strengths necessary for the revival of Telkom.
Nombulelo “Pinky” Moholi who joined Telkom as the MD of Telkom SA from Nedbank in 2009 has previously been tipped to take over the reigns. She is an experienced telecoms executive and has previously held various senior positions in Telkom between 1994 and 2005. Her experience with turnaround strategies at Nedbank is something that Telkom needs – although it remains to be seen if the turnaround capabilities will be necessary given that this is precisely what Mr Hedberg, the current acting CEO is currently tasked to do.
Another strong candidate is Mzamo Mlengana, Telkom’s current Vice President of Corporate Development. His team has been tasked with identifying opportunities in and outside of South Africa and was responsible for the acquisitions of Multi-Links and AfricaOnline. At the time of the acquisition of Multi-Links, Mr Mlengana had the vision to focus on utilizing Multi-Links fibre optic assets as opposed to its mobile services – an idea that has only now been realized by Telkom at large. There is nothing wrong with the acquisitions but it appears Mr Mlengana has been let down by the implementation process within Telkom. Mr Mlengana’s track record shows he is dedicated to not only improving Telkom’s revenue and market position especially in the fixed-mobile service area, but also to integrate the silo entity. This kind of vision and foresight for Telkom, especially in the rest of Africa is what Telkom needs in its next CEO.
Last but not least, is the current CEO, Jeffery Hedberg. He has experience in the telecommunications sector and in his short tenure as CEO is on his way to repositioning iWayAfrica and Multi-Links – something that Telkom should have done a while ago- and has launched 8.ta. He has also indicated intention to reduce Telkom’s cost conundrum – which is critical for Telkom. It will be interesting to see whether these strategies pay dividends in the short term. If they do, it would go a long way to building his case to continue as the permanent CEO of Telkom.
While the last 36 months have been challenging for Telkom, with the right leadership and focus area, Life after 8.ta is likely to be promising and yield strong dividends for the company.
Life after 8ta << Comments and views
*Spiwe Chireka is ICT Industry Analyst for Africa
Source: Moneyweb
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