Telkom's plans for change
Telkom’s financial results, released this week, don’t necessarily give cause for great optimism. But chief executive Reuben September thinks otherwise.
The big question is: should Telkom shed its Vodacom stake and be bought out, or can it can ever be an attractive and viable standalone business?
September said that despite its the sluggish earnings, there was good reason to believe in the company’s future. Its future hinges on it becoming less of a fixed-line operator and more of a regional IT, communications and technology player. This means going head-to-head with many of the companies that are now its clients.
September has been keeping a low profile since he became acting CEO in April last year. His tenure has been marked by potential corporate activity including disbanded deals with Oger Telecoms and MTN. The latest deals on the table, which look a little more certain, include Telkom unbundling its 50% interest in Vodacom and reducing its stake in Telkom Media. Mvelaphanda has expressed interest in buying Telkom once Vodacom is gone.
September would not be drawn on details of the Vodafone and Mvelaphanda deals as there were non-disclosure agreements and a cautionary announcement. However, he said that Vodafone had made a non-binding proposal, whereas Mvela is merely considering making an offer.
September says notwithstanding the corporate activity, he has been focused on stabilising Telkom’s management and positioning the company to compete.
“Our pricing power is limited and inflation is eroding our margins. Transforming Telkom is key,” he said.
A major focus would be the selective rollout of a fixed mobile network, which would see it compete with other companies in the ICT sector. Fixed mobile will allow customers to use one device to access services on fixed and wireless networks.
September said Telkom had the depth of management and experienced people needed to handle the challenges ahead. “This is a complex business that requires a depth of understanding of issues including technology, regulatory issues and competition issues.”
September has 31 years’ experience at Telkom, which forms the backbone to South Africa’s entire communications infrastructure. Other companies in the sector are attempting to duplicate some of this infrastructure so they need not be so reliant on Telkom .
This is partly why Telkom would welcome a separation from Vodacom. Its goal, by 2010, is to be “a major convergence player on the African continent”. It wants to be both fixed and mobile.
“Mobility is the missing aspect,” he said. “Our powerful ammunition lies in our network. We provide the backbone for the mobile and key industries in SA. But we need to add the aspect of mobility and offer a range of convergent services to the full ICT spectrum — and not just in South Africa.”
Pointing to the acquisition of Multi-Links, a telecoms operator in Nigeria, he said it would form the foundation for expansion in Africa. The acquisition was also in line with the decision to focus on the assets that will provide the best return.
Closer to home, Telkom faces numerous challenges, including cable theft, which wiped out R980-million during the last financial year, and poor customer service.
September said he could not speak on behalf of investors, but there was, in his experience, an acceptance of Telkom’s strategy and an awareness of its sense of urgency in getting it right.
The “defend and grow” strategy was working, the consumer market was growing and investment opportunities outside SA were good. He added that the group was able to fund its own growth. “People ask about what we will do without the dividend from Vodacom, but if you look at last year’s figures, Telkom provided 50% of the dividend,” he said.
He indicated that the acquisition of an IT brand was high on the agenda. The acquisition of Business Connexion could not go ahead due to competition concerns, and competition regulation remains a major hurdle. So Telkom is looking for a data centre management company outside SA, and then to import the brand.
Commenting on the threat of Telkom’s first real fixed-line competitor, Neotel, he said: “We projected to the market just over a year ago that we could lose 10% to 15% market share by 2010, not only from competition from Neotel but also Vans (Value-Added Network Service Providers) and all other competitors, and we are on the better side of that range.”
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