Telkom is planning to cut as many as 3,000 jobs across the company to compensate for poor earnings and its dismal share-price performance in recent months.
Telkom’s share price has been hammered over the last six months, declining from R99.50 on 11 June to under R30 per share on 9 January.
Investors have lost confidence in the company because of the rapid decline in fixed-line customers, lower enterprise revenue, and increasing debt.
The company’s free cash flow generation is also negative and the decline in fixed-line revenue is severe.
While Telkom CEO Sipho Maseko said the company will now focus on its mobile services, this strategy is also questionable.
The company’s mobile unit is showing strong growth, but as it is such a capital-intensive business, Telkom is taking on a lot of debt to fund this growth.
With net debt of R12 billion, many investors feel that Telkom’s debt is reaching worrying levels and are questioning whether the company accurately assessed the finance charges related to this debt.
Mobile strategy questioned
FNB Wealth and Investments’s Wayne McCurrie questioned Telkom’s mobile strategy, saying the company is trying to compete in a saturated mobile market.
He said Telkom relies on its roaming agreement to offer a decent service, which means its only competitive advantage is price.
This “race to the bottom” is good news for consumers but puts tremendous pressure on Telkom’s bottom line.
Excelsia analyst Mark Narramore also questioned Telkom’s strategy, saying it was spending money with cashflow which it does not have.
Narramore highlighted that Telkom’s share price has been declining over the last few months and that he anticipates the company will be downgraded.
Job cuts at Telkom
The company now wants to cut costs to increase its earnings, which again means job losses for Telkom employees.
Reuters reported that Telkom is planning to cut “up to 3,000 jobs in its wholesale division Openserve, consumer unit, as well as in its corporate centre”.
According to the report, the job cuts will happen in phases, with the first happening from January to April.
It added that the company is looking to “streamline its operations amid falling earnings and changing market conditions”.
Telkom’s corporate plan has failed – Union
Communications Workers Union (CWU) Secretary-General Aubrey Tshabalala said Telkom informed them that over 3,000 workers will be dismissed.
Tshabalala said Telkom will start its consultation process on 22 and 23 January as part of the first phase of retrenchments which will conclude in March.
The company will then start with the second phase of retrenchments which will end in May.
Tshabalala said the job losses and Telkom’s rationale behind the job cuts do not sit well with the union.
“This demonstrated that the corporate plan of Sipho Maseko and former Telkom chairman Jabu Mabuza has failed,” he said.
Tshabalala said they are opposing the planned job cuts, calling on workers to unite against the “onslaught” from Telkom.
Telkom confirmed to MyBroadband that is has served unions with letters regarding the Section 189 process.
“Telkom will continue to consult with the unions, and it is our hope that through considered engagement with the unions, we will come to a mutually beneficial solution,” the company said.
“Out of respect for our employees, we will share information once we have engaged further with our employees and unions.”
Telkom share price
The graph below shows Telkom’s share price decline over the last 6 months.