Time to sell Telkom

Not only has it lost most of its senior management over the past month, but it has also written its investment in its Nigerian operations, Multilinks down to zero and is continuing to bleed fixed line subscribers at home.

The thing is that despite all of the trouble that the company is in, it is still a critical part of the South African telecommunications landscape. If Telkom were to cease operations tomorrow the entire country would be thrown into disarray. But what could possibly be done to get the behemoth that is Telkom, back on the tracks again.

There are a few options that could be on the table for whoever takes over at Telkom.

First would be to get rid of the albatross that is Multilinks. While I am sure that Jeffery Hedberg, who is running Telkom at the moment, has a good idea of the challenges facing Multilinks, the fact is that it is up against the wall in Nigeria. It is a CDMA operator in a strongly GSM market, the overall market is intensely competitive and likely to get more so and the average revenue per user in Nigeria is not exactly on par with South Africa or other – more developed markets. So find someone who will pay fair value for it and off load it fast. That would free up money and management time to focus on SA, where the real money still is.

The next problem is one that is more intractable than simply flogging off some unwanted assets. It hits to the heart of the problem – the shareholding. 

The management at Telkom need to persuade their largest shareholders, the SA government, which owns around 40% of Telkom to sell its stake. I am of the opinion that having a single shareholder – that is not another telecoms operator – owning such a large stake in the company is simply not a good state of affairs. And additionally should anyone want to put in a bid for Telkom it would be practically impossible to pull off without government agreeing to it.

So maybe it would be better to simply cut the chains tying Telkom to the SA government and bring in an operator that would be able to turn Telkom into the world class operator that it has the potential to be.

There is, of course, the last flirtation with foreign ownership where SBC and Telekom Malaysia took every advantage to screw the SA telecoms users to make as much money as possible. Hopefully with a the regulatory environment very different and Telkom firmly on the back foot things will work out differently this time round.

Maybe it’s even time for a smart investor to take possession of Telkom and sell off the various assets to the rest of the industry and see what happens.

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Time to sell Telkom