Is Telkom losing its only friends?
Telkom’s share price reached a high of over R 170-00 earlier this year, but after an announcement by Telkom’s CEO, Papi Molotsane, that the telecoms giant will be investing billions in a Next Generation Network (NGN) some investors were quick to drop this popular stock.
After this announcement Telkom’s share price plummeted, and it currently hovers around R 130-00 per share. This is a significant fall in anybody’s language and a knock for the company that previously seemed to be blessed with the golden touch.
But an infrastructure investment is clearly needed for Telkom to remain competitive in an evolving telecoms environment, which raises an interesting question as to why investors did not like this announcement. Many international telecom providers see a rise in their share price when they announce further infrastructure investment as it spells out growth to investors.
BT, the big UK telco, recently saw their share price surge on the back of their successful broadband strategy. Their results were good but UK shareholders also have faith in BT’s continual investment in their business which spells out future growth and a stable company prepared for a changing environment.
So why did investors in our local telecoms company not like to hear about announcements of a significant investment in a new generation network from Telkom?
One possible reason is that investors have become accustomed to the telecoms giant exploiting their monopoly to show exorbitant profits and in turn passing these on to their shareholders, a trend set by the previous CEO Sizwe Nxasana.
Nxasana provided impressive results year after year and investors became accustomed to the ring of huge monopoly profits. The focus was placed firmly on quick profits, something many ‘short term’ investors are looking for.
This situation was obviously not sustainable, especially when considering the much talked about ‘competition’ entering the market and smaller players starting to compete with Telkom on a variety of services. Even municipalities are now starting to self provide, which looks to be a definite threat to Telkom’s stranglehold on the market.
Customer Centric
For Telkom to remain the dominant local telecoms players an investment in a NGN and building innovative services on top of this network is crucial. The other issue is the company’s poor public image and lack of customer service.
Telkom is one of the most despised companies in South Africa, and to rectify this situation is not an easy task.
Molotsane has made it clear that his strategy for the company is to become customer centric, but this is easier said that done. In a recent website poll most voters indicated that Telkom’s attitude towards customers was the same or worse after Papi Molotsane took over from Sizwe Nxasana.
Many customers and even larger companies have indicated that they will jump ship when a viable alternative to Telkom becomes available, and it will be difficult for Telkom to convince them otherwise. A monopolistic corporate culture entrenched in Telkom is the cause of much of the damage metered out to Telkom’s corporate reputation.
The face of Telkom has in the past had the luxury of not having to engage with customers, and whilst the new CEO comes from a very different background those under him are not adapting to this new way of doing business easily.
Even after Molotsane’s announcement that the incumbent will engage with customers Telkom is still hiding away and trying to dictate to consumers what is affordable and what they should be happy with.
Apart from a few well worded presentations and press releases nothing much in terms of real customer centricism has reached the target audience – consumers.
Telkom are not only fighting against a wave of consumer dissatisfaction but they have also crossed swords with the Regulator. The monopoly is fighting with ICASA regarding the draft regulations pertaining to their ADSL pricing, which is over 1000% more expensive than international standards.
Consumers watching this battle are not likely to be won over to the idea that Telkom has their best interests at heart. Why fight with an organisation trying to protect consumers?
Consumers have long asked for action from Telkom regarding ADSL pricing, and it is interesting to note that there has been no price reduction from Telkom after Molotsane took the helm. Rumours and promises have abounded but as yet consumers have not received one penny off their current ADSL service since the end of last year.
There were two ADSL price reductions last year under Nxasana, one after the 50 000 mark was reached and one after 70 000. There are now already over 140 000 ADSL users, but Telkom is mum on when the next price reduction will take place.
The Future
So with investors not keen to hear about New Generation Network investments and Telkom finding it difficult to become more customer centric, what is in store for our fixed line provider?
With a firm grip on both the national and international fixed line infrastructure Telkom will most likely remain dominant for many years to come. This however does not mean that they will be able to maintain the massive growth in profits that we have seen over the past few years.
These massive profits were due mainly to its status as a protected monopoly, and with a more liberalized telecoms market Telkom will find it increasingly difficult to compete effectively with smaller, more customer centric companies.
The future for this slow-moving telecoms company may not be as bright as in previous years but it is more stable. The previous profit-making model was not sustainable with huge cuts in employee expenses and no significant infrastructure investment in the face of a changing telecoms environment.
Under Molotsane Telkom has a chance of not only putting on a new, brave consumer-friendly face but also dragging South Africa out of the broadband doldrums. The time for talking is however over, and unless Telkom truly changes its ways and we see action from the telecoms giant it may be in for a very bumpy ride.
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