Telecoms race
And on Wednesday, the organisation finally lost its lengthy dispute with US computer software company Telcordia Technologies.
The Telcordia dispute has been bubbling away for more than six years, and relates to a 1999 agreement for the US organisation to supply software designed to improve Telkom’s customer service.
Telkom ended the contract, claiming that Telcordia did not deliver according to its specifications. The matter went back and forth for years, with Telcordia winning an international arbitration decision which was then overturned by the Pretoria High Court.
This week’s ruling by the Supreme Court of Appeal saw Telcordia having the last laugh, a move which potentially exposes Telkom to a R1,5bn claim.
If that happens, it will take a big chunk out of Telkom’s bottom line. One has to wonder about the wisdom of Telkom’s decision not to make provision for a contingent liability in the latest set of financial results.
Presumably, such was its misguided confidence about winning the case. It made a provision for several years in previous results, and the fact that the share price took such a knock yesterday shows that investors are concerned about the effect of the court ruling.
This could not have come at a more challenging time for Telkom. It is facing growing competition, rising costs and its strategy of diversifying into the information technology sector is now under threat. The Business Connexion case is a complex one, and the Competition Tribunal may yet overturn the commission’s recommendations. But if one considers the commission’s reasons for recommending that the deal be prohibited, the signs are not particularly promising.
Further, even if the tribunal were to come to a different conclusion, the complexity of the case means it is likely to run for at least 12 to 18 months. That’s a lot of lost time in terms of Telkom’s investment strategy, and time is the one thing the organisation does not have.
Faced with the end of its fixed-line monopoly, the stagnation of its voice business and mounting competition in almost all aspects of its business, Telkom has no option but to urgently broaden its services.
Telkom unveiled a R30bn investment and acquisition strategy this year which revolves around delivering a sophisticated broadband network within five years, boosting customer service and diversifying into foreign markets.
If it can offer consumers affordable voice calls and internet access, video on demand and include some television channels, the future will begin to look far brighter.
And if it can also reach out to business customers by carrying their voice and data, getting them online, backing up and archiving their documents and providing software applications over the network, there’s a strong chance that the corporate world will opt to remain with Telkom. But it needs to do this as quickly as possible.
The second national phone operator has already begun business; cellphone operators have signed up about five times as many customers as Telkom and are still growing; and value-added network providers are increasingly using voice over internet protocol, which will hit Telkom’s voice revenues. The race is decidedly on.
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