Operator prepares to take itself off hold

SIPHO Maseko is one brave CEO. The Telkom boss is about to take on powerful trade unions as he tries to restructure the telecommunications operator’s business so that it can compete effectively in an industry that has changed fundamentally in recent years.

In effect, Maseko is attempting — in the face of fierce union resistance — to drag Telkom into the 21st century. In the past 20 years, Telkom has gone from dominating its industry through a state-sanctioned monopoly, to being just another player in a cut-throat sector where margins are under severe pressure.

If the experience of fixed-line operators around the world is anything to go by, Telkom’s reinvention is going to be exceptionally difficult to achieve.

As many as 7 800 jobs — 42% of a workforce of about 18 333 — will be affected, many of them in Telkom’s wholesale division, as Maseko and his team, assisted by management consulting firm Bain & Company, attempt to turn the company into a leaner, more efficient outfit able to compete with Vodacom and MTN.

If Maseko and his team can pull off the restructuring, they will change Telkom forever — and for the better. At its heart is a plan to split Telkom into three distinct businesses. The enterprise (business), retail consumer and wholesale divisions will, in effect, operate as three independent businesses, with distinct corporate cultures.

In a move similar to the formerly stateowned British Telecom’s decision to spin off its infrastructure business into a firm called Openreach, the wholesale business in this country will be set free to serve not only Telkom, but all other licensed telecoms operators in South Africa on a fair and equitable basis.

Openreach, which is heavily regulated, helped improve competition for fixed broadband services in the UK; in theory, spinning off Telkom wholesale could do the same here.

Telkom is promising to reveal more details about its plans for the wholesale division in the third quarter of this year.

Telkom wholesale — which could even be fully separated from Telkom in the future — is set to take the brunt of the latest round of job cuts. The operator intends using voluntarily severance and early retirement packages to entice people to leave. But it’s not ruling out forced retrenchments.

The company says it is keen to retain skills through outsourcing and “enterprise development” initiatives. It wants to encourage its field-service personnel, including technicians, to form their own independent businesses that then contract to Telkom. These entrepreneurs will also provide other, related, services to consumers. It’s a model used by broadcaster MultiChoice, which relies on independent contractors to install clients’ satellite dishes and decoders.

Not surprisingly, Telkom’s proposals have not been well received by organised labour. The company is set to face a strong backlash, particularly from the Communication Workers Union, the most militant of the three unions it recognises. In recent weeks, union members have been involved in a strike at MTN that has at times become ugly, with the entrance to the mobile group’s head office in Johannesburg barricaded with burning tyres. Telkom will be keen to avoid similar scenes.

What is particularly interesting is that Maseko appears to have political support for the restructuring. The government, Telkom’s largest shareholder, would not allow him to press ahead with the restructuring if it did not support the strategy. This could make it harder for the unions to resist the plans.

“We must have a highly efficient and cost-effective workforce,” Telkom said on Monday in its annual results statement. “Within our workforce there are significant opportunities to create a highly skilled and productive team by ensuring that employees have the right skills and capabilities to support the changing business. Much like most telecoms operators globally, we must move towards a leaner and more productive workforce.”

Getting there won’t be easy. But Telkom must be applauded for doing what is long overdue.

McLeod edits TechCentral.co.za. Find him on Twitter @mcleodd