How Telkom turned things around
Failing state-owned enterprises could learn a thing or two from the telecommunications giant which has brought itself back from the brink
FOR years it was a muchmaligned entity, bemoaned and ridiculed by millions of consumers for poor service, inferior products and bad management. But just look at Telkom now. Far from being an ailing body draining the country’s coffers, the telecommunications company has emerged as an example to other state-owned entities (SOEs) that you can turn your fortunes around with strategic thinking, stability at board level and determination to diversify. The latest financial results are proof that Telkom deserves a gold star: a profit of R3,3 billion was recorded for the financial year ending in March – an almost unheardof achievement in a country where SOEs are drowning in debt and dependent on government bailouts.
FROM HOPELESS TO HOPEFUL
Just five years ago, Telkom was in as much trouble as Eskom and South African Airways (SAA). The share price had dropped by 40%, CEO Nombulelo “Pinky” Moholi called it quits and the company was scrambling to find a new boss. When current CEO Sipho Maseko took over in 2013, the share price was trading at just R13 and the number of fixed phone lines had halved from around five million to 2,5 million as more and more consumers switched to cellphones. Fibre technology also allowed more competitors into the industry and Telkom was lurching from one crisis to the next.
But it’s a different story now. The share price is R95, the company is profitable and investment in new technologies is flourishing. Government is still the majority shareholder with a 40% stake and an additional 10,9% through its pension fund manager the Public Investment Corporation (PIC). But Telkom is ticking all the right boxes, experts say. And much of the credit must go to Maseko.
Maseko has turned things around, says Ron Klipin, senior analyst at investment company Cratos Capital. “He’s a strategist of note. He also had the support of the board, which the other SOEs lack,” says Klipin.
Under Maseko, Telkom reduced its head count substantially, steadily chipping away at the 22 000-strong workforce the company had when he took over. According to the group’s annual results, at the end of March the total permanent jobs stood at 15 296, thanks mainly to voluntary severance packages, voluntary early retirement packages and other layoffs in compliance with labour law.
Telkom has become a different place under Maseko, Klipin tells DRUM. “It’s chalk and cheese. The CEO is 10 out of 10 in the equation.”
Arthur Goldstuck, managing director of business technology research body World Wide Worx, says Maseko also had a “brilliant right-hand man” in Brian Armstrong, the chief commercial officer who left Telkom in 2017.
He says the support of the chairman
was also valuable in terms of limiting political interference and allowing Telkom to grow as a business.
BECOMING A PLAYER
Part of Telkom’s strategy was to move from landlines – a shrinking industry – into mobile, Klipin says. Then it acquired IT company BCX and expanded its portfolio to IT. “And in so doing it became a technology player.”
Telkom Business – which offered online business products at competitive prices – was successful and helped the company become profitable, says Goldstuck. Telkom’s mobile service “limped along” for a while, he adds, but they persevered. “And one thing they got right is they allowed that division to develop its own strategy and to operate almost as an independent unit.”
Telkom has doubled its number of mobile customers in the past financial year which “must have sent shockwaves through the industry”, he says. “Until last year, Telkom was a small operator in terms of mobile and suddenly it’s a major player. At this rate, it will overtake Cell C – and no one saw it coming.”
LESSONS FOR OTHER SOEs
“For lack of a better phrase, the other SOEs are down the toilet,” Klipin says.
He cites a shortage of expertise, the frequent changes at CEO level and lack of board support as some of the problems which are sinking entities such as Eskom, SAA and the SABC.
The fact that Telkom is partially privatised also counts in its favour. “It’s a listed entity and responsible to all its shareholders,” he says. “And it’s independent – unlike the other entities, which are solely under the auspices of the government agency.”
If we were to see some kind of privatisation at SAA, for example, it would change the whole paradigm and over time it would cease to be a drain on the fiscus, Klipin reckons. “This raises the question whether the airline is now so run down from years of mismanagement and corruption that it’s possible to save it at all,” said a report in the Daily Maverick following the resignation of SAA CEO Vuyani Jarana at the beginning of June.
“It’s estimated SAA has received about R65,24 billion in taxpayer funding since 1999, about R50 billion of this since the government took control of it in 2007.”
Over at beleaguered state power utility Eskom, CEO Phakamani Hadebe tendered his resignation in May. He’d reportedly buckled under the pressure of trying to turn the ailing SOE around. Eskom’s current debt is R420 billion, and the interest on it alone is around R45 billion a year. Its bloated workforce of 48 000 costs the utility R31 billion a year.
Meanwhile, the SABC is almost R700 million in debt.
Klipin says partial privatisation could be a good start but “there’s political and trade union resistance”.
Breaking a monopoly usually brings results, provided the right management is in place and the workforce has the requisite skills. “Each entity should have its own funding model and operating abilities and focus on those particular areas,” Klipin says.
Telkom’s success didn’t happen overnight, he adds, and it’s been a long, hard slog for Maseko. “It’s taken patience, dedication and the right strategy, despite the criticism he faced down the line.”
NO QUICK FIX
Goldstuck says the other SOEs should start running their utilities as businesses and not departments of government. “That’s what Telkom’s mindset was under many previous CEOs – their landline arm was run like a monopoly business, which is why they had to create more entities such as Telkom Mobile and BCX.”
Telkom’s units include BCX, formed from the merger between Telkom Business and Business Connexion; Telkom, the consumer brand; Openserve as the wholesale division and the fibre arm; and property company Gyro, established to unlock value in Telkom’s property portfolio.
Dawie Roodt, chief economist at the Efficient Group, says SA had good leaders, such as Jarana and Hadebe, in some of its SOEs.
“If they’d been allowed to do what needed to be done, they would’ve made a huge difference. Why is there still such a disaster? Because of political interference.”
In the case of a JSE-listed company such as Telkom, there’s transparency and investors scrutinise everything to ensure the leadership stays on the straight and narrow. “But that’s not the case with the other SOEs,” Roodt adds. “I think it might actually be too late to privatise Eskom and SAA.
“You have to do certain things at certain times when there’s some value, but there’s none left. You can’t fix them. Finish and klaar.”
Telkom’s Sipho Maseko has been lauded for the parastatal’s success.
RIGHT: Former SAA CEO Vuyani Jarana resigned at the beginning of June.