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

DRUM - - Contents - BY GABISILE NG­COBO

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.

GOOD LEAD­ER­SHIP

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.

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