Telkom sends the right signals, at last
New team seems ready to take the troubled parastatal in hand
FOR all its stated good intentions, Africa’s largest fixed-line telephone group — Telkom — faces many challenges in a tough environment. Will it come to embody the Japanese proverb that says, in effect, that the most beautiful flowers grow from the rankest dirt?
Despite having suffered a pretty awful lost decade, with many predicting its demise, there is still hope that Telkom can be saved.
But for this to happen, everyone needs to give Telkom’s new management team a reasonable chance to deliver on its yet-to-bedisclosed turnaround strategy.
If the strategy is implemented correctly, Telkom’s recovery will bring welcome relief to its shareholders and South Africans, and will ultimately energise the economy.
The stakes are so high that
It could unlock value by separating its network from the actual service provider
stakeholders in Telkom cannot afford to have the new management fail. Of course, this should not stop observers from being critical of the new Telkom team, led by chairman Jabu Mabuza, new CEO Sipho Maseko and strategy director Miriam Altman.
So what actually needs to be done to fix Telkom?
The most pressing issues are to define its strategic direction, deal with poor customer service and relatively high costs and clarify the role of the government in its business.
It is a big task, but at least Mabuza and Maseko have been saying the right things to calm the markets.
They have also shown the courage to dirty their hands by dealing with uncertainty related to outstanding litigation. And they have written down R12-billion of legacy assets, as well as sending all the signals that they expect Telkom to slim down.
Of course, trimming Telkom’s bloated staff numbers may place the company on a collision course with unions — but if they want Telkom to thrive, they will have to come to the party.
Although much action has been taken, Telkom’s board has not done enough to “right-size” the company given the urgency of the situation.
It is true that Telkom only initiated voluntary retrenchments this year.
But instead of reducing the number of workers, the company’s total staff complement — excluding subsidiaries — increased to 21 209 people according to the March 2013 group annual results, compared with 20 939 in 2012. Telkom needs to aggressively reduce numbers, especially those in its traditional fixed-line business. And it is trying to do so: it says that after the 2013 year-end and up to the end of May this year, 1 589 of these employees “left the company as part of the voluntary severance and early retirement programme”.
Cutting Telkom’s staff numbers will not be a popular move, but it is one that has to be done speedily.
It may also be prudent for Telkom management to sell its African internet service provider business as quickly as possible. iWayAfrica has faced serious competition from cheaper offerings for fixed and mobile broadband and will end up being a drain on the company.
There are other things the company needs to do. For example, to drum up extra revenue, Telkom could also unlock value by separating its network from the actual service provider. It should also demonstrate its willingness to open up the local loop — the last kilometre of copper infrastructure found in customers’ houses or premises owned by Telkom — by introducing a new bitstream product.
Communications regulator Icasa has already published draft regulations on local loop unbundling, setting out how it intends to allow various companies direct access to Telkom’s fixed-line network. Decisive action by Telkom to deal with this inevitability would help.
Finally, Telkom has to provide South Africans with improved customer service.
It is not all doom and gloom, obviously. Telkom still has big opportunities — it has enough cash flow to finance capital expenditure internally, for example. It has also made a provision of R592-million to settle its dispute with the Competition Commission, which should help put some of its issues behind it.
But time is one thing Telkom does not have in abundance.
In the group’s latest annual report Mabuza says: “Telkom is embarking on a transformative journey. We are in the process of reviewing the group strategy. This repositioning is aimed at improving the group’s financial performance and providing clear strategic direction.”
The board is committed to taking the “necessary steps to address the major challenges that have impacted the financial performance of the group in recent years”.
It is time to take off the gloves.