A recovery for Telkom’s IT services business BCX is being hampered by the group’s shift to new technologies, as it does away with old fixed lines in favour of fibre, cloud computing and other platforms.
After years of being in the red, the unit seems to be performing well, benefiting from its new ability to fulfil orders that had been held back by supply chain challenges during Covid-19.
Telkom continues its search for a global joint venture partner with the financial and technological muscle to help plug the holes at the IT service uni, which has been losing money for years. After being bought out by the partially state-owned operator in 2014, BCX has struggled to produce a consistent profit.
However, with BCX, a big earner for the group at about a third of revenue, starting to see signs of growth in recent quarters, Telkom is now eager for a partner to help scale the business and take on bigger competitors.
Earlier in the week, the group reported flat revenue for the unit at R3.506bn for the third quarter to December, propped up by an increase in hardware and software sales. However, that was offset by a decline in the converged communication business.
The bright spark at BCX has been the IT business. It grew 7.4% to R1.875bn, largely thanks to growth in the hardware and software business of 30.2%.
“The IT business leveraged off its partner ecosystem and a more reliable global supply chain to improve the fulfilment of back-logged orders and new orders,” the group said.
BCX also sees cloud computing as a big growth driver. The unit recently acquired cloud solutions provider DotCom for an undisclosed sum. In addition, the business is now supplying cloud computing products on behalf of Jack Ma’s Alibaba, from which Telkom expects to make money from the 2024 financial year.
Overall performance in the group continues to be dragged by its migration from legacy and voice revenue businesses which have been declining in recent years as people favour newer technologies such as fibre. However, these come with lower margins for Telkom, resulting in more pressure on earnings.
This drag on earnings has forced the group to embark on a cost-cutting programme. Central to it is a bid to raise R1bn from Telkom’s device loan book and a retrenchment process that could put about 1,770 jobs on the chopping block, including at BCX.
Despite cost-cutting measures, earnings before interest, tax, depreciation and amortisation for BCX declined 19.1% to R441m due to “limited revenue growth as well as the impact of product mix, where more IT hardware and software products at lower margins were sold”.
As with Openserve, Telkom is looking for outside investment for BCX.
The search for an investor in the IT company — headed by Jonas Bogoshi, a former Gijima and Cisco executive — is part of a wider strategic push by the fixed-line operator to release billions of rand trapped in its sprawling structure, which includes properties, masts and towers, BCX and internet fibre operator Openserve.
Telkom hopes outside investment will help to stabilise BCX’s business, but progress in finding a benefactor appears to be much slower than market players had expected. A lack of solid plans or announcements for BCX, as well as for masts and towers unit Swiftnet and Openserve, when the group reported its full-year earnings has become a concern for the market.
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