Partly state-owned Telkom has been battling for more than a decade to modernise its operations, without much success.
Between 1998 and 2005 when Sizwe Nxasana was CEO, the company experienced a glimmer of hope of becoming an efficient and profitable entity. He reinvented it and floated it on the JSE.
It was, however, a later CEO, Sipho Maseko, who trimmed the fat — including further reducing the employee headcount and devising a future strategy for the company. In 2015, Maseko moved it away from being a big ship stuck on the rocks, believing it was ready to sail. At the time, he jokingly said: “Every sinner has a future.”
For a while, it seemed Telkom was sailing in the right direction. But now it seems to have hit the doldrums, with its earnings indicating it is in trouble.
The numbers indicate it will be tough for present CEO Serame Taukobong and the team to convince investors that Telkom’s businesses can be revitalised and separated into stand-alone entities.
Furthermore, Telkom last week surprised the market by announcing that its streaming platform TelkomOne will be transferred to the SABC. The service was relaunched by the public broadcaster as SABC+.
Telkom did not disclose how much it spent developing the platform or what the SABC paid for the transfer. The streaming platform could have been a donation to the struggling public broadcaster, which could mask Telkom’s financial constraints to pursue innovations.
On the numbers, Telkom is sailing among the worst-performing telcos, and its history of failed turnarounds is not encouraging. In this state, it is unlikely to inspire investor confidence.
When MTN called off talks to buy Telkom recently, the latter’s share price tanked 22%,, indicating that the market was banking on the deal.
It might now be up to the only other known potential Telkom suitor, Rain, to reign in the financial losses and help Taukobong revive the business. But the big question is whether the proposed Rain share swap deal with Telkom will be finalised, and if it does, will it save the partially state-owned entity? I would not be surprised if Rain sees Telkom as a vulnerable and exploitable partner in the proposed share swap deal.
A more significant entity owning Telkom will save it by investing billions into new technologies, not a company that wants to sweat current assets.
However, foreign firms have failed to turn around Telkom. In 1997, US-based SBC Communications and Telekom Malaysia, the Thintana Consortium, bought a 30% stake for R8.4bn and later sold it to local empowerment investors.
Shareholders must interrogate the Telkom board about its future strategy or put pressure on them to sell now before the company’s value is eroded to nothing. All indications are that Telkom as a stand-alone entity will find it difficult to survive the competitive SA telecom market.
Telkom is in desperate need of a workable plan — that includes new revenue streams — to rescue it.
The company’s problems have been compounded by the imminent departure of chair Sello Moloko by March 2023 to focus on his duties as head of Absa’s board.
A new Telkom chair that must be appointed as quickly as possible will have the unenviable task of devising a new plan to breath life back into it. We all know the SA government as Telkom’s main shareholder is slow in appointing board members.
Let’s hope the shareholder this time will make a bold move and appoint either Mteto Nyati or Sipho Maseko as a new chair. Both are experienced industry veterans. Sources have already told this publication that Nyati may be considered for the role.
It’s not going to be an easy road for the new chair. I would suggest that if the for-sale sign is removed, then the new chair must convince the company’s shareholder, the Public Investment Corporation, the custodian of more than R2.5-trillion in government employee pensions, to talk to the state to release a portion of its stake to the Industrial Development Corporation of SA (IDC).
The IDC could help inject the necessary capital to assist Telkom to grow its fibre business Openserve’s footprint and then be able to challenge fibre giant Maziv, owned by Vodacom and Remgro’s Community Investment Ventures Holdings.
A Telkom with enough capital could enable Openserve to be a more competitive entity. In such a scenario, once the subsidiary is profitable it could be floated on one of SA’s stock exchanges to raise more cash to save Telkom. Such a listing could enable the IDC to have ownership in a profitable business.
However, for now, it seems as if the Telkom board is waiting for tailwinds to blow it in the right direction.
The new chair will have to be on the ball and must not bury his head in the sand hoping the challenges will go away on their own.
• Lourie is the founder and editor of TechFinancials.
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