In a bold move this week, Telkom CEO Serame Taukobong said: “The board has equally supported us that we do not need a knight in shining armour. Be it my former employee or my former employer.”
Taukobong made his remarks during the company’s financial results presentation on Tuesday. “The board remains firm that the journey we are taking for the business will deliver the results for Telkom.”
The statement indicates that the Telkom board, led by Geoffrey Qhena, is not ready to sell the partially state-owned company. The comments appear to be a direct snub of overtures from former Telkom CEO Sipho Maseko.
Maseko, through his investment vehicle Afrifund, along with Mauritius-based Axian Telecom and the Government Employees Pension Fund (managed by the Public Investment Corporation) wants to acquire a controlling stake in Telkom. The not-for-sale message could also have been directed at MTN, Taukobong’s former employer.
To reinforce his point, Taukobong used a marriage analogy in which he compared the proposed merger deals with Telkom to a lobola process.
He said: “Let me be cultural and philosophical. It is like a process of lobola, and when you go to a lobola, you send people upfront with a letter to show people intent. You also leave something with the family to show that you can take care of their daughter.
“So, until somebody comes to our chair (Qhena) with a strong letter, and also proves they can deliver on their proposition, then all approaches will not be considered.”
However, Taukobong’s stance may raise eyebrows considering that Telkom reported a loss of R10bn in the year to end-March after a noncash impairment charge of R13.2bn. On the other hand, it may be time for Taukobong to sweat the assets Telkom owns. The noncash impairments will allow the company to focus solely on its strategy.
“The business has the right levels of liquidity,” Taukobong said, adding that the company is going through an 18- to 24-month transition period.
In the meantime, he will ignore unsubstantiated potential deals to sell parts of Telkom. Taukobong made it clear he would not be distracted by prospective buyers and any attempts to downplay the value of the company.
The offers to buy a portion of Telkom assets continue to pop up now and then. It received non-binding offers for Swiftnet, the masts and towers business, but none of them met the criteria to be considered. It is also exploring strategic paths for its IT business, BCX.
Aware of market impatience over the possible sale of Telkom, Taukobong insists that “we need to be prudent and ensure that this is done at the right value for Telkom”. Such statements bolster assertions that he is a CEO with a steady and calculated hand and can be trusted to do the right thing.
That said, what will become of Telkom?
Taukobong is ready to leverage the company’s infrastructure to grow the business, and believes Telkom has an opportunity to “actually punch not with two hands but with three” with all its assets. “In this instance, at our core, we remain an infraco (infrastructure company). That is our strength. If you look at the fibre opportunities that sit in this market no-one can touch us in this space.”
Openserve has already launched XGS-PON fibre access technology that enables data transfers of up to 10Gbps. This is a key advantage for Telkom. And why?
Currently, the GPON (Gigabit Passive Optical Network) standard is the main fibre-based transmission technology that enables last-mile broadband access. However, GPON is only capable of delivering speeds of up to 2.4Gbps downloads and 1.2Gbps uploads.
Telkom will be looking to partner with 5G operators to use the Openserve PON network and fibre for the 5G rollout. For this reason, Taukobong is not willing to divest or dilute Telkom’s stake in Openserve. “Openserve is a critical infrastructure for us. That is the kind of conversation we are driving,” he said.
Telkom also has some of the most modern data centres in the country, and Taukobong is preparing to maximise demand for these facilities.
In Gyro, he plans to optimise its property portfolio and sell assets with low potential. In this financial year 50 properties are earmarked for sale and 21 non-binding agreements have been signed with property investment partners.
Furthermore, Swiftnet has successfully tested the technical capability of its power-as-a-service (PaaS) solution, which will help Telkom curb the effects of load-shedding in its operations.
Taukobong plans to pursue a PaaS solution as a value-added commercial offering, making alternative power available to customers struggling with power outages.
Finally, Telkom has future-proofed its business with its continued investment in the next-generation network (NGN). The NGN data products now account for almost 70% of Telkom’s revenue.
“The intrinsic value in Telkom remains firm,” argues Taukobong. “Our investment in NGN is starting to yield results.”
For now, however, it looks like he will have to convince the market that the infrastructure-based strategy will save Telkom and increase shareholder value. Do not expect any corporate action around Telkom in the next 12 to 24 months as Taukobong will focus on what he calls the “Telkom of tomorrow”.
Hopefully, he and his team can get Telkom back on track and finally put to rest the notion that the company could be sold.
• Lourie is the founder and editor of TechFinancials.
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