This week, I spoke to Telkom CEO Serame Taukobong and asked him to participate in a self-assessment exercise of his two years at the helm.
Without hesitation he replied: “I must score myself in terms of where we are right now?”.
Sensing an opportunity, I answered in the affirmative and he duly obliged: “If we look at the financial results we presented [on Tuesday], I will score myself a 6.5 out of 10 because we are showing the right direction, where Telkom is meant to be going.”
On the value of Telkom, he believes the market undervalues the company, which he attributes to the company not meeting expectations in unlocking value. “Truth be told we did not.”
At this point, I began to perceive Taukobong as a forthright executive, a potential rarity in the business world, someone who could be “trusted” to re-engineer the company.
Reflecting on this, I recalled advice from Michael Hammer and James Champy's book, Re-engineering the Corporation: A Manifesto for Business Revolution, in which the authors write: “When someone asks us for a quick definition of business re-engineering, we say that it means starting over. It doesn’t mean tinkering with what already exists or making incremental changes that leave basic infrastructures intact.”
In that regard Taukobong indeed appears to be initiating a transformation of Telkom, positioned at the core of connecting SA’s economy to the digital world.
Making the connection
Notably, he says he has shifted his focus away from discussions about ADSLs or the fixed telephone lines once humorously known as “nommer asseblief”. Concern about Telkom losing ADSL customers, once the profit lifeblood, is no longer top of mind.
Instead, Taukobong says he is preoccupied about Telkom’s journey to becoming — at its core — an infrastructure company (InfraCo). “We are intrinsically built to be a data driven organisation,” he says.
The company is decommissioning its copper or ADSL network, which has long been susceptible to theft and has reached the end of its life.
Taukobong also speaks passionately about rolling out fibre, the mobile business, and data centres.
This week Telkom reported a near 50% jump in headline earnings per share, — SA companies’ main profit gauge — to 195c for the six months ended September 30, which it attributed to lower depreciation charges and growth in earnings before interest, tax, depreciation and amortisation. After-tax profit surged just over 52% to R976m.
Group revenue was up 2.5% at R21.7bn, driven by growth in mobile traffic, the monetisation of the rollout of its fibre infrastructure and growth of the IT business.
Telkom’s main operating assets — Openserve, BCX and Telkom Consumer — delivered healthy numbers.
The company’s open access fibre provider Openserve might even surprise doomsayers and overtake Vumatel as the biggest provider in SA. Openserve has the highest connectivity ratio of any major open-access fibre network in the country — or even worldwide for that matter — with about 46.8% of households covered by its network taking up its fibre services.
If this trend continues Openserve could overtake Vumatel as the biggest open-access fibre provider.
“Our focus is home connected not home passed,” is Taukobong’s assessment.
Openserve is gearing to be the number one open-access fibre provider. That intention is not far-fetched when considering that a deal between Vodacom and Maziv might be faltering.
Vodacom has offered R4.2bn of network assets and R6bn in cash to acquire 40% of Maziv — which holds Community Investment Ventures Holdings’ interests in Vumatel and Dark Fibre Africa. The Competition Commission in August recommended the transaction be prohibited but the final decision lies with the Competition Tribunal.
For now, Telkom is marching ahead to make Openserve competitive, with Taukobong and his team offloading noncore assets.
Taukobong revealed that the board hasn’t approved further developments of properties by its Gyro business unit. Instead, Gyro will sell more noncore properties to enable Telkom to focus on its infrastructure assets.
The company is also in talks to sell Gyro properties valued at R304m and is looking to sell an additional property valued at R400m-R500m.
Control or compete
On Tuesday Telkom further announced its in exclusive talks to sell its tower and masts business Swiftnet to a private equity firm and the business is now held as for sale.
“We want to be dominant or leading in areas we can control as opposed to areas we can compete and not compete vigorously,” says Taukobong.
Clearly, Taukobong isn’t looking to make patchwork fixes or jury-rigging existing systems; he is following Hammer and Champy by the book.
“It [re-engineering] does mean abandoning long-established procedures and looking afresh at the work required to create a company’s product or service and deliver value to the customer,” the authors say.
“If I were re-creating this company, it means tossing aside old systems and starting over. It involves going back to the beginning and inventing a better way of doing work.”
Taukobong is clearly on a similar path with Telkom, though the endeavour is challenging and and riddled with obstacles. He must ensure the timely completion of unlocking value as the market is a hard taskmaster.
• Lourie is the founder and editor of TechFinancials.
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