Telkom shows first listing of state-owned firm failed

Telkom needs to forget about its share price and make some difficult long-term decisions to get the company back on track

Having squandered its inherited advantage as the monopoly in S A’s communications space, Telkom needs to forget about its share price (which at its present value can be seen as nothing more than a vote of no confidence) and make some difficult long-term decisions to get the company back on track.

But then the question investors and taxpayers really have to ask — through the government and the Public Investment Corporation — is whether management is able to rectify the mistakes of its recent past.

The company’s failings since listing eight years or so ago can and should be placed largely at the door of the different management teams that have presided over it.

It is difficult to come to any other conclusion than to say that the first initial public offering of a state- owned company since the end of apartheid was a failure. Since listing on the local bourse in March 2003, its shares have barely moved.

At its R29,06 a share close yesterday, its trading has grown a paltry 3,8% from the end of its first day of trading on that autumn day. It was a R16bn company then. Including Vodacom ’s market cap, the combined entity would be worth close to R150bn. In that time, it has had about four different CEs .

Rival MTN has seen its shares gain close to 140% .

After Sizwe Nxasana — who served as CEO when it listed and who is now the head of FirstRand — no other person of note has led the company. We are now at the tail- end of a series of poor decisions .

Earlier this week Telkom reported a decline in voice revenue over its first half , as its mobile rivals continue to feed into its bread and butter. Data revenue was also weaker.

And this is not a one-off; the company’s local operations have been in decline for a while. Its data business, which should be a corner- stone of its empire given its dominance in the fixed-line arena, is struggling to compete as volumes move to mobile telephony.

Telkom has more than 790000 data subscribers, in a country that has close to 10-million households. This is a penetration rate of almost 9%, which is poor compared to its emerging market peers. Why does every household not have an ADSL line, or even half of them?

"They’ve let their natural advantage slip," said Khulekani Dlamini, Afena Capital’s head of research. "They should have been looking to capitalise on this (South African) market instead of attempting to build empires in areas where they had no natural competency.

"The new management looks to be of a high pedigree, with apparent intellectual honesty, and should steward the company better into the future. It will not be easy and the tough decisions they will have to make will leave them very unpopular with many stakeholders."

Already trailing rivals such as MTN and Vodacom in the scramble for Africa, Telkom has found itself on the back foot as all the good assets have been captured, leaving the company to pay over the odds for complete duds.

The Multi-Links deal is a case in point. Telkom bought the Nigerian firm for $410 m in 2007 and spent about R9,8bn on it before announcing its disposal for $10m. The sale was concluded last month, and will result in a net loss of around a billion rand, to be reflected in Telkom’s second-half results.

That is money that could have been better spent on upgrading its local network in an effort to capitalise on its "natural advantage". Again, poor management decisions that have hurt the bottom line.

Analysts say in order for Telkom to get back into the game in the next decade, management needs to focus on three areas — data, mobile and media.

If we are to speak of it in much more glowing terms come the end of this decade, these are facets of the converged space in which Telkom will need to do well.

On the data side, the company needs to improve its footprint as its offerings are uninspiring and poorly priced. Its mobile offering is going to lose a lot more money before it starts making any . But when it eventually does, 8ta could be the glue that helps to create a homogenous network.

And with that achieved and with a good network, the company could then get into the media, through content distribution.

If successfully navigated, Telkom could emerge as a totally different animal in the years to come. But decisions need to be made — if they are not, the crisis of confidence will deteriorate even further.

If this beast is to kick into life, a lot of capital will need to be invested in creating a homogenous network, as well as building a wireless network. Its immediate history shows that the company’s deployment of capital has not been that good, though, not in the past.