By Gugu Lourie (techfinancials.co.za)
For all its stated good intentions, Africa’s largest telephone group – Telkom – faces numerous challenges in a tough environment perhaps best described by an ancient Japanese proverb which says: “The most beautiful flowers grow only in the shit of Godzilla”.
History is littered with great things around us, which were a result of awful events engineered by humans. That having been said, I am in no way saying that the new management at Telkom might be involved in anything sinister as they grapple with the problems facing the company.
Like the new management team, I’m optimistic that Telkom can be saved.
However, for this to happen, everyone needs to give Telkom’s new management team a reasonable chance to deliver on its yet-to-be disclosed turnaround strategy. If the strategy is implemented correctly, Telkom’s recovery will bring welcome relief to its shareholders, South Africans and ultimately energise the country’s economy.
The stakes are so high that interested stakeholders in Telkom cannot afford to have the new management fail.
But this shouldn’t stop observers from being critical of the new Telkom leadership led by Chairman Jabu Mabuza, CEO Sipho Maseko and Director of Strategy, Mirriam Altman.
So what needs to be done really to fix Telkom?
You probably have a few suggestions don’t you? Yep. Telkom needs to deal urgently with pressing issues facing the business, such as the long-term viability of the company, strategic direction, poor customer service, costs and the role of government.
For now it is commendable, but not enough, that Mabuza and Maseko have delivered the correct messaging and managed to calm markets.
Mabuza and Maseko need to urgently take some tough decisions and act decisively. Time is not on their side. But they have shown the courage to dirty their hands by dealing with uncertainty related to outstanding litigation.
So far they have written down R12bn of legacy assets and are sending all the signals that they expect Telkom to slim down in relation to the size of its workforce.
However, trimming down Telkom’s bloated staff may place the company on a collision course with unions and other sections of society.
For Telkom to thrive, all stakeholders have to come to the party and support these and other tough decisions.
I think given the urgency of the situation, Telkom’s management and its board have still not done enough to right-size the company.
Telkom only initiated voluntary retrenchments this year, which is yet to affect its labour bill. Instead of reducing the number of workers, the company’s total staff complement increased to 21 209 people in this year to date, compared to 20 939 in 2012. Telkom needs to aggressively reduce numbers, especially those in the traditional fixed-line business.
While reducing Telkom’s employee quota will not be a popular decision, it is one that has to be taken and speedily implemented.
It may also be prudent for Telkom management to sell its African Internet service provider business iWayAfrica as quickly as possible. iWayAfrica has faced serious competition from cheaper offerings in terms of fixed and mobile broadband.
Another thing Telkom could do to help it beef up revenues could be to swiftly unlock value via the separation of its network and service provider.
In addition, Telkom has to deal with local loop unbundling (LLU) regulations. Local loop is the last mile copper infrastructure found in customers’ houses or premises owned and controlled by Telkom.
Last month South Africa’s telecoms regulator ICASA published draft LLU regulations on how it intends allowing various companies direct access to Telkom’s fixed-line network.
In that regard, Telkom might be advised to move quickly in introducing a Bitstream product and show its willingness to open up the local loop.
Finally, Telkom has to provide South Africans with improved customer delivery service.
Telkom’s new leadership must urgently announce or communicate its group-wide strategic review and march forward with the process of turning around the business.
Yet it is not doom and gloom, there are also opportunities for Telkom. The company has enough cash flow that can finance capital expenditure internally. The company has also made a provision of R592m for the settlement of a dispute with the Competition Commission.
In the group’s latest annual report Mabuza says: “Telkom is embarking on a transformative journey. We are in the process of reviewing the group strategy. This repositioning is aimed at improving the group’s financial performance and providing clear strategic direction,”
He says the Board is committed to supporting management in taking the “necessary steps to address the major challenges that have impacted the financial performance of the group in recent years”.
But for Telkom, it is time to take off the gloves. Its time for the new leadership to act decisively.
This piece was first published in techfinancials.co.za whose publishers can be reached at firstname.lastname@example.org