Telkom: Dazed and confused

The answers to these questions essentially determine whether the company will continue to tread water or adapt to an increasingly competitive market. Unfortunately for Telkom, the answers are not positive. The cost of setting up its mobile service for this financial year to March 2012 is projected to rise from R1billion to R2,2 billion.

Kaplan Equity Analysts MD Irnest Kaplan says the cost must be seen in the context of the ability to offer converged fixed-line, data and mobile products. Even so, the rising cost of the network has led some Telkom watchers to believe that building its own network was a bad idea. It could rather have piggy-backed on other mobile networks.

On a conference call to analysts (there was no official results presentation) to discuss the interim results to September, Telkom management gave no new guidance on when the mobile service, marketed as 8.ta, will break even - it previously said it would break even by 2014.

Progress, but not enough traction

"The mobile business has made progress but it has not gained as much traction as the group wanted," says David Lerche, an analyst at Avior Research Its market share of 1,9% is still far from the 12%-15% it wants to get by 2014. It has 1,1m subscribers but the average revenue per user, a key industry measure, is only R63,32 compared to Vodacom's R142.

Telkom CEO Nombulelo Moholi admits the group has had trouble setting up its airtime distribution network when it comes to after-hours sales.

About 60% of airtime sales take place after hours but Blue Label Telecom, which dominates distribution to the informal traders who sell airtime in that period, has exclusive agreements with the major mobile operators. Moholi says it has taken some negotiation but 8.ta will increase its presence in the informal market by the beginning of 2012.

Even if Telkom gets 8.ta going, the muddled government view on what it wants from the company - the state has a 40% holding - continues to hang over it. Whereas state-owned telecom operators in other countries have handled the transition from parastatal to market-driven company relatively well, many feel SA has left Telkom confused on whether it should take care of its shareholders first or fulfil its public service mandate.

Without a clear vision of what government wants, the board and management are in danger of drifting into awful decisions like the takeover of Multi-Links in Nigeria, which cost it billions of rand.

Government has not ignored Telkom's plight. The National Planning Commission points out that a policy review for the sector has not been done since 1995 and, as part of an array of proposals, says splitting Telkom up should be looked at.

However, some investors feel there has been enough government intervention in the group. "Government should just let Telkom run itself. As long as the company remains listed, it should not try to involve the company in unprofitable ventures," says Lerche.

It has taken some negotiation but 8.ta will increase its presence in the informal market by the beginning of 2012.

Source: Financial Mail via I-Net Bridge