The naked Telkom

It's sink or swim time for Telkom Soon to be divorced from Vodacom, the operator has much to prove. Its fixed-line business is going nowhere fast and, with new competition, it is going to have a hard time defending its top line revenue and profit margins.

Telkom chief financial officer Peter Nelson says September led the decision to split from Vodacom. “It showed a lot of leadership and courage,” he says. “The new Telkom is standalone — I call it the naked Telkom.”

Nelson concedes that Telkom has big challenges but says it is the right time to introduce a new strategy and group structure.

However, the challenges look daunting. Consider that SA's telecom industry is now wide open to new network operators and that MTN and Vodacom are free to compete in fixed lines. Consider also that new undersea cables will finally end Telkom's control of international bandwidth. And new terrestrial fibre projects will serve to slash its profit margins on national, long-distance bandwidth.

Telkom is facing a perfect storm. It's surely not a great time to be its CEO. After all, it appears inevitable that its profits will come under severe pressure — and that means having to answer to disaffected shareholders.

But September is clearly relishing the company's imminent divorce from Vodacom and the demands of a competitive market. He is spearheading a radical overhaul of the group, restructuring it into three large divisions.

The company is also building a mobile network — albeit somewhat limited in scope for now — and plans to offer mobile voice telephony by the fourth quarter of this year. It will sign a roaming agreement with MTN or Vodacom to ensure it can offer national coverage. Ultimately, it could help drive down mobile data and voice prices, particularly once the industry regulator reduces the high fees that the operators charge one another to transfer calls between their networks.

September is succeeding in getting quality people to join his team. He has hired former Telkom chief sales & marketing officer Pinky Moholi to head the SA business. Moholi has promised to bring back the “leadership position Telkom once held”.

September himself has come under fire from analysts over his leadership style. I think they're being unfair. He is adopting the right strategies. And he hasn't been afraid to take tough decisions, like closing Telkom Media

He's likely to take flak, though, over a decision to postpone a big outsourcing project that would have resulted in about 19000 of Telkom's employees being outsourced. The decision raises questions about whether politicians have leant on Telkom ahead of the election, or whether, as one person put it to me, it's a case of “weak leadership fighting shy of decisions”.

But Nelson defends the decision: “We won't outsource problematic and poorly engineered areas because what happens is you lock in inefficiency and you pay for it forever.”

At face value, that seems a fair argument.

There is no doubt that Telkom is still a very powerful company, with national infrastructure its rivals can only dream about.

However, it has been beset by serious leadership problems in recent years. The new management team, led by September, appears genuinely determined to get the company back on track.

Telkom is still SA's most important communications operator. It is critical for the economy that it doesn't stumble and fall. Whatever South Africans might feel about Telkom — and it's often not flattering — September deserves their encouragement.

Source: Financial Mail

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