Signs of life at Telkom?

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As bleak as the most recent financial announcements were – Telkom is writing down its infrastructure by R12bn for “legacy assets” – at least it isn’t in cloud cuckoo land anymore. Telkom has been a monopolistic alcoholic. It doesn’t know how to compete against real competition, having lived on legislation-protected liquid lunches for so long.

The first step in dealing with a problem is admitting there is one. Telkom has its own 12-step programme to embark on, to win back two things: customers and profitability.

What Telkom has failed to notice, though still charging absurd fees for them, is that the world has shifted away from land lines. Fixed to mobile substitution used to refer to lost voice callers, but in this age of super-fast wireless broadband, millions of South Africans are happily using their cellphones for data, too. Telkom has failed to realise that providing broadband is a volume business; it hasn’t upgraded its infrastructure to provide faster fibre connections (it has the largest fibre backbone in the country); and it simply has too many staff.

Dealing with customers and competition is something that new CEO Sipho Maseko must know from his time at Vodacom, even if the industry’s jury is still out on him. He has certainly stated the hard truths that Telkom has been long avoiding, promising “bold and decisive action” to return it to profitability.

His chief operating officer, Brian Armstrong, commands enormous respect and has an impressive resumé, having run BT’s subsidiary in the country. The formerly named British Telecoms is the company Telkom is most often compared with, usually unfavourably. BT had a similar monopoly in the UK and its unbundling of the last-mile infrastructure that links homes and businesses to the exchange is considered a test case of how to reinvent a telecoms firm for this new broadband age.

Armstrong used to run Telkom Business, which is really the key strategic asset of the long-suffering telecoms utility. Business customers are by far the most profitable and are easier to serve than the consumers Telkom has been so notorious for treating with substandard service.

At least we are starting to see some alignment between Telkom’s perceived brief from government (to provide communication to the country’s citizens, still absurdly thought of as phone lines, when the data revolution has long since passed this behemoth by) and its actual strategy.

Maseko’s biggest obstacle is his own minister, Dina Pule, who has blundered her way through a seemingly neverending series of nepotism scandals, open warfare with the country’s largest Sunday newspaper and a clear lack of understanding about her industry. She was, like many cabinet ministers, appointed for political loyalty rather than her knowledge of a highly complex, fast-moving industry that is critical to boosting SA’s economy.

Government is the largest shareholder in Telkom and notorious for interfering in Telkom’s strategy and protecting it via anticompetitive legislation. It is understood the minister and her department’s meddling were the main reason a thoroughly competent CEO like Nombulelo Moholi was forced to resign. By admitting defeat at the competition commission and paying a R200m fine (on top of the R499m it must pay for a previous competition infringement), Telkom has taken a few steps in the right direction.

It has also instituted legal action against its former international MD for the part he allegedly played in the Nigeria expansion disaster, when Telkom bought a company called Multi-Links. This ended up costing Telkom R10bn in writedowns.

This column was first published on Financial Mail

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