Telkom’s recent announcement that it will slash its workforce by up to 3 300 workers (or 10%) appears to clash with an undertaking it made at the time of its listing in March last year. It follows staff reductions of about 10 000 workers between 2001 and this year.
The announcement is contained in a circular recently issued to the JSE Securities Stock Exchange. The circular also revealed that Telkom’s earnings for the year to last month would rise by more than 30% on the back of increases in wireless services, to which it is exposed through its 50% ownership of Vodacom.
Since its monopoly expired in May 2002, the fixed-line operator has also had to defend itself against accusations of monopolistic behaviour and uncompetitive pricing.
At the time of listing a year ago, observers noted that Telkom would have to shed staff to deliver acceptable returns. This was because, compared to its peers, the utility had a far lower number of fixed lines per employee. To match these ratios, observers argued, it would have to fire 10 000 workers.
The prediction sparked a fierce response from the trade union movement. Telkom human resources executive Oupa Magashula and investor relations manager Belinda Williams vehemently denied the suggestion.
Yet recently, Telkom chief financial officer Kaushik Patel was quoted in media reports as saying that peer companies had a ratio of 200 fixed lines per employee, while Telkom had 142. As Telkom cannot increase the number of fixed lines owing to the migration to cellphones, the only way to improve the ratio is by “downsizing” staff.
Patel’s remarks were followed by the announcement on job cuts. Williams could not be reached for comment on Wednesday.
Telkom’s other cost-cutting measures included a reduction in capital expenditure and debt-servicing costs. It aims to achieve operating margins of 40% by 2007. The figure currently stands at 37%.
Meloy Horn, telecoms analyst at Merrill Lynch, argued that Telkom was not compelled to conform with the ratios of its peers at the time it listed.
Horn noted that South Africa has a larger surface area than many of the emerging-market economies with which it is compared. The longer distance over which Telkom had to install and maintain lines probably required more workers per line, or fewer lines a worker.
Company data reveals that in the first half of the current financial year, 65% of employee reduction was owing to “natural attrition”. However, this was expected to stabilise over time at between 5% and 10% a year.
On the operational front, Telkom has fought many battles to maintain its market dominance in the post-monopoly period — in some cases using controversial tactics. It has already budgeted to lose between 10% and 15% of its market share when the second national operator finally gets off the ground.
Last week NUS Consulting, a firm specialising in helping companies reduce energy and telecommunications utility costs, released a survey showing that among 14 major economies, Telkom’s costs were 63% higher than those of the next most expensive country, Finland.
In its defence, Telkom chief sales and marketing officer Nombulelo Moholi cited another report by United Kingdom-based consultancy Tarifica, showing Telkom’s calls to be competitive.
Tarifica surveyed 26 developing and developed countries and found that Telkom’s three-minute calls to the UK and the United States were cheaper than those made through companies in Namibia, Saudi Arabia and Bahrain.
Last year Telkom took private operators to court to prevent “least call routing”, a service that re-routes land line calls to cellular phone networks and reduces company phone bills by up to 30%.
The Pretoria High Court ruled the operation to be legal. Recently, the Competition Commission found Telkom guilty of anti-competitive behaviour towards private operators, including Internet service providers.
The utility was accused of withholding services or threatening to cut company phone lines to undermine them. It was ordered to forfeit 10% of its revenue — a cool R3,7-billion, based on last year’s revenues of R37-billion. The matter is now with the Competition Tribunal.
Horn noted that Telkom was unlikely to have to pay the full amount, even if the tribunal upheld the ruling, as a detailed investigation would take up to three years.
In addition, the portion that would be forfeited applied only to revenue from leased fixed-line services, amounting to between R80-million and R450-million. Horn added that no company has been fined the maximum 10% provided for in the Competition Act.
Mfanafuthi Sithebe of the Communication Workers Union could not be reached for reaction this week.
More controversy over Telkom is in the pipeline as the government plans to further reduce its stake in the utility, which it jointly owns with the Tintana Consortium.