With warm tropical waters, white beaches, bright shirts, snorkelling, cocktails and surfing, Hawaii seems to be the perfect escape from one of the hottest seats in South African business. It’s no wonder that Telkom CEO Papi Molotsane raves about the place. “It is relaxing and serene and the people are fantastic,” says Molotsane. “Also, it’s far away from everything.” Molotsane stepped into the fire in September last year, having been head-hunted from parastatal Transnet.
Molotsane says he always expected the job to be tough, but admits that it has proved more challenging than he expected. “Some of my friends said, ‘What on earth possessed you?'” he says, laughing. “But someone has to do it.”
South Africa’s fixed-line monopoly is the wide-eyed rabbit in the headlights of the government, which wants to liberalise the telecoms sector and introduce competition — something Telkom is not used to. The government has singled out excessive telecoms pricing as detrimental to the cost of doing business in South Africa, and Telkom’s business practices and pricing structures have come under ever-increasing scrutiny.
Molotsane admits that the regulatory changes reshaping the telecoms sector in South Africa are his biggest challenge. “What really keeps me awake at night is the regulatory side of our business,” says Molotsane.
Telkom is facing a number of regulatory changes that are going to severely impact on its core business. The Independent Communications Authority of South Africa (Icasa) and the Department of Communications have new regulations regarding the unbundling of the local loop (giving Telkom’s competitors access to the last mile), interconnection costs, broadband pricing and Telkom’s monopoly of landing rights for the SAT-3 undersea submarine cable in their sights.
“I am willing to work within the determinations of government as long as these determinations are not detrimental to our business,” says Molotsane. Despite these changes, Telkom announced a 10,3% growth in group operating revenue this week, with a total revenue of R47,6billion. It also announced a dividend of R9 a share, up from R4 a share last year. It announced a 146,2% growth in ADSL business; however, penetration still remains low with only 143 509 customers.
Telkom is also set to face increased competition from the second network operator and Sentech, which the government plans to use to roll out a wireless broadband network. Molotsane says he expects the second operator to launch later this year — using the fibre optic network built by Eskom and Transnet to target some of its key corporate clients and government contracts — but he is not too concerned.
A converging sector, driven by legislative changes through the Electronic Communications Bill, means that Internet service providers and mobile operators are also planning moves into Telkom’s traditional business areas. “It is posing challenges. There are going to be more competitors in the telecommunications landscape,” says Molotsane. “But it is also providing opportunities where we might be allowed into areas that we couldn’t access before.”
Molotsane says Telkom is not walking into this newly competitive sector blindly. The company is well aware that it is set to lose between 10% and 15% of its market share. Its new strategy to become less dependent on voice and to build its data revenue stream reflects that.
Telkom plans to spend R30billion on a next generation network (NGN) so that it can exploit new technologies such as Voice Over Internet Protocol (VOIP) ahead of its competitors. “VOIP is a destructive technology that is definitely going to erode our market share in the voice space,” says Molotsane. “The reason we want to move further into the NGN is so we can also have an opportunity to have our own VOIP offering.” Molotsane says not spending the R30billion would be signing Telkom’s death certificate. “If we do not spend this money, this business is going to die — and I will not preside over a business that is dying.”
In line with its new strategy, Telkom announced a R2,36billion takeover bid for the Business Connexion group in March this year, offering R9 a share and a dividend of 25c a share. Molotsane sees it as a way to grow the company’s activities in the data space, such as managing data networks.
The Internet Service Providers Association of South Africa has vowed to take Telkom to the Competition Commission over the deal, claiming that Telkom is likely to cross-subsidise value-added services, giving it an unfair advantage. Molotsane says the association has a democratic right to do what it wants. “We will be putting our case to the Competition Commission. We think this acquisition must go ahead. We will fight very hard,” says Molotsane.