A few months back, Telkom CEO Rueben September announced that the fixed-line operator was ”at the crossroads”, about to sell off its 50% stake in cash-cow mobile arm Vodacom.
This week, September announced at the group’s annual results presentation that Telkom had traversed the metaphorical crossroads; however, it’s still not clear where exactly it is heading.
Telkom’s year-end results don’t inspire confidence, showing a 6,9% increase in group operating revenue, but decreased earnings, margin and profits, with operating expenses jumping by 19,5%.
Fixed-line revenue is in decline, and with no mobile arm to carry its diminishing revenue streams, Telkom is facing an uncertain future.
This is reflected in the trading of its share price, where the market is now viewing Telkom as a fixed-line operator only.
Telkom currently sits with a market cap of R18,2-billion and its shares were trading at R34,99 on Tuesday this week.
Following the listing of Vodacom on May 18 this year, Telkom’s share price halved and was sitting at about the R55 mark, but it has since declined again, hitting an all-time low of R32,20 in the middle of June.
Analysts are calling for Telkom to implement its much-talked-about strategy, which involves moving into Africa and the launch of its own mobile arm.
Ratings agency Frost & Sullivan this week called on Telkom to provide a clear picture of how it will grow its business after the sale of Vodacom.
”Telkom needs to reposition itself as a matter of urgency,” said Frost & Sullivan ICT industry analyst Spiwe Chireka. ”The sale of Vodacom has cast doubt on the future performance of the company, as it continues to be viewed as a fixed-line operator.
”Given that fixed-line services are losing ground to new technologies, it is important that it takes a page out of the books of mobile operators like Vodacom and MTN,” she added. ”Telkom needs to work quickly to turn the Vodacom sale into something positive.”
However, it seems that Telkom’s executive management team are going to have their hands full rescuing their Nigerian operations, Multi Links.
The Nigerian business contributed R1,7-billion losses to the group for the past financial year, and September stated categorically this week that Multi Links was senior management’s number one priority for the year ahead.
”Telkom’s executive and board views this situation very seriously and we will have a hands-on approach to turning that business [Multi Links] around,” stated September.
These assurances did little to reassure the analysts in the room, who, judging by their questions following the results presentation, have doubts as to Telkom’s ability to turn Multi Links around.
Operating costs
The analysts also expressed scepticism over Telkom’s ability to cut 10% of its operating costs to the tune of R2-billion over two years.
September said that the executive management had instituted an ”intrusive” and ”invasive” process to cut costs across all levels of the company.
”We are looking at the business wall to wall,” said Telkom’s chief financial officer, Peter Nelson.
Telkom’s mobile strategy is another issue that the market will be looking for clarity on post-the Vodacom sale.
September announced at the results presentation that Telkom was busy conducting ”extensive market research” that will inform its mobile strategy.
However, it remains unclear why Telkom is only now busy with market research when the Vodacom sale has been on the agenda since last year and September has been talking up Telkom going it alone in the mobile space.
”We are not going to replicate the mobile operators on a one-by-one basis,” said September this week. ”We are not going to roll out a national network.”
Now that we know what Telkom’s not going to do, it would be good to know what they are going to do.