/ 30 July 2010

New broom to clear Telkom cobwebs?

New Broom To Clear Telkom Cobwebs?

New broom to clear Telkom cobwebs?

There is hope that under new leadership the telecoms giant will turn the corner

ANALYSIS: Lloyd Gedye

First impressions of Telkom’s new acting chief executive, Jeffrey Hedberg, are that he will be the broom to sweep clean the mess at South Africa’s fixed-line operator.

And what a mess it is.

Telkom has a haemorrhaging Nigerian operation, is facing billions of rands in lawsuits, is dealing with fraud and corruption allegations against staff and copper-security contractors, has yet to face up to investigations launched by the Competition Commission and has recently seen a mass exodus of senior staff.

All of that before we even mention the fact that it is about to launch its own mobile service.

Hedberg is under no illusion about the difficulty of the challenge lying ahead of him, a point he reinforced when the Mail & Guardian asked him this week whether he had an interest in the chief executive’s job on a full-time basis.

Hedberg appeared to hint that his tenure as acting chief executive will give him a feel for whether he wanted the job on a permanent basis — and who can blame him? It’s a mammoth task. “If the job was offered to me full-time I would review it with my family and make a decision, but certainly after the first two weeks I can see it’s a tough job,” said Hedberg.

With allegations flying around regarding conflict between senior management and the board in recent months and the resulting mass exodus of former chief executive Reuben September, former chief financial officer Peter Nelson and a further four senior managers at Telkom, Hedberg and Telkom chairperson Jeff Molobela decided to brief the media this week to clear the air.

Although Molobela was not directly critical of September, it was clear that Telkom’s board felt that the former chief executive and his management team did not have what it takes to turn Telkom’s fortunes around.

This assessment clearly contrasted with Nelson’s claims at Telkom’s recent annual results announcement that September was leaving the company perfectly poised for growth into the future.

It became clear that management was not happy
Molobela did not mince his words, stating that the conflict between management and the board resulted from the board appointing a task team to look at Multilinks, Telkom’s ailing Nigerian business, which has since been written down to a book value of zero. “It became clear that management was not happy with the task team,” said Molobela, adding that this had resulted in accusations of micro-managing being levelled against him.

Molobela said Telkom’s management under September suggested that Telkom merge Multilinks with Starcomms, a listed Nigerian company, as a way to dilute Telkom’s exposure to Multilinks.

But, he said this proposal was a non-starter, with Starcomms having high debt levels that “wouldn’t reduce Telkom’s exposure but increase it”.

Molobela said it was clear that Telkom’s management had no clarity on its turnaround strategy and that if the board wanted to take a decision to put Telkom back on track, it needed to look at the leadership.

“The board couldn’t sit aside while it was evident that some of the pillars of the core strategy were falling apart,” said Molobela.

The result was September’s exit, with most of his trusted lieutenants leaving just before his departure, taking voluntary retrenchment packages that were offered by September.

Molobela said this week that the board members had agreed to the retrenchment packages to allow for a restructuring of management to take place, but were very surprised when the list of names included members of Telkom’s executive committee.

“It was a sign that all was not well in the management team,” said Molobela.

Molobela said that Hedberg had seemed like a natural fit for the acting chief executive role as he had a good grasp of the problems facing Multilinks, having previously been deployed in Nigeria. In addition, with his background as chief executive of CellC, he was perfectly poised to understand the challenges of Telkom’s mobile roll-out.

When the M&G asked Hedberg about Telkom’s investment in Multilinks, he said the initial Telkom decision to invest was questionable because of the scale of the company’s market share and the technology the company used.

Telkom bought 75% of Multilinks, a company with net assets of R338-million, in May 2007 for $280-million.

Following the purchase, an all-out price war between the handful of code division multiple access (CDMA) players in the Nigerian market hit Multilinks hard and the economic downturn added the double whammy.

The situation was further compounded by 90% of the Nigerian market being dominated by GSM (global system for mobile communications) operators and that four CDMA operators, of which Multilinks is one, are fighting for the remaining 10%.

All of this makes Telkom’s decision to buy the remaining 25% of Multilinks in January 2009 for $130-million perplexing. Analysts have consistently said that Telkom severely overpaid for the stake — the purchase price was more than three times the $44million price tag recommended to Telkom by KPMG.

“In my view, having done numerous deals around the world, the first deal wasn’t the right deal,” said Hedberg. “I wouldn’t have done it, but I wasn’t there at the time.” But Hedberg emphasised that now that Telkom was invested in the venture, it was time to make the best of the situation.

‘It is a big issue and it’s not just the tender irregularities’
As for the mounting legal action Telkom faces over alleged tender irregularities, Hedberg said he was looking into them. “It is a big issue and it’s not just the tender irregularities — there are also the Competition Commission cases and a lot of things going on,” said Hedberg. “We are looking at what we can do and seeing what we can settle.”

He said this was a priority as it was distracting him and Telkom’s management from doing their core jobs.

As for the fraud and corruption allegations faced by Telkom staffers and its copper-security contractors, Hedberg insists that Telkom will be transparent. “I don’t think there is any merit in putting these things under the carpet,” said Hedberg, who added that if it was warranted, Telkom would lay criminal charges against staffers implicated in the copper-security corruption and fraud matters.

About Telkom’s mobile player, Hedberg said there are several opportunities for Telkom in the mobile space. He indicated that by bundling mobile, fixed-line and broadband services, Telkom could be very competitive in the market.

He said it will be “tough”, with distribution being the major obstacle, but pointed out that the reduction of interconnect tariffs will be beneficial to Telkom’s mobile business as high interconnect tariffs prevent new entrants from establishing themselves in the market.

It’s clear that Hedberg is talking the good talk, which for a Telkom chief executive is a breath of fresh air. Telkom’s future is dependent on his ability to put these plans into action.