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Telkom buyout could be a good Korea move

Analysts say a South Korean telecommunications company’s interest in buying 20% of Telkom offers the ailing company some much-needed strategic vision.

South Korean fixed-line company Telecom is in talks to buy shares in the South African company in a deal that could cost R4.6-billion. Telkom would offer the shares at R36.06.

Telkom did however say caution investors against assuming the deal is cut and dried.

“Shareholders are advised that while the discussions between Telkom and KT Corporation are progressing well, there is no certainty at this stage that these discussions will lead to a formal transaction being proposed or concluded,” read Telkom’s statement.

Stuff Magazine editor Toby Shapshak, who has often criticised Telkom in his newspaper columns on technology and telecommunications, has praised the announcement, saying Telkom is “desperately in need of strategic vision”.

“Telkom’s strategy for the longest time appears to have been preserving their monopoly and dominance and not innovating and using new technologies like fibre to provide services.”

He said an international company with experience in fixed line operations might succeed in turning the company around.

“South Korea is arguably the most wired and digitally connected country in the world, in part because of the density of the urban environment. This kind of expertise will be enormously helpful where we have such poor bandwith coverage,” he added.

He further criticised Telkom, saying the fact that its mobile arm Heita, could provide cheaper broadband internet than a fixed line utility that is effectively a monopoly “is a sign of how bad things are at Telkom”.

Chief economist at Pan Africa Capital Iraj Abedian echoed his sentiments: “It’s obviously a good thing. The company, I assume, is aware of Telkom’s inefficient operations and so can unlock some value, buying it cheap and turning it around. I presume it has to be part of the negotiation.”

He said concerns that a foreign investor might cut costs by reducing Telkom’s “bloated” labour force were premature.

“One has to first decide the strategic direction of the company,” he said, saying he assumed they had plans to do turn Telkom around rather than just slash costs.

“It is quite conceivable that they could be hiring as opposed to firing.”

Telkom’s share price has dropped by 15% this year, continuing a downward trend that has persisted for years. The parastatal lost an estimated R7-billion when its investment in Nigeria’s private phone operator Multi-Links failed this year. It bought Multi-Links in 2007 but sold it in in April after massive financial losses.

The South African government owns a 40% stake in Telkom and a further 8.26 % stake through its pension fund the Public Investment Corporation.

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