Speak to stock market analysts and they’ll say Telkom is a dreadful investment. The company’s share price seems to be in a never-ending downward spiral. In the 12 months since Moholi took over as group CEO, it has fallen by more than 35%. Generous dividends aside, Telkom has been a terrible investment compared to its peers, especially Vodacom and, at least until recently, MTN. In the past 12 months, Vodacom is up by almost 40% and, with a market value of R161bn, is worth more than 12 times as much as Telkom.
Telkom’s investments in recent years have been nothing short of disastrous. The acquisition of Multi-Links, led by former CEO Papi Molotsane, destroyed shareholder value on an almost unprecedented scale for an SA company. And Telkom is facing a series of lawsuits and possible antitrust fines that could send its share price reeling even further.
Some might say the bully of SA telecommunications is getting its comeuppance for grave management missteps and for its monopolistic attitude of the past.
Except there’s something going on behind the scenes that isn’t revealed in the six-monthly financial statements, the share price and the gloomy headlines about Telkom’s future: the company is slowly turning the corner in several important respects. Moholi is methodically clearing the decks and attempting to set the group on a new course.
Moholi and Telkom’s levelheaded chairman Lazarus Zim appear to be succeeding in putting a lid on the political infighting that threatened to tear the company apart in recent years. Telkom is finally starting to make the investments it should have made years ago to shore up its position in a competitive market, especially in the area where it’s strongest: fixed-line broadband. It’s getting to the job late, but not too late.
It’s now facing a court battle with ZTE Mzanzi, a network equipment vendor that has challenged its disqualification from the tender to supply Telkom’s new access network — the business went to ZTE’s Chinese rival Huawei and to Alcatel-Lucent Technologies.
Lawsuits aside, the group’s investment in fibre-based access technology plays to its strength and dominance in fixed lines. With the mobile operators — including its own, struggling 8ta unit, which urgently requires a change in its retail distribution strategy — set to build much speedier wireless broadband networks in the next few years using next-generation long-term evolution technology, Telkom has little choice but to invest in improving the quality and throughput of fixed-line broadband and to offer value-added services like video on demand. In years to come, it could even find rival telecoms players taking fibre into homes and circumventing its fixed network entirely. It needs to move now to counter that threat.
Its decision, then, to replace its legacy distribution systems in city streets with next-generation fibre-based cabinets that can offer faster copper-based access and even fibre into homes — reportedly at a cost of R13bn over five years — is the right one if it’s to maintain and strengthen its competitive position.
Instead of adventuring into other African markets, an exercise that has cost it more than R10bn in the past half decade, Telkom is right to refocus its efforts at home.
Pushing hard for a deal with Korea’s KT Corp, which was arguably in a similar position to Telkom 10 or more years ago and which could help it run a tighter and smarter ship, Moholi appears to be making the right moves.
Telkom has a long way to go to reverse the bad decisions of the past. But at least under Moholi it’s beginning to see the wood for the trees.
- Duncan McLeod is editor of TechCentral — follow him on Twitter
- This column is also published in Financial Mail