Where to, Telkom?

[By Duncan McLeod]

Telkom is a fixed-line operator with ambitions to get into mobile telecommunications. Analysts aren’t sure it should be investing in a mature cellphone market. Do they have a point? Should Telkom be sticking to its knitting in fixed lines?

Pity whoever is appointed to replace Reuben September as the next CEO of Telkom. The new head will be inheriting a difficult business facing its biggest-ever competitive and regulatory threats.

Telkom isn’t the same company it was in the late 1990s, when, led by a foreign management team, it was able to hike prices out of all proportion, milking SA consumers for all they were worth, all the while abusing its monopoly and chasing off the slightest hint of competition.

Today, Telkom is threatened. Vodacom and MTN are demanding a piece of the action. And the industry regulator, emboldened by a department of communications that wants to see action on telecoms rates, is starting to talk tough.

With a fixed-line business that is in accelerating decline — the number of fixed lines in service declined by 4% between March 2009 and March 2010 — Telkom is turning to mobile to make up for it.

It says it will invest R6bn over five years building a second- and third-generation cellular voice and data network.

But many analysts have expressed doubt that Telkom has what it takes to take on two powerful incumbent operators — Vodacom and MTN — and a re-energised Cell C. Telkom, they say, has little or no experience in mobile, and its forays into other business areas, most notably pay-TV, have proved to be disastrous.

Now the company has lost its CEO, the very man who led the decision to offload Telkom’s 50% stake in Vodacom, a company over which it had little or no say, and to build its own mobile network.

There are real dangers ahead for Telkom. It could be the big loser if it succumbs to obvious temptation and, seeking to grow its mobile subscriber base quickly, starts a price war with the incumbent mobile players.

And there are already worrying signs that it could be distracted from its traditional core business of providing fixed lines.

Management mustn’t make the mistake of thinking Telkom can stop investing heavily in the access layer of its fixed-line network — the mainly copper-cable infrastructure that connects consumers to its core network.

If anything, it needs to be investing more heavily in the fixed-line side, replacing copper with high-speed fibre optics where it can. Fibre, not wireless, is the real future of broadband. It’s a space Telkom can own, if it has the foresight now to invest before its rivals take the market.

The company also needs to react faster to market changes. MWeb introduced uncapped broadband recently, and other Internet service providers have slashed per-gigabyte bandwidth prices. Yet Telkom hasn’t reacted. It’s like a deer trapped in the headlights.

And it’s losing broadband customers to the mobile networks — or not winning those customers in the first place. It should be up there, competing like hell to hang on to every single customer.

What the company needs now is a CEO who can shock the organisation into change. That would probably require an external candidate able to shake things up and shrug off the last vestiges of the parastatal mind-set.

Certainly, whoever is appointed needs to be visionary, empowered to take big but calculated risks.

Unfortunately, it also needs to be someone adept at managing politicians. Government has stubbornly and stupidly held on to nearly 40% of the company’s shares. This, ultimately, could prove to be Telkom’s downfall.

Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail