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Telkom must unleash its potent weapons

Sipho Maseko might not be a favourite among  trade unions, especially because he is unwavering when it comes to right-sizing  – but the Telkom boss cannot be faulted for innovation and turning around the fixed-line telephone firm. By Gugu Lourie

Maseko accepted what many may consider a poisoned chalice in 2013 to become Telkom CEO. At the time Telkom was in the doldrums and the public were obviously not impressed. As a result more people opted for cellphones.

But like a true turnaround artists, Maseko has made inroads towards turning Telkom into a relevant Information Communications Technology (ICT) firm in South Africa and beyond.

It wouldn’t be surprising if in future Maseko is referred to as Telkom’s greatest gift, just like his first name “Sipho”, which means a gift in isiZulu.

Presently, the Telkom boss is pressing all the right buttons.

Though it’s early days things looks promising.

Along with his highly skilled management team and an experienced board competently led by Jabu Mabuza, Maseko has boldly taken “excruciating steps” to reboot the business.

No wonder he has been able to restore trust with the main shareholder, the South African Government, which is no longer interfering in the company’s affairs.

Since Maseko took over, the government has refrained from publicly criticising Telkom. It has not even raised its voice about Telkom’s

Sipho Maseko, Telkom chief executive
Sipho Maseko, Telkom chief executive

plans to retrench workers as it seeks to right-size. This is an obvious sign that the government has faith in Telkom’s executive team.

This year Maseko gave government – after many years of being unable to do so – a pretty good dividend at a time when the state can do with cash injections to tackle pressing economic challenges. Dividends were also paid to other shareholders.

Maseko has also written down R12 billion of legacy assets and settled more than R500 million with the Competition Commission.

Non-core activities were also outsourced to firms with expertise to run them effectively and efficiently.

The company is also bringing new products and solutions to the market and it has trimmed net debt by 92, 8% to R151 million in the year to end-March 2015.

But some local institutional investors still consider Telkom a risky investment.

According to Telkom’s 2015 annual report, the US institutional investors rose to 35% in 2015 versus 15.3% in 2014, gaining 19.3% as they snapped up some of those shares sold by South African institutional holders.

Maseko, however, may be closer to unleashing one of Telkom’s “secret weapon” – that many in the industry consider as a simple and straightforward acquisition – technology firm Business Connexion (BCX).

Yesterday, Telkom was given a nod by the Competition Tribunal to buy BCX in a deal worth R2.7 billion.

BCX is one of Africa’s biggest ICT services providers that generate revenue in excess of R6 billion a year. This move would help Telkom to diversify its revenues.

It will also increase Telkom’s scale in IT services and enhance its convergence strategy.

Telkom should unleash this beast and conquer the ICT services market, which is set to grow faster than the mobile phone industry.

It is easy to exaggerate the rise of Telkom, which is still facing various headwinds.

Maseko seems to have an ace up his sleeve to ensure the turnaround succeeds.

Jabu Mabuza, Telkom's Chairman
Jabu Mabuza, Telkom’s Chairman

Once he finalises the acquisition of BCX, Maseko should quickly find a best way to separate wholesale and retail business. This is also likely to unlock trapped value in the business.

It would make sense for Telkom to unbundle and float on the JSE separately an infrastructure network business.

The big puzzle about Telkom seems to be getting clearer and the company is about to become agile as more as it trims excess fat through retrenchments and other cost-cutting exercises.

Last week Friday, 2293 Telkom employees took voluntary severance package, which will reduce the company’s wage bill.

All these changes have come from the fact that Maseko and his team are unwavering in their plans to fix Telkom.

The fixed telephone line leader is the lifeblood to the country’s banking industry that enables Absa, FNB, Nedbank and Standard Bank to operate their automatic teller machines (ATMs).

With Telkom moving in the right direction, surely it’s time for the telco to unshackle its most powerful weapons: BCX, separate the wholesale and retail business (Think of unbundling an infrastructure network firm).

It should also conclude that smart, nifty little deal with MTN. It must just sign the roaming agreement with MTN for the mobile phone operator to take over financial and operational responsibility for the roll-out and operation of its radio access network (RAN).

Its noteworthy than even now, after so many months as the CEO of Telkom and a hostile trade union, Maseko has managed to steer the company forward with vigour.

Deon Fredericks, Telkom's chief financial officer
Deon Fredericks, Telkom’s chief financial officer

These days being one of the leaders of Telkom is considered sexy because the restructuring process could be considered as a nice problem to have.

However, Telkom should be cautious as it moves forward.

It would be prudent for Telkom to recall the words of its chief financial officer, Deon Fredericks, uttered at the company’s 2014 annual results in Pretoria: “MTN and BCX are not silver bullets. They are one of the levers we are using. There are others we have to leverage from.”

Telkom could start by firing the first bullet to send a message to the market that it is really serious about taking its rightful place in the ICT space.

Unleash BCX now, please.

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