Telkom will inject R40bn into its network
Strategy to fight off rivals
April 2, 2009
By Thabiso Mochiko
Telkom expected to invest about R40 billion in the next five years to upgrade its network in South Africa as part of its survival strategy in an increasingly competitive environment, the fixed-line operator said yesterday.
The money would be used to upgrade its existing fixed-line network, expand its data centre operations and build a wireless network.
It had initially planned capital spending of R55 billion, but this was expected to be reduced to about R40 billion, including R10 billion from the proceeds of the Vodacom stake disposal.
Like many firms, Telkom is harmed by the economic downturn, with revenue remaining flat while costs rise.
The company is reinventing itself after selling its stake in Vodacom, which was its biggest contributor to profit.
It separated its business into three units - Telkom South Africa, to be headed by former Telkom executive Pinky Moholi; Telkom International; and Telkom Data Centre, which became operational yesterday.
Reuben September, the chief executive of the Telkom group, said: "Refocusing Telkom represents a positive, purposeful change towards a more accountable and competitive company. This change is a necessary part of Telkom's strategy to maintain and grow its market share in South Africa, while building a strong footprint on the continent."
He added that the process would take two years.
One of the major concerns for Telkom is to bring down costs. Peter Nelson, the chief financial officer, said Telkom was spending millions of rands in information technology and maintenance, and the group would look at ways to reduce these costs.
It would freeze recruitment and there would be no salary increase for executives.
Although Telkom has set its sights on becoming a strong player in Africa, its Nigerian unit, Multi-Links, which it bought in 2006, is facing tough competition in that country.
Nelson said Telkom had underestimated competition.
However, he expects the business to be profitable in the next two years. Multi-Links now has 1.7 million customers, compared with 262 431 in 2007.
The unit operates a fixed-wireless network and offers voice, internet and data services. Nigeria is one of the world's fastest-growing telecoms markets, with a penetration rate of about 30 percent.
Jan Meintjies, an analyst at Gryphon Asset Management, said Telkom's management structure was disappointing, as a lot of haphazard decisions had been taken previously, such as investment in Telkom Media.
"You need to get structures right to manage efficiency," said Meintjies. "It is disappointing that Nigeria was performing badly, because management indicated that it believed it had the right strategy to be competitive."
September said the firm expected growth in both its fixed and mobile services in South Africa.
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