Beijing - Analysts said Telkom should initiate strategic moves to bolster itself, after the company said it would report a massive interim earnings decline next week.
Telkom warned shareholders on Friday that its half-year results, due to be released on November 24, would be between 130% and 140% lower after the sale of Telkom's stake in Vodacom earlier in 2009. Analysts commented the fixed-line operator should start to use the proceeds of the transaction to turn itself around.
Tammy Whyman, principal at Delta Partners, said Telkom has the resources to do so, but should act quickly.
"Selling off its Vodacom shares was a potential catalyst for Telkom to do something big - and it has to do something now," she said.
Whyman said that Telkom has been moving in the right direction in terms of its macro strategy and intended expansion both internationally and into the South African cellphone market.
"In mobile there is a lot of expectation, but Telkom has been closed in terms of what its strategy is. As time goes by the market becomes more mature. If Telkom doesn't implement its strategy soon, it may be too late," warned Whyman.
She said Telkom will have to be innovative and create a separate sales organisation for mobile, as opposed to relying on its existing structures.
"Telkom also needs network coverage but should avoid excessive capex spend. There are a couple of options - national roaming agreements with other networks could be put in place temporarily or continuously - but with this comes lower margins.
"On the other hand, rolling out its own network would be expensive and the return on investment would be slow."
She said Telkom may be better off expanding further into Africa.
She added Telkom should exploit its leading position in the fixed-line market where competition is scarce and will probably remain so until around 2011. This suggests it could launch services such as triple-play telecoms that combine, for example, voice, data and television - something competitors are unable to do on a mass scale.
'Don't buy Telkom'
Coronation Fund Managers' Pallavi Ambekar said all eyes will be on the fixed-line side of Telkom's business to see how it performed in the interim period. She added analysts expected revenue at Telkom to be quite resilient, but volumes to be under pressure.
"We'd like to see if they've implemented the cost controls that were promised. My sense from the update on Friday is that costs are still running way ahead of revenue growth, so we will see some margin pressure," she said.
Ambekar added that Telkom should focus on converting its corporate customers into mobile clients as it moves into that market, although she admitted it won't be easy.
Ambekar also said that the Multi-Links acquisition in Nigeria has turned out to be a bad play for Telkom, given competition and other dynamics in that market.
"It seems like Multi-Links is still producing losses at the Ebitda [earnings before interest, tax, depreciation and amortisation] level. The way to get out of this situation is probably for them to merge or combine with another operator in Nigeria and bulk up their scale that way," Ambekar said.
"We don't hold any Telkom at these levels - and we won't be buying," she said.
- Fin24.com