Publications
Partners
FOR Telkom [JSE:TKG] the path from state-owned network to private telecommunications operator has been rocky at times.
While government still owns a large stake in the company, Telkom should be thinking and acting like any other private organisation. As customers and shareholders, South Africans want to see Telkom succeed. We are not critical for the hell of it.
As the shift from clueless parastatal to profit-driven company continues, it also wouldn't hurt Telkom to tear a leaf from the book of another operator who has had to make a similar transition.
I had the pleasure of meeting with the BT Group last week, formerly British Telecom, at the company's headquarters in London. BT was the incumbent, state-owned network in Britain that had to make the transition to private telecoms operator in much the same way that Telkom has.
In 1982 the British government started privatising the company with the sale of 51% of its shares to private investors. By 1993, the group was entirely private and has since grown to become a global player with annual revenues of about R240bn.
The state’s interest in Telkom is more than many analysts I speak to deem healthy. The South African government owns 39% of the group and is overrepresented on the company's board - a matter that makes Telkom noncompliant in terms of the King III corporate governance framework listed entities must adhere to.
BT only started making meaningful progress as a private operator once the British government had pulled out. Let's call this "lesson 1" that Telkom can garner from BT.
Moving on to operations, BT Group has taken a conscious decision not to play in the cellular space. Instead, it decided to leverage its existing assets in ways that led directly to revenue.
Being an incumbent operator meant that BT has more landline connectivity throughout Britain than any other network. By opening this up to the market, BT has made huge profits from its legacy infrastructure.
Specialising in last-mile connectivity - an industry term for the connections that extend from the core of a network to the areas its customers reside in - BT has become a wholesale business of telecommunications services that other operators need. Tapping these assets has made big money.
In terms of mobile, BT operates as a virtual network operator in some markets, but has focused on mobile services via WiFi hotspots and voice-over-IP services and solutions instead of rolling out its own cellular networks.
A cellular network is a bitch to run and not something you want to own unless you already do so. Cell C is trying to sell off its tower network in order to lease back the towers themselves.
This is a global trend - even mature cellular networks in many developed markets are looking to flog the dormant assets in their networks so that they can focus on the services that make them money instead, while a specialised tower-leasing company takes care of the rest.
Telkom, on the other hand, is hell-bent on launching its own cellular network into the South African market and honestly believes that the landline business is eroding, holding little for the future.
SA is a very different market from Britain, but there are analogies and global dynamics that apply to Telkom as much as they do any other operator. Telkom's last-mile infrastructure is unrivalled in SA and should be leveraged more from a wholesale perspective.
One area where Telkom is doing well is in ICT services via its Cybernest subsidiary.
This division is showing healthy growth and is the right kind of strategy for Telkom to pursue. Unlike mobile, where I for one do not believe that an aggressive strategy is going to get Telkom anywhere against the likes of MTN Group [JSE:MTN] and Vodacom Group [JSE:VOD]. Or even Cell C, for that matter.
Telkom had the right idea with Telkom Media (now Super 5 Media) that it could have leveraged to bring the first triple play offering to the local market - but sold it off, and with Telkom Media went the burning chance it had to make it into the contract consumer mobile space with a packaged offering.
The list of things Telkom could learn from the likes of BT could go on for reams, but the point is that there are examples out there of how it's done.
Telkom needs to give government the boot, leverage its existing infrastructure and cool down on mobile - that doesn't mean it shouldn't do mobile at all, but rather think long and hard as to how it can offer services without blowing the bank on infrastructure.
I also have every faith that its next CEO, who is looking likely to be current stand-in Jeffrey Hedberg, will make the choices for the group.
- Fin24.com
