Telkom turnaround starts to take shape

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By Gugu Lourie

Under the leadership of Sipho Maseko Telkom’s turnaround strategy is finally showing positive signs as the fixed-line company cuts costs and enters into partnerships to outsource the things it does not want to manage itself, leaving it to focus on its customers.

Earlier this month Telkom announced new partners to manage its non-core activities that include call centre operations and staff, as well as certain legacy IT billing systems, an internal printing division as well as the network and operations, and retail supply chain units.

Majority-owned by government and valued at more than R38bn, Telkom has identified ASAJE, Bidvest, Barloworld Logistics, Ingram Micro and WNS to manage its non-core activities as part of a turnaround plan initially announced in mid-February.

It is targeting R1bn in annual cost savings for the next five years.

Telkom is not currently giving out more details about the outsourcing process because the matter is still being discussed with relevant trade unions.

Company spokesperson Jacqui O’Sullivan says outsourcing was a critical step for Telkom, which intends to focus more on satisfying its customers. “To succeed, everyone at Telkom has to put the interests of the customer at the heart of everything we do. Our customers are the core of our business, but running call centres is not,” explains O’Sullivan.

“We know that customers will benefit from a focused and consistent service that a professional call centre organisation can offer. For this reason, we are confident this is the correct action to take.”

JM Busha Asset Managers’ head of equities and portfolio manager Farai Mapfinya says outsourcing will have a positive effect on Telkom’s turnaround initiatives.

“We think there are noncore activities which have taken management’s focus at the expense of core telecoms and telephony activities,” says Mapfinya. “We think such operations would be better managed in the hands of specialist players solely focused on such business activities.”

Telkom’s change of fortunes and Maseko’s cost-led strategic reboot have so far got the thumbs up from the state
and investors.

Mapfinya says the outsourcing of non-core assets would assist Telkom to reach the R1bn annual cost savings goal but not in its entirety. “A lot more will still need to be done to achieve the target,” he warns.

“The turnaround, in our view, has yielded positive outcomes already and is almost in its final stages. We think the
easy, low hanging fruit of fixing what was broken will be behind us soon and the big challenge facing the business
will be growing the business off the new base set by current turnaround initiatives.”

Just how much wiggle room Telkom has left to cut costs remains to be seen.

Mapfinya says fixed-line voice is in a long-term secular decline, while mobile voice has also recently suffered from the surge in data.

“The key for us will be identifying and pursuing alternative income streams from the traditional voice and telephony services that the business currently offers,” says Mapfinya. “We think fixed-line data still has an edge over mobile data in terms of transmission speeds and capacity and is an area Telkom could exploit.”

If these positive results continue, Telkom may be able to reinstate dividend payments at the end of the 2015 financial year – a situation that will make investors happy. The last dividend payout was in 2011.

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