Tough Decisions Await Telkom

Under pressure because of the need to continue reviving itself, Telkom is moving ahead with its cost-cutting push despite opposition from three trade unions. By Staff writer

The parastatal was forced to halt its Section 189 retrenchment process to cut 4 400 jobs and move 3 200 people to outsourced businesses after the unions went to court.

But the company will now look at alternative ways to cut costs. These measures include voluntary retrenchment, the introduction of flexitime and a possible wage freeze, said Telkom CEO Sipho Maseko.

“I am positive; I believe that Telkom will be sustainable in the future. But it is going to be difficult in the beginning,” said Maseko. “We have a lot of painful decisions we have to take. We’ve got to learn new things or do things differently for the company to be sustainable. But I am under no illusion at all that it is going to be easy.”

Some analysts seem confident Maseko can continue to turn Telkom around, with three out of six polled by INET BFA since the beginning of June rating the stock a buy. Two rated it a sell, and one a hold. Under Maseko’s watch, Telkom earlier this year paid out its first dividend in more than three years.

The easy pickings are gone, however, warns Farai Mapfinya, head of equities and portfolio manager at JM Busha Asset Managers.

“We think they are still on the right track but it will be that much harder than what they have achieved to date. There are still some cost rationalisation benefits to be made but only up to a certain point,” Mapfinya said.

“The main challenge will be growing the top line in a declining market through identifying or creating alternative revenue or income streams.”

With declining revenue in its traditional fixed-line voice business, Telkom has focused on increasing mobile voice and data revenue, and on growing its IT business services offering.

Telkom has also concentrated on cutting costs, and has exited non-core activities, sold properties, de-risked its mobile phone unit and is in a process of consolidating its head office to a single location in Centurion. It has also written down R12 billion of legacy assets.

The company more recently said it was planning to retrench employees and redeploy more to other companies. But after the court order successfully sought by the three unions, Solidarity, the Communication Workers Union and the South African Communications Union, Telkom is considering other alternatives.

Maseko said the company had to change how it operated because the present way of doing things was not sustainable.

“There is still fragility in our financial structure. That requires us to do a lot more than we have done in the past.”

These include, as mentioned, a wage freeze, investigating flexible working hours (flexitime), voluntary severance packages (VSPs) and voluntary early retirement packages (VERPs). Telkom is also investigating new methodologies to improve productivity, upgrading of employees’ skills, reduced working hours in the form of a shorter work week and potential outsourcing options.

Telkom will offer VSPs and VERPs to nonunionised members, who account for 40% to 45% of its workforce.

“We have to make the difficult decisions now to safeguard the future livelihood of the majority of our employees, and to ensure the company remains an important contributor to economic growth, an attractive investment for shareholders and a vehicle for social transformation,” Maseko said. “Telkom will only remain relevant if it becomes a more agile, competitive organisation.”