HOLDING THE LINE
‘Telkom is not for sale,’ says CEO Serame Taukobong while potential buyers circle ailing operator
Taukobong, who took over the top job at Telkom nearly a year ago, is however, open to SA’s third-largest telecommunications operator having partners that would potentially invest capital in the company, without taking control of it.
‘We don’t need a white knight to come and save us.”
These are the words of Telkom CEO Serame Taukobong who is adamant that the troubled telecommunications operator is not up for grabs even though cash-flush companies are sniffing around and hoping to take it over.
Taukobong, who took over the top job at Telkom nearly a year ago, is however, open to SA’s third-largest telecommunications operator having partners that would potentially invest capital in the company, without taking control of it, and advise on its strategic direction.
“We certainly do not need help. Do we need to find strategic partners? Absolutely. At our core, our operations are strong. There are people who are interested in having conversations with us. The asset base that we have is geared for us to have opportunities with partners,” Taukobong said in an interview with Daily Maverick on Tuesday, following the release of Telkom’s annual results.
Telkom has been the target of several takeover or partnership proposals in recent months that its board has considered but moved forward to conclude. MTN walked away from talks of buying Telkom, a deal said to have been worth R30-billion. Investment firm Toto Consortium also reportedly made an offer for Telkom, valued at R7-billion, but didn’t proceed with it. A partnership with data-only network Rain was also scuppered. And now, Taukobong’s predecessor, Sipho Maseko, is mounting a bid to buy Telkom for R12-billion, which the board is considering.
A consortium comprising Maseko’s Afrifund Investments and its partner, Madagascar-based Axian Telecom, wants to purchase a 50% shareholding in Telkom — effectively controlling the company. The consortium joined forces with Maseko because he knows Telkom and its operations well as he led the telecommunications company for nearly a decade.
Maseko reportedly wants to unlock value in Telkom by combining its assets — mainly cellphone towers and a fibre network — with those of Axian, which also operates and owns telecommunications infrastructure. The consortium’s offer is said to be receiving support from the Public Investment Corporation, which owns 15% of Telkom. If the Telkom board warms to the deal, approval from the South African government, which owns 40.5% of Telkom, will have to be sought.
The heat around Telkom has even sparked rumours that MTN was looking to revive merger talks. But MTN has poured cold water on the speculation.
“There is no offer or official discussions at the moment,” said Nompilo Morafo, MTN’s chief sustainability and corporate affairs officer. “Telkom is a business with good assets. MTN remains of the view that the offer made in July 2022 would have been good for shareholders of both companies and broader stakeholders.”
The message from Taukobong, for now, is: Telkom is not for sale.
Mounting Telkom problems
The problem is that Telkom is facing daunting operational and financial challenges, making it vulnerable to a takeover.
Telkom reported a R10-billion financial loss during the 12 months ending 31 March 2023, from a profit of R2.6-billion previously. It is pencilling in financial losses at a time when its competitors, including MTN and Vodacom, are profitable.
Telkom has blamed its losses on structural changes in the market, considering that consumers are moving away from its traditional business model of voice services, which is in decline, to newer technologies such as 5G connection and fibre. The rising cost of living has meant that many consumers are cutting back on telecommunications products and services offered by Telkom.
Any revenue generated by Telkom is also eroded by the company’s additional expenditure on generators and backup batteries that run its cellphone towers during higher stages of Eskom blackouts, further putting pressure on its financial situation.
Taukobong said intensified Eskom blackouts had led to Telkom spending R665-million on diesel to run generators, and other backup measures during the 12 months ending 31 March 2023, up from R11.7-million spent on similar initiatives during the previous period. Without this additional expenditure, Telkom’s cellphone towers would fail to operate, potentially throwing its customers into a communications blackout situation.
Considering the operational and financial pressures it is facing, Telkom has decided to preserve cash in the business and not reward shareholders in the form of dividends. It had suspended dividends for three years, with 2023 meant to be the final year, but said on Tuesday it would not pay a dividend in 2024 either.
Telkom shareholders are probably wondering where growth will come from. Taukobong reckons it will be in Telkom’s mobile and fibre businesses.
In the mobile business, Telkom has managed to grow its mobile customer base by 7.8% to 18.3 million, generating service revenue from them of R17.8-billion. But in this arena, Telkom’s competitors, MTN and Vodacom, are miles ahead of it.
“In the mobile business, we have built a 4G and 5G network and high data subscribers. If you look at our competitors, they still have a large 3G subscriber base. And that is the focus for us in terms of the potential for more mobile growth,” Taukobong said.
Another area of growth for Telkom is the business of providing fibre connections to homes and businesses, with its network spanning 170,000km, making it the largest fibre provider in South Africa. Its fibre-to-home connections grew by 23.9% to a total of 1.04 million. Telkom wants to “grow aggressively” in this space by focusing on fibre connectivity to small- and medium-sized businesses.
To free up more cash in the business, Telkom is weeks away from announcing the sale of its masts and towers business, Swiftnet, which owns and houses a portfolio of more than 4,000 towers. Telkom would not be drawn on who it is selling the business to. DM