Telkom faces legal claims that - collectively - total more than R6.5 billion, which could crimp its network rollout plans if it loses all of them.
Telkom aims to spend between 14% and 17% of revenue on its network in a bid to become the enabler of digital homes and offices. It is rolling out fibre-to-the-home, with aims to connect 20 suburbs by year-end, and plans to connect 20 more suburbs to long-term evolution-advanced technology by year-end, with 30 more to come by March.
Analysts note the contingent liabilities would be a serious blow to Telkom should it fail to successfully fend them off. BMI-TechKnowledge director Brian Neilson says: "If these contingent liabilities become actual liabilities, then it will curtail some of Telkom's investment plans, at least temporarily." He adds: "The company is robust enough to bounce back, though."
Telkom ended the first half of the year with cash balances, including other financial assets and liabilities, of R4.4 billion, up from R1.9 billion in March. It has ring-fenced an amount of R2.67 billion for its cash offer for Business Connexion.
Serious blow
Referring to the litany of lawsuits and complaints the company has faced over the years, Ovum analyst Richard Hurst notes: "Telkom is never quite clear of the minefield and is always going to be under fire." He says "if the chickens come home to roost," it will be bad news for the company, which is already under-capitalised.
Hurst says paying out the amounts for which it is being sued would be a "serious blow" for Telkom's local and regional - via Business Connexion - growth plans. As the telco has its back against the wall, it has no choice but to defend the actions, and drag them out for as long as possible, he adds. "Let's see how it plays out for them."
Among the pending legal action disclosed in its latest results is one without a cap, as Telkom will be liable for any amount awarded to Africa Prepaid Services Nigeria (APSN), in its lawsuit against Multi-Links, that goes over $10 million - about R110 million.
Telkom sold Multi-Links to HIP Oils in 2011 at a large loss, at the same time agreeing to indemnify HIP Oils for any amount that is successfully awarded to APSN - which is 36.7% owned by local Blue Label Telecom - that goes over the $10 million threshold.
At the heart of the ongoing dispute is a 10-year super dealer contract between APSN and Multi-Links, which was cancelled early after Telkom sold the unit. APSN was set to go through an arbitration process to claim $457 million from Multi-Links, which is defending the action, and lodged a counter-claim worth $123 million.
APSN is claiming the damages for lost profit, because the dealer agreement was cancelled in November 2010, after Telkom said it was looking at exiting the struggling CDMA business in Nigeria.
Linked to Telkom's Multi-Links exit is its agreement to indemnify HIP Oils from any tax or debt incurred before the October 2011 sale if the debt exceeds what was due to the CDMA operator. No possible due amount was listed with this contingent liability.
Massive claim
Telkom is also facing a R5.5 billion claim from Phutuma Networks - a matter ongoing since 2009 over a tender Telkom published in 2007. The black-owned company has alleged the tender, dealing with the provision of telex machines, was rigged, allowing a competing bidder to work on the project, without tendering, and entrench itself in the business.
Although Phutuma initially lost out in the High Court, it has now asked the Supreme Court of Appeal to grant it leave to appeal, which is currently being considered. Telkom notes it binned the tender in 2009 because it expired.
Another matter set to go to trial is a R215.7 million claim against Telkom by Radio Surveillance Security Services (RSSS). RSSS claims Telkom owes it for upgrading 440 alarm systems, but Telkom says it never placed an order with the company, or entered into a contract with it.
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