Multi-Links hammers Telkom results

By Candice Jones for Telkom
Johannesburg, 24 Jun 2009

Telkom's results took a R1.7 billion beating from the poor performance of its Nigerian operation, Multi-Links.

This is the third report in which Multi-Links has produced a net loss for Telkom, and investors and analysts are doubtful the company can be turned around.

Telkom had big plans for the Nigerian operation and was hoping it would fill part of the revenue gaps left by the sale of Vodacom.

Speaking at the company's results presentation yesterday, Telkom CFO Peter Nelson explained Telkom's concerns around the business. “It has been a hard year and Multi-Links has been a particularly difficult situation.”

He added that Telkom will now turn its full attention to making the Nigerian business profitable. Confirming its strategy detailed last year, Telkom explained it hopes to make Multi-Links profitable in the next three years.

Telkom CEO Reuben September says Nigeria has been one of the countries hardest hit by the global economic downturn, specifically because it's an oil producing nation. He adds that the company has also been hit by hefty handset subsidies.

Not the only one

Multi-Links plays in the CDMA space for mobile telephony, rather than in the GSM space, which is the technology used by MTN in Nigeria. Handsets have to have a certain specification and the marketing of the products are left to the vendors. Companies like Huawei produce handsets under the CDMA standard.

GSM phones are generally marketed by vendors, such as Nokia, or Apple, with its popular iPhone.

September admits Telkom has been on the wrong path with Multi-Links; however, as a Nigerian CDMA operator, the company is not alone in its troubles. Two other players in the market are Starcomms and Visafone.

Starcomms' financials also took a hefty knock over the year, largely prompted by a price war sparked by Visafone. As a new entrant to the market, Visafone embarked on an aggressive campaign to bring in customers, promoted through extensive handset subsidies.

Multi-Links dropped average revenue per user from $32 to $9, in an attempt to compete with Visafone's aggressive campaign, trying to attract the lower-end customer. Starcomms CEO Maher Qubain explains the company's situation in this video interview with CNBC.

Can it be done?

Telkom investors are unhappy with the performance of the Nigerian arm and questioned the company on why it is still on a downturn.

Irnest Kaplan, of Kaplan Equity Analysts, says it's questionable whether Telkom will be able to turn the Multi-Links situation around. “Being a CDMA operator is problematic for them, but even if it were a GSM operator, it would be tough.”

He says making the business profitable over the next three years is going to be an “incredibly difficult task”.

However, Nelson explains that the company has a recovery plan for the business and for the foreseeable future. Thami Msimango, Telkom's MD of its international business unit, will be based at Multi-Links, in Nigeria, to see out the transformation.

The company says it will increase its focus on wholesale and the corporate markets, rather than gaining subscribers in the lower scale markets. “There is nothing wrong with targeting the low-end customer; volume drives up revenues. But if the goals are not correct, then it won't work,” adds September.

Telkom's Multi-Links has also signed a deal with SA's Blue Label Communications to open distribution channels around the country. Nelson says Telkom hopes to have positive EBITDA margins by November 2010 and to make Multi-Links cash flow positive by December next year.