Hedberg could rescue Telkom

Market commentators have welcomed Jeffrey Hedberg's appointment as temporary Telkom CEO, but there are doubts that the US national will become a permanent fixture in the hot seat.

Telkom surprised the market at noon on Friday when it announced Reuben September had quit as CEO and a director of the board. September, who will stay on in a consultative role until November, will be replaced by Hedberg in the meantime.

September was initially expected to step down in November. The telco said it was appointing Hedberg, because of the “uncertainty which prevails during such transition periods”. It adds that Hedberg's appointment provides “leadership, continuity and stability at an important time, given a number of key strategic and operational deliverables”.

Hedberg is famed as a turnaround specialist, as he took SA's third mobile network, Cell C, from a loss to its first profit after he joined the company in May 2006.

Telkom announced his appointment to fix its failing Nigerian operation, Multi-Links, in the middle of last year, but then had to wait several months before he could come on board due to contractual agreements with Cell C.

Analysts say Hedberg could be just the man for the job, as Telkom desperately needs to get its growth strategy off the ground. The company's revenue was all but flat in the year to March, and several areas of its operation need urgent attention, including dwindling fixed-line penetration.

Telkom's turnaround strategy, as outlined by September at the results presentation a few months ago, hinges on its data offerings, African expansion, and SA - where mobile is vital in offsetting the dwindling number of fixed-voice minutes.

Frost & Sullivan ICT industry analyst Spiwe Chireka says Hedberg's appointment is a good move - especially as the company cannot afford to wait before putting a turnaround plan into place.

“Telkom needs a turnaround strategy as a matter of extreme urgency, so to wait another six months before putting that plan into action would not have been beneficial to the company,” she notes.

Chireka comments that there are several critical components of the business that need direction and Telkom cannot afford to break momentum. “Hedberg will need to drive the roll-out of Telkom Mobile, whose launch is imminent; make a decision on what to do with Multi-Links, which is in dire need of revival; and develop a sound international strategy for the group.”

However, says Chireka, turning the company around will not be an overnight, or even a one-year job. “It will be crucial that the Telkom board determines a suitable duration for the interim position.”

Telkom's announcement stated it had “commenced a process to appoint a new group CEO”, indicating Hedberg's stay may be short-lived. “A successor to September will be announced in due course.”

Chris Gilmour, Absa Investments analyst, says Telkom has a limited window of opportunity within which to get its turnaround strategy off the ground, and has to take advantage of the chance to implement a strategy immediately.

However, Gilmour doubts Hedberg will be offered the CEO's job on a permanent basis, as the appointment is likely to be politically motivated and in line with government's black economic empowerment focus.

Gilmour speculates that Hedberg has been put in to run Telkom to get its growth plan off the ground, and then make a quiet exit to be redeployed elsewhere in a few years' time. He says Hedberg could well head up Telkom's mobile strategy. Telkom Mobile is set for launch some time this year.

Hedberg's appointment indicates Telkom has recognised the need to reposition itself. “Hedberg is likely to put the right things in place, and develop a clear strategy, even if he is only the caretaker.”

However, Gilmour cautions that, with the extent of Telkom's problems, Hedberg needs a decent tenure at the company's helm to make any real difference.

Gilmour says only time will tell whether Hedberg's appointment is the “right thing to do”, a statement with which independent telecoms analyst Richard Hurst concurs.

Hurst says Hedberg is “good at taking lame ducks and turning them around”. He points to the fact that Cell C was on shaky ground when Hedberg took over running the mobile company.

However, Hurst questions why Hedberg was not able to rescue the ailing Multi-Links. Multi-Links has yet to produce a profit since Telkom bought into the company three years ago, and the telco has now written the Nigerian operation down to nothing. “The Nigerian market is like shooting fish in a barrel.”

Hurst says Hedberg's appointment at head office could indicate Telkom is keen to get rid of the loss-making operation. However, he questions “who would want to buy it”. Gilmour agrees, saying it seems Telkom will sell Multi-Links, as it is now without someone to run it.

Telkom hinted at its results presentation last month that it may sell Multi-Links. The company said it had been in talks with other CDMA operators in the country as it seeks to reduce its risk. In addition, the operator will not spend any more capital on the mobile network.

The company initially invested in Nigeria in 2007, but the unit has been a disappointment since it joined the Telkom stable. So far, Telkom has written down Multi-Links by R5.6 billion, which is a third more than the company paid for the Nigerian operator.

Telkom acquired the remaining 25% shareholding in Multi-Links in January last year, for $130 million (about R1.224 billion), after buying 75% of the company in May 2007 for $280 million (about R1.96 billion).