As Telkom begins to pick itself up and dust itself off from the devastating failure of its Nigerian operation, Multi-Links, the fixed-line operator has recognised it needs to fix its local operation before entertaining broader ambitions on the continent.
Speaking yesterday at Telkom's interim presentation, acting CEO Jeffrey Hedberg announced the telco's decision to pull out of its CDMA business in Nigeria, conceding the entity has been bleeding cash and was no longer a viable business.
Multi-Links has been a thorn in Telkom's side ever since the company initially invested in Nigeria, in 2007. The fixed-line operator has written the unit down by more than R5.6 billion since entering the West African country.
Telkom bought 75% of the company in May 2007, for R1.96 billion. In January last year, it bought out the balance of Multi-Links, investing a further R1.224 billion in the company.
Locally, Hedberg noted that Telkom is under pressure as well. Telkom's interim results saw revenue down 5.4%, to R17.6 billion, EBITDA down 0.6%, to R5.1 billion, and profit from continuing operations down 9.3%, to R1.4 billion.
Hedberg, who has been famed as a turnaround specialist, indicated Telkom needs to focus on cash-generating areas of its business. He explained that his first priority is to stabilise the local business, before embarking on new investment opportunities across Africa.
Local stability
“We really need to now allocate resources where the money is and where the challenges are and that is here in SA,” he explained.
assets and, at a later stage, it would look at new opportunities for investment.
“We are not ignoring Africa, but we need to get the local business stable and we need more maturity on how we as a business manage these assets. After repositioning our existing assets, we will look at investment opportunities in Africa again.”
Analysts have welcomed the telco's new strategy.
'Black holes'
“The African telco environment is undergoing sea-change as the effects of massively increased international bandwidth, roll-out of terrestrial fibre, mobile connectivity and data-based services come to the fore and impact local consumption and demand patterns,” explains Mark Walker, director of vertical industries and insights for the MEA region at IDC.
“This is further compounded by increased international focus on Africa as an attractive investment destination, given the slowdown in developed economies in recent times - inflows into Africa are expanding regional economies rapidly, but in a risky manner,” he notes.
“Many entrepreneurial experiments will be undertaken over the next 18 months in Africa in terms of data and mobile based services by many telcos, yet only a small fraction will prove viable while many will be black holes absorbing cash with limited or minimal return.”
Walker opines that Telkom is wisely adopting a longer term strategic view that focuses on its most lucrative market and fixing shortcomings locally, while effectively sitting out this round of African investment in anticipation of a maturing/shakeout in the African marketplace.
“Once the African marketplace has settled in 12-18 months from now, Telkom will hopefully have gotten its house in order and be in a financial position to take a stake, or add to existing investments in a proven yet fast-growing African company and use this to make headway, while also ensuring a healthy ROI and minimising their risk,” comments Walker.
BMI-TechKnowledge research director Brian Neilson agrees: “I think it is a sensible and necessary approach. Across Africa we are seeing the huge growth opportunities of the early 2000s turning into the quagmires of the early 2010s, as competition bites and ARPUs fall through the floor.
“Major mobile operators are also feeling the strain and considering their options, including disposing of some of their assets. It's not that the growth in uptake is not there - especially in mobile subscribers, broadband services and mobile data services in particular - rather that it is becoming increasingly difficult to make the business work from a margin pressure perspective,” adds Neilson.
Meanwhile, Telkom will focus on repositioning its existing African assets.
New focus
Hedberg has committed to consolidating Telkom's African assets, including Multi-Links' data and fibre business and iWayAfrica.
He is confident of the success of Multi-Links' data and long-distance fibre network offering, arguing that the vertical industries in Nigeria provide a strong business case for the asset. Especially since no incumbent operator currently exists in Nigeria.
Hedberg also pointed out that Telkom would reposition iWayAfrica to focus enterprise customers across 32 countries across Africa.
Telkom has also closed down Telkom Management Services, which was meant to pioneer into Malawi, Zimbabwe, the Democratic Republic of Congo, Liberia, Angola, Ghana, Uganda, Botswana, Namibia, Lesotho and Swaziland.
But after failing to secure funding solutions with African operators, the venture has failed.
“Telkom has also elected to remain in the corporate market with its long-distance fibre connectivity in Nigeria, which indicates they are not pulling out completely, but rather focusing on profitable, cash-generating operations,” Neilson points out.
“There is still a window of opportunity to exploit in plugging the gaps that exist in many African countries to build and operate long-distance fibre networks, traffic on which is climbing extremely rapidly,” he concludes.
Related story:
Telkom plans Multi Links exit
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