Who can argue when the CEO of a major company says, unhesitatingly, that the year ahead is going to be a gruelling one? That is exactly what Sipho Maseko - chief of Telkom for less than a year now - stated at the outset of 2014.
"While I can't predict the future, I can unhesitatingly say the 12 months that lie ahead will be demanding. Challenges await, of this we can be certain. We will have to be on top of our game and tackle the issues that influence our business with focus and purpose if we are to unlock our full potential."
And it is a statement industry observers agree with 100%, for a number of reasons that have been in the company's woodworks for some time now.
Telkom not only faces pressure from its biggest stakeholder, government, to turn a profit in a competitive market flooded with new, strong competitors - it is also under the watchful eye of the industry - the latter after Telkom was caned by the Competition Commission for anti-competitive behaviour. Add to this, years of soured customer relations, and it is unquestionable that Telkom faces a steep mountain.
As the largest single shareholder, government holds a 39.7% direct stake in Telkom and another 10.6% indirect interest though the state-owned Public Investment Corporation.
At the same time, industry observers have pointed out that the country needs a strong Telkom, and it is in the corporate and consumer domains' best interests that the company succeeds.
Already at the time of former CEO Pinky Moholi's resignation, at the end of 2012, BMI-Techknowledge MD Denis Smit said he was worried for Telkom. That said, he noted the company "has to make it".
With 140 000km of national fibre, Smit points out, Telkom remains the country's largest network - and an asset SA cannot afford to lose. "We need Telkom to be successful. They are too big to fail. All major businesses run on [Telkom's] networks - they have to make it."
In a column published in the Sunday Times this weekend, Maseko said Telkom was intent on reviving its full potential as an enabler of the nation's social and economic advancement.
He also kicked off the year with a letter of motivation and consolation to employees, many of whom may very well soon be saying goodbye to the company as it embarks on cost-cutting exercises that inevitably include trimming the workforce.
Maseko says while Telkom still has some way to go, the company has made measurable progress in the last year. "We've bolstered our executive and we've sought to foster a new spirit of enterprise."
Cautious hope
Irnest Kaplan, MD of Kaplan Equity Analysts, says Telkom faces a lot of challenges, many of which are not new - and most not easy.
On whether Maseko's words will be realised with results, he says: "Maseko has done the right thing by being vocal in the media about what the company faces - and he is saying all the right things. We need to give him the opportunity to prove whether he can turn things around. It will take time."
MD of World Wide Worx Arthur Goldstuck says Telkom has the energy, vision and skill to achieve many of Maseko's objectives. "The question is whether it has the vision to make tough decisions to change the way it has traditionally done business."
Goldstuck says while a new leadership team may be in place - and the industry is seeing shifts in traditional attitudes and approaches to competition - there is still an ingrained commitment to legacy systems and modes of business.
He says Telkom needs to be seen as more of a partner to other players in the communications space. "The cultural changes we are seeing now should be the beginning of strengthening these relationships."
Transforming dynamic
Maseko recently took a step towards the functional separation of its wholesale and retail arms - made incumbent upon it by the Competition Commission - by introducing a code of conduct outlining how employees of the two respective divisions are expected to conduct themselves.
Goldstuck says, ultimately, Telkom has to prepare for a time when these will become separate businesses. "A spin-off is not as unlikely as it may have seemed a couple of years ago."
Another challenge facing Telkom this year, Maseko notes, is the evolution of SA's regulatory landscape - in particular local loop unbundling (LLU).
LLU, as he puts it, is a process that could see the Independent Communications Authority of SA forcing Telkom to hand over control of its fixed-line connection with its customers to other companies.
The problem Maseko sees with LLU is that it will "discourage investment in the sector - which wouldn't be desirable in a country where teledensity is only 7%". He says LLU will, at best, only benefit this 7%, which is largely urbanised.
"While LLU is meant to promote competition, the truth is that it is an outdated regulatory remedy, which won't achieve that goal in the era of fourth-generation wireless technology known as long-term evolution (LTE)."
Goldstuck says LLU is one area where Telkom will find itself tossed on stormy seas. "It continues to resist an inevitable storm, as it can hold back the weather. That means it is wasting needed resources to fight off the inevitable. It should rather be looking at how it can best facilitate the transition and play a role of trusted partner in the process."
Financial mountain
Maseko has told his employees that Telkom's turnaround programme will "continue unabated", saying that stabilising the company was just the beginning of the journey.
"Providing customers with a positive experience, investing in the right technologies and solutions for our enterprise customers, owning the home and building and operating an invincible network, form part of this journey."
The possibility of massive job cuts has been widely reported in the media, although Maseko emphasises no decision has yet been taken.
Goldstuck says Telkom's financial turnaround depends on continued growth in three areas:
* The business space - which he says should not be a major challenge;
* The consumer space - "which is a massive challenge (given that the landline business continues to erode), ADSL growth remains stagnant, and data costs keep coming down"; and
* The mobile space, where he notes Telkom is struggling to achieve profitability.
Possibly the biggest challenge facing the company, says Goldstuck, is that it needs to modernise its network and improve service roll-out at a time when it is also wooing investors through vigorous cost-cutting, which means reducing the resources needed to achieve those goals.
Kaplan says each of Telkom's areas has its own challenges - growth prospects appear limited.
"Telkom is strong in its fixed-line voice area, but the market appears saturated with limited growth potential. The number of fixed lines is declining.
"There is hope in its fixed-line data business, but for the past two years, it has not grown fast enough to make a meaningful difference to the group numbers. There is also growing competition and rapidly declining data prices."
"In the mobile area, Telkom has entered very late and faces extremely tough and much larger competitors. The outlook does not appear promising."
Telkom's mobile arm - introduced under the 8ta brand - was established in 2010, whereas SA's two mobile giants, Vodacom and MTN, have been around for 20 years this year.
At the end of the day, says Kaplan, Telkom might be able to do well in the short term by cutting costs, but as it stands, he is not that excited for the company over the longer term, given the limited growth potential that exists, and the massive challenges it faces.
Nevertheless, he concludes, SA does need a healthy Telkom. "The company still forms a major part of our country's telecommunications infrastructure."
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