Fixed-line operator Telkom is looking at how it can reduce the risk from its Nigerian operation, Multi-Links, and may sell off some or all of the company.
While not directly stating it would sell off Multi-Links, Telkom said it had been having talks with other CDMA operators in the country as it seeks to reduce its risk. In addition, the company 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).
Shaky state
Presiding over his last financial results presentation, for the year to March, as Telkom CEO, Reuben September said sorting Multi-Links out was a top board priority.
He explained that the company is vulnerable because it operates a CDMA and not a GSM network. GSM is the predominant technology used in the country and accounts for 90% of all mobile connections. “The future of all CDMA operators hangs in the balance.”
He noted that Multi-Links does not have the critical mass it needs to benefit from purchasing power, which places pressure on margins. In addition, average revenue per user from Multi-Links' subscribers has halved in the past year, going from $12 to $6.
September said Telkom has two immediate sets of action. The first is to trim costs and exploit the next-generation network to offer IP-related services to consumers and businesses. However, this will be a fiercely contested battlefield over the next few years, he added.
Telkom's second course of action is to “find a way of limiting exposure” to Multi-Links. September commented that Telkom wants any corporate action around the unit to be “from a whole perspective”, but concedes this may not happen because most of the company's value is in its IP network, and not in the CDMA voice aspect.
Telkom has already been in talks with some CDMA operators, but now wants to widen the net to include GSM providers. “It's a priority for the board to ensure we get maximum value from what we invested.”
In the meantime, the company will continue to invest in key aspects of Multi-Links and expects it to break even at the operating profit line in the current financial year.
“Multi-Links was supposed to be a breath of life for Telkom, but it is increasingly becoming a liability,” says Frost & Sullivan ICT industry analyst Spiwe Chireka.
“A turnaround strategy is critical. We do not, however, think that pulling out of Nigeria completely is advisable, as the market still presents a great deal of growth opportunity if it is properly addressed,” she adds.
Chris Gilmour, Absa Investments analyst, says it is unlikely Telkom will find a buyer for Multi-Links in its entirety, as the entity has been loss-making since Telkom bought into it.
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