SA's largest fixed-line operator, Telkom, will exit its struggling CDMA business in Nigeria, but could end up spending as much as R1.3 billion to sell out of the unit, which it bought into three years ago.
Multi-Links has been a thorn in Telkom's foot 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. Telkom expects shedding Multi-Links' CDMA business to cost it between $100 million (R690 million) and $180 million (R1.25 billion), excluding any benefit from the sale.
The company this morning published its results for the six months to September and said selling out of the CDMA business in Nigeria is one of the key steps that must be taken to turn the company around.
Acting CEO Jeffrey Hedberg explains that exiting Multi-Links is one of his priorities. Multi-Links provides fixed, mobile, data and international communications services in Nigeria.
In June, Telkom hinted at selling the company, as then outgoing CEO Reuben September said Telkom needed to reduce its risk to the loss-making African business, and that talks were under way with other CDMA operators.
Taking strain
“Telkom's results for the six months ended 30 September 2010 paint a picture of an organisation under pressure,” says Hedberg. The company reported revenue down 5.4%, to R17.6 billion, while profit from continuing operations was down 9.3%, to R1.4 billion.
“It is essential to stabilise the business, which we are doing through exiting the CDMA business in Nigeria and focusing iWayAfrica mainly on corporate customers. This allows us to allocate capital to those areas that will drive revenue growth and promote cost efficiencies,” says Hedberg.
iWayAfrica provides Internet services in Africa and is the result of Telkom's purchase of Africa Online and MWeb.
Multi-Links lost subscribers during the first half of the year, moving from a base of two million to 1.9 million, a 5.7% decline. CDMA subscribers declined 8.4%, to 1.7 million. However, data leased line subscribers increased 61.2%, to 454 000.
The Nigerian unit reported operating revenue down 9%, to R744 million. However, lower operating expenses resulted in a narrower operating loss, which was 29.4% better than a year ago, at R262 million. Telkom impaired Multi-Links' net asset value by R201 million.
Telkom says it has received a “number of expressions of interest” for the CDMA business, and is busy evaluating these proposals. However, Multi-Links' backbone network, which includes 4 639km of wholly-owned fibre and a further 2 034km of fibre through swap arrangements, performed as data leased lines grew 61.2%, to 732 lines.
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Telkom hints at exiting Multi-Links
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