Hedberg outlines Telkom turnaround plan

Johannesburg, 29 Jul 2010
Read time 5min 00sec

Ailing fixed-line operator Telkom may be set for recovery if acting CEO Jeffrey Hedberg's five-point strategy is successful.

At first glance, the plan of action may appear timid, but industry insiders describe it as succinct, meaningful and valid.

Telkom has been in a slump after reporting just more than flat revenue growth at its last financial results; a situation that was further compounded by an exodus of top talent, including CEO Reuben September and CFO Peter Nelson.

But Hedberg, who has been famed as a turnaround specialist, yesterday stated that Telkom would no longer be defined by a set of individuals, but as a team. He added that his focus for the company's turnaround would be driven by five guiding principles.

Plan of action

The first marker in Hedberg's plan includes a focus on leadership and organisation. He says the company's focus will be on driving clarity and communication to achieve better alignment throughout Telkom.

Hedberg will prioritise a revival of culture throughout Telkom and develop a plan to recruit the best people into the company.

But Chris Gilmour, Absa Investments analyst, says Telkom will struggle to attract good people with all the controversy surrounding the recent departures of the CEO and CFO. Telkom will have to pay up to attract talent and prospective candidates will demand watertight contracts over a period of no less than three years, he predicts.

Hedberg explained that these objectives would be guided by transparency and encouragement to challenge the status quo.

Ebitda (earnings before interest, taxes, depreciation and amortisation) and cash flow improvement is the second key point of Hedberg's strategy. He said Telkom's cost-cutting initiatives were on track, but the company would also be focused on increasing revenue going forward.

The imminent launch of Telkom Mobile is Hedberg's third priority. He noted that he sees great potential in getting the operation off the ground and offering bundled fixed and mobile offerings.

The fourth point of Hedberg's strategy was his emphasis on the operator's broadband offering. He noted that Telkom's broadband offerings will be one of the company's key differentiators going forward, not only with ADSL, but also in future mobile broadband offerings.

Lastly, Hedberg acknowledged that he would be focused on the repositioning of Multi-Links. Telkom initially invested in the Nigerian company 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.

Earlier this year, Telkom hinted that it may be exiting the failing operation, but Hedberg noted yesterday that would lead to a case of buying in high and selling low. Now his strategy includes holding onto its loss-making subsidiary.

No easy feat

Although Hedberg's plan is said to be sound, and his experience beyond reproach, analysts concede that he has a tough job ahead of him.

“It is very easy to espouse these strategies, and it is clear that Hedberg understands what needs to be done. The key to this turnaround will be in delivery,” notes WWW Strategy MD Steven Ambrose.

“Telkom is currently a very wounded company, the loss of so many key experienced staff members, and the very nature of Telkom, will in all probability militate against the turnaround strategy.

“Hedberg is currently only acting in his position as CEO, and will need to negotiate around unions, government, and other shareholder expectations, as well as motivate a rather moribund organisation at best,” he explains.

Analysts are concerned that Hedberg's acting CEO capacity will limit the success of the turnaround strategy. BMI-TechKnowledge MD Denis Smit says he is concerned at the lack of a confirmed CEO. “Until the new CEO is appointed, who will have his/her own opinion and Telkom's strategy will be fluid... Getting a confirmed CEO is critical at this time,” he notes.

Ambrose agrees: “The turnaround at Telkom cannot occur piecemeal, it requires a huge co-ordinated and very commercially focused drive from all parties involved. I am not sure if Hedberg has the time, mandate, or sufficient support to get the job done.

“His success in this regard will be of paramount importance to telecommunication in SA, as any failure will hamstring SA's ability to grow and compete internationally, and ultimately will cost the taxpayers dearly to bail out Telkom in a similar manner to the Eskom debacle,” he opines.

All hail Hedberg

Despite the concerns raised, analysts are confident that Hedberg is the man for the job.

He was hired to head up Cell C in May 2006, where he was instrumental in the turnaround of the business. He took on an almost impossible task, given the company's large-scale debt.

Under his leadership, Cell C produced its first profitable results and continued to sustain profit under his guidance. It has also made strides in growing its market share through aggressive campaigns on price.

Telkom went to great lengths to secure Hedberg, having to wait several months before he could come on board due to contractual agreements with Cell C.

Gilmour previously said that Hedberg is technically competent and renowned as a turnaround man after the work he did at Cell C. The fact that Telkom had to wait several months before Hedberg could start work on Multi-Links implies the company desperately wanted him, he concludes.

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