Government, Telkom's single biggest shareholder, has yet to tell the investor community what options it has to turn around the company, which expects to report lower earnings for the first half of the year in November.
Due to the lack of clarity around Telkom's future positioning in the telecoms landscape, investors are steering away from putting money in the stock, which has lost about 60% of its value, shortly after Telkom unbundled Vodacom in May 2009.
Communications minister Dina Pule had until the end of August to report back to Cabinet on a way forward for Telkom, after government binned a proposed purchase by Korea-based KT Corporation of 20% of the fixed-line's company's shares, for R3.3 billion.
However, the matter was not tabled at the latest regular Cabinet meeting, which was held at the end of last week. A post-Cabinet statement contained no reference to Telkom, despite expectations that clarity would be forthcoming.
Communications spokesman Siya Qoza says Pule has presented findings by a task team to Cabinet, and it is up to Cabinet's process as to when the matter will be raised at a regular meeting.
Qoza says, as it is quite an urgent matter, he is sure there will be a decision on Telkom's future soon. Recently, the National Planning Commission's final report mooted splitting Telkom into two: wholesale and retail.
Other suggestions coming out of government have pondered a tie-up between the fixed-line operator and other telecoms infrastructure entities, such as state-owned Broadband Infraco.
Fiddling
However, while the investor community waits for an answer as to what future role Telkom is set to play in SA, its shares are slowly losing value. On Thursday, after the company said its headline earnings per share will be lower for the first six months of the year, its share price fell further.
On Friday, the day the Cabinet statement was issued, stock in the company closed at R18.30 after opening at R19.30. After the unsurprising Thursday trading statement was issued, its share price went from an opening of R20.55 to close at R19.37.
In a statement to stock owners, the group said basic earnings per share from continuing operations for the six months to September are expected to be at least 45% lower than in the first half of the previous financial year, while headline earnings per share from continuing operations could be at least 56% lower.
Telkom said the lower earnings for this period are mainly the result of an "increase in the provision" for the Competition Tribunal fine of R449 million for "transgressions of the company dating back approximately 10 years".
Dwindling stock
Telkom's share price started moving sharply to new lows after news emerged on 1 June that Cabinet would not support KT's proposed acquisition of 20% of Telkom for a lower price of R25.60 for every new share. The parties were discussing a share price of R36.06 last October.
After the operator reported its results in June and said it was not declaring a dividend, its stock fell further. It reached a five-year low of R17.02 on 27 July.
Vesact analyst Sasha Naryskine says the problem is that there is a lack of clarity over Telkom's future role and what the entity wants to be. "The share price tells a sad, sad story."
Telkom's share price is dwindling as investors have zero conviction in the company and government has yet to provide clarity, says Naryskine. He says there is an argument that the price could be as much as double its current value based on Telkom's assets, which includes thousands of kilometres of fibre.
Naryskine says there is nothing forthcoming from Telkom's largest shareholder, which is leading to its stock value being eroded. Three years ago, Telkom stock was worth about R45, and has lost about 60% of its value, he adds.
When Vodacom was listed in the middle of May 2009, it was trading at almost R60 and Telkom was seeing similar levels, says Naryskine. He says after Vodacom was unbundled, Telkom lost some value, but then rallied to almost R47 in October 2009.
Vital asset
The Communications Ministry has repeatedly stated that Telkom is a strategic asset in government's plan to increase broadband and telecommunications services to all. The state aims to increase broadband penetration to 100% by 2020.
"Telkom also has the longest wide backbone network, which, through the necessary investment, can deliver the country's urgently needed high-speed Internet access. Given this, Telkom has a lot to contribute in achieving both socio-economic benefits to the country, while pursuing commercial interests," Qoza has said.
Pule has said it is vital that "Telkom finds the best and most suitable solution to its current challenges" as it is a key component of the state's efforts to improve citizens' skills.
"The government recognises the need for Telkom to implement an urgent turnaround strategy, and to get the company back to the critical centre of delivering ICT services to all South Africans."
However, Telkom has cautioned that its operational performance for the six months to August has been characterised by flat revenue and operating costs that escalated just below inflation. In the full year to March, it made a profit from continuing operations of R179 million off flat operating revenue of R33 billion.
It also reported a loss from discontinued operations of R269 million. It made a R1.3 billion profit in 2011.
Last Wednesday, the Communications Ministry said the three options that had been determined for Telkom were following the Cabinet processes. It said Pule was unable to provide additional comment.
"The government is committed to finding the most suitable and long-term solution that will ensure that Telkom is sustainable and is able to contribute meaningfully to the country's infrastructure roll-out programme."
Cabinet spokesman Phumla Williams was not available this morning to comment on when Telkom's future will be discussed.
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