No tears for Swiftnet

By Candice Jones for Telkom

Johannesburg, 18 Aug 2009

Telkom has confirmed its wireless service provider, Swiftnet, does not fit with the company's “long-term strategy”.

The telco put Swiftnet on the market last week, hoping to find bidders willing to take over 100% of the company. Since Telkom took on the business, it has battled to fill Swiftnet's licence obligations by finding an empowerment partner to take up 30% of the operations.

Telkom initially owned 60% of Swiftnet, with the remaining 40% in the hands of VHR Wireless, the then empowerment investor. However, VHR Wireless was unable to meet its shareholding obligations and, in 2001, Telkom bought the remaining 40% in Swiftnet, giving it full ownership.

Telkom's request for expression of interest, published last week, stipulates that bidders will need to have at least a 30% empowerment ownership structure. Despite this, Swiftnet could prove to be a lucrative opportunity for incoming telcos, as it owns an ECNS licence.

The business operates independently of Telkom, meaning any assets can be transferred with the business.

Telkom's bottom line is facing stagnation since the pseudo-liberalisation of the market, and the company says it knows it has significant work to do in the coming year. During Telkom's annual results presentation this year, CFO Peter Nelson explained the company will need to cut away any non-core operations, of which Swiftnet is one.

He said Telkom's new mantra is: “Free sustainable cash flow and a reduction in capital expenditure.”

Globally, large telecoms businesses are facing declining margins and struggling to increase network traffic. Many are trying to streamline and cut costs.

According to Nelson, the company is no exception to this. Last year, the company planned to start outsourcing parts of its business to help it cut down on bulk. However, union protests and the coming 2010 Soccer World Cup held the plans at bay.

Nelson plans to be ruthless about the cost-cutting exercise, and Telkom's accelerated plan to have Swiftnet sold over the next few months is evidence that he is acting on his word.

Telkom's core business is under pressure and analysts have noted the company could face three years without any significant growth.

Meanwhile, industry watchers and analysts wait to see which business will swoop in to take on Swiftnet's assets.