Telkom’s burnt fingers – a lesson learnt

Fixed, mobile and broadband operator, Telkom has learnt a few lessons from its failed Nigerian venture, Multi-Links, in the past few years and has the industry pondering what its future endeavours might entail. The company last week released a trading update which advised that it expects headline earnings per share from continuing operations for the first half of its financial year to be between 33% and 38% lower than the comparative period. Telkom’s former Nigerian subsidiary, which failed to produce any profit and was faced with a lawsuit while under Telkom’s control, has since been sold and has cost the company an operating loss of R269m for the six months which will be reported as discontinued operations. The sale of Multi-Links, which was concluded on 3 October 2011, has resulted in a net loss of approximately R1 billion “mainly due to the cumulative amount of exchange differences, previously recognised in non-distributable reserves, being realised,” said the company in a statement last week. ICT Industry analyst at Frost and Sullivan, Vitalis Ozianyi says “it’s disastrous that Telkom is losing more money in connection with Multi-Links”. He added that it raised many further questions as the loss would be stemming from an operation which has been sold. Ozianyi adds that the telco is likely to exercise a lot more caution when entering news markets on the continent in future. “The Nigerian market is a difficult one to penetrate – several companies have experienced difficulties in that environment. Telkom is likely to perform a thorough due diligence when looking at more investmnest in Africa, especially in Nigeria.” Ozianyi adds that the “lower earnings are definitely attributable to the decline in fixed voice revenues. 8ta’s performance is at a level where it can recover the fixed voice revenue.” Telkom’s which underperformed in its full year results this year appears to have several plans in place to boost its bottom line. The recent launch of Telkom Business Mobile, which will enable the company reach its ambitious of being the leader in fixed and mobile convergence , together with 8-ta and its competitive data prices, are expected to derive profits for the company going forward. Ozianyi said Telkom is “not expected to turn around any time soon and it’s expected to see a continued loss of revenue over the next few years.” But, he has not written them off as yet, adding that the company can still gain a lot of traction and market share. “There are indications that broadband (both mobile and ADSL) penetration will grow substantially over the next few years, especially in developing markets. Telkom needs to pay more attention to fixed multimedia services, like VOD-TV (video on demand services) and IPTV (internet TV).” According to analysts, should the talks with KT Corporation prove fruitful, these products should be amongst their first new rollouts next year.