Crunch time for Telkomosaurus

On the Telkom website, a small logo off to the side of the front page hints that Telkom might be involved in the 2010 World Cup. But somewhere inside the site, you could learn that it is in fact an official national sponsor.

The vague acknowledgement of its role in one of the most important events in the history of South Africa - second, perhaps, only to the 1994 elections - symbolises what has gone wrong at Telkom over the past decade.

From being regarded by all - consumers and businesses alike - as the most important telecommunications operator in South Africa, it now plays second fiddle to a number of other operators.

A decade ago, its 5.5million fixed-line subscribers made Telkom the largest customer-carrying company in South Africa.

Today, that subscriber base has fallen to 4.3million.

That's about the same number of customers carried by retail group Edcon, and well behind the seven million of cellular minnow Cell C. Vodacom and MTN boast several multiples of Telkom's total.

These numbers, and that coy acknowledgement of the World Cup, are significant in the context of Telkom's entry into the cellular market: most of its target market have barely heard of this possibility, yet it is the biggest shift in Telkom's strategy since it first invested in the now-divorced Vodacom in the early '90s.

What has this to do with Reuben September?

The lifelong employee who took over the reins at Telkom in 2007 is himself a low-key individual, who preferred to let the brand do the talking.

But, at this epochal time in telecommunications in South Africa, that was not enough. Recently, he announced that he would retire from Telkom when his contract expired in November.

September has many critics. Most will point to his inability to drive innovation inside the company and market share outside it.

But, to be fair, he never stood a chance. As a "lifer", he was so absorbed in Telkom's corporate culture, he could not bring to bear the perspective needed to reinvent the company.

An outside appointment - and one not hamstrung by government connections and therefore by vested interests - is the obvious route for Telkom. That will allow it to bring in someone who not only has experience in running a large corporation and dealing with ongoing regulatory tangles, but who can also remould the culture of the group into that of a competitive 21st-century innovator rather than a stumbling 20th-century dinosaur.

September did chalk up notable successes, in particular the smooth separation from Vodacom in one of the largest corporate deals this country has seen. Some accuse him of "losing" the crown jewels that Vodacom represented as a huge revenue generator, but Telkom's 50% ownership had been as much of a strategic millstone around its corporate neck.

However, the absence of Vodacom also highlighted the weaknesses in the rest of Telkom's operations, notably the fixed-line segment, which has fallen in subscriber numbers every year over the past decade. September entered the leadership role at a time when this trend was so entrenched, it was unlikely he was going to arrest it.

Telkom did, on the other hand, successfully manage its response to the arrival of competition in data connectivity. Where many saw the new Seacom undersea cable as the end of Telkom's vast profits from data services, the opposite happened.

During the period of September's leadership, Telkom steadily dropped the cost of access to the SAR3/SAFE undersea cable it controls, to the extent that Seacom launched at price levels that did not undercut Telkom.

The consequence was that Seacom became, for many large customers, a provider of redundancy or back-up, rather than a true alternative to Telkom.

As they might say in horror movies, however, what lurks around the next corner is far more terrifying for Telkom than the monster it has just faced.

The arrival of several new undersea cables, along with viable alternatives to Telkom's national terrestrial fibre network, truly throws open the data market. The major cable due to land next year, the West Africa Cable System, includes Telkom, but also its three main rivals, Vodacom, MTN, and Neotel, as partners, meaning that they all have equal access.

Telkom's dominance of the data market must end as this competition comes into play, and it will have to reinvent that segment of the business too.

Add this new data ecosystem to its entry into the cellular environment, and Telkom dare not be the same company three years from now that it is today. That includes a leadership that appears to rely on the marketing equivalent of "quiet diplomacy". It includes its culture of taking dominance for granted. It includes its propensity to put the brakes on new technology while it squeezes as much margin as it can from the old.

September often spoke of a "defend and grow" strategy.

What it needs now is a "go to war" strategy, with an active move away from its reliance on monopoly and towards moving aggressively into its competitors' spaces.

This it can do by giving consumers the communications technology, the services and the options they want, at prices that have the potential to change the very structure of the market.

This means Telkom must become a consumer's champion. Most of us doubt that it is possible. But the company's future demands nothing less.

Goldstuck is MD of independent technology market research organisation World Wide Worx