Something fishy at Telkom

Something "a bit untoward" is going on at Telkom SA, according to Absa Investment's Chris Gilmore.

His comment followed the news on Friday that Telkom SA's acting CEO, Jeffrey Hedberg, had decided not to renew his contract at the end of March this year.

"Firstly, it must be noted that no reason has been given by either side for the acting CEO's departure," Gilmore added.

"When that happens - in my experience - it means there's something untoward going on."

Secondly, Gilmore said, no one had any idea where Hedberg would continue his career.

"That just underlines the fact that there's something going on that we don'' know about."

Thirdly, Gilmore noted, Hedberg had not been replaced.

"Telkom has until March 5, or shall I say the government has until March 5, to use its power in terms of its special shares, to appoint a new Telkom CEO as well as five members of the board - and it's the board that appoints the CEO. But after March 5, this falls away."

Gilmore said it was "possible" that government might exercise its power to appoint a new chairman as well as board members before this deadline.

"Beyond that I can say that when I heard about Hedberg's resignation last night, I was gobsmacked.

"Although his appointment was announced in July, I don't think he took over until October, so he had been at his job for around only three months."

Former Telkom CEO Reuben September's departure had been "ignominious" - as had the departure of Telkom's chief financial officer Peter Nelson a week later.

"Things at Telkom certainly aren't getting any better - it's all just a catalogue of disasters," Gilmore observed.

Telkom had also made a bad strategic decision in rolling out its mobile service 8ta against very firmly entrenched competitors.

"While I get the impression that 8ta is technically very well advanced, it must be remembered that MTN and Vodacom are firmly entrenched," Gilmore added.

The only way he could see Telkom making any headway in the mobile space was if it cut costs.

"But there is a limit to how much you can do this."

Furthermore, when it came to fixedline offerings, Telkom had taken its eye off the ball.

"Telkom missed a gold opportunity in the 1990s to invite competitors into SA with the proviso that these competitors used its network - this was what BT [British Telecom] did in the UK."

Today, BT remained in the position where 30 fixedline operators in the UK all used it as a backbone, Gilmore said.

"Anyone who gets a fixed line in the UK has to pay BT £11. Telkom could have done the same thing."

However, Telkom didn't follow the same path as BT, "and Neotel came in and reinvented the wheel".

Gilmore stressed that Telkom had become involved in "some ill-considered adventures such as Nigeria's Multi-Links".

"And they also went into mobile as a Johnny-come-lately and all this ended in a gemors [a mess]."

It was vital that new communications minister Roy Padayachie asked Telkom just what it wanted to achieve.

"Do you want to be taken seriously as a JSE-listed company? Do you want to be taken seriously by investors? This is what the minister must ask Telkom."

Gilmore said Telkom had no perceived strategic direction. "Its track record is appalling - since it unbundled Vodacom it's become apparent Telkom hasn't a clue where it's going."