Telkom changing its name and splitting into five units
Telkom will soon have a new name. CEO Sipho Maseko is leading a major restructuring at the partly state-owned company that will make it a retail telecommunications brand under a new, Remgro-style corporate centre.Under that corporate centre - which will have a new name that is still to be determined - will be at least five subsidiary businesses.It's part of an ambitious plan by Maseko to unlock further shareholder value at the telecoms group, whose share price has climbed more than fivefold on his watch.He took the reins on April 1 2013 under a reconstituted board, led by chairman Jabu Mabuza.The restructuring represents a significant expansion of Telkom's strategy two years ago to spin off its wholesale business into a new company, Openserve - modelled loosely on BT Group's Openreach.Maseko this week unveiled plans to group Telkom's vast property and telecoms tower assets into a new property management business called Gyro.The new holding company would be something like Remgro, which has investments in a range of industries, Maseko said. It would be a "strategic shareholder", with each subsidiary free to "pursue its growth agenda as independently as possible".Maseko said operators in New Zealand, the US and elsewhere had embarked on the route Telkom was now pursuing, so there were examples that it could draw on."We took a counterintuitive approach," Maseko said in an interview this week. "Normally, the view is that the sum is better than the parts, but we have taken the view that the parts are better than the sum. There was a lot of value leaked in the aggregation approach we had taken previously."By the end of Telkom's current financial year to March 31 2018, Maseko expects the group to be made up of five businesses: retail telecoms entity Telkom, IT services business BCX (formed through the merger of Business Connexion and Telkom Business), wholesale arm Openserve, e-commerce and online business Trudon and the property management company Gyro."These companies will be held by one owner, 'X', which will exercise 100% control and ownership," Maseko said. As separately managed entities with their own profit-and-loss accounts, the companies will be empowered to make decisions that help them grow, and won't be held back because their decisions might not suit other entities in the group.The "evolution in the operating model", as Maseko calls it, will allow the newly created corporate centre to "monitor and reward performance".With Gyro, for example, Maseko hopes to monetise Telkom's vast property portfolio, including its towers and telephone exchanges."We have not been able to commercialise the property portfolio in the right way. We have about 23million square kilometres of 'stuff', but we have been very inefficient in the way we have managed it," he said. "We don't think that selling it is necessarily value-creating. But getting the right capability and partnerships can unlock value."Similarly, BCX is freed to adopt a different strategy to, say, Openserve. "When we went to Nigeria [10 years ago with the Multi-Links acquisition], we almost lost the entire company. Today, Openserve has no need to go pan-African, but BCX might want to. So, you create a lot of flexibility."Gyro, he said, would be run like a property services company and would be measured against its peer group, the likes of Growthpoint and Redefine.Maseko said he was not sure yet if owning a portfolio of telecoms towers made sense in the long term. "Over time, the infrastructure stuff will be less of a competitive advantage. As prices come down, you will find ways of being more efficient and getting better margins."Not everyone is convinced the strategy will pay off. One equities analyst, who is precluded by company policy from being quoted on the record, said the strategy around Gyro was not clear, especially as Telkom was the sole tenant (for now). "It will be subscale" next to other property management companies, the analyst said.Telkom this week produced a reasonable set of results for the financial year ended March 2017, with headline earnings per share up 12.4%. The share price, however, came off sharply during the week as investors digested the numbers.There was a strong performance from Telkom's once loss-making mobile business, which now has 4million active customers.