Telkom Media seeks investors

Johannesburg, 03 Apr 2008

Telkom Media has confirmed it is looking for potential investors to fill the gap left by 66% shareholder Telkom.

This follows the fixed-line incumbent's announcement that it would reduce its investment in the broadcaster.

The company would not provide details about who it is talking to, or the amount it needs to raise to meet the R7.5 billion that was initially budgeted for the start-up. However, Telkom Media spokesman Chris van Zyl says the company will make a statement soon.

Explaining the funding cut last week, Telkom CEO Reuben September emphasised Telkom's decision was not due to any concerns over Telkom Media's TV business plans.

"Supported by an independent third party, we have conducted an in-depth review on the business and we believe Telkom Media's business model is sound. However, we have to consider that media companies have very long pay-back periods and we have several initiatives - with shorter payback time frames - which are competing for limited funding."

Shareholder pressure?

However, a number of financial analysts, who spoke on condition of anonymity, say the pay-TV broadcaster faces a strong challenge in lining up potential investors.

The company needs investors with deep pockets, who are also willing to wait for a return on their investment, they note.

"We must recognise that, at this stage, Telkom does not have unlimited budget. Its management are saying they need to seek the best returns and this could well be the reason for the exit. Also, I suspect that some Telkom shareholders put pressure on Telkom to withdraw, as they felt the company did not have the necessary expertise to be going into the TV market," explains one of the analysts.

Nevertheless, the analyst still questions the potential value to be found in a Telkom Media investment. "At this stage, the truth is Telkom Media is little more than a licence."

He says investors are going to need to decide whether there is space for another pay-TV operator in SA before putting down around R6 billion to get Telkom Media off the ground.

"eTV's decision not to use its licence, but instead supply a channel to Naspers' DSTV, is not a good indication of the potential for additional players. These guys have been in the TV market for some time; you would expect them to have really good insight into the market."

Another analyst agrees that Telkom Media will need an investor with "deep pockets".

"In the pay-TV game, you need a licence, capital and content. It's a capital-intensive business that has a long payback cycle. To my mind, there are not many investors that would be willing to wait for returns when there are many other opportunities where the payback cycle is far shorter."

Good for the company

MarketWorks business advisor Craig Terblanche says Telkom's decreased investment is a good thing, as it gives Telkom Media room to re-brand and lose negative perceptions associated with the fixed-line monopoly. "They will probably re-brand. I know I would."

He adds that Telkom is seen as a dinosaur in the marketplace. "Telkom does not do hi-tech business very well and does not have exciting business plans."

Frost & Sullivan head of ICT practice in Africa Corrie Froehlich says Telkom can use the money allocated to Telkom Media for more constructive purposes, such as building its next-generation network and transporting content to customers.