Telkom sails wage turbulence

By Leon Engelbrecht for Telkom
Johannesburg, 18 Jul 2008

Telkom's 10.5% wage settlement with the Solidarity trade union is fair in the current economic climate, but will place pressure on the company's margins, say analysts.

The increase effectively doubles Telkom's wage-increase bill for the current year. Telkom and its unions agreed to a three-year wage deal in 2006 that should have seen staff receiving a 6.25% increase on 1 April this year on a R3.5 billion wage bill.

"Although it was a good increase when the original agreement was signed, the economic circumstances have changed drastically since then," says Solidarity spokesman Jaco Kleynhans.

The agreement provided for another look in case inflation either climbed or decreased by more than 3% between April 2006 and March 2009. Inflation increased about 4% in that period and negotiations reopened in November last year.

Kleynhans says Telkom then offered to revise the increase up to 7.5% to 7.7%, while unions wanted 14%.

Telkom some weeks ago revised that to 10.5%, which Solidarity accepted last month, pending approval by the about 4 000 workers it represents at the telecoms giant, which employs about 26 000 people. The agreement was announced yesterday.

In terms of the new agreement, the union's members will receive an increase of between R852.26 and R1 671.50 per month, depending on the member's job level. Members' standby allowance will also increase by 10.5% to R443 per week. The increase will be implemented backdated to 1 April.

Kleynhans says although the increase is below the May inflation figure of 10.9%, it represents a "much better deal than was on the cards" and should still be higher than the average inflation rate for the period April 2008 to March 2009.

However, the Communications Workers Union (CWU) and the SA Communications Union (SACU) have rejected the offer.

CWU spokesman Vulture Ntuluki says his members are seeking 12%. The union has already declared a dispute with Telkom and is now set to strike.

The CWU represents around 13 000 workers at Telkom and SACU 6 000.

Affordability

Kleynhans notes the settlement results from an offer made by Telkom, which would not have put it forward if it could not afford it.

"Their profit is good - it won't undermine their financial position. It's not an issue," he says.

The impact is further reduced by the division of the Telkom wage bill. Union researchers in 2006 found that 48.9% of the R3.5 billion wage bill went to around 2 300 managers; while about 25 000 workers then employed shared the remaining R1.844 billion.

Africa Analysis Team analyst Dobek Pater and IDC analyst Richard Hurst agree the increase "ought to be expected given the economic situation in the country and the escalating cost of living".

Pater adds that it will, however, result in further operational expenditure growth and "downward pressure on EBITDA [earnings before interest, taxes, depreciation and amortisation] margins for Telkom, exacerbating a situation that is already viewed in a not so favourable light by the markets".

Hurst agrees but says both parties have "walked away with a pretty decent deal".