Telkom 'must invest or die`

By Iain Scott for Telkom
Johannesburg, 06 Jun 2006

Telkom CEO Papi Molotsane yesterday defended the telecommunications group`s decision to spend R30 billion over five years on a next-generation network and preparation for competition.

"If we do not keep pace with technology, we will die a slow death, and we don`t want to die because we want to keep on living," Molotsane told analysts at a presentation of Telkom`s latest financial results.

The market reacted negatively to Telkom`s initial announcement in April with the group`s market capitalisation shrinking by R7 billion in one day as investors interpreted the expenditure to mean smaller dividend payouts in future.

"The world is moving more and more into IP [Internet Protocol]," Molotsane told analysts. "We have to take cognisance and move into an IP network going forward."

Telkom had to respond to the changing competition landscape, with the operator facing challenges from the second national operator, underserviced area licensees, broadband providers, value-added networks and Internet service providers.

The industry worldwide was moving towards IP-based products and services, and Telkom could not afford to be left behind. The vision was for the group to become a leading customer- and employee-centred ICT solutions service provider.

Obligation

Molotsane said the capital expenditure increase was focused mainly on two areas: accelerating the evolution of the network and capacity growth.

"If we don`t do this we will not be able to service our customers going forward."

He said the group had to spend the money to cope with future requirements and customer demands. At the same time, it also had to upgrade its legacy network, since Telkom had decided on a gradual approach, phasing in the IP network.

The aim was to operate the next-generation and legacy networks in parallel, until 2015, when the legacy network would be substantially migrated to the next-generation network.

Molotsane moved to assure investors that the group would not spend the money without proper processes that necessitate a business case.

"But we can`t sit back and allow the business to die, and not spend the money. We have an obligation to spend the money and deliver to shareholders."

Telkom`s share closed 17c or 0.12% down at R139 on the JSE yesterday.