Telkom at watershed, say analysts

By Leon Engelbrecht for Telkom
Johannesburg, 06 Jun 2008

Telkom is at a watershed and Monday's results announcement may point the way forward for the much-maligned telecommunications giant.

Presidential contender Tokyo Sexwale's Mvelaphanda Holdings made a surprise bid for the company a week ago - the third in recent months.

Frost & Sullivan's Lindsey Mc Donald says Monday's results briefing could give the market a hint on the telco's thinking on the bid and others that may come.

Telkom spokesman Pynee Chetty says the company is currently in a closed period and, since it is a listed company, no comment can be made before results day.

Africa Analysis partner Dobek Patel agrees with Mc Donald that Mvelaphanda's reputed R90 billion move is strategic. "On the one hand, they may want to move into telecoms for strategic reasons. On the other, it may be purely financial."

Mc Donald says Mvelaphanda has invested in a number of strategic industries "and that's the angle they're coming from. They see this as a growth industry, so - from the strategic business side - it makes sense for them. Perhaps we were not expecting it to come from them, but it would have come from someone else in the strategic investment line," she says.

The Frost & Sullivan analyst says an investment deal of this nature will be a "good thing for Telkom".

"You can say they are at a watershed at the moment and are facing increasing competition from Neotel and that's just on one level. They are also facing competition from emerging operators such as Vox and it needs to decide exactly the route it is going to take.

"I think it has proved its competence as a fixed-line operator... it's been in the market for many years and now it's time to consolidate. They are a very effective fixed-line operator. If they don't have to worry about their strategic relations with Vodacom [in which they have a 50% stake] then they can focus on their core competency which will be of great benefit to the telecoms sector in SA, because not only will there be pressure on price because of competition, but we will also see more effective services brought to market.

"It realises a streamlined operation is necessary to go forward and management realises they have to be accountable to the market, whereas previously when they were a parastatal that was not so important," Mc Donald adds. "They are showing they are heading in the right direction; we could be at the beginning of a revitalisation."

Mc Donald and Patel agree a deal would be good for Vodacom too. "Vodacom may well be in a strong position... it will be able to focus on core competency too. Two companies, both focused on core competency in areas they both have great expertise in, can only be good for the market and the companies," Mc Donald says.