It seems there are many ways to look at South Africa's original, and certainly most infamous, telecoms company. One could point to declining fixed-line voice users, anaemic growth in DSL subscribers, poor public perception, and its ageing, capital-intensive network.
Or, you could look at the market-leading enterprise business, the infrastructure and financial clout to enable fibre-to-the-office and fibre-to-the-home, its potential to provide triple-play and IPTV services, and its ability to bundle all sorts of fixed and mobile offerings together.
CEO Sipho Maseko recently sat down with Brainstorm, to discuss Telkom's approaches in the various markets in which it operates. Across every area of the company - from fixed, to mobile, and from business to consumer - Telkom aims to play to its strengths. What emerges is a different strategy within every corner of the enterprise.
In the fixed-line environment, Telkom is decoupling its wholesale service from its retail ISP arm, following last year's Competition Commission ruling. Here, it aims to become the de facto provider of wholesale internet services. In the mobile space, it's an inverse approach: Telkom and MTN have reached an agreement where the yellow operator manages and grows Telkom's mobile infrastructure - leaving Telkom to focus on the customer service layer.
Maseko talks about having discipline with capital expenditure, and 'deploying capital in the areas where it will make the most difference'. It's a strategy that Ovum's Richard Hurst tends to agree with.
Sticking to its knitting
"In the mobile space, for instance, they don't have the deep pockets to invest broadly in infrastructure," Hurst says.
"The real opportunity for Telkom is to stick to its knitting in the fixed-line space, and continue to target the enterprise market; this is their area of greatest strength," continues Hurst.
He points to the operator's immense muscle in this space (Telkom has over 150 000 kilometres of fibre assets), and its infrastructure in even the smallest of South Africa's one-horse towns - meaning that corporate clients can connect branches, wherever they're located.
Maseko notes that, above and beyond connectivity, the operator is building out the stack of enterprise IT services that are hosted in the cloud - from data recovery, to managed services across WAN and LAN networks, to any form of business application enterprises require. He says the operator is exploring 'adjacencies': partnering with various IT players to widen the spectrum of enterprise IT services that it offers.
The albatross around Telkom's neck is ongoing government interference and lack of clarity on how they will play to government's objectives.
Richard Hurst, Ovum
Two key trends will start emerging, predicts Maseko: video will become the communications medium of choice among corporate clients, and the cloud will spread from purely an enterprise offering, into the SME space, and finally down to individual consumers in the retail environment.
Maseko says that an astonishing R12 to R18 billion will be invested in modernising the network over the next five or so years. The new lexicon of Telkom's fixed-line business will be fibre-to-the-kerb, to-the-office, and even to-the-home.
These grand promises may be some years from widespread reality, but trials are already underway. "Whether we're talking fibre, LTE, or even satellite connectivity, Telkom wants to be positioned to compete meaningfully across these platforms," he says.
Consumers may well start to see a very different Telkom in the near future, if Maseko and his leadership team are able to translate their vision into reality. Whereas the original incarnation of Telkom Media (which promised to deliver IPTV) was ahead of its time when it tried to launch about seven years ago, maybe the time is now right for this type of service.
Ovum's Hurst certainly thinks IPTV in South Africa is no longer the stuff of fairy tales, but cautions that any form of IPTV service Telkom may bring to the market 'is likely to be a very niche service'.
Opportunity
Maskeo's vision for the consumer services of the future extend beyond just IPTV. "Sixty to 70 percent of all IP-based content consumption happens in the home or the office," he says, laying out an exciting vision for the connected home of the future - rigging together smart TVs, gaming consoles, tablet devices and other household electronics equipment.
Another big area of opportunity for both the fixed and mobile businesses, he says, is financial services - things like mobile and online payments, embedded purchasing services, near-field communications, and mobile wallets.
"(Financial services) is the third inflexion point in the evolution of our mobile industry," he notes, comparing it to prepaid airtime in the late '90s, and the data revolution that began about five years ago.
Harsh realities
In the mobile space, despite its stop-start entrance into the market and confusing brand identity, Telkom has managed to attract 1.6 million active subscribers. Depending on the eventual outcome of the mobile termination rate saga, Telkom stands to benefit from interconnect asymmetry, which Hurst says will give them 'a window of opportunity' to ramp up market share.
It's unlikely that Telkom Mobile will become an overnight challenger to Vodacom and MTN (Cell C has taken more than a decade to make any serious inroads into the duopoly), but Hurst says he does expect Telkom Mobile's market share to steadily increase over the coming years.
More likely, Telkom's mobile offerings will start becoming more smartly packaged into broad enterprise bundles that cover fixed connectivity, ICT services, devices, and mobility.
Telkom certainly appears to have a breadth and depth of services, and an arsenal of technology assets, that is second-to-none in South Africa. Whether Maseko's new vision for the future wows shareholders and gives them new-found confidence is yet to be determined.
He recognises that there's still much to do, saying that the revenue decline of two percent per annum seen over the past few years needs to be stabilised, and about R1 billion in annual costs need to be removed from telecoms giant's inner workings.
At its interim results for the six months to end-September 2013, Telkom reported a negligible 0.3 percent increase in operating revenue in comparison with the year before. Cash flow is still under pressure following the Competition Tribunal penalties of the past couple of years.
Hurst is clear about the biggest challenge to the operator's future: "The albatross around Telkom's neck is ongoing government interference, and lack of clarity on how they will play to government's objectives."
He says if government allowed Telkom to focus on its core business and concern itself only with the market environment and fulfilling the changing needs of the customer, then we would probably see a vastly different entity emerging.
First published in the June 2014 issue of ITWeb Brainstorm magazine.
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