Five CEOs in seven years, a business deal tantamount to financial redemption ditched, ever-increasing competition, a skills exodus, dwindling revenues, and a hefty fine for abuse of monopoly - this is the reality Telkom is faced with as 2012 draws to a close.
In what analysts say came as no surprise, Telkom CEO Nombulelo "Pinky" Moholi handed in her resignation this month, with the requisite six months' notice. Abandoning her post about a year before the end of her contract period was up, and less than a month after chairman Lazarus Zim announced he would quit the board; Moholi's move has stirred speculation and unease around Telkom's future.
Following the announcement, Telkom asserted Moholi's departure would not impact its ability to operate at an optimal level, but industry observers say the withdrawal of a highly competent leader, who (together with Zim) was earmarked to bring stability to the embattled company at a crucial time, leaves Telkom in the mire.
Just days later, another top executive and industry veteran - Deon Liebenberg - gave notice, lending credence to speculation that Moholi's exit would see others following suit.
As it stands, Telkom is minus a significant pool of expertise and plus eight empty seats on its board of directors, following the resignation of non-executive director Neo Phakama Dongwana and government's vote against the re-election of four of the company's directors at Telkom's AGM last month.
But does the untimely resignation of a revered captain spell tragedy for SA's biggest network asset - or can the situation be turned on its head in time to save what seems to have become a sinking ship?
Skills drain
BMI-TechKnowledge MD Denis Smit says he is worried for Telkom, but the company "has to make it".
Smit says, with 140 000km of national fibre, Telkom remains the country's largest network, and an asset the country cannot afford to lose. "We need Telkom to be successful. They are too big to fail. All major businesses run on [Telkom's] networks - they have to make it."
A major concern, he says, is that there will be a flood of resignations, resulting in Telkom losing a substantial amount of institutional knowledge. "It would be a shame, because it is still a good technical company."
An institutional drain would be devastating for the company, says Smit, but "with the level of uncertainty at the moment, it is unrealistic to expect people at management level not to leave".
He says government - as Telkom's biggest shareholder - now needs to provide clarity and retain the skills it has.
Spiwe Chireka, telecoms programme manager for Africa at IDC, says she expects some migration of Telkom employees. "I would not go as far as to say 'mass exodus'. Maybe only the people who were closely tied to Pinky and her vision for the company."
Chireka says, on paper and strategy-wise, Telkom is still a "great company", but the implementation of the strategies leaves a lot to be desired. "I hope the next CEO will be one that is demonic about implementation."
Democratic Alliance (DA) shadow communications minister Marian Shinn says Telkom will now start to "haemorrhage talent", as employees are poached by other industry players.
Government interference
Government - which owns a 39.8% stake and a further 10.6% through the state pension fund - has been cited as one of the major thorns in the side of Telkom.
The future of Telkom was thrown into doubt this year, amid tentative government plans to delist and renationalise the telco and force it to push through a costly expansion of rural Internet access.
In June, the government also jettisoned a $385 million bid for 20% of the company from South Korean group KT Corporation. The deal would have seen Telkom gaining about R3.3 billion, about a 10th of its annual revenue. It would also have diluted government's stake, freeing it up to be more competitive.
Analysts have said the rejection of KT's offer highlighted the government's determination to keep control of the company.
Chireka says she believes government plays an immense role in the challenges Telkom faces. "Government wants Telkom to be its vehicle for ICT-driven socio-economic change in SA. At the same time, Telkom is a listed entity. The other shareholders want value and profits from the company.
"The two groups' mandates for the CEO are, therefore, conflicting and unfortunately the likes of Pinky are caught in the middle and it's inevitable that a degree of frustration follows. It is easy for such a situation to become untenable."
She says what she terms "the KT debacle" is a classic case in point of government's meddling. "It is well known that Telkom needs money and cannot raise it from its operations or current lines of capital. Selling off part of the stake would have been the best option, but government took that away. Now not only is this frustrating for the people who worked hard at it (Pinky, et al), but then Telkom still does not have the much-needed capital for its operations."
The DA has dished out sharp criticism of government. Shinn says communications minister Dina Pule's "mishandling of Telkom on behalf of Cabinet" drove Moholi out of the company. "It's tragic. Moholi was key to the negotiations with KT Corporation that would have given Telkom a cash injection of R3 billion, boosted technical skills and product development, and revitalised operational strategies.
"A professional of Ms Moholi's experience is wise to walk away from having to account to this type of shareholder."
Shinn says because government's "narrow focus" sees telecommunications infrastructure as primarily in support of government programmes, it fails to see the bigger picture of opening up the marketplace to make it easier and cheaper for more people to use the infrastructure to deliver services and products to all sectors of SA's community.
"Government alone cannot deliver e-empowered services to the nation. It doesn't have the money, the skills, the vision or the drive. It must open up this space so all those with the imagination, innovation skills, financial backing and commitment to see SA grow can become involved."
Flailing revenue
Hard hit by declining fixed-line usage and an expensive, failed attempt at expansion into Nigeria, Telkom has struggled to boost its wearying profits.
In addition to this, its mobile arm, 8ta, has struggled to win customers in a market dominated by the mobile duopoly of Vodacom and MTN. 8ta has yet to turn a profit, two years after its launch.
Following news that Moholi had resigned, stock in Telkom lost ground, closing just more than 3% lower - a larger decline than the All Share Index's 0.25% drop.
While the group's share price fell 3.08%, losing 56c to close at R17.64, the drop did not quite take it to its five-year low of R17.02, which it hit on 27 July, a few days after officially withdrawing a cautionary announcement relating to the canned KT deal.
Telkom's stock has slid about 40% since the beginning of the year, and it now has a market capitalisation of R9.2 billion - around a fourth of what it values its assets at. On 5 November, (when Moholi's resignation was announced), about 2.3 million shares changed hands, about a million more than its daily average.
Irnest Kaplan, MD of Kaplan Equity Analysts, says Telkom has great assets, which, if managed correctly, have potential. However, until there is clarity from government around Telkom's future strategy, it is difficult for people to invest.
Richard Hurst, Ovum's emerging markets analyst, says the news of Moholi's resignation was "the last thing investors want to hear".
He says the scenario is indicative of revolving door syndrome. "[A company] needs sustainability in terms of strategic vision that the CEO is supposed to impart. This is not good news for investors who are looking for clarity and structure."
Hurst says recent developments just add to the "ongoing uncertainty" shrouding Telkom, exacerbating investors' (who were just getting comfortable with the leadership) lack of faith in the company.
Vesact analyst Sasha Naryskine says investors currently holding stock may not be sellers and could see value in the company. He notes that Telkom's share price is near its all-time low. "It can't get much worse than this."
Evasive options - where to now?
In August, the National Planning Commission's (NPC) growth plan for SA was handed over to president Jacob Zuma by NPC chairman Trevor Manuel. The final National Development Plan 2030 states a "common carrier network", which will act as a wholesale supplier to the telecoms sector, should be created.
The plan suggests Telkom should be broken up into two businesses: a wholesale unit, focusing on backhaul operations, and a retail telecoms business.
In addition to this, and following the spurned KT deal, an inter-ministerial committee (IMC), led by Pule, was set up to investigate possible options for Telkom. While the IMC was set to present three of the several options it generated to Cabinet a week later, the Department of Communications (DOC) has yet to furnish the public with any details.
Instead, the DOC has responded to media queries with repeated references to undefined "Cabinet processes" and says: "The government is committed to finding the most suitable and long-term solution that will ensure that Telkom is sustainable and is able to contribute meaningfully to the country's infrastructure rollout programme."
While the notion of dividing the company has been met with a dubious reaction, some industry commentators have suggested some kind of overhaul involving an operational split could rescue Telkom from the mire.
MD of World Wide Worx Arthur Goldstuck says there is an "interesting conundrum" emerging as to whether or not it makes sense to break Telkom up.
"You have a consumer business in permanent decline, and a business division that is going strong, and the two seem to be completely incompatible with each other - although you would imagine the opportunity for the consumer business to leverage the infrastructure would give it a massive advantage, but the opposite has happened. Because they have that advantage, there seems to be no impetus for them to be competitive."
A split - into disparate consumer and business entities - says Goldstuck, would be ideal for investors, but quite the opposite for consumers. "If they shed the consumer side, the company would be left with a far more effective business division. It would be disastrous for consumers, but then Telkom's approach has been disastrous for consumers for some time now anyway."
Smit says government has painted itself into a corner with certain decisions, and a turnaround is needed. "My opinion is that Telkom should split into wholesale and retail units and let government run the wholesale open access network."
Chireka says she thinks a wholesale and retail split could work. "The risk is the retail segment has not been so great - so if that were to be privatised and controlled by shareholders, then it may not generate the level of value that the combined entity provides."
Shinn, on the other hand, says the government should step aside altogether, and "sell its shares and let the business and communication professionals run [Telkom].
"There is talk of nationalisation and buying out the minority shareholders, but I doubt National Treasury has the money to buy out the shareholders or has the stomach to invest funds in an entity that is unlikely to retain and attract top telecommunications skills."
A captain-less vessel with pivotal crewmembers jumping ship, Telkom's predicament keeps the industry - and SA at large - waiting with bated breath for an answer as to how the company will crawl its way out of the fix it is in.
Meanwhile, analysts say the board and relevant stakeholders now need to move swiftly towards a turnaround plan and replacement CEO as a matter of urgency.
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