Too little, too late

Telkom's rather lacklustre showing in its latest financial results is all too indicative of a company that rested on its laurels when it should have been dealing with the threat of impending competition.

For too many years, the telco had a monopoly on telephone calls around the country and to overseas destinations. It was also home to the only undersea cable that connected South Africans to the rest of the world.

Resting comfortably in its position as a monopoly, there was never any reason for Telkom to worry about silly little things like service delivery, or speedy execution. And then there came liberalisation, and Telkom was caught napping.

Telkom came into being in 1878, when the first telephone service was launched in SA. By 1970, there were a million telephone lines in the country as the state entity entrenched its position.

Until 1991, Telkom formed part of the Department of Posts and Telecommunications before it was spun out as a separate entity. There are tales of the months and months it took during the '80s to get a line installed, and even when the copper finally snaked its way into households, call quality was not all it should have been.

However, until 1994, South Africans had no choice. If we wanted to talk to the rest of the country and the world, Telkom was it.

The world opened up when government decided to allow mobile telephony into the country, and it quickly grew to the point where many South Africans have more than one SIM card. Cellphones were a blessing for people in remote areas who had previously battled to connect to the outside world.

Yet, Telkom still had no reason to panic. The company had a 50% stake in SA's first - and to this day biggest - mobile operator. Vodacom was born as a joint venture between Telkom and Vodafone in 1993.

For years, there were only two operators and even when Cell C came to market, it failed to make much of a dent in either MTN or Vodacom's subscriber numbers - having a mobile licence was equivalent to owning a mint.

No wonder then that Telkom was not concerned about impending legislative changes. Some of these have been on the cards for years and have yet to see the light of day. Local loop unbundling is one example. Others took years to come to fruition, such as geographic number portability.

Telkom and government, with its one-third-stake in the monopoly, carried on merrily printing money and sleeping securely at night in the knowledge that they had the telecoms landscape sewn up.

Even the launch of a second national operator, Neotel, and its threats to take 15% of Telkom's dwindling customer base did not spur the company into any real action. Instead, Telkom seemed to plod on with the same offerings and consumers kept complaining about bad service.

Sure, the company tried a few new avenues: it tried to buy out Business Connexion (BCX) to build up its ICT capacity to become a truly converged company. This move was scuttled by the Competition Tribunal as being anti-competitive, after concerns were raised that Telkom would favour BCX over other downstream players.

It also set up what is now Super5Media in a bid to leverage its IP network to offer IPTV. Telkom Media, as it was then, was abandoned in 2008 and eventually sold last year.

There was never any reason for Telkom to worry about silly little things like service delivery, or speedy execution.

Nicola Mawson, senior journalist, ITWeb

In an effort to diversify earnings from different currencies, the company also moved north of SA's borders and bought Multi-Links in 2007. Multi-Links, however, has been nothing but an abysmal failure. Telkom has written the company down to nothing, a clear indication that it overspent in the first place.

All of Telkom's big efforts to diversify have proven the company did not do its homework properly. Multi-Links, for example, uses CDMA technology, which has been completely overtaken by GSM. Its foray into Nigeria has proved to be nothing but a waste of a lot of money.

Perhaps the biggest blow to the telco was when Vodacom was unbundled and listed separately last year. Sure, the sale brought in R40 billion in profit, but this once-off gain is nothing compared to the long-term loss of its money-printing machine.

Even then, Telkom turned its happy face to investors and shrugged off the fact that it no longer had Vodacom's tidy little profit to tide it over.

However, its most recent numbers tell a tale of a company that should have acted much sooner - and with much more forethought than its spate of worthless acquisitions have shown.

In 2010, Telkom finds itself with dwindling revenue, shrunken margins, a Nigerian mess and a strategic plan that has yet to take shape and prove its worth.

Now Telkom has to pay heavily to play catch up and will launch SA's fourth mobile operator this year, coming up against entrenched competition. It also has to sort out Nigeria, and get the rest of its African plan off the ground.

This time around, however, the company is not investing taxpayers' money - it is investing money that belongs to its shareholders, who may not be quite so laid back about letting it plod on as government was over 100 years ago.