Telkom wants to build some IT muscle

2014-05-25 15:00

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The last time Telkom tried to buy IT company Business Connexion (BCX), it was stopped in its tracks by competition authorities.

Following its second attempt this week, chief executive Sipho Maseko is “cautiously optimistic” the deal will pass any competition hurdles.

Telkom said this week it planned to buy BCX for R2.7?billion. While it had cash resources of R1.1?billion, according to its last interim results, the state-owned company’s profitability has been under pressure.

Its annual financial results, due out next month, will show an increase, owing to a reduced retirement and medical aid liability.

But it has struggled to increase revenue and profits and is looking at implementing further job cuts.

In an interview with City Press, Maseko said the deal was in line with strengthening Telkom Business, which is a leader in providing phones and fixed-line connections to businesses.

Maseko said: “What was very clear to us is that we needed to build a bit of muscle on the IT side and we reviewed quite a lot of options. BCX was still an appropriate proposition and fit from a strategic point of view for Telkom.”

Eight years ago, competition authorities blocked the acquisition, but according to Maseko, things had changed.

“In our view, we think the world has changed and the market has changed locally and internationally. Mobile players are acquiring fixed players and over-the-top players are acquiring manufacturers of devices, so there is clearly a movement towards some type of collaboration or consolidation, which brings a lot of efficiency and actually enables those companies that do that to be a lot more competitive in the market,” he said.

“So our view is that there is a change in the context and we are hopeful that we will be able to advance a case to the competition commission saying the circumstances have changed from what they were in the past.

“Then we used to own Vodacom. Now we don’t. So the world has changed a little bit.”

The deal comes at a time when Telkom is restructuring in a bid to cut staff costs, which are a large part of its overhead expenses. According to the Communication Workers’ Union (CWU), Telkom is planning to retrench about 1?000 management staff and specialists by the end of July.

But Maseko said Telkom had proposed certain structural changes to the affected staff and were considering counterproposals before knowing how many people would actually be affected by the retrenchment process.

The CWU has vowed to fight the looming job losses and the BCX deal also seems to have added fuel to the fire as the union said it had not been informed that this was happening.

But Maseko insisted there was no tension with the unions.

“Because we are a listed entity, we needed to maintain a certain amount of confidentiality [in relation to] the transaction because, if we didn’t do that, we [would have] exposed quite a lot of shareholders to potential value destruction because we would not have managed it properly,” said Maseko.

“There is no tension between ourselves and the trade unions and we have had a number of interactions with them where we have shared the strategic direction that we are looking to take, but obviously we don’t share the nitty-gritty of the details because, at the time that we were talking to them, there was no deal, but now there is.

“But we communicated to them formally to inform them that this is what is going to be happening, but [the] timing is as close as possible to when we informed the rest of the market; if we only informed them and not the market, that would not [have been] compliant with some of our own listing regulations.”

The deal also comes after Telkom entered into an agreement with mobile operator MTN to outsource its radio access network.

But Maseko said this deal did not mean it was abandoning its mobile business, which had been making losses since it started in 2009 and had only attracted 1.5?million subscribers.

Telkom, which is majority-owned by government, with a 39.7% stake and another 10.6% stake through the Public Investment Corporation (PIC), has often been at loggerheads with government over its turnaround plans.

In 2012, government rejected a deal by South Korean telecoms company KT Corporation to acquire Telkom for R3.3?billion.

While Maseko would not say what government’s stance on the BCX deal was, he said it had spoken to everyone concerned about the deal.

He also said he was not worried about the effect a possible new minister would have on the deal when the president announced his new Cabinet.

“We don’t have preferred ministers. We work with those we have and we work the best way possible with them. I’m not worried about that. If there are changes there are changes. Government works that way, so we will have to deal with it if and when it happens.”

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