SA will profit from a leaner, more agile Telkom

THIS week’s assertion by Archbishop Emeritus Desmond Tutu that “We need to develop new ways of thinking about death and what it means to be allowed to die in dignity” could be a metaphor for Telkom CEO Sipho Maseko and Solidarity Union, regarding tough decisions to save or sink the country’s largest fixed-line telephone group.

Telkom - the lifeblood to the country’s banking industry that enables Absa, FNB, Nedbank and Standard Bank to operate their automatic teller machines (ATMs) - has endured a decade of declining business, during which time some observers have predicted its demise.

The company is also central to South Africa’s economic growth story – it provides telecoms solutions to the country’s big corporates among its other important functions.

However, Telkom’s core business of fixed-line telephony faces serious challenges of mobile substitution. The company’s decision to establish and invest in Telkom Mobile hasn't helped matters, because the entity has proved to be a cash guzzler. In addition, political considerations appear to be in the way.

This begs the question: is there a need for Telkom to be dragged into the realm of South African politics?

What is clear, though, is that the company should be given space to implement its strategy to make the business commercially viable so that it can continue to contribute positively to the country’s economic growth.

While Maseko is spearheading a cost-led strategic restart of Telkom, which has been given a nod by the market with the share price climbing by 152% in the past year, Solidarity is dragging the company into race politics.

Solidarity is up in arms and saying white workers are being targeted in Telkom’s retrenchment process. It claims Telkom is carrying out large-scale retrenchments where race is used as a criterion.

The union continues to make assertions: “If you work at Telkom and you’re white, you’re guilty! Guilty, because you’re the 'wrong' race and you’re costing the company BEE points. Forget about the years of loyal service, your qualifications and the positive contribution you make.”

Solidarity in its YouTube channel went as far as to create a parody of Telkom, which is from a scene in the film Downfall, depicting Adolf Hitler’s last days in a Berlin bunker. “We have a major (ity) problem… We are being pushed into a corner,” said ‘Hitler’ in the video, who could be depicting Maseko.

Is Solidarity prepared to stand aside while Maseko takes bold decisions that could put Telkom on a different and more value creation trajectory?

As the boss, Maseko must be congratulated for taking a courageous move to trim Telkom’s bloated staff numbers, and labour opposition to the plan was to be expected.

Clearly, at the heart of this decision to reduce the number of employees is the obvious desire to make the business leaner, agile and more competitive.

This is the expected response when global companies are underperforming and unable to provide sustainable returns to shareholders.

For example, Microsoft is planning its biggest round of job cuts in five years, as the software maker looks to slim down and integrate Nokia Oyj’s handset unit, according to Bloomberg reports this week.

Vodacom, which is in the advanced stages of buying Neotel, could also go the same route and retrench staff if it manages to buy the country’s second-biggest fixed-line operator.

While Telkom’s plans to downsize make a lot of sense, the move will likely impact white employees – something that could send Solidarity into a tailspin. Of course, this does not mean other unions such as the communication workers union (CWU) will not contest the move.

Every union is bound to protect its members' interests when faced with such issues.

There is no doubt that this is a painful exercise, but necessary to revive Telkom’s fortunes.

This simply means that Solidarity’s opposition to Telkom’s plans to shed weight could derail the company’s turnaround efforts.

As at March 31 2014, Telkom had 19 197 employees, reflecting a 9.5% reduction or 2 012 people retrenched versus 21 209 staff in 2013. These bodies are costing Telkom more than R9bn in employee expense.

Maseko shouldn't be daunted by his task at hand. Shedding Telkom’s weight is a necessary evil for the survival of the business. The decision is aimed at tackling strategic decay – which has been eating at Telkom profits for years – that needs to be dealt with as quickly as possible.

He should be prepared to face down critics both within and outside the organisation by sticking to the plan at hand to cut the fat without any delay.

Even though Maseko has already made bold decisions, shareholders and the investment community are counting on him to deliver better returns.

Telkom cannot afford to be placed on life-support forever, for the sole purposes of preserving jobs for white employees. In the last 20 years Telkom has reduced its workforce from about 70 000 to less than a third – the majority of those workers that were retrenched were black.

There is, frankly, no alternative for Telkom but to forge ahead and deal smartly with Solidarity’s concerns.
A leaner, agile and more profitable Telkom is good for the whole country.

The investment world will be watching and hoping that Maseko and his team will have the courage to execute his strategy.

 - Fin24

*Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of techfinancials.co.za. Views expressed are his own. Follow him on #twitter @LourieGugu

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