Investors get cold feet as Telkom is slow to unlock value

Telkom's share price continued to take a knock yesterday following the company’s announcement last week that it had abandoned talks of a take-over bid with a consortium headed by Sipho Maseko, its former CEO.

Telkom’s share price reaction was a clear indication that investors no longer trusted its internally driven value unlock strategy, Mergence Equities head Peter Takaendesa, said yesterday.

This comes after Telkom's share price remained low, trading at R27.68 at 4pm yesterday, having decreased by 20.02% in the past three months.

Last year telecoms giant MTN walked away from talks to buy Telkom SA in a deal that would have created South Africa's largest mobile phone operator.

Takaendesa said there had been several delays to the communicated value unlock strategy, and the operational performance of Telkom continued to deteriorate due to a combination of structural and cyclical economic factors.

"We believe it’s still early to conclude that all potential suitors for Telkom have walked away and its still possible that another transaction will come up at a later stage. Industry consolidation is inevitable and Telkom needs to decide how best it can participate before it’s too late," he said.

Meanwhile, Deal Leaders International corporate and advisory CEO, Andrew Bahlmann, said telcos around the world faced similar challenges – ageing infrastructure and the need to move into the Artificial Intelligence (AI) space to better automate their networks.

"As a decades-old, regulated entity, Telkom more than most suffers the burden of an infrastructure that needs to be refreshed - and fast. It needs to modernise its technologies with modern cloud technologies and APIs.

"It needs to invest in open-source. It needs to insource engineering talent - the journey from telco to techno is a cultural change that applies to a whole organisation, and I would say that Telkom investors must be rather anxious to see what the future holds for the company," he said.

Bahlmann said that burdened with debt, Telkom's profitability seemed to be on a one-way trajectory that investors would not be happy about.

"There may be truth in Telkom’s announcement the company does not see the offer as an appealing one or in the interests of shareholders, but it is not offering an alternative. It also raises the question of whether they have the vision," Bahlmann said.

He said the tidal wave of AI had clearly unleashed a new round of anxiety among telecoms looking to develop their own AI-driven technology strategy in the face of tighter budgets and a slowing economy. AI represented a game-changer in terms of delivering services more nimbly, faster, and cheaper.

"Of course, where there are threats there are opportunities as well, but Telkom does not seem to have the agility to seize or even see the opportunities that have come its way in recent months with multiple acquisition offers.

"They are perhaps ‘telco brainwashed’ and not looking at the future from an AI perspective. That mental model is a great risk. In an AI age, telco executives aren’t usually known as innovative visionaries. Plagued by high debt levels and a painfully underwhelming rollout of 5G services, it’s surely time for more radical change at Telkom," Bahlmann said.

BUSINESS REPORT