Alibaba aids Telkom’s search for BCX investor

A new deal for the sale of cloud computing products with China’s Alibaba is helping to drum up interest in BCX, which is still for sale, having had a difficult time attracting investors to take up an equity stake in the technology business.

Telkom continues its search for a global joint-venture partner with the financial and technological muscle to help plug the holes at the IT service unit that has been losing money for years.     

Having been bought out by the partially state-owned operator in 2014, BCX has struggled to produce a consistent profit.

However, with BCX, a big earner for the group at about a third of revenue,  starting to see signs of growth, Telkom is now eager for a partner to help scale the business and take on bigger competitors.

That mission has been boosted by a recent deal that sees BCX supplying cloud computing products on behalf of Jack Ma’s Alibaba, from which Telkom expects to make money from the 2024 financial year.

“There’s no equity [in the deal]. It’s a revenue share. BCX will become the exclusive partner providing Alibaba cloud and IT services in SA and across the continent,” Telkom CEO Serame Taukobong told Business Day.

The Telkom boss would not give exact detail on how revenue will be split between the companies. 

“What we give is an indication of what that looks like. We expect that over the next three years, it will be about R1bn.”

Serame says this deal has helped to draw more interest from parties that could invest in BCX.

“The fact that BCX has signed agreements with Alibaba has sparked interest from other international players,” he said. 

The search for an investor for the IT company — headed by Jonas Bogoshi, a former Gijima and Cisco executive — is part of a wider strategic push by the fixed-line operator to release billions of rand trapped in its sprawling structure, which includes properties, masts and towers, BCX and internet fibre operator Openserve.

Telkom hopes outside investment will help to stabilise BCX’s business, but progress in finding such a benefactor appears to be much slower than market players had expected. A lack of solid plans or announcements for BCX, as well as masts and towers unit Swiftnet and Openserve, as the group reported its full-year earnings had become a concern for the market. 

Enticing investors is likely to be bolstered by the unit’s positive interim performance after years in the red. 

As Telkom saw a 51.9% drop in headline earnings, BCX recovered in the six months to end-September “as it combated and managed global supply chain constraints”, the group reported this week. This resulted in 13.7% revenue growth in the IT business for hardware and software solutions as corporates began spending on IT again after a two-and-a-half-year drop off as they looked for ways to cut costs and conserve cash during the Covid-19 pandemic. 

With rising activity in the market, the group sees cross-selling opportunities for integrated solutions between its various business units and BCX. Overall revenue grew 0.8%, boosted mainly by the IT segment. The group says this improvement in performance signals a positive outlook for the rest of the financial year.

“We continue to see that trend and we’re looking to enhance, particularly the growth areas like cybersecurity, where we see big demand,” said Taukobong. 

gavazam@businesslive.co.za