EDITORIAL: Better for Telkom to swallow the bitter pill
In a country where unemployment is at a record high, there will never be a good time to cut jobs, but when the company doing the cutbacks is Telkom, whose biggest shareholder is the government, it becomes even more painful and makes for bad politics.
Telkom confirmed plans on Thursday to offload 3,000 workers, joining a clutch of companies from the banking and manufacturing industries to mining and retail sectors that are cutting jobs as an economy stuck its lowest downward spiral since the 1940s and shifting consumer needs threaten their profitability.
Predictably, Telkom’s plans drew swift rebuke for unions. The Communication Workers Union, which represents more than 50% of the company’s staff, expressed “deep anger” and threatened to enlist ANC leaders to stop the retrenchments, while trade union federation Fedusa was “outraged” at the decision. Solidarity also decried the move, calling it “reckless” and “merciless”.
Communications and digital technologies minister Stella Ndabeni-Abrahams said she “noted with concern” the plans and scheduled an urgent meeting with Telkom’s senior executives on Friday, which her department says “went well”.
Ndabeni-Abrahams has not disclosed the outcome of the meeting or if her department, as shareholder representative, is opposed to the job cuts, but it would not be unreasonable to assume that, given her “noted with concern” comments and government’s priorities, she would rather have Telkom stopped in its tracks.
If that happens, she would have scored political points with the governing party ANC alliance partners, the unions. But the cost of her meddling would be disastrous to Telkom, which is in the middle of heavy capital expenditure to branch out of the traditional fixed-line phone business into a competitive mobile phone industry dominated by MTN and Vodacom.
Telkom’s move might seem unfair, particularly given that it is 40% owned by the government, whose priority is to put millions of South Africans into jobs, but the reality is that consumers are moving away from fixed-line voice calls and data to mobile data and voice.
So, no wonder investors applauded the news, sending Telkom share price surging much as 5% on bets that the company will save money to help it pay down debt and fund the rollout of its mobile network infrastructure.
Ndabeni-Abrahams’s populist interference at the SABC, which had hoped to cut its R3bn wage bill with layoffs of nearly 1,000 workers before she scuppered the turnaround effort, left the public broadcaster on the verge of switching off its microphones and cameras in mid-2019.
Granted, cost-savings from the retrenchments — estimated by the SABC to have been R440m — would not have been enough to have plugged all the holes in its balance sheet, but they would have ensured that taxpayers cough up less in bailouts for the SABC, which needs R3.2bn from the Treasury to shore up its balance finances.
It was not the first time the government resisted retrenchments at state-owned companies. At Eskom, which acknowledged its workforce is bloated, President Cyril Ramaphosa has on several occasions promised zero job cuts in Eskom’s three-way break-up plan.
From where we stand, breaking up the utility without addressing overstaffing sets us up for yet another false dawn and all but makes new CEO Andre de Ruyter’s job impossible.
For Telkom, it would be wise for Ndabeni-Abrahams to stay out of CEO Sipho Maseko’s way, or risk having him step down, and allow the company to reckon with reality: fewer consumers are using fixed-line network to make phone calls and Telkom’s investment in mobile phone and data network is crucial to its long-term survival.
Though the company’s mobile phone network — written off as doomed to fail when it launched a decade ago — is growing fast, it is still a lot less profitable compared with MTN and Vodacom because the bulk of Telkom’s earnings are spent on rolling out high-speed 4G networks. And shareholders might have to share the pain, with Maseko telling investors in November the company’s dividend policy could come under review to preserve cash.
It will be undeniably painful to have 3,000 Telkom’s staff out of work, but the truth is that it is a decision that is not only long overdue, but will give the company fuel to stay competitive and safeguard the remaining workforce.
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