EDITORIAL: Investors jittery about Telkom CEO Sipho Maseko’s departure

For investors who have backed Sipho Maseko’s reinvention of Telkom, from a company with a business model in irreversible decline into a mobile phone network powerhouse, apprehension over his departure is understandable.

Maseko announced he would step down next year after a nine-year tenure punctuated by clashes with labour unions as he pushed through a punishing cost-cutting strategy that shrunk the company workforce in half from over 22,000 in 2013.

It is worrying for private shareholders — the government is Telkom’s biggest investor with a stake of about 40% — judging from the share price reaction since Telkom said Maseko would leave at the end of June 2022.

The stock slumped immediately when the news broke on
Friday, before extending losses into Monday and Tuesday to bring cumulative losses to 4.6% that wiped off more than R1bn from its market capitalisation.

For one thing, the prospect of losing a business leader of Maseko’s calibre who prevailed and advanced a cost-cutting plan when sound and prudent business practices were under heavy assault from its state captured top shareholder, conjures up painful memories of the leadership crisis in the late 2000s and early 2010.

Before Maseko, who was poached from Vodacom as Telkom’s successive CEOs failed to craft a convincing growth strategy amid government interference, Telkom struggled to stabilise its leadership following the departure of Sizwe Nxasana, who served for seven years until 2005.

Nxasana’s exit kicked off a revolving-door policy in the CEO suite that gave Telkom five bosses including Pinky Moholi, Reuben September and Jeffrey Hedberg in the space of five-and-half years.

The door finally broke in 2013 when Maseko took over. While Maseko will cede the job still enjoying support from investors and the board, he cannot escape blame for plunging investors
into frustration over the lack of a clear succession plan.

One thing shareholders cannot groan about is Maseko’s stellar work in setting up the company built on fixed-line phone technology for growth in the fast-changing world of the mobile phone communications industry.

During his eight years in charge, Telkom started to morph into a modern telecoms player to compete with established
giants MTN and Vodacom, whose stranglehold on the market
had appeared unshakeable when Telkom launched its mobile phone operator in 2010 — more than a decade after executives in the 1990s dismissed the idea that cellphones would become mainstream.

Eleven years after the launch of Telkom mobile, Maseko can hold it up as not only being firmly in the black but also maintaining its admirable spot as SA’s fastest-growing cellphone company, notching up more than 50% growth in revenue and boasting 15.3-million customers in the year to end-March.

The mobile business’s earnings before interest, taxes, depreciation and amortization (ebitda) — the percentage of revenue converted into income — has grown more than tenfold to almost 15%, an encouraging sign that there is room for growth.

These improvements are yet to fully show up in Telkom’s share price, though. Since Maseko took over, shareholders have enjoyed a nearly three-times jump in their equity, giving their company a market capitisalisation of R22bn.

Granted, Telkom’s mobile phone business is not as profitable as those of MTN and Vodacom, which grind out margins of
35%-40%. But considering the fact that it has a slew of
assets other than the mobile phone and fixed-line operations, Telkom should be valued at much than R22bn.

Take Rain for example, a data-focused mobile phone company partly owned by Patrice Motsepe’s African Rainbow Capital. It is valued at about R17bn, while Remgro’s fibre network
business CIVH is worth more than Telkom itself despite the
latter running a much bigger Openserve fibre network business, Business Connexion IT, and sitting on a vast multibillion-rand property portfolio.

Even though Maseko has set the break-up in motion, it is
understandable that investors are on edge as he might step down with an unfinished job.