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Picture: REUTERS/SIPHIWE SIBEKO
Picture: REUTERS/SIPHIWE SIBEKO

A cash crunch is looming at Telkom.  SA’s third-largest mobile operator has drawn up a punishing cost-cutting plan that slashes nearly 2,000 jobs, or 15% of its workforce.

It has good economic reasons to scramble for cash in a fierce competitive landscape but raises awkward questions about sharing the pain between employees and shareholders.  Predictably, the news sent shares in the company skyrocketing, rising as much as 8%.  The stock is up more than 5% since the announcement last week.    

It makes sense. For one thing, Telkom has the most bloated workforce in the industry, a structure that has its roots in being considered a strategic asset by the government, which expects it to play a role in creating jobs. Telkom employs just over 12,000 people and has annual revenues of R43bn, putting its employee-per-revenue ratio at R2.8m. That compares with a ratio of R7.3m and R11.7m for MTN and Vodacom

The result is reflected in the bottom line. With core profit margins of 35%-40%, Vodacom and MTN are miles more profitable than Telkom, which grinds out just over 20%.   

Furthermore, CEO Serame Taukobong’s decision to wield the axe shows he is seriously recalibrating the company in a fast-changing competitive landscape. It may be hard to swallow but the reality is that Telkom’s place in the upper echelon of SA’s mobile phone industry is down to the government’s tardiness of more than a decade in allocating the radio-frequency spectrum. 

What this regulatory inefficiency meant is that Telkom, unhindered by the spectrum crunch, offered cut-price broadband deals as incumbents kept prices relatively high to make up the cost of repurposing frequency bands used for voice calls to handle surging internet connectivity demand. The allocation of a new radio frequency spectrum in 2022 has altered the environment, swinging the pendulum against holding shares in the least profitable company in the sector and making dividend payouts one of the best levers to keep investors from hanging up on Telkom.

In the widely welcomed announcement to cut costs and raise R1bn via the sale of its device credit book to shore up its cash reserves, Telkom failed to mention if the three-year suspension of dividends would be extended. It later told this newspaper that an update on the fate of the policy would be given at the end of this financial year.  

To be sure, defensive capital allocation strategies such as job cuts are necessary to offset plunging revenues, but it would be insensitive and tone-deaf for Telkom to turn on the dividend spigots to shareholders while letting employees go.  

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