Telecommunications behemoth Telkom stands accused of being a headless
chicken. Critics say it is confused about its business strategy, which
is causing a huge loss to shareholders, writes Lloyd Gedye in the Mail & Guardian.

Interviews with industry insiders and a perusal of internal documents show that in the case of Telkom Media, its content arm, the telecommunications operator has in a matter of months aborted a new strategic direction at a significant cost.

Analysts have called for new leadership to steer the fixed-line incumbent. If only a few recent about-turns by Telkom are considered, they have a point.

Faced with dwindling revenue from its fixed-line voice market, Telkom's initial strategy was to plough R7-billion into Telkom Media — its new broadcasting arm — hoping to use the quad-play model of packaged fixed-line, mobile, broadband and broadcasting services to turn the company around.

Of this R7-billion, just more than R5-billion would be raised through share capital from Telkom and its minority shareholders. The other R2-billion would be secured via shareholder loans. Telkom's share capital amounted to almost R3,5-billion of the R5-billion.

It successfully argued a case before the Independent Communications Authority of South Africa, and in September 2007 it was awarded one of four new licences into the pay-TV market.

Then, in March this year, Telkom announced that it was significantly reducing its funding in Telkom Media by R2,2-billion, claiming that competing initiatives such as a mobile wireless network had a shorter period of return and was a better investment.

This effectively reduced Telkom's share capital investment by almost 63% from R3,5-billion to R1,3-billion — this after Telkom Media had spent more than R700-million securing content, building broadcast studios, signing five-year leases for buildings, purchasing equipment and head-hunting staff from other broadcasters, said sources close to the broadcaster.

Insiders say more than R300-million-worth of content contracts are on hold after Telkom announced its reduction in capital investment.

Click here to read the full report, posted on M&G Online.