South Africa: Telkom Cans Pay-TV Plan, Saudi Offer


Telkom stock fell last week after the company said it was slashing its proposed investment in a pay-TV division and rejecting an investment proposition by Saudi operator Oger Telecoms.

Instead of pumping R7,5bn into the highly speculative field of pay-TV, Telkom will invest heavily in boosting its voice and data networks, and may also buy into a foreign cellular operator. The market has waited months for clarity on Telkom's future direction as it reviews how best it can combine both fixed and mobile voice and data services to shore up its traditional income. But yesterday's announcement lacked the excitement that analysts had expected, and its share price fell 10,14% to close at R131,20.

Plans that have been assessed and dismissed during the review included selling a stake to the Saudis, selling its entire fixed line infrastructure to MTN and selling its 50% stake in Vodacom. "The share price is down because people were expecting bigger news, like they were selling Vodacom or had decided to list it," said one analyst. Instead, the most dramatic move is to "substantially reduce" its investment in Telkom Media, which won a licence to enter the pay-TV market last year.

Three other firms also won licences, raising concerns that the audience was too small for them all in an arena already dominated by MultiChoice. Telkom owns 66% of Telkom Media and earmarked R7.5bn for the venture, but it is now trying to sell most of its stake. "It looks like they will sell the majority of Telkom Media and that's positive because a lot of people were questioning that investment," the analyst said. "That business will continue, but I'd guess they will retain less than 10%. The question is who is gong to buy it."

Telkom's CEO, Reuben September, told analysts yesterday that media companies had long pay-back periods, and alternatives offered faster returns. Telkom must focus on its strengths as competition increases, and so it would retain the smallest possible stake.

Strengthening its core business of voice and data services will see it invest heavily in new networks using both fixed and wireless technologies, but September did not specify how much would be spent.

He said an offer from Oger Telecoms to buy into its business had been declined as not in the interests of shareholders. None of its operations would be sold without "a compelling strategic rationale," he said.

Yet Telkom implied it would disinvest from Vodacom if it could sell for a decent profit and invest the cash more profitably in a mobile operator in another emerging market. Last year Telkom was prepared to end its ties with Vodacom only if it could team up with MTN or Cell C. "Now it may sell Vodacom if it can find another mobile asset, which doesn't have to be in SA," the analyst said. "They said they had identified a number of attractive opportunities."

That would not help Telkom bulk up its local network, but it could work with any cellular player in SA to offer a combination of fixed and cellular services, the analyst said.

(Business Day, 1 April 2008)