“If you look at Cell C – they were also late and they are still not really making money. The first mover advantage is so big [in the mobile market] that new entrants will always struggle to make money,” said de Kock. “Telkom was hopelessly too late.”
Still hope: de Kock
De Kock said that there is still hope for the fixed-line operator, saying that companies like Telkom can sometimes “work themselves out of a mess”.
According to De Kock, Telkom should focus on specific areas where it is strong, like its fixed-line data business, and stop investing in the mobile arena.
De Kock said that the only real advantage of having a mobile operator is that Telkom may be able to convert some of their fixed-line users into their own mobile users (and hence not lose them to Vodacom and MTN). However, this strategy, De Kock argued, may be too ‘emotionally difficult’ for Telkom’s management to do.
Telkom a poor investment: Giyose
Giyose argues that Telkom will never earn a return above the cost of capital on their book value, which is around R56 a share.
Despite the fact that Telkom’s share price is trading at around 50% of its book value, Giyose said it remains a bad investment. “The probability of you earning a 50% return on Telkom’s book value of R56 is zero,” said Giyose.
“Telkom is facing structural threats posed by the mobile guys and it is faced with intense competition from Neotel,” said Giyose.
Giyose added that Telkom will find it very hard to show a return on investment on the money which KT will put into the company.