Poor corporate governance is hurting Telkom

 ·5 Apr 2012

Poor internal processes and a lack of proper governance have cost Telkom (TKG) time and money – commodities the group does not have an abundance of, according to a telecoms analyst.

Last week (30 March 2012), the group was forced to stop its planned R13 billion network overhaul after infrastructure provider, ZTE Mzansi, won a court order to halt the project.

ZTE Mzansi, a joint venture between China’s ZTE Corp and local black-owned companies, took Telkom to court after being disqualified from a bidding process related to the project.

Spiwe Chireka, program manager for telecoms at market intelligence and advisory firm IDC said that Telkom Group CEO, Nombulelo “Pinky” Moholi needs to focus on and fix internal corporate governance procedures at the telecoms giant, “which still rears its ugly head at the company.”

“In the past, bad processes and the lack of proper governance has cost Telkom time and money – both of which it does not have! No amount of money or profits will turn Telkom around if this is not coupled with sound internal governance procedure, including procurement.”

Chireka noted that this was one of the areas that Moholi had vowed to fix when she was appointed a year ago.

“While I don’t know whether small victories have been achieved in this regard, I still believe if critical projects such as the above are still being impacted, then clearly a lot still needs to be done. What happened to thorough internal audits on existing and future deals as promised?” the analyst asked.

Playing devil’s advocate, Shireka noted caution when attributing the above case to Moholi’s administration, questioning whether it had perhaps been inherited.

Meanwhile, shares in Telkom continued to come under pressure on Wednesday (April 4, 2012), closing 1.67%, or 40 cents off to R23.60 on the JSE.

Roshini Moodley, portfolio manager at RMB Private Bank said the group expects Telkom to remain under pressure following Friday’s court order.

“This, together with the potential R4.5 billion anti-competitive fine, and the worse than expected trading update released on Friday, should continue to place the share under pressure,” stated Moodley.

“The company is expected to report its annual results on the 11 June, where investors would hope to gain a clearer understanding of the losses surrounding the mobile business, and possibly more strategic direction from management, which has been clearly lacking,” the analyst said.

Fred Teeling-Smith, a telecoms analyst at STANLIB said that defending market share among its business customers is critical for Telkom and, in order to deliver on their hope of being the leading broadband provider in SA with superior data quality, the overhaul of their infrastructure is critical.

“Any delay in improving their infrastructure further delays their ability to provide a product that retains market leadership,” he concluded.

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