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Failed Multi-Link transaction in Nigeria cost Telkom R7bn

By on July 25, 2011

South Africa Communications Minister Roy Padayachie says that Telkom’s failed Multi-Link transaction in Nigeria has cost the company over R7 billion.

He was responding to a written parliamentary question by the Democratic Alliance’s Niekie van den Berg, who wanted to know the reasons for Telkom’s failed efforts to gain ground in the Nigerian telecommunications market.

Van den Berg also asked whether Telkom suffered a financial loss  through these efforts.

Padayachie replied Telkom had not yet succeeded in Nigeria primarily because it acquired a code division multiple access (CDMA) operator in a market dominated by the lower cost global system mobile (GSM) technology.

Also, the rapid expansion of the network that had to be implemented could not be supported by the underdeveloped distribution channels, thus affecting sales revenue, he said.

Some contracts were entered into which did not deliver the anticipated benefits and incurred significant operating expenses.

The worldwide economic troubles also affected the Nigerian economy.

Multi-Link did not have sufficient market share, pricing power or strategic and operational advantages to be successful in the resulting tight economic environment.

Telkom’s Multi-Links unit suffered an operating loss of R522 million for the financial year ended March 31, 2009, and R1.039 million for the year ended March 31, 2010.

“In addition Telkom has been required to write down goodwill and  assets of R5.823 million,” Padayachie said.

Replying to another question — by Juli Killian of the Congress of the People — he said as one of several shareholders in Telkom, the government raised its dismay at the write-off of “approximately  R5.2 billion in the Nigerian operation at the Telkom AGM in 2010.

“Telkom underestimated the highly competitive nature of the Nigerian telecommunications market and also failed to build and manage appropriate distribution channels,” he said.

The government, represented by the minister, had 38 percent shares in Telkom with no special rights.

On the drastic erosion of the value of Telkom shares, and whether the government intended giving the company a cash injection  from state coffers, Padayachie said Telkom’s board was “cognisant of the conditions that face the company”.

“Telkom’s balance sheet is fairly strong. It is not anticipated that government will be required to inject cash into Telkom.”

Telkom’s strategic plan had a strong focus on reducing operational expenditure and improving revenue. The government would  ensure Telkom’s board was strong and competent.

“The value of Telkom’s shares has been reduced proportionately by the sale and unbundling of its 50% stake in Vodacom,” he said.

About half the proceeds thereof was returned to Telkom’s shareholders as a special dividend and shares in Vodacom. The balance was used to modernise Telkom’s network, increase its competitiveness in the mobile market by the launch of 8.ta, and retire expensive debt.

Telkom’s share value was also affected by its current and projected financial performance. This had suffered as a result of intensified competition on its fixed-line, particularly from mobile  operators, changes in the regulatory regime, and increasing wage costs.

This was reflected in the current share price.