De facto monopoly fixed line operator Telkom South Africa has confirmed that it is to reduce its staff by 7,000 over the next five years in a bid to cut costs as part of its preparations for the entry of the country’s second national operator (SNO). In June Telkom announced plans to cut its staffing levels by between 7% and 10% each year as competition for customers increases in its domestic market, and it now says that 1,381 jobs will go before the end of this year. Three of Telkom’s trade unions reluctantly agreed to the staff cutbacks on Monday, hoping that they could exert some control over future workforce reductions. The incumbent, which has cut 30,000 jobs since 1999, says it will offer voluntary redundancies before forcibly removing any staff. It is preparing to raise further funds via a share buyback; the operator has raised ZAR1.17 billion (USD181 million) since March by buying back 4% of its shares.
The prospect of increased competition has been hanging over Telkom since the government announced plans to licence an SNO in 2002. After a string of delays the award of the concession is due to take place on 17 September. However, the new player is facing an uphill battle in taking on the incumbent. Karl Socikwa, chairman of the SNO interim board, lambasted the government in May 2004 saying that ‘Telkom has the broadest, most entrenched telecoms monopoly in the world’. Indeed, Telkom is extremely confident of its position and has boldly reduced its capital infrastructure in South Africa by 7.1% in order to concentrate on its expansion plans elsewhere on the continent. The telco reported healthy profits for its fiscal year ending 31 March 2004, making a 500% margin on some products and, moreover, is reported to have sealed long-term contracts with approximately 90% of the country’s business community, making it difficult for any newcomer to penetrate the market.