Telkom of South Africa to Close Unprofitable Stores to Cut Costs

Telkom SA SOC Ltd., South Africa’s largest landline operator, plans to shutter unprofitable stores in the country to accelerate a cost-saving plan, its chief executive officer said in an interview.

Telkom, based in Pretoria, has about 1,500 stores, of which 50 percent are losing money, Sipho Maseko said by phone today.

“Every store at a minimum needs to sustain itself, break even and cover its own costs,” Maseko said. “If it’s not profitable, we can’t keep it.”

Telkom is battling to reduce costs to offset a decline in landline usage and increased operating expenses. The part state-owned company plans to eliminate positions from its 19,000-strong workforce and is working with labor unions on the job cuts, which Maseko said would come in several stages.

The company is in discussions with wireless operator MTN Group Ltd. about a potential network-sharing deal. If an agreement is reached, Telkom’s mobile-business capital expenditure of about 2 billion rand ($181 million) will fall by a third, while operating expenditure for that unit will decline by as much as 20 percent, according to Maseko. Cell C Pty Ltd., South Africa’s third-largest carrier, last month told the competition commission that it opposes a network-sharing deal between the phone companies.

“It will be a pro-competitive deal,” Maseko said. “The cost of maintaining the radio-access network that is currently duplicated will be consolidated. We will compete as ferociously as possible with MTN on the retail front.”

Telkom’s said last week first-half earnings excluding a year-earlier gain were more than 20 percent higher after a reduction in mobile rates and a decline in asset writedowns. The shares were down 4.5 percent at 49.87 rand as of 11:48 a.m. in Johannesburg, paring the year’s gain to 78 percent.