Sipho Maseko on the hard decisions that define leaders

NM: Hi, I'm Nkateko Mathonsi, Head of Equity Research here at Investec, and an analyst covering the mining space.

LP: Hi, I'm Louise Pillay, Head of Telecommunications, Media, and Technology Research at Investec, and I have over 15 years-experience covering the sector.

Voiceover: Welcome to Investec Minds. In each episode, analysts from the Equity Research team at Investec Corporate and Investment Bank sit down with a former chief executive who helped define their industry at a critical point in its history.

NM: Today we are joined by Mr. Sipho Maseko. He is the former Group CEO of Telkom, and before that he held leadership positions at Vodacom as well as at BP Southern Africa. He has led in businesses that include energy, mobile communications and national digital infrastructure.

These are sectors where leadership goes beyond the narrow interest of companies, and it includes public interest. It also includes the future competitiveness of our country. He is best known as the turnaround CEO that has competitively repositioned Telkom into a mobile-led and digitally focused telecoms group in a very concentrated market.

Sir, welcome to Investec Minds.

SM: Thank you very much. Thanks for having me. Really happy to be here. 

NM: It's a pleasure. We typically begin this conversation by asking about life post the CEO position. Afrifund has remained very active, so clearly no retirement for you. If we were to look at your career in chapters, what would you say this chapter is about for you?

SM: Retirement was never the plan. It was just to do something different. One had been at Telkom probably for about almost 10 years, and I think that the corporate world can be quite demanding and exhausting. But we also spent quite a bit of time really thinking about what the next frontier of development on the continent will require probably over the next 20/30 years. That’s one of the reasons that then informed me forming Afrifund because we want to participate in that evolution probably between now and 2050, especially on the infrastructure side.

NM: Leaving the CEO position being the hot position, how clearly do you see leadership as a result of that transition into where you are today?

SM: I suppose leadership is situational in the sense that it's a journey that never ends. You also learn as a leader and depending on the organisations that you become part of, they may require a different aspect of your leadership career.

It may be a school. I sit on the boards of two schools. The demands there are different. You're not in control of the entity but you need to be able to support the executive leadership in those institutions, or you can be on a board, or you can lead without necessarily having to lead people. You can lead an agenda.

The situations demand different aspects of leadership which I'm finding helpful and rewarding.

LP: I think we've seen in the local media where government and state-owned enterprises are looking at the Telkom playbook around the turnaround strategy. Do you think that similar turnaround strategies can be implemented in other public entities and even at municipal level?

SM: I think so. I think firstly it's conviction. You have to want to do it and you have to be committed to seeing it through. So that's number one and it doesn't happen instantaneously. It takes quite a bit of effort and really thinking things through. So, I don't think it's impossible at all.

I also believe that you also need a bit of luck. I was lucky. I was lucky to have the board I had at the time. I had Jabu [Mabuza], who was a wonderful chairman. He was really commercial, he could take long shots, he was credible everywhere and he gave us, he gave me in particular, the space and the support.

I never doubted him. Even the first time when we were going to retrench people, I said "Jabu, it's 10,000 people and when I start this thing, you can't back out. It's either we don't start." He said “go”. So, some of the factors are luck. Jabu was there, I was there and it worked out.

Some of the SOCs [State-owned Companies] may be just unfortunate or unlucky, where maybe the board and the management team are not able to work together. But as a possibility, I think it is possible. Some of them perform an even far bigger strategic role in the economy far better than Telkom. It's almost an imperative, all the layers; SOCs, municipalities, provincial and everywhere. It's a necessity. I believe that.

NM: Talking about retrenching 10,000 people and in the South African context, that is a lot of families that would depend on the 10,000 people. What has being CEO cost you that most people would not know? I'm asking this question on the back of the retrenchments, which would not have been an easier decision for you on a personal level.

SM: It is the most difficult. Its taxing on you emotionally. Essentially what you'll do is to ask people to tell their colleagues that they've worked with for 5/10/15-years, that they are not going to work here anymore. So that's tough.

We tried to make sure that it's owned by their line manager, not by HR. So, if there were people who were meant to be my direct reports, who were not going to work here anymore, I had to have that conversation. So emotionally taxing. We had to spend quite a lot of time, firstly, to see how we can make those conversations easier to manage for those that had to deliver the news. Prepare them, train them and help them both emotionally and mentally. So really help them to be able to do that. But also, those that had to leave we really went above and beyond to find the best possible soft landing for them.

I had to quarrel with shareholders and analysts because some of them we had to give an outsized notice period or those kinds of things. I would say if a guy has worked for the company for 30 years, I'm okay to lose six months to a year of payback just to make it easier for that person. We offered to pay for any transition skills for some of them, anything that you want to learn that will be a new career for you - we offered that. We set up some of them as businesses because the issue was less about the fact that we needed those people or not, but it was the extent of the fixed cost.

We still have technicians up until today but now it's a variable cost. At the time, the biggest enemy of the company was the size of the fixed cost. So, whether we connected a new line or not, the cost stayed there. A lot of them we set up into small little businesses and consolidated them, so they are still linked to the company but now as suppliers who are provided for on a variable base.

It takes its toll and I don't wish it on anyone else. It's not an easy thing.

LP: Shifting gear to the regulatory environment in South Africa. What I've realised is that the regulatory environment does place a strong emphasis on the investment case for a number of companies.

There are two questions I'd like to ask. The first question is around what's your view on satellites? Is there a role for them? Do the MNOs [Mobile Network Provider] see them as partners, especially in underserviced areas - rural areas in South Africa? And do you think that South Africa should change its regulatory licensing regime and ownership requirements to accommodate some of the international satellite providers?

SM: Regulation is a tricky thing. It's always a tricky thing because ordinarily, or at least the South African regulatory framework in the sectors I've dealt with, was generally informed by what's happened in the past. Regulators look at what's happened in the past, and then they say let's put together a regulatory framework.

The challenge regulators have, in my view, is how do you solve the problems of the past but use tools and instruments that will make you successful in the next 10/20 years. It’s always just that mindset. The downside in South Africa is that we still have an adversarial relationship between regulators and the industry. What should be happening is that industry and the regulator need to look at how competitive are we as a country, and what do we need to do to be competitive over the next 10/20/30 years. So that whatever solutions get arrived at, there is a set of outcomes that we are agreed upon.

My view around technology is that South Africa will always need different technology solutions just given the size of our country, the economic disparities of our country, and the social requirements of our country. So, you'd need multiple technology solutions: fibre, wireless, satellite.

I personally think satellite technology has improved a lot. I think what the large constellation companies have done, including Starlink, is to turn it on its head because in the past you launched one satellite, it hung around in the atmosphere, and it gave you one-way communication. But now they launch hundreds of them which are low orbit. I asked for a tutorial from one or two people for about a day, so just really take me through this.

They've launched hundreds of satellites, low orbit, that have a lot of capacity. That's a big technology shift and for me it's important to look at that technology evolution and how it therefore can become a tool in your armoury to have as many people into the digital economy as possible. I think it's common sense.

With the licensing requirements, the walking on eggshells that the regulator currently has is that you have currently licensed players that you had different requirements for. It's how do you then deal with new players that you need to license if you want to change the requirements which is always the difficulty with regulation. There are other people that you've regulated in this way, so how do you deal with that without creating an unnecessary burden on them that the new player doesn't have. Even when you're going to change the requirements, make sure you do it in such a way that you don't harm the people that have gone ahead, whilst at the same time enabling those that are coming behind so that you always keep that competitive landscape balanced as far as possible.

NM: From your experience working in oil and gas and telecommunications, if we look beyond South Africa into the rest of the continent, what would be your advice in terms of how best the continent could position these key sectors, of energy and telecoms, for future success

SM: I wouldn't be that presumptuous to offer advice, but when we look at South Africa and the rest of the continent, we have an infrastructure deficit. Even in South Africa. The penny dropped for me when I was in the telco industry where between Vodacom, MTN and Telkom, there's roughly about R30billion that they deploy every year of CapEx but you still drop a call.

It always used to just startle me to say does it therefore mean that the deficit of infrastructure is that much. Effectively when that happens, is that the traffic on the network is way too much for the infrastructure that has been deployed. The software is clever enough to cut one person out so that the rest of the system can remain stable. So, you see that infrastructure deficit in almost every sector that you may choose to look at. In water, in energy, in ports, in rail and just any sector you choose to look at.

The trouble with infrastructure deficit is that it imports inflation. When a ship docks in Durban and the port is congested, there's something which is called demurrage. The cost of waiting. That cost then gets passed to the consumer. So that's the net effect of the lack of infrastructure. It increases costs.

For me, the big African challenge for the next 20/30 years is just how do we singularly focus on that infrastructure bit. Because it will reduce costs, it will integrate economies and it will unlock the true potential of these economies.

LP: I've got two questions. One question is on AI, and the role AI is going to play in the sector. We've seen this proliferation of AI CapEx globally and I think the path to monetisation is questionable. It's probably drawn out. What's your view? And are there efficiencies companies can extract from using AI? I know from the recent MTN Capital Markets Day, they're targeting R30 billion worth of AI-related efficiencies. Do you think there's specific value unlock with regards to that?

SM: AI is a very interesting development. I saw glimpses of it when we were deploying the Telkom network because for the first time, we were deploying what was called a software-defined network, a very intelligent network.

If I were to give you an example of Grayston Drive. What they're effectively doing in terms of the fibre they've deployed would be that in the afternoon when everyone is on Grayston Drive going to the M1, they can add more lanes on Grayston so that more cars can go in and then on the M1 south. In the morning they can add more lanes on the incoming traffic. So that was, at least for me, the introduction around what they call software-defined networks.

I think it will be a factor in everything that we do, whether we like it or not, as part of an overall digital capability. In some of the investments that we have made, for instance, we have deployed digital onto the old economy. I think it will be a permanent feature of all that we do. We invest in what we call old economy assets and then we think about how we can overlay digital on top of that business, whether to enhance efficiencies or even improve customer experience.

I think for me that symbiotic relationship between what I call the digital economy and the real economy will be even closer. I don't think that there will ever come a time, I'm no fortune teller, where the digital economy, AI-enabled, can be able to exist to the exclusion of the real world. We saw it during COVID where the physical world shut down but the digital world enabled us to continue to function, and I think these two will continue to interact.

I think the capital intensity will be prolonged. I think there's a lot of rush in the CapEx deployment before people have clearly identified the need. So, there's a bit of a fad element to it at the moment because many companies when you ask them, they say they have a digital strategy. But, exactly what do you mean? I think it will take quite a bit of distillation and a bit of time. Very few people who spend enough time really getting the clarity of what they want to use it for will get the value out of it. I think it will be dated out returns. But I think it's inevitable. I saw it with fibre. When fibre was deployed, we got a lot of criticism because it takes long.

So that's my view around AI and the investment around it. Modularise it. There will be a graveyard full of bad investments, I think. I saw it in content as well. Before you had a Netflix streaming capability, there were probably five attempts at streaming, six attempts. There was graveyard full of streaming attempts locally but at some point, the system will click and someone who's deployed it in the right way will get there.

LP: Maybe a good segue into my final question. You are invested in Canal+. Can you talk about what you think the outlook is for pay TV. And what are the top three things you are looking for in the first three years to see some fruits of your investment?

Then Multichoice historically, together with SuperSport, had a very instrumental role supporting sports development in South Africa. Do you still think that will play a role for South Africa with the Canal+ investment?

SM: Firstly, I think Canal+ has domain expertise. They really know content not just production of the content; how they curate it, how they pay for it and how they distribute it. They really know that they've built a good muscle. They had some headwinds before in Europe, they learnt quite a lot so that when you begin to be almost ex-mega-growth you are clear where some of the efficiency opportunities are.

They have that very strong muscle around content. They know it, and their ability to analyse it up to micro level is impressive. It goes back to my earlier point. If you believe that devices will be smarter and everything will be digitised and it will be accessible, you almost have to believe therefore that the amount of content that people will watch will be unlimited.

Just a cursory observation from the amount of time that people spend on their phones and on video. It fulfils an earlier prophecy around why we needed to go fibre and why we needed to go big pipes, because video will transform how people consume content.

Number two, short format is changing a lot. Many years ago, people just watched movies and then you have what they now call a series which keeps people hooked for a while. Then you have short format and I think these content propositions will coexist. I think there'll be more of it. I think the content production landscape will also evolve.

Currently, you have a production team that's professional, that helps generate the content. But what's happened with digital is that there's almost been a bit of a flip, because I can generate my own content. People are eating and they take pictures of that. It then has increased the amount of content that will become available, therefore needs to be consumed. So that ecosystem will live for a long time.

I'm learning a bit as well just around how they think about things. South Africa is clearly a very important market for them, and some regions in South Africa are bigger than countries. People in the Western Cape, they told me this, when the Springboks are playing, everybody's watching the Springboks. But in KZN, they're watching something else. Then when there's Bafana playing, all of KZN is watching, and then in the Western Cape, they're watching something else.

Those diagnostics and analytics then help really think about productions. They know a lot about sport. Three codes largely drive growth; FIFA World Cup, the Africa Cup of Nations and Rugby World Cup. I like Formula One, but it is not a big deal. A few people watch it. If you like tennis, sorry to disappoint you. It doesn't drive eyeballs. So, they understand the value of the various sporting codes to customers and what they watch. It then ultimately informs what is the price you're willing to pay for the code.

I think they'll buy differently economies of scale and skill. I think they'll buy rights differently because even with the English Premier League the most popular games would probably be Arsenal versus Chelsea and Liverpool versus Man United. There are no more than 10 games. In fact, local football, not even Chiefs and Pirates I don't know, small teams Durban City against Stellenbosch, would have more viewers than Bournemouth versus Ipswich. So that data begins to help you then really think about how you package things etc.

So, sport development will continue. I think they'll do a lot more. They're very strong on local content.

NM: When your family looks at all the work that you have done, what do you hope they understand? I'm asking this question because there's always a cost and unfortunately family in most cases, the most important, always pays that price. What do you hope they understand?

SM: So, the benefit I have at the moment is that having left corporate, I have a lot more time for my family. I'm flexible. I don't have an exco to rush to and all of those sorts of things. It's a gift because they're also at an age where they're trying to figure things out. They're trying to figure out careers, so I spend a lot of time with them.

My youngest is 20, he's still at university, and my oldest is 29, she's just started to work with me. It’s not just immediate family. I'm available for things that are important to me. I can go to a family wedding, and I don't have to rush to the airport. Those things are priceless. You can tell just how being there is good because you also just get to meet the rest of the broader family in a way that is different, and you figure out actually they don't want your money.

One of them may be doing matric, so they may be looking at help to decide what courses they need to do because I’m a lot more exposed. So that's been wonderful to me. The last four years or so have been great. There's no family event I am not able to attend, whether it's a wedding or a graduation. I even offer my siblings who still have young kids help. I attend concerts at 10:00am. The things they can't do because they're working. It's quite nice. I enjoy it. The flexibility, I can't trade it for anything else.

NM: I'm glad you have time for yourself.

SM: Thank you.

LP: We’ll move over to the quickfire questions.

LP: Openserve or Vumatel?

SM: Openserve any day.

LP: BCX, yay or nay?

SM: Nay.

NM: One leadership habit you swear by?

SM: Felt leadership. People should feel you.

NM: The best board question a CEO can be asked?

SM: What are your risks?

NM: One word for the future of South Africa?

SM: If South Africa was a share, I'd buy.

NM: Thank you very much sir for an opportunity to converse with you and reflect on your leadership journey. I have admired the turnaround at Telkom from a distance. It was very enlightening to talk to you. One of my big take away is that it's about people and also just navigating very difficult environments with government. South Africa has got an infrastructure gap and private sector will have to come to the party. But there are plenty opportunities within South Africa and the continent as a whole.

Part of the reason we started this podcast is to celebrate people like you that have contributed immensely to where we are today. So, thank you so much.

SM: Thank you very much. Thanks for the time. People are the most important. You can know your numbers all you like. If you don't know your people, you won't get far. Thanks for having me.

LP: Thanks, Sipho. It's been great to speak to you after so many years. I know you for a very long time, more than 13 years. I know I've given you some tough times in the past but hoping that you benefit from all your future investments. Thank you for the opportunities. The one thing that did stand out for me is we all need to work towards a common goal and have that national objective. That’s very important for the South African landscape. So hopefully we can do that, and I agree with you, South African equities are very much undervalued, and we should all be piling in here right now. Thank you very much.