SHARES in fixed-line operator Telkom plummeted to an all-time low on Friday after it said it had ended talks on a potential strategic venture with South Korean group KT Corporation.

KT planned to buy 20% in Telkom, a sale that was expected to bring a cash injection of just more than R3bn. The deal, however, was rejected by the government, Telkom's majority shareholder.

"Shareholders are advised caution is no longer required to be exercised . when trading in the company's securities. Further announcements will be made as required," Telkom said on Friday.

The group's shares fell 5,7% to R17,16. At 2.51pm, the stock was down 1,92%, or 35 cents, at R18,19, having recovered somewhat.

The proposed strategic venture was near maturity a few weeks before the government's decision.

"At the moment Telkom needs to come up with a new strategy. Competition is stiff," said Letticia Nkumbula, telecommunications analyst at Africa Analysis. "The investor expectation was that KT would bring expertise to move Telkom forward. Now the company has lost that competitive advantage, which affected the shares."

The two parties had reached an in-principle agreement regarding the terms of the venture, including a revised cash issue price for the new Telkom ordinary shares to be issued to KT.

The venture would have resulted in KT acquiring a strategic equity shareholding of 20% in Telkom, with the companies entering a five-year agreement to formalise the relationship and identify areas of mutual co-operation.

Telkom faces many challenges, including declining voice revenue, and continued erosion of the traditional fixed-line business by the rapid adoption and use of cellphones. The company is operating in a highly competitive fixed and mobile market, and extensive capital investment is needed to renew and expand its network, it says.

The collapse of the proposed investment by KT and a slump in full-year earnings were behind the fixed-line operator's decision this year not to pay dividends for the first time in years.

With Thabiso Mochiko