Government first raised the idea of a deal between Telkom and Korea’s KT Corp. So, last week’s decision by cabinet not to support the transaction comes as a surprise and a setback for the JSE-listed company and raises serious concerns for shareholders and consumers.

The proposed deal had enjoyed the support of former communications minister, the late Roy Padayachie. It’s clear his successor, Dina Pule, was less enamoured of the idea. She hinted as much in parliament last month.

But Telkom and its CEO, Nombulelo Moholi, must still have been taken aback by cabinet’s decision. Moholi and her management team had invested at least nine months in preparing the groundwork for the transaction. The Koreans, too, have every reason to be annoyed after investing so much time and money in a due diligence. In a carefully worded statement, KT Corp said it was “disappointed” and that the deal “would have brought significant benefits” to Telkom, its stakeholders and SA.

Of course, government had to approach the deal with some caution. In the late 1990s, when government sold 30% of its equity in Telkom to a consortium made up of America’s SBC Communications (now AT&T) and Telekom Malaysia, the foreign partners milked the local operator’s state-sanctioned monopoly for all it was worth, extracting huge dividends on the back of sharp retail price increases.

That said, though, the market has changed immeasurably since then. Telkom is now operating in a competitive and more regulated market and simply can’t get away with the price gouging it could a decade ago. It’s hard to see how the KT deal would have been bad.

By putting a stop to the deal, government has sent the entirely wrong message to foreign investors: that SA is closed for business.

It’s also sent the wrong message to Telkom’s minority shareholders. In its statement explaining cabinet’s decision, the department of communications says government has “adopted a policy position to beef up its infrastructure for the next seven years, particularly in rural areas”. Telkom, it says, is a “key and strategic asset in the roll-out of this telecoms infrastructure”.

For ordinary Telkom shareholders, the alarm bells ought to be ringing. Although government’s talk about improving broadband penetration is well-intentioned, its decision not to support the KT deal essentially throws other shareholders to the wolves.

Government appears to want to treat the partially privatised Telkom, in which it retains a 39,8% stake, as just another parastatal.

If it wants to do that, it ought to offer minority shareholders a healthy premium over the current share price and nationalise the company. Of course, doing so would fly in the face of trends in liberal democracies the world over (Australia is a notable and controversial exception), where governments have moved to divest of their remaining stakes in incumbent fixed-line operators.

It would also probably achieve exactly the opposite of what Pule wants. Government’s track record in operating businesses in SA’s telecoms industry is abysmal. Former communications minister Ivy Matsepe-Casaburri’s efforts to establish Sentech as a competitor to Telkom went up in flames. And former public enterprises minister Alec Erwin’s pet telecoms project, Broadband Infraco, has proved itself to be mostly ineffective and is now bleeding money.

Given this experience, is it right to entrust this government to deliver broadband for all? No! That’s best done by private capital in a competitive and efficient market. Which companies most effectively cover the rural areas of SA today? It’s not Telkom, but rather the privately owned mobile operators. Yes, for the most part, it’s older second-generation mobile technology, but it’s the mobiles that are best positioned to blanket SA in broadband — provided government ensures they get access to the spectrum they need to do this.

Instead of blocking the KT deal, government should sell its entire shareholding in Telkom and free its management team to do what they deem best to remain relevant in a competitive market. That’s the only viable approach. Unfortunately, that idea doesn’t square with the ANC-led government’s ideologically unsound ideals.