Set Telkom free - TechCentral

Set Telkom free

[By Duncan McLeod]

Government often argues that it must retain its stake in Telkom because the telecommunications company is a “strategic national asset”. But with competition intensifying by the day, the best thing that could happen to Telkom — and its customers — would be for government to sell up.

When government partially privatised Telkom in the mid-1990s, it made a fatal mistake: it took a lumbering, state-owned monopoly and handed it to a sophisticated foreign management team without opening the market to competition.

That team, led by executives from SBC Communications (now AT&T) and Telekom Malaysia, quickly set to work taking full advantage of the five-year monopoly government had granted the company. It drove up call prices and maximised profitability.

Sure, the foreign investors did the company good — removing inefficiencies, improving processes and transferring management skills. And Telkom did have to rebalance its local and long-distance tariffs to prepare it for competition.

But make no mistake: SBC and Telekom Malaysia were handed a pot of gold. And they took full advantage.

When Telkom listed in Johannesburg and New York in 2003, the share price soared, making thousands of shareholders, including government, very wealthy indeed — on paper.

The foreign shareholders, aware that competition was coming, sold their shares. That was the time government ought to have exited the company, too. The share price was at a peak, and government’s coffers would have been bursting with cash from the sale.

Instead, government hung on to its stake, now 39% of the shares. It has continued to exercise control through a special share that gives it the right to appoint the chairman and have a direct say in the appointment of the CEO, among other things.

All of this harks back to an era when state-owned operators controlled the telecoms industry. Many governments, not only ours, felt they couldn’t let go completely, in part to ensure telecoms was delivered to everyone.

But telecoms is a very different beast today. It’s now a competitive industry in which mobile operators, licensed only 15 years ago, have come to dominate the landscape.

When apartheid ended in 1994, SA had about 5m fixed phones in use and virtually no mobile users. Today, more than 75% of South Africans have a telephone. Government hasn’t delivered that through its shareholding in Telkom — in fact, the fixed-line market has gone backwards since apartheid ended. Rather, it’s MTN, Vodacom and Cell C that have brought communication to the masses.

The mobile operators have been criticised for their call charges, but can’t be faulted for their bringing telephony to even the poorest households. They also look more likely than Telkom to bring broadband communication to the poor, through smartphones and low-cost laptops.

Belatedly, Telkom is now building a mobile network of its own, investing R6bn in a market that some believe is mature. It’s a risky strategy. It seems inevitable that four big operators all competing in the same market will lead to an environment where profit margins come under intense pressure.

In this environment, it’s important that Telkom is able to make decisions quickly. It needs to be nimble if it’s to survive.

But it remains a highly political environment. Instead of focusing all his energies on competitive issues, Telkom CEO Reuben September and his management team have the added burden of dealing with politics and managing politicians. This impedes the company’s ability to act when it needs to.

There is no longer any justification for government to retain its stake. It would do the company and the country a favour by setting Telkom free.

3 Comments

  1. Buzzlightyear on

    Is government reluctant to take Telkom to task over amongst others IP Connect charges because they own so much of Telkom and it brings them (and possible the ANC?) income?

  2. Good article Duncan. It’s about time somebody says it. I agree, Telkom cannot be 100% competitive as long as the politicians interfere with Telkom’s business. A good example is the appointment of Huawei to supply Telkom’s Number Portability solution. From a technical and financial point of view, Huawei’s solution is impractical and very expensive, but Telkom’s technical guys were forced to make the Huawei solution work, at a much higher cost and longer time lines. Telkom’s management is aware of the limitations and additional cost, but unfortunately they may not choose another vendor, it is just politics politics…

  3. So let me get this straight, my taxes helped to build that company, or at least keep it afloat. Now I need to, without any form of reimbursement allow government to just sell what my taxes helped to buy?

    I understand government controlled enterprises simply can’t keep it together (we’re like Greece, just further away), but by the same token it’s like telling shareholders at a private commercial entity that their shares mean nothing except to the brokers.