Telkom a lone beacon of hope - TechCentral

Telkom a lone beacon of hope

Telkom CEO Sipho Maseko

Telkom reported stellar results on Monday, proving that privatisation is the only real option to solve the dire financial positions and the criminal lack of corporate governance at virtually all of South Africa’s state-owned enterprises.

The reported results show that Telkom is well managed, adheres to high levels of corporate governance, is financially sound and has a clear strategic vision.

This did not happen overnight and many pundits would be quick to remind me of the various dips the company has seen during its roller-coaster ride over the past 25 years.

Arguably the company did not live up to its original mandate to connect South Africans to the digital age, but imagine what Telkom would look like today if it had remained in state hands. (Could it possibly have been in a worse state than SAA or Eskom? Some would say yes.)

The Telkom of today, as represented by its latest results, is not only holding its own in a very competitive industry, but also contributes financially to the fiscus. In the latest financial year, it paid R1,6bn over to national treasury — R690m in taxes and R880m as a dividend.

Compare this to the woeful financial status of Eskom, South African Airways, PetroSA, Prasa and virtually every other SOE that requires annual instalments from government just to pay the bills.

Siyabonga Cwele

The private sector has had an active shareholding and operational involvement with Telkom dating back to 1997.

I nearly fell off my chair when I read a press statement from telecommunications & postal services minister Siyabonga Cwele in response to Telkom’s results. It contained the following quotation from Cwele:

These strong results underscore the correctness of government’s decision, working with other shareholders, to invest in turning around the company instead of selling it. Since the cabinet decision of June 2012, shareholders reconstituted the board, which appointed a new management team. These changes have seen the company’s share price moving from a low of R12,50 to the recent R77,64. We encourage state-owned companies that are in trouble to learn from Telkom how it achieved its turnaround. (Author’s emphasis.)

I actually laughed out loud.

For some context, Cwele’s comment refers to cabinet’s controversial 2012 last-minute decision to block Telkom from selling a 20% stake to Korea’s KT Corp. This decision came after Telkom and KT had spent months around the negotiating table and had actually shaken hands on it. Although the official reason for pulling the plug was that such a deal would reduce Telkom’s ability to “improve access to information and communications technology services”, it stank of political interference.

But Cwele seems to forget that Telkom’s privatisation started nearly 15 years earlier, in 1997, when SBC Communications and Telekom Malaysia bought 30% of Telkom. The US$1,3bn transaction was worth R5,5bn at the time.

It didn’t stop there. Government further reduced its stake in 2003 when Telkom listed on the JSE. Currently, government owns less than 50% of Telkom via a direct shareholding by Cwele’s department and the PIC.

Apart from its reduced shareholding, government also slowly but surely relinquished management control. For a period of eight years following the listing, government had a disproportionate right relative to its shareholding to appoint board members.

This was an extremely turbulent time for the telecoms group and the period was tainted by significant management changes amid allegations of government interference. This, among other things, led to five CEOs in seven years.

After the controversial rights lapsed in 2011 and effectively ended the state’s control over Telkom, there has been a remarkable turnaround. This transpired after the appointment Jabu Mabuza as chairman in 2012 and Sipho Maseko as CEO. Between them they have batted away untoward demands. Today, Mabuza is one of the fiercest critics of president Jacob Zuma, and of developments at the SOEs.

In this context, Cwele’s notion that SOEs should “learn” from Telkom is incredibly ironic.

The only reason Telkom became what it is today is because it escaped government’s incompetence. It should be clear that the less control the state has over key SOEs the better. This would most certainly be the case with Eskom and SAA.

Not a silver bullet

Privatisation is not a silver bullet, but in the South African context it can make a world of difference. Just think what a remarkable difference a reputable private-sector partner would have on efficiency and corporate governance at Eskom and SAA.

Within the current context there is actually no downside to privatisation. Unions may shout “job losses”, but there are few prospects of job creation under the current Zuma government.

But don’t hold your breath. It would interfere with the looting.

  • This article was originally published on Moneyweb and is used here with permission

10 Comments

  1. Vusumuzi Sibiya on

    Removing government interference and privatisation are two different things.

    There was indeed a time when the same state owned SAA operated profitability; and so what is needed, is competent management and leadership with a vision to turn the business around;

    …the same is applicable to all the other SOEs; put simply, less cadre deployment and interference from government is what has turned Telkom around.

    There are plenty of private companies that are dismal failures; get delisted; go bust and land investors in financial turmoil. Privatisation has very little to do with success of a venture or enterprise…

    …competency of management is the key factor and limited interference from controlling shareholders.

  2. Sorry Vusumuzi you are wrong Telkom is run on a cadre system as Telkom think they are above the law as the GCEO and Chairman who happened to be not only cadre but close friend to the departed Treasury Minister therefore off shore monies became free game as the PFMA and Constitution clearly state Telkom as a Major Public Enteprise schedule 2. Sipho Maseko stated in the Sunday Times around January that Jabu Mabuza was successfully holding the Government at bay. Both these gentlemen for your information were appointed at Nkandla, Sipho some six months before he joined Telkom.

  3. Greg Mahlknecht on

    Restructure and raise the dividend! The financial rise of Telkom and the so-called “comeback” is based entirely on financial fiddling, while the underlying business has not improved at all.

  4. Greg Mahlknecht on

    >The only reason Telkom became what it is today is because it escaped government’s incompetence. It should be clear that the less control the state has over key SOEs the better. This would most certainly be the case with Eskom and SAA.

    This made me laugh – I’ve been working in/with the local telecomms industry for a loooong time, and nothing has changed with telkom. Nothing. You only have to look at them vs the competition to see the breathtaking scale of their incompetence.

    Everyone knows JZ loves money more than the citizens of South Africa. Mabuza and Masuko are only there because they’re selling Telkom’s future and making serious coin. I’m sure JZ gets some of that after it’s loaded on to the gravy train and chugs its way through government. What does he care where Telkom is 5 or 10 years from now?

  5. Still, i do not find any reason why Gov should not withdraw itself completely from Telkom. Whether it still owns 49% (directly + through the PIC) or 51% is rather irrelevant.
    Telkom has still benefited hugely from their near monopoly status in the overall backhaul network and their dominance in the old copper infrastructure. Telkom and the Gov interference/protection in the past have been the major obstacle in rolling out the older kinds of fixed line data/internet connections :ISDN, ADSL/VDSL. Now with fibre their dominance appears to wane, but their Openserve fibre network is very often in less central areas the only one available.

    Telkom should be fully privatised, and the PIC, under the care of Treasury can also be scrapped IMHO. The GEFP can directly invest in financial/ investment companies or whatever.

  6. Vusumuzi Sibiya on

    >>Telkom should be fully privatised, and the PIC, under the care of Treasury can also be scrapped IMHO.

    …and who would be in the position to buy the shares???

    I will reaffirm the position that privatisation has no bearing on the success of an enterprise but that which is required is competent management and focus on the right vision for the future.

  7. Edward Yves on

    In my opinion Telkom is making it’s money looting government coffers, stifling competition through the DOC and ICASA and making sure all roads lead through Telkom in one way or another.

    They are the sole reason the South African telecommunication industry and it’s offerings are as pathetically expensive and mediocre as they are.