Events of the past week have shown that it’s become more urgent than ever that government sell its stake in Telkom. If it continues as a significant shareholder, it risks further undermining one of SA’s most important companies and inflicting long-term damage on SA’s economy.
The opportune time for government to divest of or at least begin to reduce its nearly 40% equity stake in Telkom was more than seven years ago. At the time, the company’s share price was riding high on the legacy left by the strong management team led by former strategic equity partner Thintana and former CEO Sizwe Nxasana, who now heads FirstRand.
Thintana, controlled by America’s SBC Communications (now AT&T) and Telekom Malaysia, appointed top managers at Telkom who milked the company’s monopoly for all it was worth, but who could really blame them? They rode roughshod over a weak regulatory and policy environment, ringing up the cash registers and rewarding shareholders handsomely. But Thintana couldn’t be blamed for taking advantage by hiking prices out of all proportion. Instead, the finger should have been pointed at a weak policy maker.
The litany of mistakes that has taken Telkom from a hugely profitable operator to one that may even have to go to government, cap in hand, in the next few years is the direct result of political meddling. For example, it was the late communications minister, Ivy Matsepe-Casaburri, who insisted on appointing a CEO with zero experience in telecommunications to succeed Nxasana. The decisions that flowed in the next few years cost Telkom dearly, not least the R10bn it poured into the Multi-Links black hole in Nigeria.
If Altech CEO Craig Venter hadn’t taken the late minister to the high court five years ago to challenge government’s largely failed policy of “managed liberalisation” — Altech won, thankfully — SA telecoms would arguably be in an even bigger mess right now.
Politicians have done untold damage to the industry through protectionism and bad decisions. It’s little wonder that technology industry CEOs and analysts are warning that SA runs the real risk of falling behind countries like Kenya, which have a clearer focus on building an innovative ICT sector and warmly embracing foreign direct investment.
Yet the absurdity continues. The collapse in Telkom’s share price continues unabated after cabinet’s decision not to support the sale of 20% of the company’s equity to Korea’s KT Corp and as government talks about using the operator to take broadband to rural areas.
This is grossly unfair on Telkom’s other shareholders. Government should be crafting policies that make it easier for private capital to invest in networks and finding innovative solutions to bridging the digital divide. Instead, it thinks it can do a better job of building these networks.
The message the KT decision sends to potential foreign investors is stark. Why invest in a country where the government turns away investors without providing coherent reasons for doing so?
SA’s telecoms industry is at a tipping point. Either government unleashes the market to innovate and develop naturally by opening up radio frequency spectrum and making it easy for infrastructure providers to build new networks, or it intervenes directly in the economy in the name of the “developmental state”. Its choice will shape the country’s destiny.
If government thinks it can do a better job by playing a more active direct role in the economy, instead of formulating policies that grease the wheels of private commerce and enterprise, then let it try. But experience has shown time and again that its chances of success are limited. In fact, it may end up causing far more long-term harm than good to SA’s growth prospects. — (c) 2012 NewsCentral Media
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail