Telkom at the crossroads

Cabinet could decide Telkom’s fate this week. Government’s highest decision-making body will consider three options for the future of the fixed-line telecommunications operator. Let’s hope it doesn’t blunder by deciding to renationalise the company. By Duncan McLeod.

It’s all come down to this. Fifteen years after Telkom was partially privatised and nine years after it was listed on the JSE, communications minister Dina Pule was scheduled to present three options for the future of the company to President Jacob Zuma and members of his cabinet on Wednesday.

For the past three months, an interministerial committee has been deliberating on the future of the troubled telecoms operator, in which government retains a 39,8% direct stake. It’s not known what the three options are, though it’s fairly safe to assume one of them is to buy out Telkom’s minority shareholders, delist the company from the JSE and turn it, once again, into a state-owned enterprise. It’s an idea that appears to enjoy some degree of support in the ruling party.

But it would be a huge mistake, one that would cripple Telkom and undermine government’s objective of achieving universal and affordable access to broadband.

What would happen if government went against global precedent and renationalised Telkom? Let’s start with the company’s long-suffering investors. Sure, short-term investors who have bought shares in recent weeks will score — government will have to offer shareholders some sort of premium to the prevailing share price. But long-term investors, including the thousands of black shareholders who bought in when the company listed in 2003 and who have watched the company’s market value shrink to 10% of what it was five years ago, will be big losers.

It gets worse than shareholders being out of pocket, of course. If Telkom becomes another state-owned enterprise, you can safely assume that top management will walk. CEO Nombulelo Moholi and chief financial officer Jacques Schindehütte, to name just two of Telkom’s top executives, didn’t sign up to be part of a state-owned enterprise, reporting to politicians. Both could easily find top jobs in the private sector, along with many other top managers. Last week, Telkom’s highly respected chairman, Lazarus Zim, said he was quitting. I’m told he’s fed up.

Let’s, then, consider government’s track record of owning other companies in the sector. Sentech? Its foray into telecoms was an unmitigated disaster. Government wants it to try again, but it shouldn’t be allowed to touch another cent of taxpayers’ money. Broadband Infraco? This loss-making parastatal has no raison d’être. Private-sector operators are running rings around it and it has shown it can’t compete on price. Yet bringing down telecoms costs was the reason it was created in the first place. Its assets should be sold and it should be shut down.

Whatever decision cabinet eventually reaches on Telkom, it’s crunch time for the company. The status quo is untenable and a decision of some sort is necessary. Management doesn’t have the freedom it needs and deserves to make the big decisions that will affect the company’s future. That much was clear when cabinet shot down the deal with Korea’s KT Corp.

Telkom is at a crossroads. If it is renationalised, its future is bleak. The good managers will leave; government will struggle to find suitable replacements; the company will become a pawn of the vacuous “developmental state” agenda but will fail to bring down broadband prices and expand services; rivals will take advantage of its weakened state to undermine it; and ultimately taxpayers will be called on to bail it out.

What’s needed is Telkom’s immediate and full privatisation. Its best chance of success is to be freed of the dead hand of the state.  — (c) 2012 NewsCentral Media

• Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail