Mashile’s real 702 plan

Sparks’ new boss, London-seconded Bob Head, sees absolutely no reason why the company’s head office should be in the Cape when most of its clients – and subsidiaries Nedbank and M&F – are up north. Despite the obvious business case, Sparks, quite simply, refuses to leave Cape Town. So exit the family man. Enter his former deputy, the tougher, commercially-focused Paul Hanratty.

That critical questions such as the proper location of the organisation’s top teams are only now being asked of some South African corporates says much about the sluggish rate of South Africa’s post-Apartheid economic transformation.

Outside some obvious pockets of intense competition, practices have changed little. Pre-1994, big business asked for and received special dispensation from politicians.

They became used to demanding high hurdle rates before considering fixed investment and budgeted profit margins well above global averages. As a result, on a risk-related basis South African companies have long been among the most profitable in the world.

Through a combination of the share option shell game and skilful protection of their companies’ vested interests (read: excessive profit margins), some very ordinary managers have become extremely wealthy indeed.

Unfortunately, flushed with cash, those managing many of these enterprises believe their own promotional material. By example, their message to the rapidly transforming (black) management tier is that value is created by successful lobbying through “relationship building” rather than the chestnuts of hard work, knowledge-building and risk-taking. Hopefully it’s a message the new generation will see through.

Although a brighter future beckons, there is little question that in the past odds have been stacked against the entrepreneur. If the start-up company was able to get past risk-averse banks, they soon faced misguided big business executives determined to protect privileges by squashing the life out of any would-be competitor.

Back with last week’s news, the decision by broadcasting regulator Icasa to award a lucrative Gauteng FM radio licence to Primedia might easily be misinterpreted. Especially as reports cite one of the motives was to ensure the radio station (702) is able to flourish financially over the long term.

Critics are enraged, pointing out that the job of a regulator is to provide level playing fields, not protect individual players.

They note, too, that by limiting the issue of commercial radio licences in SA, Icasa has created regulated monopolies that generate the highest profit margins of any station in the world (over 50% of EBITDA). That Primedia already owns one of the handful of Gauteng FM licences. And, nudge-nudge, only last year Primedia appointed Icasa big-wig Michael Markovitz to a senior position in the group.

To swallow this populist line might be missing the point, a challenge that’s sure to be presented to the courts. Classic FM and Jacaranda were not above paying senior advocates in an attempt to silence little Radio Today when that station started showing initiative. 702 with a quality signal is, by comparison, a giant threat.

Icasa chairman Paris Mashile will be fully aware of the likely repercussions of the past week’s decision. Having been appointed just nine months ago, he remains an unknown quantity for most in the sector.

But from his background, Mashile is no mug. He holds a masters in science and physics from a UK university and has a US electrical engineering degree. A discipline that develops clear thinking.

According to the Icasa website, Mashile stands for “fairness, freedom of expression, openness, accountability…….and economic entrepreneurship.” He knows the reasons why most SA commercial radio stations generate profits that compare with racketeering rather than legitimate business. Entrepreneurship is not among them.

Mashile’s desire, surely, is to bring SA’s radio industry kicking and screaming into 21st century. The decision to give 702’s talented broadcasting staff a decent platform, albeit with a restricted format, is certain to enhance competition in this cosy market.

Until now, Primedia – which also owns Highveld Stereo – would have been an opponent of any liberalisation strategy. Through this move, he has turned a potentially dangerous (and litigious) enemy into an ally.