It’s the state’s call
South Africans have long had a hate-hate relationship with Telkom. Our rather high telephone charges are a constant bone of contention. And this is something government has been quite outspoken about of late. It has been trying to promote the
growth of the nascent call-centre industry for years. Sorry to say but much of this growth has been stunted, and since SA has many advantages in this area, this is unfortunate.
SA is in the same time zone as Europe. And apparently South Africans can easily adopt a range of accents, from German to north-English Geordie. The high cost of telephony is a major factor strangling the industry.
With its focus on job creation, government desperately wants to lower communication costs. Therefore it is a bit surprising to view a push in determining ownership within the industry. There have been two incidents in the past two weeks that highlight the issue.
The first stemmed from MTN’s bid for Telkom SA.
Though government’s determination to hang onto assets is regrettable, there are sectors where an argument can be made for local- or public-sector influence, or even control. Electricity and water are chief among these. Internationally, the private sector has underinvested in these areas over the past 25 years. And the need to ensure that poor people have access to services also supports the idea of some public- sector power.
However, the telecommunications industry does not fit either of these criteria. It is a fast-moving industry in which the private sector has been more than happy to rapidly invest — and in some cases overinvest. And poor people have skipped fixed-line telephones, and advanced straight to mobile.
Therefore, it’s surprising that government appears to want to retain a portion of the new entity that will emerge if MTN buys or merges with Telkom.
Telkom’s prices surged while government was the controlling shareholder. MTN has proven itself an able manager of a diverse business with a footprint across Africa and I cannot see the benefit of government retaining a stake in this space.
The second incident was the communications ministry’s indication that any new undersea cable to land in SA should be majority locally owned. Since only one cable (Sat-3) now connects SA to the rest of the world, this is a major reason for the high cost of communications.
Three different international consortia want to land cables in SA and should be welcomed with open arms. Economic theory suggests the more competition in the space the better.
That was my impression when government licensed Neotel.
Several years ago, former chief economist of the World Bank, Joseph Stiglitz, wrote a book called Globalisation and its Discontents In it he noted that when governments privatise state monopolies before introducing competition, this inevitably drives up prices.
Telkom’s price hikes after its partial privatisation in 1997 was a textbook case of this behaviour. And government’s lengthy approval process to introduce competition, eight years later, simply entrenched these high prices.
Therefore the root of the problem was not the private sector, but poor planning. And the department of communications is in danger of causing a similar problem by ownership restrictions on undersea cable projects.
We believe government should allow for a sound regulatory framework and let the companies in this sector compete. That is bound to lead to lower prices — and a more competitive SA economy.
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