Eskom vs Telkom: how the ANC government wrecked two essential utilities

Repeated blunders in the government’s management of Eskom and Telkom have resulted in major energy and telecommunications problems for South Africa.

Rolling blackouts have become a common occurrence, with Eskom implementing load shedding on almost a daily basis to manage the demand on the country’s power grid.

This is set to continue for the foreseeable future, as the beleaguered utility takes generating units at power stations offline to perform planned maintenance, while “unscheduled maintenance” from breakdowns places additional pressure on the grid.

Telkom, on the other hand, has been upstaged by mobile networks like Vodacom and MTN, and has struggled to offer fixed-line broadband prices that compare with international standards.

Considering Telkom and Eskom are struggling, it is interesting that both their predicaments began with poor decision making by the government.

Failed privatisation, liberalisation

How government failed SA broadband users infographic
How the government failed SA broadband users

These decisions by the ANC government seem uncharacteristic of an organisation with socialist roots, as they involved privatising the utilities and introducing competition over time.

In 1997, the government sold a 30% stake in Telkom to an international group called Thintana, which was 60% owned by SBC (now AT&T), with the remaining 40% belonging to Malaysia Telekom.

The sale signaled the start of the government’s “managed liberalisation” plan for South Africa’s telecommunications sector.

This “managed liberalisation” began with Telkom enjoying a state-sanctioned monopoly until 2002, and a de facto monopoly on fixed-line telecoms until Neotel’s launch in 2006.

During Telkom’s exclusivity period between 1997 and 2002, little was done to modernise the company’s infrastructure, with the major shareholders (Thintana and the government), along with former CEO Sizwe Nxasana content to “sweat its assets”.

Interestingly, Telkom launched its first ADSL services in 2002, a few months after its state-sanctioned monopoly ended.

It is also worth noting that in 2006, when then-CEO Papi Moletsane said Telkom would invest billions in renewing its infrastructure, its share price fell by 7% the same day.

Eskom Power Plants from 1926 to 2015
Eskom Power Plants from 1926 to 2015

Eskom faced a similar challenge, with the government preventing the utility from building any major power plants until 2004.

By then it was already too late. The Department of Minerals and Energy warned in 1998 that a decision about building additional capacity had to be made by 1999 to ensure that Eskom stayed ahead of demand come 2007.

The reason for the delay was that the government wanted to open up the energy market to competition from the private sector.

As with Telkom, all the necessary regulations weren’t put in place to fully liberalise the market – and still aren’t.

While network service providers managed to win the right to “self-provision” their own networks by taking the government to court, the unbundling of Telkom’s so-called “local loop” or last-mile copper infrastructure still hasn’t happened.

Similarly, the Bill meant to open Eskom’s grid to independent power producers is reportedly still with President Jacob Zuma, awaiting his signature.

Between sweating the assets of Eskom and Telkom, and failing to implement regulations to truly liberalise the telecommunications and energy sectors, the government has wrecked two of South Africa’s essential utilities.

Telkom has started to turn the ship around with the roll-out of its next-generation network, but not in time to stave off major staff cuts.

Eskom has two new power stations underway, but construction has been marred by numerous delays and labour action.

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Eskom vs Telkom: how the ANC government wrecked two essential utilities