Telkom: where did it all go wrong?

Things aren’t looking too good for Telkom. Not only is its share price plumetting, it’s also facing a huge fine from the Competition Tribunal, and a 2,392% increase in its spectrum licensing fees.

The Competition Commission asked the Tribunal to fine Telkom R1.2-billion if it was found guilty of anti-competitive behaviour.

A new Administrative Incentive Pricing scheme introduced by the Independent Communications Authority of South Africa (ICASA) could also result in Telkom paying R822-million more per year for its wireless spectrum than before.

Telkom further said that its recently launched consumer mobile offering, 8ta, is only expected to break even in 2014.

On top of this the company faces a plague of copper theft, for which government recently put new legislation in place.

To crown it all, Cabinet has rejected the proposed sale of a 20% stake in Telkom to Korea Telecom which means that the much needed cash injection which Telkom was looking for will not happen.

All things considered, it shouldn’t come as a surprise that Telkom revised its expected earnings downward on Monday. Except it’s the second time Telkom has lowered its expected earnings for the same period.

Dina Pule
Dina Pule, Minister of Communications

How did this happen?

A pertinent question to ask at this point is how South Africa’s telecommunications giant has landed up in this position.

An even more pertinent question, is why the SA government still holds a controlling stake in Telkom.

Government directly controls 39.8% of Telkom’s shares and an additional 10.9% through the Public Investment Corporation, which is an investment company wholly owned by the government.

Pinky Moholi
Nombulelo "Pinky" Moholi, Telkom CEO

At the risk of oversimplifying: Telkom’s problems begin and end with government’s involvement in the telecommunications sector.

By way of example, let’s look back at the time that government allowed the Thintana Communications consortium to plunder Telkom.

Thintana, a consortium made up of US telecoms group SBC and Telekom Malaysia, bought a 30% stake of Telkom in 1997.

The powerful position enjoyed by Thintana until 2002 was described in an article published during 2007 by a US academic journal, which was co-authored by Willie Currie, a counsellor at ICASA, and Robert Horwitz, a member of the department of communication at the University of California in San Diego.

Currie and Horwitz describe how South Africa’s new democratic government had worthy intentions: to roll out telephone service to the previously disadvantaged and establish an independent regulator to oversee the reform.

However, according to the article their plans were defeated by a lack of trust in democratic structures outside of the ANC’s immediate control and the ANC’s inability to control powerful international players involved in privatisation.

Lyndall Shope-Mafole, former DG of Communications
Lyndall Shope-Mafole

Add to this the attempts of the Department and Ministry of Communications to block new infrastructure players and international cable systems such as Seacom and EASSy, and government’s conflict of interest is made apparent by how hard it fought to prevent the telecommunications industry from offering the services Telkom does.

In a landmark case against ICASA in 2008, Altech eventually won the right to roll out its own telecoms services, paving the way for others to get licenses to do the same.

Former director-general of the Department of Communications, Lyndall Shope-Mafole was even quoted as saying: “Why were we protecting Telkom? [It was] so that we could get big value for it because it was going [public on the stock market]. It had to do with bringing investors into a company that is South African.”

Judge, jury, and executioner

Not only does the South African government set the country’s information and communication technology policies and legislation, it also controls the regulator (ICASA) and the biggest fixed-line operator (Telkom).

Broadband Infraco, a terrestrial backhaul network provider, and Sentech, a wireless signal distributor, are also state-owned enterprises (SOEs).

This obvious conflict of interest has been brought up time and again when government dragged its heels in liberating South Africans from Telkom’s monopoly.

Industry and analysts cautioned government and Telkom of the consequences should they continue to run the operator the way in which it was, but the warnings were ignored.

We told you so

Despite the cries to break Telkom’s monopoly, to invest in its network instead of paying special dividends, to give competitors access to Telkom’s last mile copper infrastructure… despite all this, here we sit.

All of the progress made in South Africa’s telecommunications sector has been fought for tooth and nail by the industry itself. Any advances that were made have been in spite of government’s involvement rather than because of it.

In 2003 the ITU listed South Africa as the third highest drop in global ranking on its Digital Access Index when we slipped six places from 30 to 36 between 1998 and 2002.

More recently South Africa ranked 97th on the 2010 ITU ICT Development Index, down from 94th in 2008.

It’s way past time for government to admit that it has failed to achieve its “developmental goal” of reducing the cost to communicate and increasing broadband access through its SOEs and parastatals like Telkom.

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Minister adds four years to Telkom’s monopoly

Altech court victory

Altech win stands, as minister rests case

R922 million Telkom’s new spectrum bill?

Will the DoC ever get its act together?

Please don’t mess this one up as well, DoC

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Telkom: where did it all go wrong?