Warren Buffett famously said (why is it that anything Buffett has ever said is famous?) that when the tide goes out you can see who has been swimming without a costume.
In Telkom’s case, it would have us believe that its performance is a little less than buoyant because of adverse economic conditions. But the tide, which has gone out in Telkom’s case, is not the economy, but Vodacom. Since Telkom lost the printing press that masquerades as a cellphone company, Vodacom, we can have a really good look at what this tide has been hiding. The picture is not pretty.
This is shown starkly in the performance of Telkom shares since Vodacom split off about a month ago. After the split, Telkom traded at R54 a share. It trades now at R34 a share. The entity value has fallen by R10-billion from R28-billion to R18-billion in just four weeks, representing a massive loss of value to Telkom’s shareholders.
If you are wondering who these people are, for the most part, think you and me as taxpayers. Telkom is listed on the JSE, but its key shareholder remains the government, either directly (34%) or through the Public Investment Corporation (15%). Management has been inept, its strategy being largely to hide behind the government’s skirts and rely on generous cash flows from Vodacom to make it look good.
But if the government is looking for the key culprit to understand Telkom's poor performance and how South Africa's pricey telecommunications services have hamstrung development, it should hold up a mirror.
It has been too heavily invested and conflicted in telecommunications to push a strategy that would have long ago delivered competitive prices to this market. This has given us the worst of all worlds. High prices continue to marginalise the poor and raise costs to all business. High prices in particular hurt small business, which even government would agree is a key driver of jobs.
Which all tells us that Telkom is no more than a tragedy masquerading as a telecommunications company.
