Tim Wood
American notes
At the risk of a swelling ego causing my head to explode, I must tell you that in August 1998 I precisely forecast the details of the recently released “market structure” for the telecom industry.
I can’t take all the credit of course since former communications minister Jay Naidoo found it difficult to hide what the policy wonks thought was the best solution a duopoly despite assurances to the contrary by his director general.
Now that the telecommunication policy “directions” have been released, it is hard not to feel entirely underwhelmed.
You don’t need me to forecast that a national network duopoly is never going to reward consumers and spur wealth creation. The only gauge for a policy is its ability to create desperately needed wealth, not channel it from one sector of the economy to another.
A direct example is the sponsorship and marketing war between MTN and Vodacom that passes for cellphone competition. The South African cell industry accounts for 12% of gross domestic product (GDP).
That 12% isn’t an addition to the economic cake, but has been subtracted from fast-moving consumer goods operators, especially in the low-income sector. Perhaps 1% represents a real addition to GDP when it should be closer to 6% or 8%.
The second national operator licence will have even more distortions, notably in the form of double taxation and the perpetuation of a wealth-sapping, rigged market.
The government is insisting that the telecommunications assets of Transnet and Eskom be added to the second operator’s. These assets were built with taxpayer money and subsidies through protected price structures (one is tempted to ask where on Earth the oversight committees were when this non-core infrastructure was set up to compete with Telkom).
Now consumers will be forced to pay for services that come from assets their wallets have already been tapped for. That’s double taxation never a sound idea and always fiscally harmful.
I will wager that after five years from the date the duopoly begins to operate, it will be unable to demonstrate significant economic value added. Let’s define significant as equal to just half of the GDP then attributed to Telkom and MTN/Transtel/Eskom/ sundry foreign operator(s).
If you’re an investor looking for a way to extract some loot from the new telecom action, may I recommend the surest thing executive level employment at one of the licence owners. Next best options are: empowerment “interest”, advertising agency, media outlet, event booking service (sponsored operas and the like) and corporate services. Rivers of cash will flow through the value chain with plenty of opportunity to skim large commissions in each area.
If the licence holders eventually go public, their floats will be large and liquid, which will help the Johannesburg Stock Exchange, but I’d only be really tempted if there is a commitment to paying dividends.
Good luck investors, but if you’re a consumer don’t hold your breath because very little will change.