A report that Vodacom South Africa workers had submitted a proposal to buy the 5% stake that black economic empowerment (BEE) company Hosken Consolidated Investments (HCI) sold at the end of 2002 raises a number of issues.
The workers’ desire may seem a bit optimistic. The 5% stake in Vodacom was bought by technology group Venfin and Vodacom’s foreign partner Vodafone. Venfin got 1,5% and Vodafone got 3,5%.
HCI sold the stake for what was widely reported as R1,5-billion. On the basis of Venfin’s valuation of its 15% stake in Vodacom, in the Venfin annual report, a 5% stake could be worth R2,3-billion.
What the story, whatever its truth, raises once again is the lack of an empowerment holding in the largest cellular operator in South Africa, with a 54% share of the cellular phone market. Vodacom also operates in Tanzania, Lesotho, the Democratic Republic of Congo and Mozambique.
The argument has always been that Vodacom is empowered through the 50% stake held by Telkom. Vodafone holds 35%, with the remainder held by Venfin.
Why should Vodacom be let off the hook? When its closest competitor, MTN, is a fully empowered company, black-owned and black-managed, and Cell C agreed to a 40% BEE stake as a licence condition.
The answer to this question goes to the heart of how BEE deals should be structured, at the operational, in this case Vodacom, or the holding level, in this case Telkom.
Deals at the operational level are easier to finance, because there is less money to raise than the billions often needed for a deal at the holding company level. They also avoid the problem of foreign investors being disadvantaged by the redistributive effect of BEE deals.
Yet such deals might be criticised on the basis of not giving real power to the BEE shareholders: the power that comes from owning shares at the holding company level.
But Telkom itself does not have BEE ownership.
The Public Investment Commissioner is warehousing the last 15% of the company sold in a disinvestment exercise by the Thintana consortium, for eventual sale to a BEE grouping. Even if and when this controversial deal is finalised, I do not believe that Vodacom should be regarded as empowered through the holding company. It is simply too large an organisation, with 4 000 employees and total revenue of about R24-billion.
Also, if a BEE consortium owns 15% of Telkom, and Telkom owns 50% of Vodacom, then the Vodacom BEE stake is 50% of 15%, or 7,5%. This is less than the 10% figure BusinessMap has long used to define a company as truly black-influenced. More importantly, it less than 25% required for a company to be defined as black empowered in terms of the recent draft BEE code of good practice.
The time is ripe for a BEE grouping to get a stake in Vodacom, and for the company to be unbundled and listed separately.
Vodacom is a real money-spinner for Telkom. It is ironic that a failure of the Telkom monopoly to provide cheap phone services means that many people prefer to use cellphone services instead, more than half of which is supplied by Vodacom. What Telkom loses on the swings it gains on the roundabouts. Real competition would mean that Telkom’s loss really would be someone else’s complete gain.
What about Telkom’s shareholders, you ask? They would simply get a proportionate number of shares in South African and African cellular giant Vodacom, as well as retaining shares in Telkom. The state is a major shareholder, and would continue to be.
The state’s estimated 19% of Vodacom (50% of its 38% stake in Telkom) could be used for BEE. The BEE consortium 7,5% would bring the overall BEE holding to more than 25%. And the money raised would flow to the fiscus in a privatisation exercise to reduce government debt.
If government is really serious about empowerment, it has to lead by example.
Rumney is director of the Business Map Foundation