Telkom has been a curious creature in recent days. It announced it was buying a company that offers internet connectivity in eight African countries, for R140-million. Why, you have to wonder. Is this a precursor to a disinvestment?
Then there was its chief executive, Papi Molotsane, lording over the Telkom ICT Journalist of the Year function, handing out gongs to the journalists who have done the best job in the past year exposing his company as a blight on the landscape. Did Telkom really consider the PR value of these awards when initiating this competition?
The next day, Molotsane called a board meeting and quit, and the JSE in reaction added 4% in value to the Telkom share price. Journalists wrote that government, in the persons of the president, the deputy president and the relevant director general, had made their unhappiness with Telkom and its profiteering (to use President Thabo Mbeki’s term) public. JSE investors were unhappy with a perceived lack of direction and Molotsane had shown an inability to retain key staff.
Yet most commentary has focused not on the hapless Molotsane, but rather on a possible successor. One or two internal candidates have been mentioned, while others have written that, because Telkom is such a mess, only an outsider — possibly even a foreigner — can fix it.
But, to understand Molotsane’s abrupt exit, we should not try and look inside his head, or at his relationship with senior and unionised staff or JSE investors. Instead, we should look at the annual report of Asgisa.
Asgisa is an economic plan designed to put the country on a much higher growth trajectory — and keep it there. A key Asgisa building block is to bring down telecommunication prices, seen as a stimulus to both the outsourcing industry and small and medium enterprises.
These prices remain excessive, even though they have been identified as a key growth constraint. Government has been trying to both regulate prices down and spur greater competition in the telecommunications sector. It has established the Independent Communications Authority of South Africa (Icasa), but this independent regulator still manages to produce more headlines about its internal strife than battles won on behalf of the consumer.
Neotel, formerly the second network operator, has been so long coming that there can hardly be anyone left who actually believes it will finally see the light of day as an actual company that offers real services, instead of an idea or promise of such services.
At one time, Sentech looked like it would get into the ring and that government might even give it money to do the job. But it has somehow managed to not inspire the confidence that it could ever be a real competitor, and government has wisely decided to keep it from having to compete for a living.
Then there’s Infraco, one of Public Enterprises Minister Alec Erwin’s many brainwaves. The idea is that it will use Eskom’s telecommunication infrastructure to provide really cheap broadband on a wholesale basis.
But Erwin’s department is such a mess that it has been unable to get business plans together, meaning that the treasury has withheld R3-billion in funding for Infraco and other projects.
If this sounds like a case of why the public sector should not be in charge, think again. The Asgisa report notes that we pretty much do not have a small and medium enterprises (SME) sector because prices charged by dominant companies in steel, fuel, chemicals, telecommunications and banking are so high that they all but preclude small businesses from taking these products and services and turning them into business opportunities. These companies are privately owned: private ownership does not in itself drive prices down.
But government now has apparently decided on a different tack. It will use its shareholding in Telkom to align its activities with the country’s over-arching economic goals as embodied in the Asgisa strategy.
As is generally known, government has a considerable stake in Telkom, owning 37,7% of the fixed-line operator. Less known, and confirmed by Who Owns Whom in South Africa, the Public Investment Corporation, which manages the pension funds of state employees, owns 14,4%, giving the state overall control in excess of 50%.
Telkom is not the only company with which government finds itself at loggerheads as it tries to move the economy into overdrive. Consider the case of Mittal, where one of the world’s richest men has a cosy export cartel with one of this country’s richest men. The pair are able to artificially rig prices to the detriment of everybody else in the country. Mittal is the subject of a multi-year Competition Tribunal inquiry, which has found it guilty of excessive pricing.
The remedy is awaited, but how much easier it would have been — if government had board control at Mittal — to tear up the cartel agreement.
Telkom’s monopoly pricing powers centre on its ability to control the SAT-3 undersea cable. It uses only a fraction of this cable’s capacity, keeping broadband prices high and starving the country of an important resource.
Government has stated its intention to nationalise this facility to ensure that Telkom’s competitors get equal access to the use of the cable, a move that Molotsane previously told the Mail & Guardian would be fought by Telkom in the courts. This would mean, say, a three-year court battle ensuring that, in the meantime, consumers continue to pay through the nose while growth and job creation continue to be both sub-optimal and disappointing.
Molotsane has also reportedly incurred government’s wrath by wanting to structure its investment in the EASSy cable, the east coast’s answer to the west coast’s SAT-3, on a similar, we-are-in-charge-and-we-set-the-prices basis, while government wants all players to have equal access to the facility.
Molotsane appears to have badly misjudged the terrain by cheesing off his dominant shareholder, the state. Private shareholders may be aghast when they realise that Telkom may have a new, different and pro-growth agenda when its new chief executive takes over. Prices may be slashed, but this may not necessarily be bad for Telkom’s overall profitability as volumes soar and it benefits from an economy operating in top gear.