Mystery clouds aborted Telkom courtship

A botched telecoms deal between Telkom and South Korea’s KT Corporation is being blamed on political positioning.

A botched telecoms deal between Telkom and South Korea’s KT Corporation is being blamed on political positioning.

When in doubt, blame it on Mangaung. The ANC’s elective conference at the end of the year is definitely the dominant event on the political horizon, so much so that a botched telecoms deal between Telkom and South Korea’s KT Corporation is being blamed on political positioning in the run-up to the conference.

The reasons for government’s about-turn on the acquisition of a 20% stake in Telkom by KT Corporation have not been made clear, leading to much speculation.

This week, a number of telecoms analysts suggested that the proposed R3.3-billion transaction could have been scuppered because it was not politically expedient for Jacob Zuma’s government to sell a stake in a strategic telecoms asset that may lead to job losses in the build-up to Mangaung.

“Cosatu has Zuma by the balls,” said one analyst who did not want to be named.

This view was dismissed by trade union federation Cosatu’s spokesperson Patrick Craven this week. “I wouldn’t put that interpretation on it,” he said.
“The media is always trying to relate every decision taken to Mangaung. It’s ridiculous.

Stalled transaction
“We oppose the privatisation of Telkom and this would have been a further stage in that process,” he said, explaining Cosatu’s objection to the now stalled transaction.

Presidential spokesperson Mac Maharaj refused to comment on the analysts’ speculation.

However, the analysts were quick to point out that the potential job losses caused by streamlining Telkom were a serious issue.

“Zuma can’t be seen to be handing over control of this strategic asset in the build-up to the conference,” said another analyst, who also refused to be named. “That would be a risky political move.”

In a statement released last week, the Cabinet announced that it would not approve the deal between Telkom and KT Corporation and that the government had adopted a policy of beefing up its infrastructure for the next seven years, particularly in rural areas.
“In considering the proposed deal between Telkom and South Korea’s KT Corporation, Cabinet took into account the fact that the department of communications is driving the government policy of rolling out broadband, in partnership with the private sector, to all citizens by 2020,” said the statement.

Available options
“Telkom is a key and strategic asset in the roll-out of this telecommunications infrastructure and in the effort to improve the skills of our citizens.

“Government recognises the need for Telkom to implement an urgent turnaround strategy and to get the company back to its critical centre of delivering ICT (information, communication and telecommunication)services to all South Africans. New options will be considered by Telkom and government in this regard,” said the statement.

Communications Minister Dina Pule has been asked to report back to the Cabinet in three months’ time on the options available for Telkom.

However, as a number of analysts the Mail & Guardian has spoken to this week pointed out, the government has been making noises about rolling out telecommunications services to rural areas for almost 15 years with very little to show for it.
They fail to believe that this is the real reason for the about-turn on the Korean deal.

Money has been pumped into signal distributor Sentech, with the accompanying posturing about a wireless rural communication network, but nothing has been achieved and millions of rand have been written off because of badly managed investment.

Loss-making ventures
Telkom is no stranger to loss-making ventures either. The R10-billion loss on Nigerian business Multilinks is fresh in our minds, Telkom’s mobile arm, 8ta, is struggling and Telkom Media seems a hazy memory.

The analysts called Telkom’s management “ineffective” and “uninspiring” and the enterprise was referred to as a “rudderless ship going nowhere”.

One analyst said the entire government policy on using state-owned assets to roll out rural telecommunications services was “misguided” as it discounted the role that the private sector could play.

Naturally, a lot has been made of the management spin-offs the mooted deal would have for Telkom.

Trade union Solidarity has been one of the deal’s biggest advocates.

Some agenda
“KT played a big role in turning South Korea into one of the countries with the fastest and most expansive internet connections worldwide,” said Solidarity spokesperson Marius Croucamp.

“The company’s expertise and experience could, therefore, be a boon to Telkom and South African society.” Croucamp was critical of the government’s about-turn. “There must be some agenda,” he said. “We don’t know what the real reasons are.”

The Democratic Alliance’s Marian Shinn called for Pule to stop “pussyfooting around” and provide sound business reasons for the decision not to support the deal.

“If government had no intention of selling its shareholding, why were the negotiations encouraged to proceed so far?” asked Shinn. “A more pertinent question, perhaps, is why the major shareholder has suddenly become an unwilling seller?”

However, the Communication Workers Union, an affiliate of trade union federation Cosatu, has supported government’s decision, maintaining that, had the deal gone ahead, thousands of workers’ jobs would have been jeopardised.

Telkom deal
According to one source, KT Corporation has been in South Africa for seven months doing due diligence on the Telkom deal.

“It has over 100 people here digging,” said an analyst. “I think the dropping of the price raised eyebrows in government.”

The analyst said that Telkom was a loss-making company that employed more people than it could afford and government had an interest in keeping it like that.

He added that the cynic in him wanted to point out that Telkom was a useful tool in terms of procuring services from government-related parties. He also argued that Telkom had still not made a case for why the deal was such a good one.

“KT Corporation was sent by the Korean government to the South African government with funding from Korean pension funds and was then introduced to Telkom,” said the analyst. “KT is a long way from being the finished article; just look at its share price over the past year.”

The company’s share price has fallen from just short of $20 a share in August last year to $12 a share this month.

“Sure, KT Corporation did wonders in Korea, but the government played a pivotal role,” said Ovum senior analyst Richard Hurst.

Telkom has advised its shareholders that it will be engaging with Pule to discuss Cabinet’s decision and will seek clarity on the context.

Lloyd Gedye

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