About time Telkom coughed up

20 February 2012 - 02:36 By TOby Shapshak

Let's get this right: the Competition Tribunal has to decide whether to fine Telkom R3.5-billion or part thereof for anti-competitive behaviour.

Toby Shapshak. Stuff editor. File photo.
Toby Shapshak. Stuff editor. File photo.
Image: Times LIVE

So the state-owned telecoms operator is going to be fined by the state-run competition-busting authority after being found guilty by the state-appointed anti-competition oversight agency.

Effectively one avatar of the same shareholder has to punish and/or fine the other.

As they say on the internet - which Telkom did its monopoly-abusing best to make overpriced and scarcely available in South Africa - WTF?

During the boom years of internet growth over the last decade or so, South Africa's global ranking has kept falling.

Only 8.2million people have internet access in South Africa and a disgraceful half of those are broadband users - all this while the country supposedly has the best-wired telecoms infrastructure on the continent.

While other countries have used internet connectivity to make them more competitive and to embrace the so-called knowledge economy - which is what spurs innovation and tech start-ups - Telkom has floundered from one disaster to another.

Its chronic mismanagement has overseen misguided investments in Nigerian operator Multi-Links (that wiped about $1.44-billion off its cash balance), Telkom Media (a failed venture into television that cost R700-million) and the failed customer-service project using Telecordia that Telkom settled for $80-million (then R605-million) in July 2010.

Let's put the proposed R3.5-billion fine into context. It's 10% of Telkom's turnover for 2003, the year in which the Competition Commission found it guilty. Currently worth R14.7-billion, the fine would effectively wipe out roughly a third of Telkom's value. Telkom's profit last year was a mere R2.2-billion, down from R5.6-billion in 2007.

After calling Telkom a "Ponzi scheme" in this column in November 2009, I spent an hour being berated by one of its spin doctors. I wonder what he would say now.

Telkom is arguing in its defence, that "a fine of this magnitude will have disastrous consequences for the South African economy and government", using the same argument put forward during the great recession by banks which dug their own holes, but got government bailouts. It's insulting to our intelligence, and scandalous.

Because of Telkom's high prices it's impossible to calculate the true cost to the South African economy, or of the opportunities lost to our entrepreneurs. Admittedly, they did it with enabling legislation that protected them, with a sympathetic, protective minister (the late Ivy Matsepe-Casaburri) and a toothless regulator, Icasa.

But consider these statistics:

For every 10% of broadband penetration, you get, on average, a 1% GDP growth in the country," said Hans Vertberg, CEO of Ericsson, which is the largest maker of cellular network equipment.

"For every 1000 broadband connections you get 80 new nett jobs. There are jobs being lost [through efficiency] but you are also creating jobs," he told me in an interview last week.

So what is the solution?

Telkom is a multi-headed beast that has been able to cross-subsidise its various divisions and offerings but still makes a loss in providing phone lines (called the "access deficit").

Telkom needs to spin off the local loop division, the so-called "last mile", as it should have done by November last year. This will allow all the other service providers direct access to their customers.

Much has been made of what happened to a similar monopoly, British Telecoms, now known as BT, when it did the same and transformed itself (granted, with mixed success) into a global telecoms player.

Significantly, it created competition in the now-thriving broadband industry in the UK.

We've all paid the price for Telkom's inefficiency so no one is sympathetic about it now getting some its own medicine.

  • Shapshak is editor of Stuff magazine