South Africa - A call for govt to rethink its shareholding in Telkom SA to allow it to compete on the market

[business day] The government needs to radically rethink its shareholding in Telkom if it wants the company to compete and survive its operational and leadership crisis.

The government is trying to maintain control over the business through pressure to bulk up its black economic empowerment credentials.

It has appointed consultants to investigate how it can retain the right to appoint key executives such as the CEO and chairman, and also have more board representatives and measures that ensure its empowerment ratings grow. These rights expire next year, but as long as the government is the majority shareholder they will remain.

Last month Telkom lost four executives, who took voluntary retrenchment packages, and CEO Reuben September will retire at the end of the year.

The government owns 39,8% of Telkom shares through the Department of Communications and about 15% through the Public Investment Corporation - a combined state shareholding of 55%. The government is pushing for Telkom to sell shares to black investors and pressure will be exerted after the Elephant Consortium's exit from Telkom.

The consortium held 7,2% in the company and its term expires next month. However, some shareholders, such as the Lion Trusts' Convergence Partners, will remain as shareholders in both Telkom and Vodacom.

The Elephant Consortium's entry into Telkom was shrouded in controversy and the perception was that it was an exercise in the enrichment of African National Congress members.

The government wants Telkom's empowerment stake to be as close as possible to the Department of Trade and Industry's codes of good practice target of 30% black equity.

An empowerment commentator who spoke on condition of anonymity says Telkom is a listed company and should not be exempted. It should evaluate as many options as possible to ensure fairness and transparency, but it is likely to sell much less than 30% equity.

He prefers a model where all shareholders will dilute their shares, but given that Telkom has a free-float of about 33% of total shares, it is an unlikely option.

The government pressure on Telkom will lead to speculation that the fixed-line operator will be caught up in a similar controversy to the one that surrounded the Elephant Consortium.

Mamodupi Mohlala, communications director-general, says the government must lead transformation, including equity, management and executive levels and procurement, and implementing strategies proactively.

She conceded that, like the Elephant Consortium, there might be a push factor from the government, given the reluctance of the information technology industry to transform.

But she says this does not mean the government has earmarked those shares for certain individuals. It will push for the transaction to be as broad-based as possible.

Ms Mohlala says the government will not heed calls to sell its shares in Telkom because it is part of the plans to provide telecommunications services to the wider population.

The government also has a 10% stake in Vodacom and has until the end of the first half of this year to decide whether to sell its shares. But Ms Mohlala refuses to comment, saying it is a Cabinet decision. She says there is still no competition in the market, especially in infrastructure. Until Telkom opens its infrastructure to competitors and the cost of ADSL drops, the government will not sell its stake.

Commentators say there is no justification for the government to continue holding shares in Telkom, but the government is digging in. It remains to be seen whether the new leadership will make a difference.

South Africa: Government Needs a Radical Rethink of Telkom Shareholding