Telkom cannot fight on in nuclear war with a penknife

On paper, the MTN-Telkom merger makes sense, albeit grudgingly, given the prospect of an old SA brand disappearing. But it faces stiff resistance from politicians, regulators, shareholders and unions, who, if they cared about Telkom’s future, would just set it free instead of presiding over its slow death.

On July 15, Telkom and MTN announced that they were in preliminary talks that, if successful, would enable MTN to acquire all the issued shares of Telkom, which is 40%owned by the government. The government-guaranteed Public Investment Corporation owns a further stake.

Since the mooted deal was announced, the shares have appreciated, signalling tentative approval of the transaction by shareholders. For some time now the future of Telkom, which seemed to be on the comeback trail, including a rare dividend payment to the government, has been uncertain. This uncertainty has worsened in the past year with the mishandling of the allocation of high-demand spectrum.

The lack of fact-based policymaking behind the auction would cement the dominance of the duopoly of MTN and rival Vodacom. The competition authorities have failed to follow through on their damning price finding that the duopoly had cornered the price market to a point where smaller players such as Telkom had no realistic chance to launch a credible challenge.

The auction, after decades of hand wringing and excuses by policymakers and regulators, left Telkom vulnerable, with few options remaining to fight on. Key among these would have been to dispose of Business Connexion. However, none of the options, including legally separating profitable units such as Openserve, its fibre business, would provide a durable solution.

The success of Telkom until recently was the result of a few factors, including that the government, as a major shareholder, had freed Telkom from its grip and stopped meddling. It allowed the late Jabu Mabuza (chair) and Sipho Maseko (former CEO) to run the company with the board, and freed Telkom from cumbersome laws such as the Public Finance Management Act, which made it impossible for the partially state-owned enterprise (SOE) to compete effectively with established private firms, especially those as dominant as MTN and Vodacom.

Now that the government has exposed Telkom to an existential threat, it can save it from extinction and build on its success. Telkom is not a charity case to be sold for a song. It has strong, valuable assets that have to be appropriately harnessed.

As well as an extensive fibre-to-home and fibre-to-business operation, Telkom has made significant strides in penetrating the lucrative data market and establishing a small business division.

Unions have legitimate concerns that transactions of this sort tend to lead to job losses, especially for lowskilled employees and those who are employed in backoffice functions such as finance, audit, procurement, human resources, legal and information & communication technologies. After a merger has been completed, the acquirer will find itself in a position where these support functions are duplicated, and job reductions become inevitable.

The adverse effect of job cuts could be softened through proper social plans that position affected employees for other jobs in the future. However, for this to be achieved, honest and transparent conversations between management and employees and their representatives will be required.

It is insufficient for unions to oppose the transaction on the basis of ideology only — progressive unions are being called on to show pragmatism and solutions-orientated leadership. This transaction does not have to lead to a jobs bloodbath. It is an opportunity to create a pan-African champion with SA roots.

Regulators and policymakers have their work cut out for them though. The moment calls for enlightened regulation that enables fair competition. The authorities have failed South Africans by not using regulation to create a diverse, competitive telecommunications environment.

The test they face now is twofold: to guide a deal that ultimately benefits customers, not only shareholders and management; and to make the mobile and data markets more contestable.

A senseless break-up of Telkom will be as disastrous as continuing to tie its hands behind its back while sending it into a nuclear war armed with a penknife. Similarly, allowing the pressure to make data affordable should be intensified.

In voting on the transaction, shareholders and their representatives must place the interests of all stakeholders at the heart of their decisionmaking. Even though the government no longer holds the so-called golden share, its role in determining the future of Telkom will continue to be significant, and this has to be exercised with caution and due care.

It is nonsensical to suggest that President Cyril Ramaphosa’s previous association with MTN — he was its chair for a long time before joining the government — prevents him from being an impartial player. This transaction is about SA, not individuals.

And finally, there is reasonable apprehension that the government plans to use the proceeds of the proposed sale of Telkom to support collapsing SOEs. This is a bad idea. None of the consequential SOEs deserve a taxpayer-sponsored bailout; far more pressing problems qualify for support from such funds.

The government, regulators, unions and policymakers must free Telkom to chart a new future by approving the deal.