Govt slams Telkom rival report

Business Day newspaper reported on Monday the government had gone back on an agreement to sell state power utility Eskom's network to the second national operator (SNO), which plans to start operating this year as the first fixed-line rival to the state-controlled monopoly.

It quoted a source close to the ministry as saying the government would instead create an infrastructure company to lease the network to the SNO at cost plus 4%.

Department of Public Enterprises spokesperson Gaynor Kast said the report was inaccurate but declined to specify what part of it was wrong.

She said the government would make an announcement "well before the end of the year" about how the new company would operate.

The SNO has been delayed due to shareholder wrangling, and some industry groups say the government - which owns 37.7% of Telkom - has also dragged its feet.

The company has received a licence to run a fixed-line network and has said it expects to launch services for business later this year, with consumer services following in 2007.

Consumer groups say Telkom abuses its monopoly in the fixed-line business by overcharging customers, and the government has urged it to cut tariffs, which it argues inflates the cost of doing business and deters foreign investors.

The SNO's shareholders include Transtel, a unit of state-owned logistics group Transnet, and India's Tata group.

Telkom boosted annual profit by 36 percent in its last financial year, but investors worry that competition from the SNO in its core fixed-line business could threaten future growth.

Telkom shares fell 1.12% to R132 by 12:12, while the Johannesburg Top-40 index of blue-chip companies fell 1.44%.