Zuma's Telkom announcement prompts questions

2015-02-13 13:08 - Gareth van Zyl
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President Jacob Zuma (AP)

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Johannesburg - Telkom’s [JSE:TKG] relationship with government is under the spotlight after President Jacob Zuma said the telecom company will be the “lead agency” in a broadband roll out project.

President Zuma said in his State of the Nation address in Parliament on Thursday night that government has “decided to designate Telkom as the lead agency to assist with (the) broadband roll out”.

“The year 2015 will mark the beginning of the first phase of (the) broadband roll out. Government will connect offices in eight district municipalities,” said Zuma.

“These are Dr Kenneth Kaunda in North West, Gert Sibande in Mpumalanga, O.R. Tambo in the Eastern Cape, Pixley ka Seme in the Northern Cape, Thabo Mofutsanyane in the Free State, Umgungundlovu and Umzinyathi in KwaZulu-Natal, and Vhembe in Limpopo,” he added.

Further details about the project and its costs have not been revealed.

But in the meantime, questions are being posed about why Zuma referred to Telkom as an “agency” when the company is publicly listed on the Johannesburg Stock Exchange (JSE).

Government owns about 40% of Telkom directly and indirectly via the Public Investment Corporation which has has 11% shareholding in the company. 

"It (Zuma's SONA announcement) completely overlooks the fact that government is only a shareholder in a publicly listed company and this idea they have that Telkom is still their personal possession is absolute nonsense,” Adrian Schofield, the Manager for the Applied Research Unit at the Joburg Centre for Software Engineering (JCSE), told Fin24.

Democratic Alliance (DA) leader Helen Zille also said on Thursday night in a tweet during the State of the Nation address that she "strongly opposed" Telkom's monopoly on the country's fixed line sector.

Telkom, though, told Fin24 that the matter of President Zuma referring to the company as an "agency" is one of semantics.

“This is just a matter of word choice, nothing more,” Telkom’s Managing Executive of Group Communication, Jacqui O’Sullivan, told Fin24 in an emailed statement.

Telkom also told Fin24 that it welcomes Zuma's broadband announcement.

“Telkom welcomes the announcement of government’s decision to appoint the company as South Africa’s National Broadband Champion. We believe that our experience, extensive fibre network and superior technical capabilities will be leveraged to fast-track the implementation of an economically viable and effective, national broadband solution. Sustainable delivery of coverage to all, will require the optimisation of the entire industry’s investment. As the National Broadband Champion, Telkom will drive collaboration between government and industry to create a truly connected, digital nation," said the company.

"Internationally, many countries have seen the benefit of a strategic partnership with the incumbent. The successful delivery of the national broadband plans in Malaysia (Telkom Malaysia), Singapore (SingTel) and Germany (Deutsche Telecom). In countries where strategic partnerships were not formed (e.g. in Australia), governments had to spend significant capital to construct separate networks which has resulted in additional expenditure and resource duplication,” said Telkom.

Meanwhile, Arthur Goldstuck - who is the Managing Director of World Wide Worx - agrees with government's view of Telkom as a key provider of its broadband project in SA.

"Government rightly regards Telkom as a national resource, and we have argued for a long time that it should be a role that is part of its mandate," Goldstuck told Fin24.

"The decline from 5.5-million fixed lines to 3.7-million in 15 years is an indication that, despite being the major shareholder, government allowed Telkom to focus on its commercial role to the exclusion of its national role," Goldstuck said.

And regarding President Zuma's description of Telkom as an 'agency', Goldstuck added that he agrees with that view.

"The choice of words is appropriate, and it will be interesting to see if it is just words or whether Telkom will indeed become roped into the national priorities," Goldstuck told Fin24.

Mark Walker - who is the Regional Director for research firm IDC the Middle East, Africa and Turkey - told Fin24 that he thinks Telkom is best-placed to conduct broadband roll-outs for government.

"The fact of the matter is that the state owns about 40% of Telkom directly and close another 11% indirectly via the PIC so are effectively in control of the organisation, so there may be a sense of 'Royal Prerogative' regarding the influence of the state on Telkom’s activities," Walker told Fin24.

"In addiiton Telkom is best positioned, as a monopoly with the farthest existing broadband reach, to execute on this mandate.  No doubt partnerships with other telcos such as MTN would enhance this ability," said Walker as he referred to talks between Telkom and MTN regarding a possible roaming and network sharing agreement.

Telkom share price

Telkom's share price has gained 150% over the last year on the JSE and this week reached about R76 per share.

Yet questions have been asked about whether insider knowledge about the government broadband project could have pushed up Telkom's share price.

"Are we to assume that the recent rise in the Telkom share price is because there are insiders who knew that he was going to announce as them as the lead supplier for a nice big slice of government business and have been quietly racking up their shareholdings?” Schofield asked.

The DA's Helen Zille also tweeted on Thursday night that "insider trading resulted in a huge rise in the share price" of Telkom.

But when Fin24 asked Telkom whether its share price has been rising because it is set to get government broadband contracts, the company offered this response:

“Telkom’s share price has risen over the past two years owing to several factors, including:
•    An appreciation of the positive actions taken by management and board in the past two years, such as cleaning up the balance sheet, settling Competition Commission cases and articulating its stance on regulatory issues;
•    Addressing its heavy cost base;
•    Anticipated positive outcomes by the market of revenue enhancing transactions such as the proposed MTN agreement and BCX transaction."
 
O’Sullivan added that "Telkom has been proactive in defining its role as a listed national incumbent in the roll-out of national broadband".

"Government as a key corporate customer for Telkom will play an integral role in this,” O’Sullivan said.


 

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