Opposition is consolidating within government circles to the bid by a politically influential empowerment consortium for a 15,1%, R7-billion stake in Telkom, and there are growing signs that the state may lend its support to another player.
The leading figure in the consortium, former director general of communications and Didata chairperson Andile Ngcaba, is described by critics as the architect of a series of sweetheart policies, which protected Telkom’s monopoly and placed Ngcaba himself in pole position to benefit from the deal by playing off the government’s conflicting interests.
Reacting this week Ngcaba said: “Policy is teamwork and a consultative process. It can’t just be me alone.”
He pointed out that his experience in the communications industry spanned two decades, eight years of which happened to be in government service. “Why should I be penalised for serving in government?”
Amid widespread anger over the deal, it is beginning to look as if Ngcaba has overreached himself.
He announced this week that he would lead a consortium, together with ANC head of presidency Smuts Ngoyama and Wiphold’s Gloria Serobe, to buy the strategic equity stake currently held by Thintana, a joint venture of Southern Bell Coroporation and Telecom Malaysia, which bought into Telkom early in the privatisation process.
Ngcaba reportedly credited Ngonyama with easing rivalry between empowerment figures for the stake, and helping to put together the consortium, but he may have overstated the ANC spokesperson’s success.
The government is anxious to see the shares sold to a single entity, rather than released onto the market, because this will enable it to maintain some leverage over Telkom’s market practices. But rival bids — perhaps with stronger government support, and even funding — have not disappeared.
“Telkom’s power is enormous relative to the regulator. There would be a concern in government to make sure that there are other ways of exercising power,” a senior official told the Mail & Guardian.
Under the shareholder agreement between Thintana and the government, each can cut its shareholding to 15% and still maintain effective control of the company until 2011. But if either party lets its stake drop below 15%, both lose these rights.
Selling the shares as a block means the agreement remains intact. It also prevents the release of shares onto the market driving down the price.
SBC, the Texas-based senior partner in Thintana, has been increasingly anxious to offload its stake in order to fund the purchase of AT&T wireless, and has already sold a Danish subsidiary. So the government is compelled to find a friendly buyer quickly, but it does not appear to have settled on Ngcaba.
Ngcaba initially approached the Public Investment Commission, which is closely aligned to the National Treasury, to fund the transaction. A PIC investment would be seen as a government vote of confidence in the deal, but the commission insists it has not committed any cash.
“Many consortia have come to see us, in fact all of them came to see us around that issue, and we have not funded any of them. We will make a public statement soon about how we will proceed,” PIC spokesperson Mukhoni Ratshitanga said.
Similarly, Communications Minister Ivy Matsepe-Cassaburi also said this week that no decision had yet been reached on the deal.
Whoever puts up the finance is likely to be paid back quickly, however, as Telkom’s spectacular financial results continue to make large dividends and buy-backs possible.
Concerns about conflicts of interest, market consolidation and elite empowerment are increasingly expressed by senior Cabinet members, and officials hint that they are being taken into account as the government tries to protect its interests while quickly finding a suitable buyer.
Many industry figures argue that Ngcaba is not that person.
If he were to succeed, they say, a man responsible for driving a legislative agenda that extended Telkom’s grip on the market, crippled the Second National Operator, and seriously inhibited the development of the Internet sector, will parlay his policy choices into a substantial fortune.
And he will have done it, as one former regulator told the M&G, by taking advantage of deep contradictions in the privatisation and liberalisation process he steered for eight years.
Reducing the cost of doing business is a crucial plank in the government’s current economic policy platform, and President Thabo Mbeki’s advisers, both local and on his international business panel, have repeatedly stressed the importance of a cheaper, more sophisticated telecommunications infrastructure.
But delays in the roll-out of the SNO, and Telkom’s aggressive protection of its monopoly rights, have frustrated progress. Senior officials say this is why it is crucial for the state to maintain some level of control of Telkom until the liberalisation of the market begins to bear fruit.
Two former councillors who served on the Independent Communications Authority (Icasa) and its predecessor, the Independent Broadcasting Authority, described to the M&G how Ngcaba crafted the laws and regulations which rendered ineffective all attempts to increase competition and bring down costs in the sector.
“He drove the entire legislative agenda for eight years, and he drove it hard,” one said.
“Andile is responsible for the Telecommunications Amendment Act, which extended the monopoly for five years, and that Act was practically drafted in Texas, where he attended several meetings,” the other former councillor said, referring to discussions at the headquarters of SBC.
Both said that during Ngcaba’s time as director general, the interests of Thintana appeared to play a disproportionate role in decisions on a range of policy issues.
Both also laid the blame for the failure of the SNO squarely at his door, saying the shareholder squabbling that had repeatedly delayed its launch was a direct result of his insistence on designing a rigid holding company structure.
“The SNO was structured, despite advice to the contrary, in a way that set it up to fail. Andile drove that too. If you set up a tiered shareholder structure like that you open yourself up to incredible risk.”
It was this structure, one of the former regulators said, that caused British Telecom to lose interest in participating.
“Was it a deliberate plan to make sure the SNO didn’t take off, or was it just bad advice?” the former councillor asked.
Either way, the result was to delay competition in the fixed line market, and high-end carrier services required by the mobile operators, for years, leaving no market mechanism to put pressure on Telkom, and a compliant regulator.
The dramatic liberalisation announced by Matsepe-Cassaburi in September is expected to help, but there is concern that Telkom may try to limit its impact.
“The liberalisation process will be held to ransom by Telkom in the market place. Andile still has tremendous influence at the regulator. It can hardly stand up to Telkom now, it certainly won’t be able to stand up to Telkom with Andile there,” one of the former councillors warned.
Additional reporting by Thebe Mabanga