TELKOM’S SNEAKY TRICK
If the company, part-owned by the state, gets an exemption on BEE rules, it will hurt smaller companies that have battled for years to compete
It seems that Telkom, the one-time 800-pound gorilla of the telecoms sector that fell on hard times once the mobile boom swept SA, hasn’t lost its aptitude for unfair competition. Almost unnoticed a few weeks ago, trade & industry minister Rob Davies published a notice in the government gazette flagging his intention to grant Telkom “broad-based BEE facilitator status”.
In effect, that mouthful means simply that any company doing business with Telkom must treat it as if it had 100% black ownership, when it tallies up its empowerment score. In other words, Telkom, which is 40.5% owned by the government, is getting an artificial leg up on its competitors.
As you can imagine, Telkom’s rivals are hardly charmed by this turn of events.
Mteto Nyati, CEO of Altron, says the rest of the industry needs to take a stand against this.
“Telkom owns BCX, Openserve and Telkom Mobile, which are focused on selling to other businesses, and that’s where BEE is critical. So, for example, Vodacom will be required to have BEE, but Telkom won’t be. It’s unfair,” he says. Telkom will get a “double benefit” from such a designation, he says, as it also won’t have to shoulder the cost of implementing BEE. So it will make Telkom’s profit margins look healthier.
It’s also a slap in the face for the industry, since, before Telkom listed on the JSE and in New York in 2003, the government vowed it wouldn’t pass any laws that would unfairly benefit Telkom over its rivals.
When asked this week about the proposal,
Telkom’s communications executive, Nomalungelo Faku, confirmed the company had asked Davies for “facilitator status”. She said: “We are of the view that the 40% shareholding owned collectively by the people of SA, in the custody of the government, reflects the population demographics in SA.”
In the wider context, though, it’s a troubling view. If the point of the empowerment rules is to encourage companies to transform, creating a more representative and sustainable business sector, then giving a company that is 40.5% owned by the government an unfair advantage does nothing to advance this aspiration. Worse: it’ll give critics, who point to how BEE has been applied cynically by some companies with little regard for substance, even more ammunition.
Telkom ignored the FM’S specific questions. But Faku did say “facilitator status” would only apply to ownership and “does not negate our duty and responsibility to comply with other aspects” of the BEE code.
Davies has asked for comments before the end of the month; he should expect some fiery opposition.
Datacentrix currently has the highest BEE score in the telecoms industry — something it has built up over the past 21 years as a Jse-listed company.
Ahmed Mahomed, Datacentrix’s CEO, says
Telkom’s request undervalues the time and effort many companies invest in doing BEE properly. “This would mean we would be competing against a company not doing any of this.”
Telkom’s BCX, he points out, is a direct competitor to Datacentrix — and will now be in a plum position to score contracts from the government, and from other private sector companies that will get added procurement points for doing business with it.
“Telkom will now be able to compete far more effectively, because it won’t have the cost structure we do. We will be taking this further,” Mahomed says.
It’s actually worse than that. In the era before cellphones, Telkom was the playground bully that threw its weight around and wouldn’t share its marbles.
In 2005, then president Thabo Mbeki spoke about changing this “unacceptable situation”, which led to sky-high costs. He talked of how the government wanted more competition, a fairer shake for telecoms companies, and a better deal for consumers.
But then, even in the absence of policy changes, the market dynamic shifted anyway. The one-time minnows, like Vodacom and MTN, outgrew Telkom. You’d think the government would welcome that, rather than indulging Telkom’s squealing that it needs help so that it can play the role of the bruiser again.
It is true that times are hard for telecoms firms. For the half-year to September, Telkom’s operating profit dropped to R2.2bn, and it warned that the “operating environment will continue to be challenging with macroeconomic conditions not being favourable”. But that’s exactly the kind of market in which the government should look to boost smaller, more fragile emerging companies — rather than a behemoth that has had decades of opportunity to entrench itself.
In the era before cellphones, Telkom was the bully that wouldn’t share its marbles