Expect crossed lines over public sector wage bill

THE improvements seen at Telkom in its full-year results to March netted the government a juicy half-a-billion rands in dividends — the first time shareholders have received a payout since 2011.

The government owns 39.8% of Telkom, and the Public Investment Corporation, which manages civil-service pensions, a further 12%, which means the state has a significant say in the business’s affairs.

And the government is made up of people drawn from the tripartite alliance: the ANC, SACP and trade union grouping Cosatu.

So it is in a tricky position when it comes to job cuts.

The PIC, which is prone to play activist investor, will have to make its position clear — it will find it hard to play bad cop to privatesector companies in which it is invested if it decides to make a fuss over this issue. Does it allow Telkom to take a panga to staff numbers while berating mining companies and other firms in other industries for wanting to do the same?

Something significant has happened at Telkom in the past two years. It appointed former taxi-driver-turned-businessman Jabu Mabuza as chairman, reconstituted its board with private-sector professionals as opposed to state deployees, and, crucially, made Sipho Maseko, who was once also head of BP in South Africa, CEO in 2013.

Since then, investors have been rewarded with stellar growth in the share price.

The only conclusion to draw is that Mabuza and Maseko’s turnaround is being tested as a model for other parastatals, and that they have received top-level support for the cuts. Should they be forced to backtrack, they will be left with no choice but to resign and plunge Telkom into crisis.

Maseko is the sixth CEO at the entity in eight years. The company has had its fair share of chairmen and a multiplicity of poorly chosen directors. Losing the current board is not something the government can afford, especially if the company could become a lucrative source of cash thanks to the radical turnaround.

Telkom’s traditional business of voice calls is dying quickly: it has fewer fixed-line customers now than it did in 1993 and just 60% of the nearly 5.5 million customers it had at its peak in 2000.

It is growing data provision via ADSL and through high-speed LTE — but so is the rest of the telecoms industry.

More than a million customers have given up their landlines, thanks partly to stiff price hikes but also because mobile services and better broadband offerings mean customers can make calls using voice-over-internet protocol and other new-generation technologies for considerably less than what Telkom charges.

Essentially, Telkom’s plan to cut 7 800 positions will not only get those staff off the payroll, but also reduce its long-term pension and medical liabilities.

But the story is about considerably more than just Telkom.

As tensions rise between public-sector unions and the government over the minutiae of a new three-year wage settlement for civil servants, acting Public Service and Administration Minister Nathi Mthethwa revealed it would cost the country an extra R61-billion in wages.

Now South Africa will pay R466.8-billion — more than a third of the national budget — to public servants.

While the private sector has sought to cut costs and keep expenses under control, the public-sector wage bill is up about 80% over the past 10 years. It is a key flag for foreign ratings agencies concerned about South Africa’s ability to live within its means. Telkom is a fascinating case study for those wanting a more efficient state. And that makes Telkom dangerous for those who don’t.

Whitfield is an award-winning business writer and broadcaster