Telkom ready to do battle, says Sipho Maseko
Phone company ready to do battle for very structure of the market
● Telkom’s short-term investors are not happy about the three-year dividend freeze announced by the telecoms group last week, says CEO Sipho Maseko.
Particularly given the fact that it’s sitting on a R4.5bn cash pile.
“They’re pleasantly surprised that we’ve generated this much cash,” he says. But they made it clear to him in virtual meetings after the announcement that “they want dividends as and when there is excess cash”.
Long-term investors, which include the government and Public Investment Corporation, “see and appreciate the logic” of the freeze, which it is imposing in expectation of an imminent spectrum auction for which it will need a substantial amount of capital.
But they’re not happy with the decline of Telkom’s fixed-voice component, which ensured a lucrative revenue stream for many years.
“It’s looked after us for a long time,” says Maseko.
“It’s been high-margin revenue. As it declines, the new revenues we’re generating are not yet contributing margins at the same level to offset the margin decline. That’s their concern.”
Fixed voice contributes 22% of revenue, down from 56% when Maseko became CEO seven years ago and decided — in the teeth of shareholder scepticism about its future — to push mobile.
He’s been determined ever since to challenge what he sees as the unfair dominance of MTN and Vodacom, where he worked before being headhunted for Telkom.
He sees the long-overdue allocation of high-demand spectrum as an opportunity to level the playing field but worries that the opposition’s market dominance will be entrenched if the spectrum is auctioned to the highest bidders.
He says he applauds the government’s temporary allocation of spectrum to mobile operators to help them cope with a surge in demand for data during the Covid-19 lockdown, but is concerned about what happens afterwards.
“Our issue is, when we get to the permanent allocation it’s important it’s not just the money we’re chasing after.
“We can maximise on the cash but be left with an uncompetitive sector.”
Spectrum gets released once every 20 or 25 years, he points out.
“If we don’t use this opportunity to address market structure issues we’ll be saddled with an uncompetitive telco sector.”
The regulator, Icasa (the Independent Communications Authority of SA), needs to “understand and be clear” on the market structure that is needed to drive competition.
“MTN and Vodacom are stifling competition, which is why prices are high,” he says.
Without the right structure the inequality gap won’t be closed and SA will lose out on the opportunity to use 5G technology “to galvanise the economy and bring in more participants”.
It’s to clear the decks for a major investment in the super-fast 5G network that Telkom announced that it will cash in on its R12bn worth of cellphone masts and towers.
“We have a lot of capital locked in bricks and mortar that we can release and invest in infrastructure that will be crucial to deliver even further high-speed broadband.
“We’ll invite third parties to invest who have the appetite and wherewithal to manage and run infrastructure businesses like masts and towers. Our capability lies elsewhere.”
Such as in delivering the broadband infrastructure SA needs to build the economy.
“Whether you’re a bank or spaza shop owner you need connectivity to process payments.”
The need for broadband is not limited to affluent areas.
“We need to use all available technology. Satellite for areas that are not densely populated, wireless for areas that are, which is where 5G comes in, and fibre because fixed will always be better than wireless.”
All these options need to be deployed together to maximise the potential of broadband to grow the economy.
“Small and medium enterprises will be key drivers of economic growth, but all of that is predicated on the right infrastructure being there. Everywhere, not just in Sandton and Rosebank but in Khayelitsha, Umlazi and Soweto.”
Standing in the way are regulatory blockages, which he believes are the biggest threat to SA’s chances of an economic turnaround.
“We need to finalise the issuing of spectrum. We need more regulatory certainty for telcos to roll out as much infrastructure as possible.”
The government has provided the policy, he says. Icasa needs to act with consistency and speed to execute that policy.
Maseko is a longtime critic of the regulator. “It’s been an obstacle to progress. A lot needs to be done to automate, to enable citizens to do everything quicker and easier.” Bureaucracy and red tape need to be cut. “This is not being driven hard enough or happening fast enough.”
The situation couldn’t be more urgent and, thanks to the pandemic, he says, the opportunities couldn’t be bigger.
“This is the moment where if you want to digitise every government department you can do it in a flash. You won’t even get political resistance because the moment calls for it,” he says.
There are multiple opportunities for the government to leverage the telco sector to be the catalyst for the infrastructure of the future that SA should be built on, he says.
“The economic value is massive. Not only do you enable small and medium enterprises but you can modernise the country and the people in terms of how they work.”
Regulatory agents like Icasa need to provide an enabling regulatory structure to empower small businesses down to the level of pavement hawkers to do business via a cellphone, like they do in China.
But it’s not going to happen any time soon.
“It’s the people who need to give me permission that are the obstacle. Icasa needs to give permission, municipalities need to give permission.
“Wherever I need to get permission, that is where the regulatory blockage is. Because there’s a lot of things I can’t do without permission. That’s what is holding the country back.
“I’m excited to be here at this time when digital and broadband and systems and technology are what we need to turn the economy around.
“But I’m frustrated that we’re being held back by regulatory blockages, bureaucracy, red tape.”
It’s the people who need to give me permission that are the obstacle … That’s what is holding the country back
Sipho Maseko