Govt involvement in Telkom will not work
Government’s involvement in Telkom‘s affairs has left the telco as “a private company trying to make profit through public service” – which will not work, according to a local analyst.
Investors are waiting patiently for the Department of Communications (DoC) to present its report on a way forward for Telkom, following government’s block of a deal between the telecoms firm and Korea-based KT Corp at the end of June.
The department was due to report back to cabinet on Friday (31 August); however, the department may only present its plan for Telkom next week.
In a statement issued earlier this week, the DoC alluded to three options to be presented at the next Cabinet meeting.
Spiwe Chireka, program manager for telecoms at research and analysis firm, the International Data Corporation (IDC), told BusinessTech: “Government’s involvement in Telkom’s affairs has left the entity ‘a private company trying to make profit through public service’. This will not work.”
“Telkom needs to decide soon what its mandate is, and not straddle the line between a private entity and a government vehicle for socio-economic change through ICT. As long as this is not clear, we will continue to see Telkom struggling, no matter how good its plans and strategies are to compete in the SA telco space,” she said.
Christopher Gilmour, analyst at Absa Asset Management for private clients said: “I think Telkom has reached the end of the road in the free enterprise space.”
He said that, with government’s shareholding, along with the PIC representing a controlling interest, “it’s a state-owned company in everything but name.”
He said further that government’s latest delay, and previously its blocking of the KT Corp deal, suggested that “in time it will be re-nationalised.”
Nadim Mohamed, investment analyst and partner at First Avenue Investment, said that, from an investment perspective, it would be best that the uncertainty around the options for Telkom were cleared as soon as possible.
“However, we do understand that the kinds of issues being considered are complex as they range from fully nationalising Telkom to unbundling the local loop.”
“Ideally, we would want to see a future where the right conditions are created to encourage meaningful competition within the fixed line telco industry. History shows that competition drives the kind of innovation that would allow SA to advance its broadband offerings to world-class levels both in terms of quality of service and value for money,” Mohamed said.
Mathew Baker, Portfolio Manager at RMB Private Bank, said that further delay by minister Dina Pule would lead to further pressure on Telkom.
He said that private shareholders were often left frustrated at the government’s focus on employment rather than on shareholder returns, as well as the slow pace of decision making by the Telkom board.
“If the minister is able to present a turn-around plan for Telkom that is beneficial to all stake holders, then the share price has the potential to rerate given the attractive relative valuations currently.”
“Investors will be looking for a clear strategy from government that is beneficial to shareholder returns. If the minister delays her presentation to cabinet again this could create more uncertainty and see the Telkom share price come under pressure,” Baker said.
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