July 8 2004

The second network operator in this country is still only a pipedream. South African telecoms is ruled by government and Telkom. Telkom having a share in Vodacom (cellular service provider) just makes it bigger and badder. We all know that we're being ripped off but there's is absolutely nothing we can do about it. We have three cellular providers, Vodacom which is the biggest, MTN who's catching up fast and then the late-comer, Cell C. Telkom has a 52% stake in Vodacom which made their entry into the local stock market a very attractive proposition.

Of course there was the old story about the social upliftment of the "previously disadvantaged" to whom shares in Telkom was offered at a much lower rate than your average speculator. All said and done, Telkom has performed extremely well. The question is, for how much longer? The cellular market in South Africa is reaching saturation point. The reason for expanding into the rest of Africa. Vodacom had a bad experience with Nigeria and decided to give it a skip (for now). MTN has been very aggressively marketing themselves with local partners all over the continent.

Back to Telkom. Certain partnerships with foreign investors will be coming to an end soon but with record profits locally, Telkom is sure riding the crest of the wave. Interesting article I read in a newsletter I receive from ITWeb. Here it is for yourself to see -

What Telkom pays its CEO

BY IAIN SCOTT, ITWEB FINANCE EDITOR

[Johannesburg, 28 June 2004] - Telkom CEO Sizwe Nxasana's total package in the financial year to 31 March was worth R11.14 million. This is according to the group's annual report filed with the US's Securities and Exchange Commission.

The figure comprises a basic salary of R1.86 million, bonuses or performance-related payments of R8.2 million, pension fund contributions of R242 430 and “other benefits” amounting to R832 300. In the previous year, Nxasana received a total package of about R4.03 million, with the basic salary component amounting to R1.56 million. For the year to 31 March 2002, the value of his package was R2.36 million. This included a basic salary of R1.2 million.

Telkom increased its headline earnings per share from 314c to 863.6c in the year to 31 March 2004. Operating revenue was up from R37.51 billion to R40.8 billion. The group declared a final dividend of 110c a share, bringing the total dividend payout for the year to 200c a share.

Then came the punchline, which is something we've known all along -

Telkom ‘profits at our expense'

BY IAIN SCOTT, ITWEB FINANCE EDITOR

[Johannesburg, 18 June 2004] - Government and the telecommunications regulator need to look more closely at the telecommunications market and take a more active role in administering and regulating prices, says the Communications Users Association of SA (CUASA). Ordinary South Africans and business lose when Telkom makes “obscene profits”, says CUASA spokesman Ray Webber.

Last week Telkom reported a 175% increase in headline earnings per share for the year to 31 March. Operating revenue rose by 8.8% from R37.51 billion to R40.8 billion. It declared a final dividend of 110c a share. “Although we sympathise with the regulatory body, ICASA (Independent Communications Authority of SA), we can only assume that strong revenue growth from the monopoly means that there is profound failure on behalf of the regulator and government to curb overpricing and what can only be described as rampant profiteering,” says Webber.

“Time and again, independent analysts and economists comment that SA could be winning major international call centre, other telecommunications and Internet-based contracts, but that such efforts are hampered by our extremely high cost of telecommunications and related services. “In short, Telkom may well be delivering handsome profits to its shareholders, but in the process, the continuing monopoly is restricting business growth and denying South Africans employment opportunities.”

Webber says that normally when a South African company was doing so well it would be welcomed, but the fact that Telkom operates in a largely non-competitive environment makes it likely that its fortune is derived from overpricing, self-protection and cross-subsidisation strategies. “It's all great news for Telkom and its shareholders, but it is a massive financial burden for ordinary Telkom clients, business and the South African economy in general,” he says.

No wonder then that our minister in charge of telecom's keep on stalling on the second SNO.