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Sorry buyers, Telkom is not for sale

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 18 Feb 2015
Telkom is integral to government's broadband plans.
Telkom is integral to government's broadband plans.

Government yesterday sent the clearest message yet that its stake in Telkom is not up for grabs and that the entity is a strategic national asset.

This comes amid much speculation that MTN is keen to get its hands on the fixed-line operator so it can become more competitive against rival Vodacom.

Vodacom, SA's largest operator, is in the midst of a R7 billion buyout of Neotel, which will give it access to about 16 000km of fibre and much-needed spectrum.

That deal still needs regulatory approval, and the first decision - from the Independent Communications Authority of SA (ICASA) - is set to be handed down next month. As a counter-move, according to a Bloomberg report, MTN has held exploratory discussions in recent months about a possible offer for Telkom.

Telkom's surging share price - up 156% over the last year - led analysts to suggest some investors may have insight into the fixed-line operator's prospects.

Telkom, which dominates the fixed-line segment, has an existing relationship with MTN, as the parties have been in talks for about a year over extending their roaming deal and Telkom handing over operational management of its mobile network to MTN. Telkom communications head Jacqui O'Sullivan has noted it is still considering a range of options around its assets.

Nationally vital

However, all this speculation is now seemingly without merit because Telkom is playing a pivotal role in government's broadband plans. Yesterday, deputy minister of telecommunications and postal services Hlengiwe Mkhize reiterated president Jacob Zuma's comments in the State of the Nation Address (SONA) around Telkom's lead role in infrastructure rollout.

Mkhize noted Cabinet has taken a firm decision to designate Telkom as the lead agency for broadband deployment at national, provincial and local levels. "This will lead to a formation of a national broadband company to build an open-access network and connect all South Africans in the country."

This, said Mkhize, is important in SA's transformation agenda in that the broadband network built by Telkom will be open for use by all industry players. Ovum analyst Richard Hurst says this move entrenches Telkom's position as a strategic asset.

Bad investment

Although details are scant as to how this network will be funded and work, Free Market Foundation director Leon Louw says government's position makes Telkom a bad investment case.

Louw notes the only reason someone would invest in Telkom is because they expect government to "flood it with money" and not because it meets usual investment criteria. He notes Telkom, which is in the midst of yet another restructuring, is not seeing top line gains.

ICT expert Adrian Schofield notes the state's latest statements point towards it keeping its stake, and its belief that it "owns" the company. This is despite the fact that it could use the R16 billion a sale of its stake would bring in, he adds. Previous media reports had suggested government wants to sell its Vodacom (and maybe Telkom) stakes to pump money into embattled Eskom.

Hurst notes, however, that because Telkom will need a cash injection - as the network will reportedly cost as much as R98 billion - the state may consider bringing in a strategic equity partner, as it intended to do a few years ago with Korea's KT Corporation. "Telkom needs an injection to make good on the SONA promises."

Who owns Telkom?

Rank:

Beneficial owner:

%

1

Government of South Africa (SA)

39.76

2

Government Employees Pension Fund (PIC) (SA)

13.48

3

Investment Solutions (SA)

1.94

4

Acajou Investments (SA)

1.56

5

Control Account (SA)

1.53

6

GMO Emerging Markets Fund (US)

1.38

7

Old Mutual Life Assurance (SA)

1.33

8

Vanguard Emerging Markets Stock Index Fd (US)

1.10

9

Dimensional Emerging Markets Value Fd (US)

0.86

10

Fidelity Fast Emerging Markets Fund (LU)

0.82

11

Allan Gray Balanced Fund (SA)

0.80

12

Government of Norway (NO)

0.73

13

RMB Morgan Stanley Prop Acc (SA)

0.70

14

Artha Master Fund (US)

0.69

15

Eskom Pension & Provident Fund (SA)

0.59

16

Allan Gray Equity Fund (SA)

0.59

17

Global Balanced Portfolio (SA)

0.58

18

Credit Suisse Securities (Europe) (UK)

0.56

19

Fidelity Emerging Europe M East & Africa (LU)

0.55

20

LSV Emerging Mkts Fd (US)

0.51

* As at the end of March 2014. Sourced from Telkom.

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