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Telkom now free of 'rigid legislation'

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 13 Jul 2016
Being held to the previous provisions put Telkom and its subsidiaries at a disadvantage, says the telco.
Being held to the previous provisions put Telkom and its subsidiaries at a disadvantage, says the telco.

Telkom has been given exemption from two key Acts that previously limited its procurement and business practices due to its high level of government ownership. The telecoms operator calls the exemption "an important milestone in Telkom's history".

In a Government Gazette, published on 11 July, finance minister Pravin Gordhan exempted Telkom and its subsidiaries from the provisions of the Public Finance Management Act (PFMA), as well as those of the Preferential Procurement Policy Framework Act (PPPFA), usually applicable to public entities.

"Previously, and in line with PFMA requirements, Telkom has had to go out on tender for major projects. These public tenders take time to complete and result in business plans being made public, at a very early stage. This is not helpful in the highly competitive and fast-changing world of telecommunications," Telkom spokesperson Jacqui O'Sullivan told ITWeb.

She says not being subject to the provisions of the PFMA will help level the competitive playing fields and will better position Telkom to pursue its growth objectives in a more flexible and agile manner.

"Telkom and its subsidiaries, especially BCX [Business Connexion], have to compete with other licensed telecommunications operators such as Vodacom, MTN, Cell C, Dimension Data, who do not have to comply with the above rigid legislation. It became clear that Telkom and its subsidiaries are at a disadvantage," says O'Sullivan.

Government ownership

The reason Telkom was subject to the regulations in the first place was due to government's heavy investment, and therefore control, of the company in the past.

Today, government still owns a hefty 39.8% stake in the telco, but it's no longer a controlling stake, and is significantly less than its 100% control it had back in the late 90s.

The South African government first started diluting its interest in Telkom in May 1997 when it disposed of 30% of the issued shares in Telkom to a strategic equity partner, Thintana LLC ? which was a consortium constituted of American telecoms operator SBC Communications and Telekom Malaysia.

When the PFMA was published in 1999, the government was still a majority shareholder and so Telkom was listed in schedule two of the PFMA, as a "major public entity". In March 2001, government disposed of a further 3% equity interest in Telkom to Ucingo Investments, a consortium of black empowerment investors, leaving its shareholding at 67%.

Leading up to Telkom's listing on the Johannesburg Stock Exchange (JSE) in March 2003, it underwent an initial public offering (IPO), during which government disposed of additional shares in Telkom. Its stake was diluted down to 39.8%, where it remains today.

When Telkom listed, government was technically no longer a controlling shareholder. However, O'Sullivan says that at the time, the JSE granted certain extraordinary rights to government in Telkom's Memorandum and Articles of Association, which would hold for a period of eight years.

These provisions included that government had the right to appoint the chairman of the board as well as six of the directors and would be regarded as a Class A shareholder.

"In terms of these rights, government controlled Telkom up and until March 2011 when the rights expired."

Previous exemptions

Since 2003, Telkom has been exempted from certain provisions of the PFMA and all the Treasury regulations, because Telkom, as a public listed company had to and still has to comply with the provisions of the Companies Act and the JSE Listings Requirements and late King III.

However, after the extraordinary rights of government expired in March 2011, Telkom requested that it and its subsidiaries be delisted from schedule two of the PFMA. O'Sullivan says government indicated at that time that it did not want to delist Telkom from the PFMA but granted a further exemption from the PFMA and the Treasury regulations in November 2013.

O'Sullivan says because government no longer has ownership control over Telkom, it once again approached the administration to exempt Telkom from the remaining provisions of the PFMA and PPPFA regulations.

This request was granted and announced in the Government Gazette, which says that in addition to the previous exemptions made in 2013, Telkom is now exempt from PFMA regulations applicable to public entities. The exemption is effective as of 11 July but would end if Telkom once again came "under the ownership control of the national executive" or delisted from the JSE. A further gazette announcement also releases Telkom from any provisions of the PPPFA.

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