In the early 1990s the state of California, USA, realised that its defence industry had run its course and decided to convert the existing skills and infrastructure into a telecoms and IT industry. The result is that, today, the revenues produced by California essentially make it the eighth most wealthy state in the world.
If SA had taken a page from California`s book and converted its once-powerful arms industry into a nascent telecoms and IT sector, SA could arguably have emerged as an IT and telecoms giant - one that could have rivalled the likes of California, and could have created untold wealth for both the industry and the country as a whole.
This is the opinion of Douglas Reed, managing director of Johannesburg-based Internet Service Provider (ISP) and network integrator, Data Pro, part of the JSE Securities Exchange listed Control Instruments group.
Reed said in the "old days" SA boasted one of the most respected and sophisticated arms industries. "There was a significant infrastructure and an impressive pool of know-how and skills that could have easily been refocused once the call for arms decreased. This economic sector could have been turned into a powerful telecoms and IT industry over time.
Instead of deregulating the arms industry it was regulated by the government and, in essence, completely splintered. Armscor - now called Denel - was significantly scaled down and so-called empowerment companies were formed to reflect the new SA. Instead of leveraging off existing resources and turning the once-powerful industry into a telecoms and IT behemoth, the government opted to interfere in the mechanisms of the free market, thereby missing what can only be seen as a golden opportunity to turn this sector into a word-class powerhouse."
California authorities, in their aim to turn their arms industry into a powerful IT and telco player, offered massive tax incentives to private and public companies in the first few years. This galvanised both interest and growth. The rest, as they say, is history.
Commenting further, Reed said the same is happening to the country`s current telecommunications industry. The promise of deregulation appears to have been a pipedream. "What we are going to have is a duopoly," said Reed. "This duopoly will be made up of Telkom and a second parastatal, comprising Eskom and Transnet. With the second telco expected to enter the fray by July next year, the third - hopefully independent - telco will only arrive on the scene in five years` time."
Reed believes by the time the third telco enters the local market the two parastatals will be in "an entrenched position", and SA would have lost valuable time to bring leading-edge attitudes and technology to the IT and telco business sectors. This anti-competitive and regulatory attitude, he believes, is totally counter productive and means that SA is missing a second golden opportunity to open the sluice gates of booming trade.
"We also run the risk of falling behind the rest of the world from an e-business point of view as it is a known fact that parastatals are slow to implement new technology. This is going to hamper growth in the economy overall as we need to bring the costs of competing in the new e-business world down significantly."
Even considering Telkom`s putative listing both locally and offshore - either in London or on the Nasdaq - the pace of change will not be fast enough. In fact, while top management concerns itself with the listing preparations, other strategic decisions might be put on the backburner, including technology-based initiatives.
Reed also said he finds it strange to note that Telkom views ISPs as competitors. "This is almost ridiculous. We are essentially selling lines and talk time for them. We are increasing their revenues by growing our businesses. Additionally, we act almost like their technical division as we need to get our clients up and running with the latest technology available - or with technology that will at least work in SA. They should see us as their partners and move closer. We can actually help each other. If this partnership position can grow, it might play a small part in defraying some of the negatives brought about by the ponderous nature of a regulated industry."
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