Why should Telkom go to the masses?

Thousands of Cosatu members marched through the streets yesterday to protest against the privatisation of state-owned companies such as Telkom, parts of Eskom and regional water providers.

Is it fair to encourage share buying among poor people without being absolutely positively convinced that they are doing so for the right reasons?

Phillip de Wet, journalist, ITWeb

The trade union federation says privatisation puts basic services (water and electricity, but also telecommunications) out of the reach of the poorest sector of society as private companies focus on profit ahead of maximum delivery. They also say government should not let go of these companies as they are a lever that can be used to effect fundamental changes in the nature of our economy.

And of course there are the job losses. As much as you may agree with the concept of privatisation, it is disturbing to think that Telkom has shed more than 20 000 jobs in less than four years.

While Cosatu was taking to the streets, the government was putting the final touches to a lavish function that will see the launch of the Telkom share offer public education campaign tomorrow.

Whatever you think of the basic premise of privatisation, or of money being spent on government functions, the share campaign deserves closer inspection.

Although the plan was in place before Cosatu started turning up the heat, the planned Telkom offering will certainly be used as spin against the union`s point of view.

If enough people, especially rural women and the like, take up shares in Telkom, it could be argued that it is not being sold, but that the ownership structure is simply being flattened. Instead of the government keeping the company in trust on behalf of the people, the people can own it directly and partake in the benefits.

That argument holds some water. True, not every man, woman and child will buy Telkom shares, but if the education campaign is a success, they will all have the opportunity to do so. Much like the argument on democracy: you have the vote, and if you don`t use it, don`t whinge about the result.

Oh, unless you don`t have the cash available to pay for your shares, of course. In the world of pure capitalism, the poor don`t have a vote anyway.

Even if that is the spin put on it, the intention is rather noble. You cannot fault the government for staying true to its policy of bringing economic empowerment to the people. And if you squint a bit and look at it from the side, the Telkom IPO could even be seen as living up to the spirit of the 1955 Freedom Charter`s promise that "the mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole".

However, economic reality has often managed to daze ANC and government officials, and not only when it comes to the draft mining charter.

The fact is that true mass ownership of shares has been tried before, and it failed.

It is not too long ago that formerly state-owned metal company Iscor went all out to reduce its number of owners through a share consolidation. It faced a situation where, after it was privatised, a multitude of people held small lots of shares, an administration nightmare for any company. In fact, the company cited the sheer cost of administrating shareholder communication with so many people as one of the reasons for its drive to reduce numbers.

There are other problems, from a company point of view, with having significant numbers of shares dispersed among small investors, especially small clueless investors. It affects liquidity, makes the share price more volatile and subject to sentiment, rumour and general economic condition.

It means a greater public outcry when you come out with bad results. There is also the little matter of administration costs, although that may be the least of the worries of a CEO under attack by an angry mob that consider him the party responsible for losing their savings.

You can`t really blame a company that tries to avoid such a situation.

So the education campaign goes ahead and tens of thousands of people buy Telkom shares. Many probably do so on the strength of their trust in the government and still have little realisation that they are subjecting their money to the whims of the market. Then what?

Either they eventually sell their shares to an institution at a price the latter deems fair (and therefore is not fair to the seller, who has less information), in which case ownership is again slowly concentrated, or they hang on to a meaningless piece of paper.

What telecommunications company declares a dividend? Given Telkom`s level of debt and the opportunities for expansion, it would be downright irresponsible for it to do so for many years to come, despite the capital injection the public offering will bring.

Oh, there is a small chance that telecoms stocks could come back into favour and every Telkom shareholder could realise a thousand percent gain overnight as euros stream into the country looking for a piece of the action. Pigs could also fly.

Is it fair to encourage share buying among poor people without being absolutely positively convinced that they are doing so for the right reasons?

Or perhaps a more pertinent question: is it fair for a government to push a specific share, rather than savings or bonds that carry less risk, for those who cannot afford it? And is it fair to do so when it will be to the detriment of the very company it is trying to flog?

I don`t think so. But then politics and common sense have never mixed well.