Govt thwarts ICT investment

Read time 4min 10sec
French telco Orange has been vocal around regulatory issues holding up its progress in SA.
French telco Orange has been vocal around regulatory issues holding up its progress in SA.

Investment in SA is waning, with the telecoms space being one of the areas in which government interference or policy has thwarted potential deals and growth.

French telco Orange, South Korean firm KT Corporation and Indian multinational telecoms giant Bharti Airtel have all been averted, partially or entirely, from buying into SA - due to government interference or regulatory issues.

Commentators note, while government interference in telecommunications mergers and acquisitions is not unique to SA, the country is one of only a few that has seen such highly attractive, well-baked deals blocked.

Had KT's 2012 proposal to buy 20% of Telkom for R3.3 billion been accepted, commentators say, SA would have benefited from the South Korean company's knowledge and expanded its own high-speed mobile network.

Three years prior, had the proposed R10 billion Bharti Airtel offered for a 49% stake in MTN not been stonewalled by government, it would have created the world's third-largest cellular operator, with more than 200 million subscribers at the time (2009).

More recently, Orange has been vocal about its mobile virtual network operator (MVNO) ambitions in SA being put on ice until the regulatory environment is more conducive to competition, while its video-on-demand plans have had to be curtailed due to a lack of pervasive, affordable and high-quality broadband.

Telkom is 52% owned by government (39% directly and the rest held through the Public Investment Corporation), while the Government Employee Pension Fund has a 14.69% stake in MTN (as at December 2014).

Investment obstruction

ICT expert Adrian Schofield says government interference in telecoms is not unique to SA, but the country "possibly pursues the obstruction of investment better than other countries".

On a broader level, he notes, SA is becoming "increasingly unfriendly for incoming investors". He attributes this to "all the reasons that make South Africans unhappy with the current environment", including a stagnant economy, poor education and health services, deteriorating infrastructure, high crime and corruption levels and barriers to entry.

BMI-TechKnowledge director Brian Neilson says many telecoms licences and strategic equity partner (SEP) deals come with strings attached, "but SA may be in a fairly small minority of countries that have blocked such attractive, well-baked deals such as the KT one, without any apparent weighing of the benefits".

Neilson says it is also "curious" that Orange, for one, is a fully-fledged operator in so many countries - as an MVNO in many cases - but not in SA. The operator has repeatedly tagged SA as a highly important African market.

"Along similar lines, back in the early 2000s, the SA government struggled to find a willing SEP for second network operator Neotel, and was fortunate to eventually attract Tata to take up this role," says Neilson. "At the time, this absence of willing suitors was attributed to regulatory uncertainty, and that investors eschew uncertainty.

"Then there was the refusal to allow certain submarine cables to land on SA soil unless the government had majority shareholding control. We are well aware of the benefits that have subsequently been reaped by not one but many cables landing here."

International example

At the end of the day, says telecoms researcher Spiwe Chireka, "fortunately or unfortunately" government has a say in national assets, but she notes there are a number of African examples where privatisation in the telecoms space has gone ahead and proven beneficial.

At the same time, if government had to adopt a stance that forced SA's other operators (apart from an already struggling Cell C) to open up their networks for MVNOs, Orange - and the market at large - would likely benefit significantly, says Chireka.

"There are far fewer government-owned incumbents today than there were previously. In Zambia, Kenya, Nigeria and Ghana, for example, we have seen privatisation go through just fine. Ghana Telecom is now owned by Vodafone, and C^ote d'Ivoire Telecom is owned by Orange.

"So, in terms of development and progression, while SA used to be ahead a few years ago, we have now fallen behind. Ultimately, we are a mobile continent and I believe, had these countries not seen the privatisation they had - but been left under government care - they would not have seen the growth (in fibre, for example) they have seen to date."

The Department of Telecoms and Postal Services was not immediately available for comment, but has indicated it will do so in due course.

See also