Founder: Turnaround Talk
There is something about exclusivity that makes South African companies salivate at the mouth. We are in the midst of a deep economic crisis, and there are still demands for exclusivity being pushed in certain sectors despite relevant examples of the benefits of a free market system from global markets.
South Africans were forced to wake up to news of Stage 4 loadshedding once again as yet more generating systems breaking down at several of South Africa’s key power plants. Yet, there is still significant resistance to split Eskom into three business units which would make the running of the utility a lot easier.
Telkom has a unique business opportunity to place itself in a strong position to drive the roll out of increased spectrum in the country, when it eventually becomes available by Government, yet, companies who are lining up to take over Telkom are now questioning their involvement because of a lack of exclusivity.
Withdrawing interest
South Africa’s largest mobile network operator, MTN, was in talks to take over Telkom. However, these talks never advanced past the early stages.
An article by News24 points out that MTN said in a statement that after “extensive engagements and deliberations between the parties, shareholders are advised that the discussions regarding the proposed transaction have terminated, as the parties were unable to reach agreement to their mutual satisfaction on the process going forward.”
One can see why MTN would be eager to take over Telkom. While being the largest mobile operator in the country, MTN still faces stiff competition from the like of Vodacom, Cell C and Rain. A takeover of Telkom (currently the country’s third largest mobile network operator) would give MTN a captive subscriber base which would solidify its position in the country.
But if the talks with MTN really did break down because of a lack of exclusivity, one would have to question why Telkom would be prevented from talking to other parties or considering other offers. The News24 article points out that Telkom had net debt of R7.5 billion at the end of March, and its board is currently considering ways to unlock value for shareholders, believing that the price at which its shares trade do not reflect the underlying value of the business.
Photo by: Getty Images
Rain became a serious bidder at one stage but was reprimanded by the regulator because the mobile operator was not given any permissions. Rain maintains a merger with Telkom could create a “5G powerhouse” and also mooted other benefits, including in terms of infrastructure, while also avoiding the creation of a mobile “duopoly” in the form of Vodacom and MTN.
Imagine what an investment like this would do for South Africa? it would surely do no harm to the fact that South Africa continues to struggle to create jobs.
The monopoly champion
No company has championed its need to be a monopoly more than Eskom. In an event that was hosted by the University of Pretoria last year, Eskom CEO Andre de Ruyter said that Eskom provided an essential service to all South Africans (when Eskom manages to keep the lights on) and that if the utility were to be privatised, he was unconvinced that a private party would not come in and significantly increase the price of electricity making it unaffordable for all South Africans.
But there is something a bit more sinister behind this. And, as an article by the Daily Investor points out, it has to do with the number of employees that Eskom has.
The article points out that a World Bank report in 2016 said that Eskom only needed a workforce of 14 244 people to serve its 5.4 million customers.
One assumption in the calculation was that there should be one employee for every 413 electricity customers in developing countries. Eskom was, therefore, 66% overstaffed. The only other countries with higher than optimum staff levels were Zimbabwe (67%) and Zambia (71%).
Photo by: SAPA
The article points out that technological advances increased efficiencies and created greater output per employee. Maintaining the same level of production therefore required fewer employees.
Between 2005 and 2018, when Eskom’s workforce dramatically increased to a peak of 48,700 employees, Eskom’s power generation did not increase.
From 2005, Eskom’s power generation moved sideways and downward. By 2018, generation declined to 201,400 GWh (Gigawatt hour) – the same level as in 2003.
When there is clear evidence that costs can be cut through reducing Eskom’s employees, why is no action being taken? One tends to think that this would be a further indication of the ANC’s inability to address mass unemployment, a factor that would not serve them well in 2024.
Drawing a line in the sand
While this well may be the case. When is South Africa going to draw a line in a sand saying, enough with the games, lets address the economic/energy crisis, no matter how that looks.
Encouraging a free market economy in South Africa will create jobs, not destroy them.
Increased access to spectrum will only increase entrepreneurship in South Africa. This cannot be blocked by companies who demand exclusivity.
Eskom’s assertion of significant increases in energy tariffs if another player had to enter the market is exactly what the utility itself is trying to achieve every time it goes to Nersa lobbying for a 30% – 35% increase in tariffs. Eskom is scared that if another player enters into the market, and proves that they can provide electricity at a more stable rate, Eskom will bleed customers even if those customers were expected to pay more for their electricity.
It’s time to put the games aside and become serious about addressing the country’s challenges, even if that means abolishing South Africa’s obsession with monopolies/exclusivity.
