Vol.3 No.9, 15 March 2003

Responses to Paul Malherbe's contribution to SANE Views on 'The Telkom Privatisation Scandal'

The following are some responses to Paul Malherbe's contribution to the previous issue of SANE Views, Vol.3, No.8, on the Telkom privatisation scandal

1) Paul Esselaar: [email protected]

I enjoyed 'The Bicycle Analogy' by Paul Malherbe; the privatisation of Telkom has undoubtedly been badly handled and has cost the country billions. The timing was wrong, coming as it did at the bottom of market disillusionment with the Telecommunications sector worldwide.
However, as a consultant dealing in telecommunications policy in Africa, I believe that the benefits of privatising Telkom outweigh the disadvantages, and that this is one instance where the World Bank has got it right.

In the bad old days, when Telkom was a complacent monopoly, the level of service provided to their clients was generally very poor. Telkom's ability to introduce new technology at the pace business required to remain competitive was equally poor; and they were so heavily protected by legislation that there was nothing anyone could do about it. Once the commitment to introduce competition was made, Telkom was given an initial period to prepare itself. The introduction of foreign partners has had an undoubted effect on their operational efficiency.They have even started treating customers like customers - a few months ago I had a new extension installed. Telkom phoned to say they would be there on Thursday at 10h00; I almost fell off my chair when he arrived on time!

The advent of wireless technology has had a hugely beneficial effect in Africa; the number of wireless users out there now exceeds the fixed line users in every country. The effect on the poor has certainly been positive, as seen by their willingness to pay an amazing proportion of their income to be able to communicate.

We have been involved in market surveys of telecoms in five countries in Southern Africa. In every single case, before the introduction of cellular alternatives, the incumbent telco was 'fat, dumb and happy', providing a dismal, expensive service, hopelessly inefficient and prone to corruption. The progress that has been made is absolutely dependent on a reasonably liberal telecommunications regime; so also, are countless thousands of businesses, large and small.

The Telecommunications sector in South Africa is still largely dominated by Telkom, who have all kinds of inherent advantages such as a paid-for countrywide infrastructure. Technological advances are still proceeding apace in this arena, and there are interesting possibilities of providing universal access at an affordable price. The challenge of using this technology to benefit everyone is immense and complicated, but I do not believe that a monopoly or even wholly state-owned telco is an option.

Miller Esselaar & Associates
Tel/Fax: 27 44 877 0568
Box 251
Wilderness 6560

Reply by Paul Malherbe:

Philip Esselaar has totally missed the point. I was not decrying privatisation as such but rather the thoughtless way in which it was applied, which meant that far from putting billions into the treasury it meant an outright loss of at least R40,2 billion. For his information, the Telephone Action Group submitted a petition of over 5000 signatures to Minister Naidoo in early 1997 pointing out that his planned investment in Telkom of R53 billion would result in one of the main objects of the 1996 legislation, namely affordability, being missed. We appealed to him to look at alternatives, such as putting 100% of it up for sale, as was subsequently done by Brazil. So he was duly warned, but the warning was arrogantly rejected as "I have been appointed as minister by a democratically elected government and I have no need to look at alternatives". So whereas Brazil ended up with a net $20 billion (R120 billion at the time) into its treasury, we ended up R40,2 billion negative. And that is not all. Because of the unaffordability that we had predicted, a million subscribers have been cut off by Telkom because of inability to pay.If Philip Esselaar condoned Naidoo's arrogant rejection, he should hang his head in shame. I might also point out that Russia's blind acceptance of the IMF's prescriptions led to a bigger loss of industrial potential than did WWII.

I would also like to point out that in any business, the value of the whole is often far more than the sum of the parts, and as an international firm would have looked upon Telkom as a valuable base for expansion into the rest of Africa It would most likely have offered far more than R20 billion for it in 1997. But due to Naidoo's arrogance, and Philip Esselaar's support, there is no chance whatever of the opportunity recurring. Sorry Philip, but I see you as part of the problem.

2) From: Riaz Tayob - [email protected]

Is it possible to get a non parable version of the Malherbe article?

Reply by SANE Views editor

The original 'non-parable' version was sent out as a SANE Forum list item to members on this list. Anyone can join this list from the SANE website. The SANE Forum is an unmoderated list, i.e. your contribution and response will not be edited. Currently about 100 out of 900 SANE Views subscribers are subscribed to the SANE Forum. If there are more requests we shall also send the original article as a SANE Views item.

3) From: tony wilson To: SA New Economics (SANE) Sent: Tuesday, March 11, 2003 2:29 PM
Subject: Re: [Vol.2, No.8] The Telkom Privatisation Scandal

I am often accused of being right of Jengus, (Khan) that is, as such I am no lefty and have a few problems with SANE. However it is analysis of issues such as the Telkom Scandal which will never get into the main line media, that make SANE very sane.

Many thanks for this.

Tony Wilson

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