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The ‘Telkom model’ is not the way for SAA

The telecom operator has a long history of the government interfering in its board.
A better way. Image: Waldo Swiegers/Bloomberg

When the government announced that it was bringing in outside shareholders to take a majority holding in South African Airways (SAA) there was a lot of chatter that it was now following the ‘Telkom model’.

This is where, like the telecom group, the airline would have the state as a passive shareholder and players in the private sector would run the show.

As someone who has covered Telkom on and off for most of my journalism career, I’m confused by this analogy because over the last 20 years the state has not exactly covered itself in glory when it comes to letting its various boards and CEOs run the business.

Read: Government sells majority of SAA to private entities

How it began

The government’s first stab at bringing in outside shareholders was when it brought in Thintana Communications in 1997 to modernise the fixed-line utility.

Thintana Communications was a joint venture between the US’s SBC Communications, which owned 60% of the venture, and Malaysia’s Telekom Malaysia Berhad, which owned the remaining 40%.

Thintana Communications collectively owned 60% of Telkom and the state owned about 40%.

The aim was to use their expertise to improve services and expand services to the poor through licensing stipulations. The idea was that bringing in Thintana Communications would prepare Telkom for a deregulated telecoms market and address SA’s development goals.

It did not work out that way.

It is now generally viewed that SBC Communications – which led the consortium – were more cost-cutters than modernisers. It used the monopoly power in the fixed-line telecom to push up prices and saw its customers put up with a falloff in service levels.

The government also failed in using the operator to extend services to the underprivileged, as Telkom in that period cut millions of lines that were rolled out to the poor because they could not afford it.

A rudderless era

By the time Thintana Communications sold off its holdings, Telkom was a listed entity on both the JSE and the New York Stock Exchange.

With the state having a large minority holding, but not a controlling stake, it’s easy to assume that the government would have a say in – but would not directly control – what was happening at Telkom, right? Wrong.

It turns out there was a thing called a ‘Gold Share’, which was originally held by Thintana Communications. This A-share gave the holder the right to appoint five of the 12 board members, including the chair.

Thintana Communications passed this share on to the government, giving it a direct hold over the company.

In effect, between the time Thintana Communications sold its holding in 2004 until the JSE did away with this share in 2011, the government had control of a listed company.

This era was not a good one for Telkom. There was constant interference on the part of the government in the board, and for some or other reason Telkom could not hold onto its top executives with it losing five CEOs in just about as many years.

The low point of state intervention in the group was probably when the then-minister of communications, Dina Pule, wanted to vote at the 2012 AGM, despite a proxy having been sent a few days prior to the meeting.

Her ham-handed intervention eventually saw the removal of several Telkom board members.

Lessons for SAA

Under current CEO Sipho Maseko, who has been in charge since April 2013, Telkom has grown from strength to strength. Even so, the possibility of state intervention in its valuation looms.

Considering what Telkom has gone through over the past 20 or so years, maybe using it as a template for a possible SAA deal is not such a good idea.

To be fair, the government has let Maseko run the show without intervention for the better part of a decade.

Even so, my advice for anyone taking a holding in the airline is to come up with an airtight shareholder agreement with the government, which puts strict curbs on what it’s allowed to do and what is not allowed.

The last thing you want is an unpredictable state actor thinking it has the right to get its way in a boardroom fight when it has neither the shareholding nor the votes to get its way.

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COMMENTS   16

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Larry makes a good point. But, whatever SAA do or try to do, I doubt it if they will ever get off the ground properly. Their past is too tainted. The rot is to deeply ingrained.

You’re so funny, boomer! It’s just weird that you didn’t mention the A. N. C.

The SAA brand is doomed regardless who runs the show. Too little, too late.

Well done boomer, you made it to June 2021. Will you live to 2022 or not?

The elephant in the room with the Telkom model, if everyone recalls, was that the Oliphant Consortium (a cabal of corrupt ANC cadres) walked away with a significant shareholding for doing absolutely nothing.

The irony is that the state now talks of creating a ‘Sovereign Wealth Fund’ and these shareholding could have benn allocated to such SWF, instead of simply taking away what belonged to citizens and giving it to a bunch of Politically Exposed Persons (corrupt ANC cadres).

with reference to your comment – it simply shows once again the anc has no idea how business in real life actually works, they want to get the advantages of what a capitalist system can deliver, but on their own terms, which is much more of a socialist system – milking what the capitalist system generates does not mean business in real terms – small wonder bee etc is necessary for the anc to survive politically. saa is on its knees no matter what template is used and for sure not the telkom one – its two different types of ball games.

100%, and it has no idea how to play one properly at all!!

I think you have hit the rotten apple on the head. As with almost all ANC concocted scams there is corruption involved. This is no different. Simple crookedness in their genes.

Government should govern, not interfere in business.

Problem here is government can’t even govern SA inc which is just a big business.

“The business of government is not the government of business”.

Very interesting article, Larry

The difference between Telkom and SAA as businesses is that today, everyone needs to be connected but not everyone needs to get on a plane.

So the two markets are completely different and likewise the modelling of corporate structures. Controlling Telkom is like controlling the water supply. Even though I nave cancelled my Telkom line I still pay have to them via being online through my ISP.

If I ever want to take a plane, though, I will never take SAA. And there is a vast difference in expertise in getting a professionally maintained plane the size of a shopping mall to take off with people in it and send it to Japan and getting the fibre optic connected to a junction box.

But as we all know, the temptation of huge salaries, power and expenses is usually just too much for the ANC cadres to resist.

Agree and disagree..

Yes SAA is not as comparable to Telkom/telecoms which has become an almost commodity expense.

But where i disagree is on the use case.. i.e. if you don’t fly SAA, you don’t pay SAA.. actually.. you will. SAA includes the following subsidiaries..

Air Chefs
Mango
South African Airways Cargo
South African Airways Technical

i.e. while you may not pay for a flight directly with the entity or subsidiary Mango, you inevitably will be paying for these occasionally namely, Airmail/parcels/cargo, meals which some airlines source from Air Chefs and of cause technical support and services offered by SAA Technical. And we haven’t even mentioned pilot training..

The ANC connected elite NEED the SAA: it is the physical “money laundering arm” of the ANC (to transport the cash loot of wealthy cadres from SA to Dubai, Pakistan, etc.)

They should have just gave it to Bidvest.

The anc and eff’s unwavering adoption of marxist ideology demands central control of everything and everyone….just like their close friends, China, oppresses their citizens and “throttles” private, free market enterprise.

Beware of the people and their outmoded and feudal tyranny and failed communist ideolical nonsense!

End of comments.

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