Suicidal Telkom

In little less than two weeks Telkom will go back to court to defend against a smaller, but meaner foe.

Telkom is doing everything but dousing itself in petrol and handing out matches to a gathering of its closest enemies.

Phillip de Wet, news editor, ITWeb

ICASA, the Independent Communications Authority of SA, has vowed to force Telkom into changing its tariff structure, which saw price increases at the beginning of the year. ICASA may not have all the power it would like, but it still wields a fairly large legal and regulatory stick.

Think of it as the sports team of your choice picking a fight with the referee at the start of the World Cup final, only the referee also gets to make up some of the rules as he goes along.

When the court case continues (the last hearing was on 31 December) so will the media outcry. You will have to stick your head down a hole to avoid hearing how the monopoly is trying to ram increases, some in excess of 50%, down consumers` throats.

Telkom will try to point out that some of its prices have actually decreased, but the tide of public opinion turned against it a long, long time ago. The fact that it will again claim an average increase of 7%, while ICASA using the same figures calculates the increase at 24%, will not help its credibility much.

So scant months before a second national operator comes online, giving ICASA the opportunity to play favourite and users the chance to jump ship, Telkom is doing everything but dousing itself in petrol and handing out matches to a gathering of its closest enemies.

It is difficult to believe that the company is really this suicidal, which in turn makes it easier to think that there may be some bizarre strategy behind all this.

For instance, this could be the ultimate bluff. It is generally accepted that foreign telecommunications investors are jittery about sending their money anywhere offshore, let alone to godforsaken Southern Africa, home of Bob Mugabe and HIV. The only thing that worries these investors more than a currency in intensive care is the state of the local regulator. When you move into a market where a monopoly has been fortifying its position for years you want to be damn sure the referee is on his toes. Monopolies always fight dirty; it is in their nature.

Telkom has forced ICASA into this public showdown. The regulator had no choice but to go to court, because it must act the part of consumer protector even when the case is hopeless. With Telkom`s gaggle of lawyers confident of victory, chances are its increases are technically legal, if utterly immoral. Victory must seem even closer now that it has been revealed the body is worried about the impact of legal costs on its miniscule budget. Should it indeed ask the government to step in as arbitrator, the outcome is virtually assured. What shareholder wouldn`t protect its own interests?

So the company takes ICASA to court, casually disembowels it and displays the remains to the world, or has the government come up with an "equitable solution" which does much the same thing. Those telecoms investors get a whole lot more nervous about the SA market and decide to sit tight in their nice, comfortable European markets. The second operator, if it ever gets off the ground, is significantly weakened by a lack of capital and/or a solid strategic partner, and Telkom wins the battle before war is even declared.

There is a second and equally Machiavellian hypothesis one could draw. Maybe Telkom knows full well that the mythical second operator will not be licensed this year, but only in mid-2003 as persistent rumours now have it. If so, Telkom could make R1.2 billion extra this year, as its court filings claim the increases to be worth R100 million a month. It could then drop its prices in the nick of time in January 2003, pocketing the cash and placating users before competition arrives.

Both these theories ring true because we are so used to Telkom being the meanest on the block. But there is also a far more likely but sadder explanation.

Telkom has incredible amounts of interest-bearing debt, parts of which are sensitive to rand depreciation. Its listing has been postponed many times and in all likelihood it is starting to feel the pinch. That R1.2 billion windfall from higher 2002 rates may be an essential part of the very thin barrier keeping back the avalanche of debt.

But hopefully not. It would be pitiful to see the schoolyard bully reduced to a common pickpocket.