No govt support for Telkom, MTN deal

By Damaria Senne, ITWeb senior journalist

Johannesburg, 18 Oct 2007

Government has denied media reports that it endorses the potential sale of Telkom`s fixed-line assets to mobile operator MTN Group.

Several media organisations reported yesterday and this morning that the Department of Communications supports the sale. The articles stated that government would be willing to shed its 37% shareholding in the fixed-line operator. The media reports concluded this would be a major boost for the potential Telkom, MTN transaction.

However, Harry Mathabathe, the department`s deputy director-general of finance, says a media statement issued yesterday simply offered support for the talks, not the transaction itself.

"Government, as a shareholder, has no objection to the management of Telkom exploring its options with whomever," Mathabathe said. "Once the Telkom and MTN talks have reached a conclusion, and then come to us with a proposal, we will decide whether or not to approve it."

The department said yesterday that it notes the cautionary issued by Telkom and MTN on 11 October, stating that discussions, which could result in the sale of Telkom`s fixed assets to MTN, are still ongoing.

"As government, we are in principle supportive of the current discussions contained in the cautionary issued by each of the companies. We will await additional information in this regard prior to commenting further."

Mathabathe adds that the department is working with others in an interdepartmental task team to ensure the interests of the country, all the workers and those of shareholders (including Khulisa shareholders) are protected.

It is not yet clear how the task team is constituted, and what issues it will look into to safeguard shareholder interests.

An analyst, who spoke on condition of anonymity, notes that government - as a shareholder in a private enterprise - should not have access to information other shareholders do not have. This would lead to its support of the transaction before the offer is officially presented to it.

"If government knew more than other shareholders, Telkom would be in breach of the requirements of the Johannesburg Stock Exchange and New York Stock Exchange," he says.

Reassuring unions

It is more likely that yesterday`s statement was a move to reassure parties that have an interest in Telkom`s shareholding and operations, including the unions, that their best interests would be safeguarded, he adds.

Telkom issued cautionary notices in June, announcing it was in talks with Vodafone about the sale of its mobile assets, and with MTN regarding its fixed-line assets. At the time, labour organisations expressed concern that they were not party to the talks. They also feared a potential deal would impact Telkom`s shareholding, black economic empowerment principles and job security.

According to a source, the Communication Workers Union`s national executive council has a meeting with the departments of public enterprises and communications scheduled for mid-November. It is likely these concerns will be discussed further.

Counting chickens

BMI-TechKnowledge senior analyst Richard Hurst says - if a deal is reached - Telkom SA`s African strategy will fit well with MTN`s overall African strategy. It will also unlock additional opportunities across the continent for services such as wireless broadband, he notes.

However, it is still unclear which parts of Telkom are to be sold to MTN and there is the major hurdle of the Competition Commission, Hurst says.

The Telkom, Business Connexion deal took a long time to go through the various stages of competition hearings and was still turned down in the end, he adds.

(With additional reporting by Paul Vecchiatto)