Telkom, SBC and a few things suddenly making sense

Business Report is running a story about the shareholder agreement between government and SBC that impacted South Africa’s telecommunications environment.

Ann Crotty (from Business Report) writes:

The shareholders’ agreement signed by the government when it sold a 30 percent stake in Telkom to the Thintana Communications consortium placed both companies above South Africa’s laws, according to a US academic journal.

As the story goes, when Telkom was privatised, a shareholder agreement was created that allowed the new partners (notably SBC or “Southernwest Bell Corporation”) to ignore any regulations that contravened their shareholder agreement. Parts of the story also indicate that SBC lawyers may have had a strong hand in writing telecoms legislation itself – not exactly what I would call a disinterested, objective bystander!
Seems like in the heady days of early democracy in South Africa, someone slipped up and let the litigious monster of SBC have more of a say in our country’s telecoms policy than 45 million people or so. I haven’t yet read the underlying academic paper referenced, but if even some of this is true it is an amazing revelation.

Some comments from Slashdot readers:

Well if you set up a monopoly it will be abused, you need very strong regulators to keep anything clean. Doesn’t matter if its a state run monopoly (NHS, BT (before privatisation), British Rail etc) or a granted monopoly.

You should blame the politicians who voted to allow the monopoly deal in the first place. Do you believe for one second that they did not know what they were doing?

A company with a “government granted” monopoly abused it. Shocking!

Incidentally, any true monopoly must be government granted. Without the government’s force to keep competition away, it’s merely a really effective competitor in an open market, like Wal-Mart.

A monopoly, whether government owned (e.g. the US Post Office) or government granted (e.g. AT&T and the Baby Bells in the US, before cellphones, cable company phone service, etc.), is not required to innovate and improve to retain customers, like a free-market business is. Because of this they will tend to deliver a lower quality product at a higher price.

This shows why private monopolies and back-room arrangements are bad. Public monopolies (public utilities, private utilities with public reporting requirements, etc.) are not shown to be bad by this case.

Liberal economic policies help in a lot of things, but utilities are one of the cases where it’s an infrastructure investment that still is most efficiently done cooperatively, particularly since you have to deal with public rights-of-way and all that. Services on top of the infrastructure should be liberalized, of course.

We really do need to get people to think beyond left and right more these days and more on what works best for the particular situation.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

One reply on “Telkom, SBC and a few things suddenly making sense”

  1. Just as an interesting aside. I mentioned the research article referred to above to some Wise Men who knew something of the process. All of the dodgy dealings and descriptions here have now been independently confirmed by “reliable sources” as they say.

    Learnt a few other things as well, but since that info isn’t in the public domain, it’ll have to stay a little secret of mine for now!

Comments are closed.