A critical analysis of privatisation of the telecommunications sector : the case of Telkom : who benefits, who loses?

Abstract

The emergence of public enterprises was heightened in the middle part of this century at a time when the Keynesian theory dominated economic thinking. State involvement in the economy was viewed as essentially crucial for crowding in of investment. With recession creeping in the late 70s, coupled with dynamic and evolving economic thinking and policies of the time, degovernmentalisation assumed prominence. The central theme was that the private sector was more efficient in the allocation of resources. The UK led the way in 1979 with pronouncements of privatisation of state enterprises. Privatisation became the new buzzword, and was exported all over the world. In South Africa, the problems encountered towards the close of the late 1980s paved the way for privatisation. South African Posts and Telecommunications' (SAPT) path towards privatisation was mooted in 1988 and chanted in October 1991 when it was commercialized to form TELKOM SA Limited. The takeoff to privatisation occurred in 1996 when 30% of TELKOM shares were sold off to Telekom Malaysia Bhd partnered by US-based SBC Communications Inc. Telecommunications has pervaded all facets of human endeavors covering social, security and business functions. Intricately intertwined global processes have complemented the sector's propensity to expand and integrate since the late 70s. Despite its salient impact on political, economic and social development, telecommunications remains at a crossroads in South Africa. The seemingly dichotomous situation in South Africa presents an interesting development dilemma of social thrust versus private capital development. In telecommunications, there are two conflicting objectives that have to be met: universal service provision versus growth and development of world class business services. Privatisation will have a profound impact on various stakeholders including the government, TELKOM, trade unions, residential and business consumers, equipment manufacturers and engineers among others. The study therefore seeks to give an anagram of parastatals emergence, analysis of the privatisation process, as well as provide a critical and empirical review of TELKOM development trajectory. The analysis is made within the context of development using the following theories: principal-agent theory, theory of contestable markets and regulatory theory. These are central to issues behind privatisation since ownership; efficiency and regulation shape the policies and operations of companies today. This thesis has found that TELKOM has performed relatively well over the last couple of decades but has been facing major challenges created by the new sociopolitical dispensation, globalization and a shift in economic thinking premised on capitalism. There are wide disparities in the provision of phones along spatial and racial lines. Competition is still a far cry although regulation structures are in place. For regulation to work there must be competition and free access to information, and this is non existent. Regulation in an information asymmetry environment can render it ineffective. The only route open for telecommunications in South Africa is privatisation, which should be implemented in stages in consultation with various stakeholders. Policy guidelines should emphasize the promotion of both the universal service and market services in order to close the gaps created by apartheid and make South Africa industry competitive. Models from the developed and developing worlds should be blended while taking into consideration historical and specific conditions prevailing in the country. The dynamic telecommunications industry is going to self adjust through a process of partnerships and alliances while lower tariffs can be achieved through competitive provision of services and supply of equipment. Complementary telecommunication services should be provided through existing networks operated by Transtel, Eskom etc.