Telkom is planning to retrench as many as 6,000 employees in 2020 and recently commenced a consultation process with organised labour regarding the staff cuts. Unions are blaming Telkom’s board and senior management for the staff cuts, arguing that they are a result of poor strategic direction and a failed corporate plan. Telkom, however, defended its board and management. Company spokesperson Noma Faku said other factors drove them to the point of staff cuts.
Telkom said one of its biggest challenges is the current regulatory environment and having to compete “in a duopolistic mobile market”.
Faku said the regulations were set up to “disadvantage Telkom and advantage mobile operators”. These external conditions on how the market was structured to enable mobile still exist and it continues to work against Telkom today,” she said.
Faku added that Telkom came in as a “later player” in the mobile market and that Vodacom and MTN still have “virtual control over voice and data prices”. These are factors which are outside of Telkom’s control, which are essentially in the regulator’s control,” she said. Telkom’s complaints about the South African regulatory environment may be seen as disingenuous by many people who have followed the telecoms industry over the past two decades.
Telkom enjoyed a government-protected monopoly in the fixed-line market until the mid-2000s, where it regularly fought against introducing competition. Apart from preventing anyone from building their own fixed-line networks, competing for voice services like VoIP were outlawed in South Africa to protect Telkom’s monopoly. The company even (unsuccessfully) tried to gain monopolistic control over South Africa’s Internet services in the nineties.
For many years Telkom enjoyed complete regulatory protection against competitors. This allowed it to generate massive profits and build a network which was nearly impossible to compete against. Telkom also claims to be a new entrant in the mobile market, and that it now suffers because of an established duopoly and regulations which benefit Vodacom and MTN.
What Telkom fails to mention is that it is not a new mobile entrant. Telkom was behind the launch of Vodacom and was the dominant shareholder in the company until 2008.
Vodacom was essentially Telkom’s mobile arm and the fixed-line operator made billions in dividends from it. Vodacom also played an active role in supporting the success of Telkom’s listing on the JSE and helped it to rapidly grow its share price. The company then made tens of billions from the sale of Vodacom – making the company and its shareholders very rich. Telkom and Vodacom were also directly involved in creating the regulatory framework which is in use today.
For Telkom to now complain about a telecoms environment which it helped to create, and made a tremendous amount of money from, is insincere. The reality is that telecommunications companies around the world are adapting to a rapidly-changing environment. Traditional fixed-line operators are launching mobile services while mobile operators are building fixed-line networks. It goes even further, with telecoms operators starting to launch IT and content services in search of new revenue streams.
It is difficult for Vodacom and MTN to compete against Telkom in the fibre market thanks to its extensive network and expertise in the fixed-line segment. Telkom gained this advantage through decades of support from the government and by operating in an environment which afforded it a legally-protected monopoly.
To this day Telkom protects its turf against competition and continues to fight against other operators using its infrastructure. Vodacom and MTN also benefited from a regulatory environment which helped them to build excellent mobile networks and gain customers.
Good news is that the days of Telkom’s monopoly and Vodacom and MTN’s duopoly are over, and companies can aggressively compete in the fixed and mobile markets.
Telkom is now finding out that surviving in a competitive environment is tough, especially as they used to operate as a monopoly. It is misguided for Telkom to blame Vodacom, MTN, or the regulatory environment for its struggles when it was the biggest beneficiary of telecoms regulations in South Africa.
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