Vodacom share sale could signal ease of govt control

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The sale of government’s 13.9% share in Vodacom, SA’s largest mobile operator by subscriber numbers, could signal an ease of government control over the sector and create further transparency.

This is according to industry experts, on the back of reports yesterday that the state is mulling a sale of its $2.5 billion (about R27.7 billion) stake in JSE-listed Vodacom ? purportedly to help finance ailing Eskom.

ICT expert Adrian Schofield says, while this would not have a significant influence on Vodacom’s operations, for government it would mean less income and less direct influence on one service provider.

Vodacom’s UK-based parent Vodafone is the most likely candidate to snap up the shares, say analysts. For South African telecoms, Schofield notes, it would mean a greater amount of sector profits would leave the country in dividends to Vodafone, should it acquire the stake.

World Wide Worx MD Arthur Goldstuck says, on the downside, a sale of the state’s stake would place government one step further away from having sight of strategic decision-making at a rival to its own telco, namely Telkom. “[So] government would be privy to less market intelligence.”

However, Ovum analyst Richard Hurst says the sale of a government stake should be seen in a positive light. A sale of this nature, he notes, would serve to better align the telecoms sector and may even serve to create further transparency within the sector.

“If we look at issues that have been facing Telkom, one of the largest complaints from the institutional and private investors has been the ongoing government influence and interference in the operation of the company.”

Vodacom had a South African subscriber base of 32.5 million as of June – a 43.5% market share. It also has operations in Tanzania, Mozambique, Lesotho and the Democratic Republic of Congo.

Telkom ties

Vodacom is 65% owned by Vodafone. The South African government and the Public Investment Corporation (PIC) together hold 17% of the operator, with the rest of the shares in the hands of small investors.

Telkom, on the other hand, is majority-owned by government, which holds 52% of Telkom’s shares – 38% through direct ownership and the rest held through the PIC.

While there have also been reports that government may be considering selling its Telkom stake (also to help finance Eskom), various telecommunications unions ? including the Communication Workers’ Union ? have called for nationalisation of the country’s most entrenched telco.

On the suggestion the state may be looking to sell its Vodacom shares, government spokesperson Phumla Williams says “there was never a discussion to this effect” in Cabinet. In the event there is such a discussion, she says, it would probably be tabled in Cabinet. “Once such a decision is made, we will certainly report this decision.”

Eskom rescue

Schofield says, should government decide to sell its Vodacom shares in an attempt to rescue its power utility, this would merely be “a short-term solution to a long-term problem”.

In August, minister of cooperative governance, Pravin Gordhan, revealed that, as at June, South African municipalities owed Eskom R10.8 billion, with Gauteng municipalities being its biggest debtor with about R3.5 billion owed.

Goldstuck says it is “a little absurd” to sell stakes in telcos in order to support state-owned entities in other sectors, when there is a deep need for government to invest in infrastructure in underserviced areas where it is not commercially viable for private enterprise to do so.

At the end of the day, says Schofield, whether a “fire sale” of assets is a good thing comes down to perception. “Governments own stakes in enterprises in mixed economies for a variety of reasons, some political, some economic. When they need large sums of money that cannot be borrowed or taken from tax revenues, there can be a fire sale of assets. Whether it is a good or bad thing depends on whether you have socialist or capitalist leanings.”

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