How Telkom lost its mojo

Telkom used to own telecommunications in South Africa — but completely squandered its advantage through a series of poor decisions and by disregarding its customers.

With Vumatel overtaking Openserve as the biggest fibre-to-the-home provider in 2019 and Telkom playing third-fiddle to Vodacom and MTN, it can be easy to forget how utterly dominant it was until as recently as the 2010s.

Saying that Telkom used to be in the pound seats does not do it justice.

It owned the pound seats. And it could charge you just for the privilege of watching it sit in them.

Officially, Telkom had a legally protected monopoly until 2002. However, the government continued to defend its fixed-line monopoly until 2008.

Although the Mandela and Mbeki administrations had adopted a policy of “managed liberalisation” of the sector on paper, in practice, the ANC government fiercely defended Telkom’s monopoly.

The market only truly began opening up after the private sector took the government to court using its own Electronic Communications Act of 2005 and won.

Known as the Altech Case, the 2008 court win effectively allowed companies with existing network service licences to build their own physical network infrastructure.

Although called the Altech Case, several other parties were involved, including the Internet Service Providers’ Association of South Africa (ISPA).

ISPA had also stood against Telkom’s attempts to monopolise all Internet access in South Africa in 1997.

Telkom tried to convince the former telecommunications sector regulator that its state-sanctioned monopoly over voice services should extend to the Internet.

Former Telkom CEO Sipho Maseko said this monopoly mentality hurt Telkom when it finally came up against actual competition in the 2010s.

“When you are a monopoly you do not have to compete, and that is what we were for 100 years,” Maseko told attendees of a 2020 Unleashing Leadership Potential event.

“We did not have to sell stuff. We took orders. You called us for an order, and we fulfilled that order,” Maseko added.

“We probably slapped you around a little bit and still gave you the order.”

This hubris was also evident in Telkom’s approach to its ADSL broadband product, first trialled in August 2002.

Rather than modernise and launch the best possible service to entrench its fixed-line monopoly in the face of competition the government promised was coming, Telkom launched an intentionally crippled product.

In addition to being expensive, relatively slow, and nigh unusable during the day, Telkom also hard-capped the first ADSL accounts at 3GB per month.

If you wanted more than that, you had to buy a whole new account with another 3GB data allocation. Whatever you didn’t use, you lost.

Telkom’s response to criticism and questions about this was that 3GB was more than enough for most people and that those who wanted more were the exception.

Left unspoken was that only deviant pirates who were likely spending their time on Napster, Kazaa, and BitTorrent wanted more than 3GB.

In a competitive market, this kind of attitude no longer flies — which Telkom learned the hard way.

Besides enjoying a protected monopoly on fixed-line telecommunications, Telkom owned 50% of Vodacom until 2008.

In what is considered one of the worst business decisions in South African telecommunications history, it sold 15% of its stake to Vodafone for around R22.5 billion.

Telkom distributed the remaining 35% to its shareholders through Vodacom’s JSE listing on 18 May 2009.

It then launched its own mobile operator called 8ta in October 2010.

While 8ta (later rebranded Telkom Mobile) initially showed good subscriber and revenue growth, this has slowed in recent years.

Launching 8ta split the company’s focus and resources, with Telkom pumping over R25 billion into its cellular network in the past 13 years.

Had it remained invested in Vodacom and doubled down on its fixed-line business, it would likely have dominated South Africa’s fibre market.

Even with 8ta in the equation, had Telkom focused on rolling out last-mile fibre, things might have been different today.

In 2011 and 2012, under former CEO Nombulelo “Pinky” Moholi, Telkom seemed to be making all the right moves to secure its future.

The company had embarked on a project to roll out street cabinets called multi-service access nodes, which allowed for DSL speeds up to 40Mbps and paved the way for future fibre-to-the-home (FTTH) deployments.

However, Moholi quit Telkom in November 2012 following government interference at an AGM the month prior.

The South African government effectively holds a majority stake in the company through a direct shareholding combined with the Public Investment Corporation.

Then-minister Dina Pule used this majority to block several key resolutions at the Telkom AGM.

After Moholi’s departure, Telkom’s ongoing investment in its fixed-line network fluctuated wildly as it switched between allocating more capital to its fibre or mobile networks.

This left the door open for upstarts like Vumatel, and more established challengers like Metrofibre and Frogfoot, to eat its lunch.

As things stand, Telkom now has a struggling third-place mobile network operator while trying to claw back its top fixed-line spot from Vumatel, with its net debt ballooning over 3,200% over the last decade.

Despite operating what is probably the largest fibre network on the continent with over 170,000km of cable in the ground, Telkom’s monopoly-fuelled complacency has allowed it to snatch defeat from the jaws of victory.