The telecom sector has shrunk to just two listed operators: MTN and Telkom, whose most valuable asset is its 50% stake in Vodacom. Investors also have access to Vodacom through VenFin, which owns 15% of the cellphone firm but is listed in the investment companies sector.
Johnnic Holdings is to be delisted following the unbundling of shares to MTN shareholders in May. And Shawcell, caught up in the shenanigans of parent company Tigon, has been suspended.
Cellular telephony remained the big growth story. Telkom had fewer than 5m customers compared with 13,8m that had signed on to the three cellular networks by May. Even so, Telkom's debut on the Johannesburg and New York stock exchanges on March 4 2003 was big news.
Telkom listed in poor market conditions, so government accrued only about R4bn from its 25% sale. Relatively that's much less than the R5,6bn (then worth US$1,3bn) government made in 1997, when it sold 30% of Telkom to Thintana, the consortium comprising Telekom Malaysia and SBC Communications of the US.
About 9% of the initial public offering (2,3% of Telkom) went to 127 000 SA retail investors (58% of this was allocated to Khulisa shareholders). The remainder of the IPO went to local and foreign institutions and US retail investors. Government retained a 40% stake, making it the biggest shareholder.
By early May, new investors had profited handsomely. Telkom's share was trading at R31, representing an 11% rally from the R28 listing price. The biggest beneficiaries were investors in the Khulisa scheme, whereby a 20% discount was offered to historically disadvantaged individuals and stokvels (savings clubs).
Nevertheless, the task ahead for Telkom CEO Sizwe Nxasana and his management team remains tough. Telkom is nowhere near the top of its peer group in terms of efficiencies. Also, for the year ended March 2002, the group had R21bn debt on revenues of R34bn. With a net debt-equity ratio of 90%, Telkom must repay R15bn over the next three years. Other uncertainties for investors are future competition from new operators and technologies, pending litigation (Telcordia's litigation could have a total potential liability of R1,3bn) and whether Thintana remains a long-term shareholder. Another concern is that Telkom does not control Vodacom despite its 50% equity stake. Vodafone of the UK (35%) and VenFin (15%) have pre-emptive voting rights.
Vodacom is still the jewel in Telkom's crown. In early May the cellular operator had 7,8m customers in SA, and another 751 000 in Tanzania, the Democratic Republic of Congo and Lesotho. Networks in Mozambique and Zambia had been delayed because of regulatory problems. African operations contributed 12% of Vodacom Group's earnings before interest, tax, depreciation and amortisation. The plan is to increase this to 30% within five years.
"This has been our busiest year yet in SA," says Vodacom CEO Alan Knott-Craig. "That's despite the fact that we are 10 years old. I expect this market to continue to grow strongly and reach 19m customers in the next three to five years."
Though smaller in SA, rival MTN is considerably larger than Vodacom in the rest of Africa. By the end of 2002, it had 4,9m customers in SA and 1,8m in the rest of Africa. Its Nigerian operation hit the 1m customers mark in February 2003 and appeared to be pulling away from the competition.
In Cameroon, MTN gained market share from France Telecom subsidiary Orange, making it the leading player in that country. Uganda also maintained growth with increases in subscribers; Swaziland and Rwanda are maturing, but profitable. MTN continues to investigate opportunities across Africa.
At group level, MTN has improved its black empowerment credentials with a 27,7% direct empowerment shareholding - 9% through the National Empowerment Consortium (NEC) and 18,7% through Newshelf 664, MTN's management and staff company. The NEC took a direct stake after Johnnic Holdings' R7bn unbundling of 31,9% of its 36% stake in MTN to shareholders.
After MTN Group CEO Phuthuma Nhleko had led Newshelf's R4,3bn buyout of state-owned Transtel's 18,7% stake in the cellphone group some months earlier, there was no longer a need for Johnnic to maintain the control structure to ensure empowerment at MTN.
Shares in Newshelf 664 are held in a trust for 2 500 staff, 70% of whom qualify as historically disadvantaged. Senior management benefits from a 70% allocation; 30% is allocated for other employees.
