Johannesburg - The shareholders' agreement signed by the government when it sold a 30 percent stake in Telkom to the Thintana Communications consortium placed both companies above South Africa's laws, according to a US academic journal.
Thintana Communications was the consortium of US telecommunications group SBC and Telekom Malaysia.
Interviewed in Telecommunications Policy, Jim Myers, described as "SBC's central operative in South Africa between 1994 and 1998", says clauses in the shareholders agreement agreed to in 1997 stipulated that once the Telecommunications Act was in place, neither Telkom nor Thintana would be compelled to follow any legislation that violated the shareholders' agreement.
The Telecommunications Act granted Telkom a five-year period of exclusivity to expand its network and prepare for eventual competition.
Myers said the details of the Telkom shareholders' agreement were never made public because some of its provisions bound the government so stringently and gave Thintana so much control that had they become public, they would have raised a huge outcry.
The powerful position enjoyed by Thintana until 2002 is described at length in the journal, published recently by Elsevier.
The two authors of the article, entitled "Another instance where privatisation trumped liberalisation: the politics of telecommunications reform in South Africa - a ten year perspective", are Willie Currie, a former counsellor of the Independent Communications Authority of SA; and Robert Horwitz, a member of the department of communication at the University of California in San Diego.
The article, which is supported extensively by recent interviews with the key players, describes in chilling detail the forces that shaped telecoms policy in South Africa in the crucial period between 1994 and 2004.
It recounts the manner in which the new democratic government's worthy intentions - to roll out telephone service to the previously disadvantaged and establish an independent regulator to oversee the reform - were thwarted by lack of trust in democratic structures outside of the ANC's immediate control and the ANC's inability to control powerful international players involved in privatisation.
SBC, described as "congenitally litigious", is said to have played a major role in the failure of South Africa's telecoms policy to develop a competitive telephone service.
Under SBC's control Telkom not only failed to meet its roll-out obligations but behaved "as a tax on industry and a drag on economic growth".
SBC had, with a 15.5 percent stake, been a managing shareholder in MTN in the mid-nineties, said Myers, and had a "good understanding of South African politics" when the government put the Telkom stake up for sale.
In an interview with the authors last year, Myers explained that when it became clear that SBC would secure the Telkom stake, "the company temporarily transferred its entire San Antonio corporate office legislative team to South Africa to help draft the Telecommunications Act, to make sure the legislation comported with the company's requirements".
Myers told Horwitz and Currie that SBC's strategy was very clear: "Maximise the value of Thintana's investment during Telkom's five-year exclusivity period and then exit quickly."
As a privatised, state-backed monopoly without a forceful regulator, Telkom was in a position to generate hefty returns for Thintana. Horwitz and Currie estimate that the 30 percent stake purchased in 1997 for R5.45 billion was sold in two tranches in 2004, a 14.9 percent stake was sold in June for R6.1 billion and the remaining 15.1 percent was sold in November for R6.6 billion. These figures do not include the huge annual profits and management fees that accrued to SBC over the period.
By contrast, although the authors acknowledge that SBC "did bring management smarts to Telkom", local consumers were left with a hopelessly inefficient and expensive service provider.