The process of licensing the majority shareholder in the new Second National Operator (SNO) runs the risk of being shrouded in secrecy and deterring investor confidence, Mandla Langa, chairperson of the Independent Communications Authority of South Africa (Icasa), suggested this week.
Langa was reacting to the decision by Minister of Communications Ivy Matsepe-Casaburri to bring the licensing process directly under government control after Icasa had recommended that bids by Goldleaf and Optis be rejected.
”It is our belief that if investors see the process as transparent, they are encouraged,” Langa said.
In recommending that the two bids be rejected, Icasa suggested that the existing 49% shareholders — Transtel, Esitel and empowerment group Nexus — be allowed to start the
SNO, and that the majority stake be warehoused to be sold at a later stage. Transtel and Esitel have already invested R2-billion in the SNO.
This week the ministry announced that an SNO committee would be set up to find an investor. The committee, set to operate with Deputy Director General Pakamile Pongwana as chair, would consist of economic and legal advisers.
The committee will invite investors to ”express interest in pre-qualifying for competitive negotiation” or ”one-on-one negotiation” to take up the stake. The committee will then shortlist and recommend candidates to Matsepe-Casaburri.
The minister’s decision will be made in consultation with Icasa, the Department of Public Enterprises and the current shareholders within 90 days.
Langa said Icasa was subjecting the minister’s provision to ”rigorous legal scrutiny” and could not comment. A meeting between Icasa and the department is scheduled for Friday. In terms of Section 35a of the Telecommunications Act of 1996, amended in 2001, the minister is allowed to, in specific instances, determine the manner in which applications will be made. The section then suggests an auction, a tender or both.
Langa said an auction would involve an investor pre-selection process and price setting for candidates to bid on. A crucial feature, though, is that the highest bidder would still be subjected to a regulatory litmus test on issues such as social obligation and broader access. It is unclear how that will be undertaken now. The minister cited the same section for her latest move.
Langa believes that ”market sentiment is not gloom and doom” as it was when the process started last August and that suitable investors would be found through a transparent process. A Johannesburg-based academic and regulatory expert pointed out that the minister’s route is ”fraught with legal complications”.
For one, he noted, it flouts World Trade Organisation regulations, which require that the liberalisation of telecommunications must have the regulator at the centre. It also puts the government in the untenable position of directly negotiating conditions for competition while having a significant stake in the incumbent fixed-line operator, Telkom.
Acting ministerial spokesperson Jerry Majatladi downplayed concerns about a lack of transparency. ”The thing is we do not know what is going to be in the invitation to apply. Once that is done, it will set out the criteria for the investors,” he said.
Democratic Alliance spokesperson on telecommunications Dene Smuts said this week the government should ”beware panic measures to prevent Telkom’s unnatural monopoly”, noting that the department ”will have to maintain maximum transparency if it wants to use Section 35a”.
Smuts suggests that the most viable route is making legislative amendments to grant the existing shareholders the licence.
But the DA would like this to be accompanied by wholesale legislative amendment to allow full service-based competition, a scenario that could allow other competitors to use existing infrastructure and new technology to offer ”packaged” services.
”Otherwise the minister will have to wait for both money and interest from Europe and the East. In the meantime we are stuck with the monopoly,” Smuts said.