The revelation that the second national operator (SNO) has run into difficulties because of disagreements among shareholders is the latest depressing episode in a long-running saga.
According to reports, Kennedy Memani, the chairperson of Nexus Connection, has accused shareholders Communitel and Two Consortium of holding the process to ransom. Nexus Connection is the empowerment component of the SNO, which holds 19%. Communitel and Two Consortium hold 13% each, having been separately rejected as suitable bidders for a majority shareholding in the venture. Thirty percent of the SNO is held by Transtel and Esitel, respectively owned by parastatals Transnet and Eskom, while the remaining 25% is to be warehoused.
Memani says Communitel and Two Consortium have sought to use their joint 26% shareholding to vote on behalf of the warehoused 25% and thus gain control they could not attain individually through transparent bidding. He also points out that the two are seeking to put in place management contracts that will earn them fees of up to R1,2-billion.
The Department of Communication needs to rethink the whole process. For starters, the department took over the bidding process from the Independent Communications Authority of South Africa, which had rejected the bids. Now the unlicensed SNO is lumbered with an awkward shareholder structure.
Nexus is the single largest shareholder; a scenario never contemplated when the SNO was conceptualised and unexpected even by Nexus itself. Transtel and Esitel, owners of infrastructure worth R1,6-billion, are now forced to entertain the whims of companies built on promissory notes, IOUs and undertakings from partners in faraway lands and possessing little clout or cash resources of their own.
All of this happens while Telkom’s monopoly continues some three years after it legislatively expired. One analyst does not expect the SNO to be licensed before August or to be operational by year-end.
The best way to move the process forward, suggested by a various observers, is to give the 51% stake to Transtel and Esitel and let them run with Nexus as their partner. The government was reluctant to embrace this option because, through Eskom and Transnet, it would have a significant stake in Telkom and its competitor. After this week’s claims, assuming they are true, the government has little option.
The 26% held by Communitel and Two Consortium should be ceded to Transtel and Esitel, giving them just less than 30% each and operational control.
But consumers need not hold their breath — the anticipated lowering of prices from competition is unlikely to materialise.
The fixed-line market has stagnated, with Telkom “actually losing lines”, says the analyst. The SNO is likely to derive efficiencies from long-distance and international calls for business customers, as well as data and mobile services.