Last week’s decision by Minister of Communications Ivy Matsepe-Casaburri to grant a licence to the second national operator (SNO) seems calculated to galvanise the foot-dragging SNO contenders into action.
The ministry took over the process of bringing competition to the fixed telephone line market almost two years ago, after the Independent Communications Authority of South Africa (Icasa) rejected the bids of Communitel and Two Consortium on the grounds that they lacked the necessary technical expertise and financial backing.
Now the parties have been awarded the licence, with Nexus Communications — the empowerment partner — holding 19%, state-owned enterprises Transtel and Esitel jointly holding 30% and the remaining 51% held through a company called Sepco.
Sepco will be held at 12,5% each by Communitel and Two Consortium, with 26% set aside for a strategic equity partner. The government has invited an expression of interest from a private investor.
Although the licence has been awarded, it will actually be issued by Icasa only after the parties have satisfied the regulator of their funding plans and viability of their business plan.
But the SNO faces a number of obstacles — the first being persistent bickering among shareholders, with threats of legal action. Earlier this year, Nexus Communications accused Two Consortium and Communitel of trying to hijack the process when the two sought a 51% stake in the SNO.
More importantly, Esitel has made it clear that it will not commit more funds to the venture and Transtel may have a different owner when the SNO gets off the ground as parent Transnet reviews its role. Both companies have begun to write off losses resulting from the two-year delay.
Ministry spokesperson Donovan Cloete told the Mail & Guardian Esitel was not expected to spend more money, and that whoever buys Transtel will take on the SNO commitment as part of the sale.
Icasa chairperson Mandla Langa now has to preside over the issuing of a licence to a consortium that includes two companies he deemed inadequate to run the show.
This week he described the licensing process as a ‘hard row to hoe”. Langa expressed optimism that the parties would apply, considering the time the process has taken and the urgent need to get competition off the ground.
He added, though, that any application will still undergo rigorous scrutiny, suggesting Icasa will take all the time it needs to evaluate the SNO.
Franca di Silvestro, telecoms analyst at HSBC, sees the award as a call to the parties to get their act together. Di Silvestro notes that, in the event of further delays, Transtel and Esitel can use existing assets to provide competition outside the SNO structure.
One route may be through the changes due to come into force next February, when value- added networks will be able to carry voice traffic on the Internet.
Di Silverstro notes that the competition landscape depends on the Convergence Bill, which will determine the number of competitors in various telecommunications spheres. She believes Transtel’s ultimate ownership will affect the SNO, noting that if Transtel is sold, ‘we might not have the SNO as the minister envisages it”.
Di Silvestro said there is investor appetite for the 26% stake, but that much depends on the business plan the existing partners put in place.
She expects the SNO to be operational by the end of next year, while Cloete expects an operational company by the beginning of next year.