If the government gets its way a new giant could soon be stalking the telecommunications sector.
The new player, which would own significant telecommunications infrastructure, would be an alliance between the government, the major shareholder, and Tata subsidiary VSNL. Tata is an Indian conglomerate now making significant investments in South Africa.
VSNL is a shareholder in the Sat-3 undersea cable. It is also a shareholder in SNO Telecom, originally known as the second network operator (SNO).
The new player, which has the working name of InfraCo, would own telecommunications infrastructure installed on the country’s power lines.
This state-of-the-art facility, which includes thousands of kilometers of fibre-optic cable, is at present owned by Eskom and was intended to be transferred to SNO Telecom.
The government is understood to be aiming to hold 74% and VSNL 26%. The government’s shareholding will be housed by the Department of Public Enterprises. This raises the prospect of government, a 37% shareholder in Telkom, competing head-on as a 74% shareholder in InfraCo.
Observers have for some time expected a third network operator (TNO) to be licenced. InfraCo could be seen as the government network operator (GNO).
SNO Telecom has confirmed that it has a heads-of-agreement deal (an agreement on the main aspects of the deal) with the Department of Public Enterprises to lease infrastructure owned by Eskom and Transnet.
InfraCo assets were originally intended to be transferred to the SNO. It is unclear why these will now be housed by a separate company that will include VSNL, one of SNO Telecom’s lead investors. One possibility is that some of SNO Telecom’s shareholders have been unable to find the funds to buy and operate the Eskom infrastructure.
SNO Telecom has declined to comment further. One SNO Telecom shareholder, Frans Ndoroma of Telkom Namibia, said he was happy with the deal as it would reduce the capital investment required by the SNO Telecom.
Another shareholder, though, Kennedy Memani who is chairperson of Nexus Connexion (a 19% shareholder in the SNO), was unaware that one of SNO Telecom’s shareholders, VSNL, was negotiating with the government to take a stake in InfraCo.
InfraCo will own Eskom’s telecommunications infrastructure and lease bandwidth services to SNO Telecom on an exclusive basis. InfraCo will lease the use of the network to the SNO at cost plus 4%, which is estimated to be 75% cheaper than Telkom’s 2005 prices.
SNO Telecom is about to launch its first services at the end of the month.
InfraCo is expected to purchase Eskom’s telecommunications infrastructure for R620-million.
InfraCo is expecting a total funding requirement of almost R2,3-billion over the next three years, of which the government would provide R1,5-billion and VSNL R398-million. The remaining R762-million would be funded by debt.
InfraCo will build all long-distance and international marine infrastructure and SNO Telecom will build all metro and access infrastructure.
InfraCo will target the international and local backhaul elements of telecommunication pricing, which is estimated to constitute 80% of overall telecoms costs.
Telkom has expressed its unhappiness with the mooted alliance, stating that the government should wholly own the infrastructure company.
SNO Telecom announced last week that it had completed the purchase of the metro fibre optic telecom network owned by Transnet for R256-million.
SNO CEO Ajay Pandey described the transaction at the time as a “major milestone” for the SNO.
A few days later the SNO announced that it had signed a heads-of-agreement allowing them access to the inter-city high capacity full services network (FSN).
The SNO Telecom refused this week to comment on VSNL’s involvement in InfraCo and the government’s about-turn. “We are on-track for the roll-out of our services and plan to introduce International Wholesale Services for other telecom operators by the end of this month,” said Pandey.
Frans Ndoroma, the chairperson of CommuniTel, a 12,5% shareholder in SNO Telecom, confirmed that VSNL and the Department of Public Enterprises were in negotiations about the shareholding of InfraCo.
He said he did not view VSNL’s involvement in SNO Telecom and InfraCo as a conflict and insisted that VSNL would have deliverables to meet that were set by the SNO Telecom shareholders. “As far as I am concerned everybody [all SNO Telecom shareholders] is aware of the discussions,” said Ndoroma.
However, Memani said he has been in contact with the department and expects that the government will wholly own InfraCo.
He said, to the best of his knowledge, VSNL would not be involved in the infrastructure company and that if they were it would create issues from a SNO perspective.
“The SNO and the department have been working together,” said Memani.
The department said it would be premature to comment at present and any comment at this stage would jeopardise current negotiations.
“We wish to reiterate that we are confident that the outcome of the negotiations will be in the best interest of the SNO and its launch, which is expected in the near future,” said Department of Public Enterprises spokesperson Gaynor Kast.
“As DPE we have no doubt that the SNO will form an integral part of the telecommunications sector and contribute to lowering the cost of tele-phony in our country,” said Kast.