Hope is at hand for hard-pressed broadband consumers, if government’s plans for a cost-based telecoms infrastructure company delivers on its promise.
For years the country’s leadership has singled out the impact that exorbitantly priced telecommunication services have on the cost of doing business in South Africa.
However, attempts by South Africa’s telecommunications regulator and the department of communications to break fixed-line monopoly Telkom’s stranglehold have had little effect.
Recently Public Enterprises Minister Alec Erwin announced government’s plan to tackle Telkom head-on, through the creation of a new state-controlled company, Infraco.
This follows Finance Minister Trevor Manuel’s allocation of R647-million to Infraco in his October 2006 medium-term budget, earmarked for the acquisition of telecoms infrastructure assets owned by Eskom.
This infrastructure backbone was originally set to be purchased by the second network operator (SNO), Neotel. However, negotiations for the sale of the infrastructure backbone hit obstacles in late 2005 due to the financial constraints of some Neotel shareholders. The department of public enterprises came to the rescue with a proposal to set up Infraco.
The new structure will see the second network operator unbundled into two entities: a state-controlled infrastructure company, Infraco, and a telecoms operator, Neotel.
The plan would see 74% of Infraco owned by government and 26% by VSNL, a subsidiary of the Tata Group, which also owns a stake in Neotel.
Critics have questioned further government involvement in a sector where it is already a major investor — with its 37% shareholding in Telkom, 26% shareholding in Neotel and the wholly government-owned Sentech.
Erwin told Parliament that Infraco would provide long distance connectivity on a cost-related basis to the market through an initial arrangement with Neotel.
Sources close to Infraco say that the infrastructure parastatal will lease the use of its network to Neotel at cost plus 4%, which is estimated to be 75% cheaper than Telkom’s 2005 prices.
Infraco is expecting a total funding requirement of R2,3-billion over the next three years, of which the government would provide R1,5-billion and VSNL R398-million, with the remaining R762-million to be funded by debt.
Erwin announced in Parliament this week that Infraco would be up and running by next month, which some stakeholders say is very optimistic due to Infraco’s licence requirements.
Democratic Alliance spokesperson on communications Dene Smuts says Infraco will have to apply to the Independent Communications Authority of South Africa (Icasa) for an individual network licence, which “usually takes a very long time” to issue.
Smuts says the Electronic Communications Act stipulates that as part of the licensing process, all interested stakeholders — including competing telcos — will be able to make submissions, which will provide a good impact assessment of Infraco.
Public enterprises department spokesperson Gaynor Kast confirmed this week that Infraco would have to apply for a licence and said that it was a complex matter that was being addressed in discussions between Icasa and the departments of communications and public enterprises.
However, the department of communications director general, Lyndall Shope-Mafole, says that Infraco already has a licence, which was issued as part of Neotel’s licence, and that Icasa has been tasked with unbundling the licence before the end of this year.
“We will go through a licensing process that separates the SNO licence from the infrastructure licence,” says Shope-Mafole. “Icasa thinks it is quite feasible.”
Icasa spokesperson Jubie Matlou says the regulator could not comment on Infraco’s licence until they had an application on the table.
“At the moment the matter is still between the department of public enterprises and the department of communication,” said Matlou. “We cannot comment when we don’t know the details.”
Shope-Mafole says that because this process is not specifically provided for in the Act, Minister of Communications Ivy Matsepe-Casaburri will issue a policy directive, which is currently being finalised.
Shope-Mafole says Infraco is already currently leasing infrastructure capacity to Neotel and does not need to wait for Icasa to unbundle the Neotel licence.
She says the Infraco bill, set to go before Parliament, would regularise Infraco’s existence when promulgated.
The public enterprises department confirmed recently that Infraco would initially sell bandwidth exclusively to Neotel. Spokesperson Kast did not confirm how long this exclusivity period would last, but sources close to Infraco say the period discussed was for four years.
BMI-TechKnowledge’s telecoms analyst Richard Hurst says the Infraco plan was very ambitious. “It makes sense to give exclusivity to Neotel because it is a new operator,” said Hurst. “If we start removing feathers from its wings it’s not going to fly.”
Hurst says that if Infraco proves to be a success, consumers should see a healthy decrease in broadband prices in metro areas. However, he stressed that he had doubts about Infraco’s ability to be operational by March.
“If it’s going to be as fast as the SNO, I don’t think it will be ready in March,” said Hurst. “I honestly don’t think they have their ducks in a row.”
However, Kast says that an Infraco interim board is already in place and that Erwin would announce the board and management team shortly. “Everything is on track,” says Kast.
Genesis Analytics telecoms analyst Robert Lipschitz says Infraco could be a positive development because it would allow the government to put pressure on Neotel, formerly the second network operator, to bring prices down.
In January the Mail & Guardian reported that there had been conflict between the Infraco project team, headed-up by consultant Andrew Mthembu, and Tata over pricing, which government was trying to keep to a minimum.
Another area that caused conflict between the public enterprises department and Tata was the underwater submarine cable that Erwin has proposed, which would compete with the SAT-3 and EASSy cables.
Tata already owns capacity on SAT-3 through subsidiary VSNL and expects to get landing rights for this bandwidth sometime this year.
Shope-Mafole says that once the Nepad Protocol is ratified in June this year, the government will be able to regulate SAT-3 and ensure that pricing is not discriminatory.
Kast says discussion and studies regarding underwater cables are continuing.
However, Lipschitz dismissed the idea that Infraco would build an underwater cable on its own. “That is a lot of talk,” says Lipschitz. “It is not something to be entered into lightly.”