While the government continues to point fingers at the telecoms sector crying foul about excessive pricing, perhaps it needs to hold up the mirror to itself as the single biggest shareholder in the sector.
With a 37% shareholding in Telkom — 50,3% if you include the Public Investment Corporation’s (PIC) shareholding, an 11% shareholding in MTN held by the PIC, a 30% shareholding in Neotel through Eskom and Transtel and a 100% shareholding in Sentech — the government is by far the biggest investor in South Africa’s ICT sector.
Now, with its policy of managed liberalisation failing dismally, the government is looking to invest further in the sector through the newly formed infrastructure player, Infraco, citing “market failure” as its motive.
At the same time, the Department of Communications has tentatively voiced support for the ongoing talks between Telkom and MTN, which could see a merger or acquisition resulting in less competition and fewer players.
These two developments hint at a sector that will be defined by even less competition and greater state control.
The formation of Infraco was facilitated by government backÂtracking on an agreement to sell telecoms infrastructure assets held by Eskom and Transtel to Neotel, and deciding to set up a state-owned infrastructure company instead.
The government was concerned that a duopoly in the telecoms sector would not result in substantially lower broadband pricing.
Last week, Public Enterprises Minister Alec Erwin, who has been accused by his critics of acting as a de facto communications minister, introduced the Infraco Bill in the National Assembly. The Bill, which was passed and will now go before the National Council of Provinces, will govern Infraco, the government’s spearhead to reduce telecommunications costs in South Africa.
At the time, Erwin told Parliament that “leaving such critical investment to purely market forces was too risky, given our urgent need for greater and more internationally competitive broadband capacity”.
The Department of Public Enterprises’s attempts to “railroad” Infraco through the licensing process have also resulted in a new amendment Bill for the Electronic Communications Act.
Stakeholders are unanimous in their criticism of the department’s plan to “railroad” Infraco through, claiming that the sector needs more competition, not more government investment or intervention.
Storm Telecoms’s Dave Gale says Infraco is a desperate move by the department because it does not have faith in the ability of the Department of Communications to bring down broadband prices. “It’s like being handed a warm beer on a hot day,” says Gale. “Yes, someone is doing something about it, but it doesn’t taste that good.”
“The government wrote the Electronic Communications Act specifically to deregulate the industry, but now the state is becoming more involved in all levels of the industry,” says Democratic Alliance spokesperson on public enterprises Manie van Dyk. “The proposed changes to the Electronic Communications Act [ECA] will give the government the power to create a second Telkom monopoly with consequences that are potentially catastrophic.
“We can hardly agree to provisions that fundamentally change the new ECA licensing regime,” says DA spokesperson on communications Dene Smuts.
“In the field of communications, the independent regulator, the Independent Communications Authority of South Africa, is just finding its feet and winning confidence, and should be given the resources to do what the ECA Bill asks it to do,” says Smuts. “Infraco wants to lay submarine cables at spectacular cost to taxpayers when it is clear that private-sector cables are ready to roll out.”
“Back at the ranch at the Department of Communications, Director General Lyndall Shope-Mafole is matching Erwin’s determination (perhaps in retaliation) to become that archaic thing: the state telco,” says Smuts. “She is choking off commercial submarine cables as they try to land and insisting on constructing a Nepad-based network nobody believes will be built.”
Meanwhile, speculation is mounting about just what shape the proposed MTN and Telkom deal will take, with most analysts predicting that the deal would be bad news for consumers and would be unlikely to get through the Competition Commission.
Scott Ryall, a London-based Macquarie Bank analyst, says MTN may decide to combine its South African business with Telkom’s fixed-line unit to create a new telecoms player.
However, it is unclear how a deal like this would get through the Competition Commission, with the mooted Telkom/Business Connexion deal having already been rejected.
“You really have to ask, what is in it for the consumer,” says Gale. “I don’t see much in it for the consumer if MTN gobbles up Telkom.
“We are looking at two of the major players getting together,” says Gale. “With three major players, they weren’t exactly doing much about bringing prices down, how will two players do that?”
“I just don’t see it flying,” says Richard Hurst, an analyst with BMI TechKnowledge. “I think the Competition Commission will slam it.”