Fixed-line operator Telkom has been thrown a lifeline in the Department of Communications' proposed national broadband policy, as the operator's vast fibre network will underpin the state's aims to fast-track broadband access.
The policy advocates the deployment of wholesale backbone networks by the public and private sector. It notes these will operate on an open access and non-discriminatory basis "to allow innovation and competition by service providers".
Telkom will provide the core backbone infrastructure, and will be supported by other state-owned companies and the private sector, says the policy. This opens up a new source of revenue for the firm, which has an unrivalled fibre network that it is not fully exploiting.
The state, which is Telkom's single-largest shareholder, has said Telkom is a key and strategic asset in its plan, in conjunction with the private sector, to roll out broadband to all by 2020.
Concerted effort
The policy says broadband investment will not only contribute towards meeting the state's goal of five million new jobs by 2020, but will contribute towards SA's competitiveness and lay the foundation for an e-literate society by 2030.
The policy is informed by the need to fast-track the deployment of high-speed broadband infrastructure, such as fibre-optic backbones, wireless and international connectivity, and a coordinated approach to providing broadband infrastructure and services.
According to the most recent census, 64.8% of homes in SA do not have Internet access. The policy also notes broadband costs are too high and penetration lacks in rural areas.
Although the public and private sectors have played a significant role in investing in infrastructure, funding from government is fragmented and uncoordinated, it says.
Vital asset
As the largest single shareholder, government holds a 39.7% direct stake in Telkom and another 10.6% indirect interest though the state-owned Public Investment Corporation. The state has repeatedly been accused of interfering with the running of Telkom.
The operator has been coming under increasing pressure as its traditional business erodes and the number of installed fixed-lines drops. However, it has 140 000km of fibre out of a total of almost 160 000km installed in SA.
According to the policy, which is a bid to coordinate government's various efforts to grow broadband penetration in SA, in the long-term, there needs to be deployment of fibre to the premise and homes of South Africans.
Ovum analyst Richard Hurst says while government's proposal of open access networks would appear to provide to all operators with a national network, the reference to Telkom providing the core infrastructure provides insight into government's thinking, which is that the fixed-line operator will be the key to a coordinated approach to expand broadband.
Hurst says Telkom can benefit from providing wholesale services to many other operators, as there are commercial considerations that will have to be taken into account, which could grow its revenue stream.
Telkom's turnover has levelled out in the past five years, while its market capitalisation has lost 30% - excluding former subsidiary Vodacom - in the same time period. Telkom is battling with a heavy cost base and is losing customers.
The operator currently has about 3.9 million subscribers, compared with MTN's South African base of 25.4 million and Vodacom's 30.6 million. In the six months to September, total revenue was R16 billion, but operating expenditure came in at R15.6 billion.
Clarity
Hurst adds that the policy is a "brave stab" and a good first stake in the ground in terms of government's broadband ambitions. He notes that it provides some insight into government's plans for Telkom.
Communications minister Dina Pule recently told ITWeb during an interview that a strategic plan for Telkom would be announced imminently. Pule said she had met with Telkom's board in recent weeks and is waiting for the company's directors to present a future strategy to the DOC.
However, she insisted government has no plans to dictate what this strategy should be, but that it would only guide Telkom in terms of policy directives.
The market is still smarting from government's move last June to pull the plug on a potential deal with Korea-based KT Corporation, which would have seen Telkom issue 20% more shares in return for an initial R3.3 billion injection.
The DOC then announced it would report back to Cabinet with options for a turnaround plan for Telkom, within three months of the cancelled deal, but this has been delayed.
Hurst adds it is unlikely government will split up Telkom, as this would be challenging and do more harm than good.
The National Planning Commission has mooted a structural division of Telkom into two entities, which industry commentators have said is bad news for the operator, as costs would be pushed up, jobs may be cut, and the operator's retail business could disappear.
The commission's final National Development Plan, handed to president Jacob Zuma last year, suggests Telkom should be broken up into two businesses: a wholesale unit, focusing on backhaul operations; and a retail telecoms business.
The public can comment on the policy until mid-May.
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