Sentech hobbled by funding crisis

By Damaria Senne, ITWeb senior journalist

Johannesburg, 19 Sept 2007

While Sentech has improved its financial performance, the state-owned institution says it is still hobbled by funding constraints, which are keeping it from reaching its full potential.

Sentech's 2007 annual report, which covers the 2006/7 financial year, shows the state signal provider reduced its losses from R76.419 million in the 2005/6 financial year, to R21.53 million in the 2006/7 financial year.

The annual report was presented to the media in Fourways yesterday. It was also tabled for discussion in Parliament last week.

Sentech CFO Mohammed Siddique says cash flow improved year-on-year by 533%, mainly due to a R95 million digital terrestrial television (DTT) government grant and a cost-cutting drive initiated in 2005.

The company's revenue increased by 8.7%, as a result of growth in sales of carrier of carrier and multimedia services, but was offset by a decline in revenue from commercial broadcasters.

Revenue from broadcast signal distribution saw a marginal 4.7% increase, due to the 4.4% annual tariff increase, while revenue from VSAT services increased by 7%.

However, chairman Colin Hickling writes in his report that Sentech's capital and project funding constraints prevent the institution from "reaching its full potential".

"Making a profit continues to be a challenge in the absence of a capital injection, and it is difficult for Sentech to achieve its role as a strategic asset of government in creating an inclusive information society."

Empty promises

Hickling points out that the Sentech board has continuously asked for more capital since the company was awarded the carrier of carrier and multimedia licences in 2002.

Part of the required funding is for capitalisation of the organisation, with the rest needed for specific projects, such as the nationwide broadband wireless network.

The challenge is that government has either granted less than was requested, as is the case with the DTT project, or has stalled in granting the money, as with the broadband wireless network. Sentech initially asked for R960 million to provide DTT coverage throughout SA, and was granted R405 million.

"Notwithstanding numerous announcements by government that Sentech would be funded to roll-out a broadband wireless network, no funding has been forthcoming nor an appropriate funding model been finalised. In spite of the various funding models and business plans submitted to the shareholder and treasury, this continued lack of funding has and will continue to negatively impact Sentech's performance," says Hickling.

Last week, finance minister Trevor Manuel asked Parliament for R500 million to be set aside for the capitalisation of Sentech's broadband wireless network.

The Department of Communications clarified that the money would only be transferred to Sentech after National Treasury approves Sentech's revised business plan for the project, underscoring a problem highlighted by Hickling.

Another area that could do with a cash injection is the carrier of carrier network, which provides for international voice traffic.

Sentech reports that its 2006 carrier of carrier revenue was 36% below budget, mainly due to the instability of the network. While the network was more stable in 2007, "there is also a critical need to invest further resources to upgrade the network to carrier grade," says Sentech.

Hickling notes that the company's debt equity ratio is high at 0.8, preventing the state institution from borrowing further unless it receives capital injection from government. The communications department was unable to comment on how it plans to resolve Sentech's funding issues so that the institution can reach its full potential.

Earlier this year, Sentech urged Parliament to review its status in order to allow it to borrow from other sources. This decision is still pending.