Eskom plans to exit Neotel

Johannesburg, 10 Nov 2006

State power producer Eskom will exit from SA's second national operator, Neotel.

As the company focuses on its core function of providing power to a growing economy, Eskom will withdraw from other areas into which it has diversified, says CEO Thulani Gcabashe.

Eskom and Transnet have a joint 30% stake in Neotel, which is understood to have an agreement with the two firms through state company Infraco to lease a telecommunications network.

Gcabashe says there is agreement with the other shareholders - Tata-VSNL, the Two Consortium, Communitel and Nexus Connexion - that Eskom's stake, held through Eskom Telecoms, would be divested after a "fixed time frame".

He did not provide a clear guideline as to when this would happen, but states the parastatal could not exit previously as its involvement was vital in allowing Neotel to launch.

In addition, notes Gcabashe, Eskom was unwilling to divest from its fibre optic network for no return. Eskom's telecommunications assets were initially to be sold to Neotel, but government later quashed those plans and placed these assets into Infraco, which will then lease them to Neotel.

Cheaper broadband

In October, minister of public enterprises Alec Erwin said the department would create Infraco to reduce the cost of international broadband.

"Yes, it is the intention of the Department of Public Enterprises to create an infrastructure company (Infraco) based on the long-distance assets owned by Eskom and Transnet," Erwin replied to questions in Parliament.

He said the inception of Infraco, using the long-distance assets deployed by Eskom and Transnet, is a direct intervention to rapidly reduce the cost of broadband from early 2007.

Gcabashe did not provide any guidelines as to what the relationship between Eskom's network and Infraco would be.

Diversification

Eskom embarked on a plan in 1998 to diversify its interests geographically and to operate beyond the boundaries of simply producing power, explains Gcabashe. This shift was in answer to a power surplus that existed at the time.

However, the company later determined a change in strategy and, in December 2003, decided to divest of its telecommunications assets.

Eskom also recently said that it, along with partner shareholder Transnet, would place its stake in IT outsourcing firm arivia.kom on the open market. This fuelled speculation that Neotel may look at a stake in the company to match Telkom's decision to buy Business Connexion.