A 10 000 pound gorilla called Infraco

Twisted logic, the disconnect between government departments, and the convenient forgetting of the process that led to the high cost of bandwidth are the real reasons why the case for Infraco is not compelling.

Parliament's public enterprises committee chairman Yunus Carrim sent the Department of Public Enterprises (DPE) off with a flea in its ear, to reconsider its case for the establishment of Infraco as a state-owned entity that will bring "affordable" broadband pricing to the country. This, the department says, will break the stranglehold Telkom has and give industry and private consumers a real choice.

During the hearings, it was clear Carrim was desperately looking for a public reason to support the Broadband Infraco Bill, the law that will govern Infraco. However, he was not finding it.

A raft of presentations from various parties within industry, including Vodacom, ICASA, Telkom, the Competition Commission, Neotel, Sentech, and Internet Solutions, said they welcomed the creation of Infraco and that there will be competition at the facilities level where the real pricing bottleneck is taking place.

However, none of them asked the real questions, such as: "Why create a state-owned entity to compete with another partially state-owned company to create competition?"

Carrim sensed something was not being said in the presentations and remarked on this: "I don't know if people are being too diplomatic or that they are afraid they will be rebuked in a public forum."

Pieter Hendricks, an ANC MP on the committee, agreed: "There is definitely a gorilla in the room that is preventing people from speaking their minds."

Carrim was desperately looking for a public reason to support the Broadband Infraco Bill, the law that will govern Infraco. However, he was not finding it.

Paul Vecchiatto, Cape Town correspondent

What the presentations did not refer to is that the logic behind the creation of Infraco is flawed, and a conversation I had with a DPE official during one of the breaks illustrated this.

"Why do we need Infraco?" I asked. "Because broadband costs are too high in this country and it is stifling economic growth," was the reply.

'Why are costs so high?" I asked. "Because there has been a market failure," was the reply.

"Why has there been a market failure?" I asked. "Because of the market structure in the tier 1 and 2 segments that are dominated by one company, namely Telkom," was the answer.

"What led to this market dominance?" I asked. "Market failure," was the reply.

But the fact is that it was not market failure, it was a failure of policy that has led to this situation. The market was never given a real chance.

Former communications minister Jay Naidoo admitted this during the World Economic Forum, and the public enterprises minister, this official's political boss, also admitted this.

So the logic is that the country needs a state-inspired entity to solve a problem that was created by the state in the first place. It seems to be a case of having two wrongs to make a right.

"No, it is market failure. The Department of Communications, which is in charge of policy, agrees with us," the DPE official insisted.

Later, when I related this to a Department of Communications official, the terse comment was: "That is pretty much how the discussions went."

What parliamentarians should be asking is: What are the alternatives to Infraco? What are the long-term plans for Infraco? Why are there listing provisions in the Bill already? How long will Infraco be allowed to hold its "deemed" license for? What exactly do they mean by affordable access? What is the real reason for Neotel getting a four-year exclusivity period? Why has the Infraco management not presented? Will Infraco let competitors land their undersea cables?

Historically, strategic state intervention has not been successful. Never mind Telkom, take the case of Iscor (now Mittall Steel), founded in 1932. The country is still sitting with an artificial steel price from one dominant player who is the subject of many competition complaints.

Parliament must make sure that if Infraco is allowed to go ahead, it is for the right reasons and with very clear goals, otherwise it is just repeating the mistakes of the past.