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  • Heated debate over state’s intended digital infrastructure firm

Heated debate over state’s intended digital infrastructure firm

Johannesburg, 13 Nov 2024
There are questions surrounding whether the State Digital Infrastructure Company will achieve its desired objectives, or be doomed to fail.
There are questions surrounding whether the State Digital Infrastructure Company will achieve its desired objectives, or be doomed to fail.

Despite the formation of the State Digital Infrastructure Company (SDIC) being touted for some time, there is a difference of opinion in the seventh administration.

The Department of Communications and Digital Technologies (DCDT), which is overseeing the establishment of the digital infrastructure entity, is resolute the process will go ahead.

The SDIC would be born out of a merger between state-owned signal distributor Sentech and backhaul connectivity provider Broadband Infraco (BBI).

Sentech will take charge of BBI by means of an acquisition, resulting in the formation of the new entity. Its creation falls within government’s mandate to consolidate state-owned companies that operate within similar environments.

However, in a media statement, the current administration’s Parliamentary Portfolio Committee on Communications and Digital Technologies expressed reservations about the rationale and process of establishing the entity.

The legislative oversight body is concerned about the DCDT’s process to establish the company, and questions whether it will achieve its desired objectives, or be doomed to fail.

Khusela Sangoni-Diko, chairperson of the Parliamentary Portfolio Committee on Communications and Digital Technologies.
Khusela Sangoni-Diko, chairperson of the Parliamentary Portfolio Committee on Communications and Digital Technologies.

“While the committee appreciates the need to rationalise state-owned companies in the telecommunications space, the department has failed to demonstrate a bankable business case that speaks to the future profitability of the new SDIC, given the underlying liquidity and solvency challenges in the existing companies, notably BBI,” it states.

“It is further unclear to the committee whether the department has made any advances to consolidate all state digital infrastructure assets − such as those held by Eskom, Transnet, Sanral and Prasa − in the proposed new SDIC.

“Failure to do so would perpetuate a fragmented, disjointed and unsustainable approach to leveraging the massive infrastructure investment the state has already made in the roll out of fibre to enhance accessibility and affordability of connectivity to the poorest and underserviced areas of our country.”

The committee called on the department to reconsider the options for establishing the SDIC, given the emerging issues related to Sentech acquiring the ailing BBI.

Committee chairperson Khusela Sangoni-Diko also called on the Independent Communication Authority of SA to accelerate the process to hold a market enquiry to assess the current state of the ICT market.

Sangoni-Diko recommended a process to ascertain whether it is still necessary to establish such a state-owned digital infrastructure company, as the market has shifted considerably since the promulgation of the rationalisation policy.

“Let there be a process that will provide a better understanding of the market structure from the supply side, to establish the extent at which government still needs to intervene,” she said.

Communications and digital technologies minister Solly Malatsi.
Communications and digital technologies minister Solly Malatsi.

Even though the proposed new entity has drawn mixed reactions from industry players and commentators over the years, the department has steadfastly advocated for its establishment.

Addressing media on the side-lines of Africa Tech Festival 2024, in Cape Town yesterday, communications minister Solly Malatsi said the DCDT has no intentions to back down from its plans to establish the SDIC.

Responding to ITWeb’s questions on the matter, Malatsi explained: “It's important to remember that the establishment of the state digital infrastructure company was part of the efforts to rationalise the SOEs [state-owned enterprises] through merging BBI with Sentech, because there is duplication of mandates, and when we merge the companies, there will be a much more focused approach.

“I think the question on the implementation plan is something that can be dealt with through engaging with the portfolio committee. The committee obviously has a right, through its oversight role, to have a different view about it. We will engage with them to understand their concerns, because a lot of work has already gone into laying the ground for that merger to happen.

“The plan is a continuation of something that comes from the sixth administration, and we are in support of the merger as the seventh administration. The principle is that we need fewer SOEs – ones that are focused on strategic initiatives that advance our mission. We feel the merger makes sense and it is long overdue. Of course, it must be done the right way and take into consideration those concerns raised by the portfolio committee.”

Rationale to rationalise

The state has hundreds of SOEs spread across national and provincial government. Many of these continue to face a litany of governance and financial challenges, including Eskom, Transnet, South African Post Office and the SABC.

Given government’s troubled track record with state-run entities, ICT pundits have questioned whether the country needs a company of this magnitude within the ICT sector.

Despite this, the DCDT has put forward its plans to establish a digital infrastructure company, backed by the communications ministry’s predecessors, including former ministers Stella Ndabeni-Abrahams and Dr Siyabonga Cwele.

In the 2020 National Budget, it was revealed the DCDT would submit to Cabinet the Bill motivating for the establishment of the state-owned digital infrastructure entity.

Later that year, the department indicated the business case for the merger of Sentech and BBI had been finalised, and was awaiting Cabinet and Parliament processes.

In 2021, it was revealed that a new proposal was being considered, with the department proposing the acquisition of BBI by Sentech to facilitate the process.

The intention for the company’s formation was also carried forward by other predecessors in the DCDT, including former minister Khumbudzo Ntshavheni and incumbent deputy minister Mondli Gungubele – who was the communications principal in the previous administration.

S'bongiseni Vilakazi, DA MP and communications portfolio committee member, says as far as the DA understands it, the DCDT is continuing with the previous government’s plans to establish the new company.

The committee – including the DA and other parties represented – was left in doubt about the way the company is being established and whether it will achieve its desired objectives, he added.

Vilakazi highlights the committees’ shared concerns have to do with BBI’s “technical insolvency without any prospects of becoming profitable”.

“A takeover of BBI by Sentech not only presents complications regarding the Companies Act, under which the transaction is taking place, but would likely drag Sentech down the same path as BBI.

“The acquisition would require a bailout of R2.3 billion over four years from the National Treasury. Not only are these funds not available, but the DA is opposed to ongoing bailouts of SOEs, as these have proven to be highly wasteful expenditure in a tight fiscal environment.”

According to Vilakazi, the DA welcomes the formation of an SDIC to consolidate the activities of the department’s entities regarding the provision of broadband connectivity, especially to low-income and remote communities. However, it is concerned about the way the department is going about setting up the new agency.

In terms of what would be the ideal scenario for this merger, Vilakazi explains: “The DA believes the DCDT and its entities must align with an integrated national ICT strategy that includes an appropriate mix of market-based mechanisms and developmental interventions aimed at promoting the use of digital technologies and achieving universal access to services. Currently, the department, through its entities, is engaged in a number of disjointed activities that are related but not coordinated, setting up all these initiatives for failure.

“The party is also of the opinion that the state should not be a market player in communication infrastructure provision. Rather, government’s focus should be on policy development and regulation, as well as facilitating and incentivising private role players to provide affordable services to the public.

“The DA urges the minister to establish a competent task team to advise the department on setting up a state digital infrastructure company, as well as appropriate legislative, policy and regulatory reform that will ensure the realisation of the country’s potential in relation to digital technologies.”

Move with the times

Leon Rolls, president of the Progressive Blacks in ICT (PBICT) lobby group, says Sentech has become obsolete and the SABC is following that line as the main customer of Sentech.

Rolls has never been a fan of the formation of the SDIC through the absorption of BBI by Sentech, previously calling for it to be postponed for five years.

“We are moving towards smart cities, and this will require large backhaul and big data processing. We need BBI more than we need Sentech. The wise move would be to invest more into re-engineering BBI and funding it to build data centres, points-of-presence and data centres.

“The future of the WOAN [wholesale open access network] will need BBI. The Parliamentary [committee] should be directing its attention to building BBI, like many countries are doing all over the world, to ensure the people have access to affordable data. Broadband Infraco has successfully influenced the reduction of the cost of data. The Broadband Access Fund, SA Connect 1 and SA Connect 2 projects are allowing new entries into the market that come in the shape of local ISPs that are youth-, women- and mainly 100% black-owned.

“The mandate of BBI is to bridge the digital divide and that is what they are doing. Last year, BBI was given funding to expand its network, build more points-of-presence and develop a commercial model that will sustain the entity.

“The investment has not even been given a chance to breathe and now this. To our eyes as the industry, we see this as a move to support the data monopoly on its endeavour to have total and ultimate control of the telecommunications economy.”

According to Rolls, the PBICT rejects the proposal of BBI being merged into Sentech, describing this as the worst decision ever made by government.

“The establishment of the SDIC, on the other hand, is a good decision and all government connectivity should be provided by this entity. Government at all levels must be the anchor client.

“Sentech should merge with the SABC and they must focus on providing new digital technology to compete with the likes of Netflix. BBI must be SDIC and must be given a full mandate and financial backing to be the largest backhaul provider in the country.

“SITA must release all government connectivity to BBI, so that BBI can grow and become a sustainable entity.”

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