On the back of an expos'e of poor governance and procurement issues plaguing state-owned entity (SOE) Broadband Infraco, industry commentators question whether its mandate of offering low-cost broadband in SA is still relevant.
Infraco was formed about five years ago, when government combined Eskom and Transnet's ICT infrastructure, with the aim of providing a backbone that would aid in reducing the costs of communication in SA.
SA's first long-distance open-access carrier network was officially opened to the South African market in November last year, offering a 12 125km fibre-optic network capable of bandwidth services between 155Mbps and 10Gbps.
At the time, Infraco stated it would begin to sell high-capacity long-distance transmission services to licensed fixed and mobile network operators, Internet service providers and other value-added network service providers on a cost-plus basis.
However, post its unveiling, little other than a controversial risk and audit report has emerged from the SOE, prompting analysts to question whether Infraco has, or even will have, any impact on connectivity in the country.
“Broadband Infraco has had little or no impact on the market currently. It has had it commercial launch last year, yet little impact has been seen on either broadband penetration or costs,” argues WWW Strategy MD Steven Ambrose.
“It is perhaps early days for a player in the infrastructure space, but the lack of apparent impact, and the obvious governance and financial issues, raises questions as to the rationale of Infraco in the first place.”
Too late
Frost & Sullivan industry analyst Spiwe Chireka points out that Infraco's late entry to market is possibly why the entity will be limited in its offering to market.
She notes that the SOE entered when broadband prices in the country were already undergoing a 60% to 70% reduction.
Chireka points out that the natural competitive force in the broadband market has already begun to play itself out, especially with the influx of undersea cables in the region, as well as the investments by the bigger players into their own national fibre networks.
She argues that competition in the market and subsequent drop in broadband pricing has already reached self-regulating status and, as a result, Broadband Infraco's main mandate of delivering affordable connectivity in the country, is too late.
Chireka concedes that Infraco's delay can mostly be attributed to many of the licensing issues it faced prior to its commercial unveiling.
National focus
However, she argues that the entity can still focus on its wholesale offering going forward. But she warns that Telkom will not go down without a fight and will likely come to market with competitive offerings to Infraco.
But despite the challenges that Chireka points out, Infraco argues its strengths also lie in: “Providing the long distance bandwidth needed for specific projects of national interest that will have wide-ranging benefits and contribute to the development of skills for the country as a whole.”
The SOE points out that it has enjoyed recent success in involvement in the commissioning of the West African Cable System projects, as well as its partnership with Neotel to install a network with 10Gbps capacity for the South African Large Telescope and Square Kilometre Array sites in the Northern Cape, for which Broadband Infraco will be responsible for as much as 95%.
However, Ambrose maintains that the SOE has yet to have any impact on the industry but concedes that this is to be expected of the government-backed entity.
Govt bailout
“Infraco is falling into the same trap as Telkom. It is seen as a strategic resource and is being run as a parastatal in a fluid and highly competitive market. It lacks the nimbleness of an efficiently run private company, and more importantly has no risk or reward structure,” states Ambrose.
He argues that there is always the state to turn to in the event that the company runs into financial difficulties. As such, he notes, it is falling into the trap of all state-run enterprises, whereby managers demand market-related packages for staff, without any risk to the same staff as would be found in normal commercial enterprises.
“Infraco will carry on regardless; recovery is not needed, as the state will simply continue funding the entity in the 'national interest'. At some point, Infraco will either become irrelevant, or be subsumed into a greater structure, such as Telkom,” he maintains.
“The government has to realise it cannot and should not try to be both the regulator of and the supplier of key services such as telecommunications.
“The market is too fluid and far too competitive for this to work efficiently. The drain on the fiscus and the lack of service delivery will continue until such time as the government takes a pragmatic view on both Telkom and Infraco, and leaves them both to the private sector to manage,” concludes Ambrose.
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