No Telkom, Broadband Infraco partnership yet

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 17 Feb 2016
Telkom and Broadband Infraco say they are always looking for ways to best collaborate within the industry.
Telkom and Broadband Infraco say they are always looking for ways to best collaborate within the industry.

Media speculation is rife that a partnership between Telkom and Broadband Infraco is on the cards, as government explores the restructuring of state-owned enterprises (SEOs).

According to a Business Day report today, minister in the Department of Telecommunications and Postal Services (DTPS), Siyabonga Cwele, said Telkom and Broadband Infraco are looking at how they can collaborate on infrastructure projects.

Telkom's collaboration with the state-owned fibre-optic infrastructure company will be part of a rationalisation process. "For Broadband Infraco, the rationalisation is urgent," the minister told the newspaper.

At this year's State of the Nation Address, president Jacob Zuma also noted government will look to phase out SOEs that are no longer active and not speaking to the country's development agenda.

However, on the news of a potential merger and removing overlaps in infrastructure projects, both Telkom and Broadband Infraco remain tight-lipped.

"We are always looking for ways to best collaborate within the industry but importantly, any such collaboration would have to be in a manner that added value to the business," says Telkom's managing executive for group communications, Jacqui O'Sullivan.

Broadband Infraco's spokesperson Sammy Mafu says the broadband entity engages the entire market and the market engages Broadband Infraco on an ongoing basis in regard to infrastructure collaboration.

"The nature of the industry is such that rapid speed of deployment, high capex/opex costs, and other factors require dynamic collaboration of industry players to prevent duplication of infrastructure and contribute to bringing down the costs to communicate, a core Broadband Infraco mandate aspect."

Mafu explains Broadband Infraco already has partnerships with about 20 customers, including three mobile network operators as well as ICT system integrators and Internet service providers.

The benefits of such partnerships are economies of scale, speed of rapid deployment to servicing customer needs and reduction in prices, which benefit the entire industry value chain and end-consumer, he says.

Money matters

Over the past few years, Broadband Infraco has been in a precarious financial state and struggled to fulfil its mandate and previously implored government for more funding to help it do so.

In 2013, the CEO said if government wanted the company to fulfil its mandate of increasing broadband access and affordability in SA, it would have to invest far more substantially - as much as R80 billion more.

Last year, National Treasury announced it is considering a request from Broadband Infraco for R243 million. The request was not for a bailout or any transfer of money, but rather for a guarantee for debt financing, said Treasury.

Although the wholesale broadband arm, which falls under the DTPS, has already received R1.8 billion from government to date, it has continued to seek funding.

Broadband Infraco said the R1.8 billion it had received from government was "insufficient to establish a fully autonomous network capable of addressing national connectivity demand enshrined in its mandate".

At a parliamentary portfolio committee for telecommunications and postal services meeting last year, it was revealed Broadband Infraco was seeking R243 million, as well as a further R932 million in funding until 2019.

Africa Analysis MD Dobek Pater says collaboration with Telkom may be very good for Broadband Infraco.

Broadband Infraco could possibly see more traffic going over its network and be able to provide more services, therefore, improving its financial performance, he says.

"If it were taken completely into the fold of Telkom, for example, as a subsidiary of Openserve, then perhaps its troubles would go away. However, I don't think Telkom would necessarily want to acquire Broadband Infraco. For Telkom, collaboration with Broadband Infraco would make sense to an extent," says Pater.

Market benefits

Pater believes collaboration between the two entities would benefit government more.

From a government perspective, it would make sense as it would save money in the future by not investing in Broadband Infraco, but rather let Telkom continue building national infrastructure without duplication, he explains.

"Broadband Infraco could be used by the government as a deployment vehicle for some of the future infrastructure and Telkom could focus on areas where Broadband Infraco is not present, in order to complement infrastructure over time," states Pater.

Ovum analyst Richard Hurst agrees and says it comes as no surprise government is exploring collaboration between Telkom and Broadband Infraco. Government has put forward this very idea on several occasions when mentioning its broadband plans for South Africa, he states.

"Both are state-owned entities and both are competing in the telecommunications space; however, they have different strengths and I think that if these entities could leverage these strengths we could get at least some of the way in terms of gaining greater penetration of broadband services across the country," says Hurst.

"I don't think that this will be earth-shattering but I think it will give the SOEs some ability to offer more services and thus compete in the market."

George Kalebaila, senior research manager for telecoms and media at the International Data Corporation (IDC), explains that collaboration between Telkom and Broadband Infraco would be a good move as both entities are involved in infrastructure build; however, the "devil will be in the details" of such a partnership.

"What is important is clarity on who does what and clarity on getting the project [SA Connect] off the ground," he states.

According to Kalebaila, a move by government to explore how Telkom and Broadband Infraco could co-operate could be part of a turnaround strategy to make the broadband entity more viable and sustainable.

"Collaborations are good, especially where you don't have to invest hugely and can easily share infrastructure," he says.