R500m infrastructure boost for Infraco

State-owned entity (SOE) Broadband Infraco has helped decrease wholesale long-distance connectivity prices by more than 75%, and will now invest R500 million in broadband infrastructure in the 2011/12 financial year.

During his budget vote speech yesterday, public enterprises minister Malusi Gigaba said the entity unlocked economic value by reducing the cost of connectivity over the past two years.

Broadband Infraco was established by government several years ago to provide a national telecoms backbone to telcos in SA. Its intention was to drop the cost of connecting to international undersea cables. However, the ailing entity has been rife with internal turmoil.

Gigaba said that during the previous financial year, SOEs made good progress in enhancing the state's developmental agenda.

The Department of Public Enterprises (DPE) had taken steps to enhance its performance and this included investing in Broadband Infraco's national backbone fibre-optic network.

The minister said this enabled the company to provide strategic international connectivity to operators in the Southern African Development Community region and in the West Coast of Africa.

“The sharp decline in public investment in infrastructure in our country between 1976 and 2004 has created a significant backlog in infrastructure investment, which creates a significant constraint to investment and growth in key SOE customer sectors,” he said.

Had SA consistently invested at a rate of 10% of its gross domestic product into infrastructure between 1994 and 2009, it would have invested a further R1.5 trillion in today's currency, stated Gigaba.

“We realise that the quality of service delivery of some SOEs is below acceptable levels in key areas.”

Eskom will invest more than R76 billion, Transnet R25.8 billion, and Broadband Infraco, over R500 million in new broadband infrastructure.

”With the expansion of operations associated with this investment, the SOEs will target growth in their direct operations of at least 13 000 new jobs; and expect to help the growth in their South African supply-chains by a further 40 414 jobs.”

According to a National Treasury official, Broadband Infraco was expected to be self-funding from now. Between 2006/7 and 2010/11, government funded the expansion of the state-owned enterprise's national long-distance network and its participation in the West Coast submarine cable system.

The DPE will only receive R4.4 million this year to fund its ICT broadband sector programme, which provides “shareholder oversight” over Broadband Infraco. In the 2012/13 financial year, the sub-programme will receive R4.6 million, which will grow to R5 million the year after. Last year, the sub-programme received R142.3 million.

“It is not only highly unlikely that Infraco will become self-funding, it is also highly probable that its losses will continue to mount, and its services become increasingly outmoded, as it struggles with management and operational issues,” argues WWW Strategy MD Steven Ambrose.

Gigaba said the department will continue to monitor the roll-out of the Infraco broadband network, while working on a strategy to secure the long-term viability of the business.

“In particular, we are exploring strategic synergies between Infraco and Sentech in order to optimise our capacity.”

Ambrose says the only viable future for the embattled SOE lies in its privatisation.

“Government will finally have to fold Infraco into Telkom or Sentech, both of which hardly have stellar records, in order to curb losses and make the best of the infrastructure the taxpayer has paid well over market-related amounts for.”

The company's network currently comprises 13 600km of long-distance fibre and five open access points of presence in key metropolitan areas, with a further seven open access points of presence to follow.

Gigaba said work is being done to further roll out broadband access in remote rural areas and to facilities such as hospitals, clinics and schools.

“The delivery of this vision implicitly involves an expansion of the scope of the shareholder management process and the development of new capabilities in the department.”

Deputy minister of public enterprises Ben Martins said the department has commenced with an intellectual property audit of the Pebble Bed Modular Reactor (PBMR), in order to ensure a sound strategy to protect its future value.

“A skills audit has also been conducted to ascertain how current expertise could best be utilised in future nuclear endeavours.”

Due to fiscal constraints and the PBMR's failure to secure an investor or partner, government decided to place it into care and maintenance to protect and preserve its intellectual property and preserve its assets, said Martins.

“Good progress has thus far been made and it is envisaged that the preservation of intellectual property and the transition to care and maintenance will be complete within this financial year.”

After more than 10 years and R10 billion spent, government pulled the plug on the PBMR in September last year, because it was no longer deemed worthwhile for government to invest in the project.