The changing face of Infraco

When Broadband Infraco is granted its licence, it will change the face of the telecommunications sector. Unfortunately, that landscape has already shifted.

This week, telecommunications regulator ICASA issued an “invitation to apply” to Broadband Infraco, to apply for its licence. This came more than a month after communications minister Ivy Matsepe-Casaburri issued her policy directive to our independent regulator to do so.

Looking at the history of Broadband Infraco, this is the speediest movement we have seen in almost four years of its rapid movement to nowhere.

The company was the creation of Alec Erwin, during his tenure as public enterprises minister. The idea was conceived when the market was far from free, when Telkom dominated the entire telecommunications sector and the Department of Communications' policy-muddling was in full swing.

Obtaining a full telecommunications licence five years ago was not an easy matter. There were only two companies with licences, namely Telkom and the fledgling Neotel. Even the cellular network operators were constrained and had to stick closely to rolling out their mobile services only.

However, the sector has now had a facelift. Despite the best efforts of Matsepe-Casaburri and her former director-general, Lyndall Shope-Mafole, any value-added network service (VANS) licensee can now obtain the Electronic Communications Act (EC Act) equivalent of a telecommunications licence, namely an individual-electronic communications network services (I-ECNS) licence.

For the first time in this country's history, the telecommunications sector has the potential to truly act according to free market principles. Once ICASA finalises the licence conversion process and frequency spectrum allocation, it will only be a matter of time before alternative telecommunications operators start to make a real impact.

Nineteen months ago, the Department of Public Enterprises (DPE) convinced Parliament it should pass a law establishing Broadband Infraco as a public enterprise, and that the EC Act must be amended to accommodate its speedy licensing.

Although reservations were expressed then by members of all parties about the need for Broadband Infraco, they all voted in favour of its enabling legislation, because of the universal dislike for Telkom that the DPE presenters, if not actively encouraged, most certainly took advantage of. They were also very deft in making Telkom synonymous with the free market or private sector.

But that initial public debut of Broadband Infraco was not trouble-free. Parliament rejected the first proposal because of the seemingly overlapping mandates of Broadband Infraco and national signal distributor Sentech.

Then there was the issue of “deeming” that Broadband Infraco be licensed. Much to ICASA chairperson Paris Mashile's credit, in the face of some strong opposition from government and politicians, this was rejected because “deeming” a licence could only apply to companies that were already operational before the new licensing regime came into effect.

Both Broadband Infraco presentations to Parliament emphasised the formation of the company was essential in order to bring cheap ICT services to the country because “the private sector was unwilling to do so”. They went on to emphasise that the company would be a fibre-optic infrastructure provider and would extend the networks that had already been laid by Eskom's Easitel and Transnet's Transtel.

“There is no way that Infraco will be providing services. There are plenty of people to do that. Infraco is an infrastructure provider,” Erwin said at the time.

During the presentations, I noticed the brave face being put on by the Neotel representatives, because these were the very assets that company had been promised, and Erwin had snatched them away at the last minute, in 2005. As a sop to Neotel, a highly confidential five-year marketing contract was signed between the two companies. However, during the EC Act amendment hearings, Neotel did make the point that the creation of Broadband Infraco would impact its business case.

According to the presentations, Broadband Infraco would build a national network and then two undersea cables, the first to Europe and the second to Brazil. These cables would have huge capacity and would be essential for SA's 2010 World Cup preparations, and to service the Square Kilometre Array telescope for which the country is bidding.

But, what the presentations never really articulated was what exactly Broadband Infraco's business case was and who exactly would be its customers.

Just after the second presentation to Parliament, DPE director-general Portia Molefe spoke at the GovTech 2007 Conference, where she waved the big stick of the Public Finance Management Act at government CIOs, saying the law obliged them to take the cheapest provider and that Infraco would be it.

Rumours are already circulating that Broadband Infraco is making forays into providing services, and its CEO Dave Smith is adamant it would want the exact same I-ECNS licence as anyone else.

For the first time in this country's history, the telecommunications sector has the potential to truly act according to free market principles.

Paul Vecchiatto, Cape Town correspondent, ITWeb

The danger is obvious. With its government financing, even though it is a Schedule 2 company that has the ability to raise its own finance, government is still a guarantor. It also has the ability to use the law to its own advantage to capture a large segment of the market. This means Broadband Infraco will have an advantage that no private sector company can compete with.

Another issue, which has been little commented on or explained, is the provisions in the Broadband Infraco Act to privatise and list the company. According to the Act, the DPE minister can do this with literally a flick of the switch. Why would such a provision be made so early in the company's life, unless there is an ulterior motive for someone to profit, and possibly at the public's expense?

In January last year, Erwin reportedly said at a gathering of telecommunications executives, to brief them on Broadband Infraco: “I cannot understand how the country with the lowest electricity prices in the world has the most expensive broadband.”

I asked him about this at the cocktail party where he announced his retirement, and he retorted: “My boy! You must not believe everything you hear.” He then strolled off to adjust former minister of the presidency Essop Pahad's tie and dust down his shoulders.

And that piece of advice applies equally to what we have been told about Broadband Infraco.