Yes, no, maybe...

After many years of back-and-forth, and legal battles, value-added network service (VANS) providers have finally been given the right to provide their own network infrastructure.

Meanwhile, back at the ranch, various municipalities have gone ahead with their broadband rollouts. The models and business cases vary from municipality to municipality. As such, so does the viability of these initiatives in the face of a competitive market situation. That said, the question of whether or not municipal initiatives are still viable remains, and it is not one with an easy answer.

T-Systems telecoms services GM Dr Andrew Hutchison says when T-Systems initially got involved in municipal broadband, the regulatory regime was such that Telkom or Neotel were the only options.

“Then the regime loosened and metros started looking at ways to provide low-cost access to citizens as well as make cities competitive for corporates. For example, if a company wanted to build a call centre, a municipality with a low-cost means for the centre to access the nearest [point of presence] would make it an attractive option.

“Then there were very compelling reasons why municipalities were well positioned to be providers. Eighteen or 24 months later, however, we're now in a position where VANS can offer connectivity on a regional basis. Suddenly, where the municipalities had a captive audience, you now have a saturated market with many providers rolling out.”

Orion Telecom MD Jacques du Toit's first experience came with Tshwane and its power-line communications initiative. “Tshwane was running power-lines during the period when we didn't have power,” he says.

Given that we're due to have power issues for some time to come, power-lines are clearly not a good option for connectivity. As Du Toit notes: “The municipalities cannot maintain the road infrastructure, yet they can now get into the IT space?”

In the Johannesburg metro, insiders got more savvy in terms of the law and started using municipal by-laws to prevent others digging up pavements and rolling out fibre. “A real possibility is that VANS will get licences and then the municipality will come along and say: 'We don't care what you paid for, this is our space.'”

Hillel Shrock, business solutions director at Internet Solutions, says the municipalities are being fleeced by the current incumbents. “As much as they say [these initiatives] are about social development and getting broadband in place to drive employment, education and the economy, the starting point is that they are large telecommunications customers and this is an opportunity to drive down costs.

“In and of itself, it makes sense,” he says. There are questions, though. “Three years ago, when there was only one option [in Telkom], it made sense. Now the world is moving on, the landscape is changing and becoming competitive. The question is: 'What gives municipalities any kind of competitive advantage?'”

The broadband consumer wants a provider that will be accountable.

Arthur Goldstuck, MD, World Wide Worx

And therein lies the rub. Municipalities are not geared to be commercially competitive entities. Under the current licence regime, municipalities qualify for private electronic communications network (PECN) licences. In terms of Icasa's regulations, they're only allowed to lease or resell spare capacity on a cost-recovery basis.

eThekwini, for example, launched its Metro Connect service in August. It has appointed Dimension Data to manage and maintain the network for three years. Dimension Data is also handling all leases to ISPs wishing to use the available fibre, although contracts are signed with the municipality directly and it bills ISPs directly at an approximate cost of R1 760 per megabyte. This sounds good, but all you get is the fibre. That's it. Anything you need to make use of said fibre has to be purchased and factored into your cost considerations.

Many of the municipalities have stated the urge to provide low-cost Internet access to citizens as a driver behind their broadband initiatives. The question there, of course, is whether citizens will go to municipalities to have their broadband needs met, particularly given the large number of commercial players already after the consumer buck.

World Wide Worx MD Arthur Goldstuck says the public's general experience of their municipality is an endless battle to sort out bills, to have parks and pavements maintained and to simply get a response to basic enquiries.

“The typical municipal call centre is the stuff of nightmares. Now they want to enter a hi-tech space where competition and choice is rapidly emerging, and where the consumer expects high performance. Municipal broadband, in contrast to the hi-tech connectivity industry, has the whiff of the old-style, old-fashioned command-and-control economy. It has an aura of backwardness and it appears deeply inappropriate as the source of hi-tech services.

“The argument for municipal broadband until recently,” he continues, “was that a loophole in the law allowed municipalities to roll out their own communications infrastructure, and provided competition to Telkom. But this really highlighted the weakness of the law rather than the opportunity it provided: by allowing Telkom to maintain a stranglehold on connectivity, the law created a situation in which a concept as improbable as municipal broadband could be seen as a boon to Internet users. With recent court cases that allowed any VANS to become a fully-fledged service provider, that justification disappears.

“The key issue is dreadfully simple: the broadband consumer wants a provider that will be accountable when anything goes wrong. The typical municipality does not meet that basic criterion,” he says.

Everyone underestimates what it takes to deliver real value-add services to the market.

Hillel Shrock, business solutions director, Internet Solutions

On the other hand, as Internet Solutions' Shrock notes, the municipalities have a cast-iron case for providing broadband for their own needs.

eThekwini head of geographic information and policy Jacquie Subban says that municipality always wanted its own network. “We use it to connect our own premises. With it we can, for example, run a TV station for employees and stream information targeted at the public to our offices. And the demand is only going to increase. We need to bring CCTV cameras online, do meter readings, and so on.”

In addition, the municipality has a social development agenda. “Our intent was always to reach the poorest parts of the community,” notes Subban.

When prices decrease sufficiently or bandwidth becomes so available that the municipality is pushed out of the market, she says, then they will worry about whether or not they should stop selling excess capacity.

The short version of more than one long argument, either for or against, is that it depends entirely upon the model chosen by the municipality. eThekwini, for example, has a solid case for using its network to meet its own needs. Other municipalities, which aimed to roll out commercial services, will find themselves in a position where they have to provide high-quality services in competition with a host of ISPs, which have a very firm foothold in the market.

Shrock says: “Everyone underestimates, either on purpose or because they don't understand the complexity, what it takes to deliver real value-add services to the market.”

The best option will be for municipalities to partner commercial providers with the required skill and experience. How many of them do so remains to be seen.