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Telcos advised to avoid SA

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Gartner Dataquest is advising telecommunications operators to "view investment in South African telecom companies with extreme caution" until at least the end of this year.

In a report released earlier this month, Gartner warns that the legislative and operational framework for telecommunications is unlikely to be stable before the end of the year. It also recommends that those still interested in SA work with Telkom rather than its potential competitor.

The report questions whether the current process to find a foreign partner for the second national operator (SNO), which was already due to have started competing with Telkom, will be successful.

"The dilemma for overseas operators eyeing SA as a potential investment market, including many of the leading telecom carriers of the world, is stark," the research house says. "The present [government] policy translates into significant upfront investment (which these carriers likely do not have) and holds no hope of returns in the mid-term (a prospect that their investors and shareholders would veto)."

Analysts Bhawani Shankar and William L Hahn lay the blame for delays in licensing the SNO at government`s door.

"The tangle of SA`s attempts at liberalisation defies description, much less analysis," they say. "Negotiations over the structure of competition have been bogged down at almost every turn, and the government, which is also the majority owner of Transtel and Esi-Tel [which are to be part owners of the SNO], is hopelessly compromised in its attempts to arbitrate."

The government`s philosophy on liberalisation is "long on rhetoric and short on details", they add, and say the local deregulation model seems caught in a cultural warp between Eastern aims and Western ways.

Some Eastern countries have been successful in ramping up their teledensity, but more often than not this has been done through state ownership of operators or tight control of private investment.

SA is trying to achieve much the same but also create a Western market with privatised players managing their own affairs.

"Legislators in SA must understand that imposing societal strictures on commercial enterprise will not be feasible - at least under the current regulator and licensing framework. While social aims must be met, they must be balanced against the need for commercial return if SA wants to attract overseas players," the report says.

Gartner and other analysts have been consistent in their criticism of the local regulator regime and policies. Their analysis was borne out, to date, by the lack of interest from major foreign players in the SNO.

The latest criticism comes at a crucial moment, with the government`s Department of Communications having already missed all its own deadlines for starting a second process to find a partner for the SNO.

The government is also gearing up for a feasibility study into a fourth cellphone operator late this year, as required by its own policy which also calls for a study into the viability of a second competitor to Telkom in 2005.

Gartner says the first remedy needed to make the local telecoms market attractive is a strong regulator. The Independent Communications Authority of SA (ICASA) has been faced down by Telkom more than once and is dominated by the Department of Communications, which holds ultimate control over both its budget and the regulations it is tasked with implementing.

According to the report, only an empowered regulator will give potential players hope of an attractive return on investment. It also recommends a strategic review of the legislative framework already in place.

Unless action is taken, it warns, the government "risks repeating the comic errors" that have plagued it.

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