Legal View

Set-top box manufacturer goes belly-up

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Leratadima Marketing Solutions is a casualty of the country’s bumpy ride to digital migration.
Leratadima Marketing Solutions is a casualty of the country’s bumpy ride to digital migration.

Leratadima Marketing Solutions, one of the chosen-three companies to manufacture the first batch of government-subsidised set-top boxes (STBs), has been placed into liquidation.

This was confirmed by the Universal Service and Access Agency of SA (USAASA) and joint liquidator in the matter, Harvard Corporate Rescue Services, revealing that a High Court judge ordered the company to be “placed under final winding up” on 11 December 2018.

In line with the Broadcasting Digital Migration (BDM) programme, the South African government promised to supply free STBs to over five million households that depend on social grants and those with an income of less than R3 200 per month. The STBs are required to convert digital broadcasting signals on analogue TV sets.

Further, government policy sought to ensure the bulk of the tender to produce the subsidised decoders was awarded to local emerging electronic manufacturers.

As a result, in 2015, the R4.3 billion tender was awarded to 26 companies to produce the STBs and associated electrical equipment for digital migration; 26 installation companies were also contracted. A year later, the communications ministry, which was under the leadership of former communications minister Faith Muthambi at the time, placed the first order for 1.5 million STBs with USAASA.

USAASA, which is charged with managing the production and installation of STBs, selected only three companies – CZ Electronics, BUA Africa and Leratadima – to kick-start production of the 1.5 million order.

In terms of production, each company received a purchasing order (PO) for 500 000 decoders from USAASA. In terms of the PO, BUA Africa was contracted to manufacture the direct-to-home (DTH) decoders, while Leratadima and CZ Electronics were contracted to manufacture digital terrestrial television (DTT) STBs.

Bumpy road

South Africa's road to switch from analogue to DTT has been a bumpy ride, characterised by miniscule progress and shifting deadlines along the way.

Procurement of the digital migration decoders has been no different, marred by legal battles, bribery, policy changes and corruption allegations, to name but a few.

To date, CZ Electronics is the only manufacturer to deliver the complete order of 500 000 DTT STBs.

Last year’s report to the Portfolio Committee on Telecommunications and Postal Services on progress of digital migration and STB production revealed Leratadima had manufactured 336 026 DTT units, while BUA Africa delivered 23 208 DTH decoders.

Detailing Leratadima’s latest STB production numbers, Harvard’s Richard Pollock says approximately 350 000 had been produced and delivered to USAASA, at the date of liquidation.

“At liquidation, we entered into an addendum to deliver a further 90 000 STBs, as the components were already in South Africa. A final decision still needs to be made on the remaining 60 000 in respect of cost and timing.”

BUA Africa, on the other hand, has only managed 45 092 DTH decoders to date, with 359 981 units still to be manufactured and delivered, according to information from USAASA.

According to Thulani Ngesi, BUA Africa CEO, his company is wrapping up the order. “We received the smartcards. The issue we had was with USAASA because they did not provide us with smartcards to finish the order.

“Sentech has brought the smartcards…and we received the batches via USAASA. It’s not that BUA can’t finish the order but factors beyond our control held us back.” 

Commenting on the outstanding STBs needed to be manufactured by Leratadima, USAASA CEO Sipho Mngqibisa explains: “In terms of South African law, the appointed liquidators of [the] company in liquidation may elect to perform in terms of contracts signed by the company before liquidation.

“In this instance, the liquidators of Leratadima elected to perform in terms of the service and delivery agreement. Currently, Leratadima in liquidation is delivering in terms of the signed service and delivery agreement.”

Minister Stella Ndabeni-Abrahams has not provided any updates in terms of when SA will complete its digital migration.
Minister Stella Ndabeni-Abrahams has not provided any updates in terms of when SA will complete its digital migration.

Outsourced orders

Although Leratadima’s primary business is noted as being marketing and in-house printing, the company was still among the top three companies selected to deliver the first round of set-top boxes.

CZ Electronics has its own production facility, located in a Boksburg industrial park in the east of Johannesburg, where the government-subsidised decoders were manufactured.

Leratadima outsourced its order, choosing Grand Tellumat Manufacturing, a local technical partner of SmarDTV, to help it deliver digital migration decoders.

BUA Africa was able to manufacture the DTH STBs through BUAMicrotronix. According to Ngesi,  BUA Africa is a shareholder at BUAMicrotronix, after it bought a stake in the company.   

Commenting on whether the same fate may have befallen BUA Africa, Mngqibisa says the company was never liquidated either provisionally or finally.

“USAASA was never informed about any application to a competent High Court in this regard. USAASA is not aware of any application or court order in this regard. The issue was raised with the CEO of BUA Africa, who denied such allegations.”

Getting real

Last year, the communications ministry, under the leadership of former minister Nomvula Makonyane, announced government will no longer be involved in the procurement of STBs, warehousing, transportation and installation of devices.

During her tenure, Makonyane was vocal about her intentions to shelve USAASA’s role in the BDM project and procurement of devices.

The former minister’s reasoning to forgo USAASA was that she did not want to be dragged into the legal disputes involving the agency.

In October 2018, Makonyane announced Cabinet had approved a revised delivery model on implementation of the BDM project. This, she said, is to provide SA with headway towards the completion of the project in a manner that is inclusive, affordable and efficient, and reduces risk to government.

The statement said: "The model adopts a market- or retail-driven approach through collaboration and partnerships with the private sector and industry.

"This will push digital viewership migration to the 85% threshold and beyond, towards switching off all analogue broadcasts."

In light of the revised digital migration delivery model, Mokonyane said the projection is to complete the BDM project by July 2020, following a phased approach.

Whether this date is still the case remains open for debate, as the incumbent minister, Stella Ndabeni-Abrahams, has not provided any updates in terms of when the country will complete the digital migration journey.

SA missed the June 2015 deadline set by the International Telecommunication Union (ITU) for countries to complete the full switch from analogue to DTT.

The ITU has called on nations to migrate to digital to allow radio frequency spectrum to be freed up for mobile broadband services.

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