Infraco is no saviour

By Candice Jones for Broadband Infraco

Johannesburg, 11 Nov 2008

This year's turbulence in the telecommunications sector may transform state-owned broadband provider Broadband Infraco from broadband hero to zero - or simply just another Internet provider.

It appears the Department of Communications may be taking Broadband Infraco - the brainchild of former public enterprises minister Alec Erwin - under its wing. But a recent landmark court ruling could render the company obsolete, as the market landscape is now set to change rapidly.

Yesterday, communications minister Ivy Matsepe-Casaburri issued a policy directive, requesting the Independent Communications Authority of SA provide Infraco with an electronic communications network services (ECNS) and electronic communications services licence.

Infraco was tipped as the best option to provide competition for fixed-line giant Telkom and second national operator Neotel. However, the outcome of a recent battle between the Department of Communications and value-added network service provider (VANS) Altech Autopage Cellular is likely to deflate the Infraco bubble.

Analysts question whether the concept behind the business is still valid. While there are varying opinions about the business, Infraco was, in essence, created to do two things. The first was to sign into an undersea cable that would supplant Telkom's SAT-3. The second was to provide broadband at wholesale prices and compete directly with Telkom and Neotel.

Analysts are now questioning the validity of a government-owned business playing in a soon to be extensively competitive space.

Purposely at a loss

Competition is expected following a recent ruling in the case between Matsepe-Casaburri and Altech, which effectively gives certain VANS the right to have their licences converted to ECNS.

The coveted licence will allow several hundred companies to build their own networks and effectively have the opportunity to compete directly with the incumbent operators. “With all these companies about to come into the market, is it really necessary to have any more competition?” questions Frost and Sullivan analyst Lindsey Mc Donald.

She says if the company were to target government and its departments for broadband provision, then maintaining the business is a good idea. If not, then there is little point to keeping the business going.

IDC analyst Richard Hurst says its validity depends entirely on what the government plans to do with the company.

Traditionally, Infraco has been surrounded by confusion and mixed messages. Mc Donald says even employees were at a loss as to its purpose. “It first belonged to Eskom, and then to the Department of Public Enterprises, spearheaded by past minister Alec Erwin. Now the communications department seems to have taken an interest.”

She says the licence conversion request, coming from the communications department, may be an indication that it has found a new home under the banner of Matsepe-Casaburri.

An analyst, who preferred to remain unnamed, says the company would be better off back in Neotel's hands. The network expected to be used as Infraco's infrastructure was procured from Transnet, and would have been part of Neotel's network if Infraco had not been created.

Other sources say that now would be the time for government to leave behind its stranglehold on competition and become a telecoms enabler.

The Department of Communications was not available to comment this morning.