Roman4604
Executive Member
You keep viewing it from such a blinker approach. As I've said before the beneficiaries of said ISPs (inc Telkom) services & pricing are the end users, market and economy as a whole.
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Telkom copper network spin-off
- Thread starter rpm
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My mind is on 3 things at once here, so bear with me...
The government may be forced into a subsidy situation should the private sector not be willing to accept the type of risk being sold here and/or not be able to agree on a deal structure, which in this case would be incredibly complex. What are the alternatives? Government once again investing in the SPV and guaranteeing bond issuances? No, thank you. Private sector absorbing total risk in this market? How would one even structure such a deal? All you'd be doing is enriching the corporate ambulance chasers because inevitably you will end up with an overly convoluted structure.
Would you, as a fixed income investor, for example, invest in an entity of such a magnitude without vested interest from the lawmakers? In order to reduce risk, there needs to be some sort of intervention on government's part. Investment in the SPV would allay some investor concerns but it opens up its own hornet's nest that might just see history repeating itself. One cannot ignore the risk averse nature of the capital markets in this deal. Especially if a subsidy can guarantee cashflow for the bond market, who will inevitably be funding this. I don't see this coming from investment coffers from the private market.
But then again, telecoms is not my area of expertise. I just see it from the risk side and it doesn't appeal without government-sanctioned intervention of the non-investment type...
Roman4604
Executive Member
Huh, my two statements say exactly the same thing. The 'some subsidisation' is specifically to cover the deficit.
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I am not seeing it from a blinker point of view
I have stated in this and other threads:
1) The open access provisions of the ECA must be enforced
2) Government lead investment initiatives such as Broadband Infraco have been a disaster and simply a form of crowding out in the fibre backbone sector
3) The separating of retail and wholesale operations of Telkom and the general restructuring is a good thing
4) ISPs (certain ones in particular) have made some fairly big statements and present themselves as innovators who are prepared to bet on the growth of the Internet - some of them have at times, others not so much - "buying risk" in order to provide for a situation of diverse benevolent ownership (the good landlord) of the copper which is then used to provide for Internet which is where they make there money. Google is doing just this despite having actually a smaller business connection than ADSL ISPs in SA. No suggestion that the ISPs must individually assume risks beyond scope but rather that a statement of refusal because government must do so is ridiculous. It is a very simple question - does Vodacom believe in South Africa's Internet future enough to invest R100 million on the copper? If they don't then what message are they sending to the world about the ICT sector? A response from an ISP to the lines of "as a beneficiary of quality networking facilities we would welcome an opportunity to be a benefactor of those facilities and will consider the opportunity to make an investment as soon as we have more information. The viability of any investment and its impact on our ability to deliver quality products to our clients will guide any decision we make" IS and Vox have declined to do this and deserve our scorn.
I have stated in this and other threads:
1) The open access provisions of the ECA must be enforced
2) Government lead investment initiatives such as Broadband Infraco have been a disaster and simply a form of crowding out in the fibre backbone sector
3) The separating of retail and wholesale operations of Telkom and the general restructuring is a good thing
4) ISPs (certain ones in particular) have made some fairly big statements and present themselves as innovators who are prepared to bet on the growth of the Internet - some of them have at times, others not so much - "buying risk" in order to provide for a situation of diverse benevolent ownership (the good landlord) of the copper which is then used to provide for Internet which is where they make there money. Google is doing just this despite having actually a smaller business connection than ADSL ISPs in SA. No suggestion that the ISPs must individually assume risks beyond scope but rather that a statement of refusal because government must do so is ridiculous. It is a very simple question - does Vodacom believe in South Africa's Internet future enough to invest R100 million on the copper? If they don't then what message are they sending to the world about the ICT sector? A response from an ISP to the lines of "as a beneficiary of quality networking facilities we would welcome an opportunity to be a benefactor of those facilities and will consider the opportunity to make an investment as soon as we have more information. The viability of any investment and its impact on our ability to deliver quality products to our clients will guide any decision we make" IS and Vox have declined to do this and deserve our scorn.
Roman4604
Executive Member
Thats naive, Vodacom are in the mobile business, the bulk of their investment will go into expanding/evolving/maintaining their RANs and fibre backhauls. Why would they want to divert funds to an aging access technology like copper? Same goes for the other mobile operators, thats why I've specifically stated fixed line operators/providers.
For interest do you know the rough headcounts for say IS, Vox and Telkom?
Well here is how I see it. At the moment there is no reason why full ownership of the SPV won't rest exclusively and permanently with Telkom and the benefit to Telkom is on the tax front. We naturally assume though that the main objective is to sell interest on the SPV to raise cash for Telkom. Now as you have pointed out this is really coming late to the party and sentiment is not on Telkom's side. Lets assume that capital can't be raised from the private sector then I would agree that government step in but this isn't first prize.
If the MNOs put in 100mil each for the duo and CellC lobs in 50mil (from the 5 bil cash injection they've got) and Naspers takes 5 DsTV subscribers revenue (not actually but lets say 250 mil - after all they are in the Internet and content streaming game) you are getting close to half a billion down. If a small ISP says look we only have R1 mil to put into copper especially because we have just self-provisioned Z millions rands worth of equipment the message is still clear "we believe in our industry" if the banks (just think of Standard Banks white elephant data center at 2 billion rand) jointly allocate R20 million from their IT budgets things move. At the end of the day everybody who can make this work has a financial interest in doing so is on board and it is a much less risky investment to the point of being open to less "angel investors".
At this stage we are dealing with speculation and rumors except for a clear "some more sir" attitude from IS to government.
I can look it up, but its entirely irrelevant. And no Vodacom's commitment to South Africa's Internet industry is damn important they do after all provide data center services which ADSL consumers access to the benefit of their customers who they charge. You also really do underestimate the importance that copper plays in access.
Roman4604
Executive Member
I'll help you IS ~1500, Vox < 500, Telkom 20,000+. The relevance is you're scorning players that are significantly smaller and are in no position to build or even maintain anything like the national access network.
As important you think it may be, I dont think they care. They're mobile operator, and that where their strategic investments go.
I think Standard Bank would prefer to be the lead manager on that deal. 
Anyways, the type and scope of risk is dependent on the deal structure. I strongly suspect that investment will be sourced from the capital markets either directly or indirectly, and that's just a whole other kettle of fish altogether with such a fragmented shareholding. But it's late and I have MUPPET business to care to.
Roman? You still here? Paul needs someone to argue with for a while...
Anyways, the type and scope of risk is dependent on the deal structure. I strongly suspect that investment will be sourced from the capital markets either directly or indirectly, and that's just a whole other kettle of fish altogether with such a fragmented shareholding. But it's late and I have MUPPET business to care to.
Roman? You still here? Paul needs someone to argue with for a while...
lol
Well quite - but you poison the well when you have ISPs saying "%ck no" or "let the government do it" - a wonderful culture seems to pervade for government to assume risk and to then tender out investment opportunities
Don't entirely agree with this. In most countries LLU has been the reason for cost effective pricing and not just a mechanism to stimulate it. Neotel gets derision because they haven't been a major player in the consumer space but to be fair they have been waiting for LLU in order to do this. Rolling out a network to households is a major uncertainty ito investment because of LLU looming. It's because of this that nobody will be interested in buying it from Telkom.
With copper going the way of the dodo though the emphasis shouldn't be on the copper but the ducts. That is a much more valuable asset that will enable players to more easily roll out services with less risk.
TrueSeeker
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This is not unbundling. Unbundling is the act of allowing third party internet data service providers access to the local loop which typically belongs to an incumbent local exchange carrier to promote competition. See, as with traditional utilities, large fixed line networks tend naturally towards monopolies. It just does not really make sense for each service provider to put down lines to the consumer. Back haul capacity sure, but its also debatable in some cases whether that is in the consumer's best interests. In any case. So what has historically happened in just about every country in the world is that one big state owned or privately funded company has all the Local Loop infrastructure. Since the advent of data services such as dail-up and DSL these companies naturally used their monopoly on infrastructure to out-compete rival providers and in general dictate what service access costs and did silly things like force people to take a voice service when they just want an DSL service (sound familiar). But again with the problem of natural monopolies and the pointlessness of redundant local loop infrastructure... Governments looking out for the best interests of citizens have by and large enforced local loop unbundling.
On the one hand you really cannot blame incumbents as profit-driven entities for doing things the way they have done, but just so it is widely regarded as a necessity to have government intervention on behalf of consumers who quite rightly do not deserve to suffer under monopolies. In the end a country must ensure the prosperity of its citizens. A monopoly is a bit like having one guy on the block with the right to own a sound system and he insists on playing the same old tune at full volume 24/7 - No - Other people should be able to play music and there should be regulations in place on how loud they can play it.
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TrueSeeker
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If you really want my opinion then the other big players are loath to own the network due to cable theft and are thus quite happy to let the government deal with it. This is a shame, because bureaucratic management is notoriously inefficient. Telkom probably got to choose in court between full LLU and spinning off the infrastructure and saw the latter as a way to generate capital and reduce expenditure in the short term.
elf_lord_ZC5
Honorary Master
Agreed ...
Roman4604
Executive Member
I think you missed my main point.
If LLU does come to pass and say Neotel release direct DSL services that are roughly at the same price as Telkom, its going to be greeted with a fat yawn. Their potential to significantly reduce pricing will be related to the wholesale price of unbundled lines, which if you believe Telkom will actually rise compared to current levels due the access deficit being passed on instead of cross subsidised within Telkom.
MickeyD
RIP
Correct...
The one benefit from a spin-off could be that the sale price should be based on the impaired value of the copper and this could impact on their wholesale price. AFAIK Telkom base their wholesale pricing on cost price (simplistically) so their pricing won't schange much...
Roman4604
Executive Member
But does the capital value of the copper make up a significant portion of the access deficit over the longer term?
My assumption is ongoing costs; techie salaries, bakkie depreciation, petrol for the bakkies, replacement copper, trenching contractors etc. etc. is what makes up the major portion i.e you need to continually plough lots of money into the network to keep it running and expand it.
MickeyD
RIP
Yes, it does make a significant impact on the ALD caculation.
Ffs! I wish all the smart ass banter would just stop! Implement LLU and make it open season to all ISPs to run cables of whatever the **** kind they want! All this "oh no we cannot do that..." Bull**** will end in the blink of an eye the moment the first ****er picks up a shovel to run that first non telkom or neotel cable of copper or fibre! It will be bloody open season on fixed line! Mark my words!