Broadband prices to be slashed 65%
Public Enterprises Minister Alec Erwin promised this week that his new state- owned broadband company would slash Telkom’s current wholesale price for digital capacity by about two-thirds.
“We will come in at not more than 35% of Telkom’s current price. We can do that,” he told Business Times.
Defending his plan to launch a new state-owned enterprise to be known as Broadband Infraco, Erwin said it had become clear the private sector would not invest quickly enough to ensure adequate broadband capacity for the giant radio telescope South Africa plans to build in the Karoo.
A Telkom spokesman said the group’s wholesale broadband prices were considered confidential.
“There was no evidence that the market would step forward. We could not afford to take the risk that the investment would not happen,” Erwin said.
He dismissed a bid by state-owned Sentech, which reports to Communications Minister Ivy Matsepe-Casaburri, to take on the cable-based broadband commitment. He said Sentech was too small, was focused on wireless facilities and had incompatible retail obligations.
Dismissing criticism of state intervention in the critical broadband arena, Erwin said: “Every single reason points to doing it as a new [public] entity.”
His plan sees the broadband facilities of Eskom and Transnet transferred to the new, wholly state-owned company, which would also take charge of plans to lay a submarine fibre-optic cable to Brazil and Europe by 2010.
He said the undersea cable would cost between 400-million and 500-million, with the first connection being by 2009 and the European leg connected not later than 2010. It was the first time he had set a target for completion of the European leg.
“The capacity is very, very big. Based on what happens elsewhere in the world, where we see the volume of traffic on efficient cables, it probably will last us easily to 2020,” he said.
Erwin said the undersea cable would be laid in a unique public-private partnership with investors he declined to identify. The proposed deal would see part of the capacity reserved for state use and part of it offered for commercial operations.
In a separate deal that has enraged existing operators, Infraco’s national broadband capacity will be marketed exclusively for up to four years by the country’s second national telephone operator, Neotel, which is due to launch formally within the next few weeks.
Erwin’s plans encountered strong industry opposition during public hearings in Parliament last month.
Yunus Carrim, chairman of Parliament’s portfolio committee on public enterprises, told staff of the Department of Public Enterprises to come back next week with a stronger motivation for proposals to short-circuit licensing requirements and approve the company.
Erwin told Business Times he was ready to drop a provision in the Broadband Infraco Bill that would have given the company an instant “deemed” licence to offer network services. He said he was in talks with the Department of Communications and the Independent Communications Authority, Icasa, to find another way to licence the company quickly.
But there would be no open competition for the licence, as required by the Electronic Communications Act.
“We can’t delay this process any longer. We can’t start opening things up now,” he said.
Responding to another concern raised by industry critics, Erwin said Infraco would be a wholesale company and would not enter the retail market.
“Infraco will in no way whatsoever, in any way at all, compete with the value added services,” he said, but he did not indicate any willingness to cancel Neotel’s right to market the service exclusively.
Industry players welcomed Erwin’s pricing promise, saying it was entirely plausible and would go a long way towards making Internet-based business more affordable.
“Cutting the price to 35% of what Telkom charges is entirely plausible. Telkom’s current charges are based on its monopoly and bear no relation to the actual cost. They could do that and more quite easily,” said Siyabonga Madyibi, director for regulatory affairs at Internet Solutions.
But he said Erwin’s promise that Infraco would stay out of retail services would have value only if it was included in the Bill which comes before Carrim’s committee again this week.
Erwin’s comments partly address a handful of the objections to his Bill, but do not answer criticism that it is too broad and does not adequately define the scope and purpose of Infraco.
Telkom, in which the state holds a 38% share, will remain concerned about the state being a primary shareholder in competing companies.
Icasa’s concern about the override of its licensing authority is only partially addressed, and private-sector reservations about another major state intervention in an important commercial sector have been dismissed with little explanation.
“The decision we took was that in key network infrastructure to ensure we have those networks available ahead of our growth and not trailing our growth, the state would lead the process,” Erwin said.
Asked if the Cabinet had unanimously accepted his view, he said: “A cabinet decision is a cabinet decision. No minister should comment on differences.”
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