Fixing Sentech
Barely a week goes by without another cry for funding from state-owned broadcast signal distributor Sentech. But, six years after receiving two lucrative telecommunications licences, it might be time for the company to give up on its ambitions of expansion.
Earlier this month, Sentech warned that a government plan to have digital terrestrial broadcasting in place in time for the 2010 soccer World Cup could be scuppered because of a lack of funds. CEO Sebiletso Mokone-Matabane said there was a shortfall of R295m — Sentech wanted R960m to fund the move to digital television, but national treasury only stumped up R665m for the project.
The company also regularly cries out for money to build a national telecom network — it wants more than R3bn from government but has received only R500m to construct the network. Treasury officials have questioned the desirability of funding a lumbering state-owned enterprise to compete with private-sector operators.
The case for dipping into the public purse to convert SA from analogue to digital terrestrial television is clear: for one thing, spare parts for the analogue network are becoming more difficult and expensive to source. The case for pumping billions of rand of taxpayers’ money into a new, state-owned telecom network does not, however, stand up to scrutiny.
Sentech wants to build a national wireless broadband network. It’s not the first time it has tried; its first attempt, a product called MyWireless, was an abject failure. At the time, Sentech faced no real competitors in wireless broadband, yet couldn’t capitalise on its first-mover advantage.
Sentech was granted two lucrative telecom licences in 2002 in an effort to force down high telecom prices and broaden the company’s sources of revenue. At the time, the farcical process of licensing a second network operator to compete with Telkom was stumbling from one disaster to the next.
Management blamed a lack of further funding for MyWireless’s failure. A lack of money meant it was not able to offer the sort of coverage that would later be provided by the mobile operators with their 3G data networks. But management also needs to shoulder blame for what happened: the company badly mismanaged the product’s launch.
To Sentech’s credit, it tried to raise the money it needed by forming a public-private partnership and got buy-in from several funders, including banks, which agreed to fund the network without government guarantees. But government blocked the deal, insisting, foolishly, that the new network remain entirely in state hands. Political meddling meant Sentech missed its window of opportunity.
In the six years since Sentech got the green light to become a telecom operator, a number of wireless broadband operators have emerged: MTN and Vodacom have built extensive 3G networks (together they have nearly 500 000 3G customers) and iBurst, which was controversially issued with a licence, has signed up more than 60 000 clients to its wireless broadband network.
Government now says Sentech will offer services to hospitals and schools in unprofitable rural areas. The idea is that it will use the profits it makes in urban areas to subsidise this deployment. That won’t happen. Given how competitive the market has become, Sentech will never make enough money from well-heeled consumers to pay for an extensive rural network. Besides, rural areas are already largely covered by MTN and Vodacom with their cellular networks.
If there was ever a business case for Sentech’s wireless ambitions, it has long since passed. The company’s telecom licences should be sold to the highest bidder and the company told to focus on what it does best: delivering broadcasting signals to consumers. The rest it should leave to the private sector.
First published as the column Technology & You in the Financial Mail of May 23 2008
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