Commoditising bandwidth
Infraco was formed last year, to house the fibre-optic telecoms backhaul infrastructure laid, largely on power lines some years back, by Eskom and Trans-tel. The network was to be owned by the second national operator, but when Government decided to rather hang on to the infrastructure, a deal was struck with Neotel giving it initial exclusivity to utilise and on-sell this capacity.
Many, including the Competition Commission, have acknowledged that the rationale behind forming Infraco makes sense at this juncture in the country’s landscape.
Legislation was needed to breathe life into Infraco, by among other things, enabling the transfer of these assets from Eskom to Infraco and giving it access to the servitudes previously in favour of Eskom and Transtel.
One thing that neither Act does, is declare Infraco a deemed licensee – in other words, it isn’t allowed to bypass the Icasa licensing process. This is something Telkom, Sentech and the mobile operators agreed should be the case, while Neotel disagreed.
There doesn’t yet seem to be any clarity on which route will be followed.
The Department of Public Enterprises (DPE) had been involved in strategic discussions on Infraco at the time of writing and couldn’t provide much further detail than that contained in the relevant Acts, or the presentations before Parliament last year.
The Electronic Communications (EC) Amendment Act does, however, contain a clause saying that the Minister of Communications may issue policy directives on the framework for licensing a public entity. So presumably we’re waiting for this Act to come into effect before these directives can be issued.
But although the licensing process remains unclear and no date’s yet been set for the Broadband Infraco and EC Amendment Acts – they go hand-in-hand – to come into effect, the President’s signature in early-January is at least being seen as a step in the right direction in a process that’s already taken too long.
Cisco South Africa director of operations Kumaran Nair says he believes Infraco has a better shot than most at stimulating competition in the South African telecoms market.
By providing bandwidth at reduced prices – a 95% discount to current national long distance rates within five years, is what it has claimed – this should allow Neotel, and soon after that, the rest of the market, to head towards the commoditisation of this resource. Broadband currently remains a luxury, not accessible to most.
One should expect dramatic price reductions, Nair says. But, if service providers decide rather not to pass their savings on to consumers, then at least they should plough the additional cash into offering value added services and bundled packages.
Nair is not particularly concerned about Infraco being State-owned at this stage. At least it represents Government taking the lead to stimulate the market, he says. And the advantage of being a State asset is that the company can operate without a mandate of maximising profits.
In a speech before the National Assembly in October, Minister of Public Enterprises Alec Erwin said Infraco would allow for it to put a strategic investment programme in place with a clear timetable and intent, that being to “modernise our broadband infrastructure and lower the cost to the economy of such capacity.”
Erwin said the State’s payback periods were longer and the rate of return required determined by “a number of economic calculations rather than profit maximisation as the prime determinant.”
It’s not necessarily Government’s intention to keep Infraco forever, though.
In terms of the Act, Government could, “in one or more transactions transfer the whole or any part of the shares, assets, rights, obligations or interests of the State in relation to Infraco to such transferees as the Minister (of the Department of Public Enterprises) and the Ministers of Finance and Communications deem in the public interest.”
Erwin said in October that if its objectives of achieving “high speed, high capacity and internationally competitive telecommunications pricing” were met in the medium to long term, then it could reconsider the need to retain all or part of this infrastructure.
The only thing that wouldn’t form part of a privatised Infraco is Government’s right to expropriate land that it needs for the purposes of rolling out its network (as one would expect). The space that Infraco will play in, according to information from the public hearings before the Portfolio Committee on Communications in August last year, includes the backbone infrastructure layer and the area of international connectivity.
It won’t play in the metro and access network layer, where it’s anticipated there will be increased competition, so Government intervention is not considered necessary.
Finweek
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