Undersea cable plan tangled in acrimony
PLANS by the government to prevent a $235m telecoms cable around Africa’s east coast from landing in SA would be denying citizens access to cheap bandwidth and practising double standards, the project’s financiers believe.
The 10000km Eassy cable will be 27% owned by Telkom, Neotel and MTN, and is designed to provide desperately needed cheap bandwidth to 21 African countries. But SA’s communications department has taken umbrage at what it sees as the commercial nature of the enterprise, and intends to withhold landing rights.
Instead, the government will use taxpayers’ money to roll out two rival cables heading east and west, jointly known as the Nepad Broadband Infrastructure Network. Denying landing rights to Eassy will be detrimental to the three local companies, which, they say, have had the foresight to invest in the project to slash bandwidth prices.
It will also be anticompetitive if Eassy members are not allowed to sell bandwidth to other operators in SA, says Mohsen Khalil, a director with the International Finance Corporation (IFC). He also says the government’s hostility shows it has not understood a new commitment the consortium has made to open access.
The IFC is part of the World Bank, and is investing $32,5m to help about 15 small operators participate in Eassy. Yet the director-general of the communications department, Lyndall Shope Mafole, remains vehemently opposed to the project. “Eassy is bad news for developing countries that are not at the level of SA,” she says.
“We have many problems with it. The fact that you work for the World Bank makes you think you know what’s good for Africa even when you don’t live in Africa. I find that quite insulting.”
Because Eassy’s biggest shareholders are giants like MTN and Telkom, their bulk buying power gives them an advantage over smaller operators also trying to buy and resell capacity to customers in each country, she says.
“South African companies could use their dominance to compete unfairly in other countries. We have a responsibility as the government to ensure there is fair competition. We are not willing to look at something that is clearly discriminatory. We couldn’t rest with a clear conscience.”
A bigger issue threatening not only Eassy but also other foreign-backed cables is a demand that any cable landing in SA is partly owned by local companies. The minimum percentage of local ownership will be determined by Communications Minister Ivy Matsepe Casaburri.
The instant reaction is to question whether SA has the right to do that. It has, under the Electronic Communications and Transactions Act, Shope-Mafole says. The second reaction is to assume that foreign investors will be deterred. The government’s belligerent stance in an effort to promote local industries may backfire and deprive consumers of cheaper bandwidth if foreigners opt to bypass SA’s coastline.
Nonsense, Shope-Mafole says. “There are millions of people who want to enter into arrangements and land in SA. We welcome anybody who wants to invest in submarine cables that land on South African soil, but we need South African companies to invest.”
Although Eassy boasts 27% local ownership, that may not be enough. Seacom, another private cable already under construction, must also recruit local investors for the plans on its map to match reality. Seacom has signed a deal for SA’s second network operator, Neotel, to operate the local landing station, which does not impress the government.
Shope-Mafole said the demand for local ownership in the entire cable linking India to Europe via SA was discussed with Seacom’s mostly US investors over a cup of coffee. “I don’t think they thought it was unreasonable. I wouldn’t say they loved it, but they didn’t throw their cups at us,” she says.
“What we are proposing is going to provide low-cost connectivity for the continent and those who want to partner with us can partner with us on our terms.
“We are not going to make the mistake we made with gold and platinum that get mined out of here and taken elsewhere and we buy them back at a higher price. African companies have to make money out of the traffic that comes in and out of Africa.”
Discussions over the landing rights for Eassy are still open, with Khalil saying the government is failing to recognise that the pricing structure has changed to embrace developmental ethics. Khalil agrees that the 26 operators in Eassy originally planned to maintain their high-priced monopoly over telecoms facilities. That changed when the IFC got involved. The IFC spent millions of dollars on feasibility studies to demonstrate there would be enormous demand for bandwidth if it were sold at a price based on the actual cost plus only a modest profit margin.
Consumers on Africa’s east coast typically pay up to $300 a month for internet access. When Eassy is switched on — hopefully at the start of 2009 — the price should dive by two-thirds. This is the first time the IFC has asked private companies to adopt developmental principles as a condition of financial support.
If it can convince notoriously avaricious operators to slash their fees, perhaps it can convince the government to let Eassy land in SA and to allow the members to sell bandwidth to customers in SA.
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