Another day, another cable
The Department of Communications has unveiled an ambitious R 14-Billion undersea cable project which aims to connect Africa to the rest of the world at breakneck speed.
The new cable system, developed under the auspices of the Nepad e-Africa Commission, will encircle Africa and connect the continent to Europe, India and the Americas with a capacity of 3.8 Tbps.
This new project is backed by 12 African governments and it is expected to be 30% owned by African governments and 70% by the private sector. This new proposed cable system has no committed funding as yet, but according top Nepad officials there is interest from both African and overseas investors.
This lack of funding and the immense planning needed to ensure the success of such a project does not seem to perturb the Nepad e-Africa Commission much, and its director Henry Chasia is confident that the first stage of the cable should go live in 2009.
It is encouraging that the Department of Communications and the Nepad e-Africa Commission has at long last put their cards on the table regarding their undersea cable plans. But this new system and comments surrounding the initiative highlight a far more problematic scenario seen so often in South Africa telecoms.
Even if the Nepad e-Africa Commission can gather a quick $ 2-Billion, convince the cable manufacturers and cable laying vessels that they need to jump the queue and speed the whole process up to be completed in less time than basically any other African cable system being planned, it will still not solve the larger, more pressing issue of a lack of competition.
Our esteemed Minister of Communications, Ivy Matsepe-Casaburri, rightly points out that South Africans are paying far too much for international bandwidth. She lays the blame for these high costs at the feet of the private sector and said that ‘these private sector led undersea cable projects’ are like a private club deciding on its own pricing levels.
The fact that Telkom was given a monopoly in the fixed line telecoms market by Government, which also gave them total control over undersea cable bandwidth, however does not often feature in these arguments. The fact that the Department of Communications is a majority shareholder in Telkom, which creates untold complications, is also not openly debated in polite company.
The reason why international bandwidth is so expensive in South Africa is simply because Telkom has a monopoly in this arena. This is in fact not only true for international bandwidth, but is also the reason for our general high telecoms costs, poor and expensive broadband offerings and a general lack of service in the fixed line market.
The solution to this problem seems rather simple – introduce more competition and break Telkom’s monopoly.
Unfortunately the Department of Communications seems to have a distinct distrust in the effectiveness of competition and has an overwhelming desire to maintain control over the telecoms sector.
Two cable systems are already planned on the East Coast of Africa, namely SEACOM and EASSy. The beauty of these two systems is that they are privately funded which means that it will not cost the taxpayer a cent. If all goes to plan, the only knock-on effect for the consumer will be lower telecoms costs through lower international bandwidth prices.
The Department of Communications’ reaction to these two systems has been far from the expected warm welcome inviting them to pave the way to a more bandwidth rich environment.
A stern warning reverberated from the Department to the consortiums planning these systems that they may be blocked from landing in South Africa unless they abide by the yet-to-be-determined requirements of the Minister. Things have since progressed and Matsepe-Casaburri is now hopeful that both SEACOM and InfraCo – which is planning a cable system on the West Coast of Africa – will join the new Nepad initiative.
The same kind of stifling control is also present in the local telecommunications market.
The initial plan was to pass some of the national fixed line assets of Transnet and Eskom on to Neotel to enable a more competitive environment. Unfortunately when push came to shove Government decided to rather hold on to these assets, form a new company called InfraCo to manage these assets and through this exercise retain the ability to exert control over Neotel’s pricing.
It is nearly inconceivable that any fixed line operator will be dependent on another provider for its core infrastructure, and it is not all that surprising that Neotel is struggling to get off the ground.
But apart from a possible lack of trust in the basic economic principles on which most vibrant economies are built, there may be a more sinister motive behind all of this.
According to the Department of Communications’ latest annual report, their 38% share in Telkom contributed a healthy R 1.8 Billion to the their coffers. The DoC explained that the big jump in profits – the R1.8 billion was a massive increase over the previous year’s R 228.8 Million – was mainly due to once-off special dividends from special transactions and activities.
There is nothing like a monopoly to ensure high profits and high dividends, and like most Telkom shareholders, Government and the Department of Communications will not be overly concerned if Telkom’s easy ride continues for another year or two.
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