Minister of Public Enterprises (DPE) Malusi Gigaba has confirmed that discussions are being held between him and the Minister of Communications Roy Padayachie on exploring potential “synergies” between Broadband Infraco and Sentech.
Broadband Infraco, formed in 2006 by the DPE to provide long distance national and international connectivity to previously underserviced areas, is a 100% state owned company represented by the DPE, which holds a 74% stake and the Industrial Development Corporation (IDC) which holds the rest.
On the other hand Sentech was spun out of the South African Broadcasting Corporation (SABC) through the Sentech Act and established as the signal distributor to the South African broadcasting sector under the direct control of the Department of Communications.
Although talk about a potential merger between the two entities, is not new and has always been rejected by government it’s a viable option as Broadband Infraco whose mandate is to “provide long distance national and international connectivity to previously underserviced areas” could in a merged entity easily exploit synergies with the signal distributor whose expertise includes wireless signal distribution, mainly in metropolitan areas.
However, both entities carry a lot of baggage. In October last year the Mail & Guardian reported that Sentech allegedly “cut an illegal deal to sell wireless broadband spectrum that benefited politically connected business people, led by Eddie Funde, the controversial former chairperson of the SABC who is now South Africa’s ambassador to Germany and Jeff Molobela, Telkom’s chairperson”.
According to the paper, Funde was said to have received a 42% shareholding in GWI “in return for introducing the Global Web Intact (GWI) director to Sentech’s leaders and facilitating the deal. This was reduced to 32% after he brought in Molobela and a third partner, Barbados national Carrington Phillips, who were each given a 5% stake”.
Although Molobela told the paper that “he was unaware of any impropriety in the deal”, in interviews with TechCentral Sentech’s former chairperson Quraysh Patel described the deal as “illegal” and a violation of the Public Finance Management Act.
The signal distributor was also described in a report sanctioned by the former Minister of Communications Siphiwe Nyanda as being “rudderless, inadequately funded and misdirected”. A position confirmed by Nyanda who at the time also described it as being in “terminal decline”.
On the other hand Broadband Infraco’s shenanigans were exposed by Moneyweb last week Tuesday in Broadband Infraco’s incompetence exposed. An explosive Deloitte audit report ripped into the lack of internal controls at the entity resulting, in the minister requesting to see the report to take “appropriate action” if warranted.
Adding fuel to the fire; in the article Broadband Infraco a “feeding ground” for its own executives it was shown how the company’s Chairman Andrew Mthembu, Non-Executive Director Tumi Magasa and Cornelis Groesbeek (also a non-executive director) were awarded contracts by the same institution in which they serve as board members.
Viability of a merged entity
Many industry experts have questioned if a merged entity would succeed given their problems. Managing director of World Wide Worx, a technology research organisation, Arthur Goldstuck told Moneyweb that, “these are both entities that have proven themselves ineffectual in a broadband environment so combining the two would simply multiply the problems rather than resolve them”.
Although doubtful of a merger, Goldstuck said there are obvious synergies despite the entities having largely different business models. “Their business models are entirely different the core purposes of these organisations are entirely different but if they were effective organisations and if they had strong leadership, clear vision and an effective roll out there could be tremendous synergies between them precisely because their core purposes are in fact different.
“Sentech being a wireless signal distributor and Broadband Infraco being a major broadband access provider the two could plug into each other quite well if they were effectively run organisations, however so far neither of them have proven themselves to be leading lights in this sector,” says Goldstuck.
Despite some of the benefits Gigaba refused to confirm the merger speculations, saying “there is currently no discussion within government on a merger. However, the ministers of public enterprises and communications have indicated their willingness to discuss any synergies between the two companies”.
Much has been made of Sentech’s role in the provision of Broadband however, Goldstuck remains unconvinced, “I’ve always said Sentech should get out of the business of broadband provision and they should stick to their core business which is signal distribution, something they in fact do a very good job of. I believe that the broadband issue is a major distraction for Sentech in terms of them working towards meeting their core objectives, at this stage being digital migration and not broadband provision”.
When exactly a merger between Broadband Infraco and Sentech occurs remains to be seen but the fact that the two ministers have indicated their willingness to discuss any synergies between the two companies, suggests it is only a matter of time.
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