Why South African cities want to charge networks for installing fibre

The municipalities of Tshwane and Kouga are looking at ways to turn network infrastructure, particularly fibre cables, into a utility that they can earn revenue from.

Last year Tshwane introduced a new set of tariffs that would allow the municipality to charge network operators an annual fee of R211 per kilometre of network cable in the road reserve.

Both cellular and fibre network providers lay cable along municipal roads, meaning these tariffs would affect every network provider in South Africa — from the smallest new entrant in the fibre connectivity space to MTN, Vodacom, Telkom, and Vumatel.

An even higher tariff of R1,055 per kilometre per year was published for companies who lay their cable along sewers and stormwater drains.

Tshwane has adjusted these tariffs for the 2020/21 financial year. In the tariff book published in the government gazette on 5 August, the road reserve fee was increased to R220 per kilometre per annum, while the sewer and stormwater fee was decreased to R1,000.

Local governments want new revenue streams

Speaking to a senior official at the Kouga municipality, MyBroadband learned that committee members responsible for the financial health of local governments are under pressure to find additional revenue streams.

In Jeffreys Bay, in particular, municipal revenues from traditional utilities like electricity and water are not growing in-line with their population.

The official explained that municipalities like Kouga are less dependent on government grants as it generates most of its own revenue. In places like Jeffreys Bay and St Francis Bay, they generate 84% of their own revenue.

While rates do form a sizeable chunk of this revenue, the Kouga official explained that the main source of money for the municipality is actually electricity sales.

During the 2018/19 financial year, property rates made up around 21% of Kouga’s total revenue. Service charges accounted for R413 million, or 47%, out of total revenue of R880 million.

Of the total service charges, electricity sales alone was close to R243 million — nearly 28% of the municipality’s total revenue.

This is significant, the official told MyBroadband, because over the past ten years, Kouga’s revenue from electricity sales has been flat. It has seen a lack of growth in this important source of revenue despite more people moving to Jeffreys Bay and developments in the municipality.

“We’re not growing revenue through traditional streams, so we need something else,” the official said.

For this reason, Kouga has considered a system similar to Tshwane’s, where network operators pay a recurring fee to use municipal infrastructure such as the road reserve and stormwater drains.

In the 2020/21 – 2022/23 annual budget for Kouga, executive mayor Horatio Hendricks stated: “We will be investigating the possibility of introducing fibre as a fifth utility as part of our efforts to Keep Kouga Smart.”

In addition to shoring up the budget of the local municipality, the official said that the money would also be put towards fixing up their infrastructure when network operators damage roads and paving in the course of rolling out fibre.

Security deposits and wayleaves

Another approach the Tshwane metropolitan municipality recently adopted, in addition to its per-kilometre tariffs, is asking network operators to provide substantial security deposits before they are allowed to begin digging.

It first introduced these refundable security deposits in 2018, asking operators to put up R250,000 in cash per wayleave that they apply for.

Following the backlash from the telecommunications industry regarding this requirement, Tshwane has introduced the ability for operators to provide bank guarantees.

If you require more than five wayleave applications in a financial year, you may submit a bank guarantee of R3 million. This guarantee can only expire after all completion certificates are correctly signed and handed it.

In August, Tshwane added a bank guarantee option for operators who require fewer wayleave applications in a financial year – R2 million for five or fewer wayleave applications in a financial year.

The page from Tshwane’s latest tariff book which details the fees for wayleaves for work done on public roads is embedded below.

Now read: Municipalities are milking fibre companies to balance their budgets

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Why South African cities want to charge networks for installing fibre