Forcing ISPs to have black owners is a disaster – Expert

Forcing South African Internet service providers (ISPs) to have black ownership is a disaster that will lead to inflated prices.

This is the view of a prominent industry expert who spoke to MyBroadband on the condition of anonymity.

The Independent Communications Authority of South Africa (ICASA) is currently finalizing new regulations on ownership of telecoms licensees.

The draft regulations require all individual telecoms licensees to have 30% black ownership and Level 4 BBBEE status throughout the term of their licence.

Should an ISP or telecoms provider not comply with these requirements, they face severe penalties like a fine of R5 million or 10% of their annual turnover.

Many ISP executives raised concerns about the planned ownership requirements, saying they are an unnecessary overreach that will harm the industry.

One of these executives told MyBroadband he is totally against affirmative action and BBBEE as it leads to fronting, which in turn leads to inflated prices to customers.

South Africa’s ISP industry is the main driver of lower prices and higher broadband adoption rates.

Most ISPs are small, independent businesses which are nimble and compete fiercely on price and service levels.

To force these small businesses to find new equity partners can change the way the industry operates.

The industry expert said imposing a particular shareholding on a company is always a disaster and it does not add value to the industry.

“There are not 600 black companies which can add value, but there are at least 600 licensees which are currently operating in the telecoms market,” he said.

This means the large ISPs will get the best black empowerment partners, while the rest will be lumbered with 30% “dead weight”.

Large service providers will therefore get a big competitive advantage over smaller companies, which is not what the regulations want to achieve.

This is particularly relevant in the infrastructure space where big players can raise billions through empowerment deals.

Smaller players do not have that luxury. They will have to take on black shareholders without much money and which cannot help to finance the business.

This also makes it more difficult to raise capital as the new shareholders does not have the same access to funding as the company’s other shareholders.

He added that the unnecessary administrative overhead will stifle innovation as ISP owners will now focus on the wrong things.

“We should be creating innovative technology solutions, not worry about compliance structures,” he said.

Now read: Plan to force South African ISPs to have black ownership being finalised

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Forcing ISPs to have black owners is a disaster – Expert