Forcing ISPs to have black owners is “legalised corruption”

New regulations in South Africa’s telecoms industry that force Internet Service Providers (ISPs) to have at least 30% black ownership will not work and are effectively a form of legalised corruption.

This is the view of one owner of a prominent South African ISP, who only agreed to give their unfiltered view about the controversial topic on condition of anonymity. Other large ISPs in South Africa declined to comment on the matter.

The ISP owner told MyBroadband that experience in other industries had proven that this type of “forced transformation” would not have the desired outcome.

At the end of March, South Africa’s telecommunications regulator, Icasa, published new regulations which require all telecoms licensees, including ISPs, to have black owners.

“An Individual Licensee must have a minimum of 30% of its ownership equity held by black people, determined using the flow-through principle,” the regulations state.

Furthermore, individual licensees must have a minimum of 30% of their ownership equity held by historically disadvantaged groups (HDG), including black people, women, people with disabilities, and youth.

Icasa claimed these regulations aimed to promote equity ownership by historically disadvantaged groups and advance B-BBEE in South Africa’s ICT sector.

Large individual licensees have until April 2024 to meet the new regulations, while class licensees and SMMEs must comply by April 2025.

ICASA logo on glass

The ISP owner explained that his company already met the new requirements because of the convoluted structure in which shareholdings were determined. Despite this, he still spoke strongly against forcing other ISPs to meet the same criteria.

“My personal opinion is this is legalised corruption,” he stated.

“What is the difference in deciding who to award a tender to versus mandating that 30% of an industry must be given away to any black individual with absolutely no qualifications or conditions?”

According to him, the new regulations will only lead to a small group of the same wealthy black individuals getting wealthier.

He said it would be a different situation if there were criteria for owners who wished to take up these shares, such as not allowing them to buy shares in multiple providers and requiring purchasers to have been born before 1994 – or at least show they had been disadvantaged.

He added that setting aside shares for black owners would decrease their value, as no one wanted to buy mandatory shares.

“This results in dilution of management shares which, in turn, disincentivises management,” he said. “If bad enough, it results in them leaving the industry, or country, or both.”

The ISP owner said he hoped President Cyril Ramaphosa would realise these policies were detrimental to the economy.

“What I am hoping will happen is this president of ours, who has been a significant benefactor of these previously mandated equity requirements, sees the abyss that this economy is plummeting towards and realises that these redistribution policies do not increase a company’s value; they dilute it,” the owner said.

“This leads to disinvestment, which decreases capital, which in turn increases unemployment.”

He added it would be much more meaningful to address transformation through tax incentives.

“How about a 0.5% decrease in company tax for every 1% black shareholding? How about a tax break for the percentage of black staff employed?”

“Policies like this make sense; you incentivise with a carrot, not a whip.”

Now read: Greed and corruption blocked cheaper data prices in South Africa

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Forcing ISPs to have black owners is “legalised corruption”