Broadband Infraco must stick to its mandate

5 August 2009

The State-owned telecom operator, Broadband Infraco, has a positive and important role to play in lowering the cost of communication in South Africa, provided it sticks exclusively to its original mandate of supplying wholesale infrastructure to other operators and service providers.

That’s according to Dominic Cull, regulatory advisor to the Internet Service Providers’ Association of South Africa (ISPA). He said that if Broadband Infraco focuses on serving as a carrier of carriers in the national long-distance network services market, as originally envisioned by Government, then it may well facilitate the expansion of more affordable access services to consumers.

National long-distance links

ISPA has urged ICASA to impose conditions in the licences to be issued to Broadband Infraco which will have the effect of focusing its efforts where they are most needed. “There is currently a bottleneck in long-distance national links, and the costs incurred in this area are a major contributor to South Africa’s high voice and data tariffs” said Mr Cull.

Although more competition was introduced into the market when Neotel launched, the Neotel network has yet to reach much of the country. If Broadband Infraco seeks only a utility rate of return in this market as a wholesale carrier, it could help to drive costs down to the benefit of users and service providers.

There is, however, a balance to be struck. “We are already seeing Neotel and the mobile operators team up to ensure the delivery of long haul capacity in an efficient manner by pooling resources. We would prefer
that the incentives for this sort of market-driven solution to the challenges of long-distance connectivity are not removed,” said Mr Cull.

Specific terms and conditions

At public hearings held recently by ICASA, ISPA argued that Broadband Infraco’s mandate – which is spelt out in the Broadband Infraco Act – must be translated into specific terms and conditions to be inserted into the licences which that Act explicitly states it must be awarded.

Although this is an Invitation to Apply (ITA) process, ICASA does not really have the discretion to refuse to grant an IECS and IECNS licence to Infraco. The Ministerial Policy Direction which launched the process makes it clear, however, that ICASA must exercise its discretion as regards imposing specific terms and conditions.

Expanding access to communications

ISPA also believes that Infraco has the potential to be the first Government policy intervention to address the digital divide effectively, something which is critical to South Africa’s drive towards becoming an information society.

“Infraco already has a fibre network linking all the metropolitan centres. ISPA suggests that Infraco should establish Points of Presence (POPs) along this network in rural areas or towns in underserviced areas”, explained Mr Cull.

If attractively-priced bandwidth is made available in this manner then ISPA believes that industry will see the opportunities in rolling-out and operating access networks in these areas. Where necessary the funds currently lying unutilised in the Universal Service and Access Fund (USAF) could be applied to incentivise this.

Privatisation

ISPA also raises questions about the provisions that Government has made for the future privatisation of the operator in the Broadband Infraco Act. In general, ISPA believes that excessive Government presence in the market is not desirable. But Broadband Infraco was kick-started through the appropriation of the fibre assets of Esitel and Transtel and with an investment of nearly a billion Rand of taxpayers’ money to date.

Great care must be taken not to eventually produce a partially privatised company with a profit motive and unfair advantages that competes against the private sector.

There is an abundance of recent history relating to state-owned enterprises (SOEs), which should serve as a clear warning of the distortions and persistent high pricing that can occur when an SOE enters a market to compete with the private sector.

“If incentives to operators to build their own networks are removed through the activities of Infraco and it is subsequently privatised we may well end up with a Telkom II situation where shareholder interest trumps the original policy intention.

“Great care must also be taken to ensure that critical assets funded by the taxpayer are productively employed in the interests of those taxpayers in the very real sense of reducing their communications spend,” concluded Mr Cull.