Sentech's corporate plan implementation: progress report

Meeting report

Dr Setumo Mohapi, Chief Executive Officer of Sentech, told the Committee that the presentation would cover five aspects. These were Sentech’s legal dispute with eBotswana, Digital Terrestrial Television (DTT), the low power expansion project, the National Wireless Broadband Network (NWBN) and the entity’s half-year financial performance.

Sentech vs eBotswana
Dr Mohapi said that as the matter was sub judice, the brief report would not deal with the substantive issues of the case, but would provide an update and background details.

In April 2011, eBotswana – a sister company to eTV – had instituted proceedings against Sentech, with the Independent Communications Authority of South Africa (ICASA) and the South African Broadcasting Corporation (SABC) as secondary respondents. The complaint related to the reception of SABC channels in Botswana from Sentech’s Direct-To-Home (DTH) satellite platform, VIVID, via satellite transmission. These services were freely available via a decoder obtainable on the open market. Sentech was held to be liable for making the services available without the necessary encryption. The VIVID platform had been established primarily to provide access to radio and television services to South Africans living in areas were there was no existing terrestrial signal distribution infrastructure, and the satellite carrying these services reached most South African Development Community (SADC) countries. Some time during 2004 and 2005, the VIVID encryption system had been hacked into, resulting in SABC TV signals being able to be decrypted and received in SADC countries through unauthorised Set-Top Boxes (STBs). A new encryption system had been obtained which would eliminate this problem, but its implementation had had to be delayed, as many local viewers were still using the old DTH encryption system, which needed to be configured when the country’s new Digital Terrestrial Television (DTT) STB standard was adopted. Judgment in the case was pending.

Digital Terrestrial Television
Dr Mohapi said Sentech was responsible for upgrading and building the network infrastructure to ensure South Africa migrated from analogue to digital terrestrial television broadcasting by December 2013, as stipulated by Parliament. This was a key project within the broader objective of establishing an information society, and would provide a wide range of benefits for the country and stakeholders in the broadcasting industry. For instance, the SABC currently had three analogue channels, and each one could be converted to around 18 digital channels. This would save spectrum and provide space for other content providers, such as community broadcasters, in the future. The DTT platform would allow community broadcasters to operate at almost the same quality levels as national broadcasters, while providing a local flavour. Sentech’s role was to provide signal distribution to all broadcasters by December 2013, and the International Telecommunications Union (ITU) had agreed that from June 17, 2015, member countries would no longer be required to protect the analogue services of neighbouring countries against interference.

By the end of March this year, Sentech had expanded its coverage and was ready to radiate signals to about 60% of the South African population, based on the Digital Video Broadcasting – Terrestrial (DVB-T) standard. These sites would be upgraded to the second generation DVB-T2 standard by March 2012, with the objective of reaching 74% coverage. This target might not be achieved, however, owing to supply chain management issues. There would be major cost structure changes in the digital broadcasting environment, and broadcasters were expecting much lower tariffs from Sentech. A lot of consideration was therefore being given to finalising the DTT tariff model to ensure the sustainability of both the broadcasters and Sentech.

Dr Mohapi gave a broad overview of the work which needed to be done, such as the erection of masts in excess of 150 meters high, on to which transmitters weighing between two and three tons had to be installed. It was the biggest single infrastructure intervention carried out since the introduction of TV in the 1970s. A challenge was to have decoders and the correct aerials available when the digital signal was switched on. Almost half the TV-owning households would be eligible for government-subsidised decoders, and they would have to be advised on how to obtain them. Coverage would be increased in phases from next April, so that by December 2013, only 8% of the country would be unable to receive digital signals. Government policy decreed that there should be 100% access to public broadcasting, so the gap would need to be filled by the Direct-To-Home satellite reaching Set-Top Boxes where no DTT reception was available.

There were a few activities going on outside Sentech which would affect the DTT project. The Digital Broadcasting Migration policy had been revised to accommodate changes arising from the Cabinet’s decision on standards and deadlines. ICASA had also had to review the DTT (Migration) regulations, and hearings with industry representatives were scheduled to take place before the end of the year. Sentech was working with different broadcasters on their individual requirements, while attention was also being given to protecting government-subsidised STBs against their leaving the country, as they could be used in other countries where there was the same standard for broadcasting. Community broadcasters could now freely participate in the DTT programme.

Low Power Expansion Project
Sentech’s low power expansion project was being carried out as a shared mandate with SABC to provide universal access to public broadcasting services. About 8% of the population was still unable to receive any form of television. On radio, there was a different type of challenge – one of diversity – to provide coverage for all language services, so that they could be heard anywhere in the country. Only SAFM and RSG had this type of coverage, so the low power expansion project was intended to fill the “gaps” in remote areas for both television and radio. Sentech’s target was to set up 100 low power public FM radio and television stations over the next three years, 38 of which had already been rolled out, and it was confident of meeting its target within the allotted time.

Dr Mohapi said the low power expansion project did not make use of the specialist mast infrastructure, but was able to meet some of its requirements by sharing the existing mast infrastructure of mobile operators. Vodacom, Telkom and MTN had all made sites available, while local municipalities had suitable facilities, such as water towers or tall buildings, which should be made available because of the benefits which would accrue to the local communities.

National Wireless Broadband Network (NWBN)
As part of its three-year corporate plan, Sentech aimed to roll out a National Wireless Broadband Network (NWBN) to offer broadband access to schools, health facilities and government services in under-serviced areas. The country had around 27 000 basic education schools, of which only about 5 000 were connected to broadband. This meant that millions of learners were currently denied access to on-line educational services. The roll-out of NWBN would lead to increased quality of health care in rural areas, while studies had shown a correlation between broadband access and the economic growth rate of local economies.

KwaZulu-Natal (KZN) had done a considerable amount of preparatory work, through its provincial Department of Economic Development, and had been identified by all stakeholders as the benchmark region for the roll-out. State-owned enterprises, such as Broadband Infraco and Universal Service Access Agency of South Africa (USAASA), had become role players on the basis of the programme being a public service initiative, rather than a profit-driven venture. Lessons learnt during the KZN pilot project would be passed on during the roll-out to the other provinces.

The estimated cost of the NWBN plan was R1,49 billion. However, some issues had recently arisen between National Treasury (NT) and the Department of Communications (DoC). While NT had acknowledged Sentech’s new business plan quite positively, it had stated that the money allocated should not be used until the DoC had met certain conditions, a critical one being the submission of a Consolidated National Broadband Plan. This bottleneck should be cleared by the end of the year, so that work on the project could proceed.

Half-year Financial Performance
Mr Protas Phili, Chief Financial Officer, presented financial performance figures indicating that while revenue of R400 million was 3% below the target of R412 million, operating expenses were R55 million, or 16%, below the R338 million budget. The under-expenditure was a direct result of a board decision to suspend activities related to supply chain management to ensure it was “beefed up” to comply with best market practices. Personnel costs were R16 million (11%) below budget owing to vacant posts not being filled. Overall, Sentech recorded a profit of R97,6 million for the half-year, which was nearly R16 million ahead of budget. The balance sheet showed capital and reserves of R843 million, which indicated the extent to which the entity was solvent.

Discussion
Mr M Sibande (Mpumalanga) referred to the 2015 ITU deadline to convert from analogue to digital, and asked if Sentech would have adequate monitoring systems in place to prevent illegal use of signals and frequencies.

Dr Mohapi said the issue of STB control via encryption was a contentious matter, and an issue of concern for everyone because of the effect on existing STB viewers when analogue transmission ceased. The draft policy had specified that STB control would be through encryption. Sentech had put forward proposals, and believed the problem was solvable.

Mr Sibande said he was concerned that with several DTT issues still outstanding, such as the BDM policy review and the DTT (Migration) Regulations Review, Sentech might have problems meeting the 2015 deadline.

Dr Mohapi replied that all the policy issues related to the environment in which Sentech operated, so there would have to be major changes to the regulations for the entity not to meet its objectives.

Mr Sibande accused Sentech of targeting developed areas, rather than focussing on rural areas such as Limpopo and the Northern Cape.

Dr Mohapi said the government had established a policy in 1995 that a radio station like Ukhozi, which had the largest listenership (6 million), should have 90% coverage of the country. However, it was still largely restricted to KZN and Gauteng. Extending the footprint was a long-term process, and much would depend on the SABC’s operational readiness to share Sentech’s public service mandate. The lack of public television availability to 8% of the population should also have been addressed in the mid-1990s, but the low power expansion programme was scheduled to resolve this issue.

Mr Sibande asked what had happened to staff who had been suspended – whether they had been charged, whether they were able to sue for wrongful suspension, and what the financial implications were.

Dr Mohapi said there had been a number of disciplinary cases involving senior officials, related to fruitless and wasteful expenditure, as well as irregular expenditure. There were several instances where these cases had been taken to the Commission for Conciliation, Mediation and Arbitration (CCMA), and these were being defended by the company. Others resigned before the completion of disciplinary hearings, and criminal charges had been laid with the police. Steps were being taken to recover missing funds.

Mr O de Beer (COPE, Western Province) asked why Sentech was struggling to fill strategic vacancies – in some cases, for more than 14 months.

Dr Mohapi said vacancies were being filled. The challenge was to find people who not only understood the industry, but who also had a keen sense of public service.

Mr Z Mlenzana (COPE, Eastern Cape) asked about the nature of the relationship which existed between Sentech and the Department of Communication and the SABC.

Dr Mohapi said there was always room for improvement in relationships when organisations were undergoing transformation. At a strategic level, there needed to be an understanding of Sentech’s public service mandate, and of the roles of the individual entities and their governance structures. The board had met with the Minister, and she had made clear her objectives and what she expected from Sentech, particularly the need to be proactive with her office. The relationship with the SABC was “not easy”, as the current instability within the organisation made it difficult to engage at a strategic level. However, because Sentech no longer talked about market shares and profit margins, the SABC could see there was a different approach in which Sentech offered solutions.

Mr Mlenzana asked if there were any further developments in respect of Sentech’s relationship with Japan.

Dr Mohapi said that in 2010 there had been discussions on the European and Japanese DTT standards. The Japanese standard had been adopted by Brazil and certain other countries, and Sentech had been asked to assist policy makers to reach a decision by conducting tests. The results of the tests were submitted, and with the Minister announcing the decision to use the European digital television standard of DVB-T2 in January 2011, there had been no need for further contact with Japan on the matter.

Mr Mlenzana asked if there was a “turnaround plan” for Sentech.

Dr Mohapi said the organisation had already turned around. A year ago, there had been media speculation that the organisation would run out of money, and industry insiders were starting to talk about establishing an alternative signal distributor. The auditors had now acknowledged that sufficient cash had been generated to sustain the organisation and to expand operations.

The Chairperson urged the Sentech delegation to work with the Committee in future, as its provincial representation enabled it to assist in engaging with municipalities and rural communities. It could also help in dealings with Eskom, when electrification became an issue.

She raised issues such as the failed “My Wireless” project, the need for more detailed information on coverage in the rural areas, training and job creation, and the identification of schools and clinics which would benefit from the NWBN project, so that members of the Committee could include them in their oversight visits. Time constraints meant that these issues would have to be responded to in writing.

The meeting was adjourned.