Increasing access to broadband: progress report by Broadband Infraco

NCOP Public Enterprises and Communication

16 October 2012
Chairperson: Ms M Themba (Mpumalanga)
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Meeting Summary

Broadband Infraco (BBI) began the presentation by highlighting its mandate to increase broadband access and affordability in South Africa.  BBI’s role in Gauteng, Western Cape, KwaZulu-Natal and Free State provinces, all highly favoured by the private sector, was to fill in any remaining connectivity gaps. Eastern Cape, Mpumalanga and Limpopo provinces were first-priority provinces for BBI because of their low economic activity and their consequently dire need of services. There were significant challenges in North West and Northern Cape, and innovative ways, such as wireless broadband, were needed to roll out access to citizens and businesses there. 

For 2013/2014 to 2016/2017, five specific provincial projects had been planned, as well as a project aimed at technology-life-cycle management. The combined project expenditure for the next five years was R4 038 688 000.

In terms of its stakeholders, BBI had strong ties with Eskom and Transnet, and had developed relationships with operators in all the neighbouring Southern African Development Community (SADC) countries. It had partnerships in the pipeline with Prasa and Sanral. It had approached the Universal Services Fund (USF) for financial assistance.

In term of challenges, BBI needed to redesign and refurbish its outdated network and technology. It needed to be able to fulfil its mandate in areas which lacked market efficiency, and to address the industry-wide shortage of Information and Communication Technology (ICT) skills. BBI would soon be implementing an intensive two-year internship programme that would be focused on engineer training and employment.

During discussion, Select Committee members raised concerns about BBI’s relationship with rural development, its spending on Botswana, its favouring of wealthier provinces, its eligibility for USF funding, its activities for 2012/2013, its job-creation efforts, its approach to the ITC skills shortage, the status of its IEC license, its relationship with its stakeholders, its independence from Eskom, its 2010/2011 qualified audit and its recruitment processes.



Meeting report

The Chairperson explained that not all Select Committee members would be present because of a related meeting taking place at the same time that day.

Broadband Infraco presentation
Ms Puleng Sejawamane, Chief Executive Officer: Broadband Infraco (BBI), began the presentation by highlighting BBI’s mandate to increase broadband access and affordability in South Africa.  BBI, a State-Owned Company (SOC), was governed by the Electronic Communications Act (ECA).  It had “exclusive servitude access” to Eskom and Transnet, coverage throughout the country, and connectivity with five of South Africa’s six neighbouring countries. It was currently in connectivity discussions with key operators in the sixth country, Botswana.

It had organised the country’s provinces into three focus clusters. Gauteng, Western Cape and KwaZulu-Natal provinces, which together accounted for 70% of all traffic origination, formed the first cluster, with Free State included by virtue of its strategic location. The private sector readily invested in these provinces, because of their commercial soundness, and BBI’s role was to fill in any remaining connectivity gaps. Eastern Cape, Mpumalanga and Limpopo provinces, with their low traffic origination and private sector activity, formed the second cluster. These, however, were first-priority provinces for BBI, because they were the ones most in need of services. North West and Northern Cape, both with very low population density, formed the third cluster. There were significant challenges in these two provinces, where citizens and small and “mid-cap” enterprises were being cut off from the “knowledge economy”.  Innovative ways were needed to roll out broadband access in these areas – for example, the use of wireless or mobile infrastructure rather than traditional fibre. While landline penetration in these and other provinces was very low, mobile or voice penetration was very high.

For 2013/2014 to 2016/2017, five specific provincial projects had been planned (see document). A project aimed at technology-life-cycle management had also been planned. Aspects of the current network needed to evolve to be in line with changing internet protocol, and back-up systems needed to be strengthened. Maintenance used to come from third parties, but it now came directly from Eskom and Transnet. BBI was working with these two SOCs to optimise its services.

Ms Ramasela Magoele, Chief Financial Officer: BBI, ran through the expected expenditure for all the BBI projects discussed by her colleague. The combined project expenditure for the next five years was R4 038 688 000. Customer expansion, one of the investment items, had to do with BBI’s strategic engagement and collaboration with the private sector, to increase access in certain provinces.

In terms of BBI’s stakeholders, Eskom and Transnet were both suppliers and enablers, and BBI was aligning its own expansion programmes with these key players. It had partnerships in the pipeline with Prasa and Sanral. It had relationships with all the local mobile or telecommunications operators. It had a team of engineers and salespeople who were developing relationships with operators in the Southern African Development Community (SADEC). It had begun road-shows to reach certain commercial and developmental institutions. It had approached the Universal Services Fund (USF) for financial assistance, on the grounds that it would be deploying funds towards broadband access in areas of low economic activity.

BBI needed to refurbish its outdated technology, to redesign a network that had initially been based on a single customer’s requirement, to better fulfil its mandate in areas without market efficiency, and to address the critical and industry-wide shortage of Information and Communication Technology (ICT) skills in South Africa. These were some of the ongoing challenges the entity faced.

Ms Sejawamane concluded by telling the Select Committee about the entity’s new internship scheme, which was focused on engineers. An intensive two-year programme was currently being developed, with the aim being to retain 50 per cent of all interns who passed through the programme as full-time employees. Filling engineering vacancies was not easy, and not cheap, and this was one solution that BBI had come up with, to remedy the situation.

Discussion
Mr M Sibande (Mpumalanga) asked about BBI’s relationship with rural development in the provinces mentioned. Why was the amount allocated to Botswana in the investment programme greater than the amount allocated to some of South Africa’s own provinces? He felt that, while South Africa did need to contribute to the development of SADEC, charity began at home. In addition, the wealthier provinces already had unfair advantages over the rest, so why focus rollout efforts on them?  BBI’s internship programme seemed to be having zero impact in rural areas.  Did BBI’s appeal to the USF for assistance not divert assistance from other urgent rural projects?

Ms Sejawamane replied that, as part of its human-resources policy, BBI recruited locally for the technicians who manned its fibre across the nine provinces. In general, though, its relationship with rural development was still “in its infancy”. It would seriously reconsider and look into this relationship. BBI tended to roll access out according to its license obligations, rather than according to rural development considerations.

The investment in Botswana was still informed by the requirements of South Africa’s own provinces.  Botswana was simply the end-point of the connectivity lines of certain provinces, which was why access to the country was being developed.

Eastern Cape, Mpumalanga and Limpopo provinces were in fact first-priority regions for BBI, as mentioned in the presentation. There was economic activity in these regions—specifically small and mid-cap activity—that needed to be supported.

Ms Magoele added that BBI had turned to the USF because it was often difficult to get commercial banks like Absa to invest in its developmental projects, owing to the low return on capital these projects offered.  In addition to the USF, BBI had also reached out to the Industrial Developmental Corporation (IDC) for help with its developmental projects. Commercial banks were usually approached only for customer-related projects.

Mr M Jacobs (Free State) asked for a simple explanation of what broadband was and what its benefits were, which he could deliver to his constituents in the rural Free State, if need be. There was better economic activity in certain provinces because there was better infrastructure there, and there was better infrastructure there because of the inequalities of the past. The stated investment programme would begin in 2013/2014, but what was happening from now until then?  What was BBI doing in terms of job creation? How was it planning to address the shortage of skills?  What was its level of involvement and collaboration with its stakeholders and suppliers?

Ms Sejawamane replied that broadband was a telecommunications infrastructure that allowed citizens to be interconnected and to communicate with one another. It was easy today to connect via voice but much more difficult to connect via data. Broadband allowed the speed of data communication – for example, email downloads – to improve.  An interconnected society with access to information had knock-on effects for education, health, and other sectors.

BBI had had contractual obligations that had ended in January of this year.  For the remainder of the year, it was revisiting its plans. The programmes running this year were mostly roll-over programmes from previous years. Instead of simply “continuing with the status quo” and “being reactive”, BBI was investigating how best to match its customer requests to its mandate.  In the past, responding to customer requests had been the sole priority.

BBI’s relationship with Eskom was governed by a Memorandum of Understanding (MoU).  A similar MoU had been planned with Transnet, but this was still in its early stages. There were telecommunications experts at both Eskom and Transnet, and BBI was leveraging these resources.

BBI had indicated to the Executive Authority that it wanted the pipeline relationships with Prasa and Sanral to be developed, and was now awaiting action.

BBI’s relationship with its suppliers, both locally and internationally, was cemented. It had also begun to advertise for certain electronic items regionally, instead of internationally.

In terms of job creation, BBI’s main area of focus and contribution was Information Technology and Communication (ITC) skills, both through its internship programme and through its regular recruitment process. Of its 168 headcount, 91 employees were in the technical environment. BBI was in the process of filling the outstanding 19 vacancies in the technical environment. The average age of BBI employees was 32 and 97 per cent of employees were black.  BBI employees acquired skills at a much quicker rate than those in the private sector, owing to the size of the enterprise.  Furthermore, BBI constantly rotated its employees internally, to ensure that the job remained stimulating and stretching.

The Chairperson said the slides describing BBI’s provincial projects were not detailed enough. What were the timeframes for these projects? Exactly which municipalities would BBI be connecting?  In BBI’s recent annual report it had listed as one of its challenges slow implementation due to extenuating circumstances.  Would these circumstances affect the provincial projects mentioned in the current presentation?  Last year, BBI had said it had needed an International Electrotechnical Commission (IEC) license.  What was the status of this license now?  Last year, BBI had received a qualified audit, with R151 000 000 in irregular expenditure discovered. This year, the audit had again revealed some irregular expenditure, this time of R3 900 000. Why had these errors occurred?  What had been done about them?  What was the private sector’s perception of them?  How was recruitment for the internship programme conducted?  Was recruitment gender-sensitive and did it target each province?  Presentations to select committees needed to address issues of provincial interest. It was not enough to lump Limpopo together with Mpumalanga. Each province needed specific treatment.

Ms Magoele replied that, while the presentation did not name specific municipalities and details, BBI had the relevant lists and would make them available.

The Minister had issued a programme for competitive procurement and BBI was following this programme as well as working on an aggressive Black Economic Empowerment (BEE) policy to match it. The primary recruitment focus would be on women and youth.

BBI had received its qualified audit in 2010/2011 because of its failure to quantify irregularities in its spending. Following this, the entity had opened its books to the auditors, going back to its inception in 2007, and these books had undergone a thorough clean-up. Everything had been disclosed and made available to the public. Immediate measures had been put in place to avoid a repetition of the errors, including compulsory training events for Board members and employees alike. A code of ethics and conduct had been drawn up and employees had been educated about it. BBI had been open with its partners and investors about its auditing legacy.  It had always been very clear with potential investors about its strict compliance with the Public Finance Management Act (PFMA), and the market was now aware of this fact. There was a tacit acknowledgment between BBI and the private sector about their mutual need for one other in the broadband arena.

BBI’s main activities this year revolved around the sourcing of funding, skills and resources.

Ms
Sejawamane explained the “extenuating circumstances” mentioned by the Chairperson.  BBI had had several governance challenges at its point of sale in 2007.  At that time, all of BBI’s contracts were still being procured by Eskom, and the company had only one customer and no IEC license. These circumstances had all since changed.

When sourcing engineers for its internship programme, BBI could not find participants from every province, since some provinces did not have tertiary institutions.

The Chairperson said that the Select Committee could approach its constituencies in the various provinces and get names of candidates who had relevant degrees, but were unemployed. It could assist BBI in its recruitment efforts.

Ms Magoele thanked the Chairperson for the offer. This sort of collaboration would be enormously helpful.

Mr Sibande said that BBI had fixed some of its challenges, but some of them were still outstanding. The Select Committee was part of the legislature.  He urged BBI to tell the Select Committee if there were any parts of legislation that were restrictive for BBI, so that the Select Committee could take steps to “empower” the entity further.

Mr Z Mlenzana (Eastern Cape) asked for clarity on BBI’s relationship with Eskom. Had the two entities moved from a MoU to a handover? Did BBI still have some level of dependence on Eskom? Did BBI have a database that detailed which customer needed what?

Ms Magoele said that BBI was now a fully independent SOC. Everything was done on a contractual basis.

BBI did not have a vast number of clients. Rather, it was serving large operators and IT companies with large orders. Geographically, most of its clients were Gauteng-based. For these reasons, a database was not necessary.

The Chairperson asked who exactly in the provinces BBI had been engaging with.

Ms Sejawamane replied that BBI’s first entry point at the provincial level had been the units of economic development. It had then moved on to engage with the economic clusters and then with the higher forums. The precise details of BBI’s engagement with provinces were available.

The Chairperson asked the delegation to inform the Select Committee of its road-show schedules so that members could perhaps accompany BBI members.

Ms Sejawamane said that it may well have been an “oversight” on BBI’s part that it had not been engaging adequately with the Select Committee on matters. It would definitely step up efforts to change this.

Mr Lesego Molatlhwe, Acting Chief Director: Department of Public Enterprises, asked BBI to provide additional information in writing to the Select Committee’s questions about skills shortages, job creation, and the lack of detail on certain slides.

The Chairperson requested that this be submitted by next Friday.

Mr Molatlhwe added that some of BBI’s past expenditure irregularities had in fact involved Board members and that significant changes had since been made to the leadership of BBI, including the recent hiring of the current CEO.

The Chairperson told Ms Sejawamane and Ms Magoele to “keep it up”.

The meeting was adjourned.

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