Broadband rollout: update with Minister, Deputy Minister, USAASA, SITA & NEMISA

Telecommunications and Postal Services

13 September 2016
Chairperson: Ms M Kubayi (ANC)
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Meeting Summary

DTPS presented key points on the implementation of the broadband rollout, as well as the SA Connect initiative. Most important is the cumulative budget shortfall of R367 million from the current financial year to 2018/19, which means fewer sites can be reached. DTPS is engaging with National Treasury to increase the allocations. Funding is very limited, so DTPS through Cabinet established the Broadband War Room in order to accelerate the implementation of the SA Connect strategy by unblocking challenges identified along the implementation phase of the project. The War Room consists of Directors-General from different departments, including the Presidency, to ensure that coordination of the budget is achieved and the uptake is smooth.  The State Information Technology Agency (SITA) had issued a tender to procure broadband services to connect government facilities in the Phase 1 district municipalities. The business case for Phase 2 is about to be finlaised and will be submitted to Treasury. There have been challenges experienced thus far, such as delays in the appointment of the service provider for Phase 1, as well as budget shortfall.

Members asked about the cost breakdown for Phase 1; raising more funds to mitigate the shortfall; if Telkom was involved in the tender process; the type of obligations that the winning bidder must adhere to; the involvement of the private sector; the ownership of the infrastructure; the involvement of SMMEs; the War Room – its role and level of power; amongst others.

The Minister highlighted that the costs are not of a capital nature but service fees. The private sector will bring to the table its own infrastructure and then government will pay for the services rendered. The point is to stimulate demand and provide incentives to the service provider for bringing  infrastructure to remote areas they would not normally do due to lack of profitability. Government comes in to provide incentive and make use of that infrastructure to connect South Africa. This project is targeting schools, clinics, residential areas and rural areas to mitigate the digital divide in municipality districts in the country. Phase 1 of the project will cost about R2 billion, but Treasury has only made available R1.5 billion. The DTPS is engaging with Treasury for the release of more funds in order to reach the targeted sites across the country. With regards to Phase 2, the business case is about to be completed and will be submitted to Treasury for funding. Phase 2 is much wider and more remote, and will definitely require more funding.

Meeting report

Broadband rollout: briefing by Department of Telecommunications and Postal Services
Mr Tinyiko Ngobeni, Deputy Director General: ICT Infrastructure Development Branch at DTPS, took the Committee through the key parts of the presentation commencing with the broadband challenge in South Africa. He stated that SA is still challenged by accessibility, usability, and affordability when it comes to ICT. Access to internet and broadband services is not uniform across the country; the existence of the digital divide between provinces, districts and municipalities; and the inability to access ICT is closely associated with poverty which is most prevalent in predominantly rural or poor areas. To overcome these challenges government came up with a policy framework aligned to the NDP, which includes ensuring broadband reaches the critical mass of SA, affordable broadband services, and encouraging competition.

DTPS established SA Connect which aims to address some of the broadband challenges in the country. One of the initiatives led by the sector is Fibre to the Home (FTTH) which could reach more than 360 000 active subscriptions in SA by 2019, with the majority of the growth coming from subscribers in residential suburbs, where much of the recent action has been focused. The FTTH deployment has shifted from gated estates to suburbs. It is worth noting that the percentage of the population with access to 3G coverage in 2016 is 98%, whilst access to LTE coverage is sitting at 53%.

To facilitate and stimulate the expansion of broadband infrastructure, the Department has developed a business case that will aggregate government is demand for broadband. The implementation will be achieved through a two phased approach implementation. The strategy includes connecting schools, clinics, post offices, police stations and other government facilities and is structured in this manner:
• Phase 1: 6 135 facilities (8 District Municipalities)  
• Phase 2: 35 211 facilities (44 District Municipalities).

With regards to funding allocation, in the Phase 1 stage the Department is sitting on a total shortfall of R367 million from the 2016/7 to 2018/9 financial years on the basis of what Treasury has allocated it. This shortfall means that by 2018/19 the DTPS would reach 5 803 sites across the country.

SITA issued a tender to procure broadband services to connect government facilities in the Phase 1 District Municipalities. The tender closed on 8 August 2016 subsequent to the request for extension by the potential bidders, evaluation is underway and is planned for completion by October 2016. Challenges included the appointment of the service provider for Phase 1 took longer than planned, and limited funding for Phase 1 in line with the SA Connect targets, and so far no funding allocation has been set aside for Phase 2.

Cabinet has approved the establishment of a Broadband War Room to accelerate the implementation of the South African Connect strategy by unblocking challenges. The War Room will consist of several government departments including the DTPS. The Economic Sectors, Employment and Infrastructure Development (ESEID) cluster is facilitating the finalisation of the terms of reference.

Ms M Shinn (DA) asked for clarity on the figures in slide 12 for the Phase 1 programme, which will cost about R2 billion, when there is not enough money available for that. Secondly, how much will all the sites cost DTPS. The costing does not make sense. Clarity on the funding allocation is necessary. Thirdly, what will DTPS not be able to do with the given budget allocation from National Treasury. She asked for some explanation about who informed the requirements of the public tender and which departments were involved, what role did Telkom play in formulating the tender, how many people have submitted applications, and how much money is going to be spent on the tender. Most failures from Telkom are network related, so perhaps is it not time other players are involved in the SA Connect programme to ensure that the this type of failure is mitigated? What obligations are you going to impose on the tender and the winning bidder?

Mr C Mackenzie (DA) asked to what extent are the communications (or network) companies such as MTN, Vodacom and Cell C involved in the broadband rollout. Basically, what is the extent of the involvement of the private sector in the broadband rollout?

Ms D Totetsi (ANC) pointed the Members to page 12, and asked why DTPS does not provide the locations of the broadband connections instead of the number of cumulative sites. Secondly, what is the plan about the shortfalls in funding from Treasury? She noted that geographical locations need to be provided on all the locations for Phase 1 so the Committee can do oversight visits. On slide 18, she asked for the number of schools connected through the USO programme. On slide 24, under the SIP 15 Inter-Governmental Framework, she asked if technicians can be located closer to where the quality and bandwidth of connectivity provided to schools takes too long to repair. On slide 33, what are the benchmarked countries referred to as leading countries in converging their government services, so that when oversight is conducted, there is a clear point of reference?

Ms L Maseko (ANC) pointed to the slide outlining the fibre to the home (FTTH) roll out, she noted in her community they have received many smses from local service providers asking if they are interested in subscribing to fibre. She asked why must it be optional, why are people not encouraged to subscribe or why is fibre not made available so more will subscribe in residential areas? On slide 14 about the Broadband War Room, at what level is this operating so it is going to be influential in addressing and unblocking challenges as well as coming up with solutions. She said it should be at a higher level to fast track decision making and addressing challenges. On slide 24, is there collaboration with SAPS about vandalism and theft of copper within those districts. As noted in the presentation why is the price of broadband too high?

The Chairperson stated that reliable connectivity is key, not just connectivity, because it will assist in many other important areas within government. When there is an allocation for broadband rollout, there cannot be an overlap between the Universal Service and Access Agency of South Africa (USAASA) and DTPS as stated in slide 37, why is there an overlap of projects? It is important to note that if USAASA carries the responsibility of providing broadband to schools, it will not be sustainable, because they do not have the capacity to handle the whole project for schools across the country. Does the budget include operational costs, if not, how is the Committee and stakeholders going to know for sure what is going on with the funding allocation and the structuring of expenditure? She asked where the private sector is investing exactly, and what their level of infrastructure is in terms of contribution – what sort of infrastructure are they bringing to the table? Where was the National Electronic Media of South Africa (NEMISA) awareness campaign done and what is the nature of the campaign? If it is a total of 26 awareness campaigns as noted on slide 44 then there should have been campaigns in each province. Lastly, what is the level of the e-Skilling initiative? Is it just basic computer literacy or are students taught critical computer skills, and do they get a recognised qualification when they have completed the programme?

Minister Siyabonga Cwele explained that the Department is just a procurer as far as its role on the SITA tender, it is just the buyer of the services. It is buying the services for connectivity from the service providers. Phase 1 of the roll out aims at buying the services to contribute towards the infrastructure of the technology. It is important to note that to connect one km in OR Tambo Municipality is far more expensive than say in the Western Cape, this is why the costs differ in different provinces and areas. DTPS was assisted by the CSIR in calculating the costs of connectivity per km. The difference in costs across different areas poses a challenge, because the process of calculating the costs per km in each area takes time. Another challenge is the fact that change is very difficult for some people and businesses, and often times, people resist change and rather stick to their pre-existing system. So getting people to change to the proposed broadband rollout and connectivity is a key challenge. On the overlap between USAASA and DTPS, it is not necessarily a duplication or overlap given the budget. The USAASA programme is allowed to carry out some of the projects because service providers are not keen to provide connectivity services in poor areas, because they claim that it is expensive to do so. So USAASA comes in to stimulate the demand in those areas, because the service providers claim that there is also no demand for these services in marginalised areas. 

The Minister continued that the Universal Service and Access Fund (USAF) funding is quite insufficient, and there is no way that USAASA can take on all the projects (outlined on slide 36), but DTPS has established a new policy and is currently looking at new methods to improve the USAF fund contribution to ensure that the bulk of the work is done. In addition management will change to ensure that the projects are geared towards progression. The pilot (broadband rollout to schools) is the only thing that is aligned to SA Connect. This does not necessarily mean that there is an overlap with USAASA projects but, to assist where DTPS can, to ensure that with the limited USAF budget for USAASA broadband projects more areas and schools are reached and provided access to the facilities.

Minister Cwele said the duplication of infrastructure is a concern, but there are efforts to address that duplication and DTPS is partnering with the relevant stakeholders to ensure that this duplication is changed or minimised. However, it is important to bear in mind that coming up with inter-governmental interventions might take a while. In addition to this concern, the provincial departments are also not working together with the national department, so DTPS is trying to coordinate this to ensure that it changes.

The private sector still does not see value in investing in rural areas, their target and focus market is providing connection to the rich areas, hence, DTPS is trying to intervene as government to change this so that the marginalised areas move along with the rest of the country. The private sector is also super confidential when it comes to disclosing their plans and projects – they outright refuse to share their plans with DTPS. Their argument is that they are competing with each other. With that being said, DTPS is busy attempting to persuade them on the basis that there is money to be made in the rural areas. For instance, the prepaid voice calls have proven to be lucrative for them in those areas although they were reluctant to invest in network connectivity in those areas before.

Deputy Minister Hlengiwe Mkhize stated that NEMISA had the key responsibility of amalgamating stakeholders, so it started with a road show to invite more people to come forward and raise awareness and invite people to benefit from the project. NEMISA has also engaged in partnerships with institutions of higher learning to assist them in consolidating their mandate with the e-Skills development programme. DTPS has partnered with the Department of Higher Education and Training to assist in the short courses and training provided in the CoLabs pioneered by NEMISA. The risk of doing these courses without the private sector involved, is the competitiveness of the acquired skill and the recognition of the qualification by the private sector as well as its input on some of the key aspects of the ICT skills and information. Certain aspects of the digital initiative can be left to civil society organisations such as basic computer literacy to ensure that the reach is extended for the e-Skills development programme, but NEMISA would have to partner with these organisations formally.

The Minister said the critical aspect of the War Room is to ensure the infrastructure roll out, the uptake itself, the preparation for the uptake, as well as the training of the civil servants involved in the roll out. Another key aspect of the War Room is to ensure budgets are coordinated, because the War Room will consist of Directors-General from different departments including the Director General in the Presidency. This is to encourage working together to achieve the outcome of the rollout projects with the limited USAASA budget.

Mr Ngobeni noted that the number of sites achieved will be limited by the amount of funding made available. The more money available, the more sites DTPS will be established. DTPS is waiting on Treasury about the budget shortfall, because it will have to enter into long term contracts with the service providers and some of the monies will be paid out during the course of the contractual term with the service providers. On the location of the sites, there is a map on slide 11 which shows the location of the sites, However, DTPS will provide details of the facilities in due time. As for the list of leading countries converging their government services, DTPS will obtain the list and make it available to the Committee. When the service providers roll out the fibre, very few people subscribe to it, because there is already infrastructure laid out in those areas. Phase 2 of the rollout is still at the business case planning level which is now being finalised, and once the business case is completed, the Committee will be provided with the details to conduct oversight. About R60 million has been allocated to infrastructure deployment and training. DTPS is working very closely with CSIR for research purposes. With regards to theft and vandalism of the infrastructure and copper, DTPS is working closely with SAPS on this and theft of copper now has serious punishments, fines and sentences. Also as part of SIP 15, the Deputy Minister will convene a forum meeting to deal with vandalism and theft of copper as well as the sustainability of the infrastructure.

Ms Miriam Paul, DTPS Chief Director: ICT Infrastructure Development, on the audit of schools for the provision of the services, DTPS randomly selected three schools with the lack of infrastructure. The major problem realised was the training of teachers in the school, so there is a programme for teacher training. Another problem was the connectivity of the schools in the space of MTN in KZN, but that has now been sorted out. There was also an issue about the connectivity of the iPad to the server and this is currently being resolved. It is important to note that there is an issue of general connectivity for some of the schools in the remote areas, which needs to be addressed. Funding is another issue that sets DTPS back in addressing the challenges that come up as DTPS makes progress in some areas.
Mr Lumko Mtimde, USAASA Chief Executive Officer, stated that there has been a meeting with ICASA where the matter was discussed and they agreed on the need to revise the regulation, because the task is not necessarily funded, and so we need to find a way of resolving that at a regulation level. A follow up meeting will take place after the meetings this week, and USAASA will come to the Committee to report back. In respect to the plan beyond two years for school connectivity and clinics, we have been engaging with the departments but we realised that we need to engage at a different level where the accounting officers will be able to take on the commitment. We are developing tactics to ensure there is a commitment that will be accounted for by those departments. We are currently engaging with provincial councils across the different provinces to ensure that the programme takes place beyond two years because it is really not sustainable. On the schools targeted in Chief Albert Luthuli municipality, there is only one school for people with disabilities in that area registered with the local municipality. If there were more, then USAASA would have considered them as well. USAASA will provide a breakdown of the figures for monies paid to service providers in different districts and municipalities going back three years. The information is available and could be sent by tomorrow as well as the audited information.

Dr Setumo Mohapi, State Information Technology Agency CEO, said that the business model is a service based model that creates an incentive for a service provider to set up infrastructure and to provide services to government for a minimum of ten years. On the basis that once that has happened, the business risk of providing services in the rest of the community is much reduced because now there is an incentive to bring the infrastructure to those communities. The cost will not include the capital costs because they would have been incurred by the service provider. What the figures express are service fees that will be incurred by government during the contractual period. In the cost structure, one will see in the tender requirements that the service provider is required to provide the access to network up to the SITA Point of Presence (POP), and there is a SITA POP in each province across the country. This will allow SITA to track some of the traffic so that we can build e-services at a provincial level. For instance in schools, some provinces have aspirations to build their own e-learning platforms like the Western Cape and Gauteng, which means even if there is a lot of traffic coming from the districts it will not spread out to the entire country. For government sites like SAPS and clinics, they will be using the service from the national level. There is no one who has spoken to Telkom about the tender. The tender was done through the SCM division and dealt with by the Executive Committee of SITA and in consultation with DTPS. As a requirement, it was clear that SITA was required to select one service provider. One has to have some kind of infrastructure in the district municipality and must provide some telecommunication network services as well as data communications service within that district. On whether the winning bidder has the capacity to run this project, that is provided for in the tender documents, under capabilities of managing this service over the contractual period. This is a mandatory condition. The winning bidder is also required to sub-contract 30% of the operations to a local qualifying SMME to ensure that some of the work is dispersed and SMMEs benefit from the rollout projects. This is also a mandatory condition in the contract with the winning bidder. There were only six service providers that came forward to bid for the tender.

Ms Shinn asked when the bid will be announced and who is adjudicating it. Secondly, how will the equipment be bought from the R2 billion because it excludes capital expenditure. She asked for clarity on how much the project (Phase 1 & 2) is going to cost altogether, what the breakdown is of the cost of the whole project.

The Chairperson said costs might still be an issue, since there are shortfalls in the budget already. She expressed a concern about the R40 million spent by municipalities on WiFi – she does not see that as value for money. So the work needs to be coordinated to ensure that there is value for money on the broadband rollout, because spending money for services that do not bring in any value is wasteful expenditure. If coordination is done properly, there should be value for money in the service rendered by municipalities within the constraints of the proposed budget. She asked if DTPS along with the entities looked at the manpower, technical capacity and skills necessary for SA Connect to be effectively established. In the plans, nothing is said about the provision of these services in the rural areas. An analysis should have been done about the crucial services that could be provided in those communities.

Mr Mohapi replied that the procurement schedule suggests that adjudication will be completed by October. The adjudicating team is the SITA Board and SITA has put some additional controls, where the open market was visited and auditors brought on board to assist in the procurement process and to ensure that the winning bidder meets all the requirements of the tender from an operational point of view, as far as  manpower, skills and capacity is concerned.

Mr Ngobeni said the R2 billion is for connectivity over a three-year period, for a six year period it would amount to about R6 billion. Phase 2 is much broader and covers a wide spread across the country including the remote areas, which is why DTPS is engaging with Treasury to increase the budget. The model of the budget is based on the service-fee cost structure for now. The challenge with WiFi is that it requires a back wall, which stores the capacity of the usage, and handles the traffic of the usage of connectivity. So some municipalities did not have this, which is why when they started implementing it, the costs increased. However, it is important that organs of state adopt a coordinated approach in order to manage the costs and contain them.

Ms Shinn asked after the ten year tenure has come to an end, who will own the infrastructure.

Mr Mohapi replied that the infrastructure is owned by the service providers, after the ten year tenure there would be a viable business case and demand stimulated so the profitability is viable for service providers in those areas. Thus government is coming in to stimulate demand to bring the service into those areas so that the private sector service providers can start providing services in those areas.

The meeting was adjourned.

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