Rationalisation of ICT State Owned Companies and its impact on broadband rollout

Telecommunications and Postal Services

05 September 2017
Chairperson: Ms D Tsotetsi (ANC) (Acting)
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Meeting Summary

The main objective of the ICT SOE rationalisation was to move away from a fragmented mode of service delivery to a more consolidated approach by grouping entities into two structures. Broadband infrastructure entities would be consolidated to form the State ICT Infrastructure Company or National Broadband Network Company and the State IT Company would be formed for ICT service entities. Phase 1 would be the consolidation of Broadband Infraco (BBI) and Sentech and Phase 2 would be to develop access agreements between NBN and non-ICT entities. Initially this would be with Eskom, Transnet, PRASA and SANRAL followed by agreements with provincial and local government broadband networks and then with the private sector.

DTPS of Telecommunications and Postal Services (DTPS) said the approach it was taking was that at the end of the rationalisation process, the entities should not be worse off. There had to be improvements in efficiency and service delivery. Previously the focus had been on the audit to identify what aspects could be integrated into the state infrastructure IT company and a state IT services company the Department wanted to create. The rationalisation of ICT SOEs was informed by government policy positions which indicated the need for alignment of SOEs to achieve developmental objectives. Hence the aim of the rationalisation was to harmonise and streamline enterprise capabilities for efficiency in the interest of service delivery.

DTPS’s SOE portfolio constituted the immediate scope on which the rationalisation project would be focused, but it was cognisant of ICT capabilities that reside in Eskom, Transnet, SANRAL and PRASA which were part of broader government. There were legislative and regulatory aspects which need to be considered in the implementation of the NBN Co and the IT Co. These were:
• Corporate Law (Companies Act of 2008)
• Public Finance Management Act (PFMA)
• Electronic Communications Act (licensing)
• All affected SOC mandates and legislation will be reviewed in line with the rationalisation project 
• Competition Law to give effect to mergers      
• Labour Relations Act, 1995 (LRA).       
DTPS would be going to Cabinet at the end of the third quarter for approval of a detailed model.

Members said the presentation was a rehash of a 2015 presentation and they were disappointed that the presentation was still only a broad overview with no detail. Members said there was little progress over the past two years. Members said there were no time frames attached to the consolidation of Sentech and BBI or how long it would take to move from Phase 1 to Phase 2. Members asked if the Department’s assessments had been outsourced or done by itself. Was there any indication of legislative failures in the assessment? Was the Department aware of processes to introduce the Shareholders Management Bill and was the rationalisation project not pre-empting that Bill? Members asked if an analysis of benefits and costs had been done and was that report available. Members asked how important the terrestrial broadband network was. How would the Wireless Open Access Network (WOAN) fit in with the National Broadband Network Company? On Sentech doing the last mile connectivity and the empowerment of small black businesses, Members asked if  the Department was not in conflict with its aim to introduce ICT SMMEs.

Members said the aim of SA Connect was to make broadband universally available and what was presented reflected a monopoly on broadband and a service that was unaffordable and slow. Would the Department consider selling surplus space? Would the Department be competing with the private sector? How would the rationalisation process be funded, via a levy? What links were there with the wireless network providers, because this would take six years to establish and would it not be better to sell BroadBand Infraco (BBI) and Sentech to the private sector? Members asked about the funding model for SA Connect. Members wanted a list of the radio stations owing money to Sentech. Members asked if the timelines for the process could be given in October as the presentation had not shown how the process would unfold and when it would be done.

The Acting Chairperson highlighted the lack of timeframes in all plans of the Department. The matter had been raised on many occasions previously but the Department never presented them, making its oversight work of the Department difficult. She noted that the documents did not arrive at the prescribed time and this undermined the Committee and she issued a caution to the Department.

Meeting report

Rationalisation of ICT State Owned Companies and its impact on broadband rollout
Mr Robert Nkuna, DTPS Director General, said the approach the Department was taking when talking about rationalisation was that at the end of the process, the entities should not be worse off. There had to be improvements in efficiency and service delivery. Previously the focus had been on doing an audit to identify what aspects could be integrated into a state infrastructure IT company and a state IT services company the Department wanted to create.
 
Mr Omega Shelembe, DTPS DDG for Oversight, said the rationalisation of ICT SOEs was informed by government policy positions which indicated the need for alignment of SOEs to achieve developmental objectives. Hence the aim of the rationalisation was to harmonise and streamline enterprise capabilities for efficiency in the interest of service delivery.

Broadband rollout would have an impact on GDP growth as evidenced from reports by various world bodies, therefore investment in broadband would increase economic growth. The ICT sector had to ensure that South Africa had improved ICT infrastructure.

As part of the rationalisation process, assessments of the SOE current capabilities were undertaken in 2016/17 to understand where resources and infrastructure were duplicated. This had shown that there were infrastructure duplications, inefficiencies, poor coordination, and a waste of scarce financial resources.

DTPS’s SOE portfolio constituted the immediate scope on which the rationalisation project would be focussed, but it was cognisant of ICT capabilities that resided in Eskom, Transnet, SANRAL and PRASA which were part of the broader government.

The main objective of the SOE rationalisation was to move away from the current fragmented mode of service delivery to a more consolidated approach by grouping entities into two structures. Broadband infrastructure entities would be consolidated to form the State ICT Infrastructure Company or National Broadband Network Company (NBN Co) and the State IT Company would be formed for ICT services related entities. Phase 1 would be the consolidation of Broadband Infraco (BBI) and Sentech and Phase 2 would be to develop access agreements between NBN and non-ICT entities. Initially this would be with Eskom, Transnet, PRASA and SANRAL followed by agreements with provincial and local government broadband networks and then lastly with the private sector.

He said SA Connect connected government, business and individuals. He said an enforceable business case needed to be developed for government to become an anchor tenant to ensure meaningful government-to-government, government-to-citizen and government-to-business engagements with the supply of its own infrastructure network through the rationalised SOCs. He then spoke to NBN’s role on SA Connect.

The State IT Company’s focus areas were: Research and Development; Innovation; Localisation (Local procurement and open source); Cybersecurity; Procurement of IT Products and Services; e-Government Implementation; and IT Services Management.

• Corporate Law (Companies Act of 2008)
• Public Finance Management Act (PFMA)
• Electronic Communications Act (licensing)
• All affected SOC mandates and legislation will be reviewed in line with the rationalisation project 
• Competition Law to give effect to mergers      
• Labour Relations Act, 1995 (LRA).       

Subject to Cabinet approval of the business cases, DTPS would start work on the two Bills for submission to Cabinet and Parliament. The implementation plan was to do an analysis of the SOC founding legislation; develop the Phase 1 roadmap; perform the due-diligence process for Phase 1 implementation; develop the mandates for State ICT Infrastructure Company; develop the mandates for State IT Company; explore funding, legislative and regulatory affairs in detail; and seek Cabinet approval on the principles that will guide the implementation of the ICT SOE Rationalisation Project by the end of the third quarter and consequently to have detailed legislative development.

Mr Nkuna said that in terms of the Annual Performance Plan, DTPS would be going to Cabinet at the end of the third quarter for approval of a detailed model. DTPS also needed to work on the legislative program. It had already indicated that it would be bringing seven laws to the Committee and in addition it would be bringing another two for a total of nine pieces of legislation. It needed the Committee’s guidance on how many laws the Committee could do so it could prioritise which laws to do. He said the Universal Service and Access Agency of South Africa (USAASA) was doing work on broadband connectivity and some of the sites USAASA developed needed to be integrated into the project.

Discussion
Mr K Siwela (ANC) said there were no time frames attached to the consolidation of Sentech and BBI or how long it would take to move from Phase 1 to Phase 2. He asked if DTPS’s assessments had been outsourced or done by itself. Was there any indication of legislative failures noted in the assessment? Was DTPS aware of processes to introduce the Shareholders Management Bill and was the rationalisation project not pre-empting that Bill?

Ms J Killian (ANC) agreed with Mr Siwela on the lack of timeframes in the presentation. She said the presentation was a rehash of the presentation in 2015. She said if necessary Parliament had to work overtime to complete the processing of Bills. She was disappointed that the presentation was still only a broad overview with no detail.

Mr N Koornhof (ANC) asked if an analysis of benefits and costs had been done and was that report available? He said little progress over two years when one compared DTPS report of two years ago, was DTPS happy with the progress made?

Mr C Mackenzie (DA) agreed about the lack of timelines in the presentation and asked how important the terrestrial broadband network was. How would Wireless Open Access Networks (WOAN) fit in with the NBN Company? On Sentech doing the last mile connectivity and the empowerment of small black businesses, he questioned whether DTPS was not in conflict with its aim to introduce ICT SMMEs.

Ms M Shinn (DA) said the aim of SA Connect was to make BB universally available and what was presented reflected a monopoly of broadband and a service that was unaffordable and slow. Would DTPS consider selling surplus space? Would DTPS be competing with the private sector? How would the rationalisation process be funded, via a levy? What links were there with the wireless network providers, because this would take six years to establish and would it not be better to sell BBI and Sentech to the private sector? She thought the rationalisation process would fail.

On the integration of non-ICT SOCs, Mr Nkuna replied the process had already started. He had written to the Departments of Public Enterprises and Transport to discuss their role in the rollout of SA Connect and for them to bring on board their state-owned entities. There was a focus on the rollout and it was not necessarily based on the rationalisation aspect. DTPS would be meeting with SA Connect in the following week or two.

Mr Nkuna replied that if Cabinet approved the model then there would be a due diligence done in Quarter 4 and then the legislative program with the Committee would follow. It might overlap into 2019/20. This depended on what the Committee could handle in terms of legislation. DTPS would do an amendment of the current SITA Act. He reminded Members that the aim was that no entity be worse off after the rationalisation process.

He replied the assessments had been done by DTPS. He said entities could not work outside of the remit of the PFMA and so some entities could not access synergies.

He replied DTPS was participating in ICA. There were companies that were there for a developmental mandate, and did not exist to generate monies, such as USAASA. He questioned whether these should be removed from the mandate of DTPS.

On the comment that the presentation was not new, he agreed and replied it was because the process had been interrupted by the formulation of policy for the ICT White Paper.

On infrastructure duplication, he noted that the National Development Plan (NDP) seeks to harmonise state entities as does the White Paper on ICT.

On the broadband capacity of Sentech, he replied a tender went out to seek a supplier to provide a fibre broadband network to link their radio stations. Yet this could have been provided by other state entities. Sentech was a major provider of signal distribution and could provide broadband services.

On WOAN, he replied there was no intention to create another State-Owned Enterprise. WOAN was not a government entity, it was a private sector initiative to provide for supply side challenges. It intervened when the market failed.

He replied NBN was not a monopoly and the aim was to make interventions when there were proven cases of market failure. NBN would not crowd out SMMEs. The current policy was that infrastructure must not be duplicated and what existed would be aggregated via NBN. The private sector would continue to bid for opportunities.

Funding would continue through the budgets of existing institutions.

On the suggested sale of Sentech and BBI, he replied that Sentech was a very important player and the view was that it was not advisable that it be sold to the private sector as it did 95% of signal distribution in the country. It was owed R16m by community radio stations which would be switched off if it were sold to the private sector.

Mr Shelembe acknowledged that there was a lack of timeframes in the presentation and replied DTPS was working on having the detail by the time it went to the Cabinet.

On whether the assessments were outsourced, he replied that steering and technical committees had been established and the assessments were done through them.

He acknowledged that two years had been lost but DTPS was working with vigour to implement the transition.

Mr Nkuna replied that BBI was preparing an outsourcing model. Outsourcing would cover three spheres: big companies with existing infrastructure and rollout to integrate their infrastructure; emerging medium sized companies that were beginning to rollout their own infrastructure; and companies with no infrastructure but which were looking for opportunities to roll out infrastructure. DTPS had thought initially that this could be done be done via ICASA regulations but there was a need to include PFMA regulations.

Ms Shinn asked about the funding model for SA Connect.

Mr Nkuna replied that DTPS would be buying services, so the private sector would be providing the services. The bulk of funding would be coming from the private sector. State entities would need to go to development finance institutions (DFIs) if they needed resources. DTPS had facilitated meetings with all the DFIs, the bulk however would come from the private sector.

On the DTPS reply about its loss of two years’ progress on the rationalisation project, Ms Kilian replied that DTPS had a SOE directorate and a policy directorate so each could have focussed on their own areas. She asked to what extent the new structures would circumvent the PFMA. The PFMA was an important piece of legislation which should not be side-tracked via entities being considered exempted from the PFMA.

In response to Mr Koornhof asking for a list of the radio stations owing money to Sentech, Mr Nkuna said the list would be provided to the Committee. On exemptions, he replied it should not get exemptions to the detriment of the rollout of broadband in South Africa. There were no exemptions currently being conceived and PFMA compliance was a foregone conclusion. The Quarter 4 report or the Annual Report would contain the strategy of how DTPS would be structured.

In conclusion, Ms D Tsotetsi (ANC), Acting Chairperson, highlighted the lack of timeframes in all DTPS plans. The matter had been raised on many occasions previously but DTPS never presented them, making committee oversight work difficult. She said the current presentation was a cut and paste of the 2015 presentation. She noted that the documents did not arrive on the prescribed date and there were always claims that the Minister could not be reached. She felt this undermined the Committee and she issued a caution to the Department.

Ms Killian added that DTPS would be presenting its Annual Report in October and asked if the timelines for the rationalisation process could be given then. The presentation had not shown how the process would unfold and when it would be done.

Meeting adjourned.

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