SA Connect progress; USAASA 2018/19 Annual Performance Plan

Telecommunications and Postal Services

22 May 2018
Chairperson: Mr J Mahlangu (ANC)
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Meeting Summary

The Department of Telecommunications and Postal Services (DTPS) updated Members on the progress made on SA Connect, and confirmed that it was working together with state-owned entities, Broadband Infraco (BBI) and the State Information Technology Agency (SITA) to rollout SA Connect. The Committee was informed of the scope of Phase 1 and Phase 2 of the project. The DTPS gave a summary of the number of sites connected under Phase 1 and the targets it had for this financial year. Phase 2 was yet to commence, since Treasury had requested a feasibility study, which was currently being undertaken.

Members heard that Treasury budget cuts had affected the SA Connect targets, and that it would not be able to deliver on some of the initiatives planned. Another challenge it had had to deal with had involved the procurement, since none of the bidders had met the minimum requirements .A decision had therefore been made that the DTPS would use government entities which would in turn collaborate with entities in the private sector.

The Committee was concerned that the budget figures for SA Connect did not add up, and that the DTPS was not providing a clear picture of how the medium term expenditure framework (MTEF) transfer of R557.8 million allocated for SA Connect would be spent. The Committee also wanted to know why BBI, which was the lead agency for SA Connect, was not present during the meeting. Concern was expressed that network connectivity at some of the schools was very slow, The DTPS responded that the reason for the networks being slow in the schools was because the speed prescribed under the Universal Service and Access Obligation (UASO) was 1Mb/s. The Deputy Minister, however, assured Members that the speed limits would be changed during the next spectrum allocation.

There was a general feeling by the members of the Committee that it had not received much information on SA Connect, despite it being an important project for government. The Chairperson raised his concern that the DTPS had not addressed the issue seriously, and agreed that it was unfortunate that South Africa was currently lagging behind in terms of the international rankings. The Committee was of the opinion that it should have been given more information on what other leading countries were doing when it came to investment in connectivity projects.

The annual performance plans for the Universal Service and Access Agency of South Africa (USAASA) and the Universal Service and Access Fund (USAF) were presented to the Committee. One of the targets for USAASA had been the development of a costed transition plan from USAASA/USAF to the Digital Development Fund (DDF) by the target date, which had been achieved. For the implementation of the digital migration programme, 22 282 set top boxes (STBs) and antennae were to be procured. USAF also advised that it was developing a service delivery model to ensure that all the STBs sitting in the warehouses of the South African Post Office (SAPO) were installed. USAASA gave the Committee its assurance that the procurement process would ensure that blacklisted manufacturers were not considered.

Meeting report

Mr Tinyiko Ngobeni, Deputy Director General: Department of Telecommunications and Postal Services (DTPS) said the four strategic pillars of SA Connect were digital readiness, digital development, digital future and digital opportunity.

On digital readiness, the DTPS was pursuing key policy and regulatory issues to enable broadband infrastructure rollout and adoption of data services. The policy defined the targets to be met by certain days, with the intention of getting 100% connectivity and affordability. It had specifically targeted the allocation of spectrum to address broadband coverage and capacity, the rapid deployment of information communication technology (ICT) infrastructure and a reduction in the cost to communicate. In reducing the cost of communication, the regulator – the Independent Communications Authority of South Africa (ICASA) -- was working together with the Competition Commission. On 26 April 2018, ICASA had released the final regulations on the end-user and subscriber charter.

Broadband connectivity targeted government, businesses and individual users. The implementation of broadband connectivity would be achieved through a two phased approach. Phase 1 involved connecting schools, clinics, post offices, police stations and other government facilities and included expanding broadband infrastructure to provide universal access by connecting 6 135 government facilities in eight prioritised districts. Phase 2 focused on providing broadband connection services in the remaining 44 districts to schools, health facilities and a number of other government facilities within these identified districts.

In implementing this model, the Department was working together with state-owned entities (SOEs). In May 2017, Broadband Infraco (BBI) and the State Information Technology Agency (SITA) had been jointly mandated to implement Phase I of the project. In August 2017, the tripartite Master Services Agreement (MSA) contract was signed by the DTPS, BBI and SITA, which commenced the rollout of SA Connect.

Mr Ngobeni took members through the challenges faced by SA Connect Phase I, one of them being the procurement challenge. None of the bidders had met the minimum requirements, so a decision had been made that the DTPS should use government entities, which would in turn collaborate with entities in the private sector

Another challenge was funding, In December 2017, National Treasury had informed the DTPS of budget cuts -- by 33.8 % in 2017/18, by 98.7% in 2018/2019, by 75.9% in 2019/2020 and by 75.9% in 2020/20121.The Budget cuts had in effect reduced the number of facilities that could be connected. He gave an example of what was planned for Dr K Kaunda District, where the plan had been to connect 311 facilities, but because of the budget cuts the number had been reduced to 43. Despite the cuts the DTPS had continued implementing the programmes.

Regarding implementation progress, the target for the year was to connect 570 SA government facilities, and the following had been achieved so far:

  • A detailed physical site surveys of the government facilities to be connected had been completed;
  • BBI had concluded a tender process to expand its core network;
  • BBI had also concluded a tender process for access network connectivity to provide last mile services in eight district municipalities;
  • SITA had renegotiated its contract with its service provider to upgrade the capacity of existing services that formed part of SA Connect, to 10Mbps;
  • The DTPS had established district task teams in all eight district municipalities to facilitate SA Connect implementation at the district level.

The progress status on SA Connect phase 2 was that Treasury recommended that the DTPS do an extensive feasibility study to assist in sorting out the issue of funding. The DTPS had engaged a development bank to assist with the feasibility study and to develop a bankable business case.

The DTPS, as the central coordinating body for the rollout of SA Connect, had developed an agreed coordination framework across all spheres of government, comprised of provincial steering committees and district task teams. Most provinces had provincial broadband plans, but the funding was still an issue. Some of the provinces had started implementation, such as Gauteng, which had a target of 3 000 and had so far connected 1 066 sites. Another example was the Western Cape broadband project, where a total of 1 908 facilities had been connected to 10 Mb/s broadband services under Phase 1, Phase 2 had commenced in October 2017 and 500 facilities had been upgraded to 100 Mb/s.

Mr Ngobeni informed Members that the Universal Service and Access Obligation (USAO) rollout formed part of the licence obligations for MTN, Vodacom and Cell C, and that the target was 5 250 schools in five years, with a yearly target of 1 050. Since commencement, 4 366 schools had so far been connected. The DTPS was engaging with the operators, and connectivity was not about connectivity alone -- it included a trolley that contained 25 laptops and one projector which followed the teacher to the different classrooms. Once connectivity was concluded, the Department of Basic Education (DBE) was supposed to take ownership of the devices. In line with e-rate regulations, 50% of the connectivity charges were supposed to be supported by Universal Service and Access Agency of South Africa (USAASA) through the Universal Service and Access Fund (USAF), but the model had not worked. The DTPS and DBE were engaging with ICASA to review the payment model, as stipulated in the obligation.

The digital opportunity programme dealt with the issue of skills. SA was lagging behind other countries in terms of ranking, and though the infrastructure was in place, the issue was usage and skills. The DTPS was working on programmes such as e-government with SITA, the National Electronic Media Institute of SA (NEMISA). It was also working with the CoLabs, and there had been a lot of e-skills training. However, there was a need to expand the training to the communities, which would require additional funding.

Discussion

Ms M Shinn (DA) wanted to know why BBI was not represented at the meeting, given that they were the lead agency for SA Connect, and why the presentation had left out the work done by USAASA. She also sought clarification on the budget for SA Connect .She was of the opinion that the figures did not add up. From the figures and the documents presented, the DTPS had not presented a clear picture of where the money was coming from, which entity was receiving how much, and what the money was going to do. From the DTPS’s medium term expenditure framework (MTEF) transfer of

R557.6 million directed to SA Connect, BBI would expect revenue of R88.3 million from SA Connect, while USAASA also required funding of R106.3 million. It was not clear, however, whether the funds would be received from the R557.6 million assigned to SA Connect. She also sought clarification on whether the sites installed by provinces and metros were included in the budget for SA Connect.

Ms D Tsotetsi (ANC) referred to the aspect of infrastructure, and wanted the DTPS to clarify how deployment of ICT infrastructure enhanced competition. She asked whether the public had been made aware that certain targets would not be realised because of the ongoing Treasury cuts .What would the duration of the Phase 2 feasibility study be? Were the figures being given on the number of sites connected incremental, or were there new figures for each financial year? She referred to the figures given on provincial-led initiatives, where the number of access connected sites as at March 2017 was 1 000, and asked whether the number included the 592 access sites connected at the end of March 2016.

Mr C Mackenzie (DA) asked why Telkom was not included under the USAO programme. He also expressed concern that the network in some of the schools was very slow. Only after an oversight visit had been carried out at some schools, and a request made to Vodacom, was the network improved .He wanted to know whether there was any source of monitoring and a full report on the schools.

Ms N Ndongeni (ANC) asked whether the numbers given in Phase I included those sites connected by USAASA, or if the sites were new ones connected by SITA and BBI. She also wanted an update on the progress that had been made since May 2017, when BBI and SITA had been jointly mandated by the DTPS.

The Chairperson commented on the international rankings which compared SA to other countries in the region. In view of the “ Fourth Revolution” which had already taken off, he asked where the country stood, given the under-connectivity experienced in South Africa, and what it could do to catch up.

DTPS’s response

Mr Ngobeni responded that the DTPS had expected BBI to be present at the meeting, but there had to be an explanation as to why BBI was not represented.

On what USAASA had done, he referred Members to page 32 of the presentation, which indicated the sites targeted by USAASA and those which had so far been completed. For the year 2017/18, USAASA had set a target of 609 and had managed to complete 210.

On the budget allocation, he said that the money that came from the DTPS was used to pay for the services, and since the infrastructure would not be used by government facilities alone, an entity like the BBI was expected to generate revenue from other businesses which it would connect. He gave the example of the 999 fibre, which was not solely for SA Connect, which was expected to provide connectivity to other entities too. He confirmed that the USAASA budget was coming from USAF, and not SA Connect. He added that SA Connect did not look only at activities covered by the DTPS, but went further to provide broadband connectivity nationally and also had initiatives at national and provincial levels.

The government did not make direct financial contributions to the projects, but provided direct financial incentives by paying for the services. He confirmed that the numbers presented did not include numbers on the initiatives done at the municipal and provincial levels, since the DTPS had no control over the budgets at the municipal and provincial levels. Similarly with the 3G and 4G connectivity, the numbers were not included. The DTPS reported on that only since it was the government’s responsibility to bring the infrastructure closer, which was crucial to making the services cheaper.

On how infrastructure enhanced competition, he answered that the DTPS was looking at competition and at small and medium enterprises (SMEs), since delays affected the SMEs more and DTPS believed that by making the rules easier, it would reduce the barriers to entry for the SMEs.

He added that DTPS would do more when it came to communicating with the public so that it was aware of the targets that would not be realized because of the budget cuts.

On the duration of the feasibility study, he said that the DTPS had met with Treasury and that it would finalise the scoping by the end of the financial year so that it could use it to target funding for the next financial year.

In response to the question from Ms Ndongeni on the scope of Phase 1 and whether the numbers given included USAASA numbers, he confirmed that they did include USAASA numbers. He gave the example of the OR Tambo district, which had 1 444 facilities and which formed the focus for USAASA in the past year. He added that the USAASA model had provided connectivity for two years, and this helped some of the facilities such as schools, to get used to the connection. Through the USAASA projects, the DTPS had also got an opportunity to address some of the teething problems before dealing with the issue of sustainability, which would involve integrating into the SA Connect model.

On the international benchmark, he responded that the reason South Africa had moved backwards could be attributed to usage and skills. Countries like the Seychelles focused on skills, whereas the traditionally focus had been on infrastructure. He advised that SA should focus on content and connectivity, which were both important. SA was lagging behind in terms of connectivity since the 3G network was still at 99%, whereas the 4G network was at 77 %. The country had the coverage, but there was still need to increase the speed, and in addressing the speed the spectrum issue would assist.

The country was moving to the 5G network, where the connectivity requirements were huge. The infrastructure required tower stations to be close to one another and the country would have to work towards improving its infrastructure.

He agreed with the Chairperson regarding jobs, and said that there were no borders since Africa was a single digital market. The type of skills currently required for jobs were different and would have to be usable within the country and beyond. He added that the training iIn the CoLabs under NEMISA was not just about consumers, but also looked at jobs and business opportunities.

Ms Miriam Paul, Chief Director: ICT Infrastructure, DTPS, advised that the reason Telkom was not part of the UASO obligation was because Telkom was on review by ICASA, and that currently its obligation was on public phones. There was an ongoing discussion to include Telkom, and that once it was included, its target area would be primary health institutions.

Regarding the low speed in some schools, she advised that the speed specified under UASO obligation was 1Mbs, and operators had looked at the coverage and provided the 1Mbs as specified. However, if one engaged the operators and requested the speed to be increased, the operators usually increased it.

Mr Ngobeni responded to the question on what SITA and BBI had achieved so far since May 2017, and confirmed that since the signing of the Minimum Service Agreement (MSA), implementation had begun and connectivity was progressing.

Ms Shinn commented that she had not received a response on how the R557.6 million would be distributed. From the figures given, she was not able to tell how many sites had been targeted, how many had been installed by whom, whether the sites were working and what the funding plan was.

The Chairperson asked the DTPS to expound on the presentation on the SA Connect Phase 2 progress status.

Mr Ngobeni responded that the chart on page 24 of the presentation showed the government facilities that would be part of phase 2, and in order to connect those facilities, funding would be required. The budget for infrastructure was too huge. Government would pay only for the services. Based on the confirmation that government would consume the services, BBI had been required to go out and raise the funds.

Ms J Kilian (ANC) said that the Committee had not received further information, and that it would have to follow up further. She stressed that this was a most important project for government, and that there was a need to develop a sustainable programme that would carry out SA connect.

Mr Mackenzie asked whether it was possible to have a report on the number of sites connected and whether those sites were working.

The Chairperson remarked that SA was lagging behind, and the DTPS had not addressed the issue seriously. He warned that SA would be embarrassed, and gave the example of the metered taxis which still want to fight the evolution of their industry. He would have been interested to know what the leading countries did -- whether they had allowed the private sector to take the lead and whether the DTPS would be expecting the private sector to invest in infrastructure. He was not happy that Treasury had taken money from such an important project. The DTPS should have fought Treasury on the cuts and tried to impress on them the impact of the cuts. He added that globalisation did not wait, and that jobs would easily be taken by persons based in China. SA was failing to adapt in this important area. He also cited the .zna domain name which should work harder to ensure that South Africans were hosted by them. He added that the DTPS could influence ICASA to review their speed limit of 10mb/s in the schools.

Ms Stella Ndabeni-Abrahams, Deputy Minister: DTPS, responded that the speed limits would be changed for the next spectrum allocation.

The Chairperson informed Members that he had received a letter from the chair person of USAASA on the suspension of its CEO, but he had not received a similar letter from NEMISA. The letter from USAASA had not given reasons for the suspension.

USAASA: Annual Performance Plan 2018/2019

Mr Sipho Mngqibisa, Acting CEO: USAASA informed the Committee that USAASA had two programmes – a business support programme and a business Intelligence programme.

He took Members through the performance indicators of the business support programme .One of the indicators would be the percentage of risks mitigated, where USAASA had set a quarterly target of 75% for the year. The second indicator was the utilisation of the functioning SAP Enterprise Resource Planning (ERP) module, which was a new performance indicator whose target had been set at 100%.

The first performance indicator for the business intelligence programme was the number of impact assessments conducted, where the medium target had been set at 1.The second performance indicator was the development of a costed transition plan from USAASA/USAF to the Digital Development Fund (DDF) by the target date. He confirmed that the target had been reached and that the transition plan had been completed and costed. The need to conduct impact studies was also one which would assist smooth transition from USAASA/USAF to the DDF.

On USAF, he said that on the number of existing sites maintained with internet activity, USAF had targeted 680 sites for the year 2018/2019, and also had a plan to roll out 275 new sites with internet activity in the year 2018/2019.

On digital migration, USAF had set a target of procuring 22 282 set up boxes (STBs) and had also put up a new strategic objective which was aimed at ensuring that all the projects were completed within the time frames set out.

USAF had set up quarterly targets for 2018/2019. One area it had focused on was the community and institutional broadband access, and the performance indicator under that area was the number of newly identified under-serviced areas. Two under-serviced areas had been identified. These were the Ngquza Hill and Port St Johns local municipalities in OR Tambo District municipality. The 2018/2019 annual target for the number of existing sites with internet connectivity which would be maintained, was 676 sites with contracts of 24 months. These 676 sites comprised 564 schools, 111 clinics and one public office. USAF had also targeted 275 new sites with internet connectivity to be maintained in Impendle and Nyandeni local municipalities.

On the Implementation of the digital migration programme, 22 282 STBs and antennae were to be procured. USAF had planned to have the set top boxes and antennae distributed and in doing this, it had set up a quarterly target of 100 %.

He pointed out that due to the slow progress in rolling out the projects, as well as issues of accountability, it was necessary for USAF to amend its goals and introduce improved accountability as one of the strategic objectives. This would be achieved through the efficient and effective management of infrastructure projects.

Discussion

Mr Mackenzie asked for clarification on the risk management mitigation target of 75 %. He wanted an explanation for the remaining 25% which would not be mitigated.

Ms Shinn sought clarification on the estimated performance for the year 2017/2018. She wanted to know why the target for new sites with internet connectivity was 609, whereas the target for existing sites maintained with internet connectivity was 680. She asked where the funding for USAASA would come from, and whether it received any money from the DTPS. On set top boxes .she sought clarification on whether the production process that was corrupt, was continuing, since a portion of the money for the STBs had been paid for by Treasury.

Ms Tsotetsi wanted to know why Treasury was carrying out the budget cuts. She also wanted to know what confidence USAF had that it would implement all its plans, given the unpredictable nature of the budget cuts.

Ms Ndongeni asked when the projects were going to be finished since from the report given, USAF was the very far from achieving the targets set.

USAASA’s response

Mr Linda Nene, Board member: USAASA, responded that the target of 75% was on the risk management plan. The target dealt with the plan for the risk management process and included activities such as risk education and risk awareness. These were activities which were being monitored, and the target was not set to deal with the management of risk.

Mr Mngqibisa responded to Ms Shinn’s question on the divergence of the sites being maintained, and said that as per the advice of the Auditor General, the number of existing sites were accounted for differently, and the 680 sites was the total number of sites to be maintained with internet connectivity

The Chairperson agreed with Ms Shinn that the sequence of numbers was not adding up and that it may generate an audit query. He said that previously the figures had not been accumulated, but when it came to the year 2017/2018, the numbers were being accumulated. He advised that USAASA should look at the figures to ensure they were in line.

Mr Nene confirmed that USAF had requested money to maintain 680 sites for 24 months. The numbers changed, depending on the budget, and the number of 680 as sites being maintained had been put in the annual performance plan (APP) because that was what had been funded. He added that USAASA was confident the figures would not generate an audit query.

Mr Mackenzie wanted to know why there had been a steep rise in board costs of approximately half a million rand.

Mr Mohamed Chowan, Chief Financial Officer (CFO): USAASA, responded that a comparison could not be made between the two years because in the previous year the board had been incapacitated, and three directors had joined it in December 2016. On whether Treasury had given reasons for the budget cuts, he responded that USAASA had received only a notification from DTPS, but no reasons had been given.

Ms Tsotetsi asked what the motivation for the budget cuts had been, and whether it it had been possible for the DTPS to intervene to stop the budget cuts.

The Chairperson commented that Treasury was not aware of the issues that were crucial unless one put up a fight. He impressed on the board the need to be assertive and to impress upon Treasury that targets needed to be met.

Mr Mngqibisa responded on the set top boxes, and said that through the assistance of the DTPS, USAF was developing a service delivery model to ensure that all the STBs sitting in the warehouses of SAPO were installed. USAF was waiting for the new Director General of SAPO to be briefed, but that it had a plan to have all the STBs sitting in the warehouses cleared. He added that the Board had petitioned the High Court to set aside the panel of 27 manufacturers previously appointed, USAF was again going back to court to request that all the current service providers that provided USAF with the STBs be allowed to conclude their contracts so that it could finalise and start the new procurement process. It would involve the Competition Commission in the procurement process, and it would make sure not to include the implicated manufacturers.

Ms Shinn wanted to know why permission had to be sought from the Competition Commission. She also sought clarification on whether the new procurement process was to procure the 3 500 boxes, She asked for confirmation on whether the court process had to be concluded before the procurement process could commence.

Ms Tsotetsi commented that there was a possibility that the blacklisted companies would reapply, using different names.

Mr Chowan responded that USAASA would scrutinise the companies to ensure there were no cross directorships. The board would apply its mind to ensure that the blacklisted companies did not come back.

Mr Mngqibisa said that the competition authorities had advised that the Department of Trade and Industry (DTI) could assist in tracking when the bids were out, which was the reason that USAF was involving the Competition Commission. The Director of Communication would relay the information on when the procurement was to commence.

The Chairperson then directed members to the issue of the advertisement of the Ikamva National e-Skills Institute (iNeSI) Bill.

Mr Justice Molafo, the Committee’s media officer, said he had prepared a communication plan and that he had already received calls for interviews. Eight SABC radio stations would be used for the advertisement, but there was a supply chain process which had to be followed first.

The Committee’s Secretary also confirmed that a list of newspapers was ready, and that she would forward it to all Members.

The meeting was adjourned.

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