Department of Communications, South African Post Office: annual reports; Telecommunications Amendment Bill: briefing

Meeting report

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
27 January 2004
DEPARTMENT OF COMMUNICATIONS, SOUTH AFRICAN POST OFFICE: ANNUAL REPORTS; TELECOMMUNICATIONS AMENDMENT BILL: BRIEFING

Chairperson: Ms C Nkuna

Documents handed out:
Telecommunications Amendment Bill [B65A-2003]
Telecommunications Amendment Bill [B65B-2003]
Department of Communications presentation
Department of Communications Annual Report 2003 (available on DoC website shortly)
Department of Communications Appropriation Statement for year ended 31 March 2003
Presentation by South African Post Office (Part 1)
Presentation by South African Post Office (Part 2)
South African Post Office Consolidated Annual Financial Statements for year ended 31 March 2002

SUMMARY
In its briefing on the Telecommunications Amendment Bill, the Committee was pleased to hear that the Bill had set clear guidelines in order for a service provider to qualify as a public operator. The Bill enabled Sentech to acquire the status of a public operator and thus qualify for wholesale prices for Telkom's services. Telkom had opposed this amendment.

The Department of Communications outlined issues raised in its Annual Report and it was pleased with the manner in which it had utilised its budget.

The South African Post Office briefed the committee on its Annual Report. Much of the briefing focused on the turnaround that SAPO had achieved from its huge losses in the past to its achieving a profit in the near future.

MINUTES
Telecommunications Amendment Bill: briefing
Mr P Pongwana Acting Director General (DG) for the department briefed the committee. He explained that the need for the Bill arose as a result of concerns raised by Sentech and Telkom. Even though Sentech was providing telecommunications services to the public, it lacked the infrastructure to do so. It therefore used the infrastructure of Telkom to provide its services. Telkom in turn charged Sentech for the use of its infrastructure. Problems arose with the rates at which Telkom was charging Sentech. Telkom believed that they were entitled to charge Sentech retail rates whereas Sentech believed that they were entitled to be charged wholesale rates.

The issue was whether Sentech, as a service provider, was regarded as a public operator. In the event that Sentech indeed had the status of a public operator they would be entitled to wholesale rates for Telkom services. Telkom initially called for the inclusion of a definition of a public operator in the Telecommunications Act of 1996. The department however felt that the inclusion of a definition of a public operator in the main Act would have far reaching consequences. Hence the introduction of the current Bill. The Bill does in fact give Sentech the status of a public operator and as a consequence they are entitled to be charged wholesale rates by Telkom. The Bill sets guidelines for existing and new operators.

Discussion
Mr T Setona (ANC, Free State) asked why Sentech had not originally been regarded as a public operator. He also asked what degree of interaction had there been from stakeholders in the process of consultation.

Mr Pongwana replied that the Telecommunications Act had not set guidelines as to what were the requirements in order to be regarded as a public operator. This Bill however sets clear guidelines. Mr Pongwana noted that a great deal of contestation had taken place between Telkom and Sentech during consultation.

Ms S Botha (DA, Free State) asked if the Bill covers the concerns of Telkom.

Mr Pongwana replied that public operator licences were granted on a technology basis. He noted that this would be regarded as the basis for determining whether a service provider was a public operator.

Mr Setona asked how the Bill would contribute to economic growth in SA.

Mr Pongwana pointed out that it was difficult to say how the Bill would directly impact on economic growth. He did make the point that telecommunications contributed to 4% of the Gross Domestic Product in SA.

Department of Communications Annual Report
The presentation team comprised of Mr Pongwana, Mr H Matabathe, the Chief Financial Officer and Ms Z Nene, the Senior Manager of Corporate Governance.

Mr Pongwana emphasised the mission of the department in providing access to information and communication and its aim was to make SA a knowledge-based society. The following was highlighted:
Telecommunications
- The listing of Telkom shares had started in 2001 and had been completed in 2003 and the share price had tripled since its initial listing.
- There had been significant growth in the number of cellphone users (14 million subscribers). The growth in land line users had not been as much.

Postal
- The South African Post Office (SAPO) had made great strides in restructuring itself.
- A Postal Regulator had been set up and that a chairperson had been appointed.
- SAPO was in the process of upgrading its products and services.
- The Post Bank was being repositioned to make it the bank of choice for lower income groups.

Multimedia
- The Broadcasting Amendment Act was being promulgated. The Act provides for the conversion of the SABC to a Public Company. It also gives the SABC a clear mandate as a public broadcaster.
- It was emphasized that the Act would encourage greater accountability of the SABC Board to the public.
- The face of broadcasting in SA was also to change as more local content programmes would be broadcast.
- Change from analogue broadcasting processes to digital processes was also in the pipeline.

· A Shareholders Management Unit had been set up to deal with issues of the corporate governance of the above units.
· The Department was constantly engaged in discussions with the International Telecommunications Union on issues relating to telecommunications in Africa.
· Internship programmes for previously disadvantaged groups had been set up with the help of tertiary institutions and private sector players in various units of the Department.
· The Connecting SA Programme via the use of cellphones was mentioned due to the great increase in mobile subscribers.
· The encouragement of a culture of saving in SA was important especially with the re-introduction of the Post Bank.
· An audit committee had been set up to oversee the spending of the Department.

Mr Matabathe gave a brief overview of the finances of the department. The department had spent R884m which was 99.65% of its allocated budget. He was pleased with the expenditure as it reflected positively on the performance of the department. He presented the committee with facts and figures on the department's income statement and balance sheet. It was emphasized that the Department had spent only 30% of its total budget on personnel whereas the norm would usually be between 50-70 percent. He reiterated that an audit committee kept a watchful eye on the expenditure of the department.

Discussion
Mr B Tolo (ANC, Mpumalanga) remarked that many departments tend to spend most of their budget when the end of the financial year was near. This was to prevent the budgets from being cut for the next financial year. He asked whether this was the case with the department.

He also asked what was being done to alleviate the congestion at post offices when social grants were paid.
He noted that there had been delays in the posting of ID documents to persons who wanted to vote in the upcoming elections. He further asked how the advent of so many courier companies had affected the business of SAPO.

Mr Pongwana replied that the financial statements do reflect the time periods when monies were spent. He emphasized that there was a tight check on expenditure. Efforts were being made to convert the payment of social grants to electronic format.

Mr T Xiphu (SAPO) added that a pilot project had been initiated in the North West Province for the payment of social grants by electronic means. He said that delays in the posting of IDs were caused by the disjointed way in which things were done. SAPO often received IDs from the Department of Home Affairs without any addresses attached to them. He pointed out that SAPO's courier service competes well with its counterparts. He remarked that Post Net, a private courier, used the SAPO to courier their packages.

Ms Botha asked why members of the audit committee had resigned. She also remarked that many post offices had wasted space that could be put to better use and she suggested the possibility of internet cafes.

Mr Matabathe explained that members of the audit committee had resigned for the usual reasons such as other career opportunities.

Mr Pongwana said that internet terminals at post offices were being considered by the Department. He pointed out that the only snag was that it was expensive at R90 000 per box. Nevertheless he felt it to be an option worth considering. The Department had engaged the Government Communication and Information System to look into the matter.

The Chair asked how accessible the Department's internship programme was to rural areas. She also asked whether the department's personnel organogram was filled.

Mr Pongwana explained that internships were made accessible via partnerships with institutions such as universities. He said that funding was not always available to fill all personnel posts. The Department was being restructured and that working partnerships with Telkom and the SAPO had been of great assistance.

The Chair asked SAPO to keep the briefing short due to time constraints.

South African Post Office (SAPO)
The delegation comprised of Mr T Xiphu, Head of Corporate Services, Mr S Nkese, Head of Human Resources and Mr N Buick, the Chief Financial Officer.

Mr Xipho noted that the core business of SAPO was still mail even though there had been a sharp decline due to alternatives such as e-mail. SAPO realised the need to reposition itself in an ever-changing environment. The focus was thus on repositioning mail, parcel and courier services.

Mr Buick provided the committee with a breakdown of the SAPO's historical legacy. In the past SAPO was state subsidised and continually made a loss. The organisation lacked business and financial discipline. Furthermore the organization clearly did not reflect the race demographics of the country.

SAPO had accumulated losses amounting to R1.6 billion. This comprised of losses made on the Post Bank loan, medical aid deficit and the pension fund deficit. The Committee was assured that processes were in place to bring SAPO back on track. This was evident considering that operating losses in March 2001 had been R577.4m whereas it was foreseen that by March 2004 a profit of R1.8m would be made.

Some of the cost-cutting measures include the cancellation of contracts that were not generating enough income. A reskilling of employees was also accomplished whilst at the same time implementing BEE and Employment Equity.

Mr Xiphu concluded by stating that the face of the SAPO was changing as could be seen from the introduction of new products, services and facilities.

Discussion
Ms N Ntwanambi (ANC, Western Cape) asked if the employee training had led to the appointment of women managers. She asked for figures on the breakdown of staff in the Western Cape.

Mr Nkese replied that there had been a significant increase in the appointment of women at executive level. The figures for the Western Cape were not available with him but he did concede that there had not been drastic changes in the staff complement in the Western Cape.

Mr Tolo asked why there was a decrease in the number of coloured employees. He also asked who were the persons retiring and why they were accepting voluntary retrenchment packages.

Mr Nkese answered that in the past there had been a deliberate attempt to retain Afrikaans-speaking persons in certain areas such as Kimberley and Bloemfontein. Given the fact that change was taking place there had been a minor decline in the number of coloured employees.

Mr Nkese pointed out that people leave their jobs for various reasons. Most of those leaving were above the age of 55 years. He did emphasise that management still had the final say as to whether an employee would be entitled to a retrenchment package.

Mr Setona asked what Post Retirement Medical Aid was.

Mr Nkese explained that in the past when individuals retired they would continue to receive free medical aid. This was no longer the case.

Mr Setona asked what other parastatals had to contend with the problems associated with Post Retirement Medical Aid.

Mr Nkese said that Transnet, Telkom and the SABC had to contend with similar problems.

Ms Ntwanambi asked what was being done about the illegal dumping of mail.

Mr Xiphu answered that dumping of mail was taking place in isolated instances and that it was being addressed.

The meeting was adjourned.