The Select Committee convened in a virtual meeting to receive a briefing from Sentech on the financial impact caused by community radio and television stations’ inability to pay for services provided. The Acting Chief Executive Officer provided the presentation on behalf of Sentech. The Deputy Minister of Communications and Digital Technologies was present.
The Deputy Minister began by providing an overview of the debt owed by community broadcasters, and highlighted the importance of government support to Sentech to allow the entity to continue providing its services. He also highlighted and applauded the clean audit record of Sentech, which was at risk due the debts of community broadcasters. He emphasised the unsustainability of the continued debt and the need for long-term solutions, supported by government in order to ensure continued supply of signal distribution by the entity.
Members expressed concern about the effect of the debt on Sentech’s operations and sustainability. They also inquired into the plans Sentech was planning to implement to address their financial difficulties. A Member said that there needed to be a stronger focus on partnerships between the entity and other parties to strengthen their operations. Another Member asked about the plans of the merger between Sentech and Broadband Infraco (BBI) and how it would assist Sentech in fulfilling its public mandate. The Chairperson applauded the entity’s eight-year clean audit record.
Sentech said that the merger between Sentech and BBI would strengthen its ability to deliver on its mandate because strategically, the two complement each other in terms of capabilities. Sentech reiterated the Deputy Minister’s suggestion that they engage government, particularly National Treasury, the Department and other stakeholders in reducing the cost borne by Sentech in providing services and support in reducing costs borne by community broadcasters. Sentech acknowledged that they were doing some work but could do more in terms of partnerships in implementing their sustainability model. The Department explained the reasons for funds being reallocated, including the effect covid-19 had on the allocation of budget. It assured the Committee that it was working towards meeting its goals in respective of countrywide network deployment and ensuring national connectivity to Information and Communications Technology services. It was also working to ensure that the merger between Sentech and Broadband Infraco is overseen by a joint oversight committee so that both entities can sustainably complement each other.
The Chairperson requested that Sentech come back in future for further report on the progress of the merger and provide the Committee with a province-specific report.
The Chairperson opened the virtual meeting, welcoming the Members of the Committee, the Deputy Minister, the delegations from Sentech as well as the Department of Communications and Digital Technologies (DCDT).
Deputy Minister’s Overview
Mr Philly Mapulane, Deputy Minister of the DCDT, greeted the Committee and thanked the Chairperson for inviting the Department to present on the financial impact experienced by Sentech as a result of a debt that has been accumulating from community broadcasters. He said that the Minister would be absent from the meeting, as she was part of the delegation accompanying the President on a visit abroad.
The Deputy Minister began his overview of the briefing by giving a history of Sentech’s debt. There had been about two bailouts given to community broadcasters, which had been accumulated by Sentech for signal distribution. In 2016, the then Department of Communications provided about R12 million for a bailout. In 2013, another bailout of R23 million was also paid out by the then Department. The total amount owed by community broadcasters to Sentech stands at R76 million: R73 million is owed by community radio, and R3 million by community TV.
Looking at the history of this debt, it was quite clear that community broadcasting would not survive without the support of government. They require a comprehensive support programme from the state, which used to be provided by the then Department of Communications. In 2014, the Department was separated into the Department of Communications, and the Department of Telecommunications and Postal Services. After that separation, this support was then transferred to an agency of government, which was, at that point, part of the Department of Communications – the Media Development and Diversity Agency (MDDA). The MDDA is no longer in the Department; it is housed in the Presidency in Government Communication and Information System (GCIS).
He said that the continued inability of the community broadcasters to pay Sentech for the signal transmission continued to remain a risk to Sentech’s financial position and going-concern status. Sentech had been receiving clean audits for the past eight years. Therefore, this matter threatened Sentech’s that clean audits. The outstanding debt owed to Sentech now constitutes about 40% of the total debt owed to Sentech, which is about R179 million. In terms of section 51(b) of the Public Finance Management Act (PFMA), an entity is enjoined to collect all the revenue due to it and failure to do that may trigger an audit query. Given Sentech’s small revenue base, the debt was putting the entity’s finances under extreme pressure, which had already reached intolerable levels. This would affect the going-concern status of the company. Therefore, Sentech’s presentation was proposing various alternatives of treating this debt.
He said that Sentech’s continued debt was unsustainable. Sentech does not have a big revenue base. When it accumulates a debt such as the current one, it becomes a problem in terms of going-concern status of the company. Going forward, he said solutions needed to be found so that community broadcasting can be supported by state resources. Unfortunately, the MDDA was no longer their portfolio so there might be a need for a conversation with the Presidency on how they can increase the resources to support community broadcasting.
Ms Nonkqubela Jordan-Dyani, Acting Director-General, DCDT, introduced herself. She indicated that she did not see Sentech members on the virtual platform to provide the presentation.
The meeting was adjourned for five minutes to allow the team from Sentech to join.
The Deputy Minister apologised and indicated that there was miscommunication on the side of Sentech. In Sentech, there is currently no board as the board’s term of office had come to an end, and the CEO is accompanying the Minister on the President’s trip. Sentech also thought the meeting was at 15:00.
Sentech’s Acting CEO joined the platform after the short adjournment to provide the presentation.
Mr Tebogo Leshope, Sentech’s Acting CEO, presented on behalf of Sentech.
Sentech Business Overview (slide two)
- Sentech is the largest satellite teleport based in Honeydew
- Over 300 transmitter sites across the country
- Data Centre in Nasrec in Gauteng
- Fibre ring interconnecting the data centre and the head office. In the process of rolling out the fibre ring to other sites.
- Provide and manage networks 24/7 with 15 operation centres across the country
Sentech Business Model (slide 3)
- Key areas of focus are content and multimedia services including radio, TV and broadband
- Consultancy services is a new area under content and multimedia
- Infrastructure is shared with other providers to liberate and harness the capability of Sentech such as facility leasing and third party facility management
- ICT services include Wireless Broadband Connectivity and Datacentre Solutions
Sentech National Network (slide 4)
- The map indicates Sentech’s reach across the country and their capabilities.
Community Media Funding (slide 5)
- The Community Radio Broadcasters (CRBs) compromise approximately 40% of the debtors at year end which his material in relation to the total debt of R179 million
- The tariffs for community broadcasters are discounted significantly compared to other public broadcasters
- From time to time, the MDDA would subsidise the CRB.
- The slide indicates the amounts of the subsidies by the Department and by the MDDA on an ongoing basis.
- Overall, community broadcasting has not been meeting their financial obligations as expected in accordance with tariffs.
Community Media Debt Analysis (slide 6)
- Debt of community media as at 31 October 2021 stands at a grand total of R75,662,641.09
Present Operating Model (slide 7)
- Exploring ways to support community broadcasting going forward
- Feedback from community broadcasters was to lower the operating cost of services as much as possible.
- Setup costs should be separated from the recurring monthly costs. Currently the tariff of the community broadcasters is made up of establishment costs (initial capital expenditure) plus recurring monthly costs. Sentech believes one they separate and lower the recurring costs the community broadcasters will be able to afford the recommended costs.
- Support and maintenance costs be lowered
Proposed Future Operating Model (slide 8)
- Partnership model where there are voluntary partners of interest including:
- Set up cost- Co-funding between the interested parties such as the MDDA, ICASA and DCDT
- Support and maintenance costs- time and material based with 3 options suggested
- 3rd party leasing being the responsibility of the community which would reduce tariffs for community broadcasters
Migration of Old Customers (slide 9)
- Migration of current customers to new model wherein the migration process means that some of the assets that still have life and financial value will be transferred to the community broadcasters with that value. Operations, responsibility and management of the service will remain with Sentech. Billing of services will be passed through the community broadcasters.
- Thereafter, the community broadcasters will then take ownership in terms of the assets and replacements thereof.
- Telecommunications assets usually have a good lifespan.
Recommended Sustainable Model (slides 10-11)
- Sentech recommends:
- that community radio stations be migrated from the current model to the new model, to lower the month-to-moth tariff
- the Authority to consider giving more scope to community broadcasters, relaxing rule relating to advertising CRBs and bringing a balance between sustainability and the funding model
- CRBs in most countries funded through:
- government grants, members and public donations, advertising and collection of household licence fees
Summary by the Deputy Minister
The impact of the rising debt was huge for the entity. About 40% of the overall debt, which is carried by community broadcasting, is large and there was the risk that the Auditor-General may raise a query relating to this because the PFMA instructs the entity the recover the debt of the revenue that is owed to the entity. It is important to have a conversation with the Presidency to come up with a final solution to this issue. In 2016 and 2018, there were bailouts and if a bail out does not come, the risk falls onto the entity.
Ms L Bebee (ANC, KZN) asked if community radio broadcasters constitute about 40% of the money owed to the entity. Considering the SABC also has debt owed to Sentech, how did all this debt affect Sentech’s operations and sustainability? How would the merger between Sentech and Broadband Infraco (BBI) assist Sentech as a state-owned company in fulfilling the public mandate and Government’s development objectives? She thanked Sentech for the presentation.
Ms W Ngwenya (ANC, Gauteng) thanked the Chairperson for allowing her to contribute following the presentation. She noted that the Committee’s contribution is part of the oversight role that needed to be exercised over the Department and its entities. She asked whether strict requirements for licensing with ICASA, expensive service fees for signal distribution by Sentech and tax obligations were still the cause for financial difficulties faced by community level media broadcasters. If yes, what were Sentech’s plans to address these financial difficulties? Were businesses still not willing to advertise on community broadcasting platforms? If yes, why not? Did Sentech have plans to lobby the National Treasury and DCDT to enforce advertising quarters and community radio platforms? Which provinces were mostly affected by the impact of the inability to pay service providers? Because the Members represent the nine provinces, could the Committee get a provisional breakdown for the provinces? What was the update on the merger of Sentech and BBI? If the merger was still planned to be concluded towards the end of the financially year of 2022-23, could the Committee get an update on the merger? What percentage was community radio and television contributing to Sentech’s revenue?
Mr A Arnolds (EFF, Western Cape) thanked Sentech for their presentation. He said they know that Sentech is a Schedule 3B company, which means the entity must be financially self-sufficient and sustainable. The presentation mentioned a partnership model, but he said he thinks there needs to be a strong focus on partnership engagements for the entity, and the Committee does not see this. He noted that Sentech indicated they give discounts, with SABC normally receiving a two-percent discount every year. There was a 5.7% discount during Covid-19 for the SABC and a three-month payment holiday. He asked whether there were any improvements in terms of the discounts and payment holidays given to Sentech’s customers. Did Sentech have a good relationship with their customers, including good engagement in terms of services they are providing?
Ms T Modise (ANC, North West) welcomed the presentation from Sentech. She asked whether Sentech was part of the SA Connect project. How far was Sentech with the project and were they able to stick to their timeframes in light of the Covid-19 pandemic? Looking at their recommendations, she asked whether there was a stakeholder forum involving CRVs, SABs and others where Sentech was able to bring their views across and bring solutions, especially regarding the money that is owed to Sentech. Was there such a forum?
Mr Leshope thanked the Members for their questions. In response to Ms Bebee’s question on how debt is affecting Sentech, he said that the service fee itself includes a portion from other providers that also provide Sentech with services, such as Eskom and other telecoms. Sentech has to pay these entities without recovering money from community broadcasters. For example, Eskom fees must be paid monthly; otherwise, the service will be terminated. The workforce that supports the technology itself must also be paid, as they are providing skills they have rendered to Sentech. Sentech is fortunate to have been able to manage this in the past quarter but it holds back the entity’s financial capacity to invest in other projects. Channelling all these fees that must be paid to Sentech’s service providers towards other growth initiatives within the entity would be a huge risk to the entity. It was a lot of money relative to the total debt, in terms of what one could give to growth initiatives. Therefore, these growth initiatives were delayed. That was the net effect from a strategic and operational point of view.
The BBI and Sentech merger was an alignment of the capabilities that Sentech upon assessment had determined were complimentary to each other. Sentech provides the last mile in terms of the towers and supplies, and the BBI provides the backhaul of fibre by pulling content from the owners to the powers themselves. Sentech relies on BBI’s fibre and other providers such as Telkom. So bringing in BBI takes care of one aspect of the value chain. The last mile, which is Sentech’s strongest and biggest capability, is that of distributing towers and supply. He said the new company and merger strengthens on Sentech’s ability to deliver on their mandate as envisaged, and it is premised on growth. Sentech sees a brighter future when the two strategic capabilities are brought together.
In response to Ms Ngwenya’s question on how Sentech plans to address financial difficulties: compared to other customers, Sentech had significantly reduced the community broadcasting tariff. They continued to give other value acts, such as making Parliament content and other contents available without costs to community broadcasters. The cost is borne by Sentech. The target was to strengthen community broadcasting, understand its impact from a diversification point of view, and provide access to information for the public.
On whether Sentech had plans to engage the National Treasury and the DCDT to support the community broadcasters, the conversation had started. Previously, the Department used to have an allocation for community broadcasters, but this became a challenge and the ADG would elaborate on this point further. On provincial footprint, Sentech has in excess of 140 community broadcasters in the country and they are dispersed across various provinces. TV’s are mainly across Johannesburg, KwaZulu-Natal and the Western Cape. Sentech would provide a breakdown of this information on specific provinces and make it available for the Committee.
He said he appreciated Mr Arnold’s input in that Sentech needs to do more. Sentech understood the important role of community broadcasting. He said they will lobby more partners to contribute towards the community media sustainability. Sentech did have a workshop in about August 2019, where they called all stakeholders to a discussion on how community media can be sustained. Sentech did provide its inputs there and the Department had the inputs of all other key stakeholders there. These inputs were guiding their sustainability model of community broadcasters, going forward. He recognised that workshops needed to be held more frequently so that they could be aligned to the changes of time.
In terms of how Sentech was approaching the holiday payments, if a customer did not request a holiday payment, Sentech did not offer that possibility. There were some community broadcasters that approached Sentech for a holiday payment, which they considered positively in their interest. One condition was that it would only be applicable for customers whose accounts were up to date.
The state of Sentech’s relationship with customers was a fair state. He said that when a customer owes a service provider, there could be a slight decline in the relationship because the entity is sending demands for payments or terminating services. But what Sentech has provided is account managers for community broadcasters who are available to engage on an ongoing basis to ensure that the relationship remains in-tact. Sentech also has a physical service manager who operated in particular centres and are available for community broadcasters. They visit community broadcasters form time-to-time for matters related to service management. With this approach, Sentech was able to manage relationships and ensure that services continue properly.
On the impact of Covid-19, to some extent, the advertising revenue was affected by the pandemic, but a majority of broadcasters had been able to meet their obligations. The impact of Covid-19 was therefore not to the extent that the broadcaster would not be able to fulfil their financial obligations on services that have been provided.
On whether there is a form of addressing community broadcasting issues, the workshops provided by Sentech was one of the collaboration approaches to providing a forum. He acknowledged that they could improve on collaboration towards implementing their new model.
Ms Komathie Govender, Acting CFO at Sentech, said that the split of community radio broadcasters currently ranges between 30-40% of Sentech’s total loan book. The amount outstanding from the community radio broadcasters for the year to date is approximately R76 million in comparison to the total debtors of about R230 million, which is approximately 32% of Sentech’s debtor book.
Ms Jordan-Dyani, in updating on the SA Connect Project, said that the Department had completed phase one of SA Connect, which focused on eight districts. The Department had connected just over 970 sites, mainly focussing on public facilities such as schools, health clinics and critical government institutions. Initially, the Department had quite an extensive fund prior to around 2018, where the fund had to be reviewed. First, the amount was reduced in terms of allocation to accommodate the ‘Fees Must Fall’ movement and subsidising Higher Education. The second cut was experienced during Covid-19 where the budget had to be reprioritised. This led to the Department developing a feasibility study, with the hopes that they would be able to identify a new model for the SA Connect project. Following the Cabinet announcement by the President, the Minister and Deputy Minister embarked on an extensive stakeholder engagement, mainly with state-owned entities as well as the private sector, to see what new model the Department could look at in terms of collaboration to expand on connectivity. In this regard, it came up with a revised model, which is still to be approved by the Minister and the Deputy Minister. This model referred to aggregating all of government’s infrastructure, whether it was within the Department’s portfolio as the ICTs or in other sectors, to be upgraded to ensure connectivity. The objective was to work with the private sector on the new model in terms of closing gaps. This would also ensure the private sector such as SMME’s, entrepreneurs, and innovators could also come with various proposals to close gaps and ensure Wi-Fi deployment to homes and public facilities, irrespective of whether they are in an urban or rural area. The Department was aware, especially during the Covid-19 period, that ICT connectivity remained a huge priority for all.
The Department would also embark on a pilot model now that the Department had been working with its entities in terms of the merger between Sentech and BBI as well as the involvement of the State Information Technology Agency (SITA). It was using the funding that had been allocated by the respective entities, including funding that had been allocated to the Universal Service and Access Agency of South Africa (USAASA) to ensure that network deployment occurred in this financial year. The Department hoped to work with other stakeholders to ensure broadband access to at least 80% achieved by 2024, in line with the Department’s NTSF goals. Ideally, it was aiming for 100% broadband connectivity nationally.
She said that the Department was currently in the process of the allocation of spectrum and it therefore was coming up with new obligations to those who would be licenced in both the provisional and permanent spectrum, to ensure that these obligations will assist the Department in ensuring it achieves affordable connectivity to all.
The issue of the merger was one of the Department’s priorities as part of repurposing the state. There was a programme that was being run from the office of the President together and led with the Department of Public Enterprises. The Department committed to looking at the merger of Sentech and BBI, along with the repurposing of SITA as well as looking at the reorganisation of the Department’s three regulators in the ICT space. With regards to the merger, processes are underway, and the Department has done a business case between Sentech and BBI. In this regard, the Department was now exploring the various options. She said that, what the Department would like to do, which is in the Department’s policy, is to have a state-owned digital ICT infrastructure company – what they call the big Infraco. They are now accessing the Acts of the two entities to then see in the provisional phase how they can collaborate. Sentech and BBI complement each other in terms of their respective expertise and capabilities. Therefore, in the new company, the Department would ensure that the services of the two complement each other in line with the Department’s policy, which looks at technology neutrality.
The Department was also engaging the regulator regarding the licensing provisions of the entities to ensure the Department does not use any of the licenses. A technical team has already been established with regards to this, and there was also a ministerial joint oversight committee that was also looking at the merger between the two entities.
The Deputy Minister said that the Department was looking at finalising the process of the merger by the end of the current financial year. He said the Department would evaluate the extent to which they are moving in meeting the targets of 31 March. The merger would require amendment of the enabling legislation of the two entities. When the Department looked at this process, it would take quite a long time. Hence, the view is that the Department should explore the possibility of one entity acquiring the other. This would then lead to a completely new entity. The Department was exploring this option and was taking experience from similar processes in other government departments that were conducted in the recent past. The two entities and legal services have been engaged and are working towards this process, which will be guided legally to expedite the process. Part of the reason why the board of Sentech could not be fully established was that the Department did not want to establish a new board while the merger was underway. Therefore, the Minister was looking at establishing an interim board.
Overall, the sooner the issue of the debt of community broadcasters was attended to via long-term solutions, the better. He said that the conversation of providing signal distribution for community broadcasting needs to be conducted between the Department, the Presidency, GCIS, MMDA, so that long-term solutions can be found as it was unfair for Sentech to carry the burden alone. The entity has done so well in the past and should not be allowed to regress from obtaining the clean audit it has been obtaining over the last eight years. He thanked the Chairperson.
The Chairperson’s Closing Remarks
The Chairperson reiterated the key issues raised in the meeting. He requested Sentech to provide a report regarding their provincial footprint and the impact of the community radio and TV debts. He also requested a further progress report on the issue around the merger between Sentech and BBI, especially towards the end of the financial year. He agreed with the view that Sentech must not regress because, if an entity is getting clean audits, it must be supported to continue getting clean audits so it can continue providing services to communities. He thanked Sentech and the Deputy Minister for their time and their presentation.
The Committee considered and adopted minutes dated 24 November 2021.
The meeting was adjourned.
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