Sentech’s financial stability and SABC’s debt to the entity; with Deputy Minister

Meeting report

Mr Mondli Gungubele, Deputy Minister of Communications and Digital Technologies, said that when the Department was called to Parliament, it was usually the Minister who was expected to attend. If the Deputy Minister was invited, he needed to know in advance whether the Minister would also be present. However, he was not informed in time that he needed to attend the meeting. He added that he had learned only this morning that the chairperson and chief executive officer (CEO) of SENTECH were unavailable due to interviews. He apologised to the Committee on their behalf.

He said that SENTECH’s presentation would focus on its financial performance and position, including which key debtors impact its finances, its revenue sources, and the challenges it faces. The presentation would also cover the debt between the South African Broadcasting Corporation (SABC) and SENTECH, the state of community broadcasters, and potential future models to sustain them.

Mr Themba Phiri, Chairperson: Audit and Risk Committee, SENTECH, announced that since the Board's appointment, they had focused on ensuring SENTECH remains a sustainable entity. However, they faced challenges related to the business’s heavy reliance on infrastructure and its role in providing signal distribution to the SABC and community broadcasters. Addressing these challenges, particularly with the SABC, had been a key priority for the Board.

SENTECH's financial stability and SABC's debt to entity

Ms Rudzani Rasikhinya, Chief Financial Officer (CFO) and Mr Kopano Thage, Acting Executive: Media Business, briefed the Committee on SENTECH's financial stability, SABC debt, and community broadcasters. SENTECH's financial performance has been impacted by loadshedding, currency fluctuations, non-payment by major debtors, service cancellations, and COVID-19.

Financial stability

They described the entity's financial performance over the past five years:

• Revenue had declined from R1 481 million in FY2020, to R1 381 million in FY2024.
• Earnings before interest and tax (EBIT) had dropped from R261 million, to -R42 million.
• Net profit after tax (NPAT) had fluctuated, ending at -R146 million in FY2024.
• Cash generated from operations had decreased significantly, with a negative cash flow of -R406 million in FY2024.

Factors affecting its financial performance included a decline in media business revenue post-analogue switch-off, increased operational costs due to loadshedding and forex losses, and non-payment from customers, affecting cash balances and delaying strategic investments.

They compared SENTECH's current revenue share with its projection for 2030:

• Media: 94% (2024); 45% (2030).
• Broadband: 1% (2024); 30% (2030)
• Towers: 5% (2024): 10% (2030)
• Data Centres: 0% (2024); 8% (2030)
• International Business: 0% (2024); 5% (2030)
• Other: 0% (2024); 2% (2030).

SENTECH's strategic initiatives were to grow broadband business through mergers, acquisitions, and network investments, expand its tower business and invest in fibre, establish and expand data centres, and export broadcast expertise and invest in digital infrastructure.

SABC debt

The Corporation's current debt stood at R1.12 billion, as of 25 November, with R1.05 billion in arrears. Monthly billing was R68 million, with a shortfall of R17 million monthly since May 2024. A proposed payment plan had been sent to the SABC, and they were awaiting a response.

Community broadcasters

There was a total debt of R156 million as of 25 November 2024, with various stations in arrears or suspended. SENTECH engaged with the broadcasters and conducted workshops and meetings to discuss a sustainable operating model. Its future operating model proposes lower tariffs and developmental support for community broadcasters.

All in all, SENTECH’s financial position had been weakened due to non-payment from key customers. The matter with SABC had been referred to the shareholder for mediation, and the focus was now on revenue diversification and expansion in broadband, data centres, and satellite capabilities.

(Further details can be found in the presentation attached)

Discussion

The Chairperson highlighted the importance of SENTECH and the SABC in South Africa's broadcasting landscape, stressing the need to find solutions to mitigate losses and ensure financial sustainability. This required both boards to adopt strategic operational and financial measures tailored to their unique challenges. Despite recent losses, SENTECH appeared financially resilient, with strong liquidity and solvency ratios. In contrast, the SABC faced serious financial difficulties that affected its operations and urgently need to be addressed.

She noted the critical role of SA Connect in bridging the digital divide and fostering an inclusive information society. While some progress had been made, ongoing commitment and strategic actions were essential to fully realise its potential. Community broadcasters, who play a vital role in promoting local content and cultural expression, were also struggling with financial challenges threatening their sustainability and effectiveness.

The Chairperson requested a detailed breakdown of the community radio stations disconnected by SA Connect, and asked what strategies were in place to ensure the financial sustainability of those still operating.

Mr H van den Berg (FF+, Northern Cape) asked whether it would be worthwhile to consider making SENTECH and the SABC smaller and more efficient, possibly through retrenchments, as they work to recover. He also raised concerns about duplication in government, pointing out that the South African Post Office (SAPO) and Telkom were also involved in SA Connect broadband. He questioned whether this created silos within government, and suggested exploring ways for SENTECH to consolidate with other departments or entities that were no longer necessary. He asked whether government should be reducing or closing entities that were no longer viable.

Ms M Dhlamini (ANC, Free State) questioned whether the board members were indeed appointed in 2001 and, if so, why they had served for so long. She asked if their terms differed from those of other state-owned entities (SOEs).

She expressed concern that most of SENTECH’s debt was linked to the SABC’s financial challenges. She also noted the lack of a clear turnaround strategy to address the impact of the shift from analogue to digital broadcasting. Without such a strategy, SENTECH may face financial collapse within two to three years, as much of its income previously came from analogue services.

She also highlighted the poor working conditions at SENTECH’s building in the Free State, and asked how this issue was being addressed. She also inquired whether similar problems existed in other provinces.

Ms S Sithole (ANC, North West) suggested that the Minister should step in and ensure the SABC paid its debt to SENTECH. She also recommended that SENTECH create a payment plan to assist community radio stations.

Mr S Mabilo (ANC, Northern Cape) asked if commercial radio and television stations also owed SENTECH money. If they were in arrears, were they facing the same challenges as community radio stations?

He raised concerns about transformation and SA Connect funding, asking whether historically disadvantaged individuals, including youth and women, were involved beyond just labour roles. He also inquired if SENTECH was reaching all areas with connectivity.

Looking to the future, Mr Mabilo asked whether SENTECH planned to develop its own facility instead of relying on foreign companies, considering local advancements in technology for science and space. He also asked if there was a skills transfer in SENTECH’s science and technology programs.

Noting a skills deficit in the broadcasting sector, he questioned whether there were programs to attract fresh talent, particularly among the youth.

SENTECH's response

Deputy Minister Gungubele responded that the priority was to sustain SENTECH’s ability to provide broadcasting services. In a country with high unemployment, retrenchments should be considered only if not doing so would compromise essential services to the public.

He said various measures were being implemented to diversify and strengthen the institution to ensure its long-term sustainability. Despite the challenges, especially with data-related issues, the SENTECH team had worked hard to keep the organisation afloat and should be commended for their efforts and interventions.

Mr Tinyiko Ngobeni, Deputy Director-General (DDG): ICT Infrastructure Development and Support, Department of Communications and Digital Technologies (DCDT), addressed concerns about a duplication in SA Connect's work involving SENTECH, SAPO, and Telkom. He explained that SA Connect was designed to minimise duplication by leveraging existing infrastructure. For instance, SAPO's buildings were used when feasible by SENTECH, Broadband Infraco, or appointed small, medium and micro enterprises (SMMEs) to provide additional services under the digitisation framework. Telkom's extensive fibre network, which covers most of the country, was also utilised through leasing agreements where this infrastructure was available. SA Connect focused on bridging the digital divide by extending broadband infrastructure to remote areas that currently lack it.

The programme was designed to enable the participation of SMMEs not only in building infrastructure, but also in managing networks. This approach allowed SMMEs to operate as small-scale service providers for their communities, creating affordable packages that could compete with larger operators. Access to the “backhaul network” was critical for this, as it connects local traffic to the broader internet. SENTECH helps by extending infrastructure and leasing it to SMMEs at affordable rates, lowering barriers to entry in the sector.

Mr Ngobeni also mentioned that a South African national communications satellite strategy was being developed. This effort, led by the DCDT and the Department of Science, Technology and Innovation (DSTI), with support from SENTECH and the South African National Space Agency (SANSA), aimed to build a national satellite network. The strategy had progressed through the cluster process and would be submitted to Cabinet. Once approved, it would be open for public input before finalisation. The strategy seeks to enhance existing capabilities, promote satellite engineering and technology skills development, and ensure long-term sustainability in the field.

Mr Phiri clarified that the Board had been appointed in 2021, not 2001. He highlighted that the Board had stabilised SENTECH, as evidenced by its clean financial audits over the past two years.

Addressing the SABC’s financial challenges, he said that the two boards had previously met at the request of former Minister Gungubele. From this meeting, teams were established from both sides to identify and address the issues. The goal was to create an environment where SENTECH understood SABC’s business needs and could co-invest in initiatives that improved SABC’s prospects, such as how it supports other commercial broadcasters. The shift to Digital Terrestrial Television (DTT) and Direct-To-Home (DTH) has attracted many SABC customers, showing an interest in a mixed broadcasting model. SENTECH also aimed to build similar capabilities for community TV operators to make their financial models more sustainable.

On SA Connect, Mr Phiri acknowledged concerns about duplication, but emphasised that South Africa still lagged in internet penetration, which was currently at around 60%. Bridging the digital divide was critical to achieving universal access to digital infrastructure, enabling schools, hospitals, and other institutions to operate online. Increased connectivity could also address backlogs in service delivery. In comparison, countries like South Korea, the USA, and the UK had internet penetration rates exceeding 100%, which supports business growth and community development.

Regarding SABC debt, he said the Minister was reviewing how the broadcaster could repay what it owes. He mentioned that there had been no tariff increase for SENTECH services to the SABC over the past three years. SENTECH maintained that its tariffs were fair, but SABC’s financial sustainability was crucial for it to continue paying for the infrastructure it provides.

Mr Phiri said that most community radio stations struggled to fund their signal distribution. He suggested working with the Media Development and Diversity Agency (MDDA) to secure funding specifically for this purpose. Without such support, many community radio stations may shut down, as their business model typically relied on state subsidies for signal distribution. This idea required the Minister’s backing to move forward.

Responding to Mr Mabilo’s question about commercial radio and TV stations, he said that some commercial operators had ended or not renewed their contracts with SENTECH. He encouraged the private sector to view SENTECH as a preferred provider for digital services, commenting that it was expanding into the digital platform economy and hosting content services.

The Chairperson requested a report on the locations of buildings with community stations in each province so the Committee could conduct oversight visits. She also asked for a breakdown of the community stations that had received subsidies, including the number of subsidies per province.

Mr Thage said that most commercial stations were paying their bills on time. SENTECH works with those who fell into debt to sign an acknowledgement of debt and set up payment arrangements. Commercial stations were treated the same as other customers, but the key difference with community stations was that some would sign an acknowledgement of debt but fail to pay, which forced SENTECH to suspend their services to prevent accumulating more debt.

Ms Rasikhinya explained that during the digital migration, SENTECH underwent an organisational redesign, which was approved. This redesign looked at positions no longer needed due to the shift to digital.

The Chairperson requested that any remaining questions be answered in writing and submitted within seven days.

Committee matters

The Committee adopted the minutes of 20 November.

It also adopted the Committee’s programme for the first term of 2025, starting from 28 January, and ending on 17 April.

The meeting was adjourned.