Telkom: Briefing

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Communications and Digital Technologies

08 September 1999
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Meeting Summary

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Meeting report

8 September 1999

Document handed out:

Telkom Annual Report 1998/99



Sizwe Nxasana, Chief Executive Officer of Telkom
Pinky Moholi, Managing Executive: International & Special Market Services
Victor Moche, Group Executive: Regulatory & Government Relations

The Chairperson's introductory comments on Telkom

Since 1994, laws enacted by the elected and democratic government put a lot of emphasis on universal service. The White Papers and legislation on Broadcasting and on Telecommunication recognized the importance of access by all to telecommunication and broadcasting services. The goal of universal and affordable service cannot be taken for granted in a country that has such glaring distortions in the provision of services.

In more developed countries, the provision of universal service has been marked by a high level of state intervention. South Africa has design its own path to develop a first class telecommunication infrastructure. We have began to travel this difficult path ensuring that we address the backlog in services to neglected areas while building a sophisticated universal information access for all communities.

South Africa has begun building a network that must put our country in the League of Nations that is fully integrated in the information society. When we started our briefings we were told by the DoC that a number of institutions are putting a shoulder on the wheel to find a possible way of launching our own South African satellite.

We had a dream of connecting every schools and clinics in the country by the year 2006. We said that we should build a national optic fiber hub that is able to carry a large volume of information and by the year 2020/S we should be in Cyberspace. Telkom, as the national operator features at the center of these great plans, other communications players will compliment this effort.

In yesterday's discussion I sensed a distortion or a potential conflict in the interpretation by our independent regulator on the challenges and ways of achieving our noble goals. It is what legal minds call the contradiction of administrative law and/ or the dilemma of constitutional theory". Public interest is not the interest of people with services only the majority of the public, our own voters does not have even a basic dial tone. We cannot afford to have this contradiction, if the law/policy is not clear to the regulator we must clarify their confusion, as laws makers,

The Kempton Park negotiators to ensured the viability and protection of the national broadcasting operator, the SABC and mandated through legislation the independent broadcasting regulator. We also have a responsibility to ensure that the national telecommunication operator, Telkom must he viable and protected as the main carrier of our vision to an information rich society.


Telkom reports to Parliament on the first two years of its mandate

Issued by Telkom

While undertaking one of the world's largest line roll-out and modernization programmes, Telkom contributed R1.8 billion to the Government in taxes and dividends and approximately R87 million in license fees in the first two years of its mandate, 1997/98 and 1998/99.

Telkom CEO, Sizwe Nxasana, said not a single cent of taxpayers' money was being spent on the Company's five-year network modernization and expansion programme, which commenced in the 1997/98 financial year.

"On the contrary, Telkom is funding the entire programme, which has a five-year capital cost of approximately R52 billion, from its own funds and through borrowings. At the same time, the Company has contributed substantially to the Government's resources and to the broader economy," he said.

Total tax for the two years amounted to R1, 2 billion, while dividends paid to the Government, as the majority shareholder, came to R615 million. The R87 million payable for license fees is broken down into R50 million for frequency spectrum fees and R37 million covering the public switched telecommunication services license granted to Telkom in May 1997.

"In addition, in actively supporting black economic empowerment, our two-year spending on economic empowerment business totalled R2, 4 billion," Nxasana said. Over R700 million of this was spent on purchases from black suppliers and approximately R1, 7 billion on suppliers with significant black economic empowerment programmes.

After Hungary's network expansion programme, Telkom's is currently the most prolific in the world, based on the CAGR measurement (cumulative annual growth rate).

In the first two years of its license, Telkom had installed more than 900 000 new telephone lines, including 59 600 payphones - well over 120 000 more than its two-year license requirement. The Company had also provided first-time service to 1 381 villages, installed 7 955 lines for priority customers (schools, hospitals, local authorities and libraries), and replaced more than 740 000 outdated lines, some 23% higher than required to date. Significantly, in 1998/99, Telkom met 14 out of 16 license line-related and service-quality targets," Nxasana said.

Legal framework for post-exclusivity

With competition in the fixed-line market now less than three years away, the time was drawing for South Africa's lawmakers to put in place the legal framework for the near competitive environment of the future, said Nombulelo Moholi, Telkom's Managing Executive: International and Special Market Services, during the presentation to Parliament.

"Both Telkom and the rest of the telecommunications industry need to know what the rules of the marketplace will be after the expiry of Telkom's exclusivity. Quite simply, the value that potential investors and operators will place on existing and future licenses will depend on the clarity and equity of these rules."

Moholi said Telkom appealed to Parliament to ensure that the laws and resulting regulatory rules created by revisions to the Telecommunications Act should be the same for all public operators. "All must be allowed to meet customers' needs according to the very same rules," she said.

"This means that every operator should carry an equitable portion of social obligations, to ensure society's needs are met and that obligations are equally balanced."

She added that incumbent carriers should be given an opportunity to compete on the same terms as new market entrants, and that all licensed operators be allowed the same flexibility in pricing and service offerings.

Questions by Committee Members to Telkom

Q: The presence of labour on the board of Telkom appears to be a window dressing practice because Telkom is currently restructuring and workers are being retrenched?

Nxasana: The presence of labour on the board is not just window dressing. They are involved in all the decisions that affect Telkom. They not only serve the interests of workers but also are involved in a variety of decision-making structures.

Q: What is the impact of the strike on the future of the figures presented today?

Nxasana: Telkom is still hopeful that an amicable settlement will be reached. Currently contingency plans are in place to minimize the impact of the strike. On future impact, Telkom will not be able to say how much the strike will affect the production, but the stand that has been taken is to minimize the damage.

Q: What is the role of the police in your endeavor to address the problem of copper theft?

Nxasana: We are working together with the police, also we are involved in Business Against Crime, and other established structures that are fighting crime.

Q: In your presentation on rural areas you talked about priority places such as schools and hospitals, but did you think about tribal authorities as they are also places that people run to in times of hardship, and telephone services would be welcomed?

Nxasana: They fall under our priority customers and as such are benefiting from our upgrading.

Q: How many disabled people are on the Board and what facilities are available to them?

Nxasana: We have currently finished a project that was established to look into this area, and we are awaiting the findings. On facilities, Telkom has a disabled friendly environment that is accessible to all.

Q: In the foyer in front of the Old National Assembly there is a very nice display by Telkom, but surpassingly there is nothing about disabled people. Not only that but throughout your advertising there is nothing for the disabled.

Nxasana: Thanks for that comment, its true that Telkom has not had an advert that portrays disabled people, but in future that will be involved.

Q: How do you count telephones, do you count those that have been installed or those that have been connected.

Nxasana: As stated early, unlike Eskom and other such companies, we are judged by the number of active telephones, not the number that have been installed. So our counting system counts only active telephones.

Q: How many lines have been cut off since the license was issued? In term of the high number of copper thefts is it not time to switch over to wireless technology?

Nxasana: Although we cannot put figures to lines cut off, the number is not that high. On the question of switching to wireless technology, the problem is we have committed great financial resources to existing infrastructure, and it would be expensive to get out. In rural areas, however, we have stated installing wireless technology as there existed no telephone infrastructure there before.

Q: As a national telecommunication provider you are in the right position to make an impact on AIDS/HIV awareness, are you involved in anyway?

Nxasana: We are involved through education, distributions of condoms, assisting workers who have come forward and disclosed their status. We are also working closely with the Departments of Health and Education in spreading the message.

Q: What is you role with regard to Vodacom, since you are the majority stakeholder?

Nxasana: The story of Vodacom is a complicated one. The previous government signed the deal when they saw that everything was changing and they were going to lose control of Telkom. They signed a deal that was not beneficial to Telkom. Telkom holds a 50% stake but do not have a controlling say, Vodafone UK also holds a 30% stake but they do not have a say. Rembrandt holds a 13.5% stake and has a say. That is how the deal was struck with the old guard. However we are looking at the situation to see what can be done to improve our position.

The meeting was adjourned.


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