Minister’s Update on EASsy Cable, Unbundling Local Loop, under Serviced Area Licences, Investigation into Post Office

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Communications and Digital Technologies

20 February 2007
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Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
20 February 2007
MINISTER
S UPDATE ON EASSY CABLE, UNBUNDLING LOCAL LOOP, UNDER SERVICED AREA LICENCES, INVESTIGATION INTO POST OFFICE

Acting Chairperson:
Mr G Oliphant (ANC)

Documents handed out:
Interim Summary Progress Report: B-Tel
B-Tel Telecommunications (Pty) Ltd. Unaudited Financial Statements March. 2005 to June 2006
Independent Communications Authority of South Africa Employees database [not available to the public]
Minister of Communications Briefing Notes on NEPAD ICT Broadband Network
Under Serviced Areas Telecommunications Licence

Committee Minutes August to October 2006
Committee Annual Report

SUMMARY
The Minister of Communications attended the meeting to brief Members on progress of various matters. The EASSy cable (now renamed the NEPAD ICT Broadband Infrastructure Network) had been prioritised and twelve countries had agreed to sign the Protocol, which would shortly come to Parliament for ratification. It would establish open and non-discriminatory access to networks, give access to bandwidth at standardised prices and reduce costs. Three forms of Special Purpose Vehicles (SPV) would own, operate and maintain the network. The African-led SPV would be the predominate shareholder to prevent takeover by foreign interests. There were then three categories of shareholders in the SPVs. A local unbundling committee would propose how unbundling should take place.

The Digital Migration Working Group had presented its report to the Minister and this was currently being studied. There were many challenges on the Under Serviced Area licences regarding spectrum and the Independent Communications Authority were assessing the situation. The new Electronic Communications Act could also give some relief to licensees.

The Minister gave a brief report on the allegations on the Post Office, which led her to undertake an investigation.  The progress of investigations would be conveyed to the Committee.

The rollout of the broadband infrastructure, fell under the Department of Public Enterprises but there was liaison and it was recognised that Government had to invest in broadband. Sentech was accepted as a strategic asset to provide the core broadband infrastructure, especially for purposes of institutions, schools, hospitals, clinics and in e-Government. Assistance from National Treasury had been sought and was awaited in order to assist rollout. ICASA was currently working on regulations for Channel 65. Affordable access to broadband infrastructure would be partially addressed by Infraco but also by other companies.

The Minister was seeking legal advice on issues around conversion to electronic licences and the ability to self-provide on international traffic. Policy directives to accelerate reduction of costs had been drafted and further announcements would be made soon. Digital hubs were being rolled out by the Universal Service and Access Agency. It was intended that there should be a hub in each province, particularly in disadvantaged areas. The Department was confident that it would be ready for 2010. The broadcast centres must be a legacy project that would, after 2010, tie in with the need to develop local content in media, and with training.

Questions asked by Members related to the NEPAD Protocol, participation on the Advisory Council, the length of time taken in making recommendations on the local loop, the models that might be used, the participation of the private sector, self-provision of licence holders, whether Telkom could be required to contribute to the under serviced areas, funding problems, the effect of convergence on under serviced areas,
the future of Sentech, and whether the Committee would receive a report on the Post Office.

The Committee adopted Committee Minutes between 15 August and 17 October and also adopted the Committee Annual Report.

MINUTES
Address by the Minister of Communication
The Chairperson welcomed the Honourable Minister of Communications, Dr Ivy Matsepe-Casaburri, to address the Committee on progress relating to the EASsy Cable, the unbundling of the local loop, and Under Serviced Area Licensees (USALs), to give an overview of the South African Post Office investigations, and to provide updates on certain matters raised in the budget speech.

The Minister noted that the previously named EASsy Cable was now referred to as the NEPAD ICT Broadband Infrastructure Network. The New Partnership for Africa
s Development (NEPAD) Heads of State and Implementation Committee had prioritised the terrestrial and submarine broadband project and the broadband access fibre optic project for landlocked countries. The objective was to link 23 countries in Africa with each other and the rest of the world through linked cable networks. Twelve countries had agreed to sign the Protocol, which was still to be ratified in May or June. The objective was of the Protocol were to establish open and non-discriminatory access to networks by authorised entities, who would be authorised by each country. Access to bandwidth would be at a set price per unit irrespective of whether the entities were shareholders, and this would reduce costs in the region. Special Purpose Vehicles (SPVs) would be established to own, operate and maintain the networks. There would be a regulated return on investment, to help to regulate the costs of communication. Policy, legislative and regulatory environments in the region would, as far as possible, be harmonised.

There would be three types of SPVs. The terrestrial SPV would own, operate and maintain the terrestrial aspects of the under-sea cable, based on equality of shareholding. A sub-marine hybrid SPV would own, operate and maintain the sub-marine cable. It would consist of an African-led SPV and individual, probably foreign led companies. The African led SPV would be the predominate shareholder and would be owned exclusively by Africa led investors to prevent takeover by foreign interests. This hybrid SPV was developed to accommodate the wishes of some development finance institutions such as World Bank, but their proposal had been amended to ensure that foreign investment was facilitated without opening national markets to non-licensed foreign operators. The Southern African Development Community (SADC) Ministers had decided that all SADC companies would participate through the African led SPV.

The hybrid SPV would be able to borrow capital according to its business plan, which would limit the indebtedness of individual companies and countries. This met the policy objectives of Government in developing and operating a network and a "golden share" was provided through the Inter Governmental Assembly (IGA).

There would be categories of shareholders in the SPVs. The predominant category would be African-licensed telecommunications operators. The second would be non-operating entities, which could be established by government, such as an educational network or an investment company, to be approved collectively by the IGA. The third category would comprise of international companies approved by the IGA.

In South Africa eligible companies would include Telkom, Neotel, Sentech, MTN, Vodacom, Cell C and additional companies to be identified in the agreed process with shareholders, on an ad hoc basis.

The Minister described developments in the unbundling of the local loop. This was the responsibility of the Independent Communications Authority of South Africa (ICASA) but because the process was a complex one requiring considerable time, and because of the commitment to reduce the costs of telecommunications, it had been decided to set up a local Unbundling Committee headed by Dr Tshilidzi Marwala of the University of Johannesburg. Its task would be to propose the manner in which unbundling should take place. There had been a meeting last year and research done into global best practices. A further meeting was held in January and an interim report was expected after the February meeting. The final report, with models and timeframes should be available mid year. ICASA would then take the report forward to determine how best to achieve the unbundling.

The Digital Migration Working Group had presented its report to the Minister and this was currently being studied. The matter had become quite urgent in preparation for the 2010 World Cup.

In regard to the Under Serviced Area Licensees (USALs) the Minister summarised the process of the phases between 2004 and 2006. ICASA had finalised the licensing process and information was awaited from ICASA in respect of the last group. There were many challenges that had been identified and lessons to be learned from the policy perspective and the experience of operators. The Minister's office was investigating ways to overcome the challenges. A difficult issue had been that although good technology was available it was using the broadcast spectrum, giving rise to issues of possible interference. These issues were to be resolved by ICASA and a report was awaited. Use of the Code Division Multiple Access (CDMA) technology and release of spectrum had delayed the issuing of a policy directive. It was hoped that with the new digital integration a new spectrum would open. The Licensees had been suffering from uncertainty and clearly something must be done to assist them. The new Electronic Communications Act (ECA) that allowed for use of fibre optics, and developments in certain municipalities could give relief to licensees. It was hoped that municipalities, particularly in the under serviced areas, could cooperate to assist the viability of the USALs.

The Minister stated that it was difficult to establish exactly what had happened with the Post Office. The Minister had been informed that the Post Office had decided to move into the insurance business. When she asked for explanation, the Board stated that it had now realised that this was a public/private partnership (PPP) but had been adopted without consulting shareholders. The Board had then asked the Minister for permission to make a business case and that matter was pending when the various allegations and accusations had been made. The Minister queried the issues, and called for the business case in order to undertake an investigation. This followed two paths. Firstly it was necessary to look at whether the Board had been acting correctly, and secondly to look at management issues. It was clear that the relationship between the Board and the CEO was difficult and the CEO had been asked to take leave, which he refused to do. He was then suspended. The matters in respect of the Board had been presented the Minister, but it was felt not expedient to deal with this in isolation as the second issue could also impact upon the first. Legal advice had been taken and the progress of investigations would be conveyed to the Committee.

The Minister stated that Ms S Vos, Member of the Committee, had raised certain issues, which she briefly summarised. In relation to the rollout of the broadband infrastructure, she confirmed that this fell under the Department of Public Enterprises (DPE) and there had been liaison with them. It had been realised that unless Government invested in broadband the current broadband would not reach enough of the country. The Square Kilometre Array (SKA) project in particular would require huge broadband capacity. Increased broadband would allow South Africa to do far more. The same principles applied as with the NEPAD Broadband Project in relation to open access and licensing. Cabinet had received information on Infraco that would essentially be a company providing broadband access.

Cabinet had accepted that Sentech would be a strategic asset to provide the core broadband infrastructure, especially for purposes of institutions, schools, hospitals, clinics and in e-Government. Assistance from National Treasury had been sought and was awaited in order to assist rollout.

The Electronic Communications Act had been promulgated in July 2006, and ICASA was currently working on regulations for Channel 65 to enable the technologies for the USALs.

The issue of affordable access to broadband infrastructure would be partially addressed by Infraco but also by other companies who, with Telkom, owned the broadband around Site 3.The Shareholder
s Club model for ownership was likely to be ending during the year and this would allow more broadband at cheaper rates before the end of the year. While the Club model still applied it was covered by some international protocols, which had been part of the difficulty with Telkom. Some of the suggestions made to alleviate the monopoly had simply been impossible to carry out, but it was hoped that the constraints would be removed by the end of the year.

In relation to a query whether holders of licences that would qualify for conversion to electronic licences would have the ability to self-provide on international traffic, the Minister said that once again international protocols might pose some difficulties. She was in the process of seeking legal opinion from the State Law Advisors on this point. ICASA would have to deal with the prescription of services to be provided.

The Minister confirmed that the cable segments of the terrestrial sub-marine broadband would be developed and owned through SPVs.

In relation to the increased rate of broadband penetration the Minister confirmed that the Broadband Advisory Council had said the principle of open and non-discriminatory access must be adhered to, even with establishment of Infraco

The Minister confirmed that policy directives to accelerate reduction of costs were drafted and discussed with the State Law Advisors. An announcement would be made on these directives later in the month.

A policy directive to ICASA regarding the time frame within which the licences of electronic networks must interconnect to Telkom's last mile was also in progress.

The digital hubs were being rolled out with the Universal Service and Access Agency of South Africa (USAASA). The hubs were outlined. The hubs were intended for assistance to local people and to train young people to be able to refurbish old computers. Once trained, they would train others at the second hub. The Minister would be pleased to receive feedback from constituency and oversight visits as to how these were working. It was intended that there should be a hub in each Province, particularly in disadvantaged areas.

The Minister stated that the Department of Communications (DOC) was at last succeeding in changing mindsets. There had been resistance for some years but Director Generals had now accepted that although DOC would not become involved in the core work of other departments, it could ensure effective delivery of services with ICT. It was pleasing that increasingly more Departments worked more closely with DOC in the rollout of infrastructure to improve service delivery.

In regard to 2010 the Minister stated that some delays had been occasioned by FIFA as it had not yet provided the technical architectural needs. This was partially due to the need to assess the development of technology on an annual basis to reach an idea of where it was at present and could be by 2010. The Department had been working on issues like obtaining signatures on communication guarantees from the likes of Sentech and Telkom. DOC was confident that it would be ready for 2010. Location of the International Broadcast Centre (IBC) would be decided this month. DOC was insistent that the sites must be capable of use after 2010. It had therefore asked Department of Sport and Recreation, which was in charge of the legacy of the World Cup, to ensure that the IBC was a legacy project. This would tie in with the need to develop local content in the media and could be used for the development and training of local entities in areas where young and disadvantaged people stayed. Another method would be to use undersea cables, which would mean that the site must be in a coastal city. DOC had a responsibility to ensure that the infrastructure would be able to be used after 2010. The technical needs of the project would be met with assistance from Sentech and SABC.

Discussion

Ms S Vos (IFP) noted that only 12 of the original 23 countries had signed the NEPAD Protocol. She asked if there had been a problem, and what this was. She asked the Minister to elaborate on the other initiative that had been reported on recently in the press and asked if this was perhaps a competitor to the NEPAD project described.

The Minister replied that there had been certain developments during the discussion. Some Western countries had not happily received the issue of the African-led SPVs, particularly the World Bank, who would have preferred to lend to individual contractors and sit on the Board. Many of the countries had withdrawn when pressure was put on them from the international finance institutions. This applied particularly to Kenya. Mauritius had also experienced some problems. However this had been accepted in principle. The Minister wondered if the difference of opinion might be the basis for the rumours of another independent scheme. Some countries had been genuinely keen to participate while others had only wanted a slice of the profits.

Adv P Swart (DA) mentioned that the Advisory Council had included a member from Kenya and he asked whether the non-participation by Kenya meant that this member would be lost

The Minister confirmed that this would not affect the Advisory Council and the original members remained.

The Chairperson asked when the reports of the Advisory Council could be expected and the Minister confirmed that she was not sure.

The Minister added that security of the networks was also a vital issue. It was not desirable to leave this issue in the hands of foreigners

In relation to the local loop, Ms Vos noted that the recommendations would be expected towards the end of the year. She felt that this was very late and wondered when the policy directive would be drafted by ICASA.

The Minister appreciated that some time had lapsed but cautioned that undue haste would create problems. Best practice models had to be investigated, particularly in regard to their effect in the market. She was not concerned at the delay as she would prefer full information to be received.

The Chairperson noted that there had already been two meetings so it was clearly an ongoing process. He suggested that the Committee could examine ICASA's state of readiness in the forthcoming meeting with it. He asked that the Minister advise the Committee of progress, so that the Committee could better understand the difficulties and solutions in unbundling.

Mr R Mohlalonga (ANC) asked if the task team was also mandated to look at the potential effect of the unbundling of the local loop on costs. He pointed out that number portability had come into effect the previous year, and had turned out to be something of a damp squib that did not lead to the expected competitive activity. He thought that the establishment of Neotel might not have an immediate effect on costs.

The Minister noted that the Advisory Committee would be coming up with models that it considered appropriate for South Africa. She noted that many matters had been pursued in the hope that the private sector would be willing to "come to the party" and make the necessary input and contributions. This had not happened. It might be that Government would have to find ways to persuade the private sector to fulfil their responsibilities towards South African society.

Ms Vos noted that the Minister had seemed to be quite adamant that within six months of the operational date of the ECA some licence holders could self provide.

The Minister replied that self-provision was one aspect of the policies. It might be that this was another issue that might not take off.

The Chairperson suggested that at a future meeting Members should perhaps revisit the experiences on the local loop and add this to the projects for the year.

Mr R Pieterse (ANC) stated that the idea of the USALs had emanated from the fact that Telkom had not provided a fixed line service to poor rural areas, and was in line with the perceived need to provide service to these communities. The USALs had effectively let Telkom off the hook by relieving it of any further obligations. Mr Pieterse wondered if Telkom should be required to put a portion of its profits back into assisting the USALs who were effectively doing Telkom's job.  The USALs were unable to perform properly due to limited funding.

The Minister responded that it was not possible to insist upon this as this had been a contractual arrangement. However it did again raise the responsibility upon local business to be proactive in assisting, and not merely to expect Government to do everything. The suggestions also raised the question of uncapping the Universal Service Fund. If money had not been used then there was clearly a problem in seeking further funding. When the Minister had entered office the capacity of USALs and their ability to access the funding was a problem.

Mr Mohlalonga wondered if given the current context of convergence there was a policy perspective on what constituted an under serviced area. Originally reference had been made to the Telecommunications Act that defined fixed line penetration. The combination of fixed and mobile in many areas had resulted in an effective 45% penetration of the country. USALs would be competing with Telkom, the mobile operators, and Neotel and he wondered if the whole issue should not be redefined. He also wondered about the role of USAASA in respect of these licences. He also had no sense of what it was doing in terms of objectives and time frames for universal service and access.

Mr Swart noted that sometimes the speed of development of technology seemed to make developments in regulations seem very slow. He was concerned about the number of outstanding reports and investigations and would like to see finality on them. He accepted that the unbundling and the NEPAD issues would take some time. The USALs were presently suffering from the need to compete with the mobile operators, and from challenges in their management and skills and interconnectivity. Mr Swart enquired what was being done by the Minister's office. He asked if she would see the main problem as relating to lack of business plans, lack of management skills or difficulties in conveying technical skills to the USALs. Many were not aware how to use the grant or become properly active. Although the second phase of licences had been approved there was no improvement in the existing ones. He asked what would be done to see if the position could be salvaged.

The Minister confirmed that Government had debated the issue, particularly in the policy context of how the under serviced areas had developed. Mobile use in South Africa had increased hugely. Some USALs did have the technical know how and correct techniques but lacked ability to manage the business or finances. There was not much support from the private sector. The Minister had seen some very poorly drafted contracts, but was able to do nothing about them. Some of the USALs that had done better were nonetheless still constrained by the policies of the Department in respect of accounting and infrastructure requirements. Lessons had been learned from the problems of definitions, fast pace of uptake of mobile technology, the slow pace of Government and local government in becoming customers, the lack of roaming capability and delays in dealing with interconnectivity issues. The problems needed to be dealt with but at the same time any challenges must be well prepared as the larger companies could afford to drag out cases for years. The Department was already re-thinking the concept of USALs and the role and positioning of the USAASA.

The Minister said that these issues were linked also to the larger issue of service delivery in under serviced or second economy areas, which would also impact upon the role of the Post Office. Government issues often intertwined. A common objective was to provide better service and all agencies and department and private companies should be working together to meet that goal and ensure that marginalised areas were assisted through the ICT sector to gain access and reduce poverty. 2007 would be a challenging year and there was a need to put in technical, financial, and managerial capacity.

Mr Mohlalonga said there was a perception that Sentech had received a poor deal. Whilst he understood the distinction between Infraco and Sentech he asked for details of the policy behind it. He asked if it had been informed by a Telkom model. He noted that Sentech might not be in line with Government objectives in relation to the roll out of broadband. He asked whether Sentech was likely to be retained in its present form or if there was an intention to restructure.

Ms Vos added that although Sentech fell under DPE, the legislation fell under the Department of Communications. It seemed that Infraco would have to be a state owned enterprise and there would have to be enabling legislation. This had not been mentioned in the parliamentary programme and she asked what was the intention.

The Minister explained that Neotel was to assume certain functions and would be provided with infrastructure. Draft legislation had been to the Committees of Cabinet and should be submitted shortly for Infraco. There would be no difficulty in the licensing process, which would relate to the provision of broadband to allow the telephone loop to work.

The last two Lekgotlas had made it clear that Government regarded Sentech as a strategic asset, and this included its ability to ensure security of networks. The President had said there might be differences of opinion on funding and competition with broadband. DPE said that Sentech must provide wireless broadband and would thus be linked to Infraco. There was no jockeying for power. She suggested that the question could be more fully answered after the budget had been presented. The second economy could only come on board if wireless broadband was provided by Sentech,  as it was the only one with the capacity.

The Chairperson noted that members would be receiving inclusive status reports from the various role-players and would be engaging further on such issues during the year.

In regard to the Post Office the Chairperson noted that the CEO had been suspended. The Committee would be engaging on various issues and would like to have a report from the Minister so that when the Committee dealt with the matters it had the correct facts behind it for a comprehensive approach.

The Minister said that she would be happy to give an update but may not necessarily want to release the report at present. It might have legal consequences for some people. She was currently taking advice and would be guided by the investigators who had asked Counsel to brief them. As yet it was unknown whether the issues affected Board or management. There were some contractual obligations that might also have implications for Government. Publication of the report might compromise the disciplinary processes. She would be happy to provide a broad overview but not the detail.

The Minister added that there were four Board members whose terms of office ended last year. Three members had resigned. It was decided not to replace them at that time but rather to appoint new members so that all would commence duties on the same date. New appointments would be made before the Committee met with the Post Office.

Ms Vos said that Sentech was a strategic national asset. It was meant to form the core of the wireless broadband restructuring network, and would carry it beyond its current state. She noted that National Treasury had been asked to assist but in the meantime there were real problems at Sentech. She asked whether the Minister could give any idea of what was likely to happen to it and when the funding model would be firmed up.

The Chairperson suggested that that question should stand over until after the budget speech the following day.

The Minister stated that technical capacity in organisations would suffer when competitors and new players entered the market, as they would try to poach staff. However in this case there was still substantial technical capacity and the Department looked forward to full delivery on 2010. Many incumbents were very passionate about the future of their work, especially the 2010 needs, and looked forward to the opportunities to be creative and innovative. FIFA shared this optimism.

The Chairperson said that skills development was vital in the sector, not only to deal with the opportunities but also to see how telecommunications could assist in the implementation of the national objectives, increase earning capacity and tackle unemployment and crime. The funding mechanisms would take time but would be developed.


Committee business:  Adoption of Minutes
Members confirmed the adoption of the Committee’s minutes of 15, 18, 23, 29  and 30 August. The minutes of 7, 12, 21 September were adopted. The minutes of 10 October were confirmed, subject to a correction of the attendance list, and minutes of 11 and 17 October were adopted. It was noted that there was an outstanding matter to discuss with ICASA about the report on telephone costs.

The minutes of 23 January, 30 January and 13 February would stand over for consideration at a future meeting

Adoption of Committee's Annual Report
Mr P Swart indicated that he had understood that Ms Smuts had raised some concerns. The Acting Chairperson acknowledged that Ms Smuts had spoken to him. The Acting Chairperson requested a technical correction on page 6. Mr Khumalo and Mr Mohlalonga requested grammatical corrections on page 7 and 3. Subject to those corrections the Annual Report was adopted.

It was noted that the Committee would be travelling to Johannesburg on Thursday 22 February to meet with ICASA and would be meeting Sentech in March.

 Report of Under Serviced Area Licenses (USALs)
The report from B-Tel was tabled as one of the Interim Summary Progress Reports

The meeting was adjourned.

 

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