Digital Television and Broadband: Sentech briefing

Meeting report

Digital Terrestrial Television and Wireless Broadband: Sentech Briefing
Dr Sebiletso Mokane-Matabane, Chief Executive Officer, Sentech, outlined Sentech's strategy, time frames and targets in rolling out Wireless Broadband Network. She stressed that the roll out would be a combination of rural and urban areas as well as to schools, hospitals, clinics, post offices and government.

Ms Beverly Ngwenya, Chief Operating Officer, Sentech, briefed the committee on Sentech's wholesale customers and listed all the various customers according to their designation.

Mr Siddique Cassim, Chief Financial Officer, Sentech, indicated that Sentech would need about  R4,4 billion spread over six years and that  Sentech's cash flow would only be positive from year six. He also highlighted the fact that of the funds requested, Sentech had received R500 million without any indication as to whether they would get addition funding from the National Treasury (NT).

Dr Mokane-Matabane stated that there would be serious socio-economic consequences if Sentech was forced to raise money from different markets. Most notably the poor and marginalised would be affected as well as developmental goals set by government.

She stressed the need for coherence between the Treasury, Department of Communications (DOC) and Sentech in ensuring that everything was on track, and remarked that Sentech's classification as a Schedule 3B State-Owned-Enterprise under the Public Finance and Management Act (PMFA) needed to be reviewed. She also highlighted the challenges pertaining to human capital management at Sentech.

Mr Colin Hickling, Chairman of Sentech, summarised the briefing by saying that Sentech operated under the impression that Treasury would fund the additional costs involved. He said Sentech had always implemented government policies and directives in ensuring that all South Africans had access to affordable telecommunications.

He said that Sentech would not be sustainable as a signal distributor alone and expressed his disappointment at the comments made by the Treasury on Sentech's mandate, ability and management.

Department of Communications and National Treasury Comments
The Chairperson noted there was a healthy tension between Sentech, the Department of Communications  (DOC) and Treasury as it pinpointed government's system of checks and balances. He did express his disappointment at media reports quoting anonymous Treasury officials who allegedly had commented on Treasury's dismay at the Board of Sentech. He asked the DOC for opening remarks, to be followed by the Treasury.

Mr Harold Mathabathe, Deputy Director General: Finance, Department of Communications, expressed the Department’s and Ministry of Communications’ disappointment at the ongoing difficulties that Sentech were experiencing with the South African Treasury.

According to reports received from continuous interactions with the Treasury, Sentech was told that the inherent problem lay in the viability of their business plan. Mr Mathabathe said that this was a diversion away from what the real issues really were and that the allocation of R500 million from the Treasury was not enough to sustain the National Wireless Broadband Network initiative.

Mr Mathabathe noted that solutions needed to be found and that guidance to Sentech was imperative in light of the progressive work with which Sentech was involved. The DOC thus found it strange that the Treasury was so slow in providing additional funding to an entity that had proven its worth and relevance. He stressed that the Treasury should not dance around the real issues, but should be frank as to what they really were.

He said that there was a two year debate on whether the Department of Communications should fund Sentech. He stressed that the initial question was whether Sentech should have been granted the license to initiate and implement the Wireless Broadband Network. The decision was eventually taken by government to grant the license to Sentech, as it was thought that, in light of its nature of being a State-Owned-Enterprise (SOE),  it would ensure that poor and marginalised South Africans would have affordable access to wireless broadband. Telkom had been their close ally in the provision of the initial infrastructure for the Wireless Broadband network.

Mr Andrew Donaldson, Deputy Director General: Public Finance, National Treasury,  replied that the Treasury was acutely aware of the substantial challenges Sentech  were facing due to the change in Sentech’s initial mandate, and the consequent financial difficulties. He said that the Treasury was also aware of the difficulties Sentech had with old and outdated equipment, hence the reality that Sentech needed ongoing funding to operate as a signal distributor.
 
Mr Donaldson stated that Sentech was not a large company and that it had a limited balance sheet. He noted that Sentech should not have been under the impression that the Treasury would allocate more money to them when they used their own funds to finance the initial stages of the Wireless Broadband Network. This had led to their capital reserves being depleted against the context of their catalytic role in an industry where the major telecommunications companies could afford to make substantial investments.

He said that the problems that had arisen were due to the legislative matters pertaining to Sentech’s mandate and that these issues needed to be addressed first before the question on funding could be resolved.

The initial Sentech Act stated that Sentech would act as a signal distributor to broadcasters, with financing coming from their business ventures, and not from taxpayers. In 2001 the Telecommunications Act was amended to broaden the role of Sentech within the telecommunications industry. In 2006, the same Act was amended to extend the mandate of Sentech to include that of the Wireless Broadband.

He noted that the Public Finance Management Act was very clear on the policy directives of SOEs and that the various role players should look at these policy directives as they outlined that  Sentech was not scheduled for funding from the Treasury.

Mr Donaldson stressed that the remarks made about Sentech not having viability as a signal broadcaster were false as it was a conscious choice to expand further.

Mr Donaldson then responded to the Sentech Chairman’s remarks that Sentech spent some of their own money to fund the initial work on the Wireless Broadband Network, on the assumption that Treasury would allocate additional funds. This was incorrect as funding from the Treasury was done through the legislative process. He explained that funds were allocated through the annual budget in consultation with other government departments and that funding for extra projects could be covered in the past due to the growth in the economy. However, there was no binding condition for the Treasury to fund it. Sentech had set bold targets, which Cabinet initially agreed to partially fund, with the intention that the rest of the money would come from the private sector.

Mr Donaldson said that Sentech should seek loan financing from entities such as the Industrial Development Corporation, the Development Bank of Southern Africa or the banking industry. He pledged the support of the Treasury in providing advice as well on acquiring funding.

He concluded by saying that Treasury assisted the executive on the budget, and not on communication policy or directives.

Discussion
Mr R Pieterse (ANC) stated that the issue of Sentech’s funding should had been on the committee’s agenda a long time ago. He said that the technological infrastructure needed to be in place for the Confederation Cup in 2009 as it would determine South Africa’s readiness for 2010.
He noted that at the recent ANC conference in Polokwane various resolutions, including that on communications, were accepted. It was stressed that the issue on funding and appropriate finding at that should be resolved as soon as possible.

Ms D Smuts (DA) stated that Treasury had a specific mandate and that the ANC’s Polokwane “wish list” needed to go through the required legislative process.

She noted that Digital Terrestrial Television (DTT) need to be a priority as the Department of Communications seemed to be dragging its feet on this issue. She asked for Sentech’s views on the proposals made by Treasury that they would assist and advise Sentech in acquiring loan financing.

Dr Mokane-Matabane replied that Sentech would engage with Treasury on the issue.

Mr K Khumalo (ANC) said that dual illumination would begin on 1 November and that this would put a lot of pressure on Sentech.  He said that Sentech was the carrier of carriers and that if the issue on funding was not resolved then it would affect broadcasters who depended on Sentech.

Mr Khumalo highlighted the National Treasury’s financial rescue package to the under-performing South African Airways and stated that surely Sentech could be funded by the Treasury as well.

Referring to a remark made by Mr Pieterse, he said that the ANC wanted Sentech to be funded fully.

On the issue of capacity Mr Khumalo remarked that Sentech need to be clear on whether they had the capacity to successfully initiate the roll out.

Dr Mokane-Matabane replied that Sentech had the capacity to ensure that both the DTT and Wireless Broadband Network (WBN) roll outs were successful, as Sentech had various partners that would attend to the different aspects of the roll outs.

Mr M Kholwane (ANC) said that the resolution taken at Polokwane would be accepted by parliament, as it would especially be of benefit to poor and marginalised South Africans who were living in rural areas.

He stated that the people who were tasked with implementing government policies directed at helping the rural poor always seemed to be looking for loopholes. Mr Kholwane noted that if there were problems with the legislative issues pertaining to Sentech’s mandate then this ought to be amended so that Sentech could raise funds from the public sector.

Ms C Nkuna (ANC) said that she noted when visiting rural areas that there were virtually no public telephones nor cellphone reception.

Mr Donaldson replied that according to a recent Income and Expenditure Survey there had been rapid growth in the access to telecommunications in rural areas.

He remarked that South Africa had a good geographical footprint in terms of its telecommunications coverage, and that it was wrong to think that rural people were being neglected.

Mr Kholwane replied that surveys tended to distort the truth. His rural- based constituency was indeed having problems with access to telecommunications and the time had come to deliver, instead of holding continuous engagement between the various role-players.

Ms Smuts expressed the DA’s concern with the provision of computers to the Dinaledi Schools as well as the running costs involved. She asked whether national or provincial governments would  fund the provision of these computers.

Mr Mathabathe replied that the DOC had been working closely with the Departments of Health, Education, Home Affairs, and the Post Office and that these government institutions would provide the computers and the infrastructure.

Dr Mokane-Matabane added that post offices would serve as mini-internet shops and that the funding for the provision of computers and infrastructure would be provided by the Universal Service Agency of South Africa (USASA).

Ms Nkuna asked where the Dinaledi schools were situated.

Mr Hickling replied that Sentech would make a detailed list, as well as other information on the Dinaledi schools, available to the Committee.

The Chairperson drew the meeting’s attention to page13 of Sentech’s presentation, which focused on disparities in the funding requested and the funding bequeathed to Sentech by the National Treasury. He asked how Sentech was supposed to get the remainder if they were prevented by legislation from seeking funding from the private sector. He bluntly asked whether Sentech was being set up for failure.

Mr R Chauke, Director: National Treasury, replied that Sentech was not being set up for failure.
National Treasury had found several problems with the business plan that was presented to it and the initial R500 million earmarked by the Treasury for Sentech was meant for the initial infrastructure development for the Broadband Wireless Network (BWN). He added that the Department of Education needed to engage with Treasury on where the Dinaledi schools were situated and what their needs were.

Mr Pieterse noted that 2010 would be a good catalyst for investment in South Africa and if there was not money for the roll out of the transmitter then there would be major problems. He said that Sentech was able to convince the Committee that they needed funding, but questioned Sentech’s capacity to spend the money within this financial year, as he would not like to see a rollover to the next financial year. He also asked whether Sentech could be dismissed if they did not spend the funds.

Mr Mathabathe replied that Sentech did have the capacity to spend the money.

Mr Khumalo said that Sentech had been at the forefront of many telecommunication breakthroughs in South Africa, such as being the first to roll out GSM, 2G AND 3G. He said that Sentech was prevented by its PMFA classification from borrowing money, but yet the Treasury said it would assist them in obtaining funding, full well knowing that they might not get enough. Their liquidity of R1 billion would not be enough. He noted that the Committee also put some blame on Sentech for the ongoing problems, but called on the various role players to find a resolution so that the BDM and BWN could be a success.

Mr Donaldson replied that both of the above mentioned roll outs (BDM and BWN ) required funding that was much broader then Sentech. He said that there were costs to education, health and municipalities that need to be looked at, and that the access to computers was the binding constraint. He said there had been no analysis of households to ascertain the costs and therefore the issue of funding could not be addressed.

Mr Kholwane said that it was clear that the Committee needed to ask the Ministers of Communications and Finance to appear before the Committee so that they could give answers to the pressing questions at hand.

Mr Hickling replied that they had had an ongoing discussion with Treasury on whether Sentech had a viable role to play in the telecommunications sector, and that at a meeting with Treasury on 16 January a Treasury officially actually said that for years Treasury had been trying to figure out the role that Sentech had to play.

He said that the Board would not have allowed business plans to go ahead if they knew Treasury had problems with the plan. Highly qualified individuals, as well as banking institutions,  had expressed their view that the business plan was viable. He added that the decision on the DTT funding was also outstanding and that problems were foreseen there as well.

Mr Hickling noted that Sentech had not had one qualified audit and said that he was glad that the Sentech, the DOC and Treasury could clear the air.

Ms Mokane-Matabane added that phase 1 and 2 (electrical work and other groundwork) of the DTT had been completed and that Sentech was waiting on the outstanding funds to complete the project. It was running ahead in terms of time.

She said that if Sentech could compete with other telecommunication companies in an open market then none would be concentrating on the rural areas, as it would be too costly. This would mean that rural people would not be getting the access to services that Sentech was trying to provide. as Sentech was established to offer services to broadcasters wherever they were.

On the issue of digitisation and conversions she said that there was no going back. She said that the digital infrastructure that was being put in place would help people enormously, especially in rural areas where these people would finally be able to access resources that they had not been exposed to before.

Mr Donaldson replied that before Treasury could give funding an analysis and assessment first had to be made on the digitisation. He stressed that the Minister of Finance was waiting on a detailed report before he would act on any suggestions.

Mr Mathabathe said that the Chairman of the Digital Dzonga would address the Committee on local content soon. He said that the DOC was on track with its target of 1 November, when the Chairman would be able to shed more light on this.

Discussions were held with various Directors general of departments in relation to their component in this field and there was enough leverage to ensure that funding was secured.

He said that Sentech's business plan, as well as its balance sheet, would be reviewed.

On the issue of corporate governance at Sentech, he stressed that the DOC believed the board had the right skills and that policy directives were being followed. The DOC was also happy with  the risk management component of the various projects. He said that the DOC would work with Sentech and the Treasury in finding a speedy resolution to the ongoing problem of funding.

The Chairperson said that time for review was over. He said that the Treasury indicated that the business plan was not sufficient and that Sentech, in conjunction with the DOC, should work at addressing this as the Minister of Communications' budget speech was on 17  May.

The Security component was postponed for a further meeting.

The meeting was adjourned.