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Can South Africa's grand broadband plan succeed?

Difficulties at broadband incumbent Telkom and a lack of capacity at the Department of Communications are prompting the private sector to cast doubt on whether the South African government’s plans for greater intervention in the country’s broadband market will succeed.
Written by Lance Harris, Contributor

The South African government has unveiled plans to increase its involvement in the country's broadband market, with a national broadband network similar to those being rolled out in Australia and Canada as one of the options under consideration.  

The plan was discussed at a broadband workshop hosted by the Department of Communications earlier this week. The department's chief director for ICT policy, Norman Munzhelele, told delegates that the telecom market has not delivered broadband to the majority of the country's people and that government plans to intervene more aggressively in the market to ensure universal service.  

The government currently owns a number of assets in the telecoms market – including long-distance infrastructure provider Broadband Infraco and a 39.8-percent share in South Africa's fixed-line incumbent Telkom. The state now wants to work with the private sector to build a wholesale national broadband network along open-access principles.

With around 3.5 million PC broadband connections and 10 million smartphones between South Africa's population of more than 51 million, the country is far from achieving its goal of universal access by 2020.

Though there are many broadband expansion projects underway, they are fragmented, and a comprehensive, centrally planned strategy is essential to boosting broadband in South Africa, said Munzhelele.

Munzhelele outlined three funding options for the national network:

  • Financing a state-owned enterprise.
  • Incentives for operators to offer services in economically unattractive rural areas.
  • Equity and incentives provided by government could be ring-fenced in a special purpose vehicle.

Munzhelele touched on the issue of radio frequency spectrum for wireless broadband, saying it will be allocated in a manner that promotes universal service and access, competition, black economic empowerment and affordability. The delays in spectrum allocation is one factor holding back quicker rollout of high-speed mobile services such as LTE by the country's network operators.

The department's plans have met with scepticism from the private sector. The government's previous interventions in the broadband market have not been successful, which raises the question of what it will do differently this time, said Dominic Cull, the regulatory advisor to South Africa's Internet Service Providers' Association (ISPA).

"We don't believe that the Department of Communications is in a position to lead [a national broadband strategy]," said Cull. "There are many capacity and performances issues within the Department. If it wants to lead greater state involvement in the broadband market, it must first look at itself."

We need to talk about Telkom

Although the fixed-line incumbent Telkom has a central role to play in the national broadband strategy, the Department "failed to talk about Telkom", at the workshop, said Cull. There needs to be a clear strategy for the fixed-line incumbent because of its central role in the country's broadband market, he added.

"The slow process of allocating spectrum is costing South Africa billions of rand a year in lost opportunity" — Dominic Cull

With tens of thousands of kilometres of fibre and many national, provincial and local points of presence, Telkom is a natural focus point for any national broadband strategy. But the operator has been in a state of disarray since May this year when government surprised the market by scuttling a deal that would have seen Korea's KT Corp take a 20-percent stake in the company.

The government is currently pondering a range of options for the operator, which are thought to include renationalisation of the company and the introduction of alternate equity partners. The uncertainty is putting the Telkom's creditworthiness and share price under pressure and has sparked an exodus of key executives including CEO Nombulelo Moholi.

Cull said that ISPA would not have a problem with a national broadband network with fibre-to-the-home (FTTH) in dense metro areas and LTE in less populated regions, if it were run along the principles of wholesale open access.  

Lost opportunity

But the inefficiencies at state-owned companies such as Telkom and a lack of political appetite for cost cutting would mean that such a national network would be unlikely to offer efficient, cost-effective and equitable services. "If we could pull off an Australia, it would be great, but this is not the approach followed by Telkom or any of the other incumbents at this stage," Cull added.  

"I have no substantial difficulties with the principles for spectrum allocation, but they are no different to those announced in 2006," he said. "The slow process of allocating spectrum is costing South Africa billions of rand a year in lost opportunity."

The biggest reason for scepticism, however, is that South Africa's telecoms industry has heard it all before. "We have been talking for 10 years now, and we now have to commit to action and putting resources to work," said Cull.

The Department of Communications aims to publish its new broadband policy before March 2013.

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