ITA sets SNO bidders to work

The government on Friday issued the invitation to apply (ITA) for local and foreign operators to bid for a 51% stake in the group that is to form the second national operator (SNO) and compete with Telkom in the provision of fixed-line telecommunications.

With three months to go, several companies from Europe, Asia and North America are said to already have started work on their bids, and some were represented at the official release of the ITA in Midrand on Friday. MTN parent company M-Cell has also expressed cautious interest in taking part.

The issue of the ITA, which makes it possible to start selection of the third-party to be part of the SNO, has been delayed many times. It comes almost three weeks after the SNO could legally have started operations, with the end of Telkom`s five-year exclusivity in early May. Optimistic estimates are that the company may be licensed before the end of the calendar year, with an operational launch in the first quarter of 2003.

Potential bidders have their work cut out for them. Any company or consortium that wants to claim the 51% stake must submit detailed bids, including business plans stretching over five years, by the end of August. They have a month to examine their shotgun-wedding partners, Eskom`s Esi-Tel and Transnet`s Transtel, which will hold a combined 30% of the company.

If they are lucky, they may know which of the seven bidders for the 19% black economic empowerment (BEE) set-aside will be their third partner. The Department of Communications hopes that the Independent Communications Authority of SA (ICASA) will announce its preferred empowerment bidder before the 30 August deadline, but neither party could commit to a date.

ICASA only recently started to examine the qualifying bids, submitted in mid-April, after a dispute between it and the Department of Communications on the legality of the selection process.

A non-refundable application fee of R250 000 and a requirement that at least one party in the group can show that it has 500 000 fixed-line customers are designed to discourage non-starters, if the prospect of a R300 million licence fee does not do so.

Bidders will be judged on criteria weighted toward their business and technical plans, as well as the soundness of their strategy to consolidate the eventual consortium into a coherent whole. The points scored by each qualifying bid out of a maximum of 100 points will be published, and the company or group with the highest score will be awarded the stake.

Under the draft licence for the SNO, released at the same time as the ITA, the once-off R300 million fee is payable over 10 years. As of the second year there is also an annual fee of 0.1% of revenue, on top of a maximum 0.5% of turnover to be contributed to the Universal Service Fund.

As with the licence issued with Sentech, a major cost the SNO faces is in its obligation to roll-out "Internet school laboratories"; 2 500 such centres must be established by 2013, in areas to be identified by ICASA. There are no specifications as to what such laboratories will have to consist of, but if the requirements are similar to those of the Sentech licence, the direct capital cost will be well over R1 billion.

The SNO will also have to construct and maintain 30 000 community service telephones in rural areas in the first 10 years of its 25-year licence term.

The ITA, and the draft licence which is currently open to public comment, can be found on the Department of Communications Web site at http://docweb.pwv.gov.za.