D-day for SNO bidders

Johannesburg, 29 Jan 2003

Goldleaf Trading and Optis Telecommunications will this afternoon know the fate of their bids for 51% of SA`s second fixed-line telephone operator when regulators announce their decision.

The timing of the announcement has added to speculation on the likely outcome. The Independent Communications Authority of SA (ICASA) called a conference to announce its decision two days before a self-imposed deadline, something industry watchers take to indicate an easy choice.

ICASA is to recommend one of the bidders as its preferred leader of the second national operator (SNO), but also has the right to find that both consortiums failed to meet basic requirements. This is widely expected to be the outcome following criticism of Optis for its haphazard approach to the bidding process and Goldleaf for its modest initial roll-out plans.

Both also face issues which could see their bids rejected outright: Optis for its alleged theft of intellectual property and Goldleaf for not having a member operating 500 000 or more telephone lines.

Whatever the result, communications minister Ivy Matsepe-Casaburri has the final say and the power to refer the result back to ICASA for further consideration.

With no surprises expected from ICASA and the minister unlikely to reject its findings, conjecture has already turned to the next step in the SNO process which could, theoretically, have ended Telkom`s de facto monopoly as early as May last year.

Going to the courts

One possibility is that either bidder could turn to the courts in a repeat of the fiasco around the third cellular licence. A judicial review could freeze the entire process where it is, potentially delaying the launch of the SNO by months or even years.

Goldleaf is thought to be more likely to continue the fight in this way, as the Optis bid is not expected to stand up to judicial scrutiny.

However, Goldleaf has been cautious in speculating as to its likely course of action should its bid fail.

"We cannot prejudge ICASA, but from absolutely everything that it has done we are confident that it will do the right thing," says consortium chairman Joseph Okpaku.

Goldleaf CEO Peter Archer says the group has identified several possible outcomes of ICASA`s deliberations and that a response would be possible only after its legal team had examined the recommendation. In an earlier interview, Archer identified judicial review as an option open to the group but optimistically said it was unlikely to be necessary.

The scenario most favoured by the parties who are to make up the other 49% of the SNO, state enterprises Esi-Tel and Transtel and empowerment group Nexus Connexion, is that they be allowed to establish and operate the company without a majority partner. They argue that the 51% stake could be warehoused and handed or sold to a major partner at a later date rather than be given to what they consider to be the unsuitable bidders available.

Telkom impact

The other matter of speculation is the impact any ICASA decision could have on the valuation of Telkom when the company is listed next month.

The lack of a SNO could have a positive impact on the company`s earnings but would also introduce uncertainty as to its future operating environment, which could spook investors.

If the SNO did not have a controlling party it could also be seen as a good sign for Telkom but would likewise leave the possibility of an aggressive foreign operator joining the company later.

Even the recommendation of either Goldleaf or Optis would leave a fair deal of uncertainty, as much of the approach the SNO will take to the market will depend on integration negotiations between the constituent parties and the wording of the final licence granted to it.

ICASA is to announce its decision at 2pm today.