Erwin promises cheaper broadband

Johannesburg, 24 Oct 2006

Government will drive down the costs of broadband in SA through its proposed telecoms infrastructure company Infraco, the minister of public enterprises said yesterday.

Alec Erwin was responding, in Parliament, to a written question by Democratic Alliance MP Dene Smuts, who asked if the minister intended to create an infrastructure company based on the telecommunications facilities of Eskom and Transnet.

"Yes, it is the intention of the Department of Public Enterprises to create an infrastructure company (Infraco) based on the long-distance assets owned by Eskom and Transnet," Erwin responded.

"Research has shown that long-distance and international communications costs are the key reasons for high broadband costs in SA. Any intervention structured to address tier one (national long-distance) and tier three (international) cost structures would have a significant impact on the affordability of broadband in SA," Erwin added.

He said that inception of Infraco, using the long-distance assets deployed by Eskom and Transnet, is a direct intervention to rapidly reduce key cost of broadband from early 2007.

"Regulatory or direct intervention (or both) is required in SA to rapidly deliver on the promise of affordable broadband for all and increase South African telecommunications market efficiency. The net expectation from this is Infraco being able to reduce long-distance pricing to significantly lower levels compared to Telkom, within five years."

The minister explained that Infraco would be a section two utility company. "This is a commercial enterprise with strategic intent. It is designed to deliver a return commensurate with a utility company."

The minister noted that Infraco would solely focus on long-distance infrastructure. "It is also not government`s intention to operate Infraco on a long-term basis. Once government is satisfied that long-distance tariffs have normalised at internationally competitive levels in support of broadband, it is government`s intention to exit by means of privatisation."

Rumours and speculation

Earlier this month, a government source said Infraco had guaranteed bandwidth services for the Square Kilometre Array (SKA) project, sparking a resurgence of speculation that the state company could become a third national operator.

"We have been given an undertaking by the Department of Public Enterprises that it will make sufficient bandwidth available at competitive cost," says Dr Bernie Fanaroff, SKA project leader. However, the department would not be drawn on the details of the guarantees and refused to confirm the role of Infraco in the project.

Rumours that government was setting up a third national operator first surfaced in August, when the Department of Public Enterprises announced that Eskom would no longer sell its assets to Neotel, at that stage still the unnamed second national operator (SNO).

At the time, the department denied the rumours, calling them inaccurate and saying "an announcement will be made once the negotiations have been concluded".

In July, Transtel - a division of Transnet - agreed to sell the SNO its telecommunications assets, which comprise a substantial base of deployed optical fibre cable, as well as telecommunications equipment and facilities countrywide, for R256 million.

In the same month, Eskom indicated it would divest its R748 million telecommunications network. The full-service network, owned in conjunction with Transtel, would save the SNO around R2 billion, according to media reports.

Subsequently, it emerged that Tata - an indirect shareholder in Neotel - was eyeing a 26% stake in Infraco. Government would neither confirm nor deny this.