Goldleaf confident in legal challenge

Johannesburg, 03 Feb 2003

The Goldleaf Trading consortium believes it has a solid basis for its claims that the government scorned it without cause and will go to court within weeks to prove it.

The consortium, one of the two bidders for a 51% stake in the second fixed-line operator due to start competing with Telkom this year, says it will file for a full judicial review of the process which saw its bid rejected.

"We spent an inordinate amount of time and money on this," says Mike van den Bergh, a local representative of the consortium. "To now put our names back in a hat and write that off as experience would definitely be second prize."

The group estimates that it spent between R50 million and R70 million over two years in pursuing the bid.

Communications minister Ivy Matsepe-Casaburri on Friday confirmed a recommendation by regulators that neither Goldleaf nor Optis Telecommunications would be awarded a stake in the second national operator (SNO). She said her department would investigate alternative means of bringing an experienced foreign partner into the SNO, which is also to include state enterprises Transtel and Esi-Tel with a 30% stake, and empowerment group Nexus Connexion, which is to make up the remaining 19%.

Matsepe-Casaburri is expected to announce an alternative process within as little as a month and a half, but the Goldleaf challenge could well throw a spanner in the works. If it is successful in initiating a full review, the courts could conceivably take years poring over the thousands of pages of documentation generated in the selection process to date.

A decision in favour of Goldleaf could see it become part of the SNO or see the state liable for millions of rands in damages, depending on the judgement reached by the courts.

Goldleaf is quite certain that it could successfully conclude a legal challenge.

"The process, we can prove, was flawed," says Van den Bergh. "We genuinely satisfied the requirements."

The government and regulator, the Independent Communications Authority of SA (ICASA), rejected the Goldleaf bid, saying the consortium had not met the expectations and had failed to comply with the ground rules laid for the selection.

Goldleaf, however, says it complied with the formal requirements and cannot be blamed if the government failed to adequately express its expectations.

If the legal challenge goes ahead, Goldleaf seems likely to draw many comparisons between it and cellular licence bidder Nexus empowerment consortium. Goldleaf was described as a shelf company without any assets. Van den Bergh says that description also holds true of Nexus as it did for Cell C, before the award of its licence.

"It is a function of the way the process works to have special-purpose vehicles."

Goldleaf was also found to be lacking the financial resources or commitment from banks to fund the SNO, should it be successful. But the group points out that ICASA has accepted conditional guarantees presented by Nexus that do not materially differ from what Goldleaf has on the table.

Another flaw in its bid was the fact that it did not have a consortium member with at least 500 000 existing telephone lines, a requirement Goldleaf disputes as being absolute.