ICASA urged to delay SNO 51% award

Johannesburg, 18 Dec 2002

The Independent Communications Authority of SA (ICASA) has been urged to delay the award of the majority stake in SA`s second fixed-line telephone operator by up to a year rather than recommending an unqualified bidder.

Media and Broadcasting Consultants, a group of lawyers and industry experts, say the government can warehouse the stake with a financial institution and wait for the telecommunications market to recover.

MBC, which includes former Sentech head and ICASA councillor Neels Smuts, argues that neither Goldleaf Trading nor Optis Telecommunication are suitable candidates to control the second national operator (SNO). But they do not believe that should delay the SNO.

MBC says in a document it prepared for ICASA that the regulator is not legally forced to recommend one of the two bidders, but has the discretion to recommend an alternative licensing process.

It recommends that the SNO be incorporated and a licence issued to it with only Transtel, Esi-Tel and Nexus Connexion as active shareholders. The remaining 51% can then be warehoused with a financial institution with the ability to raise the funds a cash-hungry SNO would require.

MBC says an ideal warehousing partner would also have the ability to manage a telephone company, but that raising money is the first priority. "If the 51% investor does not have telecommunications expertise then an operational management contractor who possesses such expertise can be found to manage the SNO," it says.

It suggests that the stake be warehoused for one year while the holder and the other SNO shareholders are allowed to hunt for their own preferred partner.

"It is conceivable that if the warehouse is utilised for a year, during that period interested parties will emerge, globally and locally, that have recovered from the telecommunications downturn and who will be prepared to invest in the SNO," the group says. "The reality of the situation is that the reason there are no strong bidders for the 51% stake is because global investors are, at present, waiting for an upturn."

MBC points to the government`s warehousing of Transnet`s stake in mobile operator MTN, which netted it R1 billion profit, as a precedent.

If ICASA agrees with MBC that neither Goldleaf nor Optis are acceptable majority partners, the suggestion could represent a legally sound way out. MBC says warehousing the stake would not open ICASA`s decision to legal challenge, which could delay the start of the SNO.

Another mooted suggestion is that the Goldleaf consortium be allowed to introduce a new partner into its group, to overcome the objection that it does not meet basic eligibility criteria. Government`s original rules for the bidding process required one member of any bidding consortium to have 500 000 telephone lines in operation. Goldleaf says that requirement was essentially waived by communications minister Ivy Matsepe-Casaburri, but the lack of such a partner has been identified as its major weakness.

Goldleaf says introducing such a partner would be no problem. "We could go out and buy [an operator with 500 000 lines] in," executive Peter Archer told ICASA last week.

However, the bidding process does not allow for changes to bids once submitted and some fear such a change to the Goldleaf group could allow Optis to challenge the selection process.