SNO foiled by legal battle

Johannesburg, 15 Jun 2004

It is "really bad news for the country" that Nexus Connexion has chosen to seek a judicial review of the process which saw a 26% combined shareholding in the second national operator (SNO) awarded to two foreign bidders.

Andre Wills, a telecoms analyst at Africa Analysis, says such a move will damage the communications market as a whole and will benefit no one except Telkom, the incumbent operator.

By going to the courts, Nexus is in effect killing the goose that lays the golden eggs for all the SNO shareholders - themselves included.
Andre Wills, telecoms analyst, Africa Analysis

ITWeb has also confirmed that Nexus, which owns the 19% empowerment shareholding in the SNO, is seeking an application for interim relief from the courts while the full judicial review into the process is conducted.

Should the application for interim relief be granted, the SNO will in all likelihood be delayed by a number of months, while the wheels of justice slowly turn.

Minister of communications, Ivy Matsepe-Casaburri, jointly awarded Two Consortium and CommuniTel 26% of the 51% majority shareholding in the SNO, while warehousing the remaining 25%, and it is this process that Nexus wants the courts to review.

Nexus vs Two Consortium, CommuniTel

According to Nexus, the application will be heard on 2 August, and requests that the minister be prohibited from publishing - by notice in the Government Gazette - the names of Two Consortium and CommuniTel as shareholders in the SNO and be prohibited from directing the regulator to facilitate the integration of the two into the SNO.

It further requests that the minister be prohibited from granting the licence to an SNO in which the two are shareholders and from taking any other steps that would require or enable the regulator to issue a licence to an SNO with those shareholders.

"We believe the minister has committed a number of material irregularities during the process of issuing the licence to the SNO, specifically related to the awarding of shareholding in the SNO to Two Consortium and CommuniTel and the delay in the issuing of the licence itself," says Nexus chairman, Kennedy Memani.

"Although we recognise that our application might delay the licensing further, we believe that a delay of a couple of months in the context of the history of the SNO, will be comparatively inconsequential."

Nexus claims that what is of great consequence is that it believes that if the SNO goes ahead with these consortiums in potentially controlling roles - despite the minister accepting the regulator`s recommendation that neither are qualified to hold shares - it will commence operations on a basis which in the regulator`s original assessment "is highly likely to render it commercially unviable and unable to present meaningful competition to Telkom".

"If Nexus succeeds with its application, then what will happen? A legal issue like this could easily hold-up the SNO process by another 12 months, and when one considers that there has been delay after delay already, one has to question the motives behind this," says Wills.

"The impression I get regarding this issue is that there is an attitude of 'if I don`t get my way, I`ll delay the process for everyone`, which shows no appreciation for the concept of time to market, which is shrinking all the time as further delays occur."

Network devaluing

Another problem with the incessant delays is that the network put in place by Transtel and Esi-Tel - which each own 15% of the SNO - is devaluing all the time, meaning it could conceivably be worth a whole lot less than the R1.5 billion initial valuation by the time the SNO sees the light of day.

"All the players in the SNO have invested an enormous amount of energy and capital in the process, and at some point they are going to have to draw a line in the sand and say 'no more`, otherwise the country will be the ultimate loser," says Wills.

"While it probably would have been better for the SNO to have a single 51% shareholder, someone really does need to take this process by the throat now, as it is already two years too late and the constant delays just allow the other operators to further entrench themselves in the market."

Wills says the biggest surprise is that Nexus has waited so long to ask for a review of the process, since it had ample time to do so when the minister first announced her decision.

"My feeling is that they have chosen to play this as a trump card, in order to gain more concessions for themselves, but if they are then this is a really poor way to do so, as it hurts everyone involved in the SNO," he says.

"By going to the courts, Nexus is in effect killing the goose that lays the golden eggs for all the SNO shareholders - themselves included."

SNO spokesman Karl Socikwa could not be reached for comment, although CommuniTel`s Mike van den Bergh said: "It is really disappointing that Nexus has chosen to pursue this route, as parties that are committed to building a successful SNO should be looking at business opportunities, rather than delaying tactics. The only loser in the present situation is the SA consumer."