SNO suitors rejected

Johannesburg, 29 Jan 2003

The Independent Communications Authority of SA (ICASA) this afternoon announced that it had found neither Goldleaf Trading nor Optis Telecommunications suitable partners for the new telecommunications operator to be launched this year.

The regulator has recommended that communications minister Ivy Matsepe-Casaburri reject both bids and instead have the 51% stake they were vying for warehoused until a viable partner can be found.

It suggested that the partners which will make up 49% of the second national operator (SNO) be allowed to integrate and be issued a licence to operate while the hunt for an experienced partner continues.

Matsepe-Casaburri, who has the final say on the matter, has committed herself to announcing her response on 1 February, although officials in her department say a final verdict could be made public by 31 January.

The minister is generally expected to concur with the ICASA decision, although she has the power to reject it or refer it back to the body.

Material deficiencies

In its recommendation ICASA found both bidders materially deficient in complying with the basic rules of the process, which means both bids could have been rejected without evaluation. It evaluated both bids regardless and found more reasons for its decisions.

Both Goldleaf and Optis were found to be shelf companies established as bid vehicles. This meant neither had any assets to underpin the warranties required by government.

ICASA says neither proved that it could provide the funds or operational experience the SNO would require and also had problems with the human resources, technical and empowerment plans put forward by both.

Goldleaf came off slightly better in the analysis, with acknowledgment that it had knowledge of the local market and that some of its principal members had experience in the telecommunications industry.

Licence

The ICASA recommendation opens the way to the launch of an SNO as soon as the state-owned Esi-Tel and Transtel and empowerment group Nexus Connexion reach agreement on their integration.

Had either Goldleaf or Optis succeeded then the integration process, and the issue of a licence, could well have taken longer.

However, even if Matsepe-Casaburri agrees with the recommendation it is not clear how the majority stake in the company will be warehoused. ICASA chairman Mandla Langa says the recommendation to warehouse the shares is a philosophical one with no suggestion on the mechanics.

One mooted proposal is that the stake be handed to a financial institution and handled much like the recent deal between Transtel parent Transnet, MTN and JP Morgan associate company Ice Finance BV.

Legal action?

The most crucial question in many minds now is what the response from Goldleaf will be. The consortium could turn to the courts to demand a judicial review, which in turn could delay the launch of the SNO.

Goldleaf would not yet comment on the matter, with representative Mike van den Bergh saying no decision could be reached before Matsepe-Casaburri`s response.

However, Goldleaf has made it clear that its bid was a commercial move and says it has spent between R50 million and R70 million in pursuing it. The consortium is also believed to have identified grounds on which it could challenge the decision in terms of administrative justice, should it decide to follow the legal route.

One of its other options is to cut its losses and bid for a management contract sure to be up for grabs once the SNO is operational. Such contracts are traditionally lucrative and could be bid for by either Goldleaf as a group or by the Premier Contracts Agency, the Goldleaf member that houses its operational experience.

The role of a management partner will become all the more crucial if the majority stake in the SNO finds a temporary home in a financial institution, leaving the telecommunications company to compete with Telkom under the control of bankers.