Trouble brews between Eskom, prospective telecoms operators

Johannesburg, 17 May 2001

Eskom Enterprises says it has already started rolling out a fibre optic network in anticipation of forming part of the second national operator (SNO). But potential bidders are challenging government`s intention to force a partnership with Eskom and Transnet onto a new telecoms operator.

Policy directions published by the Department of Communications in March were unequivocal on the issue: "The SNO shall include Esi-Tel (a subsidiary of Eskom Enterprises) and Transtel (a division of Transnet), in order to maximise use of their existing telecommunication infrastructure, facilities and resources, for the provision of telecommunication services."

The percentage of shareholding "to be allocated" to the two parastatals are to be specified in the invitation to apply (ITA), which is to be issued.

However, M-Cell, parent company of cellular operator MTN, says it is not happy with that provision. M-Cell has publicly stated its intention of applying for the second licence, although it is still evaluating the possibility.

Equity stake

"Foreign investors will not be happy with a big equity stake held by parastatals," said M-Cell chairman Irene Charnley at a recent briefing on the company`s comments on the policy directions. M-Cell had been in talks with potential international partners and had made this clear, she said.

M-Cell says some assets of Transtel and Esi-Tel would be of value, especially examples such as unused fibre optics between major metropolitan centres such as Gauteng, Cape Town and Durban. But it believes much of the rest of the existing private networks could be useless.

"On the equity issue, you may value the assets of Transtel and Esi-Tel, but much of those assets will not be of use," Charnley said. "We want to know exactly what they bring to the party."

M-Cell expects the two parastatals to hold a "fairly small" stake in the eventual consortium, and does not want government to force an agreement on it.

"Both have value to bring, but the fibre and rights of way could be leased from them on an arms-length basis," said Charnley, referring to the rights the companies hold to lay cable across private land. "We may then barter with them for an equity stake, but we don`t want it imposed."

Eskom wants 35%

Eskom Enterprises, parent company of Esi-Tel, may have other ideas.

"We expect to call for at least 35% of the second fixed-line operator in line with a study we have conducted showing that this is the minimum stake for us if shareholder value is not to be destroyed," said Vusi Ngubeni, head of the telecommunications division of Eskom Enterprises, in a statement yesterday.

Ngubeni said Eskom has commenced construction of a fibre optic network, although it is possible for "roll-out to be stopped at any point and the cost of the asset to be fully recovered if necessary".

He also had a warning for government, which is expected to merge Transtel and Esi-Tel before the issue of the second licence.

"Whatever decision government makes regarding the merging of Transtel and Eskom Enterprises subsidiary Esi-Tel, care should be taken not to destroy the asset values of both infrastructures in the process."

M-Cell says it expects to have management control of the operating entity, should it bid for the second licence, along with an international partner. Without such control, Charnley said, the possibility would have to be reconsidered.