VSNL's Infraco shareholding uncertain

By Paul Vecchiatto for Neotel
Cape Town, 27 Jul 2007

Indian telecommunications group VSNL's shareholding in government broadband infrastructure company Infraco remains uncertain, as negotiations have not yet been concluded, sources say.

Earlier this year, government ministers Alec Erwin and Trevor Manuel announced that VSNL, the telecommunications subsidiary of Indian conglomerate Tata, would receive a 26% shareholding in Infraco, and second national operator Neotel [in which VSNL owns 26% directly] would sign a four-year exclusive contract.

A source close to the process says, while Neotel would still have its exclusivity period, the final decision on VSNL's shareholding was still being discussed.

"It is up to the relevant parties to come to an agreement," he says.

Yesterday, the Department of Communications (DOC) presented at the Cabinet Lekgotla on the broadband issue, which has become prominent in government's strategy to boost economic growth and employment. The DOC is due to meet with the Department of Public Enterprises (DPE) today to discuss the future role and direction of Infraco.

While the DOC is mandated to formulate the country's ICT policies, it is the DPE that is responsible for the creation and oversight of state-owned enterprises. Both departments fall within the economic cluster of ministries.

Impartial supplier

A well-placed DOC source says that department's thinking is that Infraco should be wholly government-owned so as to keep it as an impartial supplier of broadband and to ensure that prices remain low.

"The analogy is that of public roads. Government owns them and anyone can drive on them as long as they pay their licences," the source says.

Industry has been rife with speculation about why government would allow VSNL to have a 26% stake in Infraco. It was seen as a sop to stifle VSNL's objections, due to Erwin's last-minute insistence in 2005 that scuppered Neotel receiving the full Easitel and Transtel assets that were originally earmarked for it.

At that time, Erwin was concerned about the issue of servitude [the right to appropriate land for purposes of building important infrastructure] and government's policy of strategic economic intervention.

Kennedy Memani, chairman of BEE group Nexus Connexion, which is a shareholder in Neotel, says: "I am very comfortable with the creation of Infraco. It will be good. The four-year exclusivity agreement for Neotel is also acceptable. Neotel should be able to build a good business by then."

Public hearings on the draft law that will govern Infraco will begin next week, 1 August, and will continue to 7 August, by the Parliamentary Portfolio Committee on Public Enterprises.

The DPE is also planning a press conference to be held in Pretoria on 31 July.