How to solve SA’s broadband mess

Government’s allocation of R200m/ year to broadband is laughable. So, too, is the idea of a state-led national fibre network. By Hilton Tarrant.

hilton-tarrant-180I was on a flight — my tenth or twelfth of the year, I forget — so I missed the president’s state of the nation address. In it, the word “broadband” was mentioned only twice, roughly about the same number of mentions it garners every year.

“Government,” we were told, “will fast track the implementation of the first phase of broadband roll-out to connect more than 5 000 government facilities in eight district municipalities over a three-year period… Funding to the tune of R740m over a three-year period has been allocated in this regard.”

That there was zero movement from 2015 — which marked “the beginning of the first phase of broadband roll-out” to connect these facilities — is utterly predictable.

It’s troubling that the state of the nation address is our only legitimate update on government’s broadband policy, named South Africa Connect, adopted by cabinet in December 2013. (Even the minister’s annual budget speech is low on detail.)

After more than two years, the department (of telecommunications & postal services, in case you’re wondering where this policy fits in) this weekend finally announced the connection of the first of the eight districts to receive free Wi-Fi, the Dr Kenneth Kaunda District Municipality in the North West (which includes the Matlosana (Klerksdorp), Tlokwe (Potchefstroom), Maquassi Hills and Ventersdorp municipalities).

Remember that in 2015, we were surprised by the president’s proclamation that Telkom was designated “as the lead agency to assist with broadband roll-out”. Telkom has not yet been officially awarded the project, which raises questions on how this first district municipality was connected (and who did so), and how the budgeted amount of R200m (of the R740m) has been spent in the 2015/2016 year.

Rivals have, according to Business Times, rightfully called for the project to go to tender. Business Times also cites a Bloomberg report from earlier this month, which said: “Telkom was close to sealing a deal with the government, saying it had already ‘carried out site inspections and studied how to implement the plan in eight districts’.”

Regardless of who does the work, this number (and the broader amount allocated for the three-year period, needs to be seen in context: R740m is laughable.

Telkom spends over R4bn/year on capital expenditure. Neotel, with a comparatively tiny network, spends over R500m. Vodacom and MTN will burn through close to R10bn each. Dark Fibre Africa owns fibre network rings in the major metros and 21 smaller metros, including East London, Polokwane, Tlokwe, Emalahleni and George. Nearly a year ago — as at 31 March 2015 — its network covered a total distance of 8 353km, and the book value of its fibre was “in excess of R5bn”.

Government’s R200m/year is a drop in the ocean.

TechCentral editor Duncan McLeod argued following the state of the nation address that he doesn’t “think it’s a bad thing that government isn’t committing tens of billions of rand in taxpayers’ money to build a state-led telecoms network similar to Australia’s hopelessly over-ambitious and highly controversial National Broadband Network. For one thing, we’re not Australia — we simply cannot afford it. South Africa does not have the money.”

Leave it to the private sector

Leave it to the private sector

He’s right.

Government should not be spending money it doesn’t have on trenching fibre. Its expensive distraction (vanity project?) Broadband Infraco is in need of a bailout from treasury to enable it to continue operating. Quite why both it and Telkom are operating national (and international) backhaul networks is downright bizarre. The only hope is that Infraco is one of those state-owned enterprises to be phased out as they “are no longer relevant to our development agenda”.

German model

McLeod points to the German model “where, in exchange for receiving access to radio frequency spectrum for 4G broadband, mobile operators first had to build high-quality coverage in the rural and under-serviced parts of that country. Only then could they use the spectrum in the cities.”

It really is that simple.

Mobile operators cannot do any more. Because of spectrum limitations, LTE services often remain 4G in name only. The process of licensing ultra-valuable spectrum (800MHz and 2,6GHz) remains stunted. And the pile of unused, “returned” spectrum continues to grow.

License both bands at, say, R1bn to operators (and to anyone who wants access to it). This will provide a nice boost to the fiscus (which desperately needs it).

As part of the licensing, ensure that operators connect rural towns and cities to fibre against aggressive — but fair — targets. For every X-dozen smaller towns or Y-thousand kilometres of fibre, operators would be able to use the newly acquired spectrum in Z major metros. And the operators don’t have to each go at it alone. That’s the beauty of fibre. You need only trench once for all operators, and there’s already precedent for this with MTN, Neotel and Vodacom working together to build a national backhaul network. Expand on this.

Let national treasury have oversight of this process (neither the regulator, Icasa, nor the department(s) responsible for “communications” are capable, I’d argue). Plus, operators have proved rather deft at putting one over regulators in the past.

There are ways, too, of government having access to a national fibre network without having to own one. Perhaps it has a “99-year lease” to capacity on this newly expanded network? Or it relies on a cost-plus formula to buy access? Or the best price wins?

Let’s move beyond this obsession with having to own a national fibre network. We don’t need it. We can’t afford it. The private sector can, and should be incentivised (correctly) to connect South Africa. All government need do, ideally through a central agency like Sita or — here’s a thought — Telkom, is provide free connectivity and free Wi-Fi on top. It’s amazing what free, fast connectivity can do for things like entrepreneurship and economic growth. Just ask Project Isizwe (or the OECD).

  • Hilton Tarrant works at immedia
  • This piece was published on Moneyweb and is used here with permission

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  • Hitting Thefan

    I have commented in a previous article that they should have a ratio system, where a private company that roll out infrastructure like FTTH should be required to roll out to different income areas based on a ratio system. Example if you do 3 affluent areas you need to do at least one lower income area.

  • Hilton Tarrant

    Precisely… this isn’t difficult. There are multiple ways of incentivising the operators. And the operator-consortium model makes economic sense when needing to connect places like Peddie and Prieska…

  • Great article Hilton, except for one major problem that will always cripple any forward-thinking plans, projects or ideas in RSA – the cANCer. I feel that it’s of no use talking about what the future should look like, when the present is in such a mess, and in fact has caused us to regress in a great many areas.

    While I applaud comments and pieces from people like you, Duncan and others, I find that it is rather pointless. Like planning a swimming gala in a pool that is derelict, filled with dirty water, and has countless leaks. You need to fix the swimming pool first before you can do anything useful with it. That is the state of our government, our economy, and the country in general.

    Very depressing, but that’s what they say, the truth hurts. We need to all focus our energies on getting the cANCer out of power, before we can ever hope to do intelligent things and uplift the economy and the state of our country. Perhaps you see it differently and can convince me otherwise, but until the cANCer loses its stranglehold on this country, we’re all just pissing into a very strong wind. I’d really like to be shown otherwise.

  • Hitting Thefan

    I do understand where you are coming from Cube but I do think it’s important for us to highlight and give options for solutions. The government is already at a point where they now know they will have to make hard and sometimes unpopular decisions. I know the frustrations that we have and a good example of this is spectrum availability. They seem to fail in realising the importants of this process of making it available. The thing is when we get to this stage of desperation it will make them look at all possibilties when it comes to tools for growth and we all know that connectivity is oppertunity.

  • 小杜 (xiao du)

    There is a difference between making it available, and making it affordable.

    As it stands 3G connectivity, while still expensive covers most area’s.
    FTTP/H is even more expensive. Availability does not construe usability.
    Pricing must come down.

    The only reason we’re seeing such a fast take-up of Fibre, is that it gives the data providers a way to get past the crippling effects of the state monopoly. Wireless data should have been the way to do that, but the government has fingers in that too, and prices are still artificially too high.

    ICASA needs to have some actual power, and some actual leadership.

    Minister Carrim was good for the short term he was in office, but he went against Multichoice (who have far too much lobbying power) and had to go.

  • Christoph

    It’s an interesting discussion, but I’m slightly annoyed why the author and commentators and the rest of the world still have so much confidence in letting Government run with matters. I have little doubt that shifting responsibilities from ICASA to Treasury or any other Govt agency will lead to the same messy results. Govt agencies are notoriously prone to lobbying and the saga around the M&A merger of Neotel/Vodacom is the most stunning example. It took regulators almost two years to only come up with inconsistent conclusions while their competitors MTN and CellC are crying for regulator’s help like little toddlers. In the meantime small and agile (potential) players are denied spectrum, e.g. on regional or rural level, which is the true catastrophe. This whole licensing is nothing else than a brilliant example for rent-seeking behaviour of public agencies and their clients, the big operators, at the expense of people who truly need an affordable service. It’s time to take spectrum allocation and licensing away from incompetent state agencies and led it be run by private companies which objectively measurable goals. Only then spectrum will be released based on economic merits compared to the current situation where unallocated spectrum hoarding entail massive opportunity cost.

  • Charley Lewis

    Worse, unless I’m very much mistaken the 2016 SONA dished up the same 8 districts that were profiled in the 2015 SONA. So the only movement in 12 whole months has been to add a little more detail to last year’s pronouncement…