[By Duncan McLeod]
State-owned Broadband Infraco, created by government to bring down national telecommunications costs, is finally launching commercial services next week. But the company’s mandate has already been fulfilled. It should be privatised immediately.
When former public enterprises minister Alec Erwin dreamt up the idea of a state-owned telecoms provider to rival Telkom in providing national fibre-optic communications lines, the prices for such links were exorbitant.
Telkom had a virtual monopoly and was using its position to charge monopoly rents to Internet service providers and other telecoms operators. It was a key barrier in bringing down the cost of communicating in SA.
Erwin’s thinking was that the only way to bring down the costs quickly was for the state to intervene in the sector, offering the links at prices substantially below those charged by Telkom. And so Infraco was formed.
Infraco inherited much of the long-distance fibre previously owned by parastatals Eskom and Transnet. And, at government’s behest, it also became an anchor investor in the West African Cable System (Wacs), a high-capacity submarine cable being built between Cape Town and London.
The Wacs investment was meant to help bring down international bandwidth prices and support scientific projects like the Square Kilometre Array, a giant radio telescope which SA hopes to win the right to build.
Infraco has already established five “points of presence” — physical locations around the country where other licensed telecoms players can buy wholesale bandwidth services — and it plans to construct another four soon.
But Infraco has a problem. Since it was first mooted a few years back, the price of national bandwidth has plummeted. The declines have accelerated in the past 12 months and show no sign of abating as companies such as Dark Fibre Africa, Neotel, Vodacom and MTN extend their own fibre backhaul between the country’s cities.
If the price declines continue, Infraco could become unsustainable. And that’s a problem because Infraco is essentially a one-trick pony — it has only one service it offers the market, whereas its rivals in the telecom sector offer a broad range of services and are therefore better positioned to survive a protracted price war in one area of their businesses.
Already, wholesale prices are about 40% of what they were just 12 months ago. Infraco CEO Dave Smith says that as soon as prices dip below Infraco’s “long-run incremental costs”, it will have a “serious challenge in terms of financial sustainability”. And, he says, “at these prices we are getting close”.
The alarm bells ought to be sounding loudly in government corridors. If prices continue to fall — and Smith says there’s no sign of them stabilising yet — then government could soon be saddled with another state-owned enterprise in need of financial rescue.
Even before Infraco has launched its services commercially, its raison d’être has gone.
Smith won’t comment on whether Infraco should be privatised. That’s a call for its shareholders to make, he says. But it appears obvious to me that government needs to offload Infraco before it ends up costing taxpayers.
It’s not that there wouldn’t be willing buyers. Infraco operates more than 12 000 km of national fibre infrastructure. The network is worth billions of rand. Private-sector operators, including the cellphone providers that are muscling in on Telkom’s traditional turf of fixed lines, would love to own Infraco’s network.
Government, which is keen to extend broadband to the rural and underserviced areas, could take the billions it would make from selling Infraco and plough that money into projects that would extend infrastructure to those areas.
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail
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