The cash-strapped state-owned signal distributor, Sentech, appears to have cut an illegal deal to sell wireless broadband spectrum that benefited politically connected businessmen, led by Eddie Funde, the controversial former chairman of the SABC who is now South Africa’s ambassador to Germany.
A Sentech briefing to Parliament last week placed the spotlight on the sale of valuable radio spectrum, which can be used to transmit data, to Global Web Intact (GWI), and its successor, Screamer, which has prominently displayed advertising for its broadband packages around Johannesburg.
A Mail & Guardian investigation now suggests that Funde and Jeff Molobela, the Telkom chairman, were among the chief beneficiaries.
Molobela said he was unaware of any impropriety in the deal.
Quraysh Patel, the Sentech chairman, told parliament’s portfolio committee on communications last week that the agreement by the parastatal to sell spectrum in 2005 was “illegal” and a violation of the Public Finance Management Act.
The other key players told the M&G that Funde was instrumental in facilitating the deal in 2005 and said he benefited to the tune of R4m.
The SABC is a key client of Sentech and questions are likely to be raised about the propriety of his role and that of the telecoms regulator, the Independent Communications Authority of South Africa (Icasa), which appears to have turned a blind eye to the irregularity of the arrangement.
Funde is said by those involved in the deal to have been handed an initial 42% shareholding in GWI in return for introducing the GWI director to Sentech’s leaders and facilitating the deal. This was reduced to 32% after he brought in Molobela and a third partner, Barbados national Carrington Phillips, who were each given a 5% stake.
Dan Salmon, a director and shareholder of GWI, admitted Funde’s involvement in facilitating the deal.
He said this week that Funde had agreed to introduce him to Sentech’s leaders to strike a deal on leasing spectrum and that Funde had received the 42% shareholding in GWI for free.
“Funde introduced me and then most of the negotiating was done by myself,” he said, adding that former Sentech chief executive Sebiletso Mokone-Matabane had been involved in the negotiations.
Screamer director Gavin Hart confirmed this. “This agreement was drafted by Sentech, signed by their CEO and brokered by Eddie Funde.”
Salmon said he had four business breakfasts with Mokone-Matabane and two further meetings at Sentech where the deal was discussed.
Mokone-Matabane told the M&G this week that she left Sentech six months ago and did not want to comment on the Screamer deal. She referred all queries to Sentech. But Molobela said that he knew nothing of the agreement with Sentech being illegal and was brought in to GWI to develop a business plan for the wireless broadband business.
Molobela said he had worked on the business plan for more than a year without drawing a salary, that he had loaned GWI R50 000 and that, in compensation, Funde had given him a 5% shareholding in the company. “What I saw was not a leasing of spectrum. This did not look to me like an illegal transaction,” said Molobela.
Phillips said he lent GWI R500 000 and also worked for more than a year without collecting a salary. He received his 5% stake in the company as payment towards this.
The agreement with Sentech had been in place well before he joined GWI, said Phillips.
In August 2008 GWI was bought out by a consortium that sources close to the transaction claim agreed to pay an eventual total of R90m for the company, although a consortium member disputed the figure this week.
The company was renamed Screamer Telecoms and the new owners paid Funde, Molobela and Phillips R6m to be shared among them.
Molobela confirmed the figure, saying Funde had received R4m while he and Phillips each received R1m.
Hart also backed up this, saying that “R6m was paid, the majority to Funde, but the Sentech spectrum agreement was already secured. The only other shareholder was Dan Salmon and he was paid for his shares, albeit not as much as Funde because the business was basically worthless apart from the Sentech agreement,” said Hart.
Sources close to the process say the payment was intended to increase to R35m if the three could secure a licence from Icasa. But Molobela said this was not true.
In any event, the licence was never secured, although Salmon said the then Icasa chairman, Paris Mashile, had given his approval informally.
Salmon said he was having lunch with Funde in Sandton Square when they had an impromptu meeting with Mashile, who had sat with them while they discussed their plans to lease spectrum from Sentech.
Salmon claimed that Mashile had given his approval for the business plan, but this week Mashile denied this and said that in no circumstances had any such meeting take place. “It is not allowable to lease spectrum,” said Mashile. “I would never have got myself into such a position and would never have allowed such a deal.”
Patel raised the illegality of the deal in Parliament last week in response to a question from Eric Kholwane, an ANC MP.
Patel told the committee: “In terms of the Icasa licence, this was illegal and the contract was cancelled. However, prior to this cancellation, Screamer had purchased 100% of the GWI shares on the premise that the company itself would apply for a spectrum licence.
“Screamer was informed about the legal position and the cancellation of the contract, yet claimed that the contract was still binding and it could continue to use the spectrum,” Patel told the committee.
“Shareholders had approached Sentech asking that the contract be continued, which was rejected. The board of Sentech was now trying to obtain details of what revenue Screamer had earned from the illegal use,” said Patel.
Salmon said this week that the deal struck with Sentech provided for GWI to make payments of R20 per customer to Sentech and guaranteed a minimum monthly income of R120 000 for the signal broadcaster. But, Salmon said, GWI was paying more than R200 000/month to Sentech at one stage.
Patel said this week that the Sentech board was still trying to get to the bottom of the deal, which, he reiterated, was illegal. Even if it had been legal, he said, it should have been put out to tender rather than simply handed to GWI.
“That arrangement should have been extended to all other interested parties too.” He said that two months ago Sentech had formally lodged a complaint with Icasa to investigate whether Screamer was still using Sentech’s spectrum, but he had not had any feedback on this.
Hart, however, admitted that Screamer was still using Sentech’s spectrum and argued that as far as it was concerned the agreement with Sentech had never been terminated.
“A mixture of spectrum is used and in some remote and poorer areas Sentech’s spectrum is used,” he said.
Hart said the consortium that purchased GWI was aware that an agreement existed between GWI and Sentech, but said the new owners were still not aware of any violations. He said Screamer had not been contacted by Icasa and he didn’t expect any action to be taken against Screamer.
Funde’s personal assistant, Monica Van Staden, responded to the M&G‘s questions this week, stating that Funde was “currently indisposed and out of the office for an unspecified time” and suggesting that the M&G speak to Molobela or to the other shareholders in GWI.
The M&G understands Funde is recovering after a serious accident.
Jubie Matlou, Icasa’s spokesman, said the regulator was aware of the matter between Sentech and Screamer Technology, but “Icasa is not in a position to divulge information on this matter as it is still under the authority’s consideration.” He directed questions to Sentech. — Lloyd Gedye, Mail & Guardian
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- See also: Inside Sentech’s Screamer fiasco