[By Duncan McLeod]

Later this year, SA’s telecommunications regulator will hold an auction to sell valuable chunks of radio frequency spectrum that can be used to deliver the next generation of wireless broadband. If done right, it could drive up broadband penetration.

I had a fascinating discussion last week with Derek Wilcocks, MD of Internet Solutions, the converged communications service provider in the Dimension Data stable. Internet Solutions is keen to participate in the upcoming spectrum auction and is talking about using the spectrum, if it gets some, to build a national wireless broadband network.

What makes the company’s investment plans interesting is that, by Wilcocks’s own admission, it would rather not invest big money in building its own telecoms networks, but feels it has to because of the high cost of wholesale bandwidth charged by the country’s incumbent operators. The business case appears to make sense — though it must still present its proposals to the Didata board, which will happen only once there is more clarity on how the auction process will work.

Internet Solutions is already a one-third shareholder in FibreCo, a new consortium that is to spend billions of rand over the next few years linking up the country’s cities and towns with high-speed fibre optics. The other shareholders in FibreCo are Convergence Partners, controlled by Dimension Data SA chairman Andile Ngcaba, and mobile operator Cell C, which is itself pouring billions of rand into a mobile broadband network.

Coupled with ongoing investment in new network infrastructure by long-established mobile operators MTN and Vodacom, and billions more being spent by Telkom’s new mobile arm, 8ta, there is a veritable boom in spending by the private sector in telecoms infrastructure. This augurs very well for a country where broadband costs — and, to a lesser extent, voice tariffs — remain well above the average in developed countries.

Internet Solutions’ plans to get into the infrastructure game — and in effect to become a telecoms operator in its own right — is particularly exciting in the light of who now owns the company: Japan’s NTT Corp bought Internet Solutions parent Didata in a R24,4bn all-cash deal in 2010. NTT is the second-largest telecoms operator in the world by revenue, and the largest in Asia. Though NTT bought Didata for its technology services expertise, the fact that an operator of its scale is now represented in SA offers tantalising scenarios.

Wilcocks, who recently visited NTT’s headquarters in Tokyo, is enthused about some of the technology being developed in the Japanese company’s labs and how it could be applied in the SA context.

But Internet Solutions’ plans in wireless infrastructure depend on how the Independent Communications Authority of SA (Icasa) approaches the upcoming spectrum auction. It’s already called off the auction once. Another delay would be unforgiveable, but it must also take its time to consider carefully the economic and financial impact.

If it’s too expensive for smaller players to bid, or if universal service obligations are too onerous, many companies will simply walk away. Wilcocks says Internet Solutions won’t participate if it doesn’t make financial sense to do so. What Icasa needs to avoid is a situation where the incumbent operators hog the spectrum because of their deep pockets.

That being said, it makes sense to require successful bidders to extend at least some services into rural and underserviced parts of the country. Expanding broadband access outside wealthy city suburbs ought to be a national imperative, not least because of the proven economic spin-offs.

It’s a fine line that Icasa has to walk. Maximising competition and encouraging further investment must be its top priority.