The Independent Communications Authority of South Africa (Icasa) has written off R75m of the licence fees owed to it by the iBurst parent company, Wireless Business Solutions (WBS), which is entertaining a takeover offer to acquire the business and its valuable, and now licensed, spectrum assets.
Following a damning judgment by the high court in Johannesburg in April, which found WBS had been operating illegally and did not hold a valid licence for the sought-after spectrum it was sitting on, it seemed the company was finally in a corner and would be forced to settle its unpaid licence fees.
But WBS and the regulator have come to an out of court agreement which has seen the bill slashed in half from R151m to R76m — the fee for this financial year (which was not part of the legal case) and the last. This is despite the fact that the Electronic Communications Act does not allow Icasa to automatically renew a licensee’s licence once it has expired — which the court deemed it had when the fee was unpaid in 2010 — and assigns the regulator no power to negotiate the amount owed by any licensee.
Nevertheless, WBS now boasts a clean bill of health and is courting a takeover bid by Multisource, a company backed by prominent businesspeople such as former First National Bank CEO Michael Jordaan and former FirstRand CEO Paul Harris.
According to TechCentral, Jordaan and the Harris family trust are shareholders in Multisource. Harris is involved through InstituteX, an investment company that holds a 66% stake in Multisource and was founded by him, technology entrepreneur Brandon Leigh and Phumlani Moholi, the chairman of Multisource and a former chief technology officer at MTN.
Moholi confirmed that the company has made an offer for WBS and its subsidiaries, which include iBurst and Broadlink. But neither he nor WBS would provide further details about the deal because of confidentiality agreements.
Two of the six WBS licences that were in dispute are for spectrum in the lower frequency ranges, which is optimal for rolling out long-term evolution technology (LTE or 4G), something major network operators are champing at the bit over with demand growing but policy direction lacking.
This frequency can also be used to support national lottery systems. iBurst provided South Africa’s national lottery system with a mobile data communication network before WBS lost its licence to do so in 2006.
The licence of the current National Lottery operator, Gidani, expires in May and a consortium known as Ithuba has been lined up as a preferred bidder, according to the department of trade and industry.
Multisource describes itself as a South African global convergence technology company that provides fully integrated, end-to-end solutions, products and services.
Asked about the WBS assets and whether Multisource’s interest lay in the 4G capability or the lottery network, Moholi said: “Of course there are some assets we are looking at. When you look at a business you look at all the assets you can utilise.”
Although it has such valuable spectrum, WBS may have good reason to sell. Tim Parle, a senior consultant and telecoms sector specialist at the research company BMI-Techknowledge, said: “I don’t think WBS has the capacity and the capital to completely capitalise on its assets. It’s like you have a chunk of beachfront property but you don’t have the expertise or money to develop it.”
Dominic Cull, a telecoms expert at Ellipsis, agreed. “WBS’s value is in the assets and in the spectrum in particular, but they lack the ability to unlock that value.”
He believed that iBurst’s technology was at an evolutionary dead end.
Clinton Holroyd, the chief executive of WBS, said that the majority of the company’s shareholders, which include the Public Investment Corporation, the Development Bank of Southern Africa and Investec, had been passive investors for the past eight years.
He said several parties had shown an interest in acquiring the group over the past four years. According to a media report in 2013, one industry source claimed Dimension Data offered R250m for WBS, but was rejected because shareholders wanted about R500m. The company was also in acquisition talks with MTN.
Parle said the offer from Multisource had been unexpected. “But they [Multisource] are rebranding and repositioning themselves in the market,” he said.
The transaction would be the second major one in the country following Vodacom’s acquisition of Neotel announced in May. Parle said Neotel was sitting on spectrum assets very similar to WBS’s.
WBS’s transgressions should be of concern to any potential buyer. Moholi said Multisource was doing a due diligence investigation but would not comment on “the Icasa process”. Holroyd said that all WBS communication with Icasa was confidential but “the licence fees have been paid and, accordingly, WBS is operating within the law”.
According to the proposed payment plan, contained within a submission to the Icasa council, senior counsel at the regulator believe that WBS should not be charged licence fees for the years that it was not a licensee — that is, the period from March 2010 to March 2013.
The judgment said, as a result of WBS’s nonpayment of licence fees, it was not in possession of radio frequency spectrum licences granted by Icasa and could not operate the network. The disputed licences were deemed to have expired at midnight on April 29 and could not be revived by the late payment of renewal fees.
By reviving the licence, Icasa was acting beyond its legal authority, which could be challenged under the Promotion of Administrative Justice Act.
The Democratic Alliance’s Marian Shinn, who has been following the developments closely, said: “The problem is that Icasa hasn’t been blameless in this. Their internal systems were in disarray and are at fault in terms of monitoring of fees and gathering of money due. They didn’t have the systems to run this efficiently, which smart lawyers have manipulated to their advantage.”
Cull agreed. “The solution is pragmatic … their [WBS] path is being eased here because Icasa has stuffed up administratively.”
Although questions might arise over whether regulations were adhered to, “there are a whole bunch of consumers and clients reliant on WBS’s service”, he said. “To get legal and technical would have unpalatable consequences.”
That the spectrum was never taken away from WBS was an indictment on Icasa. Cull said the regulator had produced informed licence spectrum valuation guidelines that “indirectly led us to this point” and saw even the likes of Sentech handing back spectrum that it was not using and couldn’t justify holding on to.
Shinn said the settlement was perhaps the best solution to avoid becoming bogged down in lengthy legal fights. But, she added, “had Icasa actually acted on its mandate to deprive WBS of its spectrum until its bills were paid, there would have been a faster resolution and it wouldn’t have cost as much money”.
“WBS has had a fairly comfortable ride financially. They were able to be competitive and make more profits because one their major costs was absent. That shouldn’t be allowed to happen again.”
Cull said: “I’m quite sure that, given the calibre of the people involved and the recent history of WBS, they will be doing due diligence and have regular meetings with regulator. This kind of transaction will hasten WBS to become a good citizen again.”
Blue Label Telecoms, a listed entity whose co-CEOs Mark and Brett Levy are majority shareholders in WBS, received a nonbinding takeover bid from an unknown party at the beginning of October, two weeks before the Multisource bid for WBS was made known.
Moholi and Holroyd said the two bids were not connected. Blue Label Telecoms did not response to a request for comment. Neither did Icasa. — (c) 2014 Mail & Guardian
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