SOUTH AFRICA’S TORTUROUS LIBERALISATION: SNO, SNO, QUICK, QUICK, SNO...

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South Africa’s telecoms liberalisation process took another crab-like step forward last week. The prize will be the first large, liberalized market in Africa. With eventually three international operators, bandwidth prices (that have been kept high by incumbent Telkom) will start to tumble. The process also faced a legal challenge from the trade union grouping Solidarity over share allocations.

But this week saw the last stage of the torturous Second National Operator (SNO) bidding process. The successful bidder will get a 51% shareholding that will join Eskom and Transtel (30%) and the Black empowerment group Nexus Connection (19%). The split between Eskom and Transtel will depend upon what each invests. We predict that this complicated "all-inclusive" shareholder structure will consolidate within a year to eighteen months. A number of contenders are in the wings.

The bidding attracted no major international telcos, not surprising given the state of the market but disappointing nonetheless. There are two bidders: Goldleaf Communications and Optis. There was a spat last week in which Eskom and Transnet tried to challenge the whole process by saying neither bidder met the Government’s basic criteria and why couldn’t they have the franchise? Both appear to have retracted these statements and stepped back from trying to megaphone their way into a majority position. As Goldleaf’s CEO Peter Archer observed:"Clearly if Government thought Eskom and Transtel could or should run the SNO by themselves, it would have planned accordingly, and there would have been no bidding process for the 51% equity partner." The successful bidder is expected to be announced early next year.

Of the two contenders, Optis is widely acknowledged to be the weaker of the two. It has the South African Freedland family behind it and an involvement from Shanghai Telecom. The subsidiary of China Telecom owns only 6% of Optis but is as IT Web commented:"being presented as its public face with a high-level technical delegation currently in SA". Shanghai Telecom was not involved in the preparation of the Optis bid and did not conduct due diligence of the existing Esi-Tel and Transtel networks, but has now promised to throw its weight behind Optis. The rest of its deficiencies, the group says, will be remedied before public hearings due to start on 12 December. It is running hard to make up lost ground, not the least "cutting and pasting" into its bid material that appeared to come from a bid used in Mozambique. Close but maybe not close enough.

The current ownership structure of Goldleaf Communications is the Premier Contracts Agency (PCA) (44%), Telecom Africa International Corp (30%) and Gateway Communications (26%). PCA is a team that came out of British Telecom and is according to one of the bid’s partners "a strong resource. BT didn’t want equity but they thought this was an interesting way to be involved." Gateway Communications owns what was FirstNet, one of the largest VAN and professional service operators in the market. The Telecom Africa International Corporation is the brainchild of Dr Joseph Okpaku and "has played a leading role in defining and shaping the strategic priorities for telecommunications in Africa and the means of accomplishing them". Goldleaf has a letter of intent from MTN taking an option on 10% of the shares. Africa Online owner, African Lakes, has also taken a small shareholding.

Whoever wins will have a big challenge running a company with such a diverse shareholder base. Nevertheless Gateway’s Managing Director Peter Gbedemah was confident that the new company would "hit the ground running":"Transtel and Eskom have infrastructure in place. International services will start quickly. We can do this by the first half of next year."

Alongside the large head office buildings and massive administrative staffing of more conventional telcos, perhaps this is the first outbreak in Africa of what Gbedemah calls "the lite telecom business model". Also despite the involvement of two state entities, the consortium has a refreshing lack of the usual telecoms suspects. Maybe this apparently strange grouping of different interests will produce something that is actually more aggressively competitive than the usual international telco suspects.

For those wanting an independent view on Telkom pricing, there is an extremely interesting paper by William H. Melody, the Vodacom Visiting Professor at the LINK Centre, Wits University looking at Telkom pricing available at