South Africa’s Infraco to be open to private investment

Mergers, Acquisitions and Financial Results

The department of public enterprises has called on the public to comment on a new bill that will govern Infrastructure Company (Infraco), the state-owned broadband firm tasked with rolling out affordable, high-speed internet services.

The call comes ahead of the public hearings to be held early next month. The bill seeks to create flexibility around the funding of Infraco and private sector involvement in the company.  Infraco will be converted into a public company after the bill becomes an act. It will have to obtain a licence from the Independent Communications Authority of SA.

The department called for the formation of Infraco last year, after the government backtracked on earlier plans to transfer the telecoms assets of parastatals Eskom and Transtel into the second fixed-line operator Neotel.  Eskom and Transtel own a combined 30 percent in Neotel.

It is understood that the government reviewed its decision, as it believed that Neotel would not be able to offer lower-priced telecoms services as expected, if it had to fund the acquisition of those assets. Telkom, which until recently had the monopoly in fixed-line telephony, has been criticised for charging high tariffs that make it difficult for underprivileged people to access a wide array of telecoms services.

According to the department, connectivity providers other than Telkom have a cost structure where up to 80 percent of charges comprise costs attributable to national backbone connectivity and international connectivity, both of which are supplied by Telkom.

"The logical conclusion was to intervene to address the national backbone and international connectivity cost structures," said the department. "This is based on the assumption that if these costs are addressed, Tier 2 [the local metropolitan area network and last mile] connectivity providers would quickly pass this on to the market as a result of competitive pressure."

Neotel will get exclusivity to Infraco's infrastructure at a cost. Other operators will also get access, but at a later stage. Vodacom, Internet Solutions, Universal Services Access Agency of SA and other internet service providers are expected to make presentations and submit their comments by July 25, ahead of the hearings that will be held on August 1 and 2.

(Source: Business Report)