SOUTH AFRICA: MERILL LYNCH SAYS SNO NEEDS R9BN TO SET UP

Telecoms

The second national telephone operator licensed earlier this month requires a capital investment of about R9bn ahead of its commercial launch due in the third quarter of next year, says a recent study by investment bank Merrill Lynch.

Although details of the funding are still being discussed, the second operator's 26% strategic equity partner, Tata Holdings, has committed R1,5bn to the project while parastatals Eskom Telecommunications and Transtel, which own 15% each in the second operator, have already spent R2bn between them on network capital expenditure.

This means that (on the basis of the Merill Lynch calculations) black economic empowerment firm Nexus, which at 19% holds the second-biggest stake in the second operator, would have to fund all or part of the remaining R5,5bn.

The Merrill Lynch study says the completion of technical work, implementation and integration of network, negotiation agreements and the finalisation of funding were expected to take about six months to complete.

The second operator's steering committee chairman, Karl Socikwa, said the company would gradually build its own backbone infrastructure to enable it to compete directly with Telkom and to offer services at reduced prices.

The second operator will roam on Telkom's network for a period of two years after its launch.Telkom will also have monopoly of the local loop for at least two more years after the launch of the second operator. A company that owns or controls the local loop can charge others for access to its network.

But whereas Telkom's operating licence requires it to provide a service to "every person in SA who requests it", the second operator is obliged only to make services available to the 14 network service areas. These are the municipalities of Johannesburg, Tshwane, Mangaung, Cape Town, Mogale City, Ethekwini, Nelson Mandela Metropolitan, Buffalo City, Mafikeng, Mbombela, Polokwane, Sol Plaatjie, Msunduzi, and Ekurhuleni.

Merrill Lynch forecasts that due to the delays in the launch of the second operator it would take only 2,5% of Telkom's market share by 2007. This was down from the bank's initial estimate of 4%. Telkom had projected that it might lose 10%-15% of its market share to the second operator in the next five years.

Business Day