Address by the Minister of Public Enterprises Alec Erwin during the second reading debates on the Infraco bill, to the National Assembly

Introduction

Honourable Chairperson, Members of the National Assembly, ladies and gentlemen I am very pleased to be able to introduce the debate on the Broadband Infraco Bill in the National Assembly.

In a modern industrialised economy the existence of high speed, high capacity telecommunication infrastructure is a major driver of economic growth and more accessible socio-economic services such as health and education. In fact there is little doubt that this is a strategic necessity for contemporary growth and development. It is this understanding that led the Government to decide to retain the key fibre optic national network, developed originally by Transnet and Eskom, in State hands. This will allow for a strategic investment programme to take place according to a clear timetable and with the clear intent to modernise our broadband infrastructure and lower the cost to the economy of such capacity. This will be achieved not through some form of subsidy but by a long term strategic investment by the State where our pay-back periods are longer and the rate of return required determined by a number of economic calculations rather than profit maximisation as the prime determinant. If these objectives of high speed, high capacity and internationally competitive telecommunications pricing are met in the medium to long term the State can then re-consider the need to retain all or part ownership of such infrastructure.

Background

The background to the decision to retain the long-range fibre optic assets of Eskom and Transnet in state hands spans some years and many complex negotiations. The difficulties that this presented in the processes related to consultation, licensing and scheduling in terms of the Public Finance Management Act (PFMA) are fairly commented on in the Portfolio Committee Report on the Broadband Infraco Bill. There is no doubt that all could have been smoother, however, this is rather an unusual situation not fully envisaged in our legislation which is relatively youthful in implementation. Accordingly I would like to thank the Portfolio Committee for all the long hours and intense work they put into the processing of the Bill. The fact that the Portfolio Committees on Communication and Finance were consulted on many matters and in the case of Communication participated actively was additional testimony to both the complexity of the policy issues that arose and the amount of work this relatively short Bill entailed. I would like to thank the former Chair of the Portfolio Committee on Communications for the support he gave the Department of Public Enterprises) DPE and the Portfolio Committee on Public Enterprises.

The issues

Let me deal briefly with the key issues that have arisen in the inputs to the Portfolio Committee hearings.

Broadband Infraco is a precise intervention in our telecommunications sector. Whilst South Africa's telecoms industry is well established, with world-class companies, it is characterised by a limited number of incumbents who hold significant market power and the size of our economy is likely to make this a relatively permanent feature of the economy. This means that simply licensing additional players does not significantly alter the market structure and global market forces may lead to an underinvestment in large-scale national infrastructure within such a compact market. Accordingly, leaving such critical investment to purely market forces was too risky given our urgent need for greater and more internationally competitive broadband capacity. However, we are confident that the new Electronic Communications Act (ECA) and licensing conditions now in progress will lead to an active private sector development in the multiplicity of value added services that utilise broadband. It is important to note that Broadband Infraco will not enter these areas in competition with the private sector. It seeks to ensure long-range broadband capacity that will liberate such value added services from constraints of capacity and cost. To this end it will focus on intercity and national networks and undersea cables. In the later case we will work with other players to ensure that a timely and large capacity broadband connection to the world is available. By making long distance connectivity available to the private sector on a cost plus basis, Infraco will commoditise long-distance infrastructure and will bring the South African telecoms market in line with others worldwide.

There is general agreement that Broadband Infraco should be licensed as soon as practicable. Indeed this is important if we are to achieve our objectives. Following debate on the possible options I am certain that we should follow the processes preferred by the Department of Communication and Independent Communications Authority of South Africa (Icasa). From the side of the DPE we will work actively with the Department of Communications and ICASA to facilitate progress in this regard since at the end of the day the real strategic objective is to transform South Africa's telecommunications sector into a highly competitive player in the interests of our economy and society. Other strategic projects, such as the Square Kilometre Array (SKA) and SANREN (South African National Research Network), will be almost impossible to achieve without larger bandwidth capacity, which South Africa currently does not have. The importance of such bandwidth for 2010 should also not be underestimated. This issue was the most contentious and time consuming. Many submissions dealt with a range of legitimate concerns on the part of many of the industry players. However, there seems to be consensus in the industry on the need for Infraco. I thank the Portfolio Committee for going out of their way to accommodate all such concerns whilst keeping a clear focus of attention on the strategic purpose of Broadband Infraco.

The issue of what Schedule of the Public Finance Management Act (PFMA) Broadband Infraco should fall into did bring to light different viewpoints on the matter. I value the process adopted by the Portfolio Committee to inform themselves on the issues and indeed to come to some clear views on their own part. However, as the Portfolio Committee indicates in its Report the Executive did have to give a lead on the matter. This matter is now resolved through a consultation process in the Executive and Broadband Infraco will be a Schedule 2 entity with specific reporting and monitoring requirements.

Conclusion

The completion of this legislative process will allow for the establishment of a company that is set to revolutionise the ICT sector, and move us one step closer to making more affordable broadband access a reality. I would like to thank the leadership of Neotel, VSNL and the Tata Group for their farsightedness and support for South Africa's long term strategic interests in the telecommunications interest. In doing this they have often been prepared to accommodate us rather than insist on immediate commercial requirements. Such an approach is highly valued and we have undertaken to continue to work together to meet these strategic needs.

I have a very high regard for the work of the Portfolio Committee on Public Enterprises. The debates in the hearings on the Bill have been rigorous and engaging and the DPE has learnt and benefited from the vigilance and full commitment to this process on the part of the Committee members. All the stakeholders I talk to have expressed their respect for the Committee and process. Accordingly, I would like to express my thanks and admiration to the Portfolio Committee for a job well done and for putting up with some of the unusual circumstances I referred to earlier. In particular I would like to express a special word of thanks to the outgoing Portfolio Committee chairperson Yunus Carrim. We will indeed miss you but know that you will add value wherever you may be. I know that I will still turn to you for advice from time to time as we go forward.

I would like to welcome the Honourable Fatima Chohan as the new Chair and she is rapidly informing herself on the intricacies of this new challenge. The manner in which these two experienced comrades have handled the changeover has been excellent. I am sure that this very strong Portfolio Committee will continue to go from strength to strength as we deal with the interesting and important challenges ahead as the SOE fulfil their important role in AsgiSA.

With the support of the Portfolio Committee I commend this Bill to the House.

I thank you.

Issued by: Department of Public Enterprises
17 October 2007