A Erwin: Second reading debates on the Infraco bill

17 October 2007

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
Source: Department of Public Enterprises (http://www.dpe.gov.za)