Robyn Chambers looks at how South Africa’s vibrant telecommunications industry is about to undergo further liberalisation and privatisation.

South Africa’s telecommunications sector, one of the most dynamic of the country’s industries, is poised for change in the coming years as the government’s liberalisation and privatisation initiatives take hold. While work is still needed to finalise a new regulatory framework, government plans to open up the sector to competition, as well as to list the majority state-owned phone company Telkom, offer many opportunities for investors.

The telecoms environment in South Africa is dominated by Telkom, which has had a legislated monopoly for the past five years on fixed-line services. The exclusivity period was granted to Telkom in 1997, when the government sold a 30% stake in the utility for R5.6bn to two foreign companies – US-based SBC Communications and Telekom Malaysia. SBC holds 18% of Telkom and Telekom Malaysia 12%.

There are also three cellular companies – Vodacom (in which Telkom has a 50% stake), MTN and Cell C. This sector has grown quickly in recent years, with Vodacom and MTN having enjoyed a duopoly until the entrance in November 2001 of Cell C.

Healthy competition

The government always intended to introduce competition at the end of Telkom’s monopoly period. Speaking at an industry and government telecoms meeting last year, communications minister Ivy Matsepe-Casaburri said the government had recognised for some time that the telecoms sector was at the epicentre of growth and development of the country and the new economy and this would be achieved by lowering input costs, and improving efficiency and availability of skills.

But she added that government also recognised the need to understand globalisation and its impact. “Government has decided on a path of managed liberalisation; encouragement of domestic and [foreign investment]; a priority of human resource development; encouragement of formation of public private partnerships; policy and regulatory certainty; establishment of a solid ICT industry; promotion of the African Renaissance,” said Ms Matsepe-Casaburri.

As a result, it was agreed to introduce a second national phone operator to the market this year. The operator will consist of a black economic empowerment entity, with a 19% share, while two state-owned companies, Transtel and Eskom Enterprises, will have a further 30%. Tender documents for the remaining 51% were recently issued to attract local and foreign investors to bid for the stake.

At least four big international telecommunications companies from Portugal, India, the UK and the US have emerged as potential bidders for a majority stake in South Africa’s second telephone operator. Local company M-Cell is the only local potential bidder to have shown any interest so far.

There is significant scope for growth in the local market. Consultancy group BMI-Techknowledge estimated that revenue from the telecoms market will exceed R82bn by the end of 2005, up from R48bn it reached in 2000.

Investor interest is expected to be bolstered further by the relatively mild delivery and investment targets set out in the draft licence for the new operator. These include a network that covers 80% of South Africa in 10 years to 150,000 community phones in rural areas over the same period. A further 20,500 internet laboratories have to be implemented over 10 years.

Ms Matsepe-Casaburri said binding bids for the licence were due in on August 30. “We hope to be able to announce the winning bidder by December,” she added.

Liberalisation plan

The government has granted two licences to the state-owned signal distributor Sentech – one for multi-media services and the other for “carrier-of-carrier” services – the routing of international calls for other operators.

Sebiletso Mokone-Matabane, chief executive officer of Sentech, says the organisation plans to offer broadband network access to residential consumers, companies and schools.

The liberalisation of the phone market is taking place in tandem with the listing of Telkom. An initial public offering for Telkom was originally planned for last year, but due to extremely poor global telecoms market conditions, it was postponed.

In his recent budget speech, Public Enterprises Minister Jeff Radebe said he could confirm that conditions on the global telecoms front had improved so that SA could proceed with the Telkom IPO before the end of this current financial year.