Road to nowhere

South Africa`s municipalities are looking to go digital, rolling out broadband networks and providing e-services to citizens. They will achieve this, the minute Icasa gets itself organised.
1 November 2007
Tshwane Metro's Charles Kuun wants to provide cheap broadband to citizens, but a hostile telecoms environment may scupper his chances.

The digital cities concept centres around local government`s provision of e-services to its citizens. In the South African context, where the telecommunications regime still favours the few at the expense of the many, the digital cities concept offers an opportunity to provide connectivity, content and services to citizens that cannot – and probably will never be able to – afford commercial service offerings.

Under consideration, and the cause of much debate at the moment, are the business models the cities will adopt, grey areas around the legality of municipalities rolling out their own broadband, and WiMax licences due from the regulator, the Independent Communications Authority of South Africa (Icasa).

Current business models under consideration by the various municipalities include total ownership, where the municipality owns the infrastructure and provides it to citizens at what it considers to be a fair price. The second option is public/private partnership, where the municipality may contract a commercial provider to roll out and supply services on its behalf. A further option is for the municipality to roll out infrastructure, which it retains ownership of, and make the infrastructure available to providers to on-sell to customers/citizens.

Naturally the commercial telecoms operators are encouraging municipalities to partner with them. “You don`t have the expertise,” they say, “let us do it.” And what about billing, and who is going to pay for it?

What these protests actually mean is that the providers, long having happily fleeced citizens of all demographics, are afraid that the municipalities, not under the whip of shareholders and profits, will provide perfectly adequate services, at low cost, and push them out of the game.

“The question is,” says MTN Network Solutions CEO Mike Brierley, “that in a market where there are going to be [numerous] licence holders (MTN NS believes 10 to 15 licences will be issued) and a lot of competition, is there room for municipal digital strategies?”

Jeff Fletcher, Internet Solutions` product specialist for new business development, asks the same question.

“In South Africa, we need to ask the question differently,” he says. “If the aim is to provide ubiquitous access and bridge the digital divide in areas like Orange Farm and Soweto, then you need to take a utility approach. The kicker there, of course, is where does that leave MTN, Telkom and the like`s business plans?”

This is indeed the kicker and something the commercial operators are all well aware of. Municipalities do not need to turn a profit, and when a municipality rolls out services, it looks at a 20-year cost-recovery; a commercial provider looks to a three-year return on investment. Given that the cellular operators, for example, provide services to telephone kiosks in the townships for per-minute rates of around R2.50, they have very little incentive to roll out cheaper telecommunications options – or meet municipal mandates of providing access to all. Even public access phones charge 60c per minute. It is those who need it most and can least afford it who are charged the highest rates to access telecommunications services – just take a look at any pre-paid offering!

A win-win model?

The core issue is that money is retained within the local community. Matthew Austin, Neology
The City of Tshwane Metropolitan Municipality has rolled out an extensive fibre network, via its electricity department. It is currently running WiMax, WiFi and broadband over powerline proof of concepts, with several local providers in an initiative that falls under its Smart City programme. It has piloted the open access model, which involves making its infrastructure available to ISPs, which can then provide services to the community via the local loop. The infrastructure will remain the property of the metro and the ISP will pay to access it. The model is designed to appeal to smaller, local ISPs that do not need to generate volume business to make a living.

Says Neology director Matthew Austin: “The core issue is that the money is retained within the local community. If you look at the commercial providers, the money generated goes to the owner in Johannesburg, or overseas. From that perspective, we`ve pushed wholesale-only access – only ISPs can access the infrastructure and they get local loop access. The last mile connection brings them to the core [of the Tshwane network] and from there they decide what they want to do in terms of connection to an upstream provider or breaking out onto another network.”

While the model has been developed, designed and tested, its creators still need to get City of Joburg approval, and legislative approval to run with it.

Says Tshwane Metro manager: Tshwane Global Digital Hub, Charles Kuun: “We`re in a very hostile telecommunications environment. We want to provide very cheap broadband, not free, but very low-cost. The telecommunications operators hate what we`re doing; we`re not in it for the money while they`re in it for profit.”

Another approach

The City of Joburg, on the other hand, has opted for the public/private partnership approach. Says Douglas Cohen of the City of Joburg`s Economic Development ICT Sector Support Programme: “The City of Johannesburg has committed to the development of a city-wide broadband network in line with international trends in municipal broadband deployment. This project aims to primarily build a strong ICT infrastructure for the city, as well as bring ICT closer to the citizens at a cost-effective price, by selling off spare capacity.

“To achieve this,” he says, “the city embarked on a two-stage bidding process to determine a suitable partner to assist in investing, building, operating and managing the proposed network. The two stages in the bidding process refer to the request for information (RFI) and request for proposal (RFP). The city is currently in the first stage.”

The RFI stage was divided into a number of phases, which involved the city releasing an RFI to the public in February 2007. After a thorough review of the RFIs, with the guidance of the city`s supply chain management department, eleven respondents have been selected by the city to engage in the final phase of the RFI stage, “which will involve some form of practical demonstration of the respondents` technical solution. Preparations for this are currently underway,” Cohen adds.

“The evaluation and short-listing of respondents after the practical demonstration phase will mark the end of the RFI stage. The short-listed respondents will subsequently be invited to respond to the RFP, which will result in the successful partner being selected.

“The city is devoted to selecting a partner that understands and is aligned to its aim with respect to the Joburg Broadband Network Project. This project is expected to assist in increasing the availability and accessibility of telecommunications to improve service delivery, education and economic development for the citizens of Joburg,” he states.

eThekwini has also introduced a smart city initiative. Says Dimension Data KZN managing director Jay Reddy: “eThekwini set out a strategy in 2005/2006 to make the City of Durban a smart city. As part of this, it embarked on an initiative to look at expanding on its current cyber network and to look at ways and means of developing this network into more than just connectivity for city offices. eThekwini embarked on a broadband strategy that defined the ways and means for fibre to become available (to the city, citizens and business alike) for the future.”

The problem, as Tshwane Metro`s Kuun alluded, is the regulatory environment. Says Reddy: “With all the legislation such as the EC Act, Icasa licences and so on, there is no clear definition in terms of what municipalities can or cannot do in that environment. There`s a lot of contradiction between the different legislation. Icasa is not ready to license, nothing has been tested, it`s greenfields at this stage.”

The rub

The City of Cape Town is waiting for WiMax licences, Tshwane and eThekwini are awaiting legislative clarity, other cities have yet to finalise strategies. And as Neology`s Austin points out: “The last step to dropping telecommunications prices in this country are the municipalities. Neotel has publicly stated it will not compete on price. The cellular operators are involved in their own cartel.

“The telecommunications providers have paid off their equipment ten, 20 or even 30 times, but do they drop prices? No, they just declare a dividend and buy other operators.”

For the man in the street, the belief is that the last hope lies with the council.