SOUTH AFRICA SELECTS FINAL SNO SHAREHOLDER

UNCLAS PRETORIA 000710

SIPDIS

DEPT FOR AF/EPS/DKRZYWDA AND AF/S/TCRAIG AND KGAITHER
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL
DEPT PASS USTR FOR PCOLEMAN, WJACKSON, AND CHAMILTON

SENSITIVE

E.O. 12958: N/A
TAGS: ECPS ETRD ECON EINT SF
SUBJECT: SOUTH AFRICA SELECTS FINAL SNO SHAREHOLDER

REFTEL: 04 PRETORIA 5041

04 PRETORIA 4312
04 PRETORIA 3984
03 PRETORIA 6384

(U) Sensitive but unclassified. Not for internet
distribution. Please protect accordingly.


1. (U) SUMMARY. Minister of Communications Ivy Matsepe-
Casaburri announced that she has awarded the remaining 26
percent in South Africa's Second Network Operator (SNO) to
VSNL (Videsh Sanchar Nigam Limited),a telecommunications
firm within India's Tata Group. The six SNO shareholders
must now finalize a shareholder agreement and business plan
before the Independent Communications Authority of South
Africa (ICASA) can issue the SNO a license to operate. At
the moment, stakeholders are optimistic that this may happen
by mid-2005. VSNL's inclusion in the SNO and its
acquisition of Tyco Global Network may also benefit U.S.-
based Tyco Telecommunications' bid to build the East Africa
Submarine System (EASSy). END SUMMARY.


1. (U) Minister of Communications Ivy Matsepe-Casaburri
announced February 11 that she had awarded the remaining 26
percent in the Second Network Operator (SNO) to VSNL (Videsh
Sanchar Nigam Limited),a telecommunications firm within
India's Tata Group. The Minister made her announcement on
the same day of President Thabo Mbeki's State of the Nation
address in which he berated South Africa's fixed-line
telecommunications firm (Telkom) for offering rates that are
as much as 10 times those of developed (OECD) countries.


2. (U) VSNL has undergone a gradual privatization since the
early 1990s with the Indian government currently controlling
26 percent of VSNL and 45 percent of the Tata Group. VSNL
operates a network of 32 earth stations, 12 international
voice gateways, six operational submarine cable systems and
22 Internet "points-of-presence." For the fiscal year ended
March 2004, VSNL had a net worth of $1.1 billion and a net
profit of $84 million. VSNL is also in the final stages of
acquiring the Tyco Global Network from U.S.-based Tyco
Telecommunications, one of the world's most advanced and
extensive submarine cable systems. VSNL is represented in
South Africa by Tata Group's South Africa subsidiary, Tata
Africa Holdings SA (PTY) Limited.


3. (U) The SNO shareholder structure is as follows:

Tata Africa Holdings (VSNL) 26 percent
Nexus Connexxion 19 percent
Transtel 15 percent
Eskom Communications 15 percent
Communitel 12.5 percent
TwoConsortium 12.5 percent


4. (SBU) The shareholders must now finalize a shareholder
agreement and business plan before the Independent
Communications Authority of South Africa (ICASA) can issue
the SNO a license to operate. At the moment, stakeholders
are optimistic that this may happen by mid-2005. ICASA
Chairman Mandla Langa told reporters that the SNO should be
licensed by June. Transtel CEO and SNO Spokesman Karl
Socikwa said that Tata Africa was given early access to the
work done by Transtel and Eskom in order to expedite the
technical liaising between the shareholders. A source at
Nexus Conexxion, the SNO's empowerment partner with legal
action pending against the Minister of Communications, told
Econoff that Nexus is pleased with the selection of Tata and
said that a shareholding agreement is likely sooner rather
than later.


5. (U) VSNL's inclusion in the SNO and its acquisition of
Tyco Global Network may benefit U.S.-based Tyco
Telecommunications' bid to build the East Africa Submarine
System (EASSy),an underwater fiber optic telecommunications
system connecting eastern African nations to the global
telecommunications network.

FRAZER