ICT COMPANIES HIGHLIGHT BROADBAND AND SKILLS DEVELOPMENT

UNCLAS SECTION 01 OF 03 PRETORIA 002164 SENSITIVE BUT UNCLASSIFIED SIPDIS DEPT FOR EEB ALAN GIBBS E.O. 12958: N/A TAGS: ECPS EIND EINV EINT ETTC SOCI SF SUBJECT: ICT COMPANIES HIGHLIGHT BROADBAND AND SKILLS DEVELOPMENT NEEDS IN SOUTH AFRICA; ENTHUSIASTIC ABOUT USG INITIATIVE TO IMPROVE THE SECTOR REF: A. 09 STATE 27310 ¶B. 08 PRETORIA 1278 ¶C. 09 PRETORIA 249 ¶D. 09 PRETORIA 1033 ¶E. 09 PRETORIA 981 -------------- SUMMARY -------------- ¶1. (SBU) Ambassador Gips hosted a luncheon discussion with leading executives of U.S. ICT companies in South Africa on September 25. The executives called for improvements in South African Government (SAG) decision-making processes and for increased public-private collaboration. Leadership shortfalls at the South African Department of Communications (DOC) have hurt the sector because other ministries have jumped in, confused the issues, and created more bureaucracy. Executives expressed skepticisms about the ability of the new leadership at the DOC to address these challenges, but noted that planned government and private sector initiatives could lead to improvements if collaboration is effective. Post agreed to work with the private sector to try to effect change in this important sector for transforming the South African economy and addressing its challenges. End Summary. -------------- CAPACITY CHALLENGES IN THE SECTOR -------------- ¶2. (SBU) Executives from AT&T, Cisco, IBM, Intel, Microsoft, and Qualcomm participated in the discussion on challenges in broadband and skills capacity development at a working lunch with Ambassador Gips at his residence on September 25. The executives advocated quicker adoption of technology and a reduction in the cost of bandwidth. IBM Africa Business Director Gary Caroll said there is increasing international business interest in the African market. However, international companies require assistance with ICT services and expect the same quality of service and capacity here as in their other operations in London or Paris. They said it was difficult to provide the same level of services in Africa due to infrastructure capacity constraints, especially in rural areas. All of the executives voiced an expectation that the new SEACOM undersea cable and related projects will improve bandwidth capacity, competition, and employment in the sector, but only if competitive backhaul is introduced (Ref B). ¶3. (SBU) Balancing Black Economic Empowerment (BEE) policies with the urgency of skills development has been a major challenge for the SAG. The executives noted that the SAG needs to pursue a better skills development model. They said that both the SAG and the South African private sector lacked appropriate levels of ICT expertise, which has stymied decision-making and liberalization. -------------- GOVERNMENT POLICY SHORTFALLS -------------- ¶4. (SBU) The executives agreed that former Minster of the Department of Communications (DOC) Ivy Matsepe-Caseburri had been the wrong person for the position and had been kept in it too long. Matsepe-Caseburri led the DOC from 1999 until her death in 2008 (Ref C). She lacked the technical expertise to implement changes necessary to reduce Telkom's monopoly on the sector. There was an absence of strategic planning at the DOC to deal with capacity constraints in the sector. The executives explained that "as a result, more activist ministers, such as former Minister of the Department of Public Enterprises Alec Erwin, inserted themselves into the sector, leading to the creation of additional unnecessary bureaucracies and parastatal organizations." Erwin launched several Qbureaucracies and parastatal organizations." Erwin launched several initiatives, including the parastatal Broadband Infraco, to develop undersea broadband cable capacity. The project was launched in 2005, but has made little progress due to budget shortfalls and delays in decision-making. ¶5. (SBU) U.S. company representatives all agreed that the national regulator, the Independent Communications Authority of South Africa (ICASA),has been a "disaster" since it was created in 2000. ICASA has suffered from lack of independence and numerous DOC interventions (Ref C). The fees ICASA collects go straight to the National Treasury, yet the SAG does not provide enough financial resources to ICASA to fulfill its mandate. The executives commented that the new Minister of Finance Pravin Gordhan appears to have the vision and political will required to improve ICASA funding; however, adequate funding would need to be combined with leadership and policy changes at the DOC. Skills development at the regulator has also been a problem, especially due to poaching of employees by the private sector. PRETORIA 00002164 002 OF 003 ¶6. (SBU) A Universal Service and Access Agency (USAA) was also launched in 2002 to address country-wide access constraints. Initially, the agency was designed to operate from fees collected from existing ICT companies. However, the executives lamented that this agency also did not get traction, because the SAG decided not to release collected funds immediately to the USAA. SAG raised more funds than it anticipated through the fee structure (over R100 million or $13 million per year),but only released a small portion to the agency. ¶7. (SBU) In the view of lunch participants, the appointment of new Minister of Communications Siphiwe Nyanda was a lost opportunity to improve leadership in the sector. They argued that the appointment was purely political in nature, since Nyanda has no ICT expertise, because the Zuma administration was bound by the African National Congress (ANC) to appoint Nyanda to a Ministry, and the DOC was the only portfolio in which he did not have any business ties or other conflicts of interest. -------------- TELKOM INFLUENCE STILL THWARTS COMPETION -------------- ¶8. (SBU) The executives commented that Telkom's historic influence over SAG policy making, as well as its powerful trade union, have also played a role in slowing the pace of liberalization. Telkom still owns the "last mile" of the local infrastructure loop, and the executives thought that this would still be the case in the short term. Private companies such as SEACOM and Dark Fibre Africa have recently increased the availability of fiber-optic broadband capacity, which is based on an open-access model. ¶9. (SBU) Local municipalities have also taken the initiative to lay their own cables. However, Telkom opposes this approach. The executives said there were "too many lawyers on Telkom's payroll," who were spending their time finding ways to stop others from offering new and improved services and infrastructure and preventing Telkom itself from modernizing and dealing with the realities of the market. The executives felt it would be more productive for Telkom to work with the municipalities on improving local cable capacity, since the municipalities do not have the necessary technical expertise. They also called for increased private sector collaboration on broadband network development instead of building individual networks. -------------- CHANGES ON THE HORIZON -------------- ¶10. (SBU) The executives expected increased competition and international interest in the South African and regional ICT market. China has already been very aggressive in the African market, and India is the next emerging player, with most of its influence in the consulting sector. They expected Vodacom and MTN to become more aggressive and capture some of Telkom's market share. Now that Vodacom is free of its relationship with Telkom (Ref D),it will pursue new deals in Africa. Telkom is also pursuing a new partnership with AT&T (Ref E) to support its Africa expansion strategy. However, AT&T Country Manager Wayne Stanek noted that the MOU it signed with Telkom in May has not progressed since. ¶11. (SBU) Ambassador Gips inquired about the status of the MTN merger talks with Indian-based Bharti Airtel. The executives opined that the merger has implications for Indian ambitions to expand further into Africa, but that it might face some opposition from Qfurther into Africa, but that it might face some opposition from ICASA and the DOC as the Telkom/Vodacom split had a few months earlier. They also asserted that Indian companies are notoriously difficult negotiators. (Note: The Bharti-MTN merger talks collapsed on October 1, partly due to SAG demands for a dual stock exchange listing to preserve MTN's South African identity and the Indian Government's capital control policies that restrict dual listings. Concerns regarding BEE policies were also cited for the failure to reach agreement. The merger would have created the world's third-largest mobile company with annual revenues of over $20 billion and 200 million customers. End Note.) -------------- RESPONDING TO CHALLENGES -------------- ¶12. (SBU) While executives said ICT companies were taking steps to address skills shortage in South Africa, they saw a need to streamline the individual efforts. Companies such as IBM have taken the initiative to attract research and development studies in South Africa to improve overall scientific research skills. For example, PRETORIA 00002164 003 OF 003 IBM is working with the Department of Science and Technology on high tech cloud computing projects and weather projection modeling. ¶13. (SBU) Ambassador Gips stressed that post would be happy to support efforts to improve collaboration on skills development and identify U.S. Government technical assistance programs. The ANC has approached post for assistance with utilizing ICT to boost rural economic development once the new government has had time to settle in. The executives welcomed the offer, noting the ANC request could be incorporated with ANC plans to launch a new ICT Forum. Former President Mbeki had a Presidential Advisory Council composed of local and international ICT experts; this model would not likely be used under Zuma because Zuma would not be comfortable in direct policy discussions with technical experts in the ICT sector. ¶14. (SBU) The SAG has decided instead to launch an ICT forum chaired by Nyanda. (Note: Nyanda launched the "ICT Vision 2020" Forum on October 16 and described it as a year-long process of dialogue and engagement between government and the private sector. End Note.) Nyanda has also signaled to the private sector that ICT legislation and policies would be revised in the next year. The Microsoft executive, a member of the American Chamber of Commerce Board, suggested that the chamber could also benefit from technical assistance to permit it to respond appropriately to SAG requests for input on new initiatives. Most American Chamber of Commerce members in South Africa lack expertise in this area. -------------- COMMENTS -------------- ¶15. (SBU) Industry hopes for leadership changes at the DOC and increased ICASA independence under the Zuma administration have been dampened with the appointment of another political insider to the DOC with little technical expertise. People hope the market will become more competitive in the long term with the entry of new undersea cable projects, increased international investment and collaborations, and the development of new technologies and other local broadband networks. However, the regulatory environment, lack of an effective interconnection regime, spectrum scarcity, insufficient backhaul capacity, and skills shortages are expected to remain major challenges. Post and the private sector would like to increase collaboration to facilitate technical exchanges aimed at improving skills development and policy decision-making. End Comment. Gips