Budget of Department of Communications: briefing; Presentation of Telkom Annual Report

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
22 October 2002
BUDGET OF DEPARTMENT OF COMMUNICATIONS: BRIEFING; PRESENTATION OF TELKOM ANNUAL REPORT

Presentation on Telkom Annual Report
Department of Communications Budget Presentation

SUMMARY
The presentation by the Department of Communications outlined its achievements during the financial year; its future objectives and plans, challenges and budgetary breakdown for 2002/2003.

The discussion by Members focused on the following. The continuous state of underfunding experienced by ICASA and the measures put in place to address this. The manner in which the Regional Television Services introduced by the Broadcasting Amendment Bill would be financed. The SABC clearly does not have the resources to finance it. Had the Department negotiated with NameSpace.Za regarding the Domain Name Authority established by the ECT Act. When the South Africa Post Office would be fully separated from the Post Bank. The Department was asked to explain the progress it has made in drafting the convergence legislation.

In its presentation on its Annual Report Telkom outlined its performance review and the financial highlights. The impact of the Telecommunications Amendment Act, the Regulation of Interception of Communications and Provision of Communications Related Information Bill, the SITA Amendment Bill, the ECT Act, the Promotion of Access to Information Act and the Electronic Communications Security (Pty) Ltd Bill on Telkom operations was outlined.

The discussion on this presentation dealt with the reasons for Telkom's inability to meet its roll-out target to villages and what is being done to address this. When the IPO will be evaluated and the basis on which this evaluation will be done, the "bandwidth battle" currently being waged with AT&T. Clarity was sought on the exact number of jobs lost during Telkom's restructuring process.

MINUTES
The Chair informed Members that the Department of Communications was scheduled to have presented a report on its budget for the current financial year in the first quarter of 2002. This has been postponed till October 2002 due to, amongst other matters, the funeral of the former Minister of Safety and Security, Mr Steve Tshwete. It had to be remembered that the Department's budget for the 2003/2004 financial year has not yet been tabled before Parliament, with the result that this Committee would now be able to exercise an oversight function over this decision-making process. Furthermore, the WTO will be meeting in Geneva on Friday 25 October to discuss electronic commerce, and this is interesting because this Committee has recently passed the Electronic Communications and Transactions Act (the ECT Act), which is regarded as a bridge towards a technologically driven economy.

Briefing by Department on Budget
Dr A Ncgaba, Director-General of the Department (the DG), conducted that presentation which outlines the achievements of the Department to date during this financial year, future objectives and plans, challenges and budgetary breakdown during 2002/2003.

He added that it was decided that the E-Strategy of the ECT Act would seek to focus primarily on education, health and SMME's. With regard to the slide dealing with the South African Post Office (SAPO) the Department recognises that SAPO is one of the key initiatives to be used in providing financial services to the community, and it's popularity has grown in recent times due to the problems experienced with other financial institutions.

Discussion
Ms S Vos (IFP) stated that her question would focus on ICASA and the "R111 m" the presentation indicates has been allocated to its budget. The Telkom presentation acknowledges that ICASA is inadequately skilled and resourced, and this has been a cause of concern for this Committee for some time now. The presentation also indicated that R30m has been allocated to policies on programming content, but why is the Department doing work that ICASA should properly be doing and what are the reasons, according to the Department, for ICASA's constantly being under-resourced.

The DG replied that it takes a cycle of eighteen months for the government to process its budget and it culminates in its submission to the Ministerial Committee on the Budget, and the various organisations would also deliver a presentation to that budget committee. This entire process is open and transparent, and it has to be remembered that government has to contend with competing funding needs ranging from education and social welfare to the funding of the independent regulator. Government thus has to use its limited funds to address all these "stretched needs" and different national priorities.

Organisations and bodies do motivate for funds, and the Department is optimistic that some of the shortfalls will be addressed in subsequent MTEF's because of the competing needs and demands of the State.

These funds are not used to fund policies but instead finance the production of local content, and is therefore not "political money spending".

Mr Mandla Langa, ICASA Chairperson, stated this is a matter on which ICASA and government have been engaging for a while. The Auditor-General has just approved the ICASA Annual Report without qualification, but ICASA continues to make do with the little funds it has. It has even gone directly to the world agency funding bodies requesting funding. The important matter of ICASA funding and capacity will be discussed at a workshop to be held with the Department on 28 October, where this matter will be addressed collectively.

Ms M Smuts (DP) stated that it is actually the National Treasury that makes the R111m determination and not the Department, as contended by the DG. Yet this amount is "hopelessly insufficient", and it has been argued in this regard that ICASA retain a portion of the licence fee so that it may generate additional revenue. The Constitutional Court has recently ruled that irrespective of the budgetary procedures of Parliament, ICASA and the other Chapter 9 bodies must be able to defend their needs and the quantum of funding in Parliament. The Department cannot be faulted for the R111m, as the National Treasury is the responsible party here.

This Committee should talk to the National Treasury because it does not seem to understand the importance of ICASA in encouraging investor confidence and confidence in the industry itself. The problem is that the quantums have already been set, and ICASA cannot manage.

The Chair stated that this concern raises two important points. The first is that this issue is broader that this Committee itself as it deals with the role of Parliament in even amending the budget, and it is clear that this matter cannot be addressed by this Committee. Instead the Parliamentary Budget Committee has to be consulted. The second matter relates to what the Chair himself has said on previous occasions, and that is that the quantum needed by ICASA to fulfill its mandate has to be reduced to a fixed figure. This cannot "just be a thumbsuck" nor can it be left to the Treasury to decide, but the regulator itself has to determine the quantum it needs to achieve its objectives so that it can develop the country. An independent assessment of the quantum needed should be obtained by ICASA. ICASA does not have sufficient funds or capacity to fulfill its mandate, and this Committee has to engage the Parliamentary Budget Committee to obtain these figures.

The DG replied that he feels he should come to the defense of the government budget process and contended that it is not the fault of the National Treasury, because the budget is an inter-departmental process and the structure looks at the matter in a broad approach. The consultation process proposed by the Chair is the desired approach, and the Department will peruse the case to ensure ICASA is able to function better.

Mr J Durandt (NNP) stated that during the deliberations on the Broadcasting Amendment Bill Members were informed that 97% of the SABC's budget is derived from advertising revenue, merchandising and licensing fees, and thus only three percent of its budget is provided by the State. The DG has also stated during the presentation that there is a R120 m shortfall, and the Department is thus needed to explain where the funds for the establishment of the new Regional Television Services (RTS) will be sourced from. It is clear that the SABC does not have the funds to establish the RTS, as it does not even have sufficient funds to fulfill its own mandate.

The DG responded that the R120 m shortfall would be used for the provision of these new languages which have never before been broadcast on television, and this has budgeted for in a business plan. The funding for these services will be pursued via the MTEF processes.

Mr Durandt stated that this reply is worrying, because the DG is essentially saying that there are no funds to implement the RTS.

The DG responded that this is not what he is saying, but rather that exact figures cannot be provided to Members because the budget process has not yet been finalised. Yet this matter has been raised today because there is a need to discuss it with the Committee, as well as the budget for the next financial year for any services that have not yet been finalised. Thus a comprehensive answer will be given in 2003 when the budget has been finalised.

Mr Durandt stated that the concern here is that the SABC cannot fulfill its role as public broadcaster by itself because it generates 97% of its income itself, yet it is not allowed to generate funding for services from advertising. It is contended that those that those services that the SABC cannot fund itself, the State has to fund.

The DG agreed with this.

Ms Smuts stated that when the Broadcasting Amendment Bill was introduced the DG stated that the business plan was presented to the Treasury, and clarity was sought on what precisely was contained in this business plan that was handed over to the National Treasury. The R120m to be used to provide the RTS, as stated earlier by the DG, "is nothing", because a one hour Nguni Current Affairs programme would cost no less than R15m to air. Assurance is thus needed from government before the Broadcasting Amendment Bill is tabled "that someone did the thinking", because there is a clear impression that the Department "is making thing up as it goes along". It might not be the Department's fault, but it has to explain the situation.

Dr Ihron Rensburg, SABC Board Member, asked the DG whether any attempts are being made to review the current balance of the SABC funding, which currently falls between 1 and 2%.

The DG replied that the slide dealing with "Transfer Cost" indicates that SABC funds have dropped and there was therefore a realisation that a public broadcast service (PBS) has to introduced, and for this reason the Bill separates PBS from the commercial broadcast service (CBS). The aim here is to ensure that issues regarding PBS can now be addressed in a particular way. The international model followed in this regard allows government to contribute to PBS, and this matter is not in dispute, but the problems arise in deciding on the changes that need to be effected to provide these services. All this is dealt with by the MTEF, but the exact figures will only be available during 2003 because this has not yet been finalised.

The Chair added that the Bill itself provides that the National Treasury will not release funds unless it is ensured that these funds would be used for PBS.

The Chair urged Members to maintain perspective here, as there are two important matters that have arisen. The first is that the Broadcasting Amendment Bill is likely to come into operation before the end of 2002. The processes introduced by that Bill has to begin and the Committee decided to grant the SABC a time period of nine months after the law has come into operation to put its plans on paper with regard to the quantum of cost needed to ensure it delivers on its Constitutional requirement to broadcast in those South African languages. It would be useful to engage in this type of discussion with the SABC itself, because it is the SABC itself that would be best placed to develop the plan with regard to the quantum needed for the RTS.

The second matter is that, as is currently provided in the Broadcasting Amendment Bill, funding for the RTS would be derived from sponsorships, grants and donations, and advertising can be introduced at a later stage depending on the result of the inquiry to be conducted by ICASA. The R120m to be used to establish the RTS is a "thumbsuck" and is not based on a business plan, and must instead be determined in terms of "what has been written down". This matter can be argued during the debate in the House, and the Committee can argue for more than R120m.

Ms Smuts stated that the Bill provides that funds can be appropriated from Parliament. The current situation means that the establishment of RTS were first passed and only afterwards will the figures be looked at. This is problematic, because ICASA cannot grant the licence if it is not satisfied that the RTS has sufficient funding and infrastructure. The current situation amounts to placing the cart before the horse.

The Chair stated that the RTS should have been established a long time ago as those languages need to be broadcast on television, and one should not be worried about the cart or the horse here.

The DG replied that the business plan was developed first, because the budget for those services will not be approved without the business plan, that is the procedure followed by government. The business plan was well thought of. Today's briefing was aimed at focussing on the current financial year, yet concerns being raised deal with the next financial year, whose budget has not yet been finalised.

Mr V Gore (DP) stated that the DG said that the Department's aim and objective is to ensure a stable regulatory environment and it believes that this has been achieved, yet this is not the case. In fact the opposite is the case, as evidenced by the "flip-flops" in the recent Telecommunications Act and ECT Act, which create an unpredictable environment. An additional problem is created by the cryptography registration site which has recently been piloted as the cost itself can only be afforded by a few South Africans, and the site itself was problematic because it did not operate properly.

The DG replied that the cryptography issue in the ECT Act is an important issue, and contended that the site referred to by Mr Gore was intended to serve as a test site for the Registrar.

Secondly, Mr Gore asked whether the Department has negotiated with NameSpace regarding the ECT Act, as required by that Act?

The DG responded that the Department has negotiated with NameSpace with a view to establishing the Domain Name Authority.

Mr Gore contended that it is critical that government negotiates with NameSpace, and the DG is asked to explain when these negotiations took place, on how many separate occasions the Department has met with NameSpace and Mr Lawrie. This is important because he has been told that no meetings have taken place since the passing of the ECT Act.

The DG responded that he is sure that the records of the negotiations can be made available to the Committee. The Department believes that it is important to talk to both NameSpace and Mr Lawrie as there is a need to transform the Internet industry because it has not transformed sufficiently, with regard to the number of positions held by black and female South Africans.

The Chair stated that he is prepared to go on record in confirming that such engagement has in fact taken place.

Mr R Pieterse (ANC) contended that the problem here is that some of the facilities and services that have been provided by the Department do not provide proper access to all South Africans. Public telephones, for instance, are structured in such a way that they cannot be used by children because they are too high or by the elderly. Such shortcomings have to be sorted out before such facilities are implemented, because it simply is too expensive to correct by upgrading it a later stage.

Mr M Waters (DP) directed his question at the South African Post Office delegation, and stated that the DG contended that the Post Office will be placed in the Post Bank. He sought clarity on when this process would be finalised and when the Post Bank would become an independent entity.

The DG responded that the Post Bank and SAPO are one institution, with the Post Bank merely being a division of SAPO. In fact, the accounting done at the end of every financial year reflects that the Post Bank and SAPO as one entity on the balance sheet. A programme has been introduced to, over the next eighteen months, separate the assets of these two, but they would still share a common infrastructure because of the extensive reach especially in providing services to the rural communities.

Secondly, Mr Waters asked how SAPO plans to repay the R1,3b owed to the Post Bank.

The DG replied that the Department has entered into discussions with the Treasury and SAPO with regard to how this matter can be resolved, and it will be resolved soon.

Thirdly, Mr Waters referred to the fight against pornography mentioned by the DG and asked how the Films and Publications Board, accountable to the Home Affairs Portfolio Committee, fits into this process.

The DG responded that that Committee is the structure to address the matter, but the Department feels it has a role to play here because it has the necessary technology to address this matter, even though it is not its primary mandate.

Fourthly, Mr Waters stated that it has recently been reported that the postal regulator has been suspended earlier during 2002, and clarity is needed as to whether a disciplinary hearing has been conducted and, if so, what was the outcome of the hearings?

The DG informed Mr Waters that that person has been dismissed.

Ms N Mtsweni (ANC) referred to the slides outlining the Department's Human Resource Development Strategy and the establishment of the ICT university. His question related to the concern raised earlier by Mr Pieterse regarding accessibility. The ICT campuses cannot only be placed in areas in which people can afford to attend them with the result that the previously disadvantaged are not able to access these facilities. Where will these campuses be located?

The DG replied that the issue of accessibility and affordability will be addressed by a committee involving the Departments of Education, Public Service and Administration, Labour, Trade and Industry and Communications. This Committee will consider matters such as the curriculum, location and intake of the ICT universities, and a full explanation cannot be provided at this stage, but the objective is to take the best talent the country has to offer through this process.

Secondly, Ms Mtsweni asked whether there is any way to look back at the Multi-Purpose Community Centres (MPCC's) and ensure that they serve the purpose for which they have been established. This is an important concern because members of her constituency have reported that these MPCC's have been left as they are, because the communities in which they have been established were not consulted before they were erected, and these centers are not taken care of.

The DG replied that the intention was to establish as many MPCC's as possible, and the Department and GCIS plan to ensure diffusion of such centres as fast as possible. The Department examines these MPCC's via an audit conducted by the audit unit under the guidance of the Chief Financial Officer, and reviews matters such as the functioning, outputs, skills needed and support systems which these MPCC's are supposed to provide.

Thirdly, Ms Mtsweni asked how the funds of the community radio stations are administered.

The DG replied that community radio is an important institution to be used to guide South Africa, and the Department does contribute some funds to these stations because it believes that they assist in addressing the needs of South Africans. Community radio stations provide infrastructure that needs to be utilised by the State to provide services to as many South Africans as possible.

Mr Gore stated that the issue of the convergence of telecommunications and broadcasting functions is a vital component of the ICT, and was discussed when this Committee passed the Telecommunications Amendment Bill and again with the Broadcasting Amendment Bill, to a certain degree. It is the view of the DP that a whole new Act should be introduced to deal exclusively with the issue of convergence and the DG himself promised this piece of legislation during 2001, but nothing has been heard since.

The DG agreed that this is an important issue and assured the Committee that the industry and stakeholders will be consulted. A draft version of that Bill has been prepared by the Department and the consultation process will commence in 2003, and at that time the draft will be made available. It is a substantial piece of legislation and the consultation process will begin at an early date, to allow the parliamentary deadlines to be met. There is thus a process to develop this legislation and the Department agrees that the convergence of broadcasting, IT and telecommunications is important for the economy and the country as a whole. It is a groundbreaking Bill and the Department was happy with the progress it has made.

Telkom Presentation on Annual Report
Performance Review
This portion of the presentation was conducted by Ms Nombulelo Moholi, Telkom Chief Sales and Marketing Officer, which dealt with the six line roll-out and service quality targets and Telkom's highlights and achievements during 2002. She drew Members attention to the slide entitled "Six line roll-out targets" which indicates that, although Telkom has missed its lines target by approximately 16 000, it has more than compensated for this shortcoming by exceeding its payphones target by about 13 000. Telkom has also exceeded under-serviced areas by about 100 000 and priority customers by 5 000. The slide indicates that Telkom has missed its "villages" target by approximately 500 lines because, when the target was fixed in 1997, Telkom was not provided with the actual and accurate figure of the number of villages.

The slide entitled "Ten service quality targets" indicates that Telkom has missed its target with regard to faults per 1000 lines in residential areas, and this is due primarily to the Mpumalanga floods of 1999, from which Telkom has never recovered.

With regard to the slide detailing the "3 Minute local call" is should be noted that Telkom exceeds the international average, and the slide entitled "3 Minute long distance call" indicates that Telkom is below the international average in this area. Yet the slide entitled "Satisfied Customer" indicates that the public believe that Telkom is doing a good job on all fronts.

The "Achievements" slide indicates growth in several service areas, and the growth in the number of prepaid subscribers indicates that instead of losing customers who are unable to pay their monthly accounts, they have now moved to the prepaid system which allows them to better manage their telephone usage.

The slide entitled "Markinor/Sunday Times Top Brand Survey" indicates the accolades and recognition of the service provided by Telkom, and this is due to the superior focus placed on customer service, Telkom's social investment programme and targeted sponsorships.

Financial Highlights
This portion of the presentation was conducted by Mr Anthony Lewis, Telkom Chief Financial Officer, which outlined the group revenue during 2002, the contributions by the fixed-line and mobile segments as well as the group income statement and balance sheet for 2002. He drew Members attention to the fact that, as indicated in the slide entitled "Group income statement", Telkom has exhibited a net income for 2002 of 17%.

Legislation and Regulations
This portion of the presentation was conducted by Mr Victor Moche, from Telkom's Regulatory and Government Relations Directorate. It dealt with the areas in which the Telecommunications Amendment Act of 2001, the Regulation of Interception of Communications and Provision of Communications Related Information Bill, the Promotion of Access to Information Act, the SITA Amendment Bill, the ECT Act and the Electronic Communications Security (Pty) Ltd Bill have practically impacted Telkom operations, although the actual impact may not have been envisaged or intended by Parliament when passing the pieces of legislation.

With regard to the slide entitled "Interconnection with SMME's", Point 2 and 3 essentially amount to discrimination against Telkom. The following slide deals with the Regulation of Interception of Communications and Provision of Communications Related Information Bill, and noted that fact that this law imposes a greater administrative burden on Telkom and a state of interrupted governance because, as indicated in Point 4 on that slide, Telkom now has to collect detailed information on its consumers for the interception centres. This essentially raises the barrier for those wishing to enter the industry.

Point 4 on the slide entitled "Promotion of Access to Information Act" provides that Telkom would now have to create a new administrative entity, because the Human Rights Commission will now perform an oversight function over Telkom, to ensure information is made available to its customers. Point 2 on the following slide indicates that the SITA Amendment Bill seeks to create a monopoly on government private telecommunications networks, even though the industry is currently in an environment of market liberalisation. This monopoly will create inefficiency.

The first point on the "Electronic Communications and Transactions Act" slide indicates that the "cooling off period" allowed by the Act undermines the very purpose and functioning of the quick IT industry. Point 2 suggests that identification verification would kill off telephonic business completely, and potential users of this service may be discouraged from using it because of the onerous identification burden.

The slide entitled "Electronic Comms Security (Pty) Ltd" indicates, via Point 2, that a problem is created by the Bill because it enshrines a particular bias in favour of ComSec to the detriment of those "not in the stable of ComSec". Point 5 suggests that another monopoly could be created here.

Point 6 on the "Major Costs-Implication Legislation and Regulation" slide indicates that the USFC has increased by 10% and someone has to pay this amount, with the customer ultimately having to bear this cost because of the floundering economy. Point 9 deals with the USAL interconnection costs, and Telkom has to recover these costs somewhere.

Telkom has good intentions and sound measures in place to enable it to fulfill its mandate, but these have to be examined with regard to the whether it would be able to implement these practically in view of legislation that impacts its functioning.

Discussion
Ms I Mutsila (ANC) commended Telkom on the good work it is doing for the country, and asked Telkom to explain the efforts it is making to address the restraints that prevent it from reaching its roll-out targets in villages.

Furthermore, the villages are also experiencing problems with regard to copper lines that have been removed and telephone poles that have been uprooted, because they were under the impression that new technology would be arriving soon. Yet the new technology has not been implemented with the result that these villages now have no means of communications. What is being done to address this situation?

Ms Moholi explained that Telkom installed a number of lines nationally without even knowing that a "village" is defined as a place with more than one hundred residents, with the result that it was unable to meet its target. Telephones have been installed, but these have disappeared due primarily to social factors and dismantlements.

Telkom aims to address this situation by addressing the concentration of payphones with high disconnection rates, and by increasing the volume of public telephones so as to allow greater access. The pre-paid system for fixed-lines was introduced in 1998 as a world first and was aimed at attracting customers who are not able to afford monthly accounts, and was also introduced to "win back minutes" from mobile telephone service providers.

Mr Durandt sought clarity on the fact that long-distance calls are cheaper than short-distance calls, because this does not make sense as it does not seem to make services more accessible to the public.

Ms Moholi replied that the rebalancing that has to occur here is important because it does serve as an incentive for the new service operators to invest in local access, and this would ensure that the tariffs re not too high. Statistics compiled in 1997 indicate that there is a difference between the pricing of long and short distance calls, and the current South African rate is below the international average. The rebalancing exercise is painful but it is necessary but it also has to balanced with the need to ensure entry into the industry, and this will ultimately benefit the consumer.

Mr Pieterse referred to the presentation, which mentions that 2,6 million telephone lines have been installed, but this does not take account of the 2 million lines that have been terminated. A breakdown is of these 2 million terminated lines is needed. Are these a result of consumers who have decided to no longer use Telkom?

Ms Moholi responded that disconnections are not always initiated by Telkom as 50% are customer-initiated. This range from economic reasons, including a transfer to the more manageable pre-paid system, and is also attributable to the increase in mobile phone subscribers.

Ms Smuts stated that the IPO will soon be introduced and all hope that it succeeds, but when will the evaluation of the IPO be conducted, and on what basis will it be conducted?

Mr Lewis replied that the process for evaluating the IPO will be completed by JP Morgan and the Deutsche Bank, government's advisors, prior to the occurrence of the actual listing, and it is expected to be completed sometime in February 2003. The advisors will then evaluate the IPO based on the business plan presented to them, and the factors considered will include cash flow of the whole group, including Telkom, Vodacom and Swiftnet.

The government has indicated via the Department of Public Enterprises that the IPO will be finalised before the end of the present financial year.

Secondly, Ms Smuts contended that Telkom is presently in a state of simultaneously engaged in listing itself and also taking on new competition, and because Telkom is such a strong and efficient corporation that succeeds in protecting its own interests, it still maintains a de facto monopoly. Amidst all this it is currently engaged in a dispute with AT&T, despite ICASA's ruling that it has to provide AT&T with bandwidth so that the rest of the industry can grow. How does Telkom expect South Africa to get investors for the SNO if they see the industry ignoring and refusing to comply with the independent regulator's rulings?

Mr Moche responded that there would be never-ending conflict as long as there is an open and competitive market place. The fact of the matter is that AT&T has never had a problem with bandwidth because it has always had all the bandwidth it has asked for, although they argue Telkom refuses to grant it to them.

Litigation is not always due to some unresolvable conflict, but is also engaged in to obtain clarity on the regulations. Should parties disagree on the interpretation of legislation then the only institution that interprets legislation is the court, and thus litigation is not always resorted to because the parties "hate each other". Having said this, Telkom is anxious to see the regulator functions at the proper. Efforts are not being made to ignore ICASA because Telkom's "life depends on ICASA", and ensures it assists ICASA at all times, even though it might potentially conflict with its own interests.

Mr Gore contended that bandwidth is vital, and the problem lies both in the fact that the current bandwidth is outdated and with the cost of the bandwidth. What is Telkom doing to reduce the cost to residential areas, in terms of universal service, and to business?

The Chair asked whether there is really a bandwidth problem, and clarity is needed as to how much exactly AT&T has invested in the South African telecommunications industry, because it seems to be calling the shots. The bandwidth battle seems to be led by AT&T, but what is it all about, practically?

Ms Moholi replied that there are two primary areas in this regard. The first is that the problem with bandwidth relates to its cost, and in this regard it should be noted that during 2001 the Telkom tariffs for individual subscribers decreased. The second lies with the availability of bandwidth, but this aspect has never been a problem. Telkom sources its international bandwidth from Intersite and pays a third party to provide this bandwidth to Telkom, and Telkom is thus not "sitting on bandwidth" as has been suggested. In fact, an underwater cable has been introduced to provide this service, in addition to the satellite provider, and this is as a result of the realisation that Telkom does not have this infrastructure, but that it has to be sourced externally.

Mr Moche added that the communications industry currently contributes approximately three percent to the GDP. South Africa has to be careful to create a market as the industry develops, and here government has to ensure that people have household incomes so that they can afford these services. Only then can they access these services, and only then can the services improve their lives.

Secondly, Mr Gore asked Telkom to clarify the rumours that it is selling off its world class centre in Centurion.

Thirdly, Mr Gore asked Telkom to explain why the ADSL facility has only been launched in August 2002 and not earlier, because this facility has been available internationally for much longer. Why has its introduction been delayed if it benefits the economy?

Ms Moholi responded that this relates to the concern raised with. The ISDN line offers more bandwidth than the usual dial-up, which has a bandwidth problem, and the ADSL line expands this bandwidth threshold and offers greater access speeds. The standard dial-up protocol operates as 56kb per second, the ISDN at 125kb per second and the ASDL operates at 512 kb per second, as is aimed at businesses that are net-based. Those not satisfied with the diginet link would have their concerns solved by the ADSL line.

Significant amounts of training, provisioning and technology has been invested in the ADSL facility, and customers would have to approach Telkom and request the service. Telkom would then prioritise the need for these services and then roll them out.

Ms Mtsweni referred to the slide entitled "Highlights in 2002", and asked whether sufficient consensus has been reached regarding the dividends in renegotiating the interconnection agreements.

Mr Moholi responded that although this agreement has been concluded with the mobile telecommunications operators this does not mean that the situation is ideal, because it only marks a slight improvement. The balance is still against Telkom, even though more than 75% of the cost of the call goes to the mobile operators.

Secondly, Ms Mtsweni stated that she is still receiving complaints from Members of her constituency regarding Telkom services, especially the time taken to deliver services. How does Telkom plan to ensure these services are made available to the public?

Ms Vos stated that she wishes to raise in this Committee her concern with the manner in which the Electronic Communications Security (Pty) Ltd Bill was "sneaked in during the recess" by the Ad Hoc Committee on Intelligence Legislation. The Bill should have been discussed with Members because it has a direct bearing on this Committee.

Secondly, Ms Vos asked Mr Moche to explain whether any numbers have been crunched regarding inflation and the costs on the consumer, because Dr Cello has contended that the regulations have not been drafted in line with accepted competition standards, and this will impact the operations of Telkom. If this is the way Telkom views the future, what does it consider to be the short-and long-term impact on the IPO?

Mr Moche replied that this sort of costing exercise is almost impossible to do, and any effort at arriving at accurate figures would even then be estimates. In such cases the requirements of the operations would first have to be identified, as well as the technology and administrative systems required. A perfect example here would be the ADSL facility, where studies were first conducted to understand the need for this facility and the market.

Mr Durandt asked Telkom to provide Members with figures of the costs involved in replacing the copper cables that have been removed, and the costing of the fibre-optic cables.

Mr Lewis replied that a financial study conducted in March 2002 identified two distinct categories of fraud committed here. The first is cable theft, and the second is subscription fraud, where the fraudulent access to Telkom services is sold and also includes attempts to tap into the service at some access point. The total cost is estimated at R174m.

Secondly, Mr Durandt stated that the presentation mentioned that the Telkom Capex has dropped, but it then goes on to acknowledge the need to increase its Capex. Could this be explained?

Mr Lewis responded that the Capex has dropped due to the completion of the five year roll-out targets, and it was decided that there is no need to spend more capital just for external lines. As regards the way forward, this would include capacity for regulatory requirements and, as mentioned by Mr Moche during the presentation, there are certain costs involved such as carrier pre-selection facility which ranges from R1,2b, all of which has been included in the expectation.

Mr Waters stated that consumers are being charged for telephone calls which are not answered. If this is the case, why does it occur, and what is Telkom doing to address the situation?

Ms Moholi replied that this is not the case, and this matter has been addressed in the media. The fact of the matter is that when making a telephone call from a fixed line to a mobile telephone and the call goes through to the mobile voicemail, it is in line with international practice to charge the caller if s/he does not leave a message. The call is considered to have gone through even though only the voice mail facility has been reached, even though the caller might not consider the call to have been answered. Thus the call is regarded as having being answered even though the intended recipient has not answered the call. Yet an independent audit was conducted into this matter and it revealed that Telkom is not billing for such calls.

The Chair contended that the Telkom job losses are also an important matter that has to be addressed. He sought clarity on the precise number of Telkom employees whose services were no longer required. This is important because about three years ago Telkom stated that it would be concentrating on its corporate business, and it said that its catering and fleet management divisions would be done away with. Where are these workers now? Are they unemployed or are they currently employed by the company that now provides those services to Telkom? These figures have to be clarified because they are part of a bigger debate in this country.

Mr Moche responded that one of the purposes of that exercise was to raise productivity. But it also had to be remembered that Telkom inherited levels of gross overemployment. An example could be found in the "technical mates" assigned to each technician, whose sole task it would be to fetch the technician's cigarettes and tools, make his coffee and rarely do menial technical tasks "while the technician picks his kids up at school". It was decided to get rid of these excesses because Telkom simply could not afford it, and at the time Telkom drove the largest ABET programme in an attempt to reposition these workers in other positions on employment.

Telkom also operated 64 restaurants and it was asked what Telkom was doing in the catering business when it is in the telecommunications industry. The restructuring was conducted in a manner that facilitated empowerment and that secured employment. Also, at that time Telkom ran South Africa's largest fleet of vehicles totaling 26 000, which was larger even than Transnet, government's transport parastatal. It was decided to outsource this service so that it may be provided to Telkom on a needs-basis, as this would increase efficiency.

The exact amount of employees retrenched was a difficult matter, but 16 000 persons were retrenched for a variety of reasons, some posts have not yet been occupied, some have resigned and certain positions have been abolished because there is no longer a need for that position. Aome have bee dismissed due to misconduct or underperformance, some have retired and there positions have not been refilled. Most of these employees are not destitute and unemployed because those services were sold as a going concern, which means they are still in those positions of employment at the new company.

Mr Langa stated that he wishes to place it on record that Telkom has a role to play in carrier pre-selection and other competitive measures, especially in the public participation process. The pricing of the spectrum has to be dealt with by the Minister, and the USAL matter is currently sub judice, because Telkom itself has contested a number of issues relating to the Minister's role. There is also a need for healthy competition to bolster the economy.

The Chair stated that Telkom is vested with three obligations. The first is to include capacity to expand the scope of services to people, which it is currently doing. The second is to stimulate the economy and entrepreneurial activity, especially with regard to infrastructure development in the historically disadvantaged communities. The third is it has to lower the costs of doing business in South Africa, and this is an important issue because many battles have been fought in the media which impact the manner in which people perceive the country. Telkom owes Parliament and the public an explanation for these battles, such as the one currently engaged with AT&T, because they do create uncertainty.

He thanked Telkom for clarifying the precise nature of the bandwidth dispute, and the battle waged with the trade unions regarding the exact number of employees whose services were no loner required has to be resolved. Telkom has stated that 20 000 jobs were lost and 30% of its business was sold off, and perhaps it has to go further and indicate precisely how many vehicles have been lost as well. This information would be useful.

Mr Waters stated that he was under the impression that SAPO would be reporting to the Committee during this meeting, because it is already October yet this Committee has not had the opportunity to exercise its oversight function over the operations of SAPO. This has to be done because SAPO receives a "massive subsidy from government", yet it has not yet signed a financial report. When will this be done?

The Chair apologised to Mr Waters for the confusion caused and stated that intention was to have SAPO present at the meeting to contribute to the discussion in the same way that ICASA and the Universal Service Agency has, but SAPO was not supposed to deliver a presentation. SAPO has to be made to address this Committee and this could perhaps be arranged before the end of the year, depending on the Committee's workload.

The meeting was adjourned.