Sentech signal distribution costs; USAASA investigation by OUTA; Telecoms Policy Regulation & Management: WITS seminar

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Communications and Digital Technologies

27 October 2020
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

Video: Portfolio Committee on Communications 27 Oct 2020

In this virtual meeting, Sentech gave a briefing on its signal distribution costs to show the Committee what the South African Broadcasting Corporation (SABC) is paying for and why. It noted that any effort to help the SABC by reducing its signal distribution costs must bear in mind Sentech’s sustainability.

During the discussion, Members asked about South Africa’s capacity for the SABC to shift to the digital distribution method of direct to home (DTH) rather than digital terrestrial television (DTT), the payment plans agreed to by SABC and Sentech, percentage of its revenue derived from SABC, feasibility of a R500 million cut for SABC, legal obligation of SABC to use Sentech; merger with BroadBand Infraco (BBI), percentage of its revenue from community media, Sentech profit margin and tariff model, Department’s view of SABC request to R500m cut by Sentech; potential service providers as replacement for Sentech and implications for network and information security, Sentech plan to assist SABC in its payments, digital distribution methods of other broadcasters; and Sentech obligation to use DTT digital distribution method.

Members uniformly commended Sentech’s good performance and its clean audit track record and urged Sentech to reconsider its tariff and pricing model.

The Organisation Undoing Tax Abuse (OUTA) spoke about its investigation into the Universal Service and Access Agency of South Africa (USAASA).

Members emphasized the importance of tackling corruption and asked about set-top box distribution.

In the final briefing, the LINK Centre at University of Witwatersrand gave a seminar on Telecoms Policy Regulation and Management within the SADC digital economy and the oversight role of Parliament.

Members recognized the important role of the digital economy and its great potential in transforming people’s lives. There were also questions on 3D printing in the digital economy.

Meeting report

Apologies were received from the Minister, who was at a Department of Home Affairs meeting, and the Deputy Minister who was ill.

Sentech on its signal distribution costs taxonomy
Ms Nomvuyiso Batyi, Acting Director-General: Department of Communications, introduced the Sentech team: Board Director Ms Malande Tonjeni, CEO Mr Mlamli Booi, and COO Mr Tebogo Leshope.

Mr Tebogo Leshope, Sentech Chief Operations Officer, said the main purpose is to show the Committee what the South African Broadcasting Corporation (SABC) is paying for and why.

The services provided to the SABC; Sentech’s tariff drivers; its business model; signal distribution costs; distribution cost contributors and Sentech’s tariff methodology were explained (see document).

Sentech highlighted that it is committed to provide a multiplatform service to all its customers in a cost-effective way. These include: digital terrestrial television (DTT), direct to home (DTH), over-the-top (OTT) online streaming.

CEO Mr Mlamli Booi concluded by stating that Sentech is committed to universal access to network. Sentech aims to ensure that every village and township would have access to public service content and it fully supports the SABC broadcasting content. However, he also warned the Committee that any effort to help the SABC must bear in mind Sentech’s sustainability as it does not have the luxury to go to National Treasury for a bailout. It is imperative to ensure that Sentech finances are doing well.

Discussion
Ms P Faku (ANC) commended Sentech’s good performance and its collaborative work with SABC. In the previous week's meeting, SABC had complained about the high Sentech tariffs. However, given the magnitude of failure of the state-owned enterprises, she hoped that Sentech would not be sacrificed at the expense of SABC as it was one of the few well-managed state-owned entities in the country.

Ms Faku was concerned that SABC had suggested moving away from the digital distribution method of DTT. She asked Sentech from its perspective and knowledge if South Africa had the capacity for SABC to shift to DTH. To her knowledge, DTT was the way to go and her view was supported by the LINK workshop from the Wits University.

Ms Faku asked about SABC debt owed to Sentech. She wanted details on the negotiated payment plan agreed between SABC and Sentech.

Ms P Van Damme (DA) congratulated the good work of Sentech. She asked what percentage of its revenue is derived from its business with SABC.

Since the Committee had been briefed by SABC last week, Ms Van Damme asked Sentech if it was feasible for Sentech to reduce costs by R500 million for SABC. Is there a legal obligation for SABC to use Sentech services. Given SABC’s important role in building a democratic country, the Committee is determined that the SABC survives.

Mr C Mackenzie (DA) agreed with Ms Van Damme’s view and commended Sentech for its excellent governance performance. It is indeed a well-run entity.

Mr Mackenzie asked about Sentech’s merger with BroadBand Infraco (BBI). He was aware there was a lack of capital at BBI. He asked the impact of this merger on Sentech in terms of capital requirements. Would this merger be negative or positive and if modelling had been done to estimate its impact.

Mr Mackenzie asked how community media had been paying for Sentech services prior to COVID-19 and the percentage of revenue Sentech derived from them. Had there been measures to assist community media during the COVID-19 pandemic.

Last week SABC had told the Committee that it was working on cutting its operational costs. One of its main expenses is Sentech. He asked Sentech if it was thus justifiable for SABC to purchase its digital distribution service from another company. He asked for the tariff model which shows Sentech’s profit margins so the Committee could assess if the charges are exorbitant or not.

Ms A Mthembu (ANC) congratulated Sentech on its good performance.

Mr L Molala (ANC) found it concerning that some people are saying that Sentech is overcharging its clients. SABC’s request to cut costs by R500 million could have a devastating effect on Sentech revenue. He wanted to know the Department’s role in this and for it to comment whether SABC's request is reasonable.

Mr Molala asked Sentech what other potential service providers are out there since SABC is planning to ditch Sentech for cheaper services. He asked about the implications in terms of network and information security.

Ms N Khubheka (ANC) asked if plans had been devised and implemented by Sentech to assist SABC besides the three-month payment holiday noted in the presentation.

Mr Khubheka believed that DTT is a priority which all African countries including South Africa are prioritising. She asked if it is possible for SABC to focus on the digital distribution method of DTT.

The Chairperson asked for the digital distribution methods that other broadcasters are using. SABC had informed the Committee that the switch off of analogue would result in a 27% cost reduction and he asked Sentech to give more details around that.

Department’s response
Ms Batyi, Acting Director-General: Department of Communications, said the SABC presented last week on the situation it SABC finds itself in at this point. SABC has to review alternatives to reduce transmission costs. The Deputy Minister has set up a structure between SABC and Sentech for both parties to conduct audits to see if the best deals are provided. This process is still continuing and she asked the Committee to allow the process to unfold and then report to the Committee on the outcome.

Sentech response
Mr Booi, CEO and Executive Director: Sentech, emphasised that SABC was an important customer for Sentech. Both parties are bound by a contractual agreement. Sentech appreciated SABC’s business.

On the debt SABC owes to Sentech, Mr Siphamandla Mthethwa, Sentech CFO, replied that at the end of September, this amount was over R300 million. SABC had defaulted on the payment holiday which Sentech had offered as well as on its July invoice. Since then, Sentech and SABC had a meeting in which SABC offered that it could afford to pay R50 million a year. Sentech felt that it was unable to do that as the SABC monthly invoice alone was R72 million. After that, SABC returned with an offer of R60 million. Sentech still cannot accept that offer as that amount would not even cover one SABC monthly invoice. Sentech has given SABC a payment plan. At the end of September, SABC had settled the September invoice and paid an additional R20 million towards the debt so far. Sentech is still in constant engagement with SABC on its payment plan.

Mr Booi understood SABC’s financial difficulty. Sentech’s percentage of revenue derived from SABC amounted to over 60%. Indeed SABC is a dominant player in the broadcasting space. The reduction by R500 million should be an ongoing process and cannot be achieved immediately. For starters, SABC will need to inform Sentech of which types of services it wishes to terminate. There is an ongoing discussion with SABC on the termination of certain services. Mr Booi was uncertain but was indeed under the impression that SABC had a licence from the Independent Communications Authority of South Africa (ICASA) which requires SABC to use Sentech services.

On South Africa’s capacity to migrate to a digital distribution method of DHT, Mr Booi explained that since Sentech does not own satellite, it is not privy to the knowledge about the satellite SABC uses. He suggested Members ask SABC that question.

On the merger with BBI, Mr Booi believed that the Department should be the one to respond to this question. He affirmed that Sentech has done modelling to assess the impact of the merger but the main driver of the merger is the Department.

Mr Booi confirmed that Sentech has granted a payment holiday for most community broadcasters. The total debt amount accumulated by community broadcasters is above R60 million. This is a process which is being handled by the Department.

Mr Booi replied that should SABC decide to switch off analogue, SABC could save up to R120 million.

Mr Booi replied that the profit margin is confidential information but he guaranteed to the Committee that Sentech does not charge an exorbitant high profit margin. He will submit in writing more details on the profit margin to the Committee.

Mr Booi reaffirmed that the R500 million cut SABC had proposed would be detrimental to the long-term survival of Sentech. He did not have information about cheaper, affordable alternative services for SABC.

Mr Leshope, Sentech Chief Operations Officer, commented on the impact of the R500 million reduction as proposed by SABC in last week’s meeting. Sentech has had discussions with SABC and the outcome was that the amount was not close to the R 500 million the Committee had been told. However, this discussion is still an ongoing process. From Sentech’s perspective, the R500 million reduction cannot be achieved immediately. This will involve a discussion between both parties on what services will be terminated. Again, he affirmed that the reduction by SABC would definitely have implications for Sentech as the company had just invested R2 billion on DTT, with a total R3 billion investment in digital distribution methods. There would also be the risk of job losses associated with that. Sentech would not wish to go through that loss taking into consideration the country’s economic recovery plan.

Mr Leshope said that it would be more cost-effective for SABC to receive services using DTT as DTH is more expensive to his knowledge.

Mr Booi added that other broadcasters such as those in Spain and the United Kingdom are using the DTT platform. So he does not think that DTT is a dead technology.

Mr Booi believed that the 27% cost reduction for SABC is realisable.

Further questions
Mr V Pambo (EFF) noted that SABC had informed the Committee of its intention gradually to terminate its Sentech services, and asked if it is necessary or obligatory for Sentech to use the DTT platform.

Ms Van Damme said that she did not consider Sentech profit margins as commercially sensitive information. She wanted to understand what percentage SABC contributes to Sentech revenue.

She clarified to Mr Booi that there is no legal obligation for SABC to use Sentech services. She believed that Sentech pricing needs to go through the ICASA regulatory process. She urged Sentech to give competitive pricing in order to retain SABC as its biggest client.

Mr Mackenzie asked the Acting DG when she anticipated the BBI merger will take place and its impact on capital requirements.

Mr T Gumbu (ANC) asked if SABC’s departure from Sentech would have an impact since SABC is one of its biggest clients.

Sentech response
Mr Booi replied that he had already responded to Ms Van Damme’s question but to be exact, SABC was 65% of Sentech business.

Mr Booi noted that there is a contractual agreement between SABC and Sentech. A more detailed answer could be provided by the Department.

Mr Booi reassured the Committee that Sentech is constantly trying to improve its pricing so more can afford its services. The current profit margins to all new business range between 12% to 20% which he does not think is exorbitant.

Mr Booi again said the departure of SABC from Sentech would mean that the company has lost 65% of its business and that shareholders must expect less from Sentech. However, Sentech is diversifying its business model. It is not a classic signal distributor now.

Sentech Board Director, Ms Malande Tonjeni, remarked that Sentech will continue working with SABC and the Department as well as working on the BBI merger. Sentech also envisages moving forward with a business model that diversifies its business streams to increase revenue.

Mr Booi added that on how SABC plans to catch up with the outstanding debt, Sentech has been in constant discussion with SABC. The process is very transparent and anticipate the deadline to be the end of the financial year that SABC must settle its debt.

Mr Booi informed the Committee that Sentech could not afford to reduce the cost as SABC had proposed, because Sentech’s business currently is largely relying on signal distribution revenue. As SABC is Sentech’s biggest client, losing SABC would be a heavy blow to Sentech. So Sentech is appealing to government to assist SABC so that Sentech could be paid. He told the Committee that there would not be broadcasting if there was no signal distribution.

Department of Communications and Digital Technologies (DCDT) response
The Acting Director-General, Ms Batyi, noted that the amending of the Broadcasting Act is an ongoing process and is currently under the charge of the office of the Deputy Director-General. It will be submitted to National Treasury and the Department of Planning, Monitoring and Evaluation (DPME). Thereafter, the Draft Amendment Bill will be consulted amongst those in the Economic Cluster. She anticipated that the finalised draft bill will be sent to the Cabinet by the end of June 2021. Once Cabinet approves, then the process to send it to Parliament will follow. The Department’s plan is by 2022, it would be on track legislatively wise.

OUTA investigation report on USAASA
Adv Stefanie Fick, Executive Director: Organisation Undoing Tax Abuse (OUTA), explained OUTA’s mandates as well as its role in guarding the public interest.

Adv Fick presented to the Committee on the anomalies and the fruitless and wasteful expenditure in the Broadband Digital Migration programme. She emphasised the important measure of oversight and consequence management which ought to be in place (see document).

She concluded with an appeal to the Committee to think of the devastating impact on marginalised poor South Africans. She noted that OUTA had tried to engage with Universal Service and Access Agency of South Africa (USAASA) but the latter did not respond. She also raised concerns about the vacant positions at USAASA.

Discussion
Ms Faku thanked Adv Fick for the presentation and emphasised the importance of tackling corruption. The President was very clear at the beginning of the Sixth Administration that anyone who was found of corruption should be held accountable.

Ms Faku said the Committee is not happy that all the set-top boxes still have not been distributed. USAASA needs to distribute them to their rightful owners.

Ms Faku was of the view that the cost of DTT can be lowered. She said that the Department needs to be firm about reducing the cost for DTT. She wanted to hear from the Acting Director-General about the Department’s plans to distribute set-top boxes.

Mr Mackenzie agreed with the presentation and remarked that many issues raised in the presentation were not unfamiliar. He emphasised and recognised the government’s failure in delivering digital migration. He also agreed that during the process of delivery, there has been too much fruitless and wasteful expenditure that resulted in people in rural areas still struggling to get connectivity and there has been rampant corruption and mismanagement. He highlighted that the previous USAASA CEO Mr Lumko Mtimde has been now awarded the Special Advisor position in the Ministry of the Presidency. This shows a lack of consequence management.

Ms Khubheka believed that there are challenges that the Department had raised and the Committee is also trying to work on those challenges. She agreed that these negatively affecting the poorest population in South Africa.

Ms Khubheka said that the Department has a timeframe for the distribution of those set-top boxes.

The Chairperson commented on Parliament’s oversight role. He agreed with Adv Fick that the Committee should scale up its oversight work emphasising the fight against corruption.

The Chairperson thanked OUTA for its presentation and remarked that Parliament is the parliament of the people, so it always welcomes members from civil society to participate.

Ms Faku rectified Mr Mackenzie’s remark. She said that it was important for the Committee to ensure that public really knows what had transpired from the investigation into allegations about Mr Lumko Mtimde. This is because people need to know that consequence management is in place for corrupt officials. However, in the case of Mr Lumko Mtimde, the Public Protector report had cleared his name and he was proved innocent.

Adv Fick commented that it is important to know that Parliament is taking accountability seriously. OUTA will watch the space of digital migration and ensure that it benefits fellow South Africans.

WITS Seminar: Telecoms Policy Regulation and Management (TPRM) 2020
Dr Luci Abrahams, from LINK centre at the University of Witwatersrand, briefed the Committee on institutions, policy, law and regulation for the SADC digital economy (see document).

Dr Abrahams emphasised the importance of collaborative working relationship between South Africa and the SADC region in economic development.

Dr Abraham noted the fast pace of the digital economy and the necessity for Parliament to be responsive in its policy adoption and regulation in the arena.

Dr Abrahams explained the huge transition that digital economy has brought about for the schooling system as well as the future skills set needed for the country.

Dr Abraham also shared with the Committee the SADC Parliamentary Forum discussion paper.

Comments
Ms Faku remarked that the presentation has taught the Committee a useful lesson. Her opinion is that the Committee should try and bring everyone in government on board for the digital economy and inform people of its benefits for South Africa. She suggested having a conversation with National Treasury and the Department of Small Business Development to collaboratively discuss the digital economy. She remarked on the great potential for the digital economy to transform service delivery. She asked everyone to pay attention to how digital economy has boosted Ethiopian manufacturing industry as well as its instrumental role in teaching mathematics and science subjects which are skills that South Africa lacks.

Mr Mackenzie agreed and recognised technology’s role in driving the economy such as the rising trend in telecommunications. He shared the view that this department should be the foundation for all of those transformations in technology. He asked about 3D modelling and whether it is included in the digital economy.

Responses
Dr Abrahams said that the LINK centre had benefitted greatly in its engagements with the Committee as it has had participants from eight SADC countries to share and discuss those experiences in digital economy.

Dr Abrahams said that additive manufacturing such as 3D printing definitely falls under the digital economy. South Africa does have some capacity and assets for 3D printing. However, there is still room for improvement as South Africa’s capacity is not extensive. For instance, it could still be waiting for imports from Germany and China whilst those parts could be 3D printed by China and Germany. She suggested arranging a presentation on additive manufacturing for the Committee.

Dr Abrahams said that she would be keen at no additional cost to continue hosting those short sessions during the course of 2021. She would choose some key topics to present to this Committee.

The Chairperson said that the Committee would welcome that proposal.

The meeting was adjourned.

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