Second National Operator

ADSL South Africa (Broadband South Africa), 20 June 2006

The SNO was conceptualised to bring an end to the monopoly in the fixed-line telecommunication market of South Africa, and to kick-start the process of 'managed liberalisation' of the sector. State-Owned Enterprises (‘SoEs’) Transnet and Eskom were identified in the Telecom Act as part shareholders for the SNO. Following the confirmation of their participation in November 2001, Transtel and Eskom Telecommunications began construction of a joint national network designed to challenge the dominance of the incumbent. This early decision will make it possible for the SNO to enter the market relatively rapidly, and to be competitive soon. The SOEs’ infrastructure provides the SNO with the backbone of a leading-edge telecommunications network, built across available servitudes that span the country. 
 
The process of identifying the remaining shareholders began in earnest in early 2002. A public bidding process resulted in Nexus Connexion, a broad-based empowerment consortium, being awarded the stake as the BEE shareholder in mid-2002. 
 
Though the initial round of bidding for a 51% Strategic Equity Partner (SEP) resulted in the rejection of both bids, the Minister revised the process, and the subsequent round of bidding resulted in CommuniTel and Two Consortium each being awarded a 12.5% stake. 
 
The Minister of Communication invited bids for the remaining shareholding in the SNO (nominally 26%) in September 2004. Tata (Africa) Holdings (Pty) Limited, part of the Tata Group of India, submitted a preliminary Expression of Interest on 22 September 2004 on behalf of Videsh Sanchar Nigam Limited, India (‘VSNL’) followed by a binding offer in January 2005. Based on the detailed business plan submitted by VSNL, the Minister of Communications confirmed VSNL as the holder of the remaining SEP equity in the SNO on 13 February 2005. 
 
The entry of the Tata Group of India, through VSNL, marked an important step for the SNO, confirming its status as a serious player in the South African market, with the backing of a major international telecoms player. 
 
In accordance with the Minister’s determination, the shareholding structure for the SNO is as follows: State-Owned Enterprises (Transnet/Eskom) 30%; Nexus Connexion 19%; SEPCo 51%. SEPCo consists of strategic equity partners, each holding a share of SEPCo as follows: Tata (VSNL) 51%; CommuniTel 24.5%; Two Consortium 24.5%. 
 
Armed with the Minister's decision, the SNO shareholders completed and signed the Shareholders Agreement on 15th August 2005, having already submitted a joint business plan to ICASA. The licence terms and conditions were successfully negotiated in November 2005, and the SNO Licence was issued to the SNO on 9 December 2005. 
 
The Telecommunication Act, as amended in 2001, laid out a timetable for the liberalisation of the South African market. In September 2004, the Minister of Communications accelerated this process, by enabling several liberalisation clauses in the Act, which came into effect on 1 February 2005, including the provision of voice by VANS operators, and self-provisioning by mobile operators. The Electronic Communications Bill (formerly the Convergence Bill), soon to be passed into law, will create a new licensing framework for the sector from a long term perspective, entrenching a regulatory model designed to promote competition, and to limit the abuse of market power. These steps have created an environment for the entry of a new infrastructure player very different from that originally envisaged. 
 
A lot has happened in telecommunications around the world since the SNO was first conceived. Today’s SNO will be very different to the original conception, but it will serve the same essential purpose – to create real competition in the provision of basic telecommunications infrastructure and services. 
 
The SNO has now started planning its network roll-out and market entry and is already engaging actively with various stakeholders in the country's telecommunications space. The company plans to introduce its first niche services in mid-2006 and to have launched, in phases, a wide portfolio of telecommunications services by March 2007.