PUBLIC HEARINGS ON THE BROADBAND INFRACO BILL, 2007 Portfolio Committee on Public Enterprises, Cape Town 1 August 2007

Table of Contents Background Introduction to the Bill Purpose of the Bill Public Comments Deemed License Servitude rights Expropriation by Minister Implications of the Bill Conclusion

Background Broadband costs in South Africa are prohibitively high. Investigations into the high broadband costs revealed that the largest connectivity costs are attributable to national backbone connectivity and international connectivity. The logical conclusion was to intervene to address these national backbone and international connectivity cost structures. Therefore, as part of its strategy to accelerate economic growth, Government has decided to expand the availability of broadband access to bridge the digital divide and contribute to lowering the costs of doing business in South Africa. The proposed model was an SOE (Infraco) that will own the FSN. The Minister of Public Enterprises (“Minister”) agreed with Eskom and Transnet to consolidate the FSN into an Eskom subsidiary, and for Government to purchase the shares of RVS. Government determined that instead of disposing of the Full Services Network Assets comprising the national fibre optic network (“FSN”) to Neotel, Government should continue to own and invest in critical infrastructure such as communications infrastructure in order to leverage such infrastructure for economic growth.

Introduction to the Bill On 18 April 2007 a full cabinet meeting confirmed and approved the submission of the Infraco Bill to Parliament for adoption The draft Bill was published in Government Gazette No. 29879 dated 11 May 2007 and the deadline for submission of public comments was 11 June 2007. The Bill was certified by the State Law Advisors on 21 June 2007

Purpose and Objects of the Bill The purpose of the Bill is to provide for the – acquisition of the Infraco shareholding by Government; licensing of Infraco; and future conversion of Infraco into a public company. The Bill records that the main object of Infraco is to provide affordable broadband access.

Public Comments Comments were received from: City of Cape Town; Cell C Vodacom Telkom Limited Neotel MTN; Sentech; Telkom Media; Universal Service and Access Agency of South Africa (“USAASA”); and Eskom Holdings. The comments largely express support for the concept of Infraco We received comments that are directly related to the Bill and other general comments

Public Comments Comments addressed the following themes: Licensing Infraco should be licensed The Bill should include a deemed licence provision Infraco should be licensed in terms of the ECA USAASA Cell C Vodacom Telkom Limited Neotel MTN Telkom Media Deemed Licence Legislature’s consitutional power to legislate even in regulated environment ICASA’s powers to determine licence conditions are not excluded Precedent of deeming licences in the communications sector eg Eskom, Transnet, SANDF, Sentech Servitudes and Expropriation Include personal right iro property Specify Infraco’s rights iro each servitude Relationship between Bill and Chapter 4 of ECA Refer to SARCC Land Direct expropriation powers Eskom Addressed in Telecomm Act, but not ECA Infraco is a strategic intervention Costs for rights of way and access contribute to prohibitively high communications costs Infraco’s focus is affordability of communications Infraco’s internal rate of return (IRR) is sufficient to cover its infrastructure investments Other* *(Specific to the content of the Bill) For consideration Neotel Relationship Infraco should be able to grant open non-discriminatory access to its network Cell C Telkom Media Telkom Limited Neotel Vodacom MTN City of Cape Town Subject to existing South African laws Regulated by ECA Purpose of Bill is to establish Infraco as SOE

Public Comments Specific Comments on the content of the Bill Main Object of Infraco Amend the main object of Infraco to include the following: provision of optic fibre infrastructure capable of supporting high bandwidth electronic communications networks on a non-discriminatory, open-access basis Provide affordable broadband telecommunication services For consideration Conflict of Laws In the event of conflict between Bill, ECA, Companies Act and Competition Act, Bill should prevail Cosmetic and stylistic changes Replace “acquire” with “purchase” Definitions Include definition of electronic communication services and the broadband services Infraco will provide Status of Infraco under PFMA Specify in which PFMA Schedule Infraco will be listed: Schedule 2 listing – factors considered: commercial imperatives, Nature of intervention Nature of industry Impact on funding

Licence Infraco is granted a deemed electronic communications network services licence contemplated in the Electronic Communications Act (“ECA”) from transfer date Minister of Communications, after consultation with ICASA, must instruct Infraco to submit documents necessary for it to be issued with the licence terms and conditions contemplated in the ECA Infraco’s licence will be regulated by the ECA

Servitudes The Bill authorises Infraco to exercise all of the rights attaching to the FSN, primarily servitude rights. The Bill extends Eskom’s servitude to electronic communications and Eskom and Transnet are required to allow Infraco, upon agreement, to use the servitudes to provide electronic communication network services to fulfill its purpose and mandate under the Bill and its founding documents. Transnet, which owns the land on which the FSN sits, is required to register servitudes on its land in favour of Infraco Compensation payable by Infraco for the servitudes will be paid in accordance with the Constitution.

Expropriation The Bill further authorises the Minister to expropriate land on behalf of Infraco and pay compensation as contemplated in the Constitution. The Minister’s expropriation authority is limited by the requirement that the land must be reasonably required for public purposes or in the public interest and to attain Infraco’s objects. Further, Infraco must show the Minister that it is unable to acquire the land on reasonable terms and Compensation will be paid in accordance with the provisions of the Constitution.

Expropriation (cont.) The Bill provides that Infraco will become the owner of such expropriated land; Infraco will pay any prescribed fees, duties and other charges as if it had purchased the property; Infraco will refund all costs incurred by the Minister in expropriating the land; The relevant provisions of the Expropriation Act apply, subject to the compensation provisions of the Constitution; All unregistered rights relating to the expropriated land must be expropriated separately; In assessing the payable compensation as contemplated in the Constitution, the applicable provisions of the Expropriation Act must be applied insofar as it is just and equitable to do so; The expropriation provisions of the Bill apply only for as long as the State is the majority shareholder of Infraco.

Conversion and Amendment of Laws Minister has discretion to request Registrar of Companies to convert Infraco into a public company with share capital. Conversion will be ito Companies Act, subject to certain exemptions relating primarily to the fact that Infraco will have only 1 shareholder Bill specifies procedure and documents required for conversion Schedule 2 of the PFMA is amended to list Infraco, similarly to other SOE under the DPE portfolio

Implications of the Bill The Bill authorises Government to acquire the shareholding in Infraco The Infraco Bill differs from the other legislation the Department has tabled before Parliament because of the nature of the intervention Government seeks to make through Infraco, as well as the communications sector The conversion of Infraco into a public company will enable Infraco to access funding from the private sector particularly given the dynamic nature of the sector in which it participates, the significance of its infrastructure and the critical role of such infrastructure and services for the South African economy As a commercial enterprise operating in a dynamic fast-paced industry, and with a specific strategic mandate Infraco is classified as a Schedule 2 major public entity

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