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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0981/01 1340510
ZNR UUUUU ZZH
R 140510Z MAY 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 8466
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 000981 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPT FOR EEB/CIP 
DEPT FOR EEB ALAN GIBBS 
ABUJA FOR ROBERT TANSEY 
LAGOS FOR LARRY PARRIS 
NAIROBI FOR GENE YOUNG 
 
E.O. 12958: N/A 
TAGS: ECPS EIND EINV EINT ECIP PGOV USTR SF
SUBJECT: AT&T PURSUES STRATEGIC PARTNERSHIP WITH TELKOM SOUTH AFRICA 
 
REF: A. PRETORIA 271    B. PRETORIA 1976  C. PRETORIA 1278 
 
This cable contains company proprietary information. 
 
¶1. (SBU) Summary.  AT&T officials met with post to discuss a new 
strategic partnership with Telkom South Africa on April 16.  The 
officials noted that increasing numbers of international 
corporations were finding opportunities for investment in Africa and 
agreed that improvements in bandwidth capacity would boost 
investments on the continent.  The officials were optimistic about 
the impending partnership with Telkom because of its experience on 
the continent, but expressed frustrations at the slow pace of 
decision-making at Telkom.  They inquired about the impact of the 
change in government in May and the influence of labor unions on the 
investment climate in South Africa.  A long-awaited leadership 
change has occurred at the Department of Communications, but the 
appointment of a former military general at the top position has 
left industry analysts perplexed about the future of the sector. 
End Summary. 
 
------------------------------- 
AFRICA IS BELIEVED TO HAVE MOST 
POTENTIAL FOR ICT MARKET GROWTH 
------------------------------- 
 
¶2. (SBU) AT&T Business Solutions President Ron Spears and AT&T 
External and International Regulatory Affairs Vice President met 
with post Economic Counselor, Commercial Counselor, and ICT Officer 
to discuss a proposed strategic partnership with state-controlled 
Telkom South Africa on April 16.  Spears explained that South Africa 
was an important entry-point for AT&T's business on the continent. 
He noted that AT&T's strategy in South Africa would be to find good 
partners to grow its business and it would also look for partnership 
opportunities outside of Telkom. 
 
¶3.  (SBU) Spears noted that increasing numbers of U.S. and other 
multinational corporations were finding opportunities for investment 
and economic growth in Africa.  These customers already expect to 
pay higher ICT fees for their operations in Africa, but look to AT&T 
to coordinate their services and networks across their entire 
African operations.  Spears said AT&T was expanding its presence 
outside of South Africa to meet this customer demand and to provide 
improved interconnectivity on the continent for South-African 
companies looking to expand.  The company is currently in the 
process of obtaining a license in Morocco, and had plans to obtain 
licenses in Egypt, Tunisia, and Libya.  Spears explained that AT&T 
did not have a direct presence in Nigeria because of the "messy" 
regulatory conditions there.  Shell is a large AT&T client in 
Nigeria and AT&T handles their business in Nigeria through Nitel. 
 
¶4. (SBU) AT&T is also interested in the Kenyan market, but Loeb 
noted that corruption levels in Kenya had deteriorated in the past 
year and half following the establishment of a coalition government. 
 Asked why corruption had deteriorated in Kenya under the coalition 
government, Loeb explained that there were now twice as many 
opportunities for corruption. 
 
---------------------------- 
NEW CABLE PROJECTS TO REDUCE 
ICT COSTS IN AFRICA 
---------------------------- 
 
¶5. (SBU) Improvements in undersea, fiber-optic capacity will be 
important for investments on the continent.  Post noted that the 
local ICT industry was excited about increased bandwidth capacity 
and cost declines that would accompany the new SEACOM cable project 
Qand cost declines that would accompany the new SEACOM cable project 
that would connect the East Coast of Africa to Europe and India. 
The officials agreed and explained that South African cable traffic 
accounted for three percent of their business traffic, but 25 
percent of their costs.  They also noted that high value-added 
products and services require higher bandwidth than is usually 
available on the continent and welcomed the changes the SEACOM cable 
would bring.  In the past, the only options in Africa were expensive 
satellite connectivity or undersea cable links controlled by Telkom. 
 The SEACOM cable is expected to become operational on June 17, 
¶2009. 
 
¶6. (SBU) Post also noted that a maintenance agreement was signed on 
April 8 to launch the West African Cable System (WACS) project.  The 
WACS Consortium consists of Angola Telecom, South African 
government-owned Broadband Infraco, Cable & Wireless, MTN Group, 
Telecom Namibia, Portugal Telecom, Sotelco, Tata Communications 
(Neotel), Telkom South Africa, Togo Telecom, and Vodacom.  The 
 
PRETORIA 00000981  002 OF 003 
 
 
Commercial Counselor said the WACS cable was expected to be 
operational in 18 months.  Loeb added that new cables are now 
designed and launched with extra spur joints in case demand 
increases (from socio-economic improvements or changes in political 
regimes as might be the case someday in Zimbabwe) and additional 
countries need to be included. 
 
¶7. (SBU) The officials cautioned that increased availability of 
under-sea cable alone would not alleviate high ICT costs on the 
continent.  Loeb emphasized that it would be equally important to 
increase competition for the cable landing stations.  Only select 
groups such as Telkom currently control landing station rights, 
which allows them to charge higher prices.  SEACOM is building 
landing stations and the new fixed-line operator Neotel and MTN 
South Africa are joining forces to roll-out fiber to develop a 5,000 
kilometer terrestrial network in South Africa.  The new WACS project 
also has a more liberal landing rights structure than existing 
Telkom stuctures.  These new developments should improve the quality 
of access and reduce costs. 
 
--------------------------------- 
HIGH EXPECTATIONS FOR PARTNERSHIP 
--------------------------------- 
 
¶8.  (SBU) Spears said AT&T decided to revive its partnership with 
Telkom because of Telkom's breadth and depth of experience in 
Africa.  The officials thought the timing was good as Telkom had to 
begin adjusting to a more liberalized ICT market in South Africa. 
Telkom has had to begin changing its market strategy because 
implementation of the Electronic Communications Act (ECA) of 2005 
has begun to erode its monopoly.  Telkom is in the process of ending 
its restrictive relationship with mobile operator Vodacom and is 
seeking a buyer for its ill-fated Telkom Media subsidiary.  Proceeds 
from the Vodacom sale would allow Telkom to pursue its strategy of 
further expansion into sub-Saharan Africa, which would increase its 
value as a partner for AT&T.  U.K.-based Vodafone would retain its 
50 percent stake in Vodacom. 
 
----------------------------- 
AT&T AND TELKOM SIGN MOU TO 
PURSUE PARTNERSHIP, WITH 
OPERATIONAL DETAILS TO FOLLOW 
----------------------------- 
 
¶9.  (SBU) Spears and Telkom CEO Ruben September signed a memorandum 
of understanding (MOU) later that afternoon to pursue a partnership, 
but noted that operational details of the partnership still needed 
to be finalized.  The MOU would allow companies based in Sub-Saharan 
Africa to connect to other global markets more effectively and 
permit U.S. companies to connect more easily with their subsidiaries 
and clients in South Africa.  The partnership was lauded as a 
win-win for both companies.  Telkom recently expanded its presence 
in Africa to 35 countries with the acquisition of Africa Online. 
Telkom already has cable capacity on the African coastline and 
limited nodes connecting to London and Asia.  Partnering with AT&T 
would allow Telkom to leverage AT&T's network, which has a 97 
percent global reach.  This partnership would also allow Telkom to 
meet the infrastructure requirements it has agreed to provide FIFA 
for the 2010 World Cup. 
 
--------------------------- 
AT&T FRUSTRATED AT PACE OF 
TELKOM DECISION-MAKING 
--------------------------- 
 
¶10. (SBU) Spears expressed frustration at the slow pace of Telkom 
decision-making.  Spears was optimistic about the renewed 
Qdecision-making.  Spears was optimistic about the renewed 
partnership, but told post he would have to pressure September to 
begin finalizing the details of the arrangement.  Spears noted that 
AT&T had hoped to have more concrete plans for the partnership 
finalized by the time of the April MOU signing, but had been 
thwarted by the delays in Telkom decision-making.  Media 
representatives at the signing also bombarded both officials for 
additional details regarding the partnership. 
 
¶11. (SBU) Spears and Loeb both expressed concern about upcoming 
changes in the South African government and the role of labor unions 
in the South African market.  They inquired about the impact of 
leadership changes on the investment climate and wondered whether 
September would retain his position at Telkom.  Post explained that 
there was a leadership vacuum at the Department of Communications 
with the death of the Minister and the ousting of the Director 
General for supporting the COPE opposition party.  Changes would 
definitely occur in the ICT sector following the election, but most 
 
PRETORIA 00000981  003 OF 003 
 
 
industry analysts had difficulty predicting the nature of those 
changes. 
 
¶12. (SBU) Meanwhile, labor actions have delayed the desired 
dissolution of the Telkom-Vodacom partnership.  The Congress of 
South African Trade Unions (COSATU) has sought an unusual and costly 
legal action against the Independent Communications Authority of 
South Africa (ICASA), Telkom, and Vodacom to impede the pending 
sale. The union raised concern that the sale would threaten jobs at 
Vodafone and staunchly insists that all phone service have a degree 
of national control.  Union officials have also expressed 
frustration that they were not consulted during the sale.  They 
believe that winning a case against Telkom would set a precedent 
that gives COSATU a seat at the table during future corporate merger 
negotiations throughout South Africa.  Further protests from the 
trade unions could impede Telkom's ability to seek new partnerships 
and pursue an expansion strategy into Africa. 
 
---------- 
NEXT STEPS 
---------- 
 
¶13. (SBU) Spears noted that his team would need to continue 
negotiations with Telkom to determine the operational framework of 
the partnership.  Spears said AT&T was ready to move forward with 
implementation, but felt frustrated at Telkom's inability to 
finalize decisions.  He said a follow-up trip was planned for June 
and hoped to finalize details before the trip.  Spears thought 
Telkom's willingness to engage AT&T in a new partnership is 
reflective of the pressure Telkom is beginning to face under an 
increasingly liberalized ICT market.  However, the prolonged 
negotiations reflect Telkom's slowness in embracing this change. 
 
------- 
COMMENT 
------- 
 
¶14. (SBU).  The proposed AT&T and Telkom partnership would benefit 
ICT consumers based in Africa.  The partnership would complement 
other developments in the ICT sector including the addition of new 
fiber-optic bandwidth capacity.  However, trade union activism and 
the slow pace of ICT liberalization could hamper final 
decision-making on the partnership and potential areas of 
cooperation.  COSATU is also unlikely to win its court battle 
against the impending Vodacom sale, but it is unlikely to give up 
without a fight.  Previous leadership at the Department of 
Communications has thwarted independence at the national regulator 
ICASA and has slowed down the implementation of projects that would 
increase competition in the ICT sector.  Implementation of the 2005 
ECA has been slow, due partially to interventions from the former 
Minister of Communications.  Industry analysts had high hopes for 
the incoming Minister of Communications, but were perplexed by the 
appointment of Siphiwe Nyanda, a former army general with no ICT 
background.  Analysts fear that his appointment would further 
complicate efforts to improve ICT infrastructure and service 
delivery (Septel).  End Comment. 
 
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