This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 004193 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S/TCRAIG AND EB/CIP 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
STATE PASS USTR FOR PCOLEMAN AND KSCHAAGIN 
 
E.O. 12958: N/A 
TAGS: ECPS ETRD EINT ECON SF
SUBJECT: TELECOM LIBERALIZATION GOES RURAL 
 
REFTEL    A) PRETORIA 4027 
 
          B) PRETORIA 4028 
 
¶1.  (SBU) SUMMARY.  South Africa Minister of Communications 
Ivy Matsepe-Casaburri has approved four under-serviced area 
licenses (USALs) three years after the government first 
announced its strategy to promote telecommunication services 
in rural areas and include black entrepreneurs in a 
traditionally high-cost industry.  USAL bidders complain 
that the Independent Communications Authority of South 
Africa (ICASA) remains their biggest obstacle.  Nonetheless, 
there is reason to expect that ICASA will issue the rest of 
the USAL licenses shortly.  Industry observers expect 
Casaburri to provide further clarification on the next phase 
of USALs in October.  END SUMMARY. 
 
¶2.  (U) In June, South Africa Minister of Communications Ivy 
Matsepe-Casaburri approved several under-serviced area 
licenses (USALs) to promote telecommunications services in 
areas where less than 5 percent of the population has access 
to a fixed-line telephone.  The USAL operators will be 
confined to limited geographical regions, but will be 
allowed to offer an unrestricted range of voice and data 
services.  The announcement comes nearly three years after 
government first introduced the concept of USALs as part of 
a broad policy to bridge the digital divide among South 
Africa's poor. 
 
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USALs PROMOTE BEE 
----------------- 
 
¶3.  (SBU) The Minister is awarding the USALs to black-owned 
consortiums in line with Government's black economic 
empowerment (BEE) policy.  BEE seeks to transform South 
Africa's economy by providing increased economic 
opportunities for historically disadvantaged individuals 
(HDI).  During the first round of the USAL process, fifteen 
applicants competed for ten licenses.  Casaburri approved 
licenses for Bokone Telecomms (Limpopo, Capricorn District); 
Thinta Thinta Telecoms (KwaZulu-Natal, Ugu District); 
Kingdom Communications (KZN, Zululand District; and Ilizwe 
Telecoms (Eastern Cape, OR Tambo Municipality.  She referred 
another three back to the Independent Communications 
Authority of South Africa (ICASA) for resolution of 
shareholder issues.  ICASA must now issue the licenses that 
were awarded by the Minister.  ICASA Manager for 
Telecommunications Licensing Phineas Moleele told Econoff 
that he hopes to finish negotiations with the operators in 
time to issue the licenses by the end of September.  A total 
of 27 USAL licenses will eventually be awarded. 
 
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CHALLENGES FOR USAL BIDDERS 
--------------------------- 
 
¶4.  (SBU) In separate conversations, Kingdom CEO Sifiso 
Mbatha and Thinta Thinta CEO Bule Mhlongo shared their 
concerns and business strategies with Econoff.  Both CEOs of 
these BEE companies said that ICASA has been their biggest 
obstacle.  Mbatha said that the regulator's lack of capacity 
and preoccupation with the Second National Operator caused 
delays that have sapped Kingdom's limited financial 
resources and facilitated increased market-share for 
incumbent operators.  Mhlongo also said that the delays are 
making it increasingly more difficult to secure additional 
financing for her efforts.  She said that investor reticence 
to provide open-ended financing and lender stipulations 
requiring Kingdom to supplement loans with a portion of its 
own money are threatening Kingdom's financial viability. 
The CEOs also cite the difficulty in negotiating favorable 
interconnection fees with South Africa's national cellular 
operators as a critical factor affecting their 
profitability. 
 
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REASONS FOR OPTIMISM 
-------------------- 
 
¶5.  (SBU) Nevertheless, Mbatha and Mhlongo remain 
optimistic.  They expressed confidence that their business 
models focusing on mobile and data services would pay off in 
the rural areas.  They say that local communities are 
rallying behind them.  Mbatha says locals have purchased 
over 600,000 shares in Kingdom, generating nearly R400,000 
(about $62,000).  In addition, each USAL licensee will 
receive R15 million over the next three years from the 
government's Universal Service Area (USA) fund.  Mhlongo and 
Mbatha also said that the Industrial Development Corporation 
(IDC) of South Africa may provide financing without the 
strings required by other lenders.  Mhlongo also pointed out 
that the national carriers are not yet meeting universal 
service obligations required by their current licenses.  She 
said national carriers see contracts with USALs to service 
their existing customers and lines as a way to fulfill 
universal service obligations.  Mhlongo sees this as a way 
to generate both revenue and leverage in her interconnection 
negotiations with the existing phone companies.  For their 
part, phone companies see opportunities to increase profits 
through roaming fees charged to USAL subscribers. 
 
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COMMENT 
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¶6.  (SBU) Recent announcements at Transnet and the 
Department of Communications regarding restructuring and 
telecom liberalization, respectively, suggest Cabinet level 
officials are increasing pressure to bring about change more 
quickly (Refs A, B).  This bodes well for companies awaiting 
USAL licenses from ICASA.  Industry observers expect the 
Minister of Communications Ivy Matsepe-Casaburri to provide 
clarification on the next phase of the USAL process in 
October. 
 
FRAZER