VZCZCXRO8333
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2164/01 2961408
ZNR UUUUU ZZH
R 231408Z OCT 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 9962
INFO RUCPDC/DEPT OF COMMERCE WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 002164 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPT FOR EEB ALAN GIBBS 
 
E.O. 12958: N/A 
TAGS: ECPS EIND EINV EINT ETTC SOCI SF
SUBJECT: ICT COMPANIES HIGHLIGHT BROADBAND AND SKILLS DEVELOPMENT 
NEEDS IN SOUTH AFRICA; ENTHUSIASTIC ABOUT USG INITIATIVE TO IMPROVE 
THE SECTOR 
 
REF: A. 09 STATE 27310 
     ¶B. 08 PRETORIA 1278 
     ¶C. 09 PRETORIA 249 
     ¶D. 09 PRETORIA 1033 
     ¶E. 09 PRETORIA 981 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) Ambassador Gips hosted a luncheon discussion with leading 
executives of U.S. ICT companies in South Africa on September 25. 
The executives called for improvements in South African Government 
(SAG) decision-making processes and for increased public-private 
collaboration.  Leadership shortfalls at the South African 
Department of Communications (DOC) have hurt the sector because 
other ministries have jumped in, confused the issues, and created 
more bureaucracy.  Executives expressed skepticisms about the 
ability of the new leadership at the DOC to address these 
challenges, but noted that planned government and private sector 
initiatives could lead to improvements if collaboration is 
effective.  Post agreed to work with the private sector to try to 
effect change in this important sector for transforming the South 
African economy and addressing its challenges.  End Summary. 
 
--------------------------------- 
CAPACITY CHALLENGES IN THE SECTOR 
--------------------------------- 
 
¶2. (SBU) Executives from AT&T, Cisco, IBM, Intel, Microsoft, and 
Qualcomm participated in the discussion on challenges in broadband 
and skills capacity development at a working lunch with Ambassador 
Gips at his residence on September 25.  The executives advocated 
quicker adoption of technology and a reduction in the cost of 
bandwidth.  IBM Africa Business Director Gary Caroll said there is 
increasing international business interest in the African market. 
However, international companies require assistance with ICT 
services and expect the same quality of service and capacity here as 
in their other operations in London or Paris.  They said it was 
difficult to provide the same level of services in Africa due to 
infrastructure capacity constraints, especially in rural areas.  All 
of the executives voiced an expectation that the new SEACOM undersea 
cable and related projects will improve bandwidth capacity, 
competition, and employment in the sector, but only if competitive 
backhaul is introduced (Ref B). 
 
¶3. (SBU) Balancing Black Economic Empowerment (BEE) policies with 
the urgency of skills development has been a major challenge for the 
SAG.  The executives noted that the SAG needs to pursue a better 
skills development model.  They said that both the SAG and the South 
African private sector lacked appropriate levels of ICT expertise, 
which has stymied decision-making and liberalization. 
 
---------------------------- 
GOVERNMENT POLICY SHORTFALLS 
---------------------------- 
 
¶4. (SBU) The executives agreed that former Minster of the Department 
of Communications (DOC) Ivy Matsepe-Caseburri had been the wrong 
person for the position and had been kept in it too long. 
Matsepe-Caseburri led the DOC from 1999 until her death in 2008 (Ref 
C).  She lacked the technical expertise to implement changes 
necessary to reduce Telkom's monopoly on the sector.  There was an 
absence of strategic planning at the DOC to deal with capacity 
constraints in the sector.  The executives explained that "as a 
result, more activist ministers, such as former Minister of the 
Department of Public Enterprises Alec Erwin, inserted themselves 
into the sector, leading to the creation of additional unnecessary 
bureaucracies and parastatal organizations."  Erwin launched several 
Qbureaucracies and parastatal organizations."  Erwin launched several 
initiatives, including the parastatal Broadband Infraco, to develop 
undersea broadband cable capacity.  The project was launched in 
2005, but has made little progress due to budget shortfalls and 
delays in decision-making. 
 
¶5. (SBU) U.S. company representatives all agreed that the national 
regulator, the Independent Communications Authority of South Africa 
(ICASA), has been a "disaster" since it was created in 2000.  ICASA 
has suffered from lack of independence and numerous DOC 
interventions (Ref C).  The fees ICASA collects go straight to the 
National Treasury, yet the SAG does not provide enough financial 
resources to ICASA to fulfill its mandate.  The executives commented 
that the new Minister of Finance Pravin Gordhan appears to have the 
vision and political will required to improve ICASA funding; 
however, adequate funding would need to be combined with leadership 
and policy changes at the DOC.  Skills development at the regulator 
has also been a problem, especially due to poaching of employees by 
the private sector. 
 
PRETORIA 00002164  002 OF 003 
 
 
 
¶6. (SBU) A Universal Service and Access Agency (USAA) was also 
launched in 2002 to address country-wide access constraints. 
Initially, the agency was designed to operate from fees collected 
from existing ICT companies.  However, the executives lamented that 
this agency also did not get traction, because the SAG decided not 
to release collected funds immediately to the USAA.  SAG raised more 
funds than it anticipated through the fee structure (over R100 
million or $13 million per year), but only released a small portion 
to the agency. 
 
¶7. (SBU) In the view of lunch participants, the appointment of new 
Minister of Communications Siphiwe Nyanda was a lost opportunity to 
improve leadership in the sector.  They argued that the appointment 
was purely political in nature, since Nyanda has no ICT expertise, 
because the Zuma administration was bound by the African National 
Congress (ANC) to appoint Nyanda to a Ministry, and the DOC was the 
only portfolio in which he did not have any business ties or other 
conflicts of interest. 
 
---------------------- 
TELKOM INFLUENCE STILL 
THWARTS COMPETION 
---------------------- 
 
¶8. (SBU) The executives commented that Telkom's historic influence 
over SAG policy making, as well as its powerful trade union, have 
also played a role in slowing the pace of liberalization.  Telkom 
still owns the "last mile" of the local infrastructure loop, and the 
executives thought that this would still be the case in the short 
term.  Private companies such as SEACOM and Dark Fibre Africa have 
recently increased the availability of fiber-optic broadband 
capacity, which is based on an open-access model. 
 
¶9. (SBU) Local municipalities have also taken the initiative to lay 
their own cables.  However, Telkom opposes this approach.  The 
executives said there were "too many lawyers on Telkom's payroll," 
who were spending their time finding ways to stop others from 
offering new and improved services and infrastructure and preventing 
Telkom itself from modernizing and dealing with the realities of the 
market.  The executives felt it would be more productive for Telkom 
to work with the municipalities on improving local cable capacity, 
since the municipalities do not have the necessary technical 
expertise.  They also called for increased private sector 
collaboration on broadband network development instead of building 
individual networks. 
 
---------------------- 
CHANGES ON THE HORIZON 
---------------------- 
 
¶10. (SBU) The executives expected increased competition and 
international interest in the South African and regional ICT market. 
 China has already been very aggressive in the African market, and 
India is the next emerging player, with most of its influence in the 
consulting sector.  They expected Vodacom and MTN to become more 
aggressive and capture some of Telkom's market share.  Now that 
Vodacom is free of its relationship with Telkom (Ref D), it will 
pursue new deals in Africa.  Telkom is also pursuing a new 
partnership with AT&T (Ref E) to support its Africa expansion 
strategy.  However, AT&T Country Manager Wayne Stanek noted that the 
MOU it signed with Telkom in May has not progressed since. 
 
¶11. (SBU) Ambassador Gips inquired about the status of the MTN 
merger talks with Indian-based Bharti Airtel.  The executives opined 
that the merger has implications for Indian ambitions to expand 
further into Africa, but that it might face some opposition from 
Qfurther into Africa, but that it might face some opposition from 
ICASA and the DOC as the Telkom/Vodacom split had a few months 
earlier.  They also asserted that Indian companies are notoriously 
difficult negotiators.  (Note: The Bharti-MTN merger talks collapsed 
on October 1, partly due to SAG demands for a dual stock exchange 
listing to preserve MTN's South African identity and the Indian 
Government's capital control policies that restrict dual listings. 
Concerns regarding BEE policies were also cited for the failure to 
reach agreement.  The merger would have created the world's 
third-largest mobile company with annual revenues of over $20 
billion and 200 million customers.  End Note.) 
 
------------------------ 
RESPONDING TO CHALLENGES 
------------------------ 
 
¶12. (SBU) While executives said ICT companies were taking steps to 
address skills shortage in South Africa, they saw a need to 
streamline the individual efforts.  Companies such as IBM have taken 
the initiative to attract research and development studies in South 
Africa to improve overall scientific research skills.  For example, 
 
PRETORIA 00002164  003 OF 003 
 
 
IBM is working with the Department of Science and Technology on high 
tech cloud computing projects and weather projection modeling. 
 
¶13. (SBU) Ambassador Gips stressed that post would be happy to 
support efforts to improve collaboration on skills development and 
identify U.S. Government technical assistance programs.  The ANC has 
approached post for assistance with utilizing ICT to boost rural 
economic development once the new government has had time to settle 
in.  The executives welcomed the offer, noting the ANC request could 
be incorporated with ANC plans to launch a new ICT Forum.  Former 
President Mbeki had a Presidential Advisory Council composed of 
local and international ICT experts; this model would not likely be 
used under Zuma because Zuma would not be comfortable in direct 
policy discussions with technical experts in the ICT sector. 
 
¶14. (SBU) The SAG has decided instead to launch an ICT forum chaired 
by Nyanda.  (Note: Nyanda launched the "ICT Vision 2020" Forum on 
October 16 and described it as a year-long process of dialogue and 
engagement between government and the private sector.  End Note.) 
Nyanda has also signaled to the private sector that ICT legislation 
and policies would be revised in the next year.  The Microsoft 
executive, a member of the American Chamber of Commerce Board, 
suggested that the chamber could also benefit from technical 
assistance to permit it to respond appropriately to SAG requests for 
input on new initiatives.  Most American Chamber of Commerce members 
in South Africa lack expertise in this area. 
 
-------- 
COMMENTS 
-------- 
 
¶15. (SBU) Industry hopes for leadership changes at the DOC and 
increased ICASA independence under the Zuma administration have been 
dampened with the appointment of another political insider to the 
DOC with little technical expertise.  People hope the market will 
become more competitive in the long term with the entry of new 
undersea cable projects, increased international investment and 
collaborations, and the development of new technologies and other 
local broadband networks.  However, the regulatory environment, lack 
of an effective interconnection regime, spectrum scarcity, 
insufficient backhaul capacity, and skills shortages are expected to 
remain major challenges.  Post and the private sector would like to 
increase collaboration to facilitate technical exchanges aimed at 
improving skills development and policy decision-making.  End 
Comment. 
 
Gips