Sentech: Budget & Strategic Plan 2007

COMMUNICATIONS PORTFOLIO COMMITTEE
09 March 2007
SENTECH: BUDGET & STRATEGIC PLAN 2007

Acting Chairperson: Mr G Oliphant (ANC)

Documents handed out:
Sentech PowerPoint Presentation

Audio recording of the meeting

SUMMARY
Sentech gave an overview of strategic activities for the period 2007 to 2009. The focus would be the digital TV migration, the 2010 World Cup, the Nepad Broadband infrastructure network, and Broadband Wireless offering. It was explained that the core business of Sentech was broadcasting signal distribution as a common carrier, Multimedia Telecommunications Services, and acting as an overall carrier. The Independent Communications Authority was in the process of converting licences as required by the Electronic Communications Act and Sentech anticipated that there would policies that would broaden commercialisation. The position on digital terrestrial broadcast migration was summarised. Digital signals in South Africa would be switched on in November 2008 and the analogue TV signal would be switched off on 1 November 2011. Sufficient frequency spectrum must be retained for the digital broadcasting migration. The phases of the broadcast migration project were set out. Supply contracts had already been concluded and broadcast antenna systems were being replaced. It set its role in the 2010 World Cup. It then presented the forecasts for the next financial year. It was indicated that there was likely to be an operational loss until 2010 when there would be turnaround to a profit of R14.9 million. The balance sheet and cashflow projections were tabled. Members raised questions on the World Cup digitisation plan, the employment equity profile, the standards used for projections and budgeting, and the dates on which the budgetary process would be finalised. Further questions addressed the quality of broadband service,the e-rate for schools, employment equity profiles, sourcing of scarce skills and the mentoring programme, the Board, the relationship with SABC, the issue of Infraco, coverage in rural areas and the bursary schemes.

MINUTES
Sentech Budget and Strategic Plan for 2007 to 2009: Briefing
Mr Colin Hickling, Chairperson, Sentech gave an overview of the office and core strategic activities for the period 2007 to 2009. The focus would be the digital TV (DTT) migration, the 2010 World Cup, the Nepad Broadband infrastructure network, and Broadband Wireless offering. The core business of Sentech was  broadcasting signal distribution as a common carrier, Multimedia Telecommunications Services, and acting as an overall carrier. He explained that the Independent Communications Authority of South Africa (ICASA) was in the process of converting licences as required by the Electronic Communications Act (ECA). Sentech anticipated that there would be policy and regulation that would enable commercialisation of various standards.

Sentech set out the International Telecommunications Union's (ITU) position on digital terrestrial broadcast migration. Region 1 would be the entire African continent. The entire agreement entered into force from 17 June 2006 and would also affect the position in South Africa. The ITU's position in regard to broadcasting stations was to the effect that any frequencies not appearing in the plans submitted by Member States, or which were not in conformity with the Agreement, could nonetheless continue provided that they did not interfere with other assignments of frequencies. After June 2015 analogue terrestrial TV broadcasting would not be protected.

Insofar as South Africa was concerned, Cabinet had decided on 21 February 2007 that digital signals would be switched on in November 2008 and the analogue TV signal would be switched off on 1 November 2011. Sufficient frequency spectrum must therefore be retained for the digital broadcasting migration.

The presentation set out the phases of the broadcast migration project. Phase 1 & 2 would involve upgrade of the current infrastructure, and replacement of old analogue transmitters with digital-ready transmitters. Installation of new, dedicated DTT transmitters would commence in 2007 and 2008. The final phases would include the installation of additional transmitters to enable dual elimination and digital and analogue would be broadcast simultaneously.

Sentech had already concluded supply contracts with various transmission equipment manufacturers. It had procured and was replacing 58 high- and medium power analogue TV transmitters, to release capacity for DTT takeover. It was currently replacing 13 broadcast antenna systems to increase bandwidth and power handling capability. It had also procured digital TV planning systems.

Sentech set out the role in respect of the 2010 World Soccer Cup. The Department of Communications had guaranteed secure and high speed links between venues, the international broadcast centre and the international gateways. Sentech was to provide the voice and data communication, assist in setting up the broadcast centre and the media centres. Its roles included satellite communications, broadband wireless coverage, satellite feeds to fan parks, soccer channels and satellite news gathering services. It would establish all satellite links, book the space capacity on those links, and provide a back up teleport. The legacy of the 2010 World Cup would be broadband coverage in host cities and around stadiums.

A brief summary was given of the recently renamed Nepad Broadband Infrastructure Network, and the principles and signatories were described. A map of the African links was tabled.

Sentech set out its latest broadband offerings and then went on to describe the corporate social investment programme. The focus was on education, health and other initiatives. It would connect classrooms to quality education, empower communities by partnering with telecentres, use transmissions to assist in information gathering on medical matters, and be involved in the e-school initiative to provide internet connectivity to 21 schools across seven African countries. It was also involved in a science centre project, a street children’s home that rehabilitated and educated children and a computer centre providing computer skills training.

Mr Siddique Cassim Mohammed, CFO, Sentech set out the staff profile and gave an indication of the Broad Based Black Economic Empowerment scorecard based on the new Codes. Sentech had thus far achieved 53.7 out of 100 points and was aiming to become level 3 with 77.1 points.

The financial statements were tabled. The budget set out the assumptions in regard to inflation, the exchange rate and the prime overdraft rate. The projected budget showed revenues of R746 million as against operational costs of R771 million, with an operational loss of R24 million. he loss was projected to continue over the next financial years until a turnaround in 2010 to a R1 billion revenue, and operational profit of R21 million and a net profit of R14.9 million. The balance sheet and cashflow projections were tabled. There would be a cash deficit in 2007 and 2008 and a decrease in the government grant. The allocations granted against those requested were also tabled.

Discussion
Mr K Khumalo (ANC) asked Sentech to provide clarity on the World cup digitisation plan with regard to the use of both digital and analogue systems, the broadband wireless coverage, their employment equity profile and the standards used for projections and budgeting.

Dr Makone-Matabane responded that the use of both analogue and digital systems was one of the FIFA broadcast requirements. In terms of the data regarding employment equity, she noted that the Department of Labour only recognised the racial composition of a company, and did not take into account the employee’s economic background.

Mr Mohammed added that in terms of standards, Sentech would comply with the international financial reporting standards. He noted that the budget presentation related to projections for the 2007/08 financial year. 

Mr Khumalo argued that there was a problem with making future projections, which needed to be sorted out.

Ms S Vos (IFP) asked for clarity on when Sentech planned to finalise its budgeting plan, as the figures provided were meaningless without a finalised budget.

Dr Makone-Matabane responded that in terms of the budgetary process, Sentech was required to submit business plans, and was constantly engaging with National Treasury in addressing the concerns arising from the projected budget.

Mr Mohamed added that the reason why SENTECH had given a projection on the budget was that in the past it would request funding which would not materialise. Therefore it had decided to provide realistic plans of future project based on what was available on the market.

Ms Vos asked Sentech to provide clarity on what would happen if ICASA did not approve the license conversion .

Dr Makone Matabane stated that Sentech believed that the licensing process would be done expeditiously, as Sentech was a major infrastructure service provider to broadcasters. The broadband issue was a teething process that had already been sorted out. However, the largest challenge with regard to broadband was coverage and the need for mobility. 

Ms Vos asked that Sentech should also comment on what the financial implications were for 2010, the quality of its broadband service, and also provide further clarity on the employment equity and the cost of its e-schools programme.

Dr Makone Matabane commented on employment equity by saying Sentech had searched everywhere for the necessary skills and was also involved in providing training to university graduates. There was also a skills transfer programme in place by way of mentorship. The biggest challenge to Sentech in this regard was the fact that the private sector offered new recruits better remuneration packages, which led to an exodus of skills

Dr Makone Matabane said that the cost of the e-rate for schools was currently unknown but that Sentech was working with all the stakeholders to try to minimize costs.

Mr Frans Lindeque, Chief Operating Officer, Sentech added that Sentech believed that its broadband products were of a higher standard than the previous products, which were constantly abused by users, and had to be closed down.

Mr M Kholwane (ANC) noted that the lack of funding was a problem that had made it difficult for Sentech to give time frames. Therefore there had to be a process in which Sentech’s classification was reviewed as it was unable to compete in the communications market, despite having achieved more than other organizations.

Mr Hickling said that he acknowledged the recommendation, and agreed that there were many disadvantages in operating under the current classification.

Mr M Mohlalonga (ANC) stated that he needed clarity on when the term of the current Board and  CEO would end. Sentech also needed to provide clarity on what was being done to connect poorer areas. The argument of loss of skills had become a convenient explanation for companies that were under performing, and something needed to be done to resolve the matter. Sentech should also comment on the issue of Infraco, its relations with the South African Broadcasting Corporation (SABC) and also on Sentech's progress with the Unions.

Mr Hickling responded that the term of the current board was a standard term and the terms of both the Chairperson and the CEO would come to an end in 2008. Sentech believes that going to the rural areas would be an unprofitable venture, and would require funding in order to cover for the losses.  The issue of Sentech’s relationship with the SABC was one that was constantly being debated by the Board. Sentech also believed that it would be very productive for members of the Committee to visit Sentech, interact with the staff and tour the facilities.

Dr Makone-Matabane added that Sentech was presently not in a position to extend coverage to the rural areas although it did used to have systems in place in the Eastern Cape and the Northern Cape. These systems were implemented because other stakeholders were not keen on taking on the venture. In terms of relations with the State broadcaster, it had been decided that the SABC would focus on improving content whereas Sentech would be charged with improving infrastructure. In terms of Infraco, she stated that it had been established that Infraco would be a wholesale distributor to internet service providers and other entities. She stated that there was a succession planning policy in place which still needed to be implemented. In terms of the unions, there has been a signed agreement between Sentech and the unions, and the initial problem with them had nothing to do with Sentech.

A member of the Committee stated that the presenters had mentioned that 12 countries had been part of the New Partnership for Africa’s Development (NEPAD) broadband network, however only 11 countries were listed. She asked for clarity. She also asked Sentech to comment on the issue of disabilities, and how non-employees could have access to bursaries.

Dr Makone-Matabane responded that Kenya was the one country that had not been listed, due to the fact that the agreement with it had still not been finalised. In terms of disabilities, Sentech needed to implement a programme that dealt with the disabled. With regard to bursaries, Sentech usually advertised in the newspapers that bursaries were available and all prospective candidates would apply from there. However it was made clear to the candidates that they had to be studying in a field that was related to the communications sector. The awarding of bursaries was determined by a board of independent trustees.

The Acting Chairperson asked Sentech to comment on its mentorship programme and explain how the programme worked.

Dr Makone-Matabane pointed out that Sentech had implemented a rotational programme where young people were transferred to various areas, where they worked with experienced employees with designated skills.

Mr R Pieterse (ANC) followed up on several earlier questions. He asked whether the skills transfer programme in place was effective. He stated that in terms of coverage to the rural areas, Sentech seriously needed to find a way of covering parts of the rural areas. With regards to Infraco he believed the funding should have been transferred to Sentech instead of Infraco. He believed that Sentech must attend to filling their disability quota. On the issue of Digital signals, he asked that Sentech should state how they planned on informing the members of the public on what lay ahead.

Dr Makone-Matabane noted the recommendations made by Mr Pieterse and stated that Sentech did  plan on creating an awareness campaign which would focus on informing people on what could be expected in terms of digital television. On the issue of coverage to rural areas, Sentech, together with the SABC, had already begun implementing “gap fillers” in areas where there was no coverage. On the issue of skills transfer there was a major challenge in the training of young recruits on how to operate ageing equipment, as the old equipment did not excite young people.

Mr Lindeque added that Sentech was currently in the process of buying standardised equipment that would be used for training. It was also important to note that Sentech was focusing extensively on skill development.

The meeting was adjourned.