The Ad hoc Committee on Communications has examined the budget of the Department of Communications (Vote 27) for the 2004/05 financial year and the estimates for 2005/06 and 2006/07 included in the Estimates of National Expenditure 2004, and reports as follows:

A. The DoC (Department of Communications)

The DOC's vision, mission, key performance areas (KPAS) and critical success factors

The vision and mission of the DOC is to improve the lives of ordinary South Africans whilst contributing to economic growth, to make South Africa a knowledge-based society and to help create an information economy in order to enable ordinary people to have access to traditional media and the convenience of information technology (IT).

In support of the DOC's vision and mission, it endeavours to -

1. Develop ICT (information communication technology) policies and legislation for the enhanced economic development of South Africa's economy.
2. Evaluate the economic, social and political implementation, impact, outcomes and processes of its policies.
3. Exercise oversight on the SOEs (state-owned enterprises).
4. Fulfill South Africa's continental and international obligations in the ICT sector.

The DOC's key deliverables:

1. Bridging the digital divide.
2. Creating ICT awareness.
3. Developing ICT laws and policies.
4. Developing national infrastructure.
5. Economic growth.
6. Employment creation.
7. Enabling an infrastructure roll out.
8. Evaluating and monitoring through shareholder compacts.
9. Growing the ICT sector.
10. In terms of convergence, to offer an appropriate policy for cost reduction and SMME (small, medium and micro enterprise) promotion.
11. In terms of e-commerce, to establish an enabling electronic environment, address research and development and security protocol
12. In terms of its postal mandate, to address the market structure, improved service delivery and oversight of SOEs.
13. Infrastructure development.
14. Providing a strategic direction for the rolling-out of universal services.
15. Providing affordable access to ICT service.
16. Skills development.
17. SMME development.
18. To create a world-class ICT sector.
19. To create a regulatory framework.

1. Analysing convergent technologies to enable universal access.
2. Analysing the financial performance of SOEs (state-owned enterprises) and undertaking benchmarking on the financial performance of SOEs.
3. Creating a policy framework to facilitate universal access.
4. Developing a network model for the provision of educational services.
5. Developing a policy framework for public broadcasting.
6. Developing an e-strategy framework and an ICT competition framework.
7. Developing mechanisms to support local content.
8. Ensuring compatibility and interoperability of ICT standards.
9. Evaluating the financial implications of universal obligations.
10. Facilitating the restructuring of SOEs and facilitating the appointment of Boards of Directors of SOEs.
11. Finalising the Convergence Bill.
12. Migrating policy to introduce new digital services.
13. Overseeing the delivery of Government policy targets.
14. Providing affordable and high-quality access of regional broadcasting.

Table 1: The DoC's Medium-term Expenditure Framework Estimates

Table 2: MTEF per Economic classification

Table 3: Transfer Payments Details

The 2004 Estimates of National Expenditure reports an uneven spending during the past three financial years by the DOC, mainly as a result of the spending on the Post Office subsidy. This subsidy was removed in 2000/01, but was reintroduced in the 2001/02 and 2002/03 financial years.

The DOC budget appears to be in line with the Government's expenditure priorities. It should be interpreted against the backdrop of the extension of key public services, particularly in the social sector and in infrastructure delivery. The budget prioritises services that target the poor and vulnerable groups, while advancing programmes that provide greater impetus for economic growth and broad-based development.

In 2002/03, the department's revenue was R50, 3 million, made up as follows:

1. Interest from the SABC: R1, 8 million.
2. Licence fee paid by the Post Office: R25, 4 million.
3. Recoveries of previous financial years' expenditure: R0, 6 million.
4. Short-term interest received from the current bank account: R22, 5 million.

In the current financial year, the department received R53, 0 million, made up as follows:

1. Interest received: R25, 7 million.

2. Licence fee paid by the Post Office: R26, 9 million.

1. A Coherent Framework: The DOC must provide communications access within a coherent framework, involving all sectors of society.
2. Frequency Sharing: National requirements on frequency sharing are to be submitted by October 2004, followed by timeframes on migration.
3. ICT Application: ICTs are to be applied in the delivery of social services, viz. in education, health, agricultural production, crime prevention, etc.
4. A Intersectoral Approach: An intersectoral approach is favoured to migration initiatives since the DOC cannot be the only role-player in such initiatives.
5. Migration of Broadcasting: Broadcasting must be migrated into the new broadcasting arena, continentally and internationally.
6. Outreach across Government Departments: Various Government Departments, such as Home Affairs, Minerals and Energy, Science and Technology, and Trade and Industry, apply ICTs the DOC, therefore, has to play an interactive (and, perhaps steering) role in such initiatives.
7. A Policy Framework: A policy framework for the public broadcaster is currently required.
8. Public-private Partnerships: The private sector's research capacity should be harnessed and should involve the DoC as a strategic partner.
9. Research: Rapid progress in technology application necessitates applied research in the field of IT and ICT applications, with a strong focus on convergence technologies.
10. Restrictions: Unnecessary restrictions on communications technology may have to be removed.
11. Restructuring: The DOC envisages the restructuring of its economic cluster, initiated by its parastatals. These will be implemented up to Cabinet level.
12. SMMEs: SMMEs should assist in lowering the cost of communications.
13. Universal Access: Since not all South Africans receive broadcasting, the DOC must develop a policy framework for universal access.

B. Nemisa (National Electronic Media Institute of South Africa)

Established in 1998 and funded through the DOC, Nemisa's mandate is to provide a bridge between academic training and work or employment, focusing on traditional broadcasting such as radio and television production training.

Nemisa's board of directors is appointed by the Minister of Communications, with a staff complement of 26 (including management). Attracting students from all over South Africa, Nemisa's main focus is on administration.

It currently offers the following 3 tertiary qualifications: (a) the Radio Production Diploma, which places the focus on introduction to radio, current affairs programming for radio, research and programme development, post production and packaging, writing for radio and a three-month internship; (b) the Television Production Diploma focuses on writing for television, news gathering, processing and presentation, camera and lighting, production and post productions, audio and graphics and a three-month internship, and (c) Creative Multimedia (animation design and information design).

Students are recruited at schools, technikons and universities, and, on completion of their studies, are offered internships/apprentices at SABC Radio and Television, M-Net, E-TV and independent broadcasters.

Table 1: Nemisa's Medium-term expenditure allocation

Table 2: Nemisa's Sources of Funding

Table 3: Nemisa's 2003/04 expenditure

Nemisa's budget forms part of Programme 4, the Multi-media Service Policy, of the DOC budget, which is made up of the Policy and Legal cluster, the Finance, Budgeting and Shareholder cluster, the Community Services cluster, and the New Services cluster. The budget allocated to these four clusters addresses the formulation of policy and regulations with regard to convergence from an analogue to a digital system, restructuring of the SABC, South African content and local production, with a focus on funding for local content development, for infrastructure roll-out, funding of the digitisation of infrastructure, and funding for broadcasting services in South Africa's 11 languages. An interdepartmental focus is placed on working relations with the Departments of Trade and Industry, Arts and Culture, and the Government Communication and Information System (GCIS). As part of the New Services cluster, the Finance, Budgeting and Shareholder cluster is to place the emphasis on, amongst others, the repositioning of Channel Africa, the restructuring of the SABC and Sentech, the privatisation of Ciskei and Capital Radio and the repositioning of the Bop Broadcasting and the Rhino Recording Studios.

The main expenditure items are: the Independent Communications Authority of South Africa (ICASA), which received 49,33% of this programme allocation, followed by the SABC (16,6%), Multi-media Policy (15,06%), and Channel Africa (9,75%). Community Radio received 3,34% of the allocation, while Nemisa takes up 5,9% of the allocation to this programme.

Nemisa's sources of revenue for the 2004/05 financial year is as follows:

Grants R16, 878 million.

Learnerships R500 000.

Other R2, 6 million

Nemisa is to utilise its 2004/05 funds as follows:

Lease Rental 19%

Licence Fees 8%

Operational expenses 22%

Staff-related expenses 34%

Student Costs 17%

Nemisa's current (2004) student statistics are as follows:

1. Creative Multimedia 38 students.

2. Radio Production 15 students.

3. Television Production 21 students.

1. Channel Africa: At present, Channel Africa receives all its funds from the State. If Channel Africa's position is to be sustained and strengthened, other sources of funding should be explored.
2. Communications: The cost of communications is a point of particular concern. Indications are that the creation of competition (for instance a third cellular operator) either had a marginal impact on price reduction, or no impact at all. Although competition in the communications sector does not seem to have an immediate impact on the lowering of prices, over a period of four to five years, the price of some communications facilities may come down.
3. Convergence: The Convergence Bill will be tabled in national Parliament in the third quarter of this year. Technology-specific legislation which could hamper convergence may have to be removed. Drawn-out licencing processes drains Nemisa's resources.
4. Economy In the process of managing progress in the ICT and the communications sector (with particular reference to a Second National Operator) cognisance must be taken of South Africa's dual economy. The State must play a role in serving all of its citizens; it must create employment, bring down the price of communications, provide universal access and close the digital divide which separate the haves from the have-nots.
5. Multi-purpose Community Centres (MPCCs) are vitally important links to communications technology, particularly in rural and deep rural areas. Funding to MPCCs, therefore, is an ongoing challenge.
6. Skills shortage: Nemisa's role in identifying skills shortages in key areas such as research, development and training has to be done in partnership with, amongst others, the Department of Education; the institute is not in a position to address these shortages alone.7
7. Students: Nemisa currently places approximately 60% of its students in the media industry. Addressing the skills shortage in the media sector is of paramount importance, with particular reference to progress to the level of full employment of Nemisa's students. In placing students, it should be noted, though, that the media industry frequently uses the expertise of freelance staff.

A synopsis of the Post Office's operational environment:

• SAPO sends approximately 8 million mail items to approximately 6,5 million addresses (3,4 million street addresses and 3 million post boxes).
• Speed services carriers move 37 tons of mail each night by means of 70 (50-ton) container vehicles.
• SAPO deliver to an area of approximately 1 200 km2.
• SAPO has over 2 000 outlets and 5 500 service points.

SAPO's mission includes connectivity through the distribution of information, goods and financial services. Its short-term objectives are to:

1. Curb postal crime.

2. Improve its delivery performance.

3. Reach a financial break-even point in the near future.

The following are some of the more prominent achievements since South Africa's 1994 democratic elections:

1. The incorporation of the former TBVC states' post office administrations into SAPO in 1996.
2. The electronic signing into law by President Mbeki of the Electronic Communication and Transaction Act, Act 25 of 2002, enabled the application of SAPO's identification service.

Operating income R2 352 474 000

Operating expenses R4 316 946 000

Operating profit 35 528 000

An overview of SAPO's 2003/04 financial position reveals the following:

Its reported operating loss of R170 000 000 was reversed into an operating profit of R35,5 million, representing a profit of R205 000 000. According to SAPO, the following contributed to its improved financial position:

1. A revenue growth of 6,3% (R261 000 000).
2. A 1% cost increase.
3. A partnership approach to creative management of capital expenditure.
4. A reduction of staff members of 1 042.
5. A vehicle fleet reduction.
6. An improvement in SAPO's working capital.
7. Generating approximately R270 million (in cash) from operators.
8. A 46% growth in Postbank's depositor's book.
9. The introduction of Thuso insurance.
10. A R38, 6 million Miracle 2000 deposit.
11. New savings products introduction (such as term, bonus and group save).
12. A growth in SAPO's account of 28%.

Note: SAPO reported an amount of R1, 4 billion negative retained earnings as at March 2004, which could be resolved by means of a reduction of R2, 3 billion in post-retirement medial aid liability and the Postbank recapitalisation of R750 million (explained below).

1. Approximately 1 500 pensioners retired prior to October 1991 (the so-called old dispensation).
2. Liability of approximately R2, 3 billion impacts negatively on SAPO's balance sheet.
3. SAPO invested approximately R138 million for reserve funding, which grew to approximately R340 million.

1. Public Information Terminals (PITs): Although PIT activities are important to SAPO in providing information and Internet training, SAPO could not determine the trend of usage since such usage is not predictable.
2. Delivery: SAPO's current delivery of 6,5 million letters a day should not be seen as a limit; SAPO hopes that the volume of letters for delivery will grow.
3. Mail delivery in informal settlements is a matter of serious consideration. Some SAPO staff is currently trained for mail delivery in such areas. The commercial banks share SAPO's concern that mail should be delivered to such areas, bearing in mind that the majority of such areas do not have water and sanitation. SAPO works together with the National Address Database, the metro cities and the provincial and local governments in order to deliver mail in informal settlements.
4. SAPO's pension liability relates to the life expectancy of its pensioners. According to research done by SAPO, its pensioners generally have a life expectancy of 20 years following their retirement, together with continued membership of dependents.
5. Staff reduction is a matter of concern to SAPO. Since staff and transport costs present SAPO's major items of expenditure, it had to find acceptable ways to reduce its staff numbers. In doing so, SAPO sticks to voluntary retrenchment.
6. Stamps: SAPO's expressed the wish that South African stamps produced will motivate people to collect stamps. Indications are that the philately industry is growing rapidly. This view is supported by the 1998 White Paper on Postal Policy, which encouraged SAPO to develop a strategy to expand the collector's market and to develop and improve philately services.
7. Universal access is just as important to SAPO as to the other communications role-players. The delivery of mail, for instance, in some areas and the non-delivery in other areas is changed to a non-discriminatory approach. For that reason, the building of infrastructure in rural areas is equally important to the maintenance of well-equipped centres in affluent urban areas.

Established in July 2000, in terms of the ICASA Act, Act 13 of 2000, ICASA regulates the telecommunications and the broadcasting sectors. In addition to Act 13 of 2000, the authority derives its mandate from the Independent Broadcasting Act of 1993, the Broadcasting Act of 1999 and the Telecommunications Authority Act of 1996. It strives to be a strong, service-orientated and responsive communications regulator in South Africa, to increase access to communication services through the promotion of a competitive and socially responsive communications industry, and to promote choice and diversity in carriage as well as in content as an expression of the creativity of the South African people.

ICASA's key functions include the following:

1. To make regulations and policies that governs broadcasting and telecommunications.
2. Issue licenses to providers of telecommunication services and broadcasters.
3. Monitor the environment and enforce compliance with rules, regulations and policies.
4. Hear and decide on disputes and complaints brought by industry or members of the public against licensees.
5. Plan, control and manage the frequency spectrum.
6. Protect consumers from unfair business practices, poor quality services and harmful or inferior products.

Since ICASA operates in a very litigious environment, its decisions and rulings are challenged in court by operators in the communications industry. Increased funding would, therefore, enable the authority to defend its decisions more effectively. As part of its consumer-protection mandate, ICASA intensified is outreach programmes by means of road shows (in three provinces), addresses at schools, the application of promotional material (translated into all official languages), and public awareness programmes. In addition to the aforementioned, a committee for disabled people was established to liaise with representative bodies to stay abreast of the needs and challenges encountered by the disabled sector of South African society.

ICASA's international outreach includes TRASA (the Telecommunications Regulators of South Africa), the International Telecommunications Union (ITU), the AUT, RIARC (Reseau de Partenaires des medias africains), SABA (the South African Broadcasting Association) and other role-players in Africa.

1. Conduct more regular stakeholder meetings.
2. Establish a calls centre.
3. Minimise litigation risks.
4. Proceed with outreach (and road shows).
5. Procure a complaints management system.

ICASA's Telecommunications outputs for 2004/05 include:

1. A central-numbering database.
2. Number-portability regulations.
3. Reviewing the fixed-line tariff regime.
4. Telkom's PSTS licence.
5. The short-code strategy.
6. The SNO licence.
7. Under-serviced area licencing.

ICASA's broadcasting objectives include:

1. A review of community radio policy and signal distribution, of advertising and sponsorship rules and programming requirements for disabled people and the elderly.
2. In the 2004 elections, ICASA reported a total data capture error of 0,15%.
3. Regarding its licencing obligations, ICASA received 18 sound-broadcasting service and 3 TV-broadcasting service licence applications; renewed 6 commercial radio broadcasting service licences (YFM, Jacaranda FM, kaya FM, P4 Cape Town and Classic FM), granted amendments to Radio Oranje's applications and completed the four-year awarding process of community broadcasting licences to South Africa's nine provinces.

ICASA's engineering and technology objectives include:

1. Contributing to further RFT measurements.
2. Implementing spectrum management tools.
3. Issuing Frequency Spectrum Licences to a total of 89 000 radio communications operators.
4. Participating in and contributing to ITU conferences.
5. Publication of an Annual Terrestrial Broadcasting Frequency Plan.

Funding as a building block of lCASA’s contribution to the function of the Communications Environment:

Funding will -

1. Allow ICASA to respond to the Government's regulatory requirements
2. Enable the authority to hire and retain requisite skills.
3. Prevent regulatory capture.

1. 1.Community Radio: In terms of the Broadcasting Act of 1999, community radio is currently reviewed to look at failures and successes by, amongst others, senior international experts working with Telkom. A cursory analysis points to the fact that most community radio stations are currently located in Cape Town, which points to an uneven spread of such stations.
2. Consumer protection offered by ICASA: In addition to a lot of work done regarding road shows in educating the public in telecommunications, broadcasting, licencing processes and improved service, ICASA studied complaints by the public. The authority is now reconsidering its complains procedure, with particular reference to less sophisticated users. ICASA recently signed an agreement with Telkom regarding turn-around time and related matters.
3. Digital Broadcasting, throughout presentations to the ad-hoc portfolio committee, poses a particular problem. ICASA reported that it cannot address this challenge any further without a clear broadcasting policy.
4. Disability and captioning by the SABC is a matter which will be considered by the SABC, having been tabled before by ICASA. In this regard, ICASA has published a draft code of practice, and in 2005 the authority will have a public inquiry into access to programmes by people with disabilities.
5. Legal costs: The high cost of litigation is a cause of serious concern to ICASA. In the nature of ICASA's work, it is a common occurrence for licencees to take the authority on review.
6. Price cap: Co-cam regulation could solve this problem and will enable Icasa to investigate the cost structure of Telkom and the issue of high tariffs.
7. Price reduction: Although competition may have brought the price of communications down, there is currently no proof of that.
8. Rural areas: Services in rural areas pose the challenge that the current licences do not cover many rural areas in South Africa. ICASA considers a new licencing process and strategies of addressing this challenge.
9. SNO: (Second National Operator): Icasa recommended to the Government that the 51% stake in essence be kept by Government.
10. Staff turnover: During the review period, ICASA reported a staff turnover of almost 11 %, a 43,33% resignation rate from its management level and a management staff turnover of approximately 24%.
11. Youth Station for South Africa: ICASA decided not to licence any national commercial youth radio station since the SABC is in the process of tabling its own proposals on this topic.

E. The SABC (South African Broadcasting Corporation)

As South Africa's national public service broadcaster, the SABC's principal activities comprise sound and video broadcast by means of 17 radio stations and four television channels. The corporation is operationally regulated in terms of licences granted by ICASA. The SABC's vision and mission is to be the pulse of Africa's creative spirit and to deliver distinctive and compelling programming through sound business practices.

According to the SABC, more than 85% of South Africans rely on the SABC as their main news source, 52% on radio, approximately 34% on television and approximately 14% on newspapers and other sources.

A synopsis of the goals of the current SABC board. These are to:

1. Ensure full statutory and regulatory compliance by all divisions of the broadcaster.
2. Ensure promotion of democracy and nation building.
3. Create a financially sound corporation.
4. Revitalise the corporation, built on a sustainable business specified timeframe which enables it to fulfil its mandate, reference to its news department.
5. Ensure appropriate employment equity and BEE policies.
6. Create a corporation which enjoys the support and respect of its shareholder, viewers, listeners and other stakeholders.
7. Ensure compelling, professional and authoritative news and current affairs programming (reported accurately, fairly and in a balanced way while reflecting the world, in particular Africa, to all South Africans, in line with the SABC's editorial policies).

The SABC's longer-term objectives include the following:

1. Improved access to radio and television in all languages.
2. Modern/digital platforms (the application of modern technology for improved service delivery to the SABC's audiences).
3. Funding (i.e. a sustainable funding model).
4. Local content (to increase the quality and capacity of the local content industry across South Africa).

A synopsis of the SABC's television and radio delivery:

From March 2003 until January 2004, approximately 119000 minutes of educational television programming was broadcasted across the corporation's terrestrial channels.

The SABC's national radio networks remained unchanged at 150 000 minutes of educational programmes, all of which were manufactured locally. The aforementioned figures could be interpreted against the backdrop of 22 of South Africa's 29 million adults listening to radio. The SABC has requested an amount of R47 million to enable it to reach its radio broadcasting objectives.

Four focal areas identified by the SABC to deliver on its mandate:

1. A technology plan.
2. Regional television.
3. Education.
4. SABC Africa.

The corporation reports that its technology division and, therefore, it technological capacity, has been undercapitalised in recent years. It identified the migration of digital technologies as a major challenge, reflected in its Technology Unit's 2003/04 financial year results. The Technology Unit's technology strategy- formulated in the previous financial year - placed the focus on the current technological capacity of the SABC, with reference to rapid digitisation in the communications industry worldwide. The SABC's strategic plan focuses on:

1. Employing a digital technological infrastructure.
2. ERP (Enterprise Resource Planning), the redesigning of broadcast content workflows and middle-ware installation.
3. Finding digital content production solutions.

An amount of R340 million was requested to fund Capex in support of the aforementioned goals. To this effect, the SABC Board is in the process of providing a detailed funding plan. It is envisaged that the board will pursue this matter on the occasion of its 7 July 2004 meeting.

Regional television as part of the SABC's broadcasting obligations:

1. In terms of the Broadcasting Amendment Act, Act 64 of 2002, the public broadcaster must apply to the regulator for regional television services.
2. These services should place a strong emphasis on programming needs other then English.
3. The SABC reports that, in terms of the aforementioned Act, Government must fund such services.
4. The SABC submitted its application for regional television coverage in December 2003, leaving the granting of licencing to ICASA.
5. According to the broadcaster, confirmed by the regulator, 'these services will not be commercially viable."
6. The SABC reports that "in anticipation of a favourable outcome of the licencing process, the SABC would require R400 million from the shareholder to fund the launching and running of the two channels."

1. Accessibility of radio and television broadcasting poses a particular challenge to the SABC.
2. Advertising: Although advertising offers a viable source of income to the SABC and advertising in English proves profitable, steps could be taken to ensure that products are advertised in African languages as well.
3. Cultural sensitivity: In its broadcasting, the SABC should at all times display cultural sensitivity. It is not clear whether the corporation has a policy in place on this sensitive topic.
4. Disability and captioning is a point of serious consideration for the SABC. Although there has been an increase in subtitling on television, the SABC reports that currently it does not have a policy in place to address this important matter. Although the SABC does offer sign language, the corporation admits that this is not enough.
5. Editorial policy: Since the SABC is an important instrument for keeping South Africa's democracy alive, its board must strengthen that, with particular reference to the corporation's editorial policy. According to the SABC, generally speaking its editorial policy makes provision for all SABC editorial staff and requires from staff to fully understand and implement the corporation's editorial policy. The policy places the emphasis on widening democracy and to be inclusive of all cultures and realities in South Africa. The current board is of the opinion that its editorial policy adheres to the principles of dignity of all South Africans in the corporation's programming. Since South Africa has a new public broadcaster, it would not like to return to what South Africans have been used to in the past. It would, therefore, not like to be a mere organ for sectoral interest and would consequently like to promote democracy, non-racialism and nationalism in an entertaining fashion. The SABC reports that its current board framed that role.
6. Transformed technology base: An amount of approximately R1, 2 billion is required by the corporation for its transformed technology base.

F. The USA (Universal Service Agency)

Established in terms of the Telecommunications Act, Act 103 of 1996, the USA seeks to promote the goals of universal services, a reliable connection to the communications network that enables any form of communication to and from any part of South Africa, universal access, the ability to use the communications network at a reasonable distance and an affordable price which provides relevant information and has the necessary capacity in under-serviced areas, where over 60% of the South African population resides.

The Agency is required to:

1. Create an enabling environment, to build capacity and to make interventions in under-serviced communities.
2. Implement the ICT projects for the DoC and other stakeholders.
3. Manage the Universal Services Fund (USF).
4. Monitor, evaluate the impact of the aforementioned activities in communities and recommend on means to achieve the goals of universal service and access in South Africa.

The USA's core programmes include:

1. Capacity-building.
2. E-schools cyberlabs.
3. Infrastructure Development and Deployment.
4. Promoting the ICT awareness programme.
5. Research and evaluation.
6. Telecentres.

1. The deployment of 50 new e-school cyberlabs in the nodal points.
2. Addressing the connectivity and content of the existing 200 e-school cyberlabs.
3. Rolling out 35 telecentres in MPCCs.
4. Rehabilitating the existing telecentres with regard to content and services.
5. Researching the provision of universal service and universal access to ICT in South Africa.
6. Subsidising SMMEs and co-operatives.
7. Focusing on the 2004 Universal Access and Service National Conference.

The USA's capacity-building initiatives include:

1. Establishment of the Telecentre Association of South Africa (TASA)
2. Skills and competency of employers.
3. Staff training.
4. Training of 100 managers and operators of telecentres in ICT and business management.

Salaries and wages 9 452 465

Administrative expenditure 3 055 795

Inventory 261 000

Equipment 682 777

Land building 834 498

Professional and special services 1 916466

Total 16 384 000

1. The USA has to place a strong focus on MPCCs. The Agency will work closely with the (GCIS) Government Communication and Information System in setting up telecentres and MPCCs.
2. If telecentres are put up, the USA advertises the services of such centres and acts as a facilitator and a catalyst.
3. While some telecentres are currently functioning independently once they have been taken over by the local communities, they offer Internet connection 24 hours a day; other telecentres must, however, still be subsidised.
4. The USA is currently faced with the financial sustainability of some telecentres.
5. Many of the USA's telecentre initiatives will be in partnership with Sentech (providing V-techs in schools), with the assistance of ICASA. These will be supported by the provision of computers by the USA.
6. The relative brief lifespan of computer equipment (particularly for the provision of Internet connectivity) is of concern to the USA. While various service providers have provided computers to schools, they never revisited the upgrading of such equipment.
7. The USA needs to liaise with South Africans on a grass-roots level in order to determine the impact of its ICT initiatives.
8. Currently, the USA does not have enough contact centres; members of Parliament could assist in reaching-out initiatives in order to determine areas of critical need.
9. The USA's R1 million budgeted for its mass awareness of ICTs should enable it to take the lead in working together with the cellular industry, the Department of Education, local government structures, Telkom and the portfolio committee in achieving universal access.

G. Telkom S.A. Ltd.

Telkom's operations should be interpreted against the following backdrop:

• The South African telecommunications market is currently the largest in Africa based on customers and revenues. The market has grown substantially in the past few years from R31, 7 billion ($5,7 billion) in 1998 to R47,1 billion ($6,8 billion) in 2000 (Source: ITU, Yearbook of Statistics, Telecommunications 1991-2000, December 2001). As of 30 September 2002, fixed-line penetration based on population was 10,8%, while mobile penetration had risen to 26,6%.

• The fixed-line telecommunications market in South Africa has grown by approximately 28%, from R20, 4 billion ($3,7 billion) in 1998 to R26,1 billion ($3,8 billion) in 2000 (Source: ITU, Yearbook of Statistics, Telecommunications 1991-2000, December 2001).

• South Africa is the largest Internet market in Africa with an estimated 2,4 million Internet users resulting in a penetration rate of approximately 5,6% as of 30 November 2002, based on the estimated population as of mid-year 2002 by Statistics South Africa. The number of Internet service providers increased rapidly from seven in 1997 to 170 at the end of 2001 as the market structure evolved to accommodate tier two Internet service providers.

• GSM mobile services were launched in South Africa in 1994 and have experienced rapid growth in the number of mobile users increasing from 1 million users as of 31 March 1997 to 10,8 million users as of 31 March 2002 and 12,1 million users as of 30 September 2002, resulting in mobile penetration increasing from 2,4% to 26,6% during the same period. However, the overall penetration in South Africa remains low compared to Western European or Asian levels, which provides the potential for continued growth in the number of customers. South African mobile revenues were R15, 411 million in 2000, R21, 052 million in 2001 and R25, 493 million in 2002. Revenues from mobile services grew with approximately 88%, from R1 1,2 billion ($1,06 billion) in 1998 to R21, 1 billion ($20 billion) in 2000 (Source: ITU, Yearbook of Statistics, Telecommunications 1991-2000, December 2001).

In the aforementioned context, Telkom provides wire line and wireless services throughout South Africa and has extended its wireless services to other African countries. Its 50% shareholding of Vodacom makes Telkom Africa's leading provider of wireless services. Telkom has strategic equity partnerships with SBC of the USA and Telekom Malaysia, which jointly hold 30% shareholding in the Company. On 7 May 2002, Telkom's five-year period of exclusivity expired. During the company's exclusivity period, it pursued a multi-faceted process of business transformation in order to prepare itself for competition.

Telkom reported that its 2004 adjustments meet Government's inflation targeting range of 3 to 6%. Its adjustments represent an overall revenue increase to Telkom of 2,7%.

Telkom reported an average data products increase of 1%. These are broken down into the following key data products:

Diginet increases by 5,3%

Diginet Plus decreases by 3%

Megaline increases by 4,8%

Megaline Plus no increase

ATM Express no increase

PLC (cable) decreases by 9,3%

IPLC (satellite) decreases by 7,8%

VIP Dial/VIP Link increases by 5%

Frame Express no increase

1. The review period is Telkom's first as a listed company.
2. Headline earnings per share increased by 175% to R8, 64.
3. Operating free cash flow increased from approximately R4 billion in 2003 to R9 billion during the review period.
4. Telkom's group operating revenue increased by 8,8% to approximately R40, 8 million.
5. Telkom's cash from operating activities increased by 42% to approximately R13,9 million.

With the implementation of affirmative action, Telkom recorded the following staff complement (1 October 1993):

Black 46% (African 30%, Coloured 13%, Indian 3%).

Women 19% of Telkom's total employees.

Telkom's current staff complement:

Black (operational) 62%

Female (operational) 29%

Black (supervising) 41%

Female (supervising) 22%

Black (management) 35%

Disabled 1%

BEE (Black Economic Empowerment)

Telkom views BEE as an opportunity to address South Africa's socioeconomic imbalances, and has a crucial strategic imperative in pursuing value creation.

1. Telkom reported that it was recently named by the JSE as one of its listed companies which qualifies for inclusion in the Social Responsibility Index.
2. Telkom currently operates its SHE (Safety, Health and Environment Policy). This includes an integrated health profile in determining its risks and costs associated with physical, psychological and socioeconomic health and well-being. Although AIDS interventions are managed as part of the Health Management Budget, R8 million was set aside for the 2005 budget year to cover this initiative.
3. Telkom's social responsibility extends to skills development, which includes competency development, targeted development initiatives, learnership and graduate development schemes.

Telkom reported that during the financial year ending 31 March 2004, it has spent R390 million on training and development. Its skills development includes the completion of approximately 30 800 virtual courses.

These include a collaborative initiative, involving Telkom, the telecommunications industry and the Department of Trade and Industry. Each centre of excellence provides individual research focus areas.

In support of Government's initiatives, Telkom undertook to investigate opportunities for services to African operators through African-based partners. In doing so, it supports Government policy relating to improved universal access to telecommunications and ICT, BEE and the empowerment of women in the communications sector.

1. 1.In relation to South Africa's first and second economies, Telkom's services are exorbitant. Although prepaid communications facilities are meant to address the plight of the poor, currently R158 has to be paid for connection. If such connection is not recharged within 50 days, the connection is terminated. Over and above the aforementioned amount, R50,80 has to be paid monthly. This tariff appears to exceed the international average.
2. Telkom reports that profitability is the result of the following two elements: revenue and cost, and the difference between revenue and cost. Telkom's 4,6% profit increase was the result of a successful drive and focus on improving its efficiency, paying back debt, improving its management systems and a R34 billion investment in its communications network. Telkom is subject to a price-control regime by means of ICASA regulation. ICASA did start the process of reviewing Telkom's tariff regime, which is to be based on what Telkom called reasonable economic considerations. Telkom's profitability is does not purely result from price increases.
3. Regulation of access by Telkom to submarine cables is required since this is still unregulated.
4. Telkom's retrenchment rate is a cause for concern. Telkom reports that it is involved in the following three tiers of employment creation: (a) a creative plan focusing on training and re-training, (b) investment through broad-based BEE, and (c) making a contribution to the industry and the communications sector. Telkom partly focuses on retraining its staff and assisting them in becoming involved in related communications sectors. It reported that since 1997, R24 billion was spent on this, with an 18% investment in black-owned SMMEs.
5. Indications are that Telkom's substantial profit margin does not impact positively on comparative tariffs.
6. Does the South African communications landscape offer sufficient room for a SNO? Telkom reports that the answer to the aforementioned question is to be found in the market place. When mobile communications were introduced in 1994, initially half a million potential customers were targeted.

Sentech began operations in 1992 under the auspices of the SABC as a signal distributor for all transmissions related to the SABC. This mandate included services provided to M-Net, Radio 702, Radio Ciskei, Transkei and the Bophuthatswana Broadcasting Corporation. It currently operates as a commercial state-owned enterprise with its own board of directors and as a broadband network business accommodating narrowband functionality on a common platform, supplying communication solutions and services to wholesale and retail customers in chosen markets in South Africa and the rest of the continent.

The main focus of Sentech's activities are:

1. Digitisation.
2. Access.
3. The lifting of specific restrictions in the communications environment.

Digital Terrestrial Television (DTT) forms the basis of a digitised South African communications environment since digital communication relates to the way programmes are processed and transmitted, and to multiple channeling with set-top boxes or decoders.

Sentech reported the following advantages of DTT:

1. Increased efficiency in frequency spectrum usage (more broadcasters can be licenced).
2. Lower transmission cost.
3. Local receiver manufacturing will contribute to industry growth.
4. DTT offers multiple channel capability (in serving South Africa's diverse cultures).
5. Improved reception, and simpler installation and operation.
6. DTT is portable as well as mobile compatible.
7. DTT offers services such as e-government, adult education and access to health services.
8. Transmitter power operation per television service is lower.
9. Foreign control by satellite operators will be eliminated.
10. DTT will enable the public broadcaster to meet its universal service targets.

1. Since Johannesburg has an existing test site, DTT should first be made available in that city, together with 50% of non-metropolitan areas.
2. The remaining 50% of non-metropolitan areas.
3. South Africa's metropoles.

Note: Metropoles cover approximately 20 million viewers, while non-metropolitan areas cover an estimated 24 million viewers.

Sentech anticipates the cost structure of DTT roll-out and the cost of a regional network to be as follows:

1. 7 million set-top boxes to be acquired at a cost of R468 per box.
2. 7 million antennae at R1OO per antennae (taking into consideration that viewers may opt to use their existing antennae) - at a total cost of R3, 98 billion.
3. A national transmitter network at a total cost of R268 million.
4. Transmitters at a cost of R153 million.
5. Decoders/antennae at a cost of R2, 27 billion.

Sentech reports that radio is accessible in South Africa, which is covered by a national radio network. Although not all stations are currently received, every citizen can listen to radio.

This service offers the advantages of being always available on access, offering three options of 128, 256 or 512 kb/s and no cap on data transfer. In addition, it is portable at no extra charge, self-installed and includes an e-mail account in its monthly price.

Sentech reports the following three challenges in South Africa's communications environment:

1. Increased competitiveness.
2. Reduced prices for communications customers.
3. Leveling the communications playing field.

Sentech's proposal on the lifting of the aforementioned restrictions cuts across the communications spectrum and ranges from current restrictions on the Carrier of Carriers and multimedia to legislative amendments:

1. Sentech should be entitled to terminate the international services to end-users.
2. The definition of "Carrier of Carriers".
3. Access to a submarine cable.
4. In multimedia communications, Sentech should be entitled to carry voice since this will be to the benefit of its customers.
5. For this reason the definition of "multimedia" in terms of the Telecommunications Act should be amended and, consequentially, sections 32C(8) and 36A(h)(vi) be deleted.
6. VANs facilities must be provided.
7. In order to enable Sentech access to the 1800 Mhz and the 3G spectrum, sections 30A and B and 36A and B of the Telecommunications Act should be amended.

Sentech's funding requirements for capital infrastructure:

The amount in respect of capital infrastructure requirements can be summarised as follows:

After investigating various financing models, Sentech proposes that the most viable option available to meet its urgent financial requirements is that of an additional equity injection by Government as the only shareholder in Sentech, for the following reasons:

1. An equity capital injection by Government would enable Sentech to make the necessary strategic investments that are required to provide South Africa with an ongoing analogue broadcast transmission environment, while simultaneously developing the new digital broadcast transmission environment.
2. Government would be able to increase its share capital in Sentech and retain control over a strategic national communication asset.
3. The equity capital injection could be phased in over the two-year period in accordance with the timing requirements of the Government of South Africa.

1. 1.In terms of broadcasting, in many parts of our country there is either no sign or a weak sign. The Karoo is one of those regions. It should be noted that such viewers and listeners pay their television licence fees. At the same time, it should be noted that while Sentech may be responsible for installing transmitters in bad reception areas, ICASA must approve the licence application for such an installation. This again places the emphasis on the dire need for a policy framework regarding digitisation.
2. Digital and employment creation pose a particular challenge to Sentech. In order to fulfil its mandate, Sentech needs to be able to tap its local skills base. As part of Sentech's social responsibility, training in all South Africa's centres must be prioritised, especially because of the apparent migration of skills between Cape Town, Durban and Johannesburg.
3. Corporations such as Sentech and Telkom should consider a partnership approach to retain the migration of skills to develop the local provincial economies.
4. The manufacturing of decoders in South Africa will be done jointly w th a Korean company, which represents significant progress in the ocal manufacturing industry, together with much-needed expertise.
5. Sentech is becoming increasingly involved in provincial and local government broadcasting challenges. It now talks to members of that tier of government about programmes and their mandate on a local level. Although gains were made in that field, Sentech reports that it has not yet achieved its desired goals in local and provincial government broadcasting matters.
6. In support of the aforementioned, digitisation is fast becoming one of Sentech's major challenges. Sentech has been active in this field for some time. A task team advised the Minister. Cabinet adopted its recommendations, which was followed by a further analysis. Digital migration should be finalised by 2006, at an estimated cost of R45 billion spread over a period of 20 years. Despite digitisation, analogue and digital broadcasting have to co-exist until the whole of South Africa becomes digital. In the meantime, both analogue and digital platforms must be accommodated, which, at this point, doubles the cost during the cross-over process. The cost implication is, therefore, that the price of broadcasting is not lowered since broadcasters offer two services. The 20-year period is seen as a process of gradual migration in order to allow particularly the African continent to digitise. At the same time, a balance must be struck between the needs of rural and urban areas. Clients in rural areas cannot be left with analogue platforms only.
7. Some of the SABC's transmitters are becoming so outdated that they can no longer be repaired since parts for those are not available, which means that they have to be manufactured locally.

1. South Africa's current communications sector operates within the country's first, second and, perhaps, third economies. The cost of connecting all South Africans is increasingly becoming the communications sector's greatest challenge. All role-players in the communications sector and industry must take cognisance, therefore, of providing connectivity to middle-class, working class, and poor South Africans.
2. An SNO in South Africa could play a pivotal role in creating healthy and meaningful competition in the communications sector, with particular emphasis on affordability.
3. C Price-structuring in the telecommunications sector could assist in meeting the Government's mandate of providing affordable communications to all South Africans and bridging the digital divide, not only within the borders of South Africa, but also throughout the continent of Africa and the world.
4. The transformation of South Africa's communications sector may result in the lifting of unrealistic restrictions. This, in turn, may result in either legislative amendments or removing restrictive legislation from the Statute Book.
5. The redrafting of South Africa's Convergence Bill is a matter of urgency. It is envisaged that this legislation will be presented to Cabinet in the last quarter of this year and subsequently to the Ad-hoc Portfolio Committee on Communications.
6. F Multi-purpose Community Centres and Public Information Terminals are integral parts of South Africa's ICT roll-out and infrastructure.
7. Radio reception (with particular reference to our country's language groups) and television reception is an ongoing challenge to South Africa's communications sector.
8. Digital broadcasting and universal access are fast becoming South Africa's main challenges in providing access to communications for all its citizens. Since South Africa's current broadcasting infrastructure is ageing, digitisation is seen as the only solution to ~ broadcasting challenges. For this reason a clear broadcasting policy - which addresses specifically digitisation is required.
9. Presentations to the Ad-hoc Portfolio Committee were characterised by a commitment by the eight entities to financial discipline and sound management principles, an awareness of their social responsibilities while at the same time balancing the communication needs of South Africa’s first and second economies.