Economic Update
South Africa’s government has moved to still the growing clamour to lower the cost of internet usage and speed up access times, announcing plans to lay undersea cables to link the country with Latin America and the United Kingdom.

On July 29, President Thabo Mbeki announced there would be a major boost to South Africa’s communications grid, with plans to girdle the world with two high-capacity cables.

Speaking after the cabinet lekgotla, a top level gathering that brought together ministers and their deputies, along with provincial leaders and directors-general of national departments and individual provinces, Mbeki said the meeting had discussed the high cost of communications and the need to improve services.

“It is one item we have been grappling with for some time,” he said. “It is seen as an obstacle to industry and society.”

There has been growing criticism of South Africa’s internet access, which is groaning under the strain of a surge in usage and limited capacity. Currently, international links are served by the single Sat3 cable, a submarine communications cable linking Portugal and Spain to South Africa, with connections to several West African countries along the route. It is partly owned by state-controlled Telkom South Africa.

The lack of competition has led to complaints of price gouging, with some estimates putting the cost of internet usage in South Africa at ten times that of Europe.

On July 31, Lyndall Shope-Mafole, the director general of South Africa’s department of communications, fleshed out the plans announced by the president. She said the projected budget for the cables would be around $700m, with the first leg, reaching from Durban to Brazil, possibly up and running by 2009.

When operational, the cables would be in direct competition with Sat3 and would charge rates only marginally above the operating cost in order for more people to be able to get broadband access, Shope-Mafole said.

“As Africans, it is important to invest in a submarine cable to lower the cost of communications,” she said.

While the government was still looking at funding issues, under the proposal private companies may be offered the chance to buy into the project, along with Telkom, with the state funding the balance.

The cable project will be overseen by InfraCo, the state-owned telecommunications infrastructure company, which comes under the department of public enterprises.

The InfraCo project may prove to be just one of a number that could see South Africa’s communications links with the world upgraded. Though South Africa appears to have opted out of the East African Submarine Cable System (EASSY) project, which was to run from KwaZulu-Natal to Port Sudan and link in seven countries, there are others on the line.

One is Seacom, a private initiative that will connect South Africa to Kenya and then run the link to Dubai. With initial surveying work being carried out, the Seacom cable has an operating date of early 2009. Its promoters say the fibre optic cable will allow for greater access and lower subscriber rates.

And it is price that is the issue for many in South Africa. Having been pressured by the government to reduce its internet rates, Telkom cut its fees by between 10% and 38% for its various services, with a 29% cut for basic broadband subscriptions as of August 1.

Reuben September, Telkom’s acting CEO, said that the reductions were part of the company’s campaign to protect and expand its income by increasing its overall subscriber base.

“While the net impact of the proposed prices will vary among customers, the overall effect will be a reduction in the cost of telecommunications in South Africa,” he said on July 29.

However, even with these reductions and improvements in infrastructure, internet pick up is tipped to remain low. According to the results of a study released in late July, less than 4m South Africans will have access to the internet by the end of the year, an increase of around 3% on the 2006 figure. Of these, only 650,000 of the country’s 47m citizens will have a broadband subscriber account.

Arthur Goldstuck, managing director of World Wide Worx, the Johannesburg research company that carried out the study, said that despite the wider penetration of broadband, most of those signing up were already on the internet and could afford to pay the subscription fees.

“Those who are connected are looking at getting better connected whether they are at home or out of the office, and those who can afford it are taking advantage of better deals,” he said in an interview with a local newspaper on July 29.

“The majority of broadband users are migrating up the connectivity food chain, from dial-up to broadband. So, while the haves get more, the have-nots remain locked out.”