No benefits for SA Blacks from R32 Billion Mobile Network Infrastructure Build Cake

Getting a breakdown of infrastructure build from operators is like trying to extract a tooth without an anaesthetic.

South Africa’s big four mobile operators – Vodacom, MTN, Cell C and Telkom – are spending more than R32 billion on network infrastructure upgrade in 2017.

The figure is likely to balloon to more than R100 billion if you include fibre network providers such as Vumatel, Seacom, Dark Fibre Africa, Fibrehoods, Vox, Frogfoots, OpenServe, Smart Village and Rain, etc.

MTN is the biggest spender with R11.5 billion, followed by Telkom’s R8.6 billion and in the third position is the country’s biggest mobile phone operator Vodacom at R8.5 billion and in fourth is smaller Cell C at R3.5 billion.

With all the billions of rands spent by mobile phone operators to upgrade and build new network infrastructure, just pause for a second and ask, will it get into the hands of South Africa emerging and black-owned firms or other local entities?

Will there be emerging blacks’ firms able to get massive contracts to build quality networks required by mobile operators?

4th generation mobile networks, the fourth gen wireless mobile telco technology, abbreviated 4G or WiMAX, a cutting edge networking standard for wireless mobile broadband data communication
4th generation mobile networks, the fourth gen wireless mobile telco technology, abbreviated 4G or WiMAX, a cutting edge networking standard for wireless mobile broadband data communication (Photo Credit: www.shutterstock.com)

There have been none so far, and mobile phone operators have been upgrading their networks since the granting of their licenses, more than 20 years ago.

Clearly, they are not apportioning enough capital to black companies.

The country has several highly-skilled black engineers that have been working for Telco’s and some have been retrenched with years of experience.

However, none of these engineers – not even those who have built network infrastructure firms –  have been awarded multi million rand contracts to build and upgrade networks of Vodacom, MTN, Telkom and Cell C.

It appears the black owned companies if they are given any work at all, are receiving crumbs of the multi-billion rand pie.

Mobile phone operators are reluctant to disclose details regarding their support for emerging black players when building their networks.

Fibre-to-the-Home
Fibre-to-the-Home (Photo Credit: www.shutterstock.com)

Considering the huge amounts of money mobile phone operators are spending on network build, including fibre to the home and business, it is shocking that the lion’s share spent by operators goes to foreign and local white owned firms.

Getting a breakdown of infrastructure build from operators is like trying to extract a tooth without an anaesthetic.

The question is, do black owned firms have requisite skills? If they do why don’t they get lucrative contracts to upgrade and build new network infrastructure for mobile phone operators?

Mobile phone operators claim that they don’t include a breakdown of their infrastructure spend tendered by black or emerging firms to construct or enhance their networks.

Unfortunately, even the drafters of the Telco’s annual reports are not giving us a clue on empowerment spend on infrastructure build, but strangely operators are volunteering information on the breakdown about their staff complement and money spent on supporting enterprise development, plus corporate social development initiatives.

Why should you care about this?

As a customer of Vodacom, MTN, Cell C or Telkom, you spend your hard-earned cash on enabling these mobile operators to generate billions of rand in profit, but none of it is used to empower those previously disadvantaged by apartheid.

Furthermore, the mobile phone industry is the only profitable sector developed during the new dispensation and has a duty to contribute to the transformation of society and to develop new, emerging players.

The majority of mobile phone operators’ customers are black. These customers probably can’t even identify a single black-owned firm that has been supported by Telco’s to participate and build the country’s network infrastructure.

It seems that the trade-off for not benefitting black owned SA firms by Telco’s is that contractors, such as Nokia, are expected to comply with BBBEE regulations.

Telecommunications tower. Mobile phone base station
Telecommunications tower. Mobile phone base station (Photo Credit: www.shutterstgock.com)

However, globally there is a push to support local firms to ensure that local content, skills, expertise, and innovation are given a chance to thrive. Why not in South Africa?

It has been more than 20 years of building and enhancing our networks in South Africa.

In theory, black-owned firms should have been given enough chance to amass experience to build and enhance mobile phone operator’s networks.

Then, if black-owned firms are unable to acquire and build skills in more than two decades it’s a serious tragedy or they are being sabotaged.

For the past two decades, I have been following this industry but clearly, there is no willingness to support black-owned network builders.

Telco’s don’t care about network firms that are local, but they are very keen on spending all their billions on foreign and local white owned firms.

This is not sustainable, BBBEE is a peaceful method created to level economic playing fields and create new black-owned firms.

Vodacom, MTN, Telkom and Cell C, should not force black-owned companies into a corner lest they fight back.

For the sake of the mobile phone industry, operators must reveal how much they are spending on black-owned firms lucky enough to get work to build their networks.

 

9 COMMENTS

  1. Very insightful article and thanks for bringing this into the public domain. Being a contractor with a Level 1 BBBEE rating and having self funded the business i aprreciate what has been written in this article.

  2. What’s missing here is the abuse us Black subcontractors are subjected too by White owned companies directly contracted to Huawei and MTN. Not only do we struggle to servitude rates, but the non payment of our services. There is a bunch of us not paid for over 6months by these companies

  3. It is neen said many moons ago that South Africa has won indepence but not freedom.
    Transformation is idealogical in other words is based how you conceptualisation of your nation and understanding premier contradictions b4 and after your so called freedom
    Regards
    BB SethZwe

  4. @Author Thanks for this article being in the public domain and allowing responses from hopefully a varied group of stakeholders in this industry. I would however like to add onto this article if i may? This is entirely my views and opinions herein, which may differ from other commentators.

    The industry of building Fibre Optic networks has for a very long time been ignored as it is defined even by the codes of industry as a grey area – it is not 100% construction neither is it 100% telecomms. That in turn creates the first issue, if an industry is not recognized, how do you fund this type of industry from a financial perspective? How does a capable, experienced entrepreneur access finance to start his/her business(via PO hedge or even via Bank OD) with the traditional mainstream finance houses. This brings in the bigger more established companies with diverse markets and interests and not to mention access and ability to finance these builds. This is a cash intensive industry.

    There is no consultative forum for this type of industry, the likes of the local FTTX council look after the interests of a selective portion of the industry who can afford the subscriptions and surprisingly none of the established Telco’s or contractors have a presence on this council so how is this council taking decisions and developing strategy, creating industry standards and compliance legislation? What has been created is a portion of the contractors who comply and have all the requisite skills and resources feel ignored and left out(yet they are the companies out there doing the physical manual intensive work on a total turn key basis) and the bad side is that this has created a maverick, non complying section of contractors who just want to do work without all legal and statutory matters in place in order to make a quick buck.

    Blame cannot be apportioned alone to the Telco’s(MTN as mentioned in a comment) and the bigger companies (Like Huawei as mentioned in a comment), due to the fact it makes sense for the likes of MTN to be dealing with a big company that has sufficient resources and capital to finance the entire build, this has a cost saving to the likes of MTN wherein they now manage a delivery process alone and dont have to shift focus by doing all the various vettings, etc for individual contractors(this may run into 20-40 contractors). The problem lies with contractor compliance – for example – Vat No, Audited Financials, References, EHS Compliance, Warehousing, Insurances, Tax Clearance and other mandatory items required to be vetted. 90% of contractors do not comply or do not want to comply, so they take the easy way out as they havent actually costed the “cost of doing business”. These are generally the cases that come to light when complaints of non payment are heard off.

    The other part of being in this industry is the rates, these are constantly going down as there is no set industry rate( think now of what i highlighted with the local council..) which sends a message of hopelessness to the owners of companies as each rate decrease sets back the companies operational profit and hence the ability to grow their businesses. Please note even small players that are registered with the big companies have minimum staff compliments of 100( now take the standard of 1 wage supplying 4 people with basic security[ food, shelter,clothes] and this number grows to 400) and are local SA citizens that are benefiting but the companies cant keep affording YoY inflationary increases with rates going down on a YoY basis.

    The blame game will stop if we apply the motto of “play the ball, not the player”. A body needs to be set up to address these issues that comprises of all relevant parties. That should be the industry goal at present to prevent future issues. There are many people within the industry who will support such an initiative.

    Another prevalent issue raised by 1 commentator is disguised racism – this is prevalent in the industry as the belief is that a non white company doesn’t know how to build, want to take short cuts, is unreliable, etc( utter nonsense in my opinion!). This bias is prevalent as most overseers are white and my experience has shown me that the colour of your skin does not make you right or wrong, my employees are skilled and in many instances more qualified and skilled than the overseers. When challenged they dont like it so they start looking for any loop hole to nail contractors on. These overseers are generally expected to ensure compliance to specifications and build quality, this abuse is generally directed at foremen on site and project managers( who in most instances are non white). They in turn hold back sign off or delay project hand over which in turn delays payments to contractors. Due to lack of finance you find that many specialized services such as Horizontal Directional Drilling, Splicing and testing of Fibre Optic Cables are still pre predominately white owned. This is because the equipment is expensive and access to finance is limited, not due to the lack of skills of black people. This can only change if black owned companies can access asset finance (which goes back to my point of the industry being in a grey area)

    Another point is many companies(both white, black, national, local, global,) take on too much work based on chasing a monetary target alone, they in turn start taking on sub contractors and then the problems start with payments, quality and compliance. It would be better for the main contractors to have 2 or 3 times more contractors that have in house capabilities.

    The blame game cant continue as the only losers will be the local companies, the local companies need to up their levels of competitiveness, collaborate more with other companies, skill up their staff, invest consistently in growing business( not taking the upfront start up cash and buying luxury cars ) and discussing issues that challenge all of the contractors in a clear, concise manner with parties concerned.

    A point off concern is the greater buy in for building fibre optic networks(which in turn upscale access to bandwidth) from the local councils, communities and provincial/national government. There is a reluctance from councils to point out existing infrastructure to contractors, hence there are instances of damages to electrical and water services(surely the cost of coming out to point out services are far less than the costs of repairing it once damaged?) It makes it hard for small contractors to wait 2-3 weeks for a council official to attend a 20-30 minutes meeting especially since this type of work id deadline driven!

    In a nutshell this is an industry that is hard on companies finances and until these issues are resolved not an industry for someone to get into lightly even though this type of industry has the immediate potential to create employment in these trying economic times.

    Thanks

  5. unfortunately what this article doesn’t cover is that the majority of these companies don’t pay there contractors on time and have a tendency to squeeze the contractors so that the margins that are left are barely there. the international companies referred too are basically subsidizing these builds until they eventually get paid. Which then inadvertently affects the smaller contractors that do work for these bigger companies on the SA networks. (same can be said of the way the SA government pays their suppliers) how many small BEEE business have been destroyed by the way government pays for their services?
    If the industry was geared to paying there bills on time including government, then we would be able to better grow smaller local business’s, they would not have to agree upfront to funding the project, and would therefore not need to rely on the bigger players and foreign companies to get the deals. Very sad indeed. If both public and private companies were forced to pay there bills monthly on time then the entrepreneurs in SA would fare much better and more jobs would be created. A case of bad leadership in my opinion.

  6. I must say this has been long overdue, I have been subcontracted to most of this white companies who do work for all this four big companies, the exploitation of black small companies is rife. We do all the hard work yet we never get the opportunity to get lucrative contracts, We have all the skills and experience but all we ever get are the crumbs. This is a very insightful article indeed.

  7. If you are able to speak Chinese and have lots of brown envelopes, you will probably win the work. The Chinese may have the tins that’s required to build the networks,but this is about the only skill they have.

    Local companies are being abused by them and bankrupted by them.

    Networks, we need to work directly for you and not via this outsourced model.

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