African telecom faces race, foreign ownership questions

In July, Vodacom South Africa unveiled "the biggest empowerment deal" with the expectation that 50,000 black citizens would buy shares in the country's most popular cellular network.

The 6.25 percent shares up for grabs will benefit middle- to low-income citizens in a country where racial inequality is still manifested in the wide wealth gap between whites and blacks.

The offer came a day after Paris Mashile, chairman of the Independent Communications Authority of South Africa (ICASA), termed telecommunications as a new gold rush, where large white-owned companies pocket the wealth and leave nothing for the masses. Mashile argued that the lowest rungs of society would be alienated if the ICASA did not actively demand a greater role for black people in the industry.

ICASA is now insisting that new licenses for spectrum go to companies that are at least 51 percent black-owned. The six new licenses on offer are for WiMax, and each license will allocate 20MHz of spectrum.

The race question in South Africa is almost a taboo subject, but the new proposition has angered many in the telecom sector.

Thami Msimango, Telkom's chief technical officer, argued that licenses should be given to people who can afford to roll out infrastructure, while Vodacom CEO Alan Knott-Craig said that true empowerment will not be achieved by favoring operations owned by the previously disadvantaged.

While South Africa tackles the race question, other African countries are grappling with favoritism of foreign companies over local ownership.

Case in point is an operator who was controversially licensed by the Kenyan government, despite the fact that a few years before the tender, a high-powered team of some of Kenya's brightest technocrats found that the company should never have been allowed to bid in a privatization tender, said telecom analyst Mike Theuri.

"Local companies must be given equal opportunity, but they must not whine about foreign companies," he advised. "They must raise their game and compete at the highest level of global standards today."

The unwritten requirement of telecom licensing in Africa has been that you must be foreign, said Joseph Okpaku, president and CEO of The Telecom Africa Corporation. Local entities have always been seen as inferior and less attractive, with the licensing bodies being overly focused on direct foreign investment, he added.

"The innovative way local entities have got into telecom has been coming in under the wings of foreign bidders," Okpaku said. "In Kenya, when locals had oversubscribed the Safaricom IPO by almost 300 percent, the government was still insisting on a portion of the IPO being reserved for foreign investors."

Citing examples from India, Brazil and China, Theuri argued that most countries do not know how to leverage markets for investment and, rather, demand foreign direct investment in return for access to the markets.

"We give away the crown jewels away for cents. For instance, only $25 million was paid for a 3G license to Vodafone's Safaricom in Kenya, while close to $600 million was paid in Egypt for the same," Theuri said. "In reality, the record profits earned every year are proof that the average consumer is still getting a raw deal, even when providers are offered licenses at throw away prices."

The IDG News Service is a Network World affiliate.