A Dream Outsourced to India

Written by Charles Ash
Monday, 03 October 2011 18:29

Charles Ash takes a long hard look at the recent failures of the national communications department.

Failure is not necessarily a bad thing. Almost in all cases, failure presents an opportunity to learn, grow, improve and to try again, being better and wiser. It’s really only the failure to learn from past failures that is the problem... and Houston, here in South Africa, we clearly have a problem.

When it comes to matters of technology, there is a disturbing trend in government and media circles. Since the information technology industry in South Africa is still so disproportionately dominated by white males, commentators and columnists, most of them also white, who agitate for change in this industry by calling into question government’s numerous blunders in steering the telecommunications sector, are often blatantly disregarded by government decision makers as being nothing more than white anti-government rabble-rousers. It’s almost as if government has developed a textual armoury of words to deflect all criticism aimed at it. Words such as anti-government, anti-ANC, anti-black, racist, unpatriotic, Afro-pessimistic and, my personal favourite, “bloody agent” are immediately aimed at anybody with the temerity to call government failures into question.

The main gripe with government’s, and particularly the national department of communications’, failure to steer the telecommunications sector is government’s seeming inability to appreciate the material consequences of its obstinacy and short-sightedness. I find it perplexing that while all government literature and communications purport to be in favour of job creation and the reduction of unemployment, enigmatically and consistently, over the past 10 years, the department of communications has hopelessly squandered almost every opportunity to give any credence to these stated government policies. An article published in the Business Day of 29 May 2007 stated that a government scheme to lure international call-centre operators to SA had not elicited a single application, dashing hopes that up to 100 000 new jobs would be created and investment deals worth R175 million sealed if the initiative were successful.

 

Economically speaking, these 100 000 jobs would have resulted in a projected R12.5 billion being pumped into the South African economy every year. There is evidence to suggest that the number of jobs created could even be higher. “Although South Africa’s offshore contact-centre industry has performed reasonably well over the years, it is not delivering the jobs and revenues that government and industry hoped for,” comments Switch Telecom MD Greg Massel.

 

You see, the modern call-centre industry is premised on the availability of affordable, high-quality bandwidth. Failure to provide this singular and potentially infinite raw material makes investors reluctant to invest and of course, as investors are wont to do, they are quick to move on to countries more serious about the facilitation of opportunities in the globally burgeoning call-centre sector, countries such as India.

The African National Congress Youth League (ANCYL) has rabidly focused its attention on the nationalisation of mines as the cure-all for rampant youth unemployment in the country, but this is a highly retrogressive step. For starters, it fuels the notion that African youth are nothing more than blue-collar fodder, capable only of menial, back-breaking manual labour. It ignores the towering body of evidence that government involvement in the private sector leads to costly and unnecessary failures. It also requires the gargantuan task of revising legislation to make the nationalisation of mines possible and patently ignores the resultant and significant investor fall-out that this course of action will invariably incur.

In an ideal scenario, the ANCYL will pursue the department of communications and turn up the heat in their inimitable fashion to force the hand of this wayward department to implement some radical reforms to drastically cut the cost of telecommunications in South Africa. This will allow South Africa to immediately tap into the rapidly expanding call-centre-outsourcing industry by strategically leveraging our positive national attributes that include our favourable geographical positioning to serve disparate global markets, our stable democracy, our multi-culturalism and our globally competitive labour costs.

Besides the direct benefit of attracting and growing a call-centre industry, there are innumerable other benefits of providing citizens of this country with affordable, plentiful, speedy bandwidth. The reason this has not happened yet is the direct result of the actions (and inactions) of the department of communications. This department effectively sabotaged the South African economy and severely hampered our growth. To illustrate the severity and deep-rooted extent of these accusations levelled at the department of communications, we touch on four key areas where it has been an unmitigated failure:

• Telkom monopoly protection (delay in licensing second network operator)
• Failure to reduce telecommunications costs
• Managed liberalisation policy failure
• Local loop unbundling (LLU) failure

Telkom monopoly protection

As if Telkom’s extortionist pricing was not repugnant enough, government’s own executives have been working as agent provocateurs within the system to sully any attempt at telecommunication liberalisation and cost reductions. Andile Ngcaba, director-general at the department of communications until late 2003, oversaw and implemented government policy that vigorously defended Telkom’s market exclusivity, monopoly status and resultant high prices. In addition, Mr Ngcaba was a major player in the buyout of Telkom shares. Under his auspices, the department delayed the licensing of the second national operator that would bring much-needed competition to the industry. At the same time, the department facilitated Telkom’s stock-market listing and formulated policy that affected its subsequent value.

Mr Ngcaba then glibly resigned from government and joined the private sector, where he benefited enormously from his insider knowledge of the sector. Shrewd opportunism? Entrepreneurship? Or despicable self-serving avarice that hampered an entire industry, disempowered many hundreds of thousands of unemployed youth and turned South Africa into a technological laggard? Mr Ngcaba falls into the latter category. When Moeletsi Mbeki wrote his book Architects of Poverty: Why Africa’s Capitalism Needs Changing, he likely had the likes of Andile Ngcaba firmly in mind.

Failure to reduce telecommunications costs

It’s one thing saying we have high telecommunication costs in South Africa and then leaving it at that. It’s another thing entirely when the extent of the exorbitant pricing is made apparent when compared to that of similar countries and international counterparts. Amongst countries surveyed during a 2007 Business Leadership South Africa study, South Africa’s business broadband (ADSL) came up third most expensive and 127,2 percent higher than the average price. The country’s retail broadband was the most expensive of the 15 countries surveyed at a price 130,5 percent higher than the average. These results represented a slight improvement from those in 2005, when the South African prices were 148 and 139 percent higher respectively than those in the comparison group.

Considering that our broadband landscape is typified by low speed, low caps and high prices, there is enormous opportunity and space for Telkom to make positive overtures and put the economy on a more globally competitive footing. When you’re a monopolist, however, and the copper wires that snake into peoples’ home are your personal fiefdom and tools of ransom, you actually do not need to do anything you really do not want to. In June 2011 Telkom made known its annual tariff reductions. Customers can now look forward to an overall tariff decrease of 1.7 percent on basic voice and data services. That’s right, folks, in light of the facts, this is the best our national fixed-line provider can provide.

Managed liberalisation policy failure

In “The silliness of policy silos: broadband and broadcast in South Africa”, an academic paper by Rhodes University’s Guy Berger (find it at http://nml.ru.ac.za/blog/guy-berger/), the obvious failure of “managed liberalisation” is made irrefutably clear. “Managed liberalisation” is the department of communication’s official policy on managing change within the telecommunications industry and is characterised by its staggered introduction of competition, protection of incumbents and the structured rollout of services, ostensibly designed to benefit the poor. Yet the dogged adherence to this policy has in reality achieved the opposite.

 

Berger writes that, “The ‘managed liberalisation’ approach has been justified partly as a way to deal with market failure which wholesale liberalisation is deemed to entail ... Accordingly, Telkom was granted a monopoly on fixed-line services for five years after being part-privatised, on the basis that it should roll out landlines to underserved areas. Although well-intentioned, the initiative failed – with communities being connected, and then disconnected for non-payment of services on the then monthly-subscription post-service payment model.”

The paper goes on to list a litany of “managed liberalisation” failures, from the SABC through Sentech and Blue IQ to Universal Service and Access Agency of South Africa funds for under-served areas. Alarmingly, despite the evidence and resultant economic impact on low-income South Africans, government’s “managed liberalisation” approach has not been revised and is still policy.

Local loop unbundling failure

LLU refers to the practice of government forcing an incumbent telecommunications company to make its “last mile” connections into homes and businesses (usually in the form of copper lines) available for other operators to use. What this will effectively mean is that Telkom will be forced to share copper phone lines that come into homes and businesses with other operators. This will allow consumers to choose their landline or ADSL service provider.

It can be argued that the copper wire that forms the basis of Telkom’s network and gives the company a massively unfair advantage over any telecommunications operator in the country is not actually theirs to begin with. The copper wires we make our calls over were installed many, many years before Telkom even existed. They were thus funded by South African tax payers, hence belong to us.

Telkom of course sees this very differently and is bracing its considerable legal resources to go on the offensive to defend its “territory”.

A 2007 report on LLU commissioned by then communications minister Ivy Matsepe-Casaburri recommended a project plan that would see LLU implementation complete by November 2011. This report was used to inform departmental policy.

Considering the enormous cost-saving benefits that this process could yield for the South African consumer through the introduction of qualitative competition in the fixed-line space, it’s regrettable that the notoriously slothful industry regulator, the Independent Communications Authority of South Africa, has only recently released a discussion paper containing its “initial views” on the process to be followed to unbundle the local loop. Interested persons have until mid-September 2011 to make written representations.

It’s obviously highly doubtful that the LLU implementation process will be complete by November 2011 – it’s simply a case of way too little way too late.

Business research and consulting group Frost & Sullivan report that high telecommunications costs in South Africa are a major barrier to the call-centre industry’s growth. Garth Strachan, member of the Western Cape executive council for economic development, also recently singled out the cost of domestic and international communications as a major obstacle to growth for call-centre and business-process-outsourcing industries.

This is the duplicitous dilemma that confronts and confounds the South African economy, highlighting the stark disconnect between espoused government policies and enacted realities. On the one hand the South African government sees the call-centre industry as a potential source of significant employment, yet on the other, the governmental custodians of the telecommunications sector have done nothing but mollycoddle monopolistic incumbents, keep prices unsustainably high, stifle competition and emasculate the industry regulator – all to the severe detriment of the broader economy – while paying lip service to job creation and digital emancipation.

While the South African economy haemorrhages call-centre jobs to India and other more progressive developing economies, weak leadership in the telecommunications sector sees South Africa continually performing abysmally in the global broadband stakes.

Perhaps it is naivety that causes one to yearn for an elusive future where young township kids can download the freely available Android software development kit and begin tinkering to their heart’s content as they develop the next generation of mobile applications. Of course this eminently attainable idealised future will remain in the realm of science-fiction if the South African government does not learn from its present and past dismal policy failures and adopt a more aggressive approach to transforming our telecommunications environment. As a result of the measurable job losses that can be attributed to the lethargy in the communications department to bring down telecommunications costs, perhaps the guilty parties should be charged with treason for their treacherous betrayal of the unemployed and the youth in South Africa and for their role in this unforgivable, unnecessary economic and employment haemophilia.

The South African economy is bleeding – unnecessarily so. The time for decisive action and leadership is right now. We owe it to our youth and unemployed.