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Presentation to the Portfolio Committee. 20 November 2012. Slide 1. Agenda. BBI at a glance. Broadband Infraco’s legislative mandate is set out in the Broadband Infraco Act No. 33 of 2007 (the “Act”). Mandate.
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Presentation to the Portfolio Committee 20 November 2012 Slide 1
Broadband Infraco’s legislative mandate is set out in the Broadband Infraco Act No. 33 of 2007 (the “Act”). Mandate • The main objectives as set out in the Act are to expand the availability and affordability of access to electronic communications; • Including but not limited to under developed and under serviced areas; • In support of projects of National Interests; • In accordance with the Electronic Communications Act and commensurate with international best practice and pricing; • Through the provision of electronic communications network services and electronic communications services.
Strengths Broadband Infraco proposition re-stated Unique Strengths • Exclusive servitude access: Eskom & Transnet Latent strengths • Shareholding • Maintenance teams in the field • Network Operating Centre Relative Strengths • Very High service level records (managed fibre) • Stable network functionality • Above-average Mean Time To Respond standards. • Expanded national footprint: 110 Customer termination sites, 151 long distance sites and over 12 700km fibre optic • WACS investment Regional connectivity National connectivity International connectivity Interlinking East & West Coast international cables Slide 5
Mandate • Broadband Infraco’s legislative mandate is set out in the Broadband Infraco Act No. 33 of 2007 (the “Act”). Regulatory including licensing Mandate Objectives
Expanding Access: Enabling Serving Delivery R444.7m • Expansion: R444.7million was invested to connect Government through SITA. • This was to have the South Ring between Gauteng, Kwa-Zulu Natal Western Cape. • It covered seven provinces. Limpopo and Mpumalanga are excluded
Expanding Access: Broadband to all: R317.2m Gauteng, Kwa-Zulu & Western Cape: R160.8m Kwa-Zulu Natal R74.3m
SADC Integration: R36.7m • R36.7 million was incurred to enable regional integration of telecommunications services • Swaziland: Created new route that goes through Pietretief then Mahamba • Namibia: Created new route Aries, Schuibsdrift then Onseepkans • Mozambique: Kamedien to Komatipoort on the TFR fibre • Zimbabwe: Soekmekaar to Beitbridge.
Enable Connectivity to the world R503.7m • The SALT/ KAT project interconnect the telescope to Cape Town. International scientists community will require capacity to do research. • Route from Cape Town to Sutherland via Laingsburg • KAT Cape Town to Carnarvon
Enabled Quality Services: R89.9m • It cost the company R89.9m to provision quality services to its customers.
Network Performance • Customer availability exceeded all contractual obligations. • Note : The MSA with Neotel has been signed at 99.5% and rebates can only be incurred after completion of the migration process is complete. • Broadband Infraco is working on ensuring that we meet the service level requirements.
Performance indicators Staff compliment at the end of financial year was 168 of which 39% was female and it is the Company’s drive to improve on this. The process of addressing and correcting the breakdown in internal controls that were observed in the 2010/2011 resulted in a number of vacancies in key positions. For the first six months of the financial year, one permanent executive position out of the eight funded positions was filled. Most of these positions were filled at the end of the financial year.
Developing ICT Skills • BBI staff compliment is 168, of which 53% is made up of technical employees. • 52% of the technical team are under the age of 35, opportunity to develop skill for the country ICT requirements.
Revenue growth R’m Year on Year revenue movement was due to the following: Gaining four new customers e.g. Vodacom, Seacom, BCX etc. Growing revenue base from the existing customers. The price decline factored by the Company as part of its mandate of bringing the cost as well as market movement of broadband down resulted in a R25.0m reduction in revenue The R92.0 million represent the impact of accounting treatment on the agreement with customers. Slide 25
Fixed costs* Broadband cost are largely fixed or semi fixed with changes not having a direct impact/link to the revenue line. The main drivers of the costs are fibre km and state of the network. As the company increases its fibre through lease instead of building the cost of sale of increases. The lease maybe increased as part of providing redundancy and meeting service level requirements. The industry norm is that if three fibre lines are provided the direct charge to customers is 10% more on the price not 100% recoverability. The condition of the network also affect cost spend for maintenance. The Outsource and Managed service fees were paid to Neotel as part of the ROU agreement that expired on 7 January 2012. Neotel was responsible for overseeing the maintenance of BBI network and Network Operating Centre (NOC). As of 8 January 2012, Broadband Infraco have a complete control over its network and NOC. ‘* Amounts in Rand millions ‘** The agreement expired on 7 Jan 2012 Slide 26
Capital expenditure • This is an area where there were significant breakdowns in the internal control environment that resulted in the following: • Qualified audit report due to the irregular expenditure and • Intervention by the Executive Authority exercising oversight, putting a hold on projects that were not properly authorised until corrective measures are implemented. Table 1: Capital programme : 2011/2012 Notes: • The lower expenditure was due to organisational realignment to address the governance issues which resulted in vacant positions and a delay in executing the capital programme. The vacancies arose as part of the drive to address governance matters. Some employees were dismissed and others resigned. • The decline in WACS is part of the planned project timelines and budget, as the project was due to be launched in May 2012. Total investment at the end of the financial year was R440.5 million. • Expenditure for office equipment were in line with the Company’s requirements, taking into account staff numbers and the life of the equipment.
Capital expenditure • The investment in the national backhaul for the financial year ended 31 March 2012 of R69.7 million was in the following areas. Table : Major capital projects for : 2011/2012
Statement of cash flows • The 16% movement year on year is mainly due to • Cash revenue growth from connecting the CSIR in the Northern Caper for project of National Importance. • Finance income was through investment of funds as per the Company Policy. • Investment in WACS is part of acquiring the international connectivity that enable among others SKA connectivity. • Finance cost movement was as a result of the movement of foreign currency incurred in the 2010/2011 on the WACS investment. • The National CAPEX of R71.0m include national backhaul connectivity and office equipment. • At year end the Company had sufficient cash to operate as a going concern. Measures are being implemented to continue improving the company's liquidity position.
Irregular Expenditure • Review and /or investigations were conducted to determined the impact of the financial loss if any. • Goods and services were received by the company or for the benefit of the company • Loss of the advantage of competitive bidding to determine the best possible price from the market. • Processes have been implemented to avoid future irregularities. • Training conducted for both the employees and directors.
Supplier Chain Management • Broadband Infraco’s spending with companies meeting the necessary level 1 to level 4 B-BBEE contributor requirements amount to 73% of the spend • Black Women procurement spend is significantly low on especially on provision of professional services, installation of fibre and other related services • Focus on improving as part of the Company CSDP and Company policies and procedures. • Broadband Infraco procurement strategy is moving towards regional procurement activities. The first procurement activity of this nature was done in the Northern Province for the survey and installation of fibre on the Eskom network.
Provincial Broadband Segmentation Broadband Infraco will pursue these provinces purely commercially; redundancy/diversity; Higher SLA’s; Private sector will also target them; Wider Pop Access Free State footprint KZN footprint Western Cape footprint Gauteng footprint • Neotel-Vodacom-MTN (and SANRAL) Fibre Co-Build initiative: Johannesburg-Durban and Johannesburg-Bloemfontein are both just over 90% complete and should be by early 2013.. Bloemfontein-Cape Town is more than 50% finished, and is expected to be complete in mid 2013. • FibreCo build from Bloemfontein to Cape Town • Where large metropolitan municipalities are initiating own fibre roll-outs (City of Johannesburg; City of Cape Town; City of Tshwane; Ekurhuleni Metropolitan Municipality; eThekwini Slide 33
Provincial Broadband Segmentation Broadband Infraco Limpopo footprint Broadband Infraco Mpumalanga footprint These provinces represent great opportunity; and will be pursued as a matter of first priority (backhaul; metro access and last mile) partnerships with the private and public sector. The private sector has very low appetite for these provinces because of the lower economic activities The roll out of broadband in these provinces needs to be driven by a socio economic benefit Broadband Infraco Eastern Cape footprint Slide 34
Provincial Broadband Segmentation These provinces do not represent a viable commercial business case. Purely universal access roll-out. Shareholder or provincial/customer funding required. Partnerships are an imperative With the low population densities as well as the low GDP alternate technologies that require spectrum have to be explored Broadband Infraco Northern Cape footprint Broadband Infraco North West footprint Slide 35
Short to Medium term targets Sell small capacity to meet the Provincial and local government requirements and SMME Collaboration with State Owned Entities e.g. Sentech, TFR Expand footprint especially in rural areas Government as anchor customer Improve capacity utilisation Operational efficiencies Focus on CSDP for regional involvement Collaboration with Eskom on accreditation of Suppliers Improve BEE rating Connection of National and International network Strengthen and enhance the quality of the network Technology evolution and technology life cycle on existing old network equipment Access links to stimulate take-up of existing capacity SupplyChain Management Market position EBITDA Capital expenditure
Short to Medium term targets Collaboration with stakeholders Strategic Infrastructure Projects (SIP) SIP 15 : expanding access to communication technology. SIP 16 : Supporting global science projects viz Square Kilometre Array and Meerkat, Eg. 70% of the current available capacity on the West Africa Cable System (WACS) reserved for these specific projects. Licence condition and compliance thereof Continuous engagement on regulatory framework Spectrum and access potentials Critical to sustainability of the business Network performance improvement Manage quality and safety of the network Increase capacity utilisation Licence condition and compliance thereof Continuous engagement on regulatory framework Customers Regulator Business Partners
Short to Medium term targets Performance management As provider of capital, report on financial performance and overall sustainability of the company Support on future plans and expansions Improve partnering on environmental issues Increase regional participations Maintain a shorter payment terms for SMME’s Enhance talent management Retention and attraction strategy Regular engagements and consultation with employees and organised labour Enhance employee related policies Improve condition of services and provide basic employee benefits Shareholders Employees Suppliers
