How the ANC tried to block Vodacom and MTN

·17 Mar 2014

President Jacob Zuma recently launched the “20 Year Review: South Africa 1994 to 2014″ report, which hints that the apartheid regime was to blame for poor communication services, including Internet access.

The 20 Year Review states that “widespread home satellite systems, internet services and mobile cellular telephony only became a reality with the advent of democracy and the end of the apartheid security state”.

This statement seems contradictory because the ANC government fought against competition in the SA telecoms market, prevented many companies from rolling out networks, and even tried to stop the Seacom and Eassy submarine cable systems from landing in South Africa.

A lesser-known fact is that the ANC, shortly before taking power in 1994, tried to stop the licensing of Vodacom and MTN.

There was also a battle surrounding the GSM standard, which was instrumental in offering communications services to millions of South Africans.

Vodacom and MTN’s cellular licenses

In his paper titled “South African Telecommunications: History and Prospects”, Professor Robert Horwitz explained the battle which surrounded cellular licenses and the GSM standard in South Africa.

Professor Robert Horwitz

In early 1993 cabinet ministers authorized two cellular licenses, and the licenses were put out to tender in April 1993.

The NP government forced applicants to say how their choice of technology would lead to high volumes and low costs, how they would support South African industry, and how they would provide service to poor communities.

Telkom was awarded half of one license. It then partnered with Vodafone and the Rembrandt Group to form Vodacom.

In September 1993 Mobile Telephone Network (MTN) was announced as the winner of the second cellular license.

The table was set for the rollout of cellular services in South Africa, but this did not happen without significant battles to achieve this favourable outcome.

The biggest challenge was the ANC’s opposition to the cellular licenses – here is what happened during and after the licensing period.

Cellular licensing battle becomes heated

The ANC alliance was not happy with the new proposed cellular regime, saying that it represented a unilateral restructuring of the telecoms industry – “a form of privatization through the back door”.

“In 1993, ANC Information Systems head Andile Ngcaba indicated that he believed the cellular applicants were simply using the language of universal service to win the tender,” Horwitz wrote.

Knott-Craig said in his book “Second is Nothing” that Ngcaba’s message at a Telkom conference in 1993 was clear – the ANC was firmly opposed to privatising the public telecommunications network.

Ngcaba said, according to Knott-Craig, that the telecommunications policy framework was still under discussion, and in the interim, a mobile licence was not on the cards.

The ANC wanted cellular to be a separate, autonomous parastatal service offered by Telkom.

According to Horwitz the cellular controversy became a major source of conflict between the NP government and the ANC alliance.

The NP government refused to stop the tender process, saying that it would lead to legal battles and would jeopardize foreign investment.

Horwitz pointed out that there was some speculation that the ANC pushed hard to stop the tender process because it wanted a way to reward its foreign backers during the sanctions period.

The ANC was also concerned about the black involvement in the cellular industry. At the time Ngcaba said that “The concern is for black involvement and how black empowerment will fit into the bigger telecoms picture”.

The ANC alliance called for a moratorium on the tender process. In September 1993 Cosatu threatened strikes, and the ANC threatened to revoke the cellular licenses when it came to power.

“In September 1993, [then ANC Secretary-General Cyril] Ramaphosa was quoted as saying that a future government would immediately review, and perhaps cancel, the cellular licenses if the government went ahead and issued them,” Horwitz wrote.

Andile Ncaba

GSM standard battle

Vodacom and MTN supported the GSM standard. Although the ANC did not condemn GSM directly, it was not in favour of the standard, said Horwitz.

Another source with intimate knowledge of the issue, who asked to remain anonymous, said that the ANC vetoed the GSM standard at the time.

He told MyBroadband that the ANC preferred an old Scandinavian analogue system, or the American Mobile Phone Standard (AMPS) system.

Then Vodacom CEO Alan Knott-Craig and MTN’s shareholders lobbied for the GSM standard, and they ultimately won the battle.

If the ANC won its battle against the GSM standard, it may have put South Africa back many years in the rollout of mobile networks and delivering communications services to citizens.

How the cellular battle was defused

The cellular license battle became so heated that then president FW de Klerk and ANC president Nelson Mandela met over the issue.

What resolved the issue, Horwitz wrote, was a bigger battle which was unfolding. The NP government planned to amend the Post and Telecommunications Act, which the ANC alliance again vehemently opposed.

In exchange for the NP government’s agreement to hold off on the new Post and Telecommunications amendment bill, the ANC agreed to back down on its opposition to the granting of the cellular licenses.

Knott-Craig gives a different version of events, although the two events may have worked together to resolve the issue.

Knott-Craig said that the battle between the ANC and the cellular companies were diffused through giving unions a BEE shareholding in the newly licensed cellular operators.

He quotes Ramaphosa as saying “We want you to increase the equity held by black business in Vodacom”. Knott-Craig agreed, and Vodacom was set to operate without ANC resistance.

MTN in turn also increased the public holding of Transtel from 10% to 20%, and provided a 5% shareholding to a Cosatu-affiliated pension fund.

Cyril Ramaphosa

Conclusion: the great success of Vodacom and MTN

Vodacom and MTN became two of the most successful companies in Africa, and provide million of South African citizens with communications services.

This success was mainly based on creating a competitive cellular environment, selecting the GSM standard and the speedy licensing of the mobile operators.

According to the reports, the ANC opposed a competitive environment, was not in favour of GSM, and fought against the quick licensing of Vodacom and MTN.

Through hard negotiations, lobbying and politicking, the mobile operators with the support of the NP government won the battle.

Horwitz’s report even suggested that National Party government saw that cellular services could provide telephones to the masses quickly, and that they had no intention of waiting and thereby permitting the ANC to reap the political benefits.

In July 2007 Ngcaba admitted to the Financial Mail that “I accept now that Alan was right and I was wrong.”

The ANC may therefore want to tread carefully when claiming credit for the success of the cellular industry in South Africa.

MyBroadand contacted the ANC for comment about the cellular battle in 1993, but the organisation did not respond by the time of publication.

MyBroadband also contacted Andile Ngcaba for comment about this issue, but he did not respond by the time of publication.

This article was first published on MyBroadband.