[business day] The significant reduction in wholesale bandwidth prices as capacity grew could well jeopardise the financial sustainability of government parastatal, Broadband Infraco, the company said in its annual report tabled in Parliament yesterday.
Broadband Infraco -- which is mandated to provide a long-distance and international fibre-optic network -- posted a loss in the year to end-March compared with a profit a year earlier.
The fibre-optic network is meant to enable affordable broadband internet in the country.
SA and Africa, in general, are experiencing a major boom in internet bandwidth capacity as submarine cables come on stream while others are under construction along both the e astern and western seaboard of the continent.
Broadband Infraco chairman Andrew Mthembu and CEO David Smith said in their statement in the annual report that wholesale bandwidth prices had come down by a substantial 73% during the 2009- 10 financial period. International bandwidth prices had tumbled 60% since the company was launched.
"The company is vigilant of the changes occurring in the national and international wholesale markets both from an oversupply of capacity and price-reduction perspective, and is aware of the challenges facing Broadband Infraco when it comes to ongoing financial sustainability," Mr Mthembu and Mr Smith said.
The reduction in wholesale prices is forcing Broadband Infraco to diversify its market, but its efforts were frustrated when the Independent Communications Authority of SA turned down its application for an individual electronic communications services licence -- which would have allowed it to build its own telecommunications network.
Another strategy the company has adopted is to diversify its client base away from its anchor client, Neotel. It has tendered to supply the fibre-optic link for SA's demonstration radio telescope, MeerKat.
The awarding of the MeerKat tender would be a substantial lift for the fortunes of Infraco.
Earlier it was reported that the National Research Foundation had made available R64m for the construction of the fibre link to the telescope.
In the 2009-10 financial year the company made a net loss of R28m and an even bigger operating loss of R101m.
The company has substantial cash on its balance sheet -- just more than R800m.
This should ensure that it has flexibility in adopting and rolling out a sustainable business strategy.
More importantly, this allows the company to fund and deploy long- distance fibre-optic networks for the country on a sustainable basis.
Broadband Infraco Feels Pressure As Bandwidth Prices Fall Sharply
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