14 December 2011
South African state company Telkom plans to issue a second multibillion-rand tender to build parts of a network for 8ta, its struggling mobile phone company, after the Chinese company contracted to do the work failed to meet deadlines.
Launched in October last year, 8ta is expected to report an earnings loss of R2.2-billion for the year to March. It has just over 1.1-million active customers and a market share of 1,9%. It is targeting a 12%-15% market share by 2015-16.
Although 8ta was expected to post losses in its first few years of operation, analysts fear its losses are rising and that it will not make its 2016 profit targets.
Chinese company Huawei was contracted to build 8ta’s network in South Africa, but had not met some of the deadlines stipulated in the contract, resulting in Telkom withholding about R800-million in payments, industry sources said.
Huawei won an “end-to-end turnkey” tender early last year to supply, install, integrate and operate base stations and associated network elements for 8ta, a deal worth more than R1-billion.
According to an executive at a telecommunications network infrastructure provider, who spoke on condition of anonymity, Telkom’s board had approved a resolution instructing 8ta to issue a second network tender to compete with Huawei and force the Chinese company to speed up its work and lower its prices.
Huawei refused to comment on the claim it was taking longer than the contract stipulations to roll out the 8ta network. A spokesman said: “It would be very unprofessional and unethical for Huawei to comment in any way, directly or indirectly, about the business of its partners and suppliers.”
Telkom spokesman Pynee Chetty confirmed a second tender was being issued for the 8ta network. He said the 8ta network project began in January last year. To date, Huawei had built 1 560 macro base stations, 12 radio network controllers and 15 base station controllers across SA.
Chetty said payment terms with Huawei were structured in such a way that payments were “effected as various projects meet specific payment milestones”.
“While 8ta applies very stringent quality acceptance processes, many of the purported delays are also attributable to external factors, such as provision of power to the sites,” Chetty said.
He said full payment for projects “is only made once Telkom receives full beneficial use of the deliverable and, as such, a number of partial payment milestones may not yet have been reached for those payments to be effected”.
Chetty said Telkom’s board had resolved to issue another tender to contract a second vendor for the supply of radio access network equipment.
“However, the process is to be guided by the demand, scale of network deployment, the dynamics of the industry and ease of integration,” he said.
“In this regard, the formal sourcing process has been started, with the generation of requisite documentation and specifications having been completed.”
Chetty said with Huawei as the main supplier of the “end-to- end turnkey network” for 8ta, tangible benefits such as bulk-order pricing and volume-based discounts were realised and leveraged to ultimately assist 8ta in “reaching and exceeding market and business objectives”.
Local network service providers complained Huawei was squeezing subcontractors out of business by not paying them for services provided on the Telkom contract. They said this led to job losses and in some cases closure.