Home Boardroom Games City of Jo’burg Identifies a Potential Buyer For Its Broadband Network

City of Jo’burg Identifies a Potential Buyer For Its Broadband Network

The service provider will sign a 12-year contract to own the asset, maintain and upgrade it and commercialise the network.

City of Jo’burg
City of Jo’burg. Image by Gia Conte-Patel from Pixabay

The City of Jo’burg (CoJ) is going ahead with the disposal of its failed broadband network assets to an identified buyer. The bid is worth between R853 million and R1 billion.

The  City of Jo’burg network, which consists of 900km of fibre, covering large parts of Johannesburg, including Orange Farm, Diepsloot, Alexandra and Soweto – is currently housed in the Metropolitan Trading Company (MTC).

MTC is  City of Jo’burg owned entity established in 1999 with no expertise in running the broadband network.

Last June, MTC issued a request for bids for a single buyer who will also serve as a broadband service provider for the CoJ.

In an update today, MTC said after advertising the sale of the asset through the tender on the 20th of May 2019 and public engagements done in all the regions, a compliant service provider has now been identified.

“The preferred service provider responded to the tender for the existing telecommunications network of MTC as stipulated in the request for proposal tender number A34-2018/2019 and entered into an agreement of sale for the intended purchased of the network.”

MTC added that it has now scheduled, as guided by section 33 of the MFMA, a public participation meeting to engage its residents and solicit their input into the Service Level Agreement between MTC and the service provider.

The meetings will commence from the 24th of February to the 26th of February 2021.

“These meetings will be conducted virtually so as to comply with COVID-19 regulations, and it will cover all seven regions of the City of Joburg.”

The public meetings’ main aim was to give insight into the process undertaken to unlock the MTC broadband network’s commercial value.

The service provider will sign a 12-year contract to own the asset, maintain and upgrade it and commercialise the network.

MTC will have a right of first refusal if the service provider decides to sell the network.

The carrying value of the network assets and intangible assets amounted to more than R538 million as of the 28th of February 2019.

The total projected revenue from external customers over the 12 years estimated from R8.5 billion to R13 billion, said MTC.

The primary mandate of MTC around the management of the broadband network asset is to connect the CoJ and enable smart City, thereby bridging the digital divide, and enhance service delivery through E-Health, E-Learning, E-Licencing, E-Property, digitally enable safer communities and other Smart City solutions, plus contributing to social responsibility – through bridging the digital divide, providing free Wi-Fi.

Also read: Vodacom, MTN, Telkom In Race To ‘Buy’ Joburg Broadband Network

History of the COj network

  • In June 2010, Ericsson South Africa was commissioned to Build and Operate a City-wide broadband network for the City of Johannesburg over 15 years. The Broadband Network would be transferred back to the City after the 15 years. Of the 15 years, the first three years contracted for the building of the broadband infrastructure and the following 12 years would be for the service provider to operate and commercialise the Broadband Network to realise its investment with the City and its entities being the primary tenant for the service provider.
  • Ericsson South Africa subsequently ceded the agreement with the City of Johannesburg to Citi Connect Communications to build the Johannesburg Broadband Network. The City of Johannesburg, together with Ericsson South Africa, established B-Wired to operate and commercialise the network for the duration of the Build, Operate and Transfer contract.
  • By the middle of 2013, CCC had built approximately 900 kilometres of the system, and B-Wired had already started operating and commercialising the network. An assessment of the building and operation of the Broadband Network, however, revealed significant breaches of the agreement. The City had to terminate the BOT agreement due to non-performance on CCC’s part and other violations of the contract.
  • The City planned to use the Broadband Network to lower its costs and those of its Municipal Owned Entities and to increase access to telecommunications services by its residents in the City, and in the process stimulate economic development and improve Municipal service delivery.
  • In September 2015, MTC, the MOE established by the City of Johannesburg to take over operations of the Broadband Network, received the transfer from the City of Johannesburg of the Broadband Network as a going-concern telecommunications business with network assets, intangibles and creditors for approximately R1.25 billion, financed by means of a shareholder loan account. – lourie@techfinancials.co.za

 

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