USAASA progress; International Agreements; MDDA board vacancies; with Deputy Minister

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Communications and Digital Technologies

03 December 2019
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

The Universal Service and Access Agency of South Africa provided a progress update on the Broadcast Digital Migration project. The Minister is finalising the new BDM delivery model for Cabinet approval. In January 2019, installations contracts expired and the decoder rollout halted. USAASA has halted the BDM implementation and procurement of new installers. There were about 650 000 decoders in post office warehouses costing R5.1 million in storage fees per month.

USAASA noted that the White Paper states that it will be dissolved and replaced by a Digital Development Fund (DDF) responsible for providing universal service and access support. The rationalisation process is underway hence critical vacancies at USAASA have not been filled.  The audit action plan to resolve the findings by the Auditor-General was noted and its internal audit was investigating irregular, fruitless and wasteful expenditure.

The USAASA financial performance for Quarter 2 improved (R1.7m surplus) compared to the same period in the prior year (R12.5m deficit). Revenue increased by 11%, from R41 million to R46 million. The main contributors towards the reduced expenditure were employee costs, consulting fees and licence fees.

Members were concerned about the lack of a USAASA Board; the R60 million wasted on set top box storage costs in 2019; the need for post-instalment support as many people had complained they could not receive a signal; the obsolete and outdated set top boxes.

The Department of Communications and Digital Technologies gave a briefing on the bilateral agreements signed between 2017 and 2018 with Namibia, Zimbabwe, Cuba, Lesotho and Tunisia. These were agreements on Cross Border Coordination of Frequency Spectrum and/or MOUs on ICTs. The Agreements had been mandated by the International Telecommunications Union as a precautionary measure to mitigate against possible signal spillage during migration from analogue to digital signals.

The Committee will embark on filling vacancies on the Board of the Media Development and Diversity Agency and it was agreed to advertise the call for nominations from mid January 2020. It was a matter of urgency for these appointments to be effected as the previous advertisement period for the positions, during the Fifth Parliament had lapsed. Parliament is responsible for six appointees only three are still serving and the term of two of them expires in October 2020.

Meeting report

Deputy Ministerial: political overview
Deputy Minister Pinky Kekana noted that Minister attended the World Radio Conference in Egypt recently, where the Minister tabled a report on and participated in discussions about the release of new spectrum. The release of new spectrum had also been discussed internally and all policy decisions would be conveyed to Parliament in due course.

During her recent visit to Berlin she met with National Assembly Chair of Chairs, Mr Cedric Frolick, and Mr Archibold Nyambi, NCOP House Chairperson for Committees on the sidelines of another conference. During this interaction, Mr Frolick proposed that the parliamentary committees should receive a comprehensive briefing on the 4th Industrial Revolution as it was a cross cutting issue that impacted on jobs, mining, agriculture and other sectors. He intended to raise the proposal at the committee chairperson meeting.

The decision by the Competition Commission that instructed mobile operators like Vodacom and MTN to drastically cut their data costs was a very important matter for the Department. The decision taken was open to review and questioning by Parliament as the legislative arm. She noted that several portfolio committees conducted joint committee meetings and the Committee could request the Portfolio Committee on Trade and Industry to conduct a joint meeting to discuss this directive by the Competition Commission.

Turning her attention to the Universal Service Access Agency of South Africa (USAASA), she noted that the presentation came about as a result of the to the Portfolio Committee Budgetary Review and Recommendations Report (BRRR) to Telecommunications and Postal Services (DTPS) [see at end of meeting report]. In the Auditor-General had raised several findings that had to be addressed.

Universal Service Access Agency of South Africa (USAASA) Universal Service Access Fund (USAF)
USAASA noted that the White Paper states that it will be dissolved and replaced by a Digital Development Fund (DDF) responsible for providing universal service and access support. The DDF will be subject to the provisions of the PFMA. The DDF will provide support for both infrastructure and targeted demand stimulation projects. The rationalisation process is underway hence the critical vacancies at USAASA have not been filled.  The audit action plan to resolve the findings by the Auditor-General was discussed.

The USAASA financial performance for Quarter 2 improved (R1.7m surplus) compared to the same period in the prior year (R12.5m deficit). Revenue increased by 11%, from R41 million to R46 million. There had also been reduced expenditure. On the balance sheet, its financial position deteriorated with net assets of R31.5 million compared to R40.3 million on 30 September 2018. The reason had been aging non-current assets, especially intangible assets. USAASA’s intangible assets have a net book value of R6.7 million compared to R20 million in the prior year. Reserve cash had improved from R23.2 million in the prior year to R32.6 million in the current year. This was attributable to lower spending.

Cumulative irregular expenditure for Quarter 1 and 2 amounted to R757 751. Cumulative fruitless and wasteful for Quarter 1 and 2 was R 236 692. USAASA had instructed the internal audit unit to launch an investigation into irregular, fruitless and wasteful expenditure and provide reports on this.

On the USAF, the AG made the following audit findings:
- Misstatement of opening balance of inventory
- AFS inventory balance not agreeing to inventory list
- Inventory not returned by installers included in the closing balance
- Differences noted between inventory counted and inventory as per SAPO SAP system
- Duplicate serial numbers in issued and redeemed inventory
To mitigate these challenges, there was a renewed focus on increased capacity to specifically manage the implementation of the Broadcast Digital Migration (BDM) programme. Other interventions included:
- Process for inventory recovery from installers who did not return.
- An Audit Steering Committee providing oversight on the progress made against audit findings.

USAF’s financial performance for Quarter 2 improved (R77m surplus) compared to the same period in the prior year (R117.7m deficit). The revenue increased by a small margin of 1.5%, from R86.4 million to R87.7 million. Expenses reduced due to fewer projects rolled out. The main contributor towards the reduction in expenses is the BDM project by R181.56 million due to the inventory which is not installed.

Its progress update on the Broadcast Digital Migration project noted:
• The Minister is finalising the new BDM delivery model for Cabinet approval.
• USAASA has halted the BDM implementation, including related procurement services.
• Government committed to subsidise at least 5 million indigent households.
• Statistics South Africa 2016 data depicts estimated eligible households of 4.7 million.
• In 2015 USAASA procured 1.5 million consignment of decoders, aerials and satellite dishes.
• Of the total commitment to date:
- 1 207 990 decoders have been delivered;
- 1 million aerials delivered;
- 405 073 satellite dishes delivered;
- Therefore, 290 000 decoders to be supplied by end of financial year. 
• Of the delivered devices;
- 549 344 decoders issued
- 511 368 eligible households have been installed
- Therefore, 37 976 decoder kits not installed
• Approximately 1 million decoder kits still to be installed
• In January 2019, installations contracts expired and decoder rollout halted.
• There are 650 000 decoders stored in SAPO warehouses incurring R5.1 million storage per month
• Procurement of installers to be undertaken for the decoder kept at SAPO warehouses.
• Remaining 3.2 million households will be serviced by the new delivery model

Discussion
Ms P Faku (ANC) expressed her concern that R5.1 million a month was being paid for the storage of set top boxes. If one multiplied this by twelve, government paid R60 million annually which could have been spent on other projects. She asked why these set top boxes had not been installed.

She requested more information on the internal audit currently underway as the presentation did not give specific details or timeframe for when it would be concluded. The Committee took irregular expenditure very seriously. She commended USAASA for the excellent financial results and asked about the high expenditure on legal services in 2018 compared to 2019 and the increase in liability spending. She asked if all acting positions would be filled before or after USAASA was overhauled.

Ms Z Majozi (IFP) requested clarity on page 21 which detailed decoders and aerials delivered and issued, those that still had to be supplied by the end of the financial year and approximately 1 million decoder kits still had to be installed. She asked for a thorough explanation about the internal audit currently underway and who had taken responsibility for it. She noted that all policies had to be approved by the Board and in the absence of a board she wondered how decisions would be implemented, let alone arrived at.

Mr C Mackenzie (DA) recalled that the during the last oversight visit to USAASA, several anomalies were unearthed, especially expenditure on USAASA’s network that totalled about R20 million. It was clear that USAASA had come a long way in how it managed its finances and he requested more information on what the agency meant by cutting expenditure on licence fees. He asked if the SAP Procurement system was up and running and if USAASA had been satisfied with the system’s performance. He agreed that it was important to have clearly set timeframes for the internal audit.

Mr Mackenzie asked when the set top box matter would be resolved as there are additional costs involved. He highlighted the need for post-instalment support as many people had complained they could not receive a signal.

Mr T Gumbi (ANC) was concerned as the presentation showed that most critical senior positions were not filled by permanent appointments. He took issue with all the acting positions and requested information on all outstanding vacancies that had to be filled. He asked how the agency managed to decrease spending.
 
Ms N Kubekha (ANC) noted the need to accelerate delivery of 1 million set top boxes and asked if this goal was doable

Responses
Deputy Minister Pinky Kekana addressed USAASA senior management before they responded and told them that they should be open and frank with the Committee about developments at the agency. She added that it was true that the lack of a board hamstrung the agency’s performance.

She stated that most of the set top boxes have become obsolete or problematic. She recalled that during an oversight visit to the Free State, many people complained that their television sets failed to receive a signal after the set top boxes had been installed. In some cases these set top boxes were not even connected. Currently, post offices acted as storage facilities where the set top box boxes had been kept in transit. It was not intended for post offices to become storage facilities however the situation required this course of action.

Mr Lavhelesani Netshidzivhani, Acting CEO, USAASA, explained that the contract for the delivery of set top boxes had expired in January 2019 and that a new service provider could not be appointed due to internal challenges. A new service provider will be appointed. He also informed the Committee that a remodelling of set top boxes was also currently underway. USAASA paid installers through the Post Office and in 2019 there had been no installations.

USAASA had brought in an external independent consultant to conduct the internal audit. He apologised to the Committee for not including succinct information on the internal audit. The internal audit should be completed by the end of December with a report expected to be released in January 2020.

He confirmed that post offices currently acted as warehouses for set top boxes as these could not be distributed and installed. Additional payments to the Post Office thus had to be actioned.

On the vacancies at USAASA, he replied that a Board had to be in place first before any permanent appointments could be made. As acting CEO he had no authority to appoint anyone into a position.

USAASA had implemented the SAP system and the biggest challenge with the system had been maintenance and support. An assessment of the system was currently underway with a report to be issued. The recommendations in the report will guide future decision making.

One of the lapses with the set top box project had been capacity and project management constraints. When the set boxes were first rolled out, USAASA carried out ad hoc checks. However this was seen as a drop in the ocean. USAASA had to reprioritise and focus resources on where the biggest risks are.

USAASA had undergone arbitration with set top box manufacturers and they are delivering according to this arbitration resolution. All outstanding deliveries should be completed by end January 2020.

Mr Mokgobo Sephiri, Acting CFO, USAASA, replied that the revenue generated was income that would normally be received from the USAF call account and thus revenue generated would fluctuate in the call account. Licence fee payments were for the payment of software licences utilised by USAASA such as the SAP system software as well as additional operational software. The payment schemes for software differed, with some requiring payment over two years and others over three years.

The bulk of USAASA assets had low values as these assets were quite aged. Most assets such as furniture, equipment and vehicles were procured in 2010 and these were now showing tell tale signs of wear and tear.
 
Mr Jimmy Mashiane, Chief Audit Executive, USAASA, stated that after the latest audit findings, they realised it could not be business as usual and a new audit committee was formed. He added that recurring audit findings could be attributed to treating the symptoms and not the root causes of internal deficiencies. USAASA would henceforth interrogate the root causes.

Mr Thelela Mvambo, Acting Executive Manager: Operations, USAASA, stated that USAASA was committed to ensuring that digital terrestrial television (DTT) was implemented and that the reviewed broadcasting digital migration delivery model would enable the swift release of high-demand spectrum needed for the rollout of broadband and effective DTT migration. In some provinces direct-to-home (DTH) set top boxes had been required and that a lot of work had already been done in provinces like the Free State where many people experienced challenges with signal reception. The policy directive on spectrum could only be achieved if DTT was completed.

Follow-ups questions
The Chairperson noted that nothing concrete had been said about set top box maintenance and the capacity of USAASA to ensure that set top boxes are rolled out. It appeared that USAASA had institutional problems that failed to take into account how South Africans perceived government’s role in the rollout of the set top boxes. South Africans looked towards government when there are technical problems with the devices.

The Deputy Minister stated that there was a commitment to ensure that a functioning Board was appointed to address the internal challenges at USAASA. She hoped that the restricting of USAASA would aid the organisation.

Deputy Minister Kekana said that it was a thorn in government’s flesh that digital migration had not yet happened. The obsolete and outdated set top boxes had also been taken into account.

Ms Majozi suggested that it may be prudent for USAASA to start training its own maintenance staff to address the maintenance challenges with the set top boxes.

The Chairperson stressed the importance of the appointment of a new USAASA Board and that this should be completed as a matter of urgency.

He expressed his worry that we are sitting with obsolete set boxes or infrastructure gathering dust at huge financial implications to the state. He asked USAASA to please take note that progress is expected and that it is very important.

International Agreements: Department of Communications and Digital Technologies briefing
Ms Nonke Jordan-Dyani, Deputy Director General: ICT International Affairs and Trade, gave a briefing on the signed bilateral agreements during 2017-2018. These were:
- RSA & Namibia MOU on ICTs – signed on 07 September 2017
- RSA & Namibia on Cross Border Coordination of Frequency Spectrum – signed on 7 September 2017
- RSA & Zimbabwe MOU on ICTs – signed on 03 October 2017
- RSA & Zimbabwe on Cross Border Coordination of Frequency Spectrum – signed on 03 October 2017
- RSA & Cuba Agreement of Co- operation in the fields of ICTs – signed on 11 May 2018
- RSA & Lesotho MOU on ICTs – signed on 31 October 2018
- RSA & Lesotho on Cross Border Coordination of Frequency Spectrum – signed on 31 October 2018
- RSA &Tunisia MOU on ICTs – signed on 01 November 2018.

The Agreements on Cross-border Co-ordination of the Management of the Radio Frequency Spectrum (Spectrum Agreements) were with neighbouring countries. The Department has concluded three of the six agreements. These are with Namibia; Zimbabwe; Lesotho. The Agreement with Mozambique signed in 2011, and the draft Agreements with Eswatini and Botswana are under negotiations currently.

These Agreements had been mandated by the International Telecommunications Union (ITU) as a precautionary measure to mitigate against possible signal spillage during migration from analogue to digital signal. ITU in terms of the Geneva 2006 agreement gave a directive that countries must migrate from the analogue to digital signals by 15 June 2017. This had the implication that countries that still carried analogue signals would no longer enjoy protection from ITU after Analogue Switch-Off day of 15 June 2017. ITU impressed on the countries to enter into the Cross Border Spectrum Coordination.

Deputy Minister Kekana stated that the International Relations unit was one unit that did very well within the Department in that it ensured that South Africa continued to play a proactive and leading role in the international telecommunications field. She cited the visit by the International Telecommunications Union to South Africa. She called on the Deputy Director General to advise the Committee about popularising and raising awareness about the significance of the MoUs and benefit to South African state owned enterprises.

Discussion
Ms Faku stated that she was impressed with the presentation and hailed the cross-border relations and appreciated the success achieved with the conclusion of the MoUs. On page 7, certain challenges had been raised in relation to a delay on cross-border coordination of the management of the radio frequency spectrum between South Africa and Namibia. The solution offered was that the department and ICASA would henceforth utilise Embassies and Foreign Affairs Ministries as focal points for meetings that would monitor cross border spectrum management. She requested more information on whether this materialised. It was important to ensure that South Africa was able to implement these MoUs in the face of domestic challenges.

Mr Mackenzie noted that in his speeches in the National Assembly he always acknowledged the excellent work the International Relations unit was doing. He commended the unit for being able to drive South Africa’s positions and congratulated it on a well put together presentation.

He asked if money transfers via the post office had also been covered in the MoUs under discussion. He noted that in a recent article he read an opinion by Alison Gillwald that Thailand was the closest to South Africa in market size and he wondered if South Africa had any agreements signed with Thailand.

On sanctions against Cuba and South Africa’s close relationship with Cuba, Mr Mackenzie asked if South Africa was forced to participate in US sanctions against Cuba. Would a contrary move by South Africa not affect the Africa Growth and Opportunity Act (AGOA)?

Ms Majozi welcomed the informative presentation and stated that it was important to ensure that MoUs entered into with other countries were realistic and implementable. On South Africa’s relations with China, she asked if there had been any exchanges of South African youth to China.

Ms Kubekha agreed with the idea that awareness about the MoUs in constituencies had to be conducted. Awareness campaigns also had to extend to municipalities.

Responses
The Deputy Minister noted that African countries had a meeting first at the World Radio Conference in Egypt to discuss a common approach to be taken. South Africa was thus an active player in multilateral fore. South Africa enjoyed cordial and friendly bilateral relations with Cuba and her Department’s interaction with Cuba had been on mutual issues. The diplomatic and political relationship was managed by the Department of International Relations and Cooperation (DIRCO).

Deputy Minister Kekana said that there was an urgent need to capacitate the Department unit that dealt with spectrum as there was currently only one official that dealt with it. Navigating and consolidating issues of security all needed to be coordinated. DIRCO would henceforth play a very important role in facilitating engagement and dialogue on spectrum agreements.

Ms Jordan-Dyani, DDG, replied that South Africa had engaged Thailand to conclude an agreement and at the moment there was a draft agreement in place that had to be concluded. The previous Minister of Communications had met with the Thais however the agreement still had to be concluded. She agreed with Prof Gillwald that South Africa and Thailand shared commonalities.

According to the 2015 Plan of Action with China, ten students are taken to China annually to be trained in spectrum related fields. The Department had been working with entities and industry to absorb the students into their staff complement. The Department would be reaching out to local government to raise awareness.

Media Development and Diversity Agency (MDDA) Board Vacancies
The Committee was briefed by the Committee’s Content Adviser, Mr Mbo Maleka, on the process to be followed in the appointment of new board members. There were currently five board members out of a total of nine. The President appointed three board members (Board Chairperson, PRINT Representative and government representative). Of Parliament’s six appointees only three are still serving and two of these appointees will have their term expire in October 2020.

This created a challenge for the MDDA Board as the current quorum to conduct meetings and make decisions stood at five. This situation had to be remedied as the current Board was balanced towards Presidential-appointed members with Parliamentary appointed members being in the minority.

It was thus a matter of urgency for these appointments to be effected as the previous advertisement period for the positions, during the Fifth Parliament had lapsed. The Fifth Parliament advertised the Board nominations for four MDDA Board members and the advert closed in December 2018. The Fifth Parliament then decided against completing the process before it rose in March 2019.

In the Sixth Parliament the MDDA Board wrote to the Minister in the Presidency in June 2019 and requested that the Board vacancies be addressed as a matter of urgency. The Committee received the same request during MDDA presentation on its Annual Report 2018/19.

Discussion
Mr Gumbi asked by when the Board members should be appointed.

Ms Faku requested clarity on the minimum number of days that had to be set aside for interviews. She proposed that the Committee consider only applications that met the minimum requirements.

Ms Majozi asked if the Committee had to come up with a new date for advertisements to be sent out.

Ms Khubekha asked if there an Act guiding appointments like that for ICASA councillors.

Mr Thembinkosi Ngoma, Committee Secretary, replied that the timelines for the appointment of new MDDA Board members was contained in the draft programme prepared for consideration by Members. The Committee’s approval was thus sought for permission for the advertisement to be made public. The Secretariat proposed that the advert be published mid-January 2020. He proposed that same format be followed as with the ICASA Councillor appointment process.

Mr Maleka explained that the number of candidates for shortlisting was an administrative issue. He proposed that the sub-committee tasked with the appointment of ICASA Councillors also double as the sub-committee responsible for the appointment of MDDA Board members. The Committee had to decide how many board vacancies it wanted filled. It made sense to advertise all six positions at one go. This ensured that the positions of the two members whose membership lapsed in October 2020 could be taken up immediately. This would prevent the Committee from having to meet on this again.

The Chairperson commented that the Committee had to give the Secretariat the mandate to draft a new advertisement for publication in mid January 2020.

The ICASA process had proved that it may not be possible to have a long shortlist and that the Committee should only interview four candidates per vacancy from which recommendations would be made. Given the task at hand, it may be prudent to retain the subcommittee that dealt with the ICASA appointments. This did not mean that political parties necessarily had to retain the same Members. He reaffirmed the proportional representation principle.

The Committee agreed to the proposal by the Chairperson.

Two sets of minutes were considered and adopted and the Chair adjourned the meeting.


DTPS Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Communications, dated 22 October 2019

USAASA/USAF
The Committee noted:
(i) with concern that USAASA achieved an unqualified audit with findings;
(ii) that USAASA will undergo reconfiguration before the end of financial year March 2020;
(iii) that only two of the four planned targets were achieved;
(iv) that the two targets not achieved were (i) the responsiveness of the entity to underserviced communities and (ii) the facilitation of a smooth transition from USAASA/USAF to the Digital Development Fund;
(v) with concern that USAF remained unchanged since the last financial year and its qualified audit outcome with findings remained unchanged;
(vi) with concern the contradicting presentations between the Chairperson of the Board and the CEO which present different perspectives on the state of affairs at USAASA; and
(vii) with concern that the set-top boxes inventory at USAF could not be accounted for and therefore financial statements could not be signed off.

The Committee resolved that the Minister must:
(i) ensure that USAASA presents the reconfiguration plan to the Committee before March 2020;
(ii) ensure that USAASA presents an action plan of its plan to mitigate audit outcomes before the end of the financial year;
(iii) ensure that financial statements are signed off in respect of the set top boxes inventory at USAF;
(iv) ensure that USAASA put processes in place to address the recurring irregular expenditure;
 (v) ensure that USAASA conducts investigations on irregular, fruitless and wasteful expenditure and take disciplinary steps against liable officials;
(vi) ensure that USAASA improves on planning and contract management of USAF projects;
(vii) monitor all connected sites in order to ensure consistent connectivity of government institutions, clinics and schools;
(viii) ensure that USAASA meet the target on providing Internet access to connected sites
(ix) ensure that USAASA reduces overspending on legal and consultants’ fees; and
(x) ensure that USAASA meets the target on installation and distribution of set top boxes to qualifying households.


 

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