USO : A new tipping point?

In the Tipping Point, Malcolm Gladwell demonstrated how fines that are set too low create the wrong behaviour; only if they are set right does the required modification occur. I suspect we have a case of this here in South Africa with the recent Universal Service Obligations (USO) imposed on our leading national carriers.

On the 4th June 2014, ICASA published four General Notices amending the Universal Service Obligations (USO) of Vodacom, MTN, Cell C and Neotel. Any similar notice for Telkom, or any other service provider, was notable in its absence. The notices recognise that some of the previous USOs have been discharged while others remain in force. Some new USOs have been added, centred on the provision of internet access to public schools. The notices are effective from 1 April 2014, so are retrospective.

The notices require Vodacom, MTN and Cell C to each implement “full internet access” to 1 500 public schools and 140 Institutions of People with Disabilities (IPWD). The note is vague on whether these 140 IPWD are part of the 1 500 or not – for simplicity we will assume so. Neotel is compelled to address 750 schools only. To reiterate, so far there are no such obligations on Telkom or Telkom Mobile.

An appendix to the schedule details the standards and specification of what is required at each school. This list is quite extensive and includes:

  • Servers for use for proxy service, mail services, web caching and software distribution. This is to be procured per the SITA 153 contract. For simplicity, we will assume that a single server can do all this using virtualisation. Ideally a backup server would be required.
  • A desktop or laptop PC for administration and other functions. This must include a multifunction printer and a lock. The laptop is to be secured per the SITA 285/1 contract.
  • A total of 26 laptops, notebooks or tablet computers for learning and teaching. The SITA 284/1 standard applies.
  • A further multifunction laser printer.
  • An interactive whiteboard (detailed as being optional). These are ‘big ticket’ items.
  • A data projector (presumably mandatory). Again, a SITA specification applies.
  • A LAN with Wi-Fi connectivity.
  • Software for the above, including an open source or proprietary operating system, plus anti-virus and web browser. (It actually says “open source of proprietary” but we’ll take that as a typo).
  • Office suite specified as “word, excel, outlook, power-point & access” (sic) so presumably that means it can’t be open source. Any equivalence is implied but not stated.
  • To house the above, a storage and security trolley is needed allowing “ultra-safe recharging for multiple laptops”. This trolley is to be pimped with built-in speakers.
  • Oh yes…and remembering that telco service providers are the ones coughing up for this, the internet connection needs to be a minimum of 1Mbps. No data cap or requirement is specified.

So, this all sounds like a good, well-rounded specification, but what is this going to cost? Using some data based on an eEducation project BMI-T conducted for a Provincial Government in 2013, we see the capital cost per school at around R328 500. This is based on prevailing, commercial prices with a reasonable discount assumed. This means that we haven’t cross-checked against the SITA specifications or used the prices in the Teacher Laptop programme1. The latter includes prices at over R12 000 for the ‘Teacher 101’ laptop, albeit complete with software, support and 150MB of mobile data per month.

As for the operating cost, let’s budget for around R1 000 per month per school, with the only prerequisite being the specified minimum 1Mbps. For this, based on market prices, you’d get a 20GB Cell C or Vodacom HSPA+ service, or a 200GB 2Mbps WebAfrica ADSL service (including line rental). Yes, you’ll get some afterhours data for free, so it is plausible to double the GB to get a more realistic view. As they say on the television, other quality services are also available.

The notices don’t appear to have any defined period and probably expect support in perpetuity, but to be pragmatic let’s assume a five-year period for these obligations. The value of the bandwidth alone then would be R60k per school over the lifetime, so less than 20% of the hardware and software. Remember that the telcos are also obliged by the eRate regulations to provide this at half price, but we will stick with the advertised price as the eRate is really problematic.

Did anyone mention support or training? I didn’t see this. Do we assume that it’s all part of the deal? For the sake of simplicity, we’ll leave it out of the equation for now but really hope that someone remembers to pick it up. Support, or lack thereof, has proven to be the Achilles Heel of the Khanya project in the Western Cape.

Back to the overall calculations, we have 1 500 schools with Capex of R328 500 each plus Opex of R60 000 each, giving a five-year total of a cool R583 million (or two Nkandla’s in local parlance). That figure applies to Vodacom, MTN and Cell C, and half that to Neotel. This results in a grand total of a smidgen over R2bn. This excludes procurement, project management, deployment and any support costs which we can reasonably expect to add another few hundred million to the overall price tag. Spread over three years, this is around 2,5% of the total annual capex bill of these operators. The effect will be much more significant on Cell C and Neotel than on Vodacom and MTN. 

Now if we look back to the notices, we see that ICASA has specified a penalty of one million rands (Note: to be said in a Dr Evil voice complete with pinkie in the side of the mouth) and another one million per month until such time as the licensee complies (Script: Dr Evil throws back head and laughs wildly). So if we go back to the five-year plan, that is one ‘bar’ upfront and one-a-month thereafter, a total R61m. Throw in some legal fees, another few bar or so, and we’re all in for say R65m. That’s around 11% of doing the project. If we consider the Teacher Laptop programme rates and support, that figure is even less, perhaps as little as 8%.

Sadly, this move is well intentioned but has this been thought through? Just last week the WEF (World Economic Forum) in its Global Information Technology Report 2014 ranked us in 146th place, behind the likes of Haiti, Lesotho, Chad, Zimbabwe, Nigeria, and Kenya2. Something needs to be done, and there is a demonstrable correlation between eEducation and education outcomes, but is this the right way to go about it? I cannot see our litigation-ready telcos taking this lying down. ICASA, the DoC and/or the DoT&P really need to think this one through. Are there perhaps some other gravy train benefits expected from such a deal? Come to think of this, do the PC suppliers and tablet distributors have USOs enforced on them?

So back to Gladwell’s Tipping Point, are the fines set too low create the right behaviour? I suspect we have a case of this here, where the telcos will fight, resist or otherwise delay the enforcement of the USOs, or simply choose to pay the fine rather than take the new USO lying down. The losers, again, will be the learners and youth of South Africa.

Author – Tim Parle

1 See
2 Source: News24, SA has worst maths, science education in world, 2 June 2014