US embassy cable - 04PRETORIA5041

UNCLAS SECTION 01 OF 02 PRETORIA 005041 
 
SIPDIS 
 
DEPT FOR AF/EPS/DKRZYWDA AND AF/S/TCRAIG AND KGAITHER 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL 
DEPT PASS USTR FOR PCOLEMAN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, ECON, EINT, SF 
SUBJECT:  NEXUS TO WITHDRAW OBSTACLES TO SNO 
 
REFTEL: PRETORIA 3943 
 
(U) Sensitive but unclassified.  Not for Internet 
distribution.  Please protect accordingly. 
 
1.  (SBU) SUMMARY.  A telecommunications consultant to Nexus 
Connexion, the empowerment shareholder in South Africa's 
second national/network operator (SNO), said that Nexus 
would remove its legal challenges to the SNO by the end of 
2004 and have a license to operate by February 2005.  Nexus 
is withdrawing its litigation for the following reasons: 
First, an agreement with the Minister of Communications 
provides Nexus and its lawyers with three weeks' notice 
prior to her implementing the SNO license; Second, Nexus is 
satisfied that bids by qualified investors for the SNO's 
remaining unallocated equity will prevent Two Consortium and 
CommuniTel from controlling the SNO; and Third, an SNO 
shareholder agreement prevents Two Consortium or CommuniTel 
from putting in place lucrative contracts for themselves. 
END SUMMARY. 
 
2.  (SBU) A telecommunications consultant to Nexus 
Connexion, the empowerment shareholder in South Africa's 
second national/network operator (SNO), told Econoff that 
Nexus has withdrawn one court interdict standing in the way 
of licensing the SNO and would soon set aside the other. 
This would pave the way for a shareholding agreement between 
the SNO partners, which is required before the Independent 
Communications Authority of South Africa (ICASA) can issue a 
license.  The consultant said Nexus anticipates finalizing a 
shareholding agreement before the end of the year and 
expects to have a license before February 2005 when the 
telecommunications industry will be liberalized. 
 
3.  (SBU) This contrasts sharply with Nexus' response 
following a September pronouncement by the Minister of 
Communications approving a license for the SNO.  At that 
time, Nexus said it would not drop its first interdict 
calling for a judicial review of the Minister's decision to 
grant 25 percent of the SNO to CommuniTel and Two 
Consortium, despite a recommendation from the regulator to 
the contrary.  Nexus had also filed a second interdict to 
prevent the Minister from implementing her decision to 
license the SNO. 
 
----------------- 
NEXUS INTERDICT 2 
----------------- 
 
4.  (SBU) In late October 2004, Minister of Communications 
Ivy Matsepe-Casaburri agreed to provide Nexus and its 
lawyers with three weeks' notice, should she decide to go 
ahead with implementing the SNO license.  According to the 
Nexus consultant, Nexus subsequently withdrew its interdict 
on this issue, secure in the knowledge that three weeks 
would be sufficient to refile the interdict should they 
wish. 
 
----------------- 
NEXUS INTERDICT 1 
----------------- 
 
5.  (U) Nexus' first legal challenge was more complex.  In 
December 2003, the Minister awarded a 26 percent share in 
the SNO to Two Consortium and CommuniTel, just months after 
ICASA had determined that neither was qualified for the 
equity stake.  Shortly thereafter, Nexus filed an interdict 
calling for a judicial review of the Minister's decision. 
 
6.  (SBU) In an effort to break the SNO deadlock, Casaburri 
announced on August 27, 2004, that she was reducing the 
combined holdings of CommuniTel and Two Consortium from 26 
percent to 25 percent in the SNO's 51 percent equity stake 
(SepCo).  The remaining SepCo shares would be reserved for a 
yet-to-be-named financial investor.  The consultant said 
that Nexus was unsatisfied with this arrangement because it 
left CommuniTel and Two Consortium in a position to control 
SepCo, and ultimately the SNO, until an investor was found. 
 
7.  (SBU) The consultant said that Nexus' concerns were 
resolved when the Minister revealed on October 20 that Old 
Mutual Asset Managers and TATA Africa Holding (Pty) Ltd. 
had submitted Expressions of Interest for the 26 percent 
unallocated equity of the SNO.  The imminent allocation of 
the remaining SepCo shares means that neither Two Consortium 
nor CommuniTel would be able to control the SNO, which has 
been Nexus' concern all along. 
 
8.  (SBU) The consultant said that while Nexus favors TATA 
Africa Holding, it would not object to either of the equity 
bidders.  He said Nexus was satisfied that both bidders 
bring the desired experience and capital to the SNO.  Among 
other things, the bidders were required to have net assets 
of at least R5 billion, experience in telecommunications, 
the ability to arrange funding of more than R5 billion, and 
a willingness to hold its shares for at least five years. 
 
9.  (SBU) Finally, the consultant said that Nexus' concerns 
were further alleviated in an agreement with the other SNO 
shareholders to limit shareholder seats on the Board of 
Directors to 49 percent, prohibit any shareholder from 
providing a management contract to the SNO, and require 
unanimous approval among the SNO shareholders on all supply 
contracts.  These last two provisions effectively put in 
place obstacles to any future attempt by shareholders to 
obtain lucrative contracts for themselves. 
 
FRAZER