Sentech fails to shrug off corruption in its ranks

It’s unclear how long it will take for signal distributor Sentech, a commercially-run parastatal, to bounce back from “legacy challenges and reputational deficit”. Coupled with its long history of poor governance – that once prompted then-Communications Minister Siphiwe Nyanda to commission a probe that, in turn, saw to top-level executives leaving in a whiff – the group has been saddled with loss-making entities for a while.

There remains a lot of work for the current management, under chief executive officer Setumo Mohapi, to improve the company’s financial performance and comply with clean governance. Signs that the parastatal has not left poor governance behind are apparent when one looks at its latest annual report, where the audit and risk committee “highlights the breach in governance matters that occurred during the financial year” ended in March 2012. The annual report was tabled in parliament last month.

Further, Sentech, which admits to experiencing “fraud and corruption in the supply chain management process”, fired seven employees but some avoided the axe by quitting amid the disciplinary action. It’s uncertain to what extent any of these were involved, and what the identity of the now-banned rogue service provider is. Finweek’s attempts to get answers to this drew a blank. Also, the parastatal’s accounting authority commissioned “various investigations into alleged misconduct of employees”. These include fraud, misappropriation of company assets, and meddling with tender procedures.

Meanwhile, the financial picture remains shabby, but manageable. Group revenues came in at R812.6m, up a paltry 3% when profit shrank almost a quarter to R192.3m for the period under review. Contrast this with the administrative expenses which swelled by more than a third.

Revenue from VSat, a product for broadband users in public and private sectors, dwindled 8% to R23m. That’s markedly lower than the R34m recorded in 2009, the year in which bland performance was blamed on the “lack of growth in sales and the leads” that did not materialise in time. Now, three years down the line, to fix VSat’s poor run (or “this challenge”), Sentech is talking turnaround. However the fact that it faced “challenges”, as the company puts it, after “service cancellation of two major customers” says a lot about an urgent need to grow a seemingly concentrated revenue base.

In fact, it’s debatable that Sentech is working on a winning formula for VSat. Still, don’t bet on it ditching this serial underperformer soon. But, it’s notable that the parastatal has cut its losses on the carrier-of-carriers front. Carrier-of-carriers, a product designed to rival Telkom in the wholesale international interconnectivity space, suffered from declining margins until Sentech pulled the plug in 2011.

Although discontinued then, the carrier-of-carriers incurred R6.4m in the final winding down of the business – as reflected in this year’s annual report. Following his appointment to head Sentech, two years ago, Mohapi acknowledged that the parastatal wasn’t doing well and subsequently spoke of a need to “ensure that [it did not] retreat into the financial and operating status that will threaten its going concern status.”

This, said Mohapi, would be managed through an enterprise-wide risk management strategy to ensure policies, processes, as well as systems and controls were in place. How this has played out is not obvious but having Mohapi at the controls is assuring. Not only is he an old hand in ICT, having held top posts at ICT-Works, Neotel and Telkom’s iWayAfrica, Mohapi’s armed with a PhD in electrical engineering (telecommunications).

One area that could decelerate his quest to reposition the parastatal, though out of his control, is an inordinately liquid board. Notably, chairman Logan Naidoo, and chief financial officer Protas Phili were in and out in less than a year. In fact, four people have held chairmanship (some acting) in the past two years. It doesn’t help that even at shareholder level, or communications department, stability isn’t common. For one, Rosey Sekese, who entered the fray last June in the stead of a DG who had been gone for a year, is facing the chop after it emerged that she lied to parliament. Also, there have been three communications ministers in as many years.

But, there’s a bit of an upside. With some loss-making assets out of the picture, damaging corruption and fraud claims addressed, and the time-consuming legal tussle with Altech UEC resolved, Mohapi’s team can busy itself with lifting Sentech to the next level. However, the company is far from freeing itself from what Mohapi aptly describes as “legacy challenges and reputational deficit”. It would help for Sentech to focus on its strengths, than trying to tackle just about any player in town, and axe corrupt suppliers as well as its staff and managers.

However, since, unlike Altech, DStv and MTN, for instance, Sentech is a parastatal. By its nature, its focus is on public service and the promotion of access rather than profitability. So, there’s a bit of balance to strike here, a line often rehashed by senior public servants. It’s true but doesn’t to absolve a commercially-run Sentech from poor financial performance or short-sighted business decisions that yield losses.

Nevertheless, an aspect that’s earned Mohapi’s team fans across the board is Sentech’s lowering of signal distribution fees it charges community broadcasters. Fees for community radio TV stations have been cut by a third, on average, while the average for their radio peers is 65%, or twice as larger. National Community Radio Forum’s Sonnyboy Masingi, who previously lamented “Hurricane Sentech” (which, he blames, for shutdowns), hails the cuts. He blamed the previous “unaffordable” fee structure for forcing several community radio stations to shut down. “We viewed that [tariff structure] as an exploitation of a special kind.”

More than a week later, Sentech spokesperson Nthabeleng Mokitimi hasn’t acknowledged nor responded to Finweek’s repeated requests for comment on this and other points.

However, her group identifies community media and analogue TV among revenue growth drivers. With an estimated 8m-strong listener base, the 20-year-old community radio sector has grown to claim a quarter of the market share, observes the Media Diversity & Development Agency (MDDA). Suspending and cutting off community stations mocks Sentech’s own public service mandate and promotion of “the right to information”.

Like Masingi, Lumko Mtimde, CEO of the MDDA, lauds the significantly lowered tariffs. “We hope they will contribute to the sustainability of alternative media, and continue to create an enabling environment,” he says, explaining that the revised structure is a culmination of discussions between a host of players including Sentech, the community sector lobby groups and telecommunications regulator, Icasa.

Asked lowering tariffs for community media wouldn’t hurt Sentech’s margins, Mtimde says: “You can’t expect media diversity if you applied ‘the survival of the fittest’ principle even when it comes to non-profit-making community media. You’ve got to create an environment which enables every sphere of the sector to co-exist.”

State-owned Sentech gets the message, that’s if the new fee structure is anything to go by. Now, as Mohapi gets ready to welcome yet another CFO and chairman, the next task on his to-do list would be to rid supply chain management and other departments of governance failures. At the same time, Sentech needs to jack up the roll-out of digital terrestrial TV infrastructure, as SA migrates to digital broadcasting, which during the past financial year was delayed by “supply chain deficiencies”.

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