Black firms cry foul after time-out call on TV box orders

TWO large, black-owned set-top box manufacturers are headed to formal arbitration proceedings — and possibly to court — after the government agency responsible for procuring decoders for South Africa’s digital TV migration project halted orders.

CZ Electronics, which is 93% black owned, and Leratadima, which is 100% black owned, have entered an arbitration process with the Universal Service and Access Agency of South Africa to resolve the impasse.

Neither company is prepared to comment, but Business Times understands from industry sources with knowledge of the situation that both companies have been left seething, accusing the government of abandoning its stated commitment to support black-owned electronics manufacturing businesses.

Leratadima had had to cut hundreds of jobs because of Usaasa’s decision, the sources said. The company is also believed to be sitting on millions of rands worth of components to make the boxes.

According to the industry sources, the companies have been slow to pay their suppliers.

It’s understood that CZ Electronics is sitting on tens of thousands of unsold set-top boxes, made for Usaasa in terms of the order and for which the agency has not paid.

Usaasa was mandated by the government to procure the boxes, which will be provided free to five million indigent households so that they can continue receiving terrestrial TV once analogue broadcasts end.

Analogue switch-off, which should have happened in 2015 in terms of a government agreement with the International Telecommunication Union, is now expected to take place only towards the end of the decade.

Business Times has learnt that Leratadima, frustrated that Usaasa has allegedly failed to engage with it, may even be considering court action.

Sources say the two manufacturers are owed hundreds of millions for supply agreements with Usaasa.

Both feel aggrieved that the government, which had planned to use the set-top box subsidy as the cornerstone of a flagship programme to support and grow black-owned electronics manufacturers, is now putting the squeeze on them by halting the contracts.

Usaasa has suspended the contracts with the manufacturers pending the outcome of a Constitutional Court battle between Communications Minister Faith Muthambi and e.tv, to be heard on February 21.

The minister is challenging a Supreme Court of Appeal judgment which found that the government was wrong not to allow encryption of terrestrial digital broadcasts.

MultiChoice, which supports Muthambi’s court action, has long been engaged in a high-stakes legal and commercial battle with e.tv over encryption. The pay-TV operator argues that providing encryption technology in the free government boxes would amount to an unfair subsidy to prospective rivals which could use the boxes to launch commercial services that compete with DStv.

Sources say that Leratadima and CZ Electronics say the suspension of the set-top box contracts isn’t necessary because, if the Constitutional Court finds in favour of e.tv, the boxes can simply be upgraded “over the air” to support encrypted signals and do not need to be scrapped or recalled.

Usaasa CEO Lumko Mtimde confirmed that the parties were in arbitration but declined to comment in detail on that, saying the agency is “bound by the confidentiality of arbitration proceedings”.

He said the appeal court judgment could be interpreted as “a change in a policy in terms of which Usaasa is procuring the set-top boxes. Usaasa has been advised by senior counsel to halt production pending finalisation of the Constitutional Court hearing.”

Usaasa was entitled to stop the contracts if, among other reasons, there was a “change in government policy and/or regulatory regimes, as seems to have been the case”.

Mtimde denied that Usaasa was intentionally harming black-owned businesses through its decision.

“Usaasa is established to support underserved areas and black empowerment. It is compliant with our government policy and laws regarding BEE. We fully support government’s initiative for empowerment of previously disadvantaged persons.

“Usaasa is, however, constrained to perform its statutory duties in terms of the legislation and policies of the environment in which it operates.”

He said the contracts with set-top box manufacturers remained in force, with “full-blown production on hold pending the finalisation of the Constitutional Court case”. The agency would “review the situation” once judgment had been handed down.

Usaasa was entitled to stop contracts if there was a ‘change in policy’