Starlink in South Africa: DTI equity equivalent program

Instead of focusing solely on direct ownership, Starlink could invest in initiatives that directly benefit black-owned businesses and communities – read the TechCentral article here

By Bruce Hunt

South Africa’s pursuit of digital inclusion faces a significant hurdle: the high cost of broadband access, especially in underserved communities.

Starlink, with its promise of affordable satellite internet, presents a potential solution. However, regulatory requirements mandating 30% black ownership for international communications companies pose a challenge, mainly because these organisations are not able to use an equity equivalence programme (EEP) to acquire a licence from communications regulator Icasa without a change in regulations.

The good thing, however, is that communications minister Solly Malatsi recently announced that his department will look at extending the concept of equity equivalence to multinationals applying for an electronic communications network service (ECNS) licence. This is a recognition of the potential of an EEP, as this could pave the way for Starlink’s entry while simultaneously empowering South African communities and businesses. A well-crafted EEP could be a gamechanger, benefiting both Starlink and South Africa. Starlink could invest in initiatives that directly benefit black-owned businesses and communities

Instead of focusing solely on direct ownership, Starlink could invest in initiatives that directly benefit black-owned businesses and communities. This approach aligns with the spirit of South Africa’s broad-based black economic empowerment (B-BBEE) policies, which aim to address historical inequalities.

Successful EEPs implemented by other multinationals can be emulated here. Amazon, for instance, has effectively supported black-owned businesses in the ICT sector through technical training and grants. Similarly, JPMorgan’s Abadali Fund focuses on empowering black entrepreneurs in financial services. These examples demonstrate that alternative pathways to empowerment can be both impactful and sustainable.

When the Competition Commission imposed anticompetitive mitigation measures on Google South Africa recently, some innovation was needed. Google established an AdWords training programme for small businesses and set up a R180-million advertising credits fund for small and black-owned businesses. This helped small businesses to tap into not just the advertising platform but also Google Cloud, Search and Workspace — simultaneously enabling Google to achieve the commission’s requirement.

Digital access

A similar approach could be applied to Starlink, where underutilised bandwidth could be discounted for educational institutions and entrepreneurs from underrepresented communities. This would expand digital access, foster entrepreneurship and maximise social impact at a low cost. Imagine the transformative potential of connecting rural schools and public facilities to high-speed internet, bridging the digital divide and fostering educational opportunities.

It is equally important to highlight the success of employee share schemes in other sectors. While Starlink’s operational structure may not lend itself to traditional employment models, it could explore innovative alternatives. Partnerships with local black-owned tech firms in areas like distribution or installation could be a viable option.

In situations like this it is easy to fall into the trap of implementing highly structured legal solutions. However, multinational companies need to be careful of too-good-to-be-true structured private equity solutions. It is good that Starlink has chosen not to enter the market taking this easy but high-risk solution that we are seeing a number of advisors promote.

Those in contrast to well capitalised black private equity funds that deploy capital are often abusive structures that aim to circumvent B-BBEE. They are superficial in structure and are offered by a number of advisors that promise empowerment without substance and don’t present a viable empowerment alternative.

Real transformation requires a commitment to sustainable, impactful structures that go beyond mere compliance, as is seen in bone fide private equity funds.

By investing in initiatives that empower black-owned businesses and communities, Starlink has an opportunity to demonstrate a commitment to social responsibility and an equitable gain into the market. This aligns well with the B-BBEE legislation and policies, which are primarily aimed at addressing historical inequalities.

Lastly, an EEP can help Starlink build a loyal customer base in South Africa. By demonstrating a commitment to social responsibility and empowerment, Starlink can enhance its brand reputation and foster trust among South African consumers. This can lead to long-term market success and contribute to the sustainability of Starlink’s operations in the country.

An EEP could be a win-win for all stakeholders. Starlink gains entry into a burgeoning market, while South Africa benefits from increased connectivity, economic empowerment and skills development. By drawing on the successful models of companies like Amazon, Google and JPMorgan, Starlink can create an EEP that truly aligns with South Africa’s empowerment objectives and paves the way for a digitally inclusive future.

About the Author

About Bruce Hunt

Bruce is the Managing Director at Transcend Capital. He has 12 years of experience in structuring multinational BEE transactions which include Black operational partners, employees, Broad-based Ownership Schemes, and the sale of assets to Black investors. Before joining Transcend Capital, Bruce was a trader and structured finance professional at Investec Bank.