Public Hearings on the Broadband Infraco Bill: Day 2

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Public Enterprises

01 August 2007
Chairperson: Chairpersons: Mr Y Carrim (ANC) ; Mr C Wang (ANC) Mr G Oliphant (ANC)
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Meeting Summary

Various stakeholders in the telecommunications industry gave submissions to the Committee on the Infraco Bill. Most of them welcomed the intention behind the Bill to provide more affordable access to broadband, but raised concerns over the precedent that would be set by the Bill in not following due process for licensing. Stakeholders also highlighted the vagueness of certain terms in the Bill and the need for greater clarity on the definitions of these terms, such as “underdeveloped areas” and “access”. Much discussion around alternative ways of gaining the licence led only to the conclusion that all avenues had already been explored and that the Bill had been envisaged as the last resort to licensing Infraco without incurring the considerable delays if due process were to be followed. A number of issues were raised which brought further perspectives to the practical, pragmatic, as well as ideological issues at stake.

After the lunch break, the Committee heard further submissions during public hearings on the Broadband Infraco Bill. Oral submissions were made by Internet Solutions, Sentech and Neotel. Internet Solutions (IS) outlined the effects of the broadband Infraco Bill, whereas Sentech's presentation focused on the borrowing powers of Infraco, and Neotel’s presentation outlined the impact of the Infraco Bill.

During the discussions members felt that the commercial relationship between Neotel and Infraco became a major issue, and felt that there should be a closed meeting in which members of the Committee could be given further details and have discussions on some of the issues raised. Some members were concerned that Sentech and Infraco seemed to overlap, and asked the Department to provide a comprehensive statement of how if saw the distinct roles of Infraco, and whether the Bill catered for the distinctiveness. Some Members felt that South Africa should have more companies competing against each other as it was not healthy for the state to allow monopolies in any sector. The Chairperson was not convinced that the Cabinet and the Executive could have chosen to establish Infraco as a separate entity on the grounds of what was presented by the Department of Public Enterprises. He asked the Department to return on the 22 August with a stronger case into why there should be two entities performing the same task.

Meeting report

ICASA submission
The Chairperson of ICASA, Mr Paris Mashile, said ICASA was in favour of additional competition in infrastructure creation. He said ICASA was the sole organ of state authorised to licence within the sector and exercised authority in terms of the relevant legislation, which was the Electronic Communications Act of 2005 (ECA). The Minister was authorised to make certain policy directions, but in terms of section 3(3) of the ECA, she could not do so as far as licensing is concerned. Mr Mashile quoted the ICASA Act: “The Authority is independent, and subject only to the Constitution and the law, and must be impartial and must perform its functions without fear, favour or prejudice.”

Corporate Structure
Mr Mashile pointed out the fact that the consolidation of Esi-Tel and Transtel brought about Infraco. Both these entities held Private Telecommunications Network licences (PTN’s), which were subject to conversion under the ECA. Authorisation for the transfer of a licence could only be provided by ICASA. Currently the ECA did not provide for the recognition of Infraco as holding an Individual Communications Network licence.

Mr Mashile said ICASA was responsible for setting out the process and procedures for applying for a licence and that it could not step outside this framework.  It could further only consider applications for individual electronic communications network licences if a policy direction was issued by the Minister in terms of section 3. This has not been issued to date. Only once a policy direction was received, could ICASA proceed with the licensing process, subject to the payment of the stipulated licence fees.

Mr Mashile concluded that as far as ICASA was concerned any licence could only be issued in accordance with terms and conditions that were aligned with those prescribed by them in section *.

Policy Directions
Mr Mashile submitted that the legally the only way the Minster could issue policy directions was in terms of section 5(6) and in terms of section 3. In view of this he suggested that the Policy Directive not be directed at a single licensee.

Further comments made by Mr Mashile regarded servitudes and rights of way and the section specifically dealing with the prohibition of exclusionary rights.

In conclusion Mr Mashile reiterated that ordinary procedure as set out in the ECA ought to be followed in the application for a licence, although the need for accelerating the process was conceded. Section 6(1) of the Bill granted the licence without the hearing of representations from interested third parties. He said they did want to see Infraco succeed, but by doing so within the guidance provided by the legislative framework. He said the ECA was a lawyer’s paradise and that ICASA did not have the resources to defend it.

Mr Carrim remarked that even though the hearings had been advertised for six weeks running, submissions had only arrived the night or day before, rather than forty-eight hours before, as requested. This made it very difficult to familiarize oneself with the submissions. He said he that ICASA seemed to identify in conflict between the ECA and the Bill. He suggested that the differences needed to be resolved in order to move forward with the purpose of providing a reduction in the cost of telecommunications. He asked whether the Bill could be amended in a way to rectify the differences between the ECA and the Bill and whether the Committee make changes to licensing provisions in the ECA.

Mr G Oliphant (Communications Portfolio Committee Chairperson) said the ECA could not be changed and that the Department of Communication (DOC) needed to find a way of legally addressing the situation in order to allow Infraco to operate as quickly as possible. He said the Bill was constitutionally sound. The Minister had to provide instructions for ICASA to proceed to determine the licence provision terms and conditions.

Mr Carrim said the Committee was reluctant to pass legislation, especially if it could be questioned in court and he suggested therefore that the DOC work together with ICASA on the licensing provisions.

Ms Dene Smuts (DA) said it was problematic that a body such as ICASA had the sole right to licence. The Minister’s policy directives seemed to be the only way around this and if only these directives were forthcoming in terms of section 5(6), progress could be made.

Mr Carrim asked whether these policy directives were complete and whether the two Ministers should not meet regarding this.

A spokesperson for the DOC said that the directives had been published on the 25th of May and that it would take about another two months for the process to be finalized.

Mr C Wang (ANC) suggested that rather than using parliament to acquire the licence, perhaps it would be preferable to acquire it through the ECA terms and conditions.

Mr Mashile agreed that the ECA suggested and mandated such a route.

Ms Sandra Coetzee, head of legal services for the DPE, said that the two considerations against such a route were timing and guarantee.

Co-chair: said that since the process had already begun with a policy directive published in May the process should be followed through, unless these were opposed by serious legal challenges.

Mr Carrim asked whether the same processes had not worked for Sentech and other entities.

Ms Coetzee said that in those cases there was never a question of them being challenged.

TELKOM submission
Prof Andrew Barendse gave a short overview of the presentation. He said that the South African telecommunications sector was undergoing major reform initiatives in the areas of licence conversion, African satellite, terrestrial and undersea connectivity and market reviews. He said in essence Telkom supported government efforts to increase broadband connectivity and access, although the draft Bill did raise concerns.  It believed that licensing process should be in alignment with the ECA with ICASA as the authority. He said the Bill also raised issues regarding the clear definition of certain terms.

Mr Thanduxolo Lubanga reiterated these sentiments as well as stating again that ICASA should function independently and impartially. Various points were raised stating that the process suggested in the Bill was not in accordance with the ECA and the process to be followed. No invitation by ICASA to apply for a licence had been issued. No notice of the application had been gazetted. This disregard for process had effectively undermined the powers of ICASA and the application had been deliberately limited to Infraco. The Bill stated that the licence was regarded as granted. This could not be in accordance with the ECA. The Department should comply with the ECA as well. 

He said section 6 of the Bill should be re-written as it disregarded the process set out in section 9 of the ECA. Regarding the role of the Minister Mr Lubanga said there was nothing in the Bill indicating that the Minister had issued Policy Direction in terms of section 5(6) of the ECA read with section 3(3).

He said that section 8 of the Bill was unnecessary in its entirety as the Expropriation Act and section 22 of the ECA were sufficient in dealing with this matter. He said that a process of consultation involving an independent arbitrator rather than the Minister should be involved in determining access and utilization of land for infrastructure. The wording in the relevant subsections of section 8 should be changed accordingly.

The Bill also did not adequately define terms such as ‘under developed areas’ and ‘under-serviced areas’, which required clarity. Section 4(1) of the Bill referred to “affordable access to broadband services”, while it was presumed by Telkom that Infraco was only applying for a licence to provide a backbone network, and where other licensees would provide actual access to subscribers. Should Infraco wish to provide the latter as well, they would have to apply for and electronic communication services licence (ECNSL) as well as an individual electronic communications network services licence.

In conclusion, Mr Lubanga said that Telkom believed that transparency and due process was required in the creation and licensing of Infraco, so that a climate of investor confidence and certainty in the communications industry would prevail.

Ms Coetzee said that a Policy Directive had in fact not been issued. It seemed to here that submissions objected to the process being followed in the licensing rather than the granting of the licence itself.

Mr P Hendrickse (ANC) asked why Telkom opposed the Bill with reference to the sections on expropriation and servitude.

Mr Lubanga said these sections were redundant and that the exercise of obtaining land for infrastructure was already provided for in existing legislation.

Ms Coetzee said that there were two dimensions to expropriation: expropriation and the use of existing right of way. The Bill corresponded with the Expropriation Act in terms of sate intervention for public good. Strategic intervention allowed for expropriation to establish servitude through an equitable process.

Mr Carrim said this raised issued in terms of sate-owned entities and the ideologies and values around this in a so-called developmental state.

Co-chair said that Telkom spoke from experience and that the Committee should engage more with them in order to ensure that state intervention occurred properly.

Dr Van Dyk (DA) asked whether the recent drop in broadband costs by Telkom to its customers had been deliberately made to coincide with these proceedings.

Prof Barendse said that Telkom was in an incremental process of lowering costs and that the overall trend had been down for a while already.

Ms Kondlo (ANC) asked why a Bill had been drafted that contained so many technical points which could be challenged.

Ms Coetzee said that senior council had tested the Bill.

VODACOM, MTN and CELL C submission
The Mobile Industry’s oral presentation comprised only general principle comments on the Bill. They were with regard to:
- The licensing of Infraco
- The relationship between Infraco and other licensees
- Main objective of Infraco
- Transfer of Infraco’s shares and interests

The granting of a deemed individual ECNSL needs to be done in accordance with the ECA. and through ICASA, sole national authority with powers to grant the licence. However section 6 of the BiIl prescribes the manner of licensing, which is inconsistent with the procedures and processes as prescribed under the ECA.
The mobile industry therefore recommended that the provisions of Section 6 of the Bill be amended to provide that the licensing of Infraco be undertaken by ICASA in compliance with the ECA.
They also suggested a transfer of existing licences held by Eskom and Transtel and the conversion of such licences.

Clarity was requested on the relationship between Neotel and Infraco and whether Neotel would get exclusivity rights to Infraco’s communications network infrastructure and if so, for how long. This raised the question of how this would accord with making broadband facilities available to all. This further called into contention the provisions of section 93(7)-(9) and 44(10), which broadly prohibited the granting of monopolies and or exclusionary rights to any licensee.

Definitions for broadband and broadband access needed to be better defined, as well as what constituted an affordable service. The term underdeveloped areas did not distinguish in terms of which criteria.
Clarity was needed on whether Infraco intended providing not only a backbone network but also an access network. This would be objectionable since access to the Infraco infrastructure should be given in a fair and non-discriminatory manner.

Section 4 of the Bill granted the Minister the right to transfer assets, rights, obligations or interests of the State in relation to Infraco. Yet change of ownership of any licence required ICASA’s approval.
The mobile industry would challenge any special regulatory framework for Infraco not applicable to similarly licensed entities.

Ms Coetzee conceded that the term ‘assets’ was too generic.

Mr Carrim said that the question of four years’ exclusivity was based on the need to recoup investment and had to be considered from economic perspective. He asked what the relationship was between Sentech and infraco and whether the latter was perhaps better equipped to be granted a licence.

Spokesperson for Vodacom said that if the purpose of the Department was to reduce costs of communication and to increase access to infrastructure, then a broadband backbone network should be sold wholesale to any players in the industry who wanted to provide access. This would go some way to addressing the historic issue where only Telkom provided this service. The reality was that Telkom could not provide fixed lines quickly enough and that Neotel could hopefully make a difference, but the mobile operators should also be able to apply for licenses to provide fixed lines.

Ms Coetzee said exclusivity had not been fully addressed by the Bill in this regard.

Mr Oliphant asked if Vodacom supported the Bill if the process of licensing was in accordance with the ECA.

Spokesperson for Vodacom said he saw the Bill not as a threat but an opportunity, as mobile operators would also be seeking to provide fixed line services.

Spokesperson for Neotel said that initially the licensing of Neotel had meant to change a monopoly to a duopoly on a limited basis for a number of years. The Infraco Bill had eroded this and now they were in a situation where a balance had to be found between safeguarding Neotel investors and opening up the market, as well as giving credence to the government’s objective of providing cheaper broadband access for all. An ordinary licensing process for Infraco would entail a policy directive by the Minister, an invitation by ICASA to all who wish to apply, public hearings and then a determining of terms and conditions. Thus due process would delay licensing by several years. This would not only be a problem for Neotel but for the country as a whole. The Bill was crafted as a solution to this quandary, exempting them from going through the process of being granted a licence but after that submitting to regulations as stipulated by the ICASA in accordance with the ECA.

Spokesperson for Cell C said they appreciated the urgency, but taking into account the purpose of the ECA, to provide a neutral licensing framework in a non-discriminatory manner, the object although laudible, did not provide for competitiveness. Therefore the rights of other stakeholders were being be prejudiced. ICASA was obliged to allow interested parties to apply. It could not only invite Infraco to apply. Parliament needed to intervene in the matter, by rewording the deeming clause. This had been done before in Section 36 of the repealed Telecommunications Act.

Mr Alf Wilts of the DOC said that the Minister had simply had stated that she supported the deeming process as set out in the Bill. There had been no policy directive in this regard, as this required public consultations, which obliged ICASA to invite all interested parties to apply, as they could not only invite Infraco. Legislative intervention was therefore needed to license Infraco, which required parliamentary intervention.

The co-chair suggested that both Departments for Communications and Public Enterprises thrash this out.

Spokesperson for Cell C asked whether a Private Telecommunications Network (PTN) licence could not be converted and transferred to Infraco.

Dave Smith of Infraco said this was not possible as these licences were not applicable in public space.

Spokesperson for Neotel said that even should this be possible the process would still have to go through ICASA and would cause delays.

Mr Mashile said that conversions would be done before the end of the year. These PTN’s were meant for internal work and not for commercial purposes.

Comment by honourable member said that the issues being discussed around the notions of fairness and unfairness, seemed misplaced as what was at stake was tier one and tier two infrastructure, which would not interfere with providers such as mobile operators. Telkom had been the sole and monopoly provider to date. The Bill would go some way to redressing this.

Afternoon session:
Internet Solutions (IS) Submision
Mr Siyabonga Madyibi, Senior Regulatory Officer, Internet Solutions, outlined the effects of the Broadband Infraco Bill. He believed that although  the Electronic Communications Act (ECA) made reform a more urgent priority, the Broadband Infraco Bill must be seen as just one factor in a larger and more complex picture. There was strong evidence to suggest that the major difficulties of the South African market arose not at the services level of the market, but because of the lack of competition at the infrastructure level. Without effective competition both at infrastructure and services level the South African  communications sector, and indeed the economy, would not be able to perform to its true potential. By allowing Infraco to be a wholesale operator with open access on the market, the country would be able to drive down prices to more competitive global levels, resulting in increased usage and penetration. For these reasons Internet Solutions welcomed the introduction of the Broadband Infraco Bill.

Ms Ursula Fikelepi, Chief Director, Legal Services, Department of Public Enterprises stated that the IS main concern centered on the relationship between Neotel and Infraco. It should be noted that the relationship was purely a commercial arrangement which was not going to be dealt with in the Bill, which was intended to be an establishment Bill.

The Chairperson stated that he was aware of the commercial aspects of Infraco that were not addressed on the Bill, and this was already causing concern. The Committee would look at ways of trying to find a balance between how much the Committee would be required to know about the commercial relationship on the one hand, and the needs of the market on the other in relation to competition.

Mr Oliphant added that if the commercial relationship became a big issue, then there should be a closed meeting so that the Committee could be separately informed on these issues and be able to discuss them.

Sentech Presentation
Mr Dingani Dube, Executive, Regulatory and Government Affairs,  and Mr Frans Lindeque, Executive, Digital Services, Sentech, focused in their submissions upon the borrowing powers of Infraco. Sentech was concerned that the Bill did not make provision for how the Infraco objectives could be most efficiently achieved. The Bill did not appear to take into account the fact that Sentech, as an established public entity, engaged in a wide array of undertakings.

With regard to Infraco’s borrowing powers, Section 5 of the Electronic Communications Act,  and Clause 5 of the Bill provided that Infraco would be able to borrow money, issue a guarantee, indemnity or security or enter into any transaction necessary to achieve its objects under clause 4 of the Bill. Sentech, however, was currently categorised as a national government business enterprise, and was treated differently, being listed under Part B of Schedule 3 of the Public Finance Management Act (PFMA).  It should also be noted that Sentech had respectively requested the Minister of Public Enterprises and the Minister of Communications to provide clarity and guidance on the distinction between the services to be provided by the two State-owned enterprises, as this distinction was not contained in the Electronic Communications Act.

Mr Wang stated that Infraco would be given a communication licence which would enable it to provide any kind of data services over the networks. Sentech, on the other hand, would like to preclude Infraco from providing the wireless services. Therefore the issues that were raised by Sentech were more of a policy nature and it was still unclear whether the matter was of a national interest nature.

The Chairperson added that the Committee was concerned about the fact of two apparently overlapping entities. Members had already strongly indicated that a strong case why this should be allowed would have to be made out to Parliament. The Department should provide a comprehensive reply on how it saw the distinct role of Infraco, and explain whether the Bill catered for the distinctiveness.

Mr Wang asked the Department also to comment on why the network was not given to Sentech to operate, instead of having two State owned  (SOE) offering the same services.

Prof E Chang (IFP) stated that she felt very strongly about the nature of the submissions. Stakeholders appeared to be frightened by the prices that would be created by Infraco. Sentech, on the other hand, would like to make sure that there would be no duplication of services when Infraco was established. The reason why the State decided to create Infraco, was because it was dissatisfied with the services provided by Sentech. In her view, South Africa should have more companies competing against each other to provide choice and create growth; it was not healthy for the state to breed monopolies in any sector.

Ms N Kondlo (ANC) questioned why Sentech was pushing for dual existence of the two entities in their proposal, and perhaps an option should be investigated where one or other was not in existence.

Mr Dube responded that Sentech was not afraid of competition and would effectively deal with it.  However, he stressed again that effective competition depended on a levelling of the playing fields. If Sentech was a schedule 3 and Infraco was a Schedule 2 entity, then Sentech would be at a disadvantage. Infraco’s exclusivity to Neotel also gave it an extra advantage.
Mr Oliphant stated that Sentech was a very necessary entity as it was responsible for the transmission of the broadcast signal of the national broadcaster. Therefore co-existence was necessary for both entities, and this should be in the interest of the State.

Mr Lindeque stated that Sentech had and a very clear view on how it could work together with Infraco to bring down the cost of broadband and deliver service to under serviced areas. There should be a complementary service between the two entities.

Mr Litha Mcwabeni, Deputy Director General, Department of Public Enterprises, indicated that the Department still needed to take a closer look at Sentech’s proposals. Internet Solutions stated that the creation of a duopoly would not necessarily lead to the reduction of infrastructure cost as it was only when there were many players that the price would be addressed. The Committee had also indicated that the issues of exclusivity would be discussed at a closed meeting.

Ms Sandra Coetzee, Deputy Director General and Head, Legal Services, Department of Public Enterprises, added that unfortunately the City of Cape Town did not approach the Committee with a submission but had sent one to the Department. The City of Cape Town was very encouraging of Infraco’s mandate to intervene where market failure occurred in the local loop. She suggested that the Department should look at ways of introducing some mechanism whereby Infraco’s mandate could be extended to go into under serviced areas, or where market failure occurred. The Department should be very hesitant in imposing clear cut restrictions at this point.

Mr R Mohlalonga (ANC) asked Sentech to state whether the roll out of backbone infrastructure was attractive, and asked the Department of Communications to indicate why Sentech had not been given the same mandate of rolling out the backbone infrastructure.  

Mr Dube stated that he was not mandated to answer this question.

Mr Harry Mathabathe, Deputy Director General: Finance, Department of Communications, replied that strong intervention was needed from the State in reaching under serviced areas

Ms Coetzee added that Cabinet had taken a policy decision that both Sentech and Infraco should serve the under serviced areas.

The Chairperson stated that he was not yet convinced that there was a case to be presented for the establishment of Infraco. It was unlikely that Cabinet and the Executive would have chosen to establish Infraco as a separate entity on the grounds of what the Department had presented here. It seemed that there were stronger reasons, and at this stage there was room for speculation that there was a diplomatic reason that prevented the Department from disclosing exactly why Infraco should be established. The answers that had been provided to the Committee had been vague and unacceptable, and he believed that it would be unfair to the various stakeholders to leave the matter there. The Department should return on 22 August with a stronger case as to why there should be two entities.

Ms Kondlo agreed that she was not convinced by the arguments that had been presented, and that the Department should indeed engage further with the Committee. The introduction of Infraco was an area where there must be understanding of who would want to benefit from the services.

Mr P Hendrikse (ANC) stated that the Bill initially had looked straightforward, but that a number of issues had come to light in the submissions. He believed that not all had had the opportunity to say exactly what they wished to.

Mr C Gololo (ANC) stated that he did not have a problem with the arguments if Infraco planned to achieve what its mandate said it should. He agreed that the Department should provide a stronger argument.

Ms Chang believed that if Infraco's establishment would bring down the cost of telecommunications and enable competition with international players, then this was necessary.

Mr Wang said that the reason why the Department chose to make Infraco a Schedule 2 entity was because it wanted Infraco to survive in the commercial sector. However the underlying factor still remained the roll out of services to under serviced areas. If Infraco planned to achieve this then there should be no reason to prevent it from being established.

The Chairperson stated that Members agreed that the Department must produce a stronger case for the establishment of Infraco, and explain why one entity could not fulfil the functions of both. The Department should also respond each of Sentech’s concrete proposals. With regard to the scheduling, he reiterated that the amendment would be effected only if the Communications Portfolio Committee and the Department agreed on the scheduling. Many stakeholders had questioned the ways in which it was planned that Infraco would achieve the objects, and they should perhaps put some concrete amendments to clauses before the Committee.

Ms Kondlo added that none of the entities were vehemently opposed to the establishment of Infraco, but rather concentrated on the synergy between institutions.

Ms Coetzee confirmed that the Department would  be presenting the compelling evidence as required. The Department would be using a shareholder compact to assist with roll out of infrastructure and would provide details to the Committee.

Mr Mcwabeni stated that the Department's approach was not to make a diagnosis of what Sentech had been delivering, It had observed that the broadband costs remained very high and that state intervention was necessary.
Neotel Submission
Ms Michelle Hajari, Manager, Legal and Regulatory Services, Neotel, and  Ms Kara Rasinetti, attorney with Edward Nathan and Sonnenberg  made the presentation, which outlined the impact of the Infraco Bill, the structure of Infraco, licensing and regulatory issues, as also the need for Infraco to obtain an exemption from the requirement to submit a merger filing, and the expropriation of land. Neotel’s business was linked to the establishment of Infraco, and any delays in the establishment of Infraco would lead to delays in the full service launch of Neotel. It was therefore imperative to minimise regulatory hurdles to the establishment of Infraco. Infraco needed to obtain individual Electronic Communications Network Services (ECNS) and Electronic Communication Services (ECS) licences under the Electronic Communications Act.  However it should be noted that if Infraco was required to apply for those licences in the ordinary course, then it could take many years before Infraco could become operational, and that this would delay Neotel’s launch date by several years. In order to avoid this situation, the Bill should grant Infraco deemed ECNS and ECS licences. It should also be noted that the Bill did not contain any conditions that would exempt any of the Department of Public Enterprises, Transnet, Eskom or Infraco from the requirement of submitting a merger filing to the competition authorities under the Competition Act.
Mr Mohlalonga asked Neotel to state the type of licence they would need given the nature of the relationship with Infraco.. Neotel in their presentation made reference to the fact that there was certain exclusivity that was guaranteed to them, and therefore they should state whether the rational for Neotel to invest in Infraco still existed.

Ms Hajari replied that the relationship existed but it had been eroded. The issue as to whether there was a compelling business case for Infraco had been widely debated. It should be noted however that if the compelling case for the establishment of Infraco was not made by the Department, then the Full Services Network licence would be transferred to Neotel. This would be done on the bases of the original promises that had been made to Neotel. The licence would allow Neotel to enable the roll out infrastructure and address the bottle necks. If the establishment of Infraco were to go ahead as planned then Neotel would rely on Infraco’s long distance national network. Because Neotel would be operating nationally, it would still need an individual Electronic Communication Network licence.

Mr Hendrikse requested an explanation of what exactly would happen if Neotel chose to take the deemed route or the option of the Independent Communication Authority of South Africa (ICASA)

The Chairperson stated that it would be helpful for this explanation to be provided in the briefing on 22 August.

Mr Wang asked if Neotel had consulted with the competition authority with regard to the shareholder structure of Infraco and whether the transfer of assets would be considered as a merger.

Ms Hajari replied that the transfer of an asset under South Africa’s competition laws could be constituted as a merger, as long as the effect of the merger would be to enlarge market shares and the capacity of the acquiring firm. The merger could also been seen as notifiable.

Mr Mohlalonga stated that the delay in the establishment of Infraco was not caused by the laws that were in place, but  by the Bill that had been presented

Ms Rasinetti replied that if Infraco was not established as a separate entity then the assets would have been transferred into Neotel. 

The Chairperson asked Neotel to comment on how it planned on ensuring accessibility to Infraco and whether there would be transparency.

Ms Hajari replied that ICASA needed to establish a process of market review. The process would be followed by an investigation into which operators had significant market powers. If significant market power was found to vest in one player, then ICASA would conclude that the market was not sufficiently competitive. In relation to the facilities there would be a further step to the process in which network facilities constituted essential facilities. If the facility was found to be an essential facility, then there would be an obligation to provide access to it at regulated prices. Since Telkom was widely regarded to have a monopoly in the telecommunications sector, it would be highly likely that this would be found to be an essential facility.

Mr Oliphant added that Committee should check on whether there would be transparency after the Bill had been passed. In the event that the Bill was rejected, there would need to be consideration of the imperatives.

The Chairperson stated that he was concerned that the regulatory bodies were not performing as efficiently as they should, and the issues regarding transparency should be raised at a closed meeting.

Mr Thembinkosi Bonakele, Head of Mergers, Competition Commission, said in relation to the transfer of assets that the Infraco matter should not be regarded as a merger, as this would not be accredited by the Commission.

Ms Coetzee noted that Infraco was mandated to provide affordable broadband, which none of the other entities had done. It should also be noted that Section 32 (b) of the former Telecommunications Act had anticipated a way in which State owned enterprises would contribute to the Second Network Operator. In her view this had been misinterpreted, and it was incorrect for Neotel to suggest that the assets would be transferred if Infraco was not established. It was also incorrect for Neotel to state that the Department purposely delayed the Neotel launch.

Mr Lindeque asked Neotel to state whether affordable access would be achieved.

The Chairperson stated that the matter still needed to be taken forward.

Ms Katharina Pillar, representative of Cell C, asked for clarity on who would decide on what was "affordable".

The Chairperson stated that there were terms that needed to be clarified, but that this Committee was not able to shape or dictate policy, but was tasked with ensuring that the terminology was consistent with the communications legislation.
Ms Coetzee replied that the extent of the affordability would be passed on downstream. The pricing should be seen as non discriminatory and the principle of affordability would be an integral part of the Infraco issue.
A representative from the Underserviced Licences Forum stated that they had not received any engagement from the Department or any of the stakeholders with regard to the Bill. He asked the Department of Public Enterprises to state whether they had looked at the Forum's licencing and what was their strategy.

The Chairperson stated that the Department should communicate with the Forum.

The meeting was adjourned.


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