ICASA 2008/09 Annual Report briefing

NCOP Public Enterprises and Communication

27 October 2009
Chairperson: Ms M Temba (ANC)
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Meeting Summary

The Independent Communications Authority of South Africa (ICASA) briefed the Committee on the 2008/09 Annual Report.  The presentation covered the mandate, organisational structure, staff complement, the legislative and regulatory framework and the five strategic objectives of the organisation.

Amendments to the license fees framework were implemented during the year.  Details of the number and types of licenses issued and converted were provided.  Exemptions were granted to certain sectors, e.g. the security services.  The industry was subject to the Electronic Communications Act (ECA) but ICASA did not have the capacity to implement the approximately 20 regulations involved.  External consultants from the United Kingdom were employed, at a cost of R20 million to date.  Details of the various regulations were included in the presentation.

A total of 2155 complaints were processed by ICASA during the year. Road shows were held to increase awareness.  The presentation included statistics and graphs to illustrate the number of complaints per service provider. ICASA was involved in 13 cases of litigation concerning regulatory matters, two concerning labour matters and one concerning a non-regulatory matter.

A number of administrative business processes had been developed, including a register for licensees, security and access control, asset management and a record and document management system. Details of the enhancements to the information technology were provided.

ICASA’s total budget amounted to R247 million.  The organisation received an unqualified audit report from the Auditor-General but was required to implement and internal audit function, which had been achieved.

The Committee asked questions about ICASA’s role in defending the public against exorbitant fees, the types of complaints received, the responsibility for initiating negotiations with service providers, the penalties applicable when service providers failed to adhere to regulations, the litigation ICASA was involved in, the criteria applied in the granting of licenses, the progress made with digital migration, the East Coast cable, the assistance available to applicants for licenses, the under-representation of females at ICASA and the licensing of unreserved postal services.  Members pointed out certain errors in the Annual Report and suggested that the Committee met with ICASA in the near future to hold further discussions.

Meeting report

Briefing by the Independent Communications Authority of South Africa (ICASA)
Ms Brenda Ntombela and Dr Marcia Socikwa, Councillors, ICASA, briefed the Committee on the 2008/09 Annual Report of the Independent Communications Authority of South Africa (see attached document).

The briefing covered the mandate, legislative and regulatory framework and organisational structure of ICASA.  The five strategic goals were liberalisation, regulatory certainty, service delivery, strategic alignment and business intelligence. The organisation employed 335 persons, of whom 57% were males, 84 were previously disadvantaged persons and 6 were persons with disabilities.  Although most vacant posts had been filled, the loss of personnel to the industry remained a challenge. 

Adjustments had been made to the license fees framework during the year under review.  A breakdown of the number and types of licenses converted and issued was included in the presentation. The major players in the communications industry were expected to pay five percent of their revenue but Telkom was dissatisfied with the additional fees.  License exemptions were granted to certain sectors, for example the security services.

The communications industry was subject to the Electronic Communications Act (ECA) but ICASA did not have the capacity to implement the approximately 20 regulations involved.  ICASA had employed external consultants from the United Kingdom (UK) at a cost of R20 million to date. The regulations included Digital Migration, the National Elections Regulations, the Draft Advertising Regulations, the Engineering and Technology Regulations, the End-user Subscriber Service Charter, Regulations on Conveyance of Mail and the 112 emergency number. Trial licenses were issued for Digital Migration and the registration of courier companies was completed. The Interconnection Regulations dealt with bilateral agreements concerning payments between networks and 36 agreements had been filed. The manner in which the ECA was structured inhibited ICASA from dictating how the agreements should be implemented.

2155 complaints were processed during the year. Road shows were held to increase awareness.  The presentation included statistics and graphs to illustrate the number of complaints per service provider. The majority of the complaints were levied against Vodacom, Cell C, MTN and Telkom.  ICASA was involved in 13 cases of litigation concerning regulatory matters, two concerning labour matters and one concerning a non-regulatory matter.

A number of administrative business processes had been developed, including a register for licensees, security and access control, asset management and a record and document management system. Details of the enhancements to the information technology were provided.

ICASA’s total budget amounted to R247 million.  The organisation received an unqualified audit report from the Auditor-General but was required to implement and internal audit function, which had been achieved.

Discussion
The Chairperson requested that copies of the presentation were forwarded to the Committee. As a Select Committee, more Provincial information was required.

Mr M Jacobs (ANC) requested further details of the litigation that ICASA had been involved in.

Dr Socikwa replied that it might take years before there was an outcome for a court case.  Details of the litigation that ICASA was involved in were provided on pages 40 and 41 of the Annual Report. In the case of Vodacom vs ICASA, ICASA had lost. In the case of Altech Autopage vs ICASA, the Minister of Communications and others, ICASA was one of the respondents and the case was won by Altech Autopage. She undertook to provide the Committee with a detailed report on the court cases that ICASA was involved in.

Mr Jacobs asked what role was played by ICASA (as a public institution) in defending the public against the exorbitant charges levied by cell phone operators and what was being done about keeping the public informed.

Ms Ntombela replied that ICASA’s main role as the regulator was to protect the public as required by the ICASA Act. ICASA had set up a Consumer Affairs Division in accordance with Chapter 12 of the Electronic Communications Act (ECA).

Mr Z Mlenzana (COPE) observed that there were discrepancies between the presentation and the Annual Report. For example, the presentation stated that there were 335 people employed, but according to the Annual Report there were 536 employees.

Ms Ntombela advised that page 50 of the Annual Report indicated the total number of staff, which added up to 335.

Mr Mlenzana said that inter-connection fees had a bearing on the public and asked who was responsible for initiating negotiations with the service providers. He wondered if it was correct for the Committee to engage with the service providers, or whether ICASA should be urged to initiate these negotiations.

Dr Socikwa explained that an analysis of Chapter 10 of the ECA had indicated that it would take some time to implement. The target date of June 2010 was set, by which time a cost-basis regulation would be completed. In the interim, ICASA had started consultations with the operators. Initially, ICASA was flexible with the operators in order to try to find a viable solution in the interim.  ICASA believed that the major operators were concerned about the inter-connection fee of R1.25 that had been mooted, but soon realised that consensus on a mutually-agreed charge could not be reached that satisfied the ‘big three’ operators i.e. Cell C, MTN and Vodacom as well as the smaller operators. On 23 October 2009, it was proposed that the fee was reduced to 78 cents, but this was rejected by the smaller operators who felt that the inter-connection wholesale price should be reduced accordingly. Negotiations were suspended because it became clear that the main players refused to reduce prices and ICASA was currently focussing on the implementation of Chapter 10, which was expected to be finalised between March and June 2010.  She pointed out that ICASA had to proceed with extreme caution in order to avoid litigation.

Mr Mlenzana admitted that he was not familiar with the ECA and asked if it was possible for ICASA to regulate both the inter-connection fees between service providers and the charges payable by the public, thereby putting a cap on the maximum amount that the public could be charged by the operators.

Dr Socikwa explained that ICASA was limited to applying the process under Chapter 10 in order to control the inter-connection price.  Chapter 10 set out a labyrinth of measures, which ICASA needed to follow step-by-step before the cost figure was reached. The authority to determine the cost figure was granted to ICASA in Chapter 10.

Mr R Tau (ANC) asked how the interests of the poor and the working classes could best be defended. He said that the country operated in a capitalist environment and if the system allowed capitalism free reign, then it would draw as much as it could from the people. The sole objective of companies was to maximise profits. State institutions were needed that would rise above this objective and discipline capitalist companies. Institutions such as ICASA needed to play this role, whilst taking into account the Constitutional and legislative framework it had to work in.  The Consumer Affairs Division was of great interest but insufficient information was provided about the types of complaints that were dealt with. For example, billing accounted for more than 20 percent of complaints but complaints about billing needed to be analysed in more detail. Other types of complaints needed to be explained as Members were unfamiliar with the terminology, for example ’virtual airtime contracts’. According to the presentation, the majority of the complaints were laid against Cell C, Vodacom and Telkom. Cell C had always presented itself as the most caring service provider, looking after the interests of the poor. However, the information provided indicated that Cell C had received 19% of all complaints. He hoped that the complaints against Cell C were not about billing or there would be a problem over the manner in which Cell C had presented itself.

Ms Ntombela said that the handling of complaints fell under the regulations of the end-user and subscriber service charter. In the first instance, the complainant had to lodge a complaint with the service provider. If there was no satisfactory outcome after 14 days, the complaint could be escalated to ICASA. A further 14 days were allowed for ICASA to investigate what the cause of the complaint was and what action had been taken by the operator. If there was still no positive outcome, the matter was referred to the Complaints and Compliance Committee (CCC) and the operator would be penalised if a regulation had been breached. In general, complaints about billing arose when the client was billed by the operator for services that were unknown to them. The main complaint was when a person decided to change from one service provider to another. For example, where a 12 month contract was signed with one service provider and the client decided to change to another service provider before the end of the 12 month period, the client would in most cases be charged for the remainder of the term of the contract. Another common complaint was that the service provider was billing for a rental item (e.g. for a fixed line) when the client that the cost for the item was a once-off amount.  Certain service providers levied a charge for the list of calls made by the client included in the account statement.

Mr Tau wanted to know what action was taken against service providers who essentially defrauded their clients by charging for hidden costs.

Ms Ntombela replied that all regulations passed by ICASA included a section on penalties for breach of the regulation. For example, if a service provider failed to provide a client the information required, a penalty would be applicable in terms of the code of conduct for the type of service provided. Penalties were in the form of fines payable by the service provider concerned.

Mr Tau remarked that the education of the public was not the sole responsibility of ICASA and the Committee needed to understand the problems in order to provide support for ICASA.

Ms Ntombela confirmed that ICASA undertook public education, in particular on the rights of the public in term of access to services and the manner in which licenses needed to be applied for. Awareness was raised on ICASA’s publications of the regulations as this aspect was still relatively unknown by the general public. The public was also educated on how to verify the compliance of service providers and was invited to attend the open days hosted by ICASA. The Consumer Affairs report included an overview of all the public education and awareness campaigns undertaken by ICASA.

Mr Jacobs asked if Telkom was a private company or a State-owned entity.

Dr Socikwa informed Mr Jacobs that Telkom was not a State-owned entity.

Mr Jacobs asked if the licenses issued to television or radio stations were limited.  He felt that operators would exploit the public where they could when there was too much competition.

Dr Socikwa replied that every applicant for a license had to provide a roll-out plan that allowed ICASA to know which companies were involved in the service concerned and where they were situated. He applicant provided commitments on how the infrastructure plans would be rolled out, the time frames involved and the business structure. A license was a valuable asset and it was critical for ICASA to have this information and to ensure that the license would not be abused. The information provided to ICASA allowed for a better monitoring capability and gave a better understanding of the rural and urban spread of the operators’ networks, which allowed ICASA to control the licensing of new applicants in specific areas.

Ms Ntombela said that the licensing process and procedure provided control over the granting of licenses to organisations.  Applicants had to comply with a number of conditions before a license is granted. There were differences between licenses issued for community use and for commercial use. ICASA took into consideration to what extent the community had access to the license.  Invitations to apply for licenses were issued quarterly, in accordance with the ECA, which were used as a measure to control the number of license holders in the public sphere. People were educated on the procedure to be followed when applying for a community license and were encouraged to submit applications for these services.

Mr Jacobs asked what penalties were applicable if companies were found to have colluded on price-fixing.

Dr Socikwa replied that Chapter 10 contained provisions on the action that could be taken by the Regulator to discourage anti-competitive behaviour. The Competition Commission was involved once anti-competitive behaviour had already occurred. The Competition Commission determined the applicable penalty in accordance with the legislation applicable to the Competition Commission. ICASA engaged with the Competition Commission in cases of dual jurisdiction.

Mr H Groenewald (DA) asked what progress had been made with the digital migration process and if South Africa was ready to implement this technology throughout the country or only in certain regions. He noted that there would be subsidised decoders available to clients and wanted to know what the cost of the subsidies were to the State. He wanted to know what the consumer would pay for the decoder and if the decoders were manufactured in South Africa.

Ms Ntombela replied that comments had been received on the digital migration regulations.  E-TV had complained about the process, specifically about the frequency plan and about the digital migration itself. The switch-on date was set for 1 November 2009 but this target would not be reached. ICASA had redrawn portions of the regulations, which were sent out and public hearings would be held over the following two days. It was hoped that after the public hearings, ICASA would be in a position to publish the final regulations. Set-up boxes (i.e. decoders) were handled at a policy level and were the responsibility of the Minister of Communications. ICASA, as the regulator, was only responsible for the publication of the regulations. Digital migration was an issue of interest to the public and the process should be completed before the 2010 FIFA Soccer World Cup.

Mr Groenewald asked for clarity on the cable on the East Coast, specifically what the cost of the cable would be and what South Africa’s involvement in the project was.

Dr Socikwa said that the excitement around the East Coast cable had to do with the broadband that it would introduce. At the moment the country had a comparatively narrow ‘pipe’ through which all services had to be carried. The East Coast cable would widen this capability and hopefully would support the economic growth of the country.

Ms L Mabija (ANC) mentioned a group of shareholders who wanted to apply for a telecommunications license but had experienced difficulties in finding partners for the venture. ICASA expected them to submit a detailed plan and she asked what assistance was available to the group to obtain a license.

Dr Socikwa said that the issue of fronting in shareholder structures was a major concern in granting licenses. ICASA was aware of the challenges faced by previously disadvantaged persons to acquire funding from banks and to form joint ventures. In the past, ICASA had not been very lenient and there was a need to establish the Black Economic Empowerment (BEE) profiles of applicants for licenses. In terms of the legislation, entities were required to be at least 30 percent black-owned and ICASA needed to ensure that this was indeed the case to avert fronting. Financial experts were invited to scrutinise the shareholder structure of companies.

Mr Jacobs remarked that service providers colluded on determining process and did not consult the public on the matter.  He wondered who was responsible for protecting the rights of the consumer.

Dr Socikwa advised that draft regulations would be published after public hearings were held.  The process of publishing regulations was transparent and allowed for public participation.

The Chairperson noted that page 49 of the Annual Report indicated that 57% of the workforce was actually male, and not female as was indicated in the presentation. He remarked that females were under-represented at the managerial level.

Dr Socikwa said that female representation at managerial level was a sore point and there were only three women in a council of ten members. The issue had been raised as a concern with the general management. Training had been opened up more widely for women and it had been indicated at council level that there was a need to develop a programme in the new financial year that focussed on the development of women in the management structure. The sector was fairly new and there needed to be mechanisms of attracting more women to it.

Ms Ntombela said that there was a mistake in the Annual Report and confirmed that 57% of the staff were males. She apologised to the Committee for the error.

The Chairperson said that numerous copies of the Annual Report had been disseminated with the incorrect information and this was extremely problematic. Page 49 said that there were 57% female employees, but page 50 said that the percentage was for males.

Ms Ntombela undertook to correct the error without delay.

The Chairperson noted on page 57 of the Annual Report that a merger between the Chris Hani and Vhembe district municipalities had not yet been finalised.  He asked when this would be completed and what the delay was.

Dr Socikwa said that the delay in the merger had to do with the reluctance on the part of both entities concerned to proceed with the merger. They were unhappy with the situation because they were concerned about shareholders and dividend matters and felt that there had not been sufficient consultation on the matter. The situation had to be reviewed as the consultation process might have been compromised and needed to be addressed before legislation was devised.

The Chairperson referred to the registration of new courier companies in the unreserved postal services mentioned on page 59 of the Annual Report. She asked if ICASA had conducted workshops to create awareness about the registration process for the provision of these postal services in KwaZulu-Natal only, or if other provinces had been invited to attend.

Ms Ntombela said that the Consumer Affairs Division had initiated certain projects in the unreserved postal services industry. Not all participants came from KwaZulu Natal and an analysis of the statistical data indicated that a number of these services had been registered in other provinces, for example Gauteng. There were approximately 300 courier companies registered with ICASA. The postal sector had been regulated by ICASA since 2006.

The Chairperson asked if ICASA had slots on radio stations in rural areas, where they could communicate to people in their own languages about ICASA and the benefits on offer.

Dr Socikwa explained that ICASA was responsible for the granting of licenses. Radio stations charged for advertisements and airtime. ICASA needed to be careful how these entities were used to advocate for the Authority and a fine balance had to be maintained. Use had been made of radio in the past when it had been necessary to explain regulations.

Ms Ntombela said that part of the license conditions required that each applicant needed to indicate what percentage of the different languages were going to be used in broadcasting to a specific area. ICASA was strict on this matter to ensure that communities were adequately serviced.

The Chairperson remarked that the Committee needed time to consider the Annual Report.

Mr Mlenzana commented that the more the Annual Report was studied, the more questions arose. He appealed to the Chairperson that ICASA was invited to return during the current financial year to allow for further engagement with the Committee.

The Chairperson agreed to Mr Mlenzana’s suggestion.

Ms Ntombela thanked the Committee for the input received and advised that ICASA was normally invited to present its strategic plan for the forthcoming financial year to the Committee.

The meeting was adjourned.


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