Interconnection Rates: Progress Report by ICASA

Meeting report

Opening Statement
The Chairperson welcomed the Independent Communications Authority of South Africa (ICASA), the Members and the media to the meeting. He stated that 2010 was going to be an important year. The Committee held its strategy workshop a few days previously and created an elaborate and intensive work programme.

ICASA: Progress Report on Investigations into Interconnection Rates
Mr Paris Mashile, Chairperson: ICASA, stated that he told the Committee at their last meeting that ICASA was guided by Chapter 10 (Section 67) of the Electronic Communications Act (ECA). Today’s meeting was arranged so ICASA could inform Parliament about what they have been doing since they had last met. ICASA had contracted a consulting firm to conduct research into the Wholesale Call Termination (WCT) Market. This information would be used in the drafting of the regulations for termination rates.

In October 2009, ICASA issued a comprehensive WCT questionnaire. The objective was to collect information to evaluate the effectiveness of competition as part of a Chapter 10 market review process. It also assisted ICASA in getting an understanding of the status of competition issues in the wholesale market.

ICASA was in the process of drafting a position paper on WCT as well as one on Termination Rate Regulations. Public hearings would be held in May 2010 in order to obtain input from stakeholders and to give them the opportunity to voice their opinions about the important matter of competition. The final regulations would be drawn up before the end of June 2010.

ICASA: Reasons for Rejection Mobile Operators’ Interconnection Rates Amendment Agreement
Ms Nomvuyiso Batyi, Councillor: ICASA, stated that ICASA had received Mobile Termination Rate (MTR) filings from Vodacom, MTN and Cell C on 25 January 2010. The agreement sought to bind ICASA to accept the filing without question, and not to review the MTR until after 1 March 2013. This was illegal as it fettered ICASA’s powers. Also, ICASA could not be party to an interconnection agreement. The interconnection agreement sought to impose obligations on ICASA.

If operators amended rates in their existing interconnection agreements, without imposing conditions on ICASA, then the Authority would accept the amendments. ICASA would not be distracted from its intention to complete the Chapter 10 process, and was committed to completing the process as well as regulating Wholesale Termination Rates (WTR).

On 9 February 2010, the licencees submitted their interconnection amendment agreement and it was approved by ICASA.

Discussion
Ms P De Lille (ID) asked if they would just be dealing with issues of interconnection rates or if the matter of retail prices was also included.

Mr Thabo Makhakhe, Councillor: ICASA, replied that ICASA thought, initially, that they should focus on WCT rates. ICASA noticed that globally, operators would take it upon themselves “to pass through the reductions right through to retail. He noted that Telkom had undertaken to “pass through” the reductions that they would enjoy from the other operators. ICASA expected this to happen; however, they did not expect that operators would do this automatically. ICASA recognised that there was a relationship between wholesale and retail aspects of the rates. They had to tackle the one, wholesale, in order to get to the retail aspect of the matter. ICASA would be watching closely to see that WCT rates would be passed through to the retail price.

Mr Mashile added that when discussing wholesale issues, it followed that retail issues would be discussed as well. If the interconnection rate increased, it would mean that the consumer would have to pay more. Therefore, it automatically meant that if rates decreased, the consumer would pay less.

Ms Kilian stated that it was a matter of record that the Committee fully engaged in the process and that Members understood the role that they had to play. Members did not want to interfere; they just wanted to “jump-start” the process to put some light on issues that affected call rates. Interconnection problems were one of these issues. She asked what the other elements were that would need critical regulations as the focus was largely on interconnection; however, there were other elements that were having a major impact on call rates and increasing competition. In terms of the agreement received by the mobile operators, was there a misunderstanding when the different operators met with the Minister or did the Minister agree with the firm condition that ICASA was not allowed to interfere in their activities for the next three years? She wanted to know if this was part of the agreement that was reached with the Minister and if ICASA had had to inform them at that time that they could not support the agreement. She noted that there was uncertainty regarding the details of the agreement that was reached with the Minister and wondered if the stipulation that ICASA could not review the MTR until after March 2013 was added after operators met with the Minister.

Mr Mashile replied that there were other elements that could generate competition. One option was Local-loop Unbundling where different operators would provide services to customers by renting from one network such as Telkom. There was also a thing called “facilities leasing”, which ICASA would be dealing with during the year. As there was more competition than before when Telkom held a monopoly position, people could now move from one operator to another depending on how expensive it was. ICASA thought that this was the best kind of competition as it was more reliable in terms of bringing prices down. A regulator was only a proxy for competition; where there was no competition the regulator would step in. Competition was a key factor in regenerating the market and ensuring that consumers benefitted from it at the end of the day.

Mr Mashile stated that there was no agreement from the Minister regarding on the operators’ agreement that proposed that ICASA could not review the MTR until March 2013. The operator merely submitted their findings to the Minister in terms of the agreement they had amongst themselves. This was how ICASA saw the matter.

Mr N van den Berg (DA) noted the pressure that ICASA was put under when MTN tried to force them into a corner. He wondered if MTN tried to do this because of the perception the public had that ICASA was a bit “slow”. He was glad that ICASA showed that it was a parastatal “with teeth”. He urged ICASA to proceed with the stance they had taken. People were looking to ICASA to bring down prices.

Mr Mashile stated that the operators had said that they would lose a lot of money. However, if they operated efficiently, there was no need to complain that ICASA was responsible for the destruction of jobs and money. Even though they would lose some money they would gain a reduction in licence fees. They also had access to spectrum, which they did not pay for. Spectrum was an important asset that belonged to the public. 

Ms S Tsebe (ANC) thanked ICASA for rejecting the agreement proposed by the mobile operators as it was the right thing to do for consumers. She asked about the extent to which the interconnection agreement affected the consumers. She wanted ICASA to assure the Committee that, come June, there would not be any more discussions about the agreement. The Committee wanted ICASA to focus on the implementation of the agreement instead. She asked what had happened to using “moral suasion”. The last time ICASA addressed the Committee they were very eager to use that tactic.

Councillor Makhakhe stated that the first question related to the question posed earlier by Ms De Lille. A reduction in WCT rates would have a positive effect on retail costs. One expected that the operators would pass that benefit onto the retailers. However, there was no guarantee that they would do this. As a result, ICASA would be watching the situation very closely. The regulations would be published in June. He warned that there were risks in all types of projects and the aim was to mitigate these risks. ICASA would try to identify these risks and mitigate them with the few resources that they had.

Mr Mashile stated that he had thought that it was going to be a while before ICASA established the true value of interconnection. ICASA had thought it needed an interim period in which to “cajole” the operators to come on board; however, it had reached an impasse with them. The “moral suasion” tactic showed that operators would come on board when they wanted to; however, they could not be forced to. ICASA decided to abandon the tactic, as they felt that the situation was too political and was not the arena in which they should be involved. Chairperson Vadi had encouraged ICASA to focus on regulatory processes instead. The Minister then stepped in and managed to resolve the situation. It could be said that the Minister succeeded in using “moral suasion” while ICASA did not.

Ms De Lille stated that research conducted by the Department of Communication (DoC) showed that the “Pay as You Go” concept was the same for the three mobile operators. She speculated that there could be possible collusion between the three. The Competition Commission was in the process of investigating the matter. She advised that ICASA “take the horse to the water” concerning the difference between contract rates and “Pay as You Go” rates. She hoped that ICASA would start this process soon; however, she was uncertain that operators would cooperate easily. She noted that the draft regulations would be released at the end of March and wondered if ICASA would be monitoring this process. She also wanted ICASA to monitor the billing system of the operators to ensure that some of the benefits would be passed onto the consumer. She asked how this would be monitored. She took the opportunity to express her disappointment with the mobile operators for trying to include the condition that ICASA could not review the MTR until after 1 March 2013. She was certain that their legal departments would have advised them that what they were trying to do was illegal and that everyone was equal before the law. They lived in a country that respected the rule of law and this meant that nobody was above the law. She stated that Members expected operators to be honest in their engagements with the Committee and ICASA. When operators engaged with the Committee, they told Members that they had complied with 3G licence obligations and conditions. When the Minister was asked if they had complied, he said that they had not. Operators needed to respect Parliament’s oversight role.

Mr Mashile stated that Ms De Lille was right about ICASA needing to focus on “Pay as You Go” rates as they were quite high. It was usually the poor that used the “Pay as You Go” option. People always wondered why those using the contract option had certain benefits and rates. Operators often argued that this was because it was not guaranteed money.

Mr Kholwane appreciated the work done by ICASA; however, the agreement continued to “perpetuate”. The privileged continued to benefit at the expense of the poor. The poor were not benefiting from the Interconnection Agreement. The reduction would happen during business hours, which meant that those running businesses would benefit more. The cost of communication for the poor still remained the same; there was no reduction for them. He understood that the whole process would be finalised in June, but some sources were saying that it was almost impossible to complete the process by that time. Section 67 of the ECA laid out steps for determining the proper competitive measures to correct market failure. There was an indication that ICASA may not have complied with these sections. He asked ICASA to comment on this.

Mr Mashile noted that one of the concerns raised by operators was about guidelines - how ICASA would handle the process and the steps they would be taking. He assured the Committee that ICASA had drafted these guidelines and wanted to publish them by early March. ICASA tried to work according to the ECA and Chapter 10 in terms of steps to be followed, requirements, and procedures and processes. The work that was done in terms of the Telecommunications Act formed the basis for what ICASA was doing now. ICASA examined the interconnection markets and determined that it was not competitive. There was no alternative operator that people could turn to and this meant that prices could be increased exponentially. Interconnection was not competitive because all the operators agreed on what the charges would be. This could be called “legal collusion”. There was also a phenomenon known as “cross elasticity”. Big market players such as Vodacom could offer people freebies as opposed to small market players. People believe that they are better off with the bigger players because of these benefits. This was an issue that ICASA needed to deal with because it was not competitive. There were agreements between big operators to continually increase the price. This was why the Regulator needed to intervene. ICASA would do what they conceived to be the right thing.

The Chairperson noted that ICASA would be drawing up draft regulations in March, having public hearings in May and finalising regulations in June. Section 67(4)(a) of the ECA stated that ICASA had to define and identify the market. Section 67(4)(b) stated that ICASA had to determine the effectiveness of competition in the defined market using only methodology that was disclosed. He asked if the methodology would be included in the draft regulations. Section 67(4)(c) said that ICASA had to determine the appropriate pro-competitive measures that they wanted to institute if there was a market failure. He wondered if the regulations drafted by ICASA would address this matter. Section 67(4)(d) said that ICASA had to declare licencees to have significant market power. He wanted to know if ICASA would be doing this in March. He wanted to understand that every step was being followed. Section 67(4)(d) stated that ICASA had to declare pro-competitive measures that would be imposed on each licencee. ICASA had to set out a schedule for the revision of markets. He could not see the correlation between what ICASA proposed and Section 67(4) of the ECA. He asked ICASA to comment on this.

Mr Makhakhe stated that the last presentation ICASA had made to the Committee in September 2009 was quite elaborate in unpacking the Chapter 10 process. It had addressed all the issues that the Chairperson raised. The issue required the authority to draft evidence-based regulations that defined the relevant market, evaluate the effectiveness of the competition, declare whether specific licencees had significant market power, and then develop the remedies to correct market failure. Section 67(6) gave ICASA the options of remedies they could apply. ICASA was mindful of the need to be very circumspect in handling the whole process. They were also aware that litigation was a game the operators liked to play. ICASA wanted to do the best it could.

Mr Mashile added that the relevant market had been defined and ICASA had already evaluated the effectiveness of competition in the market. This led ICASA to declare that specific licencees had significant market power. They were looking at remedies to correct the market failure. All these factors were taken in to consideration. ICASA had not missed a step.

Ms Kilian stated that the mere fact that the mobile operators proposed the type of agreement that they did, showed that there were “mega bucks” at stake. Members and the public had to understand that business did not just let go of profit; they would hold on to it as long as possible. Therefore, it was important that ICASA follow the steps laid out in the ECA properly. She wanted assurance that, in addition to the people who were assisting with Section 67, ICASA had knowledgeable legal advisors. It was important for the operators to know that ICASA had the best possible legal assistance to help them overcome any challenges put forward by the operators.

Mr Mashile agreed. It was all a question of strategy and tactics. Private power seemed to be more powerful than political power.

Adv J De Lange (ANC) stated that he liked the new confident and assertive ICASA. He was happy to see that it had found its “statutory backbone”. The major mobile operators seemed to be intransigent, dishonest and greedy. When he first saw the agreement, he thought it was a joke as he did not think that any entity would try to form an agreement where they would withhold a statutory body from performing its duties. If people with so much money and power such as the big mobile operators wanted to behave so dishonestly and reprehensibly, then the Committee had to “call a spade a spade”. It was unforgivable behavior and they would hear from the Committee. The proposed agreement was disgusting and despicable in terms of legal procedure. Clearly, their lawyers must have colluded in this process. The Committee had to look at whether they wanted to raise this issue with the Bar Council and law associations. He understood that ICASA had to be diplomatic; however, he did not. He though it was important to receive documents from ICASA that set out the steps they would take to achieve whatever they aimed to achieve; specifically in terms of the interconnection rates. He suggested that ICASA work more systematically and concretely. He noted that the presentation stated that ICASA had approved the amended agreement proposed by the mobile operators. If he had to give ICASA legal advice, he would have told them not to approve it. If they were still busy completing Chapter 10 processes, they should not have approved the agreement, particularly one that could not be trusted.

Mr Mashile stated that Section 39 looked at the filing of interconnection agreements. There were regulations that related just to filing. If the agreement did not comply with the regulations, then ICASA would send them back so they could be corrected. He noted the suggestion that ICASA had to submit a document to the Committee informing Members of the activities undertaken by ICASA. These activities would be stipulated in the ICASA’s strategic plan for the new financial year. It would include an appendix that would detail the exact steps taken by ICASA.

The Chairperson stated that the Committee required a document that set out the steps taken by ICASA regarding the interconnection agreement and how they would manage the agreement. He assumed that these were part of the administrative processes that should be open and transparent so that the Committee and the public could understand exactly what ICASA would be doing. It did not matter if ICASA surpassed the stipulated June deadline, as long as they complied with every process set out in the ECA. The Committee wanted to understand what the processes were.

Councillor Makhakhe stated that ICASA would provide a guideline of all the processes they would be following.

The Chairperson clarified that the Committee just needed a detail of account of the Section 67 processes that ICASA would be following.

Ms Tsebe stated that she was not comfortable with the proposal made by Adv De Lange and the Chairperson. The Committee wanted ICASA to be transparent; however, there were certain tactics and strategies that were going to be used that seemed private. There were operators who would prepare to defend themselves against these strategies.

Mr Kholwane understood that the Committee wanted ICASA to be transparent; however, there was a question of whether they should be doing it in the public arena.

Adv De Lange stated that the matter could be discussed in a study group. ICASA mentioned strategies and tactics; the Committee did not. The Committee wanted the process to be completed as the law prescribed. This was not a private matter as it had to be transparent.

The Chairperson noted that there were no further questions on this particular issue.

ICASA: Relationship between Council and Executive Management
Mr Mashile stated that the issue of relationship building was really a matter between ICASA and the Committee. He wondered if the Chairperson could close the Committee for this report. ICASA did not want to “hang their dirty laundry” in public and they did not want anybody to take advantage of what could be seen as differences between councillors and executive management.

Ms L Mazibuko (DA) stated that although ICASA was accountable to the Committee, the Committee Members were public representatives and were there on behalf of the public. She did not think it was right to exclude the public from this section of the meeting.

Ms Tsebe supported ICASA’s proposal, saying the issue was between the councillors and the executive management.

Ms Kilian suggested that the Committee and ICASA deal with every matter that was on the agenda except the internal managerial problems. It was not necessary to expose those weaknesses within ICASA to other entities.

Ms De Lille stated that it seemed that ICASA had taken some corrective actions. The document that was handed out spoke to these actions. If ICASA could remain within the framework of these processes and not talk to managerial issues, then it should be fine to continue with the presentation. The Committee did not want to go back to the issues; they had already discussed the problems behind closed doors. The Committee wanted to move forward.  

The Chairperson stated that there was already the problem that the document had been handed out and was in the public domain. He wondered if there would be any harm if ICASA confined their presentation to what was contained in the document.

Mr van der Berg stated that ICASA made a presentation on 18 June 2009 and spoke about “functional effectiveness”. This was what ICASA wanted to do now. ICASA was there to make the people of South Africa’s lives a little easier. South Africans wanted to know what was happening with ICASA that was making the organisation more functional.

Ms Tsebe stated that there were no guarantees that the Committee would stay confined to the document. The Committee might just say something that ICASA did not want the media to hear.

Mr Kholwane stated that the ICASA had to consider that the presentation was already in the public domain. It should be fine for the Committee to address the “shallow” information in the presentation. The Committee could interject if a Member went in to detail about any private matters. He stated that there was a process that entities had to follow if they wanted to have a closed meeting; they had to submit an application before the meeting.

Adv De Lange stated that the answer saying that the meeting could not be closed because the Committee was accountable to the public was not acceptable. The rules of Parliament were clear; meetings could be closed on certain occasions. If ICASA had followed the process of applying for a closed meeting, the decision would have been easier for the Members to make. The weaknesses, divisions and problems experienced by ICASA could have a great impact on its efficacy going forward. Members should not ask any questions that would impact on this. However, if they wanted to have a thorough discussion with ICASA, Members had to think about having the meeting behind closed doors. He suggested that the Committee have the presentation and not ask any questions that would expose weaknesses in ICASA.

The Chairperson stated that the Committee would have an open meeting and if there was anything that ICASA wanted to discuss privately, they would hold another closed meeting.

Briefing by ICASA
Mr Mashile reminded Members that ICASA was told to enhance its organisational effectiveness and efficiency. ICASA engaged a consultant to lead a Relationship Building Exercise over three days. The consultant used a “Relationship by Objectives (RBO)” approach that was designed to address process issues. ICASA engaged with external experts to assess organisational structure issues.

Twenty-five action items were identified in the RBO exercise. Each action item had a responsible party and a deadline for implementation. Some of the action items included: drafting a comprehensive strategy, holding bi-annual sessions with stakeholders, addressing capacity challenges and holding staff meetings (see document for all 25 action items).

During a strategic planning session it was decided that both the council and the executive management would prioritise current and future projects.

Committee Programme
The Chairperson stated that there was one problem that the Committee encountered when drawing up the programme. The Money Bills Amendment Procedure and Related Matters Act that was approved by Parliament would be piloted this year. This meant that Committees would only be able to start with strategic plans and budget presentations after the Fiscal Framework had been debated and adopted by Parliament. This would take place on 2 March 2010. Therefore, the Committee would not be able to call on any entities to present their strategic plans and budget presentations before then. The strategic plans and budget presentations had to be completed at the end of March as the budget votes were scheduled for April. This was a very congested programme and there was not enough room to maneuver given the tight time frames.

Ms J Kilian (COPE) noted that there were many meetings “spilling” over from their allotted day of the week, Tuesday, to Wednesdays. Some Members would not be able to attend such meeting as they belonged to other Committees as well and would have to attend those meetings. It was impossible for some Members to attend Communication meetings on Tuesdays and Wednesdays. She noted that an oversight visit to Grabouw was scheduled for Thursday 25 February 2010. Thursday was political party

caucus day.

The Committee Secretary informed Members that the application for the oversight visit had not been approved because Committees were expected to conduct their business within Parliament during the week of the 23-27 February.

Mr S Kholwane (ANC) suggested that meetings start at 9am instead of 10am as there were times that meetings became “congested” and there was not enough time for discussion.

The Chairperson stated that the oversight visit would be deleted from the programme. He stated that Mr Kholwane’s suggestion would be considered; however, he was concerned that if he started a meeting that early, half the Members would not be present. He did not like that. The Chairperson asked for the programme to be adopted so that it could be revised and circulated to Members.

The First-Term Committee Programme was adopted.


The meeting was adjourned.