Independent Communications Authority of South Africa 2012 Strategic Plan; Committee Programme

Meeting report

The Chairperson noted the apologies of Mr G Schneemann (ANC), Ms R Morutoa (ANC), Ms Dinah Pule (Minister of Communications) and Ms Stella Ndabeni (Deputy Minister of Communications).

Strategic Plan and Budget of the Independent Communications Authority of South Africa (ICASA)
Dr Stephen Mncube, Chairperson of the ICASA Board introduced the delegates from ICASA.  He expressed appreciation for the attendance of Committee Members at the recent event hosted by ICASA at Bushbuckridge.  He presented the Chairperson’s Overview (see Part 1 of the attached briefing document).

The briefing covered the vision, mission and values of ICASA and included the current organogram of the organisation.  Eight strategic goals had been identified, i.e. transformation of the ICT sector; the provision of broadband services; the optimisation of the radio frequency spectrum; consumer protection and accessibility for persons with disabilities; Digital Terrestrial Television (DTT); legislative and regulatory compliance; the strengthening and modernisation of ICASA and the promotion of competition in the sector.  ICASA’s strategic goals were aligned with the strategic goals of the Department of Communications (DOC).

Mr Themba Dlamini, Chief Executive Officer, ICASA presented the CEO’s Overview (Part 2 of the briefing document).

The briefing included an overview of the key role and impact of ICASA; the revised priorities for 2012/13; the context and strategic direction; the progress made on the 2011/12 priorities; the key achievements during 2011/12; the key interventions planned for 2012/13; the ICASA and DOC imperatives and a situational analysis of the constraints and challenges faced by the Authority.

ICASA’s delivery agreement was linked to the National Outcome 6 and Outputs 1 and 5.  Details were provided of the delivery targets and commitments of the DOC and ICASA in order to achieve the National Outcomes and Outputs.  ICASA followed a programme-based approach.  The five programmes were Governance and Administration (Programme 1); Licensing and Compliance (Programme 2); Engineering and Technology (Programme 3); Markets and Competition (Programme 4) and Consumer Awareness (Programme 5).

The objectives for each strategic goal were summarised.  Seven major strategic risks were identified and the corresponding mitigation actions were indicated.  Details were provided of monitoring and evaluation activities to assess the performance in achieving the targets that had been set.

Mr Thamsanqa Ndadana, Acting Chief Financial Officer, ICASA presented the briefing on the financial performance, funding requirements, administered revenue; the findings of the Auditor-General and the Finance Turnaround Plan (Part 3 of the briefing document).

The briefing summarised the financial performance and funding requirements for the financial years 2010/11 to 2014/15.  The total budget for the licensing and compliance, markets and competition and engineering and technology projects for 2012/13 was R24.6 million.  The budget for operational expenditure totaled R317.5 million.  The DOC had allocated additional ring-fenced funding amounting to R132 million for projects and capital expenditure items over the Medium Term Expenditure Framework (MTEF) period 2012/13 to 2014/15.

The ICASA Act required the Authority to transfer regulatory revenue to the National Revenue Fund (NRF) within 30 days of receipt.  Administered revenue of R98.8 million was transferred in 2011/12.  The forecasted revenue for 2012/13 was R2.115 billion.  The implementation of the new spectrum fee regime was the reason for the 114% increase in administered revenue for the current fiscal year.

ICASA had received a qualified audit report from the Auditor-General for the 2010/11 fiscal year.  The qualification findings concerned administered revenue and fixed assets.  The action taken to address the findings included the development of a Finance Turnaround Plan (FTP).  The briefing included a progress report on the implementation of the FTP.  A new CFO was appointed with effect from 2 May 2012.

Mr Dlamini presented the concluding remarks.

Discussion
The Chairperson asked for clarity on the purpose of the FTP.

Mr Dlamini explained that ICASA had developed a two-year turnaround plan to address the findings of the Auditor-General.  The FTP was part of the broader turnaround plan.  The plan included specific interventions that had to be implemented to address the audit findings.  ICASA hoped that the forthcoming meeting with the Auditor-General to discuss the practice not would avert permanent qualifications concerning the accuracy of the license fees levied by ICASA in future.  Additional information was included in a management letter, which could be made available to the Committee if required.

Ms M Shinn (DA) referred to the ruling by the South Gauteng High Court in 2011 that required ICASA to investigate the allegations of political interference at the South African Broadcasting Corporation (SABC) and asked for feedback on what progress had been made.  DTT would result in additional spectrum becoming available.  She understood that the spectrum available was in small blocks, which was of little commercial benefit.  She asked if ICASA was developing a “use it or lose it” policy to address the issue of licensees failing to utilise the spectrum allocated to them.  She asked what action was taken by ICASA to reduce the cost of cellular phone services in South Africa, which was the highest in the world.  A recent study indicated that South Africans only received 74% of the broadband services they were paying for.  She asked what action was being taken to increase the speed of broadband access.  She wanted to know what consultation had taken place on Local Loop Unbundling (LLU).  She understood that much of the copper cabling used for the last mile had been stolen.  It was estimated that copper cabling valued at R2 billion was stolen during 2011.  She noted that ICASA would be transferring R2.1 billion administered revenue to the NRF but the organisation had to be self-sustaining.  She asked if ICASA was discussing the efficacy of the administrative revenue process with the National Treasury.

Mr C Kekana (ANC) asked for more clarity on the promotion of access to communication services to persons with disabilities.  The Committee was aware that many community radio stations could not afford the license fees levied by ICASA.  The same license fees were levied for community radio stations and for commercial radio stations.  He asked if ICASA had considered making use of other under-utilised buildings owned by government to resolve its problems with inadequate premises.

Mr B Steyn (DA) noted that one third of senior management positions were filled by persons in an acting capacity.  A new CFO had been appointed but he wanted to know what action had been taken to fill the other vacant senior management positions.  He asked if the review of the radio frequency plan in preparation for digital migration was under way.  It was not clear what role was played by ICASA to promote competition in the sector.  He asked for an explanation of how the cost savings of R2 million per annum derived from moving to the proposed new head office building was determined.  He noted that R20 million of the R40 million requested for the new building had been made available.  He asked if the funding provided had been utilised.  He asked if ICASA had established the current level of compliance by licensees.  This had to be known in order to set improvement targets and monitor performance.  It would appear that ICASA was not currently effective in collecting license fees.  The process of collecting regulatory revenue, transferring the funds to the NRF and subsequently getting funds back from the National Treasury was onerous.  He asked if a better system for administrative revenue could be developed.

Mr Steyn asked why no budget provision was made for project costs in certain years.  There was no budget for three projects for 2011/12, 2012/13 and 2013/14 but there had been costs in 2010/11 and provision was made for expenditure in 2014/15.  The budget for administration cost of R13,000 in 2012/13 appear to be insignificant.  He asked for a more detailed breakdown of the budget, income and expenditure items and funding requirements as the information provided was not sufficient for the Committee to make a decision.  He was of the opinion that the estimated administrative revenue of R2.1 billion in 2012/13 was over-optimistic.  ICASA did not have a good track record for collecting license fee revenue.  The management letter concerning the finding of the Auditor-General would provide useful information to the Committee.  The progress reports provided indicated that many targets were not being met on time.

Ms F Muthambi (ANC) acknowledged the detailed briefing provided.  She asked what three projects had the highest priority.  With regard to LLU, the Committee was informed during previous briefings that ICASA was conducting a Regulatory Impact Assessment (RIA).  She asked what the cost of the RIA was, what impact it had on the target dates for LLU and how the results of the assessment would be incorporated in ICASA’s strategic plans.  She noted that ICASA had included the transformation of the sector as a strategic imperative but had failed to apply the principle to its Audit and Risk Committee.  She asked what the background, skills and qualifications of the new CFO were and why the person was selected for appointment above the other candidates for the post.  She asked if ICASA had a succession plan in place.  She asked what action was taken to prevent fruitless, wasteful and irregular expenditure.

The Chairperson noted that the strategic plan did not include a human resource plan.

Mr William Currie, Councillor, ICASA understood that the South Gauteng High Court ruling referred the matter to ICASA to adjudicate the matter afresh.

Mr Mpilo Ngxingo, Acting General Manager: Legal Services and CCC, ICASA added that the exchange of documents amongst the parties was almost complete.  Currently, the dates for the hearing were being determined.  The appointment of a chairperson for the committee dealing with the matter had resulted in a delay.

Mr Philomon Molefe, Acting General Manager: Engineering and Technology, ICASA explained that public hearings were held in 2009 on the licensing of the frequency spectrum.  The outcome of the hearings determined that a minimum allocation of 20 MHz was required to be commercially sustainable.  South Africa was a signatory to an agreement with the International Telecommunications Union (ITU) that a portion of the spectrum would be available to the ITU and for mobile communication purposes.  The radio frequency band plan would be review at the end of the current fiscal year.

Mr William Stucke, Councillor, ICASA advised that ICASA did not have a legislative instrument to directly implement a “use it or lose it” policy.  The new spectrum pricing structure implemented in 2012 would encourage licensees to consider returning unused spectrum to ICASA.  The spectrum pricing structure encouraged licensees to utilise the spectrum to broadcast to rural areas.  Effectively, the cost of a fixed point-to-point link had been significantly reduced from an average of R43,000 to R2,000.  ICASA was aware that certain licensees were allocated large sections for the purpose of providing national coverage but the allocated spectrum was not efficiently utilised.  ICASA anticipated that licensees would opt for returning unused spectrum for re-allocation rather than paying for it.

Mr Pieter Grootes, General Manager: Markets and Competition, ICASA explained that users of fixed line ADSL broadband services were likely to receive less than the maximum capacity provided by the service provider as the line was contested.  Mobile broadband connections were affected by the number of users making simultaneous use of the service.  Telkom had recently increased its entry level broadband service from 384 kilobits per second to 1 megabit per second.  In future, ICASA would be able to make more spectrum available for the provision of broadband services.

Mr Grootes advised that the LLU process had commenced.  The introduction of the IPConnect price regulations had already resulted in reduced costs to consumers and increased access caps offered by service providers.  The implementation of LLU followed a phased approach in order to mitigate the risks and ensure that the services provided were functional.  The next stage is the introduction of the Bitstream form of LLU in November 2012.  Further consultation would take place to ensure that Bitstream was operational by the target date.  Continued copper cable theft would compromise the ability to provide ICT services in certain areas of the country in future and stifle rural development.

With regard to the promotion of competition, Mr Grootes said that ICASA was required to conduct market studies to ensure that the prices charged by service providers fairly reflected the cost of the service.  Where prices were found to be too high, remedies had to be put in place.  An example was the introduction of regulations to reduce the call termination price from R1.25 to R0.40 by March 2013.  ICASA had commenced the overhaul of the electronic network services sector by initiating a comprehensive study of the value chain in order to determine where there were bottlenecks in service provision and barriers to entry for competitors.  The results of the study would indicate where ICASA could contribute to the development of the sector by appropriate regulations.  The removal of the requirement for substantial bank guarantees allowed smaller competitors to enter the market more easily.  More information was available in the Annual Performance Plan (Annexure D).

Mr Grootes said that ICASA had noted the ICT Africa research report.  The report would be discussed in public hearings scheduled for May 2012.  LLU was currently at a stage that required minimal intervention from ICASA.  Once Bitstream was implemented, any further LLU developments would require a detailed RIA.  ICASA had made provision in the budget for a cost/benefit study to ensure that the local content regulations reflected the lessons that had been learned.  Sentech was the dominant provider of services to community radio stations.  ICASA had assisted the community radio sector by negotiating a reduction of 65% in the tariff charged by Sentech.

Mr Dlamini explained that the revenue from license fees was expected to increase as more spectrum became available to new licensees.  New entrants would result in increased competition.  There was currently no formula that could be used to determine a percentage of revenue that could be retained by ICASA.  The DOC, ICASA and the National Treasury were currently considering a self-funding model for ICASA but the process was at an early stage.  The interventions for increasing access to persons with disabilities were listed in the performance plan.  More information was provided in the operational plan, which was available to the Committee.  ICASA could not comment on matters concerning the maintenance of government buildings and he suggested the Committee referred queries to the Department of Public Works.

Mr Dlamini acknowledged that ICASA’s senior management structure had been ‘top-heavy’.  A study of the mandate of the Regulator had been done and agreement had been reached on a new organisational structure.  The appointment of managers in an acting position allowed the organisation the necessary time to finalise the process without undue disruption.  The Committee would be briefed on the re-organisation of ICASA at a later date.  The new organisational structure would determine what human capital and resources would be required.  ICASA was in the process of aligning the skills required to the operational requirement.  Certain functions required highly specialised technical skill.  A phased approach was followed and consultations were taking place with existing personnel and the unions.  The re-organisation process had budgetary implications.

Mr Dlamini explained that the National Treasury had allocated an amount of R20 million in 2012 and the same amount in 2013 for the new head office premises.  ICASA had occupied rented premises for a number of years and rental cost had escalated over the years.  The intention was for ICASA to acquire its own head office building.  The current lease had to be extended because of delays in the Department of Public Works.  The matter was ongoing and the Committee would be kept informed of the progress being made.

Mr Ndadana referred Members to the Strategic Plan document, where the funding requirements for ICASA’s projects and operational programmes for the financial years 2010/11 to 2014/15 were summarised (page 37).  Additional information was provided on the allocation of the additional ring-fenced funding of R132 million allocated by the DOC.  The additional funding was included in the total allocation received from the DOC for the relevant financial periods.

Ms Muthambi was not satisfied with the response to her earlier questions concerning the LLU project.  She wanted to know at what stage the RIA would be conducted and what the cost of the assessment would be.

Mr Grootes explained that the RIA activity was included in the overall project.  ICASA would not proceed with further phases of the LLU project before a comprehensive electronic communication services (ECS) value-chain study was completed.  He referred Members to the Annual Performance Plan, where additional information was provided on the key outcomes and outputs (see page 19 – strategic objective 8.2).  The market review planned for 2013/14 would include the RIA.  The planned review of the local content regulations included a RIA as well (see page 10 – strategic objective 5.1).  The cost of this particular study was estimated at R3.5 million.  On average, the cost of a RIA ranged between R1.5 million to R3 million.  The cost of the assessment was included in the relevant budgeted project cost.

Mr Dlamini advised that the FTP was adopted in February.  An implementation plan was submitted and updated on a weekly basis.  He undertook to forward the management letter to the Chairperson of the Committee.

Mr Joseph Lebooa, Councillor, ICASA advised that two of the five external members of the Audit and Risk Committee were White.  The remaining seven internal members were all Black.  He disagreed with Ms Muthambi’s statement that ICASA had failed to apply the principles of transformation within the organisation.  He explained the process followed to recruit a new Chief Financial Officer (CFO).  Two candidates were eventually short-listed for appointment.  One candidate withdrew and the ICASA Council had approved the appointment of the remaining candidate.  She would take up the post on 2 May 2012.

Mr Dlamini referred Members to the Performance plan document, where details were provided of the promotion of competition, access to the spectrum, access to broadband, the numbering frameworks, new ICT technology and access for persons with disabilities

The Chairperson asked where the LLU project was covered.

Mr Stucke advised that the LLU project was included in the strategic objectives to increase broadband connectivity (see page 4 – objective 2.2).

Ms Muthambi found that the Performance Plan document was not very clear on the RIA that needed to be undertaken.  The Committee had tasked ICASA with implementing LLU, which should have been given a high priority in its own right rather than being one of the objectives of another strategic goal.

Mr Dlamini explained that LLU was one of the three key outputs of the broadband connectivity strategy.

The Chairperson asked when the recovery of the access line deficit would be implemented.

Mr Stucke replied that the access line deficit would be quantified before alternative funding sources for the deficit would be considered.  The Bitstream wholesale access product was the next step in the LLU process, which was targeted for July 2012.

The Chairperson understood that the access line deficit issue had to be addressed before the Bitstream phase.  He asked if ICASA had engaged with the incumbent operator as requested by the Committee.

Mr Stucke confirmed that extensive engagement with Telkom had taken place.  The Bitstream wholesale access product had been purchased and the operator would be allowed to use the product.

The Chairperson understood that the RIA would be undertaken after the Bitstream phase had been implemented.

Mr Stucke reiterated that the RIA was included in the value-chain study.  Any further unbundling activity would be subject to a cost-benefit analysis.  The target date for an RIA was 2015.

Ms Muthambi remarked that the LLU project appeared to be dealt with in phases rather as a single project in its own right.  She pointed out that LLU was considered to be a strategic priority in ICASA’s revised priorities for 2012/13 (see page 18 of the briefing document).

Mr Stucke responded that three flagship projects were identified but ICASA intended to address all nine strategic priorities.

Mr Dlamini referred Members to the strategic objective of introducing a comprehensive compliance and enforcement framework (see objective 6.1 - page 12 of the Performance Plan document).  Annual reports would be produced and studied.

Mr Steyn observed that the targets had not been clearly quantified.

The Chairperson noted than a sector analysis had not been done to provide a clear picture of the current status of the ICT sector.  He asked what data had informed the number of postal, ECN/S and broadcasting sample report targets.

Mr Sipho Tsotetsi, General Manager: Licensing and Compliance, ICASA advised that ICASA had data on the number of operational licensees and applicants.  He undertook to provide the information to the Committee.  An amount of R30 million had been made available for ICASA to acquire the necessary broadcasting monitoring equipment.

Mr Stucke added that ICASA applied an 80/20 principle and focused on the larger players in the market.  Many smaller licensees did not have the necessary resources and capacity to provide the information requested by ICASA.

Mr Steyn was of the opinion that ICASA did not have accurate data on the number of licensees and relied on the information provided in questionnaires to determine which licensees were operational.

Ms J Killian (COPE) agreed with Mr Steyn’s opinion.  She was aware of complaints regarding a lack of funding but there appeared to be a lack of systems in place as well.  She suggested that a performance assessment of ICASA was undertaken.  She felt that the target for postal compliance reports was too small.  No assessment of the sector had been done and there was no concept of the size of the sector.

The Chairperson queried the basis for increasing the estimated revenue from license fees when the exact number of licensees was unknown.

Mr Tsotetsi replied that ICASA had a database of licensees.  The problem was that licensees did not respond to requests from ICASA for confirmation of operational status.  The postal licensees included the South African Post Office (SAPO) and 30 courier companies (ECN/S).  The number of broadcasting organisations excluded community broadcasters.

Mr Dlamini undertook to provide the Committee with a detailed written response on the number of licensees.  The anticipated increase in administrative revenue was based on new licensees and was not based on revenue from existing licensees only.

Mr Steyn asked when the licenses for the 2.6 GHz and 800 MHz radio frequency spectrum bands would be issued.  He understood that revenue from these licenses were not included in the estimated administrative revenue of R2.1 billion.

Mr Dlamini advised that ICASA awaited the Ministerial directive.  Previously, more than one entity occupied multiple frequency bands (e.g. Telkom and government entities).  The spectrum would be freed up to allow more licensees and the new regulations had changed the fee structure.

The Chairperson asked for confirmation that ICASA would be checking all licensees for compliance.

Mr Tsotetsi listed the number of licensees for the different types of licenses issued by ICASA.  It was expected that there would be more than 45 broadcasting licensees in future.  The new monitoring equipment would allow ICASA to monitor all broadcasts on a national basis.

Ms Killian remarked that ICASA had no reason not to spend all the allocated funds.

Ms Shinn said that ICASA’s complaints about a lack of funding had been vague.  She asked how much funding was required, if ICASA had applied for additional funding and what other action had been taken to secure funding.  She asked for an explanation of the phrase “no strategic activity” used throughout the performance plan document.  There appeared to be discrepancies between the strategic plan and performance plan documents.  She asked which plan would be used to assess the performance of ICASA.

Mr Dlamini advised that ICASA had requested funding of R500 million.  The tabled budget was based on the funding approved by the National Treasury.  He explained that “no strategic activity” did not mean that no activity whatsoever took place.  The phrase was used to distinguish strategic activities from operational activities.  Both documents were important.  The plans adhered to the SMART criteria applied by the Auditor-General and had been tabled with the Speaker of Parliament as required.

The Chairperson said that documents could not be amended after they were tabled with the Speaker.  Any subsequent changes were subject to a formal process of retraction and re-issue.

Ms Muthambi was not satisfied with the response to her earlier question concerning the qualifications and selection of the new CFO.  She asked if ICASA had a succession plan in place.  She asked what progress had been made in addressing the findings of the Auditor-General on irregular expenditure.  She asked what action was taken to improve on the 55% success rate in collecting administrative revenue.  She asked if the CEO and executive management personnel had performance agreements and if the agreements included accountability for implementing the strategic plans.

Mr Steyn asked for further clarity on strategic objectives 2.1 and 3.1 and what the current status was.  He asked what the service provider to be appointed for the radio frequency migration plan would be doing.  He asked for more details of the current rental expenditure and anticipated savings when ICASA acquired its own head office building.

Mr Dlamini replied that the annual current rental for the premises occupied by ICASA was R33 million.  The market value was R15 million.  ICASA could have saved a substantial amount if the organisation had relocated.

Mr Stucke added that R40 million was required to prepare for relocation.  Once the move to new premises had been made, the organisation would be able to affect savings in accommodation costs.

Ms Shinn wanted to know who had approved the lease.  She asked if any investigation had been made into the matter.

Mr Dlamini explained that the current lease was entered into in 2000.  The lease had an 12% escalation clause and the rental had escalated to the current levels over the intervening years.  He confirmed that senior management personnel had performance agreements with the CEO.  His agreement was with the Council.  The first performance appraisal had been done and the second appraisal was due by the end of April 2012.  The spectrum licensees were known and ICASA was able to calculate an accurate estimate of future license fees.  ICASA had been requested to consider exempting community broadcasters from paying license fees.  However, ICASA was required by law to collect the fees.  The matter had been referred to the Minister for consideration.

Mr Lebooa advised that the new CFO was a certified Chartered Accountant.  Her Curriculum Vitae could be made available to the Committee if required.

Mr Kekana suggested that performance appraisals should be conducted at six-monthly intervals, rather than at the end of the financial year.

Mr Dlamini responded that performance appraisals were conducted half-annually.  His first appraisal had been delayed but it had been agreed with the Auditor-General that ICASA was in compliance with the requirements.  ICASA planned to embark on a roadshow to familiarise stakeholders with the strategic plan.

The Chairperson advised that the strategic plan submitted to the Speaker would be rated by a Parliamentary assessment panel.  He was not convinced by the response concerning the “no strategic activity” entries in the annual performance plan.  He asked how the Committee could assess the performance of the entity if no concrete targets were specified.

Mr Dlamini replied that the three documents submitted to the Committee were equally important.  A detailed operational plan could be made available to the Committee.

Mr Chairperson advised that the Committee accepted ICASA’s briefing document, with the exception of the section dealing with the findings of the Auditor-General.  The Committee expected the Regulator to undertake a diagnostic assessment of the ICT sector and consider the impact of its strategic plan on the sector.  The Committee accepted the budget presentation.  Further engagement with the DOC and the National Treasury on the matter of the new head office of ICASA was necessary.  The Committee could be apprised of the outcome during the meeting scheduled for 24 April 2012.

Dr Mncube thanked the Committee for its assistance.  He gave the assurance that Members’ comments would be taken on board by ICASA.

Adoption of Committee Programme
The Committee’s amended programme for the period 17 April to 22 June 2012 was adopted. The motion for adoption was proposed by Ms Killian and seconded by Mr Steyn.

The Chairperson advised that certain members of the Board of the South African Broadcasting Corporation (SABC) had been appointed in positions at government entities and were no longer eligible to serve on the Board.  The appointment of replacement Board members would be included in the Committee programme at a later date.

Ms Killian asked if the Committee had been formally informed of the resignation of the SABC Board members.  She asked for a copy of the notification.

Other Committee Matters
Ms Shinn had submitted a formal request to the Committee to address the matter of the operations of MTN in Iraq.  Charges against the company had been laid in Washington.  South Africa was bound by a sanctions agreement against Iraq.  Questions were being asked about the granting of the license to MTN to operate in Iraq and the alleged involvement of government officials in the matter.  She suggested that MTN appeared before the Committee.

Ms Killian supported Ms Shinn’s request.  She asked if ICASA could explain the license conditions applicable to MTN to the Committee and advise if the Authority was required to exercise oversight over potential violations beyond the borders of the country.

Mr Kekana remarked that the Iran, Iraq and Middle East situation was complex.  He felt that the obligations imposed by the United Nations (UN) were “unfair”.  There had been no condemnation of the UN and UK when these forces committed violations in Iraq.

The Chairperson advised that he had referred Ms Shinn’s request to the Parliamentary Legal Services.  MTN was not a government-owned entity and it was unclear whether or not the matter was within the mandate of the Committee.  Members agreed to postpone the matter, pending input from the Parliamentary Legal Adviser.

The meeting was adjourned.