Cost to communicate: Cost to communicate: input from Minister, Department of Communications & ICASA

Meeting report

The Chairperson welcomed the Minister of Communications and DoC and ICASA delegates.
 
Committee Report on Communications public hearings on cost to communicate
The Chairperson said this Committee Report had emanated from the Committee’s work conducted in 2013 to deal with the cost to communicate following the decision taken by the Committee that the cost to communicate was not “under the DoC and the operators” but it was a matter for South Africans. The Committee noticed that the regulator and the operators’ process of engagement sought to prioritise the issue of cost to communicate as a matter between regulators and operators whilst it affected all South Africans. It was decided that the Committee would meet different stakeholders on the cost to communicate for the welfare of all South Africans. This report was tabled for consideration.

The Chairperson urged all members to read the report and added that there were attachments to the report from various entities including political parties such as the African National Congress, the National Freedom Party and UDM and IFP. The Chairperson tabled the document for consideration.

Ms Morutoa moved for adoption of the report and Mr Steyn seconded the move.

The Chairperson said to the Minister that as a point of reference the report contained the views of South Africans. The DoC was invited to make a presentation to the Committee on the cost to communicate. He added other political parties manifestos on communications should be submitted so that they could be mentioned in Committee meetings.

Mr Steyn declared a conflict of interest as he had received a R11 500 bill in the last month so reducing the cost to communicate was in his best interest.

The Chairperson handed over to the Department to present on the cost to communicate.

Presentation by the DoC on the cost to communicate
Ms Rosey Sekese, DoC Director General, said that before presenting on the programme’s key actions, she would speak about the important policy and legislative requirements supporting the programme.

The most important aspect of the DoC mandate was to “create a vibrant ICT Sector that ensures that all South Africans have access to affordable services”. The issue was captured in the National Development Plan (NDP). Ensuring access to communication was a key government priority to provide affordable services. The mandate of the DoC was very clear that key to the deliverables, should be the affordability and accessibility of ICT services.

Section 3 of the Electronic Communications Act (ECA) articulated the role of the Minister regarding the cost to communicate. The first role concerned spectrum especially for spectrum high in demand for inputs for the cost to communicate. Secondly, universal service and access and thirdly the guidelines for determination by ICASA for licenced fees including incentives that might apply to individual licences where the applicant made binding commitments to construct electronic communications networks. She added that the licence fees were a critical input towards the cost to communicate.

Mechanisms to promote the participation of SMMEs in the ICT sector were critical as well as the control, direction and role of state owned companies which were subject to Sentech Act and the Broadband Infraco Act. In terms of competition, the ECA set out the pro-competitive measures the Authority might impose in order to remedy the perceived market failure in the markets or market segments. Over and above that the Authority might declare licensees in the relevant market or market segments, as applicable, that had Significant Market Powers (SMP). A schedule set out the terms under which the Authority would undertake periodic review of the markets and market segments which might result in pro-competitive measures being undertaken.

Ms Sekese stated that in supporting this key programme, the Minister of Communications during 2012 established a Policy Review Panel of 20 members to review all ICT sector policies. The Panel was tasked to recommend the best communications policy frameworks that contributed to the achievement of convergence and digitisation of communications technologies in South Africa. The new policy frameworks aimed to create access to quality communications services, technologies, infrastructure and content at competitive and affordable prices. The Policy Review Panel had just published the Green Paper for public comments to solicit inputs to enrich the process. As a department together with the Minister and the Deputy Minister would be undertaking a process of consultation from the beginning of March 2014.

In review of the current legislation, the amendment of ECA had already gone through and was supported by the Committee, there was the ICASA Act and currently a comprehensive ICT Policy Review was underway. Key issues that were contributing to the reduction of the cost to communicate, as amended in the ECA, had to do with economic empowerment initiatives, refined licensing issues to address implementation bottlenecks and improved e-rate for promotion of ICTs in schools and health centres.

Mr Themba Phiri, Deputy Director General, Information & Communications Technology Policy & Strategy, DoC, said that for the Department’s programme of action, the Minister had convened a key stakeholder consultative workshop which looked at the cost to communicate programme which was preceded by interactions by the department with a number of key operators for fixed and mobile telecommunications. Policy and regulatory discussed included spectrum allocation for broadband services which was said to be a key priority. There was a need for a regulatory mechanism to collect data to support decision making. The tools were already established in the DoC and ICASA.

Mr Phiri said that on issue of competition, there was a need for a price transparency framework which was discussed, mobile termination rates which were slashed by ICASA and included the asymmetrical termination rates and national roaming which was a key for infrastructure sharing as it affected the high costs of telephoning due to separating of interconnection fees. National roaming applied where the operator who carried a call did not have infrastructure in that particular area which meant that operators had to be carried by another operator at a cost. The reduction of price drivers through infrastructure sharing, particularly the broadband policy that had been issued by the Ministry, supported the open access model and non-discriminatory regime with infrastructure sharing. This would be key in reducing the cost to communicate.

The Minister had convened a workshop to deal with the National Spectrum Policy. ICASA had already dealt with the termination rates and would add more details in their presentation. Regarding the broadband value chain, it was expected that the outcomes of the broadband value study would be concluded by April 2014. The study was important as it would inform the country about the prices that were applicable for broadband services which would give definition to the broadband market itself and specifically the targets in the broadband market. It was hoped that the price benchmark would help with the decision going forwards.

Despite general reductions in prices across nearly all communication services it was evident that prices have not reduced to a satisfactory level. South Africa was ranked poorly internationally by the ITU and World Economic Forum. High pricing is referenced in the National Development Plan (NDP) as a major economic stumbling block to economic growth, innovation and job creation. The DoC was informed by operators that they suffered from regulatory fatigue due to persistent regulatory activity and high regulatory transaction costs had been blamed for the poor responses to providing information to the DoC and Regulator when required.

Mr Phiri stated that the DoC had created a portal which was fully accessible to ICASA to obtain any information that might be required to assist in making the right decisions. The DoC had reported that it would be working on a transparency policy to promote competition. Operators had welcomed the policy and some had already started to transform their tariff structures and were able to respond. DoC hoped that it would be able to issue a policy directive to ICASA to enforce an industry code of conduct to regulate price transparency. In addition ICASA had recently released the termination regulations which were forward looking to rebalance the market.

There was a need to address the unregulated high cost of national roaming as it was going to affect the market particularly when robust competition was foreseen. Infrastructure cost sharing was the core concept that the industry was moving towards as without infrastructure sharing some operators would find it difficult to survive and ITU recommended models were available on how to deal with interconnection fees. There was a need for national co-ordination within government to assist in the reduction of prices through cost saving arising from infrastructure sharing. This would lead to affordable network extension regarding site and facility sharing, passive cost sharing, joint and regional build and spectrum pooling or spectrum sharing.

Mr Phiri said that the DoC had conducted a broadband study in 2012 which revealed that although prices for broadband might be as low as R100 to over R20 000 per month, the actual cost per Gigabyte (GB) varied from R10 to over R2 600 per month. In addition there was minimal national broadband coverage despite having satellite coverage which still needed to be extended. This was addressed thoroughly in the broadband policy.

A comparison of cheapest on-net and off-net tariffs between 2010 and 2014 showed that in 2013 on the on-net and off-net tariffs, Vodacom was able to reduce the cost of calls made within the same network. This was a key issue for market dominance. The study revealed that for all calls going outside Vodacom network the cost paid by callers was R2.50 whilst 8ta was able to keep such costs at a minimum and Cell C due to its flat rate of 99 cents was able to keep its tariffs rate at the same level. MTN and Vodacom shared 85% of the telecommunications market. As such the trend for the on-net and off-net tariffs was a barrier for new and small operators which was problematic.

In relation to mobile and data tariffs there seemed to be relatively much higher tariff rates charged by the two big operators whose prices ranged between R1.20 per minute and R3.00 per minute which suggested that the operators with Significant Market Power (SMP) were not doing much to contribute to the reduction of cost to communicate by offering cheaper rates (due to on-net and off-net). In addition the data market was growing steadily driven by young consumers and had started to overpower the voice market. However it was observed that there were excessively high out-of-bundle rates for data services which were believed to be a way for settling the reduction on voice calls. Further, there was an anomaly on time validity on data bundles for both pre-paid and post-paid contracts services for instance a consumer might pay a pre-paid service of R100 or R99 per month, there were no notifications to customers for out-of-bundle data use and whatever was left of the bundle expires.

Mr Phiri stated that in terms of programme of action by the DoC and some of the key activities that would be undertaken, to address the cost of communication the department was looking at the full implementation of the Broadband Policy which made strong commitments on a number of issues. Specifically the policy re-enforces strategies that need to be implemented to drive broadband within a determined mid-term period. Another activity was the policy directive on price transparency which the DoC was hoping would be issued by July 2014. The department was going to make a consideration for policy directive on national roaming in cooperation with ICASA, policy directive on premium content surrounding broadcasting in relation to subscriptions, review on market data prices and the amendment of ECA and ICASA Acts had been adopted and enacted.

Discussion
The Chairperson thanked Mr Phiri for the presentation and hoped that the department’s actions would help South Africans to understand where the department was heading in terms of implementation of the policies. He invited members to pose questions which would be answered after the presentation by ICASA.

Ms W Newhoudt-Druchen asked whether the analysis done for cheapest tariffs was only for voice calls and if so could the data tariffs be made available to make a comparison between the high tariffs for data and high tariffs for voice calls. She asked what happened to the data bundles that expired for instance. Was it resold or did it go back to the operator? She asked if the DoC was only going to check the international roaming tariffs and not national roaming tariffs. When travelling outside of South Africa the charges were very high as much as R10 000 and sometimes even higher at R20 000 but there was really no transparency on the roaming tariffs because operators obviously had agreements with international partners. Was it within the DoC or ICASA mandates to look at these agreements?

Mr Steyn asked when the Green Paper would come to an end and how were data bundles aligned to the Consumer Act.

Ms Lesoma said that she had heard on the radio that the big service providers such as Vodacom were challenging the decision to reduce tariffs. What were the implications of the challenge on policy decisions for implementation. She asked how rural people would benefit, as the DoC had stated in the presentation that spectrum sharing would reduce the cost and that small operators would benefit as well. However there was no mention or a guarantee of how the end user would benefit. She asked if ICASA had the capacity to monitor implementation as per its role to regulate the conduct of operators.

Mr Kekana said that when the Committee carried out oversight in Kwazulu Natal, the Transkei and Limpopo most of the people had complained of poor or no network coverage even for radios due to the mountainous terrain. A suitable condition for the conditions was the spectrum signal which would affect the cost to communicate; he asked if there were enough spectrum skilled engineers to cover the whole country.

Ms Kilian thanked the DoC for the presentation. She said that on slide ten the presentation talked about spectrum allocation for broadband services. She asked if the department was looking at some other arrangements or policy directives with regards to spectrum which was not utilised and not paid for. It did not make sense to have ICASA out of pocket because of spectrum allocated to government departments such as the Ministry of Defence. She asked why the country was ranked poorly and was the cause for the poor ranking attributed to the interventions, for instance, was the Communications Act too complex. However looking at the Act it appeared that it should produce the right outcomes or was it that the operators were too greedy?

Ms Kilian said that regulatory fatigue only crept in certain stages otherwise operators relied very heavily on the regulations. She asked a question in relation to broadband coverage which was very telling on the urban rural divide because even though there was 75% population coverage on slide16 which showed that only a 30% geographical coverage. Unless this challenge was addressed rural poverty will never be addressed and what was the DoC doing to attract investment in the rural areas. She too had an interest in the cost to communicate because she was fed up with dropped calls. Was there adequate infrastructure investment by the bigger operators who owned 85% of the market share? She suspected that there was no investment at all if not limited and what was the cause. Were operators still riding the crest or just had no interest in investing? Further, the termination cost had little impact on the major operators because it was clear that there had been increases in costs to communicate from Vodacom and MTN. Similarly MTN’s prepaid costs had increased and how could this be adjusted to ensure adequate competition in the market so that there would be a reduction in the costs. There was a need for policy interventions to ensure competition otherwise the market would be strengthened for the big players only with no reductions in costs. Whether a reduction in the cost to communicate was an ANC manifesto or not it was a matter that concerned all South Africans.

Ms Muthambi reminded members that when the strategic plan for DoC was approved, cost to communicate was one of the eight priorities as such she had expected the presentation would show what had been done so far as she could not see the plans, timelines, roles and responsibilities. She added that most South Africans accessed internet through mobile phones other than fixed lines which was the preferred line for broadband as most people could not afford the fixed lines. She asked if those who earned less than R1 500, schools in rural areas and rural people would benefit from the reduced costs as they were not addressed in the presentation – and if the benefits would be immediate. She added that policies were good but needed practical measures of implementation.

Ms Morutoa welcomed the presentation but agreed with Ms Muthambi that the presentation lacked detail. She stated that satellite services were very poor and not just in rural areas but in urban areas where there were no mountains some instances there was no coverage at all. She referred to herself that when in her house in Gauteng, she was constantly changing phones as the 3G network did not work.

The Chairperson stated that poor network coverage was a problem and wondered where the services were being offered. There was a gap between real infrastructure and the coverage operators claimed to have. Operators should understand the South African context and not just adopt the European way of providing services, especially for service provision, and understand the social needs of the country.

ICASA presentation
Mr Stephen Mncube, Chairperson, ICASA, thanked the Committee for the support rendered and for approving the appointment of the CEO. He said that ICASA had not yet reached its maximum potential but it was on the right way based on the strategic objectives that ICASA could meet. ICASA was fully committed to improving communication for the whole country. The guidance that ICASA had received from DoC had improved marketing. On statistics, Mr Mncube said that foreign statistics should not always be trusted as they were sometimes biased. As such, this called for locally generated statistics to get a better feel of where the country was going. He acknowledged that indeed there were a lot of dropped calls but ICASA was working hard to improve the situation as it actively got involved with situations on the ground to get a better understanding of how things were being done.

Ms Nomvuyiso Batyi, Councillor, ICASA thanked the Committee for the opportunity to present on the cost to communicate. The ICASA Act of 2000 mandated it to regulate electronic communications, broadcasting and postal sectors in the public interest, ensure affordable services of high quality for all South Africans, assign spectrum to licensees, issue licenses for; electronic communications network services, electronic communications services, broadcasting services and postal services. ICASA was mandated to protect consumers from unfair business practices and poor quality of services and enforce compliance.

Ms Batyi said government policy was to ensure fair retail prices through promotion of competition as stipulated in the Competition Act of 1998 and the Electronic Communications Act of 2005. The policy was implemented through evaluation of bottlenecks to competition which were prevalent in supply chains such as telecommunications. The guiding principles for ICASA regulation were regulating in the public interest, facilitating and fostering competition in the electronic communications and broadcasting sectors, encouraging innovation in all sectors. In order to promote competition, ICASA might regulate prices where there was a lack of effective competition in a particular market. ICASA was expected to evaluate the value chain over which retail services were provided and regulate to reduce bottlenecks to fair competition.

From 1993 up to 2010, there had been a benign regulatory regime which supported high penetration of mobile services with a population coverage of more than 95% and a geographic coverage of more than 78 per cent. It was time for change as there was a need for greater competition, a need for lower prices and increased regulation of termination rates. Several interventions had been put in place since 2007 to improve telecommunications in the country: In 2007 a findings document on Definition of Call Termination Market (GG 30449); in 2008, a stakeholder engagement on process for conducting market reviews; in 2009 requests for information for evaluation of effectiveness of competition (GG 32628) and in 2010 public consultation on draft regulations (GG 33121) and the final regulations (GG 33698 29 October 2010).

Ms Batyi said that the way on-net calls and termination costs worked was as follows: end-user A starts a call to end-user B, then network A routes the call through its own network to end-user B. Effectively the outcome was that network A completely controls the retail price. That was why ICASA had to regulate call termination in order to break network A’s control on prices.

The process for off-net calls and termination was that end-user A calls end-user B, then network A routes the call to network B, network B routes the call to end-user B. The outcome was that network B had an impact on the retail price. Network B charged network A a termination rate which was a cost factor for network A. The higher the termination rate, the higher network A’s overall costs. As such the retail price could never be lower than the termination rate since it acted as a “Price Floor”. If costs were lower, then lower retail prices would be possible because it allowed challenger networks to drop prices to gain market share for example the 99c calling rate offered by Cell C.

A 2010 market review showed that the market was ineffectively competitive as Vodacom and MTN had countervailing bargaining power and could dictate the termination rate. Hence ICASA’s determination to ensure that termination rates were cost-based and that specifically Vodacom & MTN should charge cost-based rates. Currently the rate was still at R0.40 which would result in a 29% cost reduction.

ICASA was expecting visible outcomes of a reduction in wholesale voice call termination rates such as: a reduction in the barriers to entry for competitors in competing for a broader spectrum of the retail market, smaller licensees were expected to move away from a pure niche retail market focus towards greater overall participation in the provision of services to all consumers, a reduction in the price charged to an end-user for a voice call placed from a fixed location to a mobile location; and an increase in dynamic pricing packages for voice calls between networks of licensees who offered termination to a mobile location. Reductions in the cost of doing business for operators were expected however most of the expectations did not happen.

The impact of rate deduction on Telkom had been a 37% increase on its net position. Important to note was that just after 1994 Telkom had been subsidising Vodacom and MTN in the market. ICASA had made a link between wholesale and retail rates for off-net calls whereby a reduction in termination rates created space for smaller operators to reduce retail prices. The reduction in termination rates was not linked to retail prices. ICASA was of the view that a reduction in termination rates had actually assisted smaller operators such as Cell C who were able to compete in the market as they offered better packages.

Lower prices had an impact on retail prices as they led to an increase in traffic which meant consumers made more calls as a result of lower prices

Different operators behaved differently - fixed line operators reduced calls to mobile operators for example Neotel dropped prices by 21% and Telkom dropped by 36c. Mobile operators did not reduce calls to fixed operators. In essence a call to a fixed line represented profiteering and failure to change after termination rate regulations were introduced. A 2010 market review showed that Vodacom and MTN still dominated the termination rates market.

Ms Batyi stated that in 2014 ICASA made determinations that current rates did not adequately reflect costs, markets remained ineffectively competitive and there was a need to change termination rates and introduce greater asymmetry for a shorter period of time. Many of the bigger operators were concerned about the asymmetric rate which was at R0.44. The period in which operators had to comply had been made more drastic as it had initially been seven years – now reduced to four years and as of 2017. Only those licensees with a market share of less than 10% retail revenue would qualify.

As a way forward for 2014/15 ICASA was looking at excessive promotions which made customer choice difficult as advertised tariffs never reflected the actual cost. Vodacom’s effective tariff was R 0.56 per minute according to Vodacom’s 2013 December Quarterly update. Vodacom’s effective tariff of 56c indicates that the majority of calls were originating and terminating at less than the regulated termination rate of 40 cents. This was an indication of possible predatory pricing and the real cost of termination might be far lower than what the rates were currently set at. Examples of confusing promotions were: send a gift to anyone in South Africa, receive 60 minutes talk time, 100MB data or 500 SMSs, 1 hour on-net minutes; unlimited SMS to any network and 20MB data from as little as R6; pay for the first 3 minutes of every call and get the rest of your call free, up to 1 hour; get 60 minutes of FREE calls to Vodacom customers for 7 days from midnight to 5am; MTN ZONE Mahala nights (which now offered up to 100% discounts between 22:00 and 05:00); Mahala Day (offering up to 100% discounts between 06:00 and 18:00) on weekdays; Mahala Weekend (offering continued discounted rates from Friday evenings right through to the end of the weekend).

In addition to its plans ICASA intended to review the way tariffs and promotions were submitted to the Authority on-net versus off-net pricing, tariff transparency and length of time of promotions. The goal was that consumers should know what the cost of a call would be before they made it and this would allow them to make informed choices. Removing the difference between on-net and off-net calls would improve competition whilst transparency would put downward pressure on prices, further reducing the cost to communicate.

Minister’s response on questions posed to the Department
Minister of Communications, Mr Yunus Carrim, said it was good that all parties agreed that the cost to communicate was a matter for the whole country. He congratulated the Committee on the public hearings which would provide some atmosphere for ICASA to do what it was supposed to do. He expressed support for what ICASA had done in trying to reduce rates but would wish to see the reductions having an impact on businesses and consumers which would lead to economic growth and job creation. High cost of communication had deterred foreign and local domestic investment. ICASA had consulted all parties concerned and had agreed to accept the outcomes of the regulations. Some would lose in the short term but in the long term there would be greater benefits with a wider customer share if the economy grew. DoC was aware of the need for operators to retain for re-investment and honour investors; however it was evident that large profits were made as one operator made a profit of R13.2 billion in 2013. As such, operators would not necessarily be run into the ground.

The Minster said the question of dropped calls should really be addressed to the operators as he personally had a persistent problem of dropped calls when making calls. DoC had no control over poor signals and moreover it was ICASA that regulated and there was not much that the DoC could do to improve signals. DoC had done all it was meant to do on the cost to communicate. It had brought together all the parties concerned. In August 2013 the DoC committed to dealing with spectrum and this was done in October. As such, he was not sure what role was expected of the department.

In response to the question of legislation, the Minister said that retail prices could not be regulated but perhaps it could be addressed in the Green Paper process as the issues arise, for instance what legislative amendments were needed to ensure what the department could do without making the markets jittery with further reviews of the cost to communicate.

A fair criticism would be in regards to pricing transparency which the department had failed to do because the determination of mobile rates was done by ICASA. Perhaps in the new term, DoC could bring forward the deadlines it was given.

Minister Carrim said that on the issue of the Green Paper, the figures on availability of broadband were mainly sourced from South Africa Connect. On 4 December Parliament agreed to approve the gazetting for public comment on the Green Paper which was done in January and people were given 30 days to respond but some stakeholders had expressed concern that the period was not enough as the Green Paper was a lengthy document and this had been extended to 25 March. Currently the DoC was arranging dates for consultation so that all stakeholders can participate in the process. He urged Members to actively engage with the process as they had experience to evaluate. It was hoped that when the new post-election Portfolio Committee came to effect a report on the discussions for the Green Paper, it would be ready.

Department response
Ms Sekese responded that school connectivity was one of the key deliverables of the Broadband Policy known as South Africa Connect. School connectivity was one of the programmes led by the Deputy Minister. A combination of supply and demand approach had been adopted and where government subsidised some of the costs for broadband. Based on the analyses, unless the government intervenes in the supply of broadband, the situation would not change. National Treasury had been engaged on the funding of broadband and from the demand side, key Ministries such as the Department of Basic Education regarding school connectivity, and the Department of Health regarding the Health Centres. The uptake and usage of ICTs mostly happened through mobile devices which had a high cost and limited usage. This emphasised the need for what ICASA was doing as a reduction in costs would contribute to the usage of devices. Schools would be provided with mobile devices as was indicated in the ruling party’s manifesto. Therefore smart device cost was a critical component. The DoC was already interacting with the Department of Trade and Industry as a key intervention to realise industrial development.

Mr Phiri responded to the question on comparison between voice and data tariffs, saying the figures presented were about voice calls only and it did not have the comparative data for data market charges. Whether interventions on international roaming would affect national roaming, this was a question that could best be addressed by ICASA, but DoC was advocating ICASA to regulate national roaming as well. In terms of international roaming, sometimes operators had one on one agreements with other operators. For instance, in Europe there were groupings and in the SADC region there was an initiative that was looking at harmonisation of roaming which was supported by the ITU. A framework could support a reduction of costs for international roaming but it was a lengthy process.

On attracting foreign direct investment, Mr Phiri said that the Broadband Policy was creating a framework where people were clear about what was expected of them to invest in infrastructure and it was a key deliverable. The Broadband Policy was clear on the open access model, on the reshaping of the market and spectrum allocation which gave direct certainty to investors. Currently infrastructure was not adequately covering broadband in the country especially if the measures were going to be implemented. Over the years mobile operators had been trying to improve infrastructure but it was not adequate to cater for broadband, however a consortium was looking at coverage from Johannesburg to Cape Town.

Ms Sekese responded that poor ranking could have been as a result of lack of data and the DoC had already interacted with ICASA on how best to address this. It was important for the country to collect data so that it could be provided to the ITU to give a true reflection of the country’s telecommunications status There were areas where the country was not performing well such as the implementation of the Broadband Policy. The importance of sharing was interrelated to the importance of the broadband value chain study. The study was really aimed at looking at what the input costs contributed to the cost of broadband. Sharing would result in a reduction in certain components of the input costs. ICASA would take this into consideration when looking at the market and cost modules.

Discussion on ICASA presentation
The Chairperson thanked the DoC for the responses and invited members to pose questions, comments or seek clarity from ICASA on its presentation.

Mr Steyn said he was not sure whether DoC or ICASA would answer the question but he asked for the DoC’s view on the deadline for data bundles in relation to the Consumer Act.

Mr Phiri responded that ICASA had a consumer division and the issue was specifically a market issue that would best be addressed by ICASA.

Ms Shinn asked how the size of the market was determined. For instance, who conducted the research to determine that a certain operator had 85% of the market and would the research be constantly updated otherwise different rates would be charged? At what point did the regulator declare that a provider was no longer entitled to the asymmetric rates and was there an incentive for operators to stay below 20% of market share as consumers would benefit from it. Was there a sunset clause on the asymmetric rates and when would the Regulations with details and explanatory memo be available in the government gazette announcements. She asked if there was accurate insight into the termination rates and, if so, how were they calculated and how transparent were operators in providing the information.

Mr Steyn said that with regard to the inter-connection Regulations, there seemed to be a misalignment between fixed and smaller mobile operators. The position should clearly state the competitors for the smaller mobile operators as opposed to the smaller fixed line operators - what was the rationale behind it. There seemed to be a greater asymmetric rate for smaller mobile operators and what was the justification from a regulatory and legal point of view. Members and the Minister had raised a point about poor signal or lack of signal yet the report on our history from 1994 to 2010 in the presentation, stated that 95% of the population had network coverage; how was this was reached, especially when looking at the challenges that were on the ground both in rural and urban areas? He asked if ICASA had met all of the expectations and if not which expectations had not been met. ICASA had stated that the market was ineffectively competitive but he was of the view that it was rather not competitive as the term ineffective implied that there was some competition but it was not effective. ICASA’s 2014/15 plans talked of transparency and length of time of promotions. He was not clear as to what was meant by reviewing length of time for promotions.

Mr Kekana said that it was informed that the ANC’s approach to economic growth and combating poverty was through infrastructure development and this came out quite clearly in the need for engineers, skills and facilities. Communications should come as a facilitator for the growth of the economy. Other developments like tarmac roads in Soweto were clearly visible, however the presentation did not give such evidence on the spectrum as communication was still a challenge in rural areas.

Ms Morutoa said South Africa was transforming into an information based society and there was a clear divide between those who had access to global information and those who did not. She had expected answers that would give the impression that the needs of the people were understood.

Ms Muthambi said DoC’s presentation spoke on matters that were well known to everybody. She had expected the DoC to inform the Committee of the opportunities and challenges and the DoC should check with the ICT Review Panel about their consultation plans. The sources of most of the statistics presented were not acknowledged. She commended ICASA for being on the right track. However there was a need for ICASA to publish the information that had been presented on its website so that investors’ confidence could be rebuilt. She questioned why ICASA allowed unstoppable competitions to persist and was there a plan to stop such promotions. She asked what value chains meant in terms of retail rates. Why did operators agree to the reductions on Mobile Termination Rates (MTRs) in relation to asymmetric rates in 2010 without conducting a review and then publicly complain about MTRs now.

Ms Z Ndlazi (ANC) asked how coverage was measured because she was from the Eastern Cape and most of the areas had no network coverage.

Minister Carrim spoke on the digital divide, saying on the one hand it was clear that if the ICT sector was developed and strengthened the information society knowledge economy would achieve the objectives of the New Growth Path and NDP. Inequalities would be substantially reduced. Growth rates could spurt from 1.8% to a 10% penetration of broadband. The DoC was equally aware that if the digital divide was not properly managed, the gap between the rich and the poor would exacerbate. There was a need to ensure that ICT did not increase inequality. On network coverage, he could not answer this. In his personal view from experience as a constituency member, most statistics do not measure what was on the ground. He hoped that mobile operators were listening as contrary to what people might believe there was no state owned mobile operator.

He agreed that the DoC needed to state its plans and that was going to be done and the targets would be fine-tuned. The consultation plan basically represented a cross section of industries, business and government in. It contained the framing paper which was gazetted, much of the comments that were received were inserted into the Green Paper which was gazetted in January 2014. There were nine provincial hearings and the DoC was simultaneously meeting with state owned companies and the DoC was calling for the Committee’s participation. In addition the Green Paper was being translated into several languages.

In response to the question on network coverage, Ms Sekese stated that she would respond based on her own understanding of network coverage which she said was dependent on capacity. For example for a fixed line it would depend on the capacity of exchange in terms of how many copper lines they would be able to take. For instance, if the exchange could take up to 2009 copper lines it meant that the exchange would only be able to handle 2009 calls. The concept was the same for a mobile exchange except that there was no fixed base exchange. However the base exchange for mobile connectivity would only accommodate calls equivalent to its capacity. If there were more people in the area, then the mobile operator should be redesigning and upgrading the network so that the base exchange could accommodate more users. Operators should really be competing in order to address dropped calls. She asked for clarification on the question of skills as to whether it applied to skills in the DoC or the sector. The Minister had already addressed about the consultation plans but a detailed programme could be provided if required.

Mr Phiri responded that ICT skills was applicable to the whole country. Generally over the years the Department for Science and Technology had been prioritising ICT skills. When the Research and Development Strategy was adopted, it emphasised engineering skills which would include spectrum engineers who were within the scarce skills arena in the country. There was a need for ICT skills which required mathematics and physical science qualifications but mostly it was about transformation in the sector. He agreed with Mr Kekana that there was a shortage of spectrum engineers. However operators were prepared to pay more salary to increase supply of skills and previously disadvantaged groups were being encouraged to obtain skills in this area.

Mr Mncube said that the roaming component of ICASA’s programme was driven from the DoC and had been taken to Botswana, Angola, Mauritius and Lesotho where Ministers of SADC had adopted lowering roaming prices to 0.15 cents. He observed that the Minister should encourage members of the Committee to play an observer status pertaining to roaming because when such matters were being discussed, the Portfolio Committee on Communications was not represented at ITU where other regulators from SADC were represented. He agreed with Mr Steyn that without enforcement, the Regulator was ineffective as such there was a need to find ways of enforcing the adopted price for roaming.

In response to the issue of alignment with the Consumer Act, Mr Mncube said that ICASA was very weak on consumer affairs. It was an area that needed revamping to provide information in vernacular language as currently there were no follow-ups or referral systems. These were areas that needed development and ICASA welcomed the comments. He agreed that network coverage was a problem even for people who lived in urban areas. ICASA could not resolve the problem alone and was currently holding seminars at the University of Johannesburg in Soweto to try and educate consumers that ICT was part of human rights and not just an appendage. He had faith that in collaboration with other Chapter 9 institutions, the problem could be solved.

Ms Batyi responded that the operators challenge of ICASA’s decision was real as it was on several websites that this was the operators’ intention. ICASA had received a formal letter from operators which was being dealt with. On the implications of the legal challenge, the Regulator did not wish to pre-empt the matter as the implications would depend on what process was followed. Whatever the process, the result would unfortunately have direct impact on the smaller operators such as Telkom Mobile and Cell C.

Ms Batyi responded that almost all expectations were not met as ICASA had expected reduction in the barriers to entry for competitors in competing for a broader spectrum of the retail market, i.e. smaller licensees were expected to move away from a pure niche retail market focus towards greater overall participation in service provision to all consumers. Small operators were still focused on niche consumers. In addition ICASA had expected a reduction in the price charged to an end-user for a voice call placed from a fixed location to a mobile location. Operators such as Telkom could not sustain the reduction and only did so for two years. It was expected that there would be an increase in dynamic pricing packages for voice calls between networks of licensees who offer termination to a mobile location and this was only done by smaller mobile operators whilst bigger operators were more concerned about competitions. She explained that the long term implications for promotions were that essentially it was the same promotions being recycled and would be run again under a different name as the regulations specified that a promotion could only be run for a specific period. This was very misleading for consumers and was quite prevalent in the pre-paid market.

In response to “ineffectively competitive” she said that the phrase was legislative language and it meant that there was no competition. The 95% coverage was in reference to voice coverage and was not really talking about the quality of service but rather about the quantity of the network in the country. To that end, on 23 January 2014, ICASA had published draft regulations on End User Service Quality Charter which sets parameters for quality. The charter was still in the draft stage and ICASA was waiting for comments as there were many complaints about quality of service. The regulations had proposed remedies to challenges of quality of service.

Ms Batyi said that ICASA was puzzled why Mobile Termination Rates were becoming an issue now since in 2010 when the rates were set there had been consultations but the asymmetric rate was not as big as it was now. The difference now was that operators were more concerned with the Light Touch Regulation and expected a comfortable reduction.

In response to the question of whether the regulation processes were too complex or there was just greed in the sector, she said that it was a combination of things. Legislation processes took a long time to complete for instance some had started in 2007 and by now people had reached fatigue. ICASA, just like any other government agency, in order to make decisions it relied on information from licensees. The regulator requests information and holds consultations but ultimately it relied on information given by licensees. From 1994 to 2010 Telkom was subsidising the mobile network operators and Vodacom and MTN were the biggest beneficiaries yet now that Telkom had a mobile branch, the regulator wanted it to have similar conditions like Vodacom and MTN. It was becoming an issue because there was a competitive environment. The explanatory memo had already been published on 4 February 2014.

In terms of spectrum in the Defence Force, ICASA had asked for the security cluster to expose itself in terms of what spectrum it had and this was not done elsewhere and ICASA might have to look at how to deal with the security cluster in its entirety. The decision was yet to be made and it was a very sensitive issue.

Mr Pakamile Pongwana, CEO, ICASA, said that the Defence Force roughly owed about R109 million. Even if the Defence Force was asked to pay back the money it was essentially the same as asking the Defence Force to go to the National Treasury and ask for the money which would be paid to ICASA and ICASA would pay it to National Treasury. He wondered if it was really an appropriate way to recover the money. The Defence Force did not use spectrum to generate money but rather it was for security purposes and perhaps the charging method should be totally different. ICASA had to ensure that the Defence Force’s spectrum was not interfered with.

It was suggested that there should be an engagement with operators to deal with dropped calls by determining the level of investment that had been made in the last few years. It seemed that there had just been an enhancement of existing networks so there had not been much investment in new infrastructure. The greater than 95% coverage could be in terms of 2G networks with fewer and fewer investments. More investment should have been made in 3G networks which fell back to 2G network. If there were no appropriate calls depending on what one was using, this would result in dropped calls. In addition more smart phones were being used and they tended to put pressure on the networks causing a lot of congestion. There was inadequate capacity to regulate this mainly due to the way in which information was requested and the Broadband Policy had exerted more pressure on the regulator as it required a lot of data collection to know exactly what was happening in the sector. This was similar to quality of service in that data was continually needed to be able to monitor compliance. A totally different skill set might be required to analyse the data than the skills set that existed now and there might be a need to discuss with institutions and universities to train people with those skills. ICASA might need to set up base to know exactly what was going on. For example members of the Committee might return to their constituencies and find that there was no network coverage for some areas but might not know that operators had actually already applied for a licence to cover the area. Thus an interlink was necessary to ensure network coverage in the whole country.

Monitoring compliance with prices change over time relied on data collection. When asking for data from operators in preparation for a review, it was asked with the purpose that one could use the data to check the level of market shares between different entities. It was easy to conclude who owned what share of the market and the information was readily available from the financial statements of the operators.

Mr Pieter Grootes, General Manager, ICASA, responded that market share was calculated at the discretion of the Authority and depended on what the Authority was looking at for instance the retail market could be defined by looking at the number of subscribers or how much money was made by it. It all depended on the intended outcomes and the expected problems. In the case of the retail market it was more important to establish how much money was made, rather than how many subscribers an operator had.

In response to incentives for staying small given the asymmetric rates, as mentioned by Ms Shinn, the mobile industry was capital intensive which was a barrier to entry. Therefore those who were able to enter the market did so with long term plans. That was where ICASA made its determination of asymmetric rates seeing that the goal was infrastructure based competition to support the roll out of competitive infrastructure in the market. To some extent this would address the matter of national roll out where an operator would rely on another operator for services and infrastructure-based competition would reduce that reliance. Such operators such as Telkom Mobile needed assistance to achieve this goal. In terms of a sunset clause the Authority had a practice of reviewing each regulation every three to four years. The regulations will be reviewed in three to four years to assess if they had had the intended impact and what needed to change.

Mr Steyn said that he was not sure if his question regarding the misalignment of regulation was adequately answered or answered at all.

Mr Kekana asked the DoC to inform members what kind of infrastructure was exactly needed for communication and how was it going to be done because with other infrastructure there was a partnership between the government and the private sector. The DoC could take note of his question and give an answer next time.

Ms Batyi said that there was a heavy reliance on Telkom by almost every operator for infrastructure. Telkom was a resource for South Africa. There was a way in which the fixed termination rates, asymmetric and mobile termination rates were determined. Telkom could not be compared in terms of infrastructure availability with the other mobile network operators.

Mr Grootes added that in terms of fixed versus mobile, mobile used its own infrastructure and in terms of fixed line, operators generally rented infrastructure from Telkom. The decision on infrastructure-based competition fostering the roll out of infrastructure suited one market more than the other. ICASA was ensuring that by 2016 the termination rate between fixed and mobile should be on par to remove any concerns of cross subsidisation between markets.

The Chairman said that it was unfortunate that there was not more time to deliberate further. He hoped that the next Committee would be able to continue with this monitoring. It was not easy for operators to forgo profits but still no operator was going under. The regulator had done a good job. The operators’ right to approach the courts was respected but as a Committee the cost to communicate had been taken to South Africans. The shortcoming of the regulator was that it had no platform to talk to South Africans and people did not understand what exactly the regulator was doing. Some operators have used this to pit the government and the regulator against the people by propagating the notion that the impact of reducing the cost to communicate measures would be felt by the consumers. As such the regulator must find a way to talk to South Africans.

The Committed adopted minutes of 28 January 2014 but not 4 February 2014 (details on the 4 February minute discussions to follow its adoption on 18/02/14
 The meeting was adjourned.