Costs of telecommunications: Department of Telecommunications, ICASA Vodacom, MTN, Cell C, Telkom & Neotel briefings

Telecommunications and Postal Services

07 November 2014
Chairperson: Ms M Kubayi (ANC)
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Meeting Summary

The Portfolio Committee on Telecommunications and Postal Services met for a briefing by the Department of Telecommunications and Postal Services (DTPS), Independent Communications Authority of South Africa (ICASA), Vodacom, MTN, Cell C, Telkom and Neotel, on the cost of telecommunications in South Africa. MInutes of meetings of previous meetings were also adopted. Prior to the briefings, Members pointed out that they had not been kept updated, weekly, on the strike action at the South African Post Office (SAPO) despite the Minister's assurance that meetings would be held.

The DTPS explained the mandate of this new Department, which included the creation of a vibrant ICT sector to ensure that South Africans had access to affordable and accessible ICT services. A benchmarking study had been done, that concluded that South Africa was expensive for fixed line access, that fixed line connectivity was declining, that South Africa had one of the most concentrated mobile markets, with relatively high mobile penetration but low usage because the wholesale fixed and mobile termination rates were also very expensive. The electronic communications market was evolving rapidly,   with voice, data and audio services offered on traditional telecommunications networks. Data demand was growing faster, at above 60%. Market failures were being addressed through mobile termination rate-a-key regulatory instruments. In South Africa, the mobile market was dominated by four players, two of whom shared about 80% of the market. The fixed market had two operators, with Telkom having a vast network. ICASA viewed the Call Termination Regulations as a process to rebalancing market failure and to ensure cost-base transparent pricing. The call termination rates had declined, from R1.25 per minute in 2010 to R0.20 currently. The Department aimed to reduce prices, foster more competition, develop a national roaming policy and regulations to facilitate access to infrastructure and improve competition, and its policy aims were outlined.

ICASA was mandated to .regulate electronic communications, broadcasting and postal sectors in the public interest, ensure affordable services of high quality for all South Africans and reduction in cost to communicate. In June 2013, ICASA developed a Cost to Communicate Programme, designed to address concerns regarding the cost to communicate and stimulate higher competition, with interventions at wholesale level. It conducted a review of the 2010 Call Termination Regulations, in terms of section 67(8) of the Electronic Communications Act, but was challenged in court by MTN, then Vodacom, who believed incorrect processes were followed, and the 2014 Call Termination Regulations were declared “unlawful and invalid” by the South Gauteng High Court, with the declaration of invalidity suspended for six months. ICASA had then adopted a robust consultative process to determine rates, met the court deadline and published revised and final regulations on 29 September 2014. These were cost-based, and the cost models and standards were explained.

Cell C explained that it had the cheapest call rates, charging 0.66 per second for calls made to both its network and other networks at peak and off peak periods. Telkom mobile was charging 0.29 per second to its own network, but 0.75 to other networks, at both peak and off peak periods. MTN charged 0.29 per second to its network, and 0.79 to other networks at both peak and off peak periods. Vodacom charged the most, with charges of 1.20 per second for calls made to both its network and other networks at peak and off peak periods. The base tariff comparison for data bundles were also calculated and included in the presentation. The initiatives by Cell C to reduce the costs were described. Cell C believed that effective and sustainable competition was needed, and pointed out that the rates of other operators had been forced to decline in answer to Cell C's initiatives. The concept of an "effective rate" was explained. Cell C was critical of the regulatory body, and said the process had been slow and unsatisfactory since 2012, and had failed to address the duopoly of MTN and Vodacom, and if the proposed mergers were approved, Cell C would remain the only challenger.

Telkom said that it was committed to making communications affordable, and said it had consistently reduced call rates, particularly over the last five years. It had also simplified the National Tariff Structure by collapsing local and long distance rates into a single rate, dropping long distance rates. It offered over R400 million in tariff reductions to wholesale customers over the last two years, and cut prices to stimulate demand, which allowed telecommunications to peak in its contribution to GDP, without further government stimulus. Although nominally, revenue would grow, it was effectively declining when viewed against increased cost of living. Growth of broadband would be countered with lessened demand for voice. Telkom had therefore embarked on a major repositioning and cost saving exercise, and was looking at collaboration with other players, and augmenting its capacity to offer diverse services, with mergers and acquisitions.   Telkom told the Committee that there was a need for proper alignment between national policy and regulatory philosophy, that sector policies and regulation should mirror national policies supporting development, defining the roles of SoCs in the economy needed to be defined in line with the developmental state agenda, and ICT infrastructure requirements reviewed through the Strategic Infrastructure Projects. Policies and regulation must be consistent and coherent and in line with the objectives of the ICASA business plans and time lines for SA Connect.

Neotel's briefing noted the impact of current policies and the move to a cost-based model, and examined the short and longer term strategies to lower the cost to communicate. It believed that the 2010 - 2013 termination rate reductions supported greater competition in the market. These termination rates had assisted Neotel in reducing the cost to consumers and to gain some consumers. Neotel had been a front runner in lowering retail rates, and described what it had done. In the six months following the Court's ruling, it had been unable to act further, because of the regulatory uncertainty, but welcomed the new regime, noting that lower mobile termination rates were important for smaller operators. It supported the ICASA methodology for call termination rates, believing that this created some scope for small and new entrants to compete against incumbents. Neotel was currently reviewing its retail pricing and expected to make an announcement soon. It described some of its further strategies and set out the key challenges to implementing the policy goals and increasing affordability, which ranged from gaining access to property, particularly when larger players would enter into exclusive deals for erection of masts,  to inconsistent rules applied by municipalities, and the fact that so-called "toll-free" services were actually not free. It recommended that SMS services would help with the growth of smaller players. Government was urged to create a conducive environment.

Vodacom noted that there had been a reduction in cost to communicate from 2008 to 2014, and price declines could be expected with further competition. Explanations were provided on how operators had managed to reduce costs, including investing in network, increasing 3G and 4G coverage, reducing pricing for voice and data and new innovations, with more transparent tariffs and bundles. Smartphone introduction had allowed for integrated price plans. Details of decreases were specified. It asserted that South Africa had a vibrant market, with good mobile penetration and coverage. However, the spectrum challenge showed that timely assignment was vital for growth, and a comparison was given of how other regulators had assigned spectrum. Vodacom also went into some of the challenges, and noted, in particular, that there were challenges with high rents, cumbersome approval processes and municipal processes in relation to site acquisition, as well as cumbersome processes and mast space and strength for fibre and microwave. Vodacom assured the Committee of its commitment to lowering price.

MTN also gave some background and said the penetration was driven by intense price competition in mobile voice and data markets. There was a suggestion that the market was now saturated, compounded by lower disposable income, which may impact on future investments. MTN's investment was described, and it noted that in recognition that broadband enabled economic participation, MTN had a Foundation School Connectivity Programme which was rolling out computer laboratories, whilst, through its health portfolio, it promoted sustainable healthy lifestyles in communities in its school and community-based initiatives, targeting TB, lifestyle diseases and HIV and AIDS. MTN pointed to significant decreases in voice tariffs over the last six years, and data tariff reductions. Some challenges to growth were listed. These included copper theft and vandalism, absence of rapid deployment, local governments' slow and uncoordinated rollout, lack of high demand radio frequency, and the fact that newer technologies must still be supported by initial legacy platforms. The re-farming of spectrum for broadband services had limited scope as ultimately it would degrade the quality of service. MTN noted that it was trying to improve South Africa's international ranking, based on its lowest headline tariff, and it had implemented the new rates in compliance with regulations. MTN claimed that South Africa was performing well compared to peer countries and African counterparts.

Members pointed out that the DTPS had admitted that there was not enough fair competition and asked how this could be addressed. Transparency in pricing was crucial. Members also expressed support for a proposal by CellC to have a new company with an oversight role and to ensure services were not duplicated. Members noted the continuing thread of criticism against ICASA for regulatory failure and lack of certainty. ICASA was asked to look at deadlines and tell the Committee when it would meet them, in view of its impact on the whole market. The information on acquisition of smaller players was of concern given the need for competition, but Members also noted that the larger players should not be penalised for development and excellence. Members felt that their marketing strategies were to be commended, and MTN's investment figures were large. Members asked the other players to indicate their investment on the ground and what sort of returns their shareholders were expecting.

In a subsequent discussion session, Members raised further questions. They followed up on questions about a possible audit of existing structures, including in the SOEs and municipalities, given the understanding that Infraco was busy laying fibre that could carry all traffic. They repeated concerns about price and asked how ICASA was actually stimulating competition in the sector. Vodacom was asked to elaborate on the cumbersome approval process for site acquisition and fibre and microwave deployment mentioned in its presentation. The companies commented on the infrastructure questions, and expanded on some of the difficulties that they were facing.

Members were told the mobile termination rates had already been brought down to 20c, which would be implemented for a year starting on 1 October to 30 September 2015. They would then drop to 15c, and further to 13c in 2018. The reason that it had taken so long was that ICASA had had to strike a balance between bringing the rates down, as it wanted to ensure that it was cost based, while simultaneously being cognisant of the impact that would have on re-investment and the businesses it was regulating. While competitors could bandy about the clause ‘unfair competition’ and the like, ICASA could not do so without first engaging in a process of finding out first whether that was indeed the case. Only after that had been done could ICASA say that a particular market had been found to be uncompetitive.

Meeting report

Adoption of Committee Minutes
The Chairperson requested that Members attend briefly to the adoption of Minutes, prior to the presentations.

The Minutes of 24 October were tabled. Ms M Shinn (DA) pointed to a grammatical correction needed on the third page, and, subject to that correction, the minutes were adopted.

The minutes of 31 October were also adopted, with a minor grammatical correction on page 2, and a further correction suggested by Mr C Mackenzie (DA) correcting a reference to non payment of staff, with the phrase "the late payment of casual workers" and a change of "remuneration figures" to "hourly rates of casual workers".

Comment on strike action at South African Post Office (SAPO)

Mr Mackenzie pointed out that there had been no updates, on a weekly basis, with regard to the postal services strike that had been going on for four months. The Minister had indicated that he would be meeting with the shareholders and the board this week, and that there would be consequences imposed for their actions, but up till now nothing had happened.

The Chairperson called Mr Mackenzie to order, and said that he must be patient and wait for a reply to the question asked. The agreement was actually that the Portfolio Committee would meet with the people involved on 24 of October. The Minister gave feedback that he would be meeting with the management and the union members today, and the Committee would be given feedback after that. The Chairperson said that there was no resolution in the meeting that there would be a weekly feedback.


Mr C Mackenzie proposed that the Chairperson should communicate with the members of the Committee. by email, conveying the feedback of the meeting immediately on receipt of the result of the Minister's meeting.


The Chairperson agreed to the proposal.

She appealed to the members to look through the draft oversight programme, which would be discussed and finalized at a subsequent meeting.

Cost of Telecommunications in South Africa: Presentations by industry players
The Chairperson set out some background to the current meeting. The meeting was convened because of concerns that when the cost of communication was high, it became difficult for small businesses to carry out their business and also became difficult for poor families to survive. This Portfolio Committee would ensure that the cost of communication was not raised unnecessarily, but that the cost of communication should remain affordable. South Africa (SA) had been ranked as a country having one of the highest costs to communicate. In many countries abroad, there were several places offering free access to free internet service via wifi, but this was virtually unheard of in SA. She hoped that SA would get to that point soon. This was one of the key areas that must be put into place if SA was to compete globally and economically, and attract foreign investment.

The Department of Telecommunications and Postal Services presentation
Mr Themba Phiri, Deputy Director General: ICT Policy and Strategy, Department of Telecommunications and Postal Services led the delegation. He briefly explained that the mandate of the new Department of Telecommunications and Postal Services (DTPS or the Department) was to create a vibrant ICT Sector that ensured that all South Africans had access to affordable and accessible ICT services in order to advance socio-economic development goals, in support of the African Agenda, and to contribute to building a better world. Chapter 10 of the Electronic Communications Act (ECA) made provision for defining ICT markets; identified the retail and wholesale markets   or market segments in which it was intended to impose pro-competitive measures. It set out the methodology to be used to determine the effectiveness of competition in the ICT markets or market segments. Taking note of the government’s call for measures to reduce the cost of communications, the DOC decided to address this challenge by commissioning the B-MIT to conduct an International Peer Benchmarking Study on South Africa’s ICT Sector in 2009, with specific focus on telecommunications voice, data and broadband services and product prices, at international, national, retail, business and residential levels in South Africa, Brazil, Chile, Korea, India and Malaysia. This was done to assess SA's relative performance in respect of cost, usage, access and quality.


The key conclusions of the benchmarking study amongst others were, amongst others that:
- South Africa was expensive for fixed local access
- South African fixed lines connectivity was declining year-on-year
- South Africa had a  most concentrated mobile market
- South Africa has relatively high mobile penetration but had the lowest mobile usage, because mobile charges were also expensive, with both wholesale fixed and mobile termination rates being high in South Africa.

The costs were a cause of national concern, between 2009/2010. The concerns from all sectors of society reached a climax in 2009, with the Portfolio Committee holding a public hearing on the matter. This contributed, to some extent to the first Mobile Termination Rate (MTR) voluntary reduction, from a peak mobile rate of R1.25 to 89 cents per minute. This was facilitated through negotiations between ICASA and the telecommunications operators by the then Minister, Mr Nyanda. ICASA later issued its MTR Regulations in a Government Gazette, in 2010, and imposed pro-competitive measures on the markets for mobile and fixed wholesale call termination services, after following the required process and also published a glide path for MTR reduction.


Mr Phiri noted that the electronic communications services market was rapidly evolving, with voice, data and audio services offered on traditional telecommunications networks. Data demand was conservatively estimated to be growing faster, at above 60% year on year.

He indicated that the Cost to Communicate programmes aimed to
a) facilitate investment in infrastructure
b) promote affordability of ICT services to consumers
c) facilitate market competition in the electronic communications market
d) promote access to ICT infrastructure and give effect to the Broadband Policy, South Africa Connect.

The internet service providers (ISPs) played a critical role in stimulating demand and improving competition in the broadband internet market. It was critical to note that wholesale network providers of bandwidth, such as Telkom, Dark Fibre Africa and Broadband Infraco played an important role for ISPs to compete, especially when wholesale rates were affordable. The rural infrastructure gap and rural demand for data services required innovative policy and regulatory interventions, to change market behaviour.


Mobile Termination Rate-a-key regulatory instruments were being used to address market failures in South Africa. The South African telecommunications market had four mobile operators, largely dominated by Vodacom and MTN, who together had a market share of about 80% between them. The Fixed Market had two operators - Telkom and MTN - with Telkom having a vast network reach of over 144 kms of network covering almost every corner of the country. The Call Termination Regulation issued by ICASA was viewed from a policy viewpoint as a process to rebalancing market failure and to ensure cost-base pricing, which was related to the cost of providing the service, and to ensure transparency in the pricing for services. The Department noted the significant reduction in call termination rates from R1.25c per minute in 2010 to the current rate of R0.20 per minute. This amounted to a reduction of about R1.05 over the past four years.


The strategic goals behind the DTPS efforts were:

- to reduce telecoms prices and foster competition in the electronic communications market
-to impose information disclosure requirements on tariffs, costs and service quality information, including voice, sound and data for both fixed and mobile communications services
- to educate consumers on embedded tariffs when entering into an agreement in their choice of packages.

The Department developed a policy directive which would facilitate transformation in the pricing of ICT services, including rates payable by consumers. The policy was issued to ICASA in June 2014 for comments. The policy would also be issued for public comments in November 2014. DTPS also aims to reduce telecoms prices and foster competition in the market, develop a national roaming policy and regulations to facilitate access to infrastructure and improve competition in the market. The Department would determine the need for policy and aspects for regulation and the undertaking of research on National as well SADC Roaming.

Following up on the recommendations of the Policy Directive on National roaming, Mr Phiri said that a broadband value chain study / Market Review was concluded in April 2014. The targets of the project were to define the broadband value chain, identify where, along the value chain, there might be ineffective competition, and then propose potential remedies. To address this ineffective competition and high prices, the Department would expect that the regulation of data bundle prices would be given due attention by Independent Communications Authority of South Africa (ICASA). The internet usage experienced a growth of 13.8% from 2012 to 2013, driven by consumers' positive response towards the use of internet services. The fixed line services had been encountering years of decline, with 2.0% from 2012 to 2013, due to an increase in appetite for mobile phones.  Penetration of computer usage in the country also increased (see attached presentation for full details) between 2012 and 2013. The Department had developed a Concept Paper for Local Loop Unbundling (LLU) Strategy, as mandated by the National Development Plan (NDP) in September 2014. The LLU Strategy would focus on both fixed and wireless access networks. The Department recognized the intent by ICASA to conduct a Regulatory Impact Assessment on LLU. Terms of reference for the local loop unbundling had been finalised, to appoint a service provider to assist the Department with developing a Local Loop Unbundling strategy and policy recommendations.


Mr Phiri said that the revised Plan of Action on the Cost to Communication was informed by the Medium Term Strategic Framework. Implementing the broadband policy of South Africa Content, including spectrum allocation by ICASA, should achieve the NDP goals.

Independent Communications Authority of South Africa (ICASA) presentation
Dr Stephen Mncube, Chairperson of the Independent Communications Authority of South Africa, introduced himself and his team, and expressed appreciation for the opportunity to present to the Committee.

Ms Nomvuyiso Batyi, Councillor, ICASA, noted that ICASA was established in terms of the ICASA Act of 2000 and was mandated to regulate electronic communications, broadcasting and postal sectors in the public interest, ensure affordable services of high quality for all South Africans and reduction in cost to communicate. In June 2013, ICASA developed a Cost to Communicate Programme, which was designed to address concerns regarding the cost to communicate in South Africa, stimulate enhanced competition in the telecommunications sector and intervene at wholesale level. Last year, ICASA had conducted a review of the 2010 Call Termination Regulations in terms of section 67(8) of the Electronic Communications Act. ICASA was then taken to court by MTN and then Vodacom because they were of the view that ICASA did not follow the correct process to determine the rates. The 2014 Call Termination Regulations were declared “unlawful and invalid” by the South Gauteng High Court, but the declaration of invalidity was suspended for six months. ICASA had then adopted a robust consultative process to determine rates. ICASA met the court-imposed deadline and published its revised final regulations on 29 September 2014.


She explained that the pre-2010 rates were commercially negotiated and removed from costs. The current termination rates were cost-based. ICASA adopted the LRIC+ cost standard and transitional methodology from Fully Allocated Costs (FAC) to Pure LRIC. ICASA used two cost models to determine the rates: A Top-Down model used each operator’s data to determine their actual costs, and A Bottom-Up model for hypothetical operators, based on efficiency, projected the costs of an efficient operator. However, the later entrants into mobile and fixed telephony markets faced cost and competitive disadvantages that warranted differential treatment for a finite period of time. They must be able to compete on price, grow their volumes and market shares, achieve economies of scale that reduced their overall unit costs, including termination costs, reduce their cost-base and increase competitiveness.


In the update received on ranking of mobile terminations rates in 2014, SA was rated number 10, which was below the average MTR. In comparing the base retail tariffs for mobile, it was observed that out of the mobile operators, Cell C had the cheapest call rates, as it was charging 0.66 per second for calls made to both its network and other networks at peak and off peak periods. Telkom mobile was charging 0.29 per second to its own network and 0.75 to other networks at both peak and off peak periods. MTN charged 0.29 per second to its network and 0.79 to other networks at both peak and off peak periods. Vodacom seemed to charge the most, with charges of 1.20 per second for calls made to both its network and other networks at peak and off peak periods. The base tariff comparison for data bundles were also calculated and included in the presentation.


Cell C presentation

The delegates from Cell C introduced themselves, and Mr Jose Dos Santos, Chief Executive Officer, Cell C, briefed the Committee on the initiatives that had been introduced by Cell C to reduce SA’s cost to communicate. He said that what the South African telecommunication industry needed most was a more effective and sustainable competition, and to bring down the cost to communicate. He explained the effect that Cell C had had on the prepaid cost to communicate, in respect of both Vodacom and MTN who had been forced to react to Cell C’s lower rates. These were only possible due to lower MTRs and wider asymmetry. Additionally, the effect of Cell C on postpaid cost to communicate similarly to prepaid also was that Vodacom and MTN eventually had to react in postpaid tariffs as well, although to a lesser degree.

He asked a rhetorical question as to whether, in pursuance of price transparency and fairness, selected, special discounts did represent real reductions in cost to communicate? He noted that if the base tariff was R2.50, the discount a person would get would depend on location and the time of the day. A discount may be received, but only if the time was right. He explained the significance of effective rates. The effective rate was the price that the average of customers would pay per minute or megabite (MB) after factoring all discounts and promotional offers. The effective rates quoted by Vodacom and MTN were meaningless, as the effective rate was something personal that depended on a customer’s usage behaviour. Effective rates depended on customers' usage profiles which took into account total usage, on-net/off-net split, time of day, expiry dates. He pointed out that free value usually came with a shorter expiry date than the recharge credit. He posed the question whether this meant that if a customer recharged with R4, and used up all minutes, his effective rate would be 7c. The answer was clearly not, since he would hardly be able to cover all his communication needs in those 60 minutes.


Mr Dos Santos criticised the regulatory body, ICASA, and other interventions since 2012. He noted that the regulatory progress had been very slow and highly unsatisfactory. The regulatory framework in South Africa had not been conducive to competition. He included in the presentation a chart that showed the regulatory process of unmet deadlines, no visible progress and too little or unclear impact on small operators, amongst other things.  The impact of competition and the market was that the duopoly of Vodacom and MTN in the mobile market had not changed significantly, with both of them still holding close to 90% total revenue share. Additionally, the impact of the proposed market consolidation would be unfair. If the proposed transaction of Vodacom/Neotel and MTN/Telkom Mobile was approved, Cell C would be the only remaining challenger network, and if the proposed mergers were approved and pro-competitive regulation remained absent, it was unlikely that the situation would change.


He highlighted the efforts that must be put in place going forward. He cited that these would include:
- vigorous regulation to stimulate competition
- remedies in Call Termination Regulations, since they were insufficient to ensure effective competition in the mobile market
- increased asymmetry
- legal review
- on-net/off-net discrimination should not be allowed by dominant players
- National Roaming rates should be regulated at MTR level
- there was a need to set up a National Broadband Network and the necessary spectrum made available
- handset subsidies should be abolished. He pointed out that the  revenues from mobile devices in SA exceeded R20bn in 2013, financed by mobile operators, which meant there was money flowing almost exclusively out of the country, to Korea, US, and Canada.

He cited a comparison; the Nigerian Communications Commission (NCC) had been instrumental in driving competition in the telecommunications sector, including continuous efforts to make more spectrum available and issued a 10 year Wholesale Wireless Access Service license. MTN Nigeria was declared a dominant operator and was banned from differentiating on-net and off-net prices. MTN Nigeria and two other operators were fined and banned from selling SIM cards, for poor service, and all GSM operators were fined for contravening a ban on promotions.


He concluded that recently Cell C had introduced free WhatsApp for their customers as a way of bringing down the cost of communication.

Telkom presentation
Mr Alphonzo Samuels, Chief Techology Officer, Telkom, indicated that Telkom was committed to making communications affordable and would continue to contribute positively to shared economic growth. Telkom had consistently reduced call rates over the last ten years, and particularly over the last five years, in line with the CTR glide path. It had also simplified the National Tariff Structure by collapsing local and long distance rates into a single rate which effectively dropped long distance call rates by over 18%. Telkom had given more than R400 million in tariff reductions to wholesale customers over the last two years. Telkom had reduced wholesale VDSL prices by as much as -37% to stimulate demand among consumers. He pointed out that there was now a declining contribution to GDP with regards to telecommunications, although this sector had peaked without further government stimulus. He pointed out that whilst revenues would grow about 1.5% in nominal terms, this would ultimately be, once cost of living was taken into account, a decline of 4.5% in real terms, and growth in broadband revenues would be offset by declines in voice. The deficit between Telkom’s voice and broadband revenues equaled R-623m. Telkom experienced good customer premises equipment (CPE) revenue growth. However this was a “pass through” business being that the cost of sales increased by 88.8%.


In the 2014 financial year, there were various challenges encountered. Mr Samuels noted the effect of these on Telkom, including the fact that:
- 54.6% of Telkom’s revenues were voice based and reducing
- Telkom fixed line usage revenue declined by -7.6%
- Telkom minutes of usage declined by -2.1%.
- BMI-T predicted Telkom fixed lines to decline by 5-6% CAGR thru till 2017, BMI-T predicted Fixed line & VAS revenue to grow at CAGR 0.8% thru till 2017, BMI-T predicted Mobile revenue to grow at compound annual growth rates of 1.1% thru till 2017 but Telco costs were rising by more than inflation.

In response to these challenges, Telkom embarked on a major repositioning and cost saving exercise. It was currently reviewing potential collaborations with other players to optimise economies of scale. It was exploring ways to lower wholesale network products for other players, particularly those in the service layer, and was augmenting its capacity to offer diverse products and services within the ICT value chain through mergers and acquisitions.


The threats that tended to lower the costs to communicate were numerous. The auctioning spectrum would have an adverse effect on competition and efforts to lower prices and the award of spectrum should first level the playing field. Telkom was the only mobile operator without the sub 1GHz spectrum. The current process appeared to be incongruent with national policies, and the agenda of a developmental state, and it was best practice in public policy to emphasise planning and deliberate action rather than placing the hopes of development on licensed obligations. Telkom recommended to the Committee that there should be proper alignment between national policy and regulatory philosophy, and that sector policies and regulation should mirror national policies supporting development, defining the role of State Owned Companies (SOCs) in the economy, in accordance with the developmental state agenda. There should be a review of the ICT infrastructure requirements, through the Strategic Infrastructure Projects (SIPs) and there should be due regard to the policy injunction to integrate ICT SOCs, the roll out of SA Connect and the formation of a national broadband network, as well as coherence and consistency of policy and regulation. All regulations and sector policies should be predicated on the same philosophy and be geared towards the same objective, predictability, consistent and timeous implementation of the ICASA business plan, and clarity on the roadmap and time-lines for the roll out of SA Connect


Neotel presentation
Mr Peter Zimri, Specialist: Technical Regulation, Neotel, also gave the Committee some background on the cost to communicate, the impact of the current MTRs, the move towards a cost-based model, a short-term and future strategies to lower cost to communicate and the challenges faced by operators in pursuit of policy goals. In general, the 2010 - 2013 termination rate reductions supported greater competition in the market. The termination rates assisted Neotel in two ways: firstly it was able to reduce the cost to communicate for the benefit of consumers and secondly it was able to gain some consumers, although in a marginal, market share. Neotel was the front-runner in lowering retail rates during the initial glide path. It lowered its prices to retail subscribers annually, pursuant to the initial glide path, reduced its rates for calls to mobiles by up to 45%, further reduced its rates for calls to Telkom by up to 20%,and was able to reduce its rate for on-net calls (Neotel to Neotel) to zero during off-peak hours. Rates for calls from pre-paid subscribers were the same as rates for calls to post-paid subscribers, from the date of launch of Neotel’s prepaid services, in July 2010, till March 2012, and rates for calls from its pre-paid subscribers did not change between February and March 2012. Neotel lowered its retail rates by 40% from March 2010 to February 2012, passing on 90% of the call termination rate reductions.


The impact of the current MTRs and the move towards cost based model were numerous. After the High Court ruling, there was no regulatory certainty during the following six-month period, and so Neotel was not able to adjust its pricing. Neotel welcomed the current termination rate regime, noting that MTRs should be low, since these dominated costs for smaller operators such as Neotel. Neotel further supported ICASA’s use of the LRIC+ methodologies that lowered call termination rates. The cost-based model created some opportunities for smaller players to compete with large incumbents. The MTR regulations would assist in reducing the cost to communicate and the implementation of the current termination rates would bring about the regulatory certainty needed in the industry.  Neotel believed that the current rates, supported by asymmetry, created some scope for small and new entrants to compete against incumbents. Neotel was currently reviewing its retail pricing and expected to make an announcement soon.

Mr Zimri noted that short-term and future strategy initiatives were introduced by Neotel in order to lower the cost to communicate - via voice, data and broadband - in SA. In October 2014, Neotel announced its price reduction on its broadband services. This was in line with Neotel’s on-going commitment to provide leading edge broadband services to its customers, and to reduce the cost of communications in SA. Furthermore, Neotel discontinued the sale of NeoBroadband services below 2 Mbps speeds, and reduced its packages by up to 42%. Neotel was also offering its NeoBroadband customers greater speeds at the same monthly cost for a 24 month term, while providing uncapped and unshaped symmetrical Internet access. Neotel discontinued its services below 2Mbps, except on its CDMA network, due to technology and spectrum limitations. Customers were able to upgrade their 1 Mbps service to the 2 Mbps service at the same price for a 24 month term, and 2 Mbps service customers could upgrade to 5 Mbps at the current charges for 2 Mbps. In addition, NeoBroadband Fibre customers now had the ability to boost their speeds “on demand” to cater for their temporary needs for higher speeds above and beyond their subscribed speed. The customer would only pay for the higher speeds for the periods they required the boosted speeds.


The key challenges to implementing policy goals and increased affordability, availability and accessibility included:
- access to properties
- inconsistent rules applied by municipalities to operators
- municipalities demanding excessive bank guarantees to obtain, and unreasonably high fees to process way leaves
- the fact that large incumbents were entering into exclusive deals with private property owners, thus preventing smaller players from providing services in those properties
- the current A2P SMS regulatory framework was not conducive to smaller players
- there was no wholesale termination rate for A2P SMS services in SA, and Toll-Free Services were not reallyToll-Free.

All these issues had negative effects on costs incurred by operators in providing services to consumers, and inflated the prices charged.


Neotel had some proposals to make. It believed that the Department, in consultation with Department of Cooperative Governance and ICASA, must prioritise and expedite the development and rapid deployment of policy directions and regulations, so as to streamline the way leave approval process. An economically sound regulatory approach was required to bulk SMS termination in SA. In order to ensure effective competition in the SMS termination market, a wholesale termination rate for A2P SMS services must be introduced in SA, as these would help with the growth of smaller players in the industry. Neotel supported government’s call for the reduction of cost to communicate in SA, and Neotel would co-operate with government at all levels, to ensure that this was realised. The government must, however, create the environment conducive to operators. Some of the regulatory challenges identified earlier in the presentation needed to be addressed as urgently as possible.

Vodacom presentation
Mr Andrew Barendse, Managing Executive, Vodacom introduced himself and expressed appreciation to the Committee for the opportunity to present on its findings and state of affairs in Vodacom.

Mr Hennie Jacobs, Regulatory Affairs, Vodacom and Mr Zunaid Muhammed, Managing Executive: Commercial, Vodacom, both briefed the Committee on the cost to communicate between 2008 and 2014 and the way forward. In retrospect, the cost to communicate between 2008 and 2012 experienced a reduction. A price decline was experienced and prices would continue to go down, due to effective competition in the telecommunications market. There had been a 44% decrease in effective prepaid PPM to 79c, 30% decrease in effective total PPM to 1.07c , 88.5% decrease in 1GB data package from R599 to R69 (24 Month Mobile Broadband) and the out of bundle rate decreased by 90% from R10 to R1 per MB. In respect of data growth between 2008 and 2012, it was noted that broadband demand showed a 87% increase in data revenue service contribution for period, 82% increase in active data customers and 117% increase in active data devices.


The cost to communicate from 2012 onwards highlighted the significant progress in transforming pricing and delivering value to customers. Some initiatives had included
- heavy investment in network to carry more traffic as prices were reduced,
- investment in increased coverage, especially 3G/4G
- substantially reduced pricing for voice and data
- much more value offered
- launch of "worry free" innovations – RED, PowerHour, My5, Everyday Extra and SMS.

All tariffs were simple and transparent – On net, All net, Anytime offers, old tariffs had been shifted to legacy, and proactive migration was put in place for both voice and data legacy plans. There was significant data growth to supplement declining voice revenues, on net bundles and all net bundles to drive down the cost to communicate and target low end users. Vodacom had worked proactively to build network capacity to maintain best network experience, and embed and activate new pricing through education campaigning.


The journey so far depicted a simplified and much more value to contract customers, simplified price plans with any network anytime pricing, substantial value added and integrated price plans with smart-phones included driving data adoption. The journey so far also reflected a further price reduction and more choices. Vodacom converted 63% of voice only contracts to Smart and Red plans, and effected an 28% decrease in effective prepaid PPM to 46c, 25% decrease in effective blended PPM to 68c, 26% increase in total outgoing voice traffic and 83% of monthly gross connections in Top Up were on uChoose plans.  With regards to accelerating take-up of mobile data , he noted an 18.4% increase in data revenue, 25.8% of service revenue, 25.0% growth in active data customers and smart-phone average usage up 44.5% to 312MB, which reflected that broadband was fueled by smart-phones and tablets. With Customer satisfaction as a priority, Vodacom tracked its net promoter score (NPS) on a monthly basis – its key measure of customer satisfaction. The achievements recorded by South Africa included a mobile penetration and coverage. Vodacom’s accelerated capital investment programme, and had completed network RAN renewal, was 4G ready with 2000 LTE sites and 76% of sites connected to own high capacity transmission network. SA thus had a vibrant mobile market.


According to “The Global Information Technology Report 2014”, SA's ranking improved with a high Network Readiness Index when compared to Brazil and India. SA had continued to show robust growth. SA’s global ranking improved also based on certain important improvements in the penetration of ICTs among individuals and SA had overtaken India and ranked favourably with Brazil and China.

The Spectrum challenge revealed that timely assignment was vital for growth. The amount of assigned spectrum correlated with ITU ICT Development Ranking. European Regulators assigned 800MHz spectrum between 2010 and 2013 and Vodacom wondered when regulators in Africa would follow suit?

Challenges encountered under site acquisitions included high rentals, cumbersome approval process, objections from the public, lack of policy or alignment of policy in municipalities and long lead times to obtain AC power.  The other challenges encountered under the fibre and microwave deployment way leaves were, again, the cumbersome approval process, one-trench policy and mast space and strength on existing infrastructure.

They asserted that when making comparisons against peer countries, performance indicators should, amongst other things, be considered in assessing SAs global ranking. Finally, Vodacom alluded again to the fact that prices had continued to decline, there was an increased customer centricity, there was an increased investment in coverage and capacity, and that spectrum was required towards further improvement. They assured the Committee and SA as a whole of Vodacom’s commitment.


MTN Presentation
Mr Graham De Vries, General Manager: Regulatory Affairs, MTN, and Ms Philisiwe Sibiya, Chief Financial Officer, MTN, gave the presentation. They briefed the Committee on where the mobile sector was at the moment, what had changed as regards mobile pricing, mobile transparency, challenges encountered, how the Government could assist, and strategies to improve South Africa’s international ranking. The presenters indicated that SA’s penetration was driven by intense price competition in the mobile voice and data markets. South Africa showed a 43% growth rate in mobile customers over the past four years and, on a year-on-year basis, the market grew by 7%. Market conditions suggested that the market was saturated and this was also compounded by lower disposable income that may have an impact on investments.

MTN had invested more than R30 billion as capex into SA and over 130 million in Corporate Social Investments (CSI). MTN had invested significant capital into the South African market and still has plans to invest further. Broadband enabled economic participation in the economy. The MTN SA Foundation’s School Connectivity Programme was rolling out computer laboratories to meet the challenges. In addition, through its health portfolio, the MTN Foundation promoted sustainable healthy lifestyles in communities in its school and community-based initiatives targeting TB, lifestyle diseases and HIV and AIDS. 


Voice tariffs had decreased in the last six years with MTNs voice tariffs significantly decreased over the last 6 years by approximately 68%. MTN continued to drive innovative products and services and strove to enable lower prices supported by a high quality network whilst ongoing infrastructure investment was needed and was being done. Data rates had decreased by 87% with MTN's data tariffs significantly decreased over the period of six years by approximately 87%. Lower data rates and the availability of Smart-phones, tablets and modems had seen a significant increase in traffic on the network. A low cost handset was developed and distributed - the Steppa phone – that removed barriers to entry. The increase in data traffic placed significant pressure on the network with MTN forecasts that data growth rate would continue. This would require the requisite infrastructure investment to ensure network sustainability


MTN reflected, in its presentation, on some of the media’s portrayal of the mobile price war and said that MTN was determined to regularly inform its customers as to what its tariffs entailed, through its customer journey process: Customer journey, education, usage notification and transparency. Research showed that network coverage was most important to customers and that network coverage was the main driver for network preference, closely followed by price. Network Coverage was the highest driver for dissatisfaction amongst mobile subscribers.

Recent independent survey findings have found that:
- there is an increase in the value perception of MTN products
- a significant improvement in International Calling customer satisfaction
- MTN Affinity remains above user share, indicating that mobile owners are committed to, and most likely to using MTN as their main brand
- MTN had added nearly 1.4 million subscribers in the last quarter.


The presenters highlighted the challenges encountered and how the Government could assist. Some of the challenges to growth were cited as vandalism and copper theft which subsequently impacted the industry and customers. Other challenges included  an absence of rapid deployment, the Local Government's slow uncoordinated rollout, lack of high demand radio frequency, the fact that mobile operators were evolving to newer technologies such as LTE, which must still be supported by the initial legacy platforms such as GSM, and said that the re-farming of spectrum for broadband services had limited scope as ultimately it would degrade the quality of service to existing and power outages. MTN was attempting to position itself to improve South Africa’s international ranking, based on its lowest headline tariff as the third out of 20 countries. The mobile termination rates had been implemented by MTN as required from 1 October 2014 in compliance with the regulations. Operators offered different packages to suit the different demands of their customer base - such as calling preferences, on-net/off-net calling, demographic demands and lifestyle segmentation.

It was noted that in relation to the affordability of communications, SA ranked fourth in an African context (2012). According to the International Telecommunications Union (ITU) Report 2012, Mauritius, which ranked 39th globally, was at the top of the African list, followed by Seychelles, Botswana and South Africa. These four countries were the only countries where the IPB represented less than 5% of average monthly GNI per capita.

MTN said that this seemed to show conclusively that the mobile market was effectively competitive, as mobile price wars meant prices were decreasing rapidly. Competition had already delivered much cheaper mobile prices, both for voice and data. The big opportunity for SA lay with data, which required massive capital investment. This could be done by private companies and be achieved by incentivising investment and releasing spectrum to efficient operators who had the requisite economies of scale. South Africa performed well in terms of relative pricing, against peer countries and African counterparts. MTN supported the call for transparency in a highly competitive market and had developed a customer journey process to regularly inform its customers of tariff offerings.


The Chairperson requested that members engage with the mobile operators on the presentations given. She pointed out that Members should be specific on the presentations being referred to when asking questions.


Ms N Ndongeni (ANC) wanted to know whether ICASA had the relevant skills to champion governmental policies in relation to the cost to communicate. She noted that the presentations were concentrated more on initiatives at a high level which did not talk to the oversight intentions to make calls affordable to the public. Could the Committee get an indication as to how long it would take for lower rates to impact ordinary citizens, especially in rural communities?

Ms Ndongeni commented on the interesting presentation made by Cell C. She asked whether the acquisitions between Neotel/Vodacom and Telcom/ MTN did not contradict the Government’s liberation policy to encourage competition.

Ms Ndongeni was interested to hear the commitment that all mobile operators were giving to connect in the rural areas and still provide quality. She asked how the mobile operators would model the impact of their rates.

Ms M Shinn (DA) said that the impression that she got from the presentations was that the greatest impediment to reducing the cost of communication was the government. The delays in the MTR review, the Broadband value chain, ICT indicators, Spectrum with no clarity on the policies, all were problematic, and it was shown that these issues clearly lie with the Cabinet. The bureaucracy that had been introduced to the Local Government level was also an impediment. She pointed out that very little awareness of the input costs of the network providers were available. She asked if the network providers would benefit from a reduction in import taxes levied on equipment, and the costs of building the network. She asked if any negotiations were under way to get a good rate regarding the costs of using road and land reserves. She also asked each of them to highlight their social obligations and how they contributed to the Universal Service and Access Agency Fund. 

Ms M Mafolo (ANC) addressed her questions to the DTPS. She pointed out that the Department admitted that there was no fair competition, but asked what could be done to rectify this. The issue of transparency in pricing was crucial. The actual cost of making calls should be known, including the hidden charges. She wondered how ICASA could ensure that mobile operators were actually cooperating so as to reduce the costs to communicate. She enquired whether the chart for the base data tariffs given in the presentation was for prepaid calls or contract calls. She asked how would all the network providers ensure that connectivity was made available to all persons and not only a privileged few? She wondered what could be done to assist the disadvantaged women to be capacitated to use mobile phones. She asked if she could gather women in her constituency so that any of these telecommunications (telecoms) companies could come and give them advice and guidance on the advantages of mobile services for business utility Finally, she wondered if the Post Office could be assisted to become internet compliant.

Mr Mackenzie said that whilst he appreciated the presentations, there was a lot of information to absorb at such a short time. In terms of Fibre Rollout, he affirmed that the proposal by Cell C on a new company that should have an oversight role over what was happening on the ground was a good idea, in order to ensure that services were not duplicated, but he would need more elaboration on the kind of model that Cell C had in mind. He wondered if there had been any audit carried out on the existing infrastructure on ground.

Mr Mackenzie said that it was implied from many of the presentations that there is a regulatory failure on the part of ICASA, and the same applied to the lack of clarity and certainty in the market. Furthermore, the Cell C presentation highlighted the regulatory process, unbundling of the local loop, broadband value chain, ICT indicators, Digital Terrestrial Television (DTT) rate and road map, all of which revealed that there was no clarity as to when these would be finalised. He therefore thought that ICASA should look at the deadlines on the presentation and propose to the Committee when it intended to meet those deadlines because it was clear that the whole industry thrived on what ICASA does. As a big supporter of competition in the market, the information on the acquisition of the smaller players in the industry was worrying, but on the other hand, it was also worrying if the major players in the industry, Vodacom & MTN, were penalised for excellence. Their marketing strategies were outstanding. The MTN investment figures were huge. The Committee would like to know from the others what their investments were on the ground and what sort of returns their shareholders were expecting.

Speaking to the historical context slide presented by the Department, Mr Mackenzie noted that South Africa was compared with Brazil, Chile, Korea, India and Malaysia so as to assess its relative performance, but proposed that Nigeria and Egypt should also be considered and assessed with SA.

Mr Mackenzie asked how the players would aim to create a regulatory environment that would attract capital into the country and into investing in infrastructure and what, besides addressing the termination rates, the government could do to assist the smaller players in the market to enable them grow.


Ms Tsotesti read a paragraph from a public hearing document in the Committee’s possession which, to her, implied that whatever efforts were being put in place by the state to narrow the inequality gap, it was somehow a futile exercise seeing that the cost of conducting business in the ICT sector was really hitting the poor hard. Moreover, most competitive studies concluded that SA’s ICT was the most expensive, but ICASA and the DTPS was continuing with the refrain that they had reduced prices here and there.

If part of ICASA’s mandate was indeed to stimulate debate around the cost to communicate in SA, why were consumers complaining all the time? What method was it using to reach the public to ensure it understood what ICASA meant when saying prices were continually being reduced?

How was ICASA stimulating competition in the telecoms sector when there was so much lamenting over unfair competition? Were there any other criteria in place for service providers before granting them licences, to ensure that consumers were protected?

Was there any role that the Competition Commission could play in resolving the riddle of unfair competition? Enterprises could well have collapsed before that time. The high cost of communication was hitting hard on the poor, but although the network providers were constantly saying that they had reduced the costs of communication, this was not seemingly borne out by the tariffs. She asked what ICASA was doing to reach out to the society and help them to understand. The percentages being declared by the network providers were very confusing for some, and she urged that they provide concrete and fully-understandable figures. She asked if there were conditions put in place by ICASA to mobile operators before issuing licences to them, so as to make sure that consumers were protected.  Costs incurred by the service providers should be reduced as much as possible, because in the long run, it would be the end users, the consumers, who would have to bear the burden.

In the afternoon session, Members continued to ask questions arising out of the earlier presentations, and reiterated some of the points that had been made earlier.

Ms Tsotesti asked who supplied office rental pace quotations for Vodacom, or did it just pay for the most expensive as part of its marketing strategy? She asked that Vodacom elaborate on the cumbersome approval process for the site acquisition and fibre and microwave deployment mentioned in its presentation?

She reiterated that it would be helpful for all at the meeting, deliberating over the cost to communicate, to be cognisant that ultimately it was the poorest of consumers that paid the price.

Mr Mackenzie noted that apart from termination rates and spectrum, what could the government do to assist the smaller players in the market, to enable them to flourish and provide more competition in the market?

The Chairperson said that it was quite apparent that there still needed to be more debate on the matter. Policy and regulatory directives from the DTPS and ICASA would possibly need to be clarified more, because it was becoming clear to her that the lull at times that got created on a particular matter delayed implementation, as it created uncertainty.

The public debate on the cost to communicate had been ongoing for a few years already, but it was only in 2014 that ICASA was saying implementation had started from 1 October. Therefore the state and the regulator had to try and proactively push to create a working environment, as SA was behind compared to its counterparts, and because the right to communicate was enshrined in the constitution of SA. Of course, the Committee would continue to talk more on realigning the DTPS in terms of policy directives from 2015, as that would assist everyone in terms of where the country was going and how it was to get there.

The Chairperson said all the stakeholders, together with the regulator, had to understand the need for compliance with licence agreements. For example, he had been working with Deputy President (DP), Motlanthe during the national elections campaigns, and when they were in the rural areas of the Northern Cape, none of their phones worked, across all telecoms network providers. When DP could not be flown out of that area at the designated time, his security detail had started panicking over his security. The Chairperson’s concern at that time had been that as representatives, they could not just leave that community, because they had to deal with those connection challenges daily. They could not easily access health care and policing because networks were simply unavailable. That was a reality for many rural SA citizens, and without the regulator enforcing compliance in the licence agreements, the obligation for operators to invest in infrastructure in the rural hinterlands would not occur. 

To be fair, network accessibility was centred in urban areas, as there were bigger profit margins there. ICASA therefore had to understand and carry out its constitutional obligations, as per the Chapter Nine institution mandates. As part of the Committee’s oversight, it would have to monitor ICASA’s work in terms of rural infrastructure development, because an extension of the debate the Committee needed to have was around the quality of the infrastructure being deployed, and its upgrading.

The conversation could not just be limited to how much ICASA and its operators had reduced charges for voice calls -- from R1.50c to R0.90c. It had to include the quality of that service after the reduction.

The issue around the Competition Commission would certainly be best dealt with together with the Committee on Trade and Industry.

Though the companies presenting to the Committee on that day had to provide a return on investment for the shareholders, somewhere there needed to be an element of patriotism amongst those operators so that though competition would continue, the conversation would move to how operators and the government built a better SA for all.

The reason the Committee was having inclusive discussions was because the time for sectors, departments and operators to work in silos had ended, so as to avoid court challenges. 

There would not be any particular order for responses, except to allow the DTPS to start the replies so that everyone else could follow. The DTPS would need to indicate areas that would require written responses.

The DDG said that the presentations had almost given the DTPS an indication of the state of affairs, even though there were conflicting messages. On the one hand, there was a demand for more spectrum. Alternatively, the very same spectrum had to be provided only for those operators already in existence. That thought process was challenging, because ICASA’s regulations on call termination rates, specifically in the voice market, were addressing market failure. The market was evolving into Internet Protocol (IP) based networks and services could be offered on those converged networks as they were.

Addressing competition, the DTPS felt that spectrum needed to be licensed for those new services, and the DDG agreed with the operators’ request for that kind of licensing for spectrum allocation. The DTPS and ICASA were working tirelessly on that issue, and the Minister would be issuing a policy directive in terms of spectrum allocation specifically for broadband services. That process simply needed to be given a chance, as ICASA had publicised what the intentions were in that regard. There were a number of policy goals that needed to be achieved alongside effecting competition through spectrum, one of which was SMME growth. In terms of separation of wholesale services and lowering costs, this was one key issue the DTPS thought needed to be addressed.

Indeed the absence of rapid deployment of infrastructure, particularly regarding issues occurring at municipalities and the competition that was there, SA Connect acknowledged that challenge. The Electronic Communications Act (ECA) said that DTPS had responsibility for the rapid deployment policy, and the DDG asked Mr Wills to reflect on what was happening in that niche already.


Mr Wills said that the industry with the Committee had to recognise that rapid deployment came from both section 20 and 21 of the ECA. Simultaneously, it had been built into SA Connect. Moreover, SA Connect had the four main pillars, one of which was digital readiness. This spoke to quality of service parameters, ICT indicators, and SOE rationalisation, where one of those sub-projects had been rapid deployment guidelines.

With the assistance of the National Treasury’s (NT’s) government technical advisory committee, he thought that all the digital readiness projects were currently gaining momentum. One had to be cognisant that rapid deployment appeared to be a simple process of just publishing a document and making regulations, but in fact one had to recognize that a number of national laws not administered by DTPS, but by other departments, were a challenge. Additionally the independence of the three spheres of government prevented a national department from simply dictating to local government. It was because of such challenges that in the overall Infrastructure Deployment Programme (IDP) the Infrastructure Development Act (IDA) had been created.

The Act had then set up mechanisms to try and resolve those different jurisdictions and to bring together relevant decision makers across the different spheres – those who had a role to play regarding approvals and permits. A multi-pronged approach was therefore required in the bigger scheme of things. Indeed, the DTPS had concluded G-tech scoping, with a work breakdown structure, but within that some of the main variables that one had to look at were issues such as governance. That meant the actual policy directive to ICASA had to be developed so that it could formulate regulations, but simultaneously one had to realise that ICASA regulations could be limited, as it had no authority over municipalities.

Therefore, DTPS’s view was that there would have to be over-arching legislation, similar to the IDA. From a governance perspective, there would have to be a cross-cutting inter-governmental committee established to represent all the entities -- the different spheres of government and related authorities. There was the Strategic Infrastructure Project:15 (SIP 15) already, which created a mechanism in terms of the broadband networks as such, but then again its focus was to be on public networks and therefore SIP:15 possibly would not cover all instances of rapid deployment, which was why one would need a separate parallel process as well. There would need to be liaison with the Presidential Infrastructure Coordinating Commission (PICC) and also the Broadband Advisory Council (BAC).

The DDG said that the DTPS was quite intrigued by the Cell C reference that Mr Mackenzie had used, because there had been a few indications of projects which may have not met the deadlines. Indeed, the DTPS agreed and shared Cell C’s frustration. Those projects, like the broadband value chain, had to have studies undertaken beforehand, and that for broadband had been concluded. That was a medium term project, as had been indicated, which had to result in specific market studies within broadband ICT, so as to identify Significant Market Powers (SMPs). That was linked to the embedded Chapter 10 process, because the DTPS would not “thumb-suck” things from nowhere, which would result in litigation issues.

The DTPS felt it had made a lot of progress where ICT indicators were concerned, because ICT infrastructure between the DTPS and ICASA had collated information where ICASA had an inaccessible firewall, which had been funded by the DTPS.

Transparency pricing had been delayed a bit, as the DTPS was trying to discuss the matter with ICASA to see clearly what was going to happen, and which regulations would it affect before the DTPS issued a policy directive.

The Chairperson interjected to ask what timeframes had been set for the conclusion of the dialogue between the DTPS and ICASA, and when transparency pricing would be effected.

The DDG replied that he would want ICASA to respond first, because that project was for the current financial year for the DTPS.

ICASA said that it was extremely encouraged with the meeting that the Committee had convened, as it had brought all the players in the industry that much closer. Its working relationship with the two Ministers had been very cordial, and that had been brought about by the Committee as well. It was highly committed to facilitating what the industry needed as it wanted to be a catalytic agent for change, and not a hindrance.

The Chairpersons’ view on development was well taken, as ICASA had been to Mafefe, when it had just been an open space. Therefore Cell C had to be commended because three months later, when ICASA returned with Cell C, they had found that there was quite a lot of voice call traffic from that region.

Regarding gender representativity, the Committee had first-hand evidence that day, with Cllrs Batyi and Pillay there.

Cllr Batyi said that everything done at ICASA regarding the cost to communicate programmes and others was based on evidence arising from the regulation making process. Perhaps there had been confusion, because the wholesale part of the cost to communicate policy interventions had been ongoing since 2010. ICASA had had the first glide path, wherein it had introduced wholesale call termination, which had ended in 2013. Because there had been a review at each three year interval, she felt she needed to clarify that point.

Regarding unfair competition, ICASA as the regulator had what was called the Chapter 10 process, and while competitors could bandy about the clause ‘unfair competition’ and the like, the regulator could not do so without engaging in a process of finding out first whether that was indeed the case. Only after that had been done could ICASA say that a particular market had been found to be uncompetitive -- for example, the broadband value chain study that DDG Phiri had spoken about. It had shown various levels of the market and in what areas ICASA would possibly need to intervene for the purposes of that value chain. Following that study, it would then implement regulatory intervention.

In terms of rural connectivity, Cllr Batyi used the MTN dynamic pricing package as an example. That package actually assisted people in low density areas such as rural communities to have access to cheaper call rates.

The main concern for the regulator with respect to transparency was that there were too many packages. Whereas most SA citizens spoke of a contract, no one ever really asked how much a voice call would cost on a particular contract. The concern was with the latest devices, and that was where the regulator was saying tariffs needed to be transparent and consumers needed to be advised accordingly. Additionally, the on-net and off-net differential issue for contract subscribers was that on-net calls were actually zero-based for most of the contract packages, but that information was not a widely known fact. Therefore the regulator had to engage those issues in a legally sound manner, because otherwise it ran the risk of being taken for litigation by any of the licensees.

The apparent regulatory failure alluded to by Cell C needed to be demystified because first off, Cell C itself was part of the processes within ICASA. Some of the information ICASA required had to come from licensees, and certain licensees had requested extensions in terms of submitting this information. Therefore, the processes were a two-way street. For example, for call terminations, ICASA had done extensive consultation, where it physically had gone to the offices of operators to inform them that information had not been submitted, and therefore it was quite disingenuous for individuals to say that ICASA had not done certain things.

The DDG had mentioned that some of the gaps that had been identified had actually been found through looking at the entire regulatory universe. For instance, taking rapid deployment guidelines, ICASA could not act without having consulted the South African Local Government Association (SALGA) and other relevant stakeholders in that regard. Regulation was not about only individuals being regulated, but about the entire ecosystem. ICASA’s goal regarding the cost to communicate programme was to ensure that citizens would be able to get affordable services which they would enjoy, with good quality. However, that could not be done without evidence, as alluded to above in the regulatory decision-making mechanism, otherwise operators would point to ICASA as the first culprit to have not followed due process.

Though there had been talk about consumers, SMMEs and investors, ICASA had to do a balancing act as it regulated in the public interest.

Cllr Pillay said that the 20c rate by 2016 had started pre-2010, when mobile termination rates had been negotiated between operators, and the rate had been R1.25. After the three year regulatory glide path, that had been brought down after review at the end of 2013. The new glide path at the beginning of March 2014 had already brought the rate down to 20c. Due to the court challenge, ICASA had had to go back and review the rates. It had returned with 20c still, which would be implemented for a year starting on October 1 to 30 September 2015. It would then drop to 15c, after which it would go to 13c in 2018. The reason that it had taken so long was because ICASA had had to strike a balance between bringing the rates down, as it wanted to ensure that it was cost-based, while simultaneously it had to be cognisant of the impact that it would have on re-investment and the businesses it was regulating. The process had to be done in a way that would encourage business continuity, because bringing the rates down in an unmanaged manner could inadvertently lessen competition, which was not ICASA’s intention.

ICASA did multiple things to protect consumers, with rates being one. The intention was to bring down rates to end users. The logic was if one brought down the input cost, then that would bring down the retail cost. This did not mean that if ICASA brought down the wholesale cost by 10c, this translated to the retail rate coming down by 10c. That depended on the operators, and that knowledge had been publicised. Much of it had been in the media already, where ICASA had had to explain the link to consumers, as some publications had been presenting the information in a way that if the wholesale rate came down, then that automatically meant that the price to consumers would also come down. It had been noticed though, that each time the call termination rate came down, the retail rate came down as well, though not proportionately. The Committee would be furnished with additional information on what the plans and prices were, going forward.

ICASA was also concerned about the issues surrounding promotions, as consumers were not necessarily clear about the rules for promotions. For instance, one did not know for how long a promotion would last, and there were other additional variables which could impact on the actual benefit to the consumer. Even though there were regulations, ICASA was working to create better awareness in that regard. A public awareness campaign that ICASA had been running was that consumers had to ask questions, because it realised that a lot of SA consumers based their purchase decisions on the handsets. People had to ask what the rates were for particular contract packages, as ICASA’s alternate dispute resolution committee was repeatedly dealing with complaints about billing, which was not a priority question at the time of purchase, nor was it part of the advertisements for packages. For example, one would know that they paid R199 per month for 100/200 minutes, but that consumer would not know that beyond that contract whether it would be 99c or R3 per minute. ICASA maintained that that had to be made clearer.

When it came to quality of service, dropped calls and coverage, it had to be realised that not all operators had coverage across the nation, and therefore it was important for consumers to ask about coverage in particular areas. As it stood, operators were not obligated to cover 100% of the country, and as a result ICASA and the state had to create that awareness that in particular areas particular operators possibly would not have coverage, or that it was part of the longer term plan. If as a consumer one then went to purchase the service at that time, the type of coverage possibly would not be to the desired quality. Unideal was part of an evolution of getting to the point of having more ubiquitous coverage. With that said, in terms of voice, operators had informed ICASA of their coverage.  One of the reasons for the change in the coverage obligations was that before the Electronic Communications Act (ECA) and the Altech judgement, the three mobile operators that had been licensed had had coverage obligations. However, as a result of the Altech judgement and the conversion of licences, ICASA could not impose additional obligations that were not there before, because the ECA said that ICASA had to convert licences on no less favourable terms.

In terms of whether the authority had the skills necessary to deliver on the cost to communicate programme, the DDG said that building internal capacity and skills development was a key priority for the DTPS. To that extent, the DTPS had recently completed an organisational realignment exercise, and a skills audit as well. Council had approved the organisational realignment and the DTPS was implementing it so that it knew what skills there were and what more were still needed. Finding the additional skills would be a process of finding the right people within the budget. On the cost to communicate project, the DTPS was satisfied it had the right skills to undertake the exercise, where it had combined internal expertise and external consultants. There was not much skill in this area in the country. Operators could attest to that as they had also contracted consultants to assist them in that process.

On the authority providing certainty and predictability to the sector, the DDG linked that to the organisational realignment exercise, since the DTPS had positioned itself adequately to deliver on its mandate. The planning would improve and that area was one where the DTPS would do more in terms of ensuring that the regulatory agenda and plans going forward were clear, and that all stakeholders were informed and consulted on in terms of the priorities.

Cell C said the proposed mergers were in line with the state’s policy on liberalising and reducing the cost of communication. The state had set out some years ago to license those operators to create a pro-competitive environment. By allowing those mergers to occur would be going back on what the state’s policy had intended to do. Honestly though, one needed to ask why Neotel and Vodacom were merging, and why Telkom and MTN were merging. Through the entire meeting up until that point, it had been emphasised how important spectrum was, and Cell C believed that the mergers were taking place because there was a need for spectrum. Therefore the regulator possibly needed to address the spectrum issue and allow those competitors to continue to compete, as it did not believe that the mergers were taking place for anything else, apart from seeking spectrum.

Cell C had presented on the national broadband approach in terms of one company in September 2014. In essence what that meant was there would be one new entity, probably funded on a 50/50 debt to equity ratio. There would be state institutions like Sentech and Telkom, and private investors like Vodacom, MTN, and Cell C, which all would have a stake and would fund such a business by building one massive infrastructure, right from the radio equipment through to the transmission requirements necessary. They would then compete on services, which would make it more cost effective and achieve a higher penetration into rural areas much more quickly than what had been achieved over the last 20 years.

Cell C did not believe that it was unusual that there had been an independent audit done on the amount of infrastructure that was being built specifically for transmission, but it was well aware from its interactions with all those organisations with which Cell C had recently signed an agreement. There had been billions of rands in infrastructure that was lying unutilized at that point in time, in terms of the amount of transmission that had been laid.

Telkom said that it would respond to the question on way leaves. Some of those way leave applications had taken in excess of 18 months, with several referrals which had put Telkom back in terms of its deployment. In particular, there were questions around the role of the South African National Roads Agency Limited (SANRAL). Telkom had similar challenges with SANRAL in terms of approval of way leaves, some of which had dated back more than two years at that time.

In terms of the fibre kilometres that were being rolled out, Telkom knew that SIP 15 had been busy with looking at the total amount of fibre kilometres, and all operators had made the relevant inputs.  Telkom was interested to get an indication of where the actual gaps really were in terms of what it had rolled out.

Telkom had realised that with convergence, it had actually needed to bring companies together, and one of the issues, as an example, was that it had applied to do an active brand sharing deal with MTN. The merger in front of the Competition Commission related to Business Connexion (BCX) in particular, and was related to the convergence between voice, data and getting to play across the ICT space. Telkom felt that one of the things that needed cognisance was that while the talk was over voice and data, there was also the convergence between ICT and IT as a sector specifically when it came to network function, virtualisation and software defined networks, which would be another way of taking costs out of the network.

From where Telkom was sitting, it believed that spectrum would be an enabler going forward and it would be important that the Committee, the DTPS and ICASA --in their oversight role -- could ensure that once that spectrum had been allocated, there would be the economic benefits that needed to be derived from such allocation.

Vodacom would welcome the conversation to which the Chairperson had alluded, going forward. It was clear that SA needed universal access of the highest quality and standard. Moreover that access had to be at the lowest price, so the conversation had to be on how the sector dealt with the tensions between those public interest objectives.

There had also been comment on whether operators would benefit from a discussion on import tariff reductions, cost of land and so forth.  Vodacom felt that was an important and much needed conversation as well. Often it was not clear, because when the prices were high, or access was not universal, or the quality was bad, did that constitute government failure or regulator failure or market failure, or was it technology failure? All that was apparent was that something was broken, and needed fixing, and that should be discussed.

The matter of whether the state would penalize an efficient and effective operator spoke to what happened when there were tensions between public interest objectives, because clearly there was a need for effective and increased competition. However, it had to be done in such a manner that the scarce resources, as input to that competition, would be used efficiently to provide overall consumer satisfaction throughout the country. The spectrum, where there were tensions, was a clear case in point. Was it to be given to an operator that had demonstrated the most efficient use of that spectrum or should it be given to promote new entrants that could or could not use it most efficiently?  

Mr Makhuvha referred to the rentals paid to municipalities for towers. A note had come during the meeting stating that in the Johannesburg municipality, Vodacom had been paying R5  000 on certain sites, for example, and that since 6 November that rent had been increased to R8 000. There were implications in terms of the cost of communication, as that burden of cost would be incurred by the operator. In any business situation, how that burden would be shared needed to be discussed. There should be coordination between municipalities and the national government, because the cost of telecommunication had to be the responsibility of all spheres of government.  If national government was saying the cost must lowered, while local government was increasing the cost of communication, which seemed irrational.

He agreed that Vodacom possibly needed an opportunity to share with the Committee the typical path taken internationally in terms of market consolidation, as this was not a unique SA phenomenon. It could provide the detail on why Vodacom was thinking in terms of its deal with Neotel. It was important to share those models and thinking, as the issues did not revolve only around spectrum.

Mr Jacobs said that Vodacom did offer more value to contract customers, in terms of the sms, voice and data that went with a contract plan. Moreover it aimed at providing the best and latest handsets with contract packages.

Neotel said that it had made it public that it had invested about R5.8 billion in infrastructure roll out in SA. The biggest delays in the laying of fibre were in the approvals of way leaves, and hopefully the Infrastructure Development Act (IDA) could resolve the deadlocks for the bigger projects like the SIP15, in terms of getting a blanket approval for way leaves and access to property. Moreover in terms of access to private malls, some of the entities priced access so prohibitively that access was impossible. The regulator would possibly have to look into that, because it seemed that every privately-owned mall saw the operators as money makers for them.

ICASA had done a spectacular job on the International Mobile Telecommunications (IMT) roadmap. That document identified the kind of spectrum the country would need to achieve SA Connect. That issue was not only affecting SA, as it came from the International Telecommunication Union (ITU), which had a working group working on identification of spectrum for mobile technologies and for broadband services. The minimum that the group was looking at was 1000MHz of spectrum for future access to mobile broadband services. Those high level discussions had to take place in SA, the Southern African Development Community (SADC) and at the World Radiocommunication Conference 2015, which would have to make some key decisions around not only digital dividend one, but also digital dividend two, which needed to be addressed, which would give SA access to some more spectrum. Of course those things could not happen without SA’s broadcasting migration taking place and if that were delayed, Mr Zimri could see that there would possibly be some kind of overlapping responsibility between this Committee, and that of Trade and Industry. For example, if Swaziland wanted to roll out a mobile broadband network by June 2015, SA could not interfere with that network, because it had already acquired the digital dividend which SA lacked, where the country needed to expedite the migration of broadcasting services.

Although there were quite a few models around the world of wholesale access networks, the Australian model looked like where SA was looking at, whereas there had been so many complications in that network’s roll out. The country simply needed to be careful about what model it would adopt so that things would not regress, because if there was one network, the points of failure of that network were much higher than having infrastructure competition in the market.

MTN said that in terms of continuous coverage in rural areas, operators were continuously rolling out infrastructure. In the September roll out presentation, MTN’s continuous roll out of 3G could be clearly seen. It was more difficult getting to the rural areas because each and every base station, 3G or otherwise, needed either fibre optic or high capacity microwave, which were a challenge to install. The commitment to roll out was there, as MTN had reached 99% in terms of voice.

MTN was aware of the way leaves and Dark Fibre Africa case, and it was a slight overstatement to say operators could do as they liked, because there was another process that had to be undertaken. That case was not a panacea to the problem, even though it did help.

In terms of the national broadband network there was quite a lot of contention there, as Neotel had just mentioned. Who funded, how would it work, and who would sit on the board of directors? If a company did not put in its money, would its shareholding get diluted? Therefore it was not that simple. MTN felt that the thinking had to be about that monitor list, as the national broadband network was a monopolistic kind of holding, charging monopolistic prices. Was there a case for some form of consortium which would work in the rural areas?  MTN agreed there was. Another conversation within that particular context was that of being very careful that public funds would not be used to compete against private sector money in commercial areas, otherwise that would be self-defeating.

The Chairperson thanked all the presenters for making time to come to Parliament and talking with the Committee, and noted that the conversation would continue in the sense that if the companies had issues that they wished to be addressed, then that was the opportunity to table them.

She then outlined the remainder of the Committee’s work going forward, especially regarding oversight at schools that had been connected by any of the companies at the meeting. The Committee was asking those companies to submit a list to the Committee so it could select which connected schools it would visit. She further reminded the DDG to also submit the Department’s own list, as the Committee wanted to see what the models were on the ground. The operators were also welcomed to be part of the oversight, though they would have to indicate this to the secretary of the Committee.

She then outlined the draft programme for the Committee’s work at the beginning of 2015 and the oversight programme.

The meeting was the adjourned.


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