Spectrum policy: Minister, Department and ICASA on processes moving forward

Meeting report

Briefing
The Minister, Dr Siyabonga Cwele, said that he expected the radio frequency spectrum policy to be finalised by the end of the month. The policy was part of the national interest ICT policy. Stakeholders have had input and what emerged from consultation was that policy should be premised on the Constitution to try to guard against issues of inequality. For example, development in rural areas would feature strongly. He encouraged the reading of the ICT chapter in the National Development Plan (NDP), as most of the decisions would need to take into account the NDP. The review of the market structure emanated from the NDP. The Department would have to decide on whether to have duplication of infrastructure, on competition and on whether there would be a sharing of infrastructure. The Department would explore what options were available and the NDP would be its guideline.

The spectrum was a public resource belonging to all the people and the Department would have to apply itself on how to deal with this to the benefit of all. Currently the spectrum was operating on a first come, first serve basis but it was clear that for long term development the first come, first serve model would not benefit all. There were barriers to entry for small companies that needed to be addressed as artificial monopolies were not a help.

The Minister said there would be arguments that only one or two companies be allowed to operate. He said it was not a given that there should be two dominant players, this had happened because of previous policies.

Mr Tinyiko Ngobeni, Deputy Director General for ICT Infrastructure in the DTPS, spoke to the creation of an enabling ICT reality by 2030. He said that in a South Africa with infrastructure and access gaps the question had to be asked whether the country wanted to raise money as its main goal. He said it was more about service and reaching all South Africans. Whether it would be for free or go to the highest bidder were questions the Department was considering as it considered all approaches? It would probably not be for free. He said Mexico and Rwanda were examples where the auction route was not taken. South Africa’s needs had to be placed first. There was a danger for small companies who would be at the mercy of big companies because of market power relations. The Department was listening to the views of the public and industry.

Regarding policy trying to curtail the roles of the Minister and Regulator, he said there had to be a closer working relationship between the two and also because it would cause problems in the market if they did not.

One proposal was the allocation of set asides for high demand spectrum. The Department was looking at it but wanted the whole pie to be available for all South Africans. The allocation of spectrum was a country’s policy choice and assignment would be by the Regulator and be in line with policies. While there was long term licensee allocation there was short term spectrum allocation and the Department wanted to give certainty to licensees.

He also spoke to the evolution of mobile networks, the way forward to close policy gaps, policy objectives and enabling principles and the anticipated outcomes as well as the processes that had been followed.

Mr Rubben Mohlaloga, Acting Chairperson of  ICASA, addressed spectrum policy and the legislative framework and said it was not meant to inhibit innovation. He said there was a need to follow a policy review which process was currently underway.
 
He said certain areas of the spectrum had restricted use. The higher band was little used because of technical constraints and the lower bands experienced congestion and there was little available. This was a phenomenon experienced throughout the world. He said demand was increasing so government control and regulation was needed for there to be harmonisation.

He then covered the history of developments of the spectrum in South Africa before moving on to comment that the industry was undergoing a fourth revolution and that ICT was identified as a key divide of the future so it was important for a country to keep abreast. The 2015 World Radiocommunication Conference (WRC) had powered way for the 5th generation of networks which provided high capacity networks.

He then spoke to the current spectrum policy environment, spectrum policy weaknesses and shortcomings and broadband and spectrum challenges and  spectrum licensing regulatory framework. He also covered the IMT roadmap, IMT bands for universal coverage, IMT spectrum for broadband capacity/speed, the available spectrum capacity, He said the cost of not releasing spectrum timeously was high

Mr Pakamile Pongwana, ICASA CEO, spoke to the international perspective and the potential impact for South Africa. He said that for many it was about getting the maximum fees through the sale of the spectrum but that South Africa looked at coverage of the country or a combination of coverage and fees. He said
Germany had raised money but included a proviso that bandwidth would only be released when rural areas had been covered.

He said other countries were already looking at 5G networks while South Africa was still looking at LTE use. It was behind and this was an opportunity cost as it would be playing catch up on 5G and digital migration.

Mr Willington Ngwepe, ICASA COO, spoke about the ITU decisions at the WRC 2015 and the implications for South Africa as well as the guiding objectives for spectrum assignment.

Discussion
Mr C Mackenzie (DA) said the ICASA presentation had made mention of auctions. He said the Minister had not mentioned the issue of auctions and asked whether auctions had been considered and what was the policy or his position on the issue of auctions.

Ms M Shinn (DA) said the Department had mentioned South Africa Connect but that the Minister had not mentioned it at all. She was concerned about the timeline regarding the allocation and assignment of high demand segment of the spectrum which was critical because the monies raised could be used by the fiscus but it appeared that this would only happen in 2017/18 with access only occurring in 2019/20. Was there any way it could be fast tracked? Why was it bundled with the ICT review? Why could it not be a standalone policy?  What incentives or obligations would there be to licence applicants to roll out services in rural areas?
What was the Tampere Convention which South Africa had not ratified, and why had South Africa not ratified it?

Ms N Ndongeni (ANC) asked how the spectrum could be made available so as to promote competition.

The Chairperson said it appeared there was no clarity on the timeframe issues. The second issue was that encouraging new entrants had to be ensured.

On the Department’s position on auctions, Mr Ngobeni replied that the Department had to look at market mechanisms with respect to the release of spectrum. At issue was whether one only looked at raising revenue or at increasing coverage or a combination of both. In South Africa where there were infrastructure and access gaps these questions had to be asked, so these were some of the policy issues under consideration.

On why the spectrum policy could not be a standalone policy, he said that initially it was only the spectrum policy under review but that after the consultation process other policy issues emerged, in particular, that Government should enable the license holders and tackle the issue of the duplication of infrastructure and the issue of  the framework for open access that the country would adopt. So this policy, as well as SA Connect, could not be handled separately because there were interdependencies between the different policies hence the Department wanted an integrated approach to policy.

The obligations of service providers going forward would have to be aligned with government objectives and so cooperation and collaboration became crucial.

The Tampere Convention comprised 12 countries and was used in cases of emergencies, for example to expedite processes to allow for the restoration of communications in the event of an earthquake.

On the question of how the Department encouraged competition, he replied the approach on infrastructure sharing was an example where the ICT sector required upfront investment and there were multiple service providers. So a framework was needed to allow for the infrastructure investments but would also allow others to compete to provide services.

On the issue of the auctioning of spectrum, Mr Sipho Mjwara, Acting Director General: Telecommunications and Postal Services, said that every market had a unique situation. The EU open market had unique characteristics as did Brazil. South Africa had two dominant operators with 80% of the market, so effectively an auction would be between these two operators already in the market and so the chances of collusion were very high and the demands of developing the rural areas would also be quite onerous on them. The question of auctions had been considered in terms of rolling out development to rural areas.

Mr Mohlaloga said ICASA would want the auctioning and assignment of the spectrum earlier than the dates mentioned because it had to look at what came out of the ICT review, but were erring on the side of caution because of any implications that the policy document might have for the Regulator.

ICASA had published a memorandum which looked at what the framework of licencing conditions should look like. It had received feedback from industry on the memorandum. He said the key question was if it was the case that substantively new issues arose from the policy document, then ICASA might be enjoined to consult further. ICASA had built into the memorandum the current obligations and other proposed obligations that would transform the sector.

ICASA believed that auctions were the most transparent manner of assigning spectrum and would treat all bidders equally. However there were unintended consequences which the DG had mentioned. The issue of the timelines would be contingent on what came out of the policy document and ICASA had to take that into consideration. If there were issues not addressed in ICASA’s memorandum then time would be required for further consultation.

The other contingency was that ICASA had to facilitate digital migration as well, so that the 700 and 800 MHz bands were cleared and were fully available for the roll out of broadband services.

Mr Pongwana said it was a tricky environment to try and license someone new 22 years after mobile licensing started. When thinking about splitting up the spectrum, one had to consciously make a choice of whether one wanted infrastructure competition. Yes, to a certain extent. To what extent did  one do it. A number of network players were not interested in building networks and infrastructure but wanted to pay to use it. If one then considered new entrants, then all the other conditions had to be put into place to help them. He said the economies of GSM, LTE and 3G were totally different. With LTE, one grappled with issues around speed. As more people logged on, the speed decreased. How did one ensure that new operators had access to existing infrastructure? This was why ICASA had published a paper on infrastructure sharing and pushed for operators to consider building networks jointly. Because the spectrum was limited, older players would just buy up other players to get access to spectrum.

The Deputy Minister, Prof Hlengiwe Mkhize, asked how ICASA saw on-going cooperation and alignment of thinking regarding the assignment of spectrum. She said she foresaw some difficulties if they did not have a way of aligning their thinking. She said a lot had been said by ICASA regarding the encouragement of transformation of the sector but felt that it was not firm enough. She said that when thinking about this scarce resource and what the Department was trying to achieve, it was logical not to shrink away from the mandate of the Department on broadband roll out and the pillars that need to be in place needed to include those that had previously been excluded.

Dr Cwele said the Department was still looking at the options. He said when policy was written it was with the long term not the short term in mind.

On the question of a standalone policy, he said the biggest challenge to bring certainty to industry had been contradictory policy. Hence the issue of an overarching ICT policy became more urgent and critical even for spectrum. One had to look at the impact on the citizens and on the economy, on the demand and supply side. He said he knew that the spectrum issue was urgent but urged ICASA not to send out the memorandums because they might cause confusion on the direction the Department was taking.

South Africa had its unique characteristics where a large chunk of people had been excluded from participating in meaningful economic activity. The issue of transformation could not be ignored.

A key question to be addressed was whether you wanted to keep the primary goal to be infrastructure or shift it to services. Infrastructure was encouraged and incentivised but it could not be made the main basis for competition. The incumbents, whether fixed or mobile grew because of government policies. However others could not participate. Not because of efficiencies, but because of the market power of monopolies and duopolies.
 
There would be a shift, because when something was allocated to you it did not mean it was yours forever. Were you using it efficiently to meet national objectives? It could not be a matter of first come, first serve and this would be reviewed. The spectrum was a public resource, was it being used efficiently? The policy would shift away from artificial monopolies and duopolies and allow new entrants to come in. It would encourage the sector to roll out infrastructure.

What had been encouraging was that industry had been having inputs and all agreed that it was a scarce resource and the Department would not favour some over others. The issue of auctions was being considered but this was not the only way forward. In South Africa with its infrastructure and access gaps the question of whether the spectrum should be considered as a fund raising exercise had to be tempered with the fact that for the Department it was about service to the people. This was the key motivation. If money could be gained by the way, then that was good. Other approaches, such as whether it should be given free or to the highest bidder were also being considered. There were other options such as that employed in Mexico and Rwanda. Another question was what would happen to the small operators, would they be at the mercy of the big operators given the existing market power relations?

On the policy, he said they were trying to clarify the role of the Minister as the policy maker and the role of the Regulator and that there should be a closer working relationship because it might cause problems in the market. The policy would guide the Regulator on what to do.

One of the proposals of the panel document was to have ‘set asides’ for high demand spectrum for broadband roll out. This was still being considered. The whole had to be available for all South Africans.

The allocation of spectrum was determined by each country as a policy. The assignment was done by the Regulator in line with the policy. While licences were allocated on a long term basis, the allocation of spectrum was on a short term basis. There was clearly no intention by the Department to cause delays.

On the timeframe, he said Cabinet had its own processes and structures and the Department could not prescribe timeframes and as soon as Cabinet had finalised the policy it would be acted upon as Cabinet viewed the issuing of spectrum as a matter of urgency.

On the debate about duopoly, he said he did not subscribe to duopoly as being good in South Africa and hoped that they compete because duopolies colluded.

The current operators were rolling out LTE networks but what would be a transitional mechanism if there was a change in policy? He said there should be reasonable transitional mechanisms allowed.

Mr Mackenzie said that when he spoke about auctions, he was not talking of money so much as he was talking of it being used as an incentive and a market mechanism. He asked what the Minister meant when he talked about transformation of the sector.

Dr Cwele said it was about the meaningful participation of blacks. The economy could not be one run by white men, it had to include white women, black women, youth and the disabled. All South Africa citizens and big and small enterprises should be able to participate in the economy. New entrants did not have the ability to participate within the current policies if the issue was not attended to. South Africa was different from Germany, Australia, USA and Brazil. The creativeness of small enterprise was the main driver of competitiveness and it would continue to be constrained by the current policies. The new policies had to speak to how new entrants would be allowed to participate.

Mr Mackenzie used Mark Shuttleworth as an example of someone who was innovative.

Dr Cwele agreed and said the striving should be away from competition on infrastructure and on services.

The Chairperson said the meeting had helped the Committee in getting a sense of where the issues were and it would engage meaningfully with the Department and ICASA once Cabinet had approved the policy.  

The meeting was adjourned