Cost to Communicate: public hearings day 2

Telecommunications and Postal Services

21 September 2016
Chairperson: Ms M Kubayi (ANC)

Meeting Summary

The Portfolio Committee met with relevant role players for a second day to discuss the cost to communicate. Network providers in their submissions and explained how their business operations and costs were affecting their tariffs and pricing structures. NGOs such as the Right to Know Campaign provided ideas as alternatives such as a community network to provide access to telecommunication services in rural areas. Network operators said they were involved in implementing various initiatives to make their networks more affordable to consumers by offering deals and discount structures, but MPs felt that this was not enough. There was a lack of transparency especially for lower income users which was putting immense pressure on the cost to communicate.

ICASA came under the spotlight for its role in providing licensing agreements for which operators were not meeting their obligations. The requirement of network operators providing internet access in schools was not being fulfilled and MPs agreed that ICASA had to play a stronger role in its regulatory function. The guidelines, policy and research on affordability were discussed and there were no clear guidelines by the Department of Telecommunications & Postal Services (DTPS) or ICASA on the methodologies to be used. This created discrepancies in reporting by the network operators. Fixed line services were also investigated although the provisions of these services were different from mobile operators.

Network providers echoed similar sentiments about the costs of infrastructure and the long timeframes in acquiring land and electricity in rural areas in order to set up base stations effectively. They asked for government to intervene to alleviate this as the provision of network to rural users remained a concern which they were constantly trying to address. Infrastructure sharing came out as a good recommendation from most stakeholders as a measure to alleviate limited spectrum. Many cost comparisons to other countries in Africa were presented and MPs questioned the reasons for data and voice call costs being more affordable in those African countries. The Committee agreed there was much work to be done. The Cost to Communicate needed to be explored and regulated for the most affordable experience to the consumer.
 

Meeting report

The Chairperson welcomed the committee and all present to the second day of public hearings on the cost to communicate. She indicated that two NGOs would present first followed by all the network operators. Two network providers namely Neotel and Vodacom indicated that they had amended their submissions. The committee had received many submissions and from those only a few were selected.

She assured all those who made submissions that their submissions and documents would be incorporated into the committee report. The parliament IT team said that these would be uploaded onto the parliament website. There were a number of discussions on the matter of cost to communicate and its importance was shown by public interest and social media. There was hope to find solutions to this problem and governments’ responsibility was to give hope to people and see what needed to be done to assist.

Alliance for Affordable Internet (A4AI) submission
Ms Onicka Makwakwa, A4AI Africa Regional Coordinator and Mr Dillon Mann, Communications Director, World Wide Web Foundation presented A4AI was the world's broadest technology sector alliance working to drive down the price of broadband by transforming policy and regulatory frameworks. They conducted robust original research to underpin evidence-based policy and these included an annual affordability report in March 2016, case studies and thematic briefings. A4AI worked in countries such as Dominican Republic, Liberia, Ghana, Nigeria, Myanmar, and Mozambique.

The organisation was aligned around policy and regulatory good practices. All member organisations had endorsed a set of nine good practices which aimed to ensure open, competitive markets. Policies and regulations needed to be in place to lower cost structure for the industry. She highlighted that the organisation was grounded on principles of internet freedom and the fundamental rights of expression, assembly and association online.

A4AI believed that a strong Web underpinned democracy and was part of the World Wide Web Foundation founded by Sir Tim Berners-Lee, the inventor of the Worldwide Web. Sir Berners-Lee gave the web for free with no royalties and no fee. It was A4AI’s duty to ensure that the transformation of the web was experienced by all and therefore the organisation sought an open internet for all people at all times.

Ms Makwakwa explained why affordable internet mattered for South Africa. It was according to international, regional, and domestic obligations and part of the UN Sustainable Development Goals which "strive to provide universal and affordable access to the Internet in least developed countries by 2020" with a target of no more than 5% of average monthly income. According to the AU Agenda 2063, people should have access to all the basic necessities of life including shelter, water, sanitation, energy, public transport and ICT.

According to SA Connect, universal connectivity should be reached by 2030. As a result of intense public demand such as #datamustfall and #FASTAfrica, recommendations by A4AI were that government should continue to prioritise this issue and should weave affordable and equal internet access targets and interventions across all ICT and telecom priority policy areas.

Mr Mann explained that A4AI was a global alliance and brought an overview of comparisons with other peer countries. The affordability drivers index showed that South Africa scored 46.44 out of 100 for 2015 which indicated room for improvement. South Africa ranked 19th out of 51 countries and 15th out of 21 emerging countries with regards to affordability. This meant that the cost for 500mb of data as a percentage of GNI was 1.48.

Mr Mann said that according to Research ICT Africa’s findings, South Africa ranked 16th as the cost per 1gb of data in US Dollars for Q2 of 2016 cost 5.27. The recommendation was that there was scope to use policy more effectively to deliver progress.

Ms Makwakwa said that income inequality masked the true picture but this was not only a problem in South Africa. 111 countries have met the UN affordability target of basic broadband priced at 5% or less of average monthly income yet just 9 countries met this target for the bottom 20% of income earners, and no country met this target for those living in poverty. Internet access was still unaffordable and another recommendation was to consider the income inequality specifically. Reporting needed to be broken down by income groups, public access programmes needed expansion and innovative solutions including community-owned networks must be investigated.

Mr Mann spoke about women and the web. Exploring the true extent of the gender digital divide across 10 countries showed that women were about 50% less likely than men to use the internet in poor urban communities. 37% of women surveyed were internet users compared to 59% of men. The two barriers to women using the internet were price and lack of education. A recommendation to alleviate this was to prioritise gender inequality online by setting explicit gender targets and to invest in public access programmes which prioritise women and girls.

Discussion
Ms M Shinn (DA) asked about affordability. What was affordable? Research ICT Africa came up with 22% of average income for a gig of data and A4AI said it was 6% and 19%. Why was there a difference in calculations? What specific regulatory concrete steps should be taken by government?

Mr Mann replied that there were a number of ways to slice populations into income groups but for the purpose of this research, the group was divided into five separate income groups of 20% each. Affordability was then analysed for each group. He had not yet looked into detail at the Research ICT Africa report but they could have looked at a smaller group like 10% for instance. It could be that for a large percentage of the population the 22% could be applicable. It was not possible for A4AI to give very detailed recommendations but hopefully the Committee would look at best practices relevant to South Africa.

Ms D Tsotetsi (ANC) highlighted income inequality. She asked if A4AI engaged with trade unions because they were specialists in this area. Women were 50% less likely to use the internet but were facilities available in rural areas? This submission showed the real gender inequality.

Ms Makwakwa replied that they have not worked with trade unions before and would love to engage with trade unions as they have seen a lot of interest from consumer organisations.

Mr C Mackenzie (DA) asked if India was included in the list of countries as they had many parallels to South Africa. The survey sample on women using the internet, what size was the sample and over what period of time was the research conducted?

Mr Mann responded that India was included in the list of countries and it had a score of 40.12 out of 100 which meant that South Africa fared better than India. The sample size used for the research was across 10 countries and included 250 men and 750 women.

The Chairperson welcomed the submission and recommendations and asked that A4AI go into detail on community owned networks. Research from ICT Africa indicated that cost in South Africa was high compared to other countries in Africa. South Africa was ranked 16th and Tanzania was ranked 1st so what were the drivers of cost in South Africa compared to Tanzania?

Mr Mann said this was a complicated question and there were a multitude of factors. It was a combination of a healthy thriving competitive market and state interventions that recognised that the market will not reach the poorest of the poor. The situation in each country was very different.

Right to Know Campaign (R2K) submission
Ms Nomacebo Mbayo, R2K Western Cape Provincial Coordinator, introduced Mr Murray Hunter, R2K Researcher: National Office, Mr Vusisiwe Mpu, R2K activist and poet and Dr Carlos Rey-Moreno, Post Doctoral Fellow, UWC. Ms Mbayo explained that they were pleased to present to the Committee as high data costs was limiting people's freedom to expression and right to communicate especially those living in poorer conditions. The demand for affordable data and airtime as well as fast internet access was important for democracy.

Mr Hunter explained that they have been working on media freedom issues since 2010. There was great potential for people to enjoy communication. However, high communication costs undermined freedom of expression and the right to communicate. Since 2013 they have been campaigning for the right to communicate, calling on network operators to drop prices and for ICASA to regulate. In 2016, despite lower prices, the cost of communication was still high. The Right to Know campaign has produced two publications: Alternatives to Privatised Telecoms and The Lived Costs of Communication. In The Lived Cost of Communication the study found that poor South Africans spend 22% of their total income on communication. Poor South Africans should not have to choose between bread and airtime.

Mr Mpu posed the question why data and airtime was considered to be essential. He explained that it was an issue of safety as he needed airtime to make a call to the police if something bad should happen. It was needed for information and sharing to know what is going on in the world. He always used to use R20 airtime but now it is not enough. Social media services such as Facebook, Whatsapp and YouTube all used data. The process of uploading and downloading was crucial for unemployed people in the process of looking for employment.

Ms Mbayo gave a personal account of how difficult it was to communicate living in rural conditions. As a mother she needed to be able to check if her child was safe at home while she was at work. When visiting the Eastern Cape she found that the women who have husbands that have migrated out of the area cannot communicate with their husbands due to limited network access. People used their social grant and pension monies to buy airtime and most of the time they could not get certain network airtime because those who owned shops only sold what was most in demand.

Dr Rey-Moreno explained the Zenzeleni Networks. These were registered with the Department of Trade and Industry and fully licensed by ICASA. He compared Zenzeleni to other self-sustaining activities in the rural areas such as collecting rain water or harvesting solar energy. In partnership with UWC, this initiative has been created whereby people make use of free available GSM spectrum. This was taking place in the Mankosi Township in the Eastern Cape. Local calls were free and calls to other networks cost half of what they would on those other networks. Data cost a tenth of the market price. It was also in the process of connecting local schools to the internet. The model could be easily replicated by other communities interested in doing the same. It was about employment creation and black empowerment.

Dr Rey-Moreno said that solutions included fostering alternatives. In the mid-term, it was to make GSM spectrum available in a primary or secondary basis for Social Purpose GSM operators. In the short-term a solution was to promote service based competition by granting Social Purpose operators to resell voice and data services from mobile network operators (MNOs). Another solution would be to make seed funding available to Social Purpose operators through the Universal Service and Access Fund (USAF) and the Cooperative Incentive Scheme (CIS).

Further solutions included ICASA playing a strong regulatory role to bring down prices from the big players and level the playing field for smaller entities. Parliament should continue to drive for affordable and fair communication costs and the public must continue to rally for their right to communicate.

Discussion
Mr McKenzie asked if the figure of R100 000 for a GSM network was accurate as USAF had a figure of R41 million. How fast were these internet speeds on this GSM network?

Dr Rey-Moreno answered that the cost of GSM network had gone down considerably. The range of network being covered also affected pricing. He did not know how far the range or extension went for the R41 million GSM network. It also depended on the power that the base station was allowed to transmit. With R100 000 GSM network one could cover 10km2. Internet speeds was between 1 and 3Mbps.

Mr F Mokoena (EFF) said that it was good to know these things as it was a resubmission of how costs affected people on the ground. Three or four years ago ICASA called in all network operators for them to understand that this industry affected people at that low level. For example, people were unable to call the police due to being unable to afford airtime. He did not want to hear from ICASA as to why costs were high but rather how they were going to have it lowered. The digital divide was about people’s lives.

Ms D Tsotetsi (ANC) said that the more she was listening to the submissions the more emotional she became. This campaign was to advocate for the cost to communicate and she knew the frustrations people were going through. ICASA was supposed to protect consumers from exploitation and they must do more. People had a right to know how mobile operators determine their prices.

Mr Murray agreed that ICASA had a role to play as network operators were not providing information that ICASA needed in order to make proper regulations and recommendations.

Ms Shinn indicated that the previous day submissions were made about rural networks. The Committee asked the question what small community networks need from government. The answer was nothing. However, government had a right to know whether these community networks could self-provide.

Dr Rey-Moreno responded that some parts of the markets were not covered. Big companies were making money from the upper classes. There were programmes in place to mentor community networks to be sustainable.

Dr David Johnson, CSIR, asked with the GSM spectrum how low could costs go.

Dr Rey-Moreno said that current prices were R90 for 30 calls on the MTN and Vodacom network. VOIP was R10 inside of network calls and some calls were free.

Dr Johnson asked for clarity on the R90 for 30 calls. He wanted to know if it was 1 minute calls.

Dr Rey-Moreno clarified that this R90 was for 51 minutes in total.

The Chairperson asked what would be a reasonable and affordable cost for communication. ICASA was starting to see a reduction in voice calls so did people want a reduction in voice calls too.

Dr Rey-Moreno explained that he conducted three different studies on how much people spend to communicate. Two of those were part of his PhD. These studies showed that most people spend 22% of their income on communication costs. One study was conducted in January 2013 and another in January 2014. There was no difference between the two outcomes. Most people in rural areas cannot use the cheapest networks such as Telkom and Cell C because they are not available.

Vodacom submission
Prof Andrew Barendse, Group Executive: Regulatory Affairs, Vodacom, reflected on two issues from the previous day. He agreed with ICASA on benchmarking and that it was incomplete. However, internationally some benchmarks were also incomplete. The debate on affordable pricing was influenced by quality and access. He wanted to share some practical efforts that Vodacom has undertaken.

Mr Hennie Jacobs, Head: Regulatory Affairs: Vodacom, said that in 2012 and 2014 Vodacom had the opportunity to present to the Committee that it has made significant progress towards reducing the cost to communicate and in 2014 it presented the way to achieve lower costs. This strategy was still intact. They continued to invest by creating capacity for more network traffic, extending high speed data reach and creating a world class network experience. Vodacom had transformed prices by offering more value, creating bundles for low end users, introducing worry free innovations such as RED and PowerHour and reducing prices. Other innovations include simplified prices, data growth and cost control.

Mr Jacobs highlighted Vodacom's capital expenditure of an R8.7 billion investment for the 2016 financial year and network coverage was at 99% for 3G and 2G. There was a 44.6% reduction in dropped calls and the estimated population coverage was at 99% for 3G and 58% for 4G. Average download speeds are at 23Mbps compared to other networks which average 10 to 18 Mbps.

Mr Zunaid Mahomed, Managing Executive: Vodacom Commercial, explained that Vodacom's data strategy consisted of four pillars. The first was internet everywhere, which was to ensure coverage and quality across the country. The second pillar was capability which was to ensure that consumers had the right devices to access the internet. The third pillar was affordability which was to ensure value based offers for customers and the last pillar was reason to consume which provided reasonable access to consumers to access. This has resulted in an increase of 22% in device sales from last year. Data traffic grew 68% faster than revenue and the effective price was reduced by 13.6%. Data bundle sales were up by 86% from 184 million in 2015 to 343 million in 2016. In 2012 an active smart device cost R999 and in 2016 that cost was reduced to R399 which was 60% less in a period of 5 years.

Mr Mahomed spoke about ways that Vodacom had tried to simplify prices. Some prepaid price plans included the 50% bonus every time you recharge, Just4You everyday deals, Free4Sho rates and *111# prepaid bundles. Prepaid data bundles range from hourly, daily, weekly, fortnightly to monthly. Significant progress was made towards prepaid voice and data by reducing effective voice pricing and stimulating bundle adoption. Progress was also made on contract voice and data plans by giving customers more inclusive value, migration to new post-paid plans and migration to new hybrid plans. Vodacom improved transparency by offering various options for customers towards making informed decisions on service providers, service and speed. Vodacom wanted to empower South Africans to move forward by providing free access for public interest in education, health and job search initiatives. According to their consumer Net Promoter Score (NPS), Vodacom came out as the only operator with an increased score from 6 to 15 ppts.

Mr Jacobs noted the DTPS comparison from ICASA’s database based on tariff notifications which showed Vodacom at a per minute call rate tariff at R1.20. Yet according to Vodacom this was incorrect as they omitted the Vodacom Prepaid R0.79 flat call rate offering. He highlighted the media release by ICASA which noted that the “analysis report deliberately excluded different promotions and bundles (voice and data) offered to prepaid subscribers by mobile operators”. Also the report concluded that “the actual cost of a voice call faced by a consumer is not necessarily the headline tariff, but a combination of free minutes and discounts offered based on the recharge amount, promotions and bundles. The headline tariff therefore represents the maximum tariff payable by consumers on specific tariff plans”. Therefore the tariff indicated by ICASA was not accurate as it excluded the R0.79 Vodacom flat call rate.

He explained that data transformation could improve with assistance. Vodacom currently had no access to additional spectrum. There was limited scope to increase capacity through site densification and re-farming:
1. Cumbersome process to obtain approval to build new sites (can take up to 18 months)
2. Objections from public against proposed sites
3. Lack of policy / alignment of policy in different municipalities
4. Long lead times to obtain AC power to new sites
5. Service quality.

In conclusion Vodacom remained committed to price transformation. They have achieved a lot despite the challenges faced. Participation by all stakeholders was important to accelerate change.

Discussion
The Chairperson asked for clarity from DTPS and ICASA in the disparities in the information provided to the Committee on Vodacom tariffs.

ICASA confirmed that the information provided by them was taken from information filed by networks in terms of the standard terms and conditions. However these tariffs as indicated were based on headline tariffs which did not take into consideration promotional bundles offered by operators. The published tariffs were the maximum tariffs payable by the consumer.

Mr Mokoena felt that the rug had been pulled over people’s eyes. A lot of jargon was being used but the fact remained that Vodacom had the most expensive tariffs. Vodacom was the most expensive in the country. People were complaining that they were given data that was utilised quicker, and this also came from personal experience with using Vodacom. Four years ago a licence requirement from ICASA was that network providers were to provide internet access to schools but they had not even reached a quarter of that target. This number was reduced to 1500 schools. Something was going wrong as businesses were not taking development seriously. ICASA needed to take a stronger stance to protect people.

Mr Mackenzie said that he visited Tanzania 15 years ago when Vodacom first launched there. When Vodacom and MTN invested there it drove economic growth as was the case here in South Africa. The R8.7 billion investment was very impressive. He wanted to know how Vodacom would rate the cost of doing business in South Africa compared to doing business in other countries.

Mr Mahomed replied that it was difficult to answer that question as it depended on costs and what expenditure was going towards in those countries.

Mr Mackenzie asked how many countries Vodacom operated in and if Vodacom was the most expensive network why was it also the biggest in the country.

Mr Mahomed answered that Vodacom operated in five countries. It did not see itself as the biggest network operator, all it did was try to give the customer the best experience.

Ms Shinn referred to the point in the submission which listed best value for growth. She said that data traffic was 68% bigger than revenue and wanted to know how this was possible.

Mr Mahomed explained that Vodacom charged customers the same but gave them more. Data bundles purchased would grow into bigger bundles as customers purchased more. The more data customers used the less they would pay.

Ms Shinn asked if there was any research or customer evaluation indicating an increase in smart phone usage. She also wanted to whether the R399 smart phone price was the total cost.

Mr Mahomed said that they found a 141% smart phone user increase. The R399 smart phone was a once off price for a Vodacom branded device partnered with Vodafone. It was the equivalent of the Vodacom Kicka device which was launched 5 years ago.

Ms N Ndongeni (ANC) asked what Vodacom's exact plan was to drive down data costs.

Mr Mahomed responded that Vodacom has introduced the Just4You programme which was comprised of specific deals for the customer based on their buying behaviour and there were a lot of other campaigns running.

Ms Tsotetsi was happy to hear that costs were better than before because some stories were depressing. Moving forward, there should be more transparency on the decisions on pricing for consumers to be more aware.

Prof Allison Gillwald, Executive Director, Research ICT Africa, wanted to emphasize the importance to the Committee in making recommendations to understand the critical relationship between investments and access and ultimately affordability through effective regulation of competition. The defence that ICASA was giving the previous day on the cost for communication needed to be investigated to see what the real cost of communication was. There was not effective competition throughout the country as some mobile operators were not servicing certain areas. Market reviews have been done but have not been made public. She asked Vodacom to respond to wholesale access and wanted to know what the challenges were if any. Also she asked for Vodacom's stance on community network share.

Mr Jacobs responded that Vodacom was restrained due to limited spectrum and could not provide wholesale access. Proper research needed to be conducted so that the process could be evidence based.

Dr Rey-Moreno asked about out of bundle rates. According to reporting, Vodacom had gained R6.5 billion in revenue from contract users and R16.5 billion from prepaid users. This revenue came mainly from illiterate people who did not know what in and out of bundle was. What was the technical reasoning behind out of bundle pricing?

Mr Mahomed replied that creating bundles gave networks a chance to provision for out of bundle uncertainty. Of the R16.5 billion figure, not all was related to data costs but was composed of voice calls based on the core plan consumers chose themselves.

Dr Johnson said that South Africa appreciated quality and coverage but also needed honesty with regards to the reasons behind the cost. Some students at university needed to go to dangerous places for WiFi so why not make university websites free for students.

Mr Jacobs responded that the limited availability of spectrum was the main cause for Vodacom not being able to do so and that they were constantly reviewing the option of free access for university students.

The Chairperson stressed that it was important to verify the information that network providers were presenting. She asked if the free education resources that Vodacom mentioned was for primary and high school learners.

Mr Mahomed replied that it was for learners from grades 4 to 12 and the resources were all CAPS aligned.

Mr Mokoena commented that the reason why Vodacom was the biggest network provider was because they were the first ones on the market. In his opinion it was not true that it was more expensive to expand and penetrate the market as they were spending little on maintenance. He wanted ICASA to explain the licensing requirements as Vodacom was supposed to provide internet access to schools and yet ICASA simply reduced the number of schools.

The Chairperson reiterated that she still did not understand the concept of data expiring. Why not let it expire in three months instead of 30 days?

Mr Jacobs explained that data was not a commodity that could be stored. However, it was possible to make a design for expiration to be extended.

Ms Tsotetsi said that one reason for this meeting being called was to look at poverty issues and how to make life better. However, it seemed that they were moving backwards and not going forward. There was no sense of progression. ICASA should protect schools and ensure that providers fulfilled their mandate.

MTN submission
Mr Graeme De Vries, Corporate Service Executive MTN, introduced his team. Joining him was Mr Sandile Ntsele, CFO, MTN South Africa. Mr De Vries gave an overview of the South African mobile market. He said that the telecoms market continued to mature reaching a 181% penetration rate. MTN was operating in a highly competitive market with aggressive price competition by operators. The customer had access to a wide range of competitive services and the market was at a point of saturation. MTN continued to make substantial investment in capital infrastructure to provide coverage over the last three to four years through LTE. In 2014 MTN had 746 4G/LTE sites and currently they had over 4000 of these sites. MTN remained committed to investing in its network and customer experience demonstrated by continued significant capex investments. Over the last three financial years MTN had invested R22 billion in capital expenditure. This amount needed to be seen in profit after tax which was R14.3 billion over the last three years. Based on these figures MTN had invested more than the profits it has made.

He said that despite the explosion of data traffic demand, MTN faced investor pressures as a result of lower revenue growth and lower return on assets. Data traffic continued to explode and as a result of spectrum constraints significant capital investment was required. Voice revenues were declining substantially but not being substituted by data revenues. As a result of this, MTN was doing densification which meant rolling out more base stations because of the lack of frequency. Currently, MTN was providing nearly 99% population coverage for 2G, 93% population coverage for 3G and 42% for LTE respectively.

MTN’s business reality was that external pressures continued to drive costs up. The majority of MTN network infrastructure, licences and handsets were priced in US Dollars. Approximately 40% of MTN's capex budget was eroded due to currency volatility. Electricity prices and load shedding resulted in an average increase of 33% in power and fuel. Rising CPI restricted access to credit, hampering sales and has resulted in substantial increases in operating expenses including site rentals, staff costs, cost of sales and insurance.

MTN had undertaken several measures to reduce costs it can control by:
1. Vehicle and fleet optimisation
2. Staffing and employee benefits optimisation
3. Commission costs reduction
4. General culture of cost control
5. Market spend reduction.

Despite the challenging economic environment, MTN had decreased voice and data effective tariffs by 58% and 73% respectively in the last five years. MTN was driving affordability by successfully lowering handset costs for consumers in order to increase penetration. Over the past three years MTN had reduced the costs to consumers by an average of 60%:
a. Post paid packages for LTE devices started at R99 per month
b. 3G devices were now available at R499.99 RRP (recommended retail price)
c. Entry level Tier 1 LTE handset at 4.5” screen was available to consumers R899 on prepaid package
d. Most affordable 3G tablet was available at R999 (7” tablet).
e. To allow for data inclusivity MTN continued to provide massive subsidies on pre-paid handsets.

Mr De Vries said South Africa’s ranking in an African context ranked well in affordability and the cost of mobile ownership as a share of monthly income. This was based on a GSMA intelligence consumer survey 2015 looking at the cost of device and services. In conclusion, MTN was committed to providing reliable cost effective telecommunication services and to bridging the digital divide. MTN continued to grow its investment in its network to improve quality of service and customer experience that enabled a larger contribution to GDP. The challenge was to get to more rural areas because of limited roads available and no electricity. Despite this MTN continued to provide network to these areas. The big opportunity for South Africa was data and this could be addressed by government incentivising investment and releasing the much needed spectrum.

Discussion
Mr Mackenzie said that in order for spectrum release to be possible, it was important to know what was going on between ICASA and government. Would it bring down MTN’s capital expenditure and cost to consumers? Also would the concept of a national broadband network be the same especially if it was administered by government?

Mr De Vries explained that the factors preventing networks from operating effectively included the cost of electricity and the time frames for completing base stations. The concept of a national broadband indicated a monopoly and it has proven not to work in other countries.

Mr Mokoena stated the problem with MTN was that their mind-set was not set in South Africa but in other countries where they made more profit. They made R146 billion profit in total and could afford to invest in South Africa. In Nigeria there was stronger competition and legislation yet MTN grew business and their prices were lower there. In South Africa this was the opposite. The more people MTN was able to reach the more revenue they would make. The way to reach more people would be to lower tariffs as in South Africa it was about affordability. Why has MTN not provided internet access in schools as required by ICASA’s licensing agreement? Why were SMS costs not cheaper?

Mr Ntsele replied that it was difficult to make a comparison between the South African rand and the Nigerian naira. Prices in rands were compared to the US dollar and comparisons were done across 22 countries. The price in South Africa is mostly affected by input cost. With regards to SMS costs, it fell into the same cost bracket as voice calls and data but the price had come down.

Mr De Vries added that of the 5000 schools target set by ICASA, MTN provided internet access to 593 schools. When the target was changed to 1500, MTN provided to 1100 of those schools.

Ms Shinn asked if MTN had any programmes in place to grow entrepreneurs as part of their CSI. She asked what dividends were paid over the last few years and if this was increasing or decreasing.

Ms Ntsele responded that MTN had paid 70% of their profits amounting to up to R17 billion to shareholders.

Dr Rey-Moreno wanted clarity on the leasing of base stations and if this was in fact possible or was MTN referring to towers. Looking at data he had collected, he asked if dynamic pricing was cheaper than flat rates as consumers were not informed enough to see that in rural areas some flat rates were cheaper than dynamic pricing.

Mr Ntsele replied that it depended on what was looked at when it came to the availability of the capacity of the base station which would then make flat rates cheaper. There was no leasing of active equipment; rather they offered some space to other network providers at the bottom of the towers or on the tower itself.

Prof Gillwald asked for clarity on the methodology used to calculate affordability. She said that it was problematic since MTN used the GSMA as a calculator whilst other providers had used the gross national income (GNI). She was looking to government to use the best policies in determining affordability as the cost to communicate was not affordable to the masses of people. She felt that MTN was giving the Committee the wrong impression as they were using a discredited way of calculating affordability given the great inequalities in South Africa.

Mr Ntsele replied that he had just received the research paper containing the report on affordability. Prices had come down by 56% and MTN was trying to manage the cost of its business. They bought forex currency and locked this into capital investment as well.

Mr De Vries recommended that all network providers come together and look at their various sources of data to find a common ground. Another resource was the Universal Service and Access Fund which was in place to drive the demand and supply of services.

The Chairperson asked what the driving force of cost reduction was.

Mr Ntsele explained that it was a combination of factors such as different price plans as the market evolved. In the past it was pay as you go but now since the introduction of bundles, consumers pay even less.

Ms Shinn asked what type of government incentives MTN was referring to in their conclusion.

Mr Ntsele replied that MTN wanted services to be more accessible when building base stations, especially in rural areas. If they could get access to pieces of land and electricity much quicker, business operations would improve.

Mr De Vries added that government needed to look at the finalisation of guidelines and policy statements. This would assist MTN to put its full focus on service base completion.

Mr Mokoena highlighted that with regards to the US dollar exchange rate, the Nigerian naira actually fell against the dollar which meant that things should be cheaper for South Africa. The same MTN package which costs R4 in Nigeria cost R20 in South Africa. It seemed to be more expensive for companies developed in South Africa to provide for its people.

Ms Tsotetsi asked MTN to outline its social responsibility.

Mr De Vries said that through the MTN Foundation they had invested R700 million over a period of 10 years towards health, education and community projects.

Dr Rey-Moreno asked for clarification on dynamic pricing. He felt that MTN lacked transparency as they were giving consumers a discount percentage when they made calls instead of a direct amount. This was something for ICASA to consider in order for illiterate users to make a choice.

Mr Ntsele said that he took the point and it was something to think about.

The Chairperson said that the responsibility went back to ICASA to implement guidelines and benchmarks to research so that the Committee could understand what exactly affordability meant.

Cell C submission
Mr Christian Mhlanga, Consultant: ICT and Competition Economics, Cell C, explained that the high costs to the industry was as a result of duplication of infrastructure, barriers to network deployment, import duties and foreign currency denominated equipment. Also the volatile exchange rate played a role as well as the economies of scale. With regards to market conditions, the market was still dominated by MTN and Vodacom and although Cell C had increased subscriber share, there was little gain in revenue share since 2014. Market conditions were imperfect so there was not enough consumer choice in products and prices. The cost of voice calls had dropped significantly but retail prices showed the effective rate was still high relative to cost. Strategies of on net and off net price discrimination and lack of transparency persisted, making it difficult for the ordinary consumer to know what actual call prices were.

He told the Committee that a recent study found the entry of competitors had a positive impact on competition outcomes and there were benefits to regulating competition. Following ICASA’s mobile termination rates (MTR) decision, competition in prepaid voice services broke out between mobile operators. The report recognised Cell C’s progress at reducing the cost to communicate. It recorded that Vodacom and MTN still dominated the sector in terms of market share, whether measured by revenue or subscribers. Cell C’s market share was 50% higher when measured in terms of subscribers than when measured in terms of revenue, suggesting that it was gaining subscribers by charging lower prices to attract customers.

Further to this, the research also detailed calculations that showed through competitive effects, consumers have benefited from price reductions and increased voice usage to the value of approximately R47 billion over the last six years.

Mr Mhlanga spoke about what ICASA had done, delivering on two of five projects namely ICT Indicators Collection which showed that Cell C had increased market share but not revenue share and Call Termination Market review which emphasised the need to continue with the asymmetric MTR regime as the effects were being realised at a slower rate than desired.

He emphasised that Cell C had proven that it can lead the way in reducing consumer prices but currently lacked enough market power to ensure all players did likewise. The sustainability of smaller operators that ultimately benefit consumers relied on continued pro-competitive regulatory support.

Some of the initiatives that Cell C had implemented to reduce the cost to communicate were to introduce WhatsApp bundles which launched in September 2015 to give customers access to full WhatsApp for 30 days for only R7.50 capped at 1.2GB. Another initiative was WiFi calling launched in October 2015 which enables customers to make WiFi calls locally and while roaming internationally. These calls were charged at normal local home country tariff rates. Cell C also introduced free basics or Internet.org which was launched in July 2015 and was on-going. This entailed free access to text-based info on news, literacy and health sites and free basic Facebook excluding pictures, videos and external links.

Competitors reacted to Cell C’s flat rate prices as Cell C’s pricing was assisted by the reduction of MTRs and the introduction of asymmetry in favour of smaller operators. Cell C had the lowest call rate at R0.66 per minute. Mr Mhlanga explained that an asymmetric MTR regime needed to continue if consumers were to retain the gains of the last three years and to assist smaller players in remaining sustainable. With regards to data costs, Cell C had the lowest in bundle rate per MB. Although they had the least and non-contiguous spectrum, Cell C continued to provide low cost bandwidth to customers through the innovative use of resources. Where Cell C had no network coverage they used Vodacom for roaming for both voice and data services. However there was a cost associated to this, which was not regulated and Cell C believed that this cost needed to be regulated. Cell C offered number portability and but there were barriers to doing this which ICASA needed to address.

Mr Mhlanga concluded that although South Africa had achieved a high mobile penetration rate, the lack of market power by challenger networks like Cell C presented a hindrance to sustained efforts in reducing cost to communicate and these challenger networks needed continued pro-competitive regulatory support.

Discussion
Mr Mackenzie commented that the issue was not about voice calls but rather that data costs must fall. All networks were the same with regards to data costs, with perhaps the exception of Telkom. Cell C had built a reputation as a market disruptor because their prices were low so why could they not do the same with data prices.

Mr Harrish Kassepursad, Cell C Senior Manager: Technical Regulatory, responded that Cell C was given the opportunity to lower voice calls through the MTR process but this did not apply to data costs. Further regulatory interventions were needed.

Ms Shinn noted that Cell C’s customer base had increased but their earnings had not increased. She asked why this was happening and if Cell C was jeopardizing its financial stability. How many mobile operators could South Africa sustainably support? There was a sense in other countries that the maximum would be three or four. If Cell C was given high demand spectrum, what would they do to drive down the high cost of communication?

Mr Mhlanga replied that Cell C came in as the third operator which meant that Cell C was getting the lower income users who do not spend as much on the network and services. As an example, if consumers recharged with R35 they received R70 free for in-network calls. This was to try and keep subscribers within the network. It increased subscriber share but had no effect on market share. In his opinion the country can only handle three operators. A fourth operator could come in but the chances of growth for the fourth provider would be limited. This automatically meant that they had to go for lower income users and therefore they do not spend much on their business costs.

Mr Kassepursad added that if Cell C was given high demand spectrum it would be difficult to immediately drive down cost but in the long term it could be done.

Ms Tsotetsi asked how lower prices affected growth.

Mr Mhlanga replied that it had a negative effect as they could not always afford new equipment and infrastructure. It limits network expansion.

Prof Gillwald commented that Cell C had the best value for money bundles for 1GB of data. However, she asked how successful their other initiatives were such as number porting and mid-contract adjustments.

Mr Kassepursad replied that Cell C was trying to attract post paid subscribers by offering contract buy out.

The Chairperson asked for clarity on the free WhatsApp or whether it was considered a WhatsApp bundle and if it was promotional. She also asked who carried the cost of local roaming and if it was beneficial to Cell C.

Mr Mhlanga answered that initially the WhatsApp offering started out as a free promotion. It then was introduced as a package at R5 and now cost R7.50. In terms of local roaming, Cell C pays Vodacom to roam on their network; Cell C carries the cost and prices remain low as Cell C has not increased the price to the consumer. However, if this cost could be regulated, Cell C could benefit.

Neotel submission
Mr Denzil Bowman, Manager: Government Liaison, Neotel, highlighted that Neotel welcomed the initiative and was grateful to the Portfolio Committee for the opportunity to contribute, notwithstanding the success of previous interventions such as the reduction in call termination rates. Neotel came about as a product of legislation establishing fixed line competition. Neotel has been able to drive down the cost to communicate whilst delivering new technologies and substantial value to businesses and consumers over the past decade. Competitive fixed line networks have resulted in substantial reductions in the price of bandwidth and telephone calls. However, the fixed line sector was still dominated by a single player and a number of opportunities to level the playing field have been lost over the past few years. Co-ordination of policy, legislation and appropriate regulation was critical to the success of initiatives such as this.

Dr Angus Hay, Chief Technology Officer, Neotel, explained that he would be giving a different perspective as Neotel was in a different position. Neotel was not a mobile operator and came in as part of legislation as a competitor in the fixed line sector. Much still needed to be done with regards to the affordability of communication in fixed line as well as mobile.

He explained that the call termination rate reduction enabled Neotel to halve its retail call prices. Implementation of the toll-free / share call framework and non-geographic porting remained critical to reducing costs as there was no such thing as a toll free call in South Africa. Toll free calling legislation was available but not yet implemented. Toll free calling was about interconnection between operators but it was not about termination rates rather the reverse of termination rates. Under the current regime two things were not possible.

To charge a reverse call between operators and to port to a non-geographic number such as a 086 number or a 080 number between operators: this had an effect on businesses and consumers who used those businesses. As voice becomes an application rather than a basic service, improvements in network efficiency make further reduction in call termination rates feasible. Call termination rates, even at current levels, will increasingly become a barrier to competitive offerings that enable communication between networks (off net calls). Over-The-Top voice services represented a new kind of competition for operators who have relied on high call tariffs in the past. This will drive bundled offerings in response. Neotel supported a further review of voice call termination charges.

Dr Hay highlighted infrastructure competition. Neotel was leveraging its investments in international, national and local telecommunications infrastructure providing wholesale rates for connectivity and local and global internet to ECNS and ECS licensees in South Africa. There has been substantial investment in completing national backbone networks, resulting in significant reductions in the wholesale cost of national bandwidth. Infrastructure-based competition had reduced the wholesale cost of international bandwidth by over 95% as multiple players have invested in new submarine cables.

He demonstrated how prices have gone down due to infrastructure competition between Telkom and Neotel. They believed that infrastructure sharing was one of the most effective ways to facilitate competition and drive price reduction in the sector. Successful examples include:
1) Co-build of fibre backbone infrastructure, such as the joint National Long Distance network built by Neotel and other operators
2) Joint investment in international submarine cable consortia that land in South Africa which has resulted in cost savings for multiple operators and hence retail price reductions.

Dr Hay encouraged infrastructure sharing in the sector. Regulation should facilitate access to municipal infrastructure including ducts and poles to reduce the cost to deploy new competitive telecommunications infrastructure. The regulation of spectrum, as for infrastructure, should facilitate pooling, sharing and trading amongst competitors. He then gave an outline of South Africa’s submarine cable growth since 2007 to 2012. He said that the key in reduction to costs for mobile operators was to share the physical infrastructure. Neotel's view on the role of government was to best achieve governments’ objectives by participating in the sector on the demand side rather than the supply side. Where government had purchased services from competitive bidders or established public-private partnerships based on such purchases, the result has been better government services and a reduction in the cost to end users.

By purchasing services such as an anchor tenant, government could make new investment commercially viable. It had a key role as a facilitator, removing investment barriers and enabling rapid infrastructure build. Where deployment of new infrastructure was not commercially viable, the USAF should fund network build. Dr Hay spoke about rapid deployment and gave an explanation of the causes of delays which were:
1) Environmental Impact Assessments took 18-24 months
2) Water Use Licences currently took 18-24 months to obtain
3) Rights of way from municipalities typically took 30-40 days to obtain
4) Access to property by landlords was problematic and led to delays.

He added that there were various possible interventions in legislation and regulation that could facilitate rapid deployment such as co-ordination amongst operators and proactive sharing of trenches when work was being undertaken. A database of all infrastructure with controlled access by providers was needed as well as a simplified automated wayleave application and approvals system.

In conclusion, the competitive fixed line telecommunications market structure was the key to reducing the cost to communicate. There was a need for some regulation in markets where there were players with significant market power.

Discussion
Ms Shinn said that there had been a lot of emphasis on mobile data and the access to it and the cost of it. Perhaps consumers should be motivated to look at a combination of fixed and mobile data. Perhaps there was a need for more customer agility for mixed data sources. There seemed to be a lot of competition in fibre cabling. She asked what their target markets were.

Dr Hay said it has been as a result of history where South Africa had a very low fixed line penetration rate compared to other countries. With regards to where fixed line was with WiFi on campuses, apart from fibre cabling, all networks were essentially fixed. It was only the last connection to the customer which was either mobile or fixed. There was great potential for WiFi to be the connectivity provided that someone was investing in the backbone and core networks. The fundamental economics of a fixed line network was different to that of a mobile network.

Ms Ndongeni asked what Neotel thought about service based competition. Secondly what about Neotel operating in rural areas?

Dr Hay indicated that at a practical level Neotel entered a market where the competitor had a 100 year lead and it has been difficult competition. Neotel has done a great deal; in excess of 100 million US dollars in submarine cabling, investment of R7 billion into backbone infrastructure in South Africa. The long term plan was to reach rural areas. Neotel has partnered with smaller wireless internet service providers to extend the reach of fixed line and was in the process of connecting 2000 schools to fixed line service.

Ms Tsotetsi asked about rapid deployment as to why the process was taking so long (up to 24 months).

Dr Hay responded that it was important to look at the specific components of the processes and see which could be made much quicker. For example, Neotel had to go through 600 water use processes between Johannesburg and Durban which caused delays.

Ms Maseko asked about the submarine cable growth.

Dr Hay explained that Neotel had five physical cables which extended along the West Coast into Europe. On the East Coast they had two primary cables which touched countries along that coast and another cable that reached to the Far East.

Prof Gillwald noted the lack of transparency on wholesale pricing which has not been used even by ICASA. Wholesale data pricing was not even available from South African operators as they refused to provide the information. Neotel's description on the role of government directly described SA Connect’s description in 2013. To what extent has this been implemented?

Dr Hay said it would be interesting to compare the goals of SA Connect with reality. Neotel adopted many of the concepts that were presented by SA Connect but these were universal concepts which could be repeated. There had to be more fibre to home and fibre to business connections and there was a need to find out how this could be built.

Telkom submission
Mr Siyabonga Mahlangu, Group Executive: Regulatory Affairs, Telkom, introduced Ms Liza Rossouw, Head of Pricing: Competition Regulation, Telkom and other colleagues. Mr Mahlangu said that the question of affordability and how to calculate it needed to be taken into account as to where South Africa was financially. With a slow growing economy and highly competitive environments, rising costs to infrastructure and pressure from consumers were high. Telkom supported the lowering of costs to communicate and had done some things on its part.

He explained that as stated in Telkom's annual report, the South African ICT industry contributed 61% to ICT revenue. Telkom had Openserve which was a wholesaler to allow for lower prices. Referring to previous presenters he highlighted that infrastructure sharing should not be limited but could include efficient use of existing infrastructure too.

Ms Rossouw spoke about the pricing developments in the wholesale space. Telkom had Openserve as a separate entity to encourage service based competition. The unit price across the wholesale product range had decreased by approximately 63% since April 2015. SAIX via high speed broadband prices decreased by more than 25% per annum since 2013. IP Connect prices decreased significantly with the price of the entry speeds decreasing by 82% in 2015 and a further 57% in June 2016. This enabled Openserve’s downstream customers to compete effectively and pass on savings to consumers and businesses. Developments in the retail space showed a decrease in prices with the exception of an increase in calls to international destinations.

As the fourth entrant into the mobile network space, Telkom had a disruptive effect putting downward pressure on the market prices. Subscriber growth had increased by 54.6% per annum since its launch in 2011. Telkom introduced SIM only contracts and month to month packages since early 2015. With the introduction of LTE, voice calls were now being transmitted as data and not separately as in the past. The introduction of Free Me in July 2016 offered:
a) Free on net calls
b) 50 free SMSs per day
c) Free use of Telkom WiFi hotspots (5 500 hotspots)
d) Free calls and messaging on WhatsApp, BBM and Fibre (up to 2GB usage pm).

Mr Mahlangu highlighted the threats to lowering the costs to communicate in the mobile space. Telkom still did not have access to <1GHz spectrum which increased the cost of network build. This necessitated that Telkom had to enter into roaming agreements to provide mobile telecommunication services. The current Invitation to Apply (ITA) for spectrum was likely to entrench the dominance of the incumbents with adverse effects on the competitive process and the ability to lower prices. Also, Telkom continued to service fixed line telecommunications access at a loss in order to ensure that marginalized communities had access to services. Telkom was however in the process of finding ways to decrease the access line deficit (ALD).

Recommendation by Telkom was for ICASA to conduct a chapter 10 enquiry into competition in the broadband market and associated pricing. Regulated national roaming of all operators with significant market power was needed. In order to level the playing field, Telkom wanted to be assigned a sub 1GHz spectrum. There was also a need for regulatory recognition of the impact of access line deficit and solutions needed to be found to remove legacy universal obligations which raised the cost of providing fixed services by Telkom.

Discussion
Mr Mackenzie noted that Telkom stated in order to level the playing field it needed sub 1GHz spectrum. However, if Telkom had infrastructure sharing, would it still then need the sub 1GHz spectrum?

Mr Mahlangu said there had been debates about this issue but the discussions were not final. Active infrastructure sharing would alleviate some of this.

Ms Ndongeni asked what Telkom thought about Local Loop Unbundling (LLU).

Mr Mahlangu responded it was an issue that has been taken over by events. Telkom offered the access equivalent of LLU such as Bitstream and IP Connect and the operators and service provider could buy that service through Openserve.

Mr Mokoena suggested that government should legislate the sharing of facilities and infrastructure and also legislate the provision of telecommunication services in the rural areas. It was parliament’s responsibility to ensure equitable distribution of development means.

Ms Maseko asked about the Free Me plan and where the WiFi hotspots were. She also wanted estimated timelines to decreasing ALD. She felt that Telkom was supposed to be the lowest as they were the only ones with the proper landlines and infrastructure in South Africa.

Mr Mahlangu explained that Telkom was continually working on the ALD as it was a legacy infrastructure issue. There was no timeline on it. The issue remained stubborn.

Ms Rossouw responded that WiFi hotspots were predominantly in urban areas in shops and places where people congregated. The Free Me was a permanent plan.

The Chairperson asked why it was important for Telkom that ICASA do a chapter 10 investigation as listed in its recommendations?

Mr Mahlangu replied that a chapter 10 enquiry would address competition to have details on the economics of the sector, which would allow parliament to do proper oversight.

Mr Mackenzie asked why Telkom was charging for calls to 0800 numbers.

Mr Mahlangu explained that if customers were calling from a mobile network, it would not be free as the operator would charge for that call but if it was called from a landline to 0800 it would be free.

Prof Gillwald asked if networks were not available to rural communities.

Mr Mahlangu replied that Telkom definitely wanted to have the connection between Openserve and the community network.

The Chairperson concluded that the past two days were fruitful and intense in engagements. The Committee would put together a report that would be adopted and sent to the National Assembly for adoption. The Committee would look at avenues to possibly debate this in parliament so that it could be dealt with properly and have the parties in support of the Committee report as well. She thanked everyone who made submissions.