Cost to Communicate: ICASA briefing

Meeting report

Briefing by Independent Communications Authority of South Africa (ICASA)
Mr Rubben Mohlaloga, Acting Chairperson, ICASA, said that while voice was still the dominant revenue driver in the market, its prominence was declining due to consumers changing from voice to data with the advent of Over the Top (OTT) services like Whatsapp. Voice tariffs had declined since ICASA’s intervention in 2010. This has shifted attention to data services where Out-Of-Bundle (OOB) rates were relatively higher than in-bundle rates. The delayed assignment of high demand spectrum in the 700-800 MHz range hampered the industry’s ability to provide the latest broadband technology.

Trends in mobile data prices
Mr Mohlaloga said the average prices for the 500MB category in 2017 was 33% higher than 2016 average prices. This was the bundle of choice for the majority of low income South African consumers and gave credence to the recent discontent voiced in the #datamustfall campaign. Greater demand for data services had driven data revenue growth to be more than 30% per annum. The delayed assignment of spectrum would impede the ability of the ICT industry to provide the latest broadband technology and hence have a negative impact on economic growth.

Update on pre-paid data tariffs
Consumers were buying large volumes of data to benefit from low in-bundle rates. Out-of-bundle rates were substantially higher than in-bundle rates. On average, the standard pre-paid out-of-bundle rates were at least 50% higher than the in-bundle rates.

Update on voice tariffs prepaid
There were three types of prepaid tariff plans; the flat-rate tariff that charged the same retail rate for calls to any subscriber; the on-net tariffs that gave subscribers substantial benefits for calling other subscribers on the same network; and the dynamic tariffs that offered lower retail prices depending on the time of day and location.

International benchmarks on data prices
ICASA had noted the public discontent on high data tariffs charged by mobile operators and the #datamustfall campaign. It conducted a benchmarking exercise on the prices of 1GB and 2GB data bundles offered by mobile operators in the Southern African Development Community (“SADC”) region. The results illustrated that on average, the data prices of the SADC countries were relatively higher than those of South Africa’s operators Vodacom, MTN, Cell C and Telkom Mobile. There were a few instances where operators in Mauritius, Malawi, Mozambique and Tanzania were relatively cheaper than South African operators by up to 80%.

Cost to communicate program
In the short term, ICASA had established a task team with the National Consumer Council (NCC) to review the current industry rules on data expiry, high out-of-bundle rates and their impact on consumers. To date the task team had held meetings with the operators and would finalise its recommendations by the end of August 2017. Furthermore, ICASA would finalise, by 30 September 2017, the review of the wholesale call termination regulations aimed at reducing the cost of voice calls.

In the medium term, ICASA was planning to conduct a market inquiry into the broadband market services in terms of Section 67(4) of the ICASA Act read in conjunction with Sections 4B and 4C of the ICASA Act.

With regards to long term interventions, ICASA was currently identifying specific markets to be regulated in the future, including broadband / data markets. This project would also address the concerns raised on the prices of broadband services. So far ICASA had gazetted a notice to conduct a Section 4B inquiry.

Other areas were the finalisation of policy and policy directions for the rapid deployment and provisioning of electronic communications facilities in terms of 21(1) of the ECA constraining the ability to reduce roll-out costs and also the unavailability of additional spectrum which remained a key constraint to operators’ ability to reduce data costs.

Voice tariffs were showing a declining trend, the transparency of data and high out-of-bundle costs were still a concern, ICASA would investigate the broadband retail tariffs in the 2017/18 financial year, there was a collaborative arrangement in place between ICASA and the National Consumer Commission to investigate and review regulations on data billing and expiry period for data bundles and ICASA would cooperate with the Competition Commission inquiry into the high cost of data in South Africa as announced by the Minister of Economic Development, Ebrahim Patel.

Mr Willington Ngwepe, COO and Acting CEO, ICASA, said that licensees were obliged to make an annual contribution of between 0.15% – 0.35% of revenue based on the amount of revenue generated. ICASA collected a total of R 624m in the 2015/2016 financial year for these general license fees from all ECS/ECNS licensees. The mobile operators (Cell C, MTN, Telkom, Vodacom and WBS) all complied with the requirement.

Spectrum Fees Regulations
Licensees were obliged to pay annual Frequency Spectrum Fees for efficient spectrum regulation. The Spectrum fees collected for the 2015/2016 financial year was R464m. The mobile operators complied with this annual obligation.
Universal Service and Access Fund (USAF)
Licensees were obliged to make contributions of 0.2% of their annual turnover into the USAF. ICASA collected R 181 m for the USAF during the 2015/2016 financial year. The mobile operators complied with this obligation.

Universal Service Obligations (USO’s)
Currently four licensees (Cell C, MTN, Neotel & Vodacom) were obliged to roll out infrastructure to selected historically disadvantaged schools and special schools. Cell C, MTN and Vodacom were obliged to connect
1 500 schools and Neotel 500 schools over a 5 year period starting in 2014.  3 427 schools were connected by April 2017. The obligation included the provision of connectivity, the supply and installation of equipment and the provision of discounted usage services. USO’s for Sentech, Telkom and WBS would be finalised during the 2017/2018 financial year.

Cell C review application
On 12 December 2016, Cell C filed an application to review, set aside and substitute ICASA’s decision taken on 29 June 2016 to refuse Cell C's application for an amendment to its radio frequency spectrum licences which called for the removal of the USOs. The court process was currently at the stage where the parties were exchanging pleadings.

End User & Subscriber Service Charter (EUSSC) Regulations
All ECS/ECNS licensees were obliged to comply with certain minimum service standards for consumers:
-An average of 95% network service availability, measured over a period of six months
-90% success rate to both install and activate services within thirty days with the remaining 10% of
 requests for installation and activation being met within forty days from the request
-90% success rate to activate services within seven days with the remaining 10% of the requests for
 activation being met within fifteen days of the request”.
-Connectivity failure rate not exceeding an average of 3% of all connections, over a period of six
  months
-Operator assisted calls must be answered within three minutes averaged over twelve months
-An average of 90% fault clearance rate for all faults reported within three days with the remaining
 10% of faults reported to be cleared within six days of reporting of the fault
-Licensees must indicate the point of entry for complaints and indicate how they acknowledge receipt
 of complaints within three days
-Licensees must indicate how many complaints were resolved within fourteen days
-Licensees must indicate how many complaints were referred to the Authority for resolution

Other Compliance Areas were shareholding, management and staff distribution, submission of interconnection / facilities leasing agreements for review, and submission of notifications

Discussion
The Chairperson said that the Committee needed to meet with the cell phone service providers so that the service providers could give their view. She asked why out of bundle costs were so high and why data costs were higher than in other countries.

Ms N Mokgotsi-Koni (EFF; NC) asked what ICASA’s take was on the ‘data must fall’ campaign. She asked if ICASA knew how Treasury utilised the licensing fees that were paid into the fiscus. She said schools in the Northern Cape had computers but no connections because there was a shortage of connections to service providers in the area. She said that data costs must not be reduced, it must fall.

Mr J Julius (DA; Gauteng) said that a viable long term solution needed to be found. He asked how ICASA’s working relationship was with Broadband Infraco and with the Department of Telecommunications and Postal Services (DTPS). He asked who was paying for the school connections. Were the costs being transferred to customers? He said that on average five percent of income should be spent on data but in South Africa the average was 20% and holding back on providing cheap data was hampering economic growth. He asked if the operators who said they needed spectrum, needed it to provide for cheaper data or to increase speed. In the previous year, ICASA had announced the auction of spectrum for R3b. How far was this process? What was the current situation now that the White Paper had been published? What was the impact of government Wi-Fi hotspots on affordability and cheaper data to the consumers? He wanted an explanation on the matter of data expiry. How did the lack of migration from analogue to digital affect data prices and speed? He said that ICASA was supposed to do an investigation via a questionnaire. Did this investigation start, because the deadline was September 2017, and if so what were the submissions given in response to the questionnaire? He said there was talk of a stand-off between the Minister of DTPS and ICASA on high demand spectrum. Could ICASA explain the differences in positions taken?

Mr C Sefako (ANC; NW) said high data prices affected students who needed data to do research but were surviving on meagre stipend. He said that close to Botswana one could pick up the Orange network signal. Was this acceptable?

Mr A Singh (ANC; KZN) asked if there was an investigation on the prices charged by service providers. Was there collusion in the industry; was there price fixing and why were data prices so high? Was there easy access to an independent consumer complaints telephone number? He asked if there were other companies that paid license fees other than the big cell phone companies.

The Chairperson asked what factors were considered when setting data prices.
 
Mr Mohlaloga said that a customer should not just be notified that he has reached the end of his bundle. He must be given the opportunity to opt-in to another bundle and the End User Subscriber Charter had to be amended.

He said ICASA would be present when industry made their presentations and a report on engagements with industry would be presented.

He said the cost to communicate had to come down significantly but also that the industry had to be sustainable.

He said all licensing fees went to the Treasury. ICASA had no role in the flow of monies from Treasury to USAASA and USAF as it went through the DTPS. It was anticipated that USAF would be administered by ICASA after the White Paper was implemented.

He said South Africa, as a country, was playing catch up regarding digital migration which should have started in 2012 already. South Africa had helped other countries migrate but in South Africa the migration had been hampered by policy squabbles and litigation.

The second area South Africa was falling behind was broadband, where South Africa was lagging and other African countries were licensing spectrum. In South Africa there was a lot of policy experimentation which was not helping. 

ICASA had applied to issue a license in the 700-800 MHz and 2.6 GHz spectrum band. The 700-800MHz band gave the propagation capabilities to reach universal service particularly for rural services where investment cost would be reduced. The 2.6 GHz band gave capacity which was needed in urban areas. The Minister of TPS took ICASA to court after ICASA made its application. His main argument was that ICASA had to wait for the ICT White Paper. The matter was still before the court.

The White Paper was published and processes were under way to publish bills based on the White Paper. His honest view was that the White Paper policies would not take the country forward. The policy was that there be a single open access network operator and that ICASA start expropriating spectrum. There was a stand off and the biggest loser was the country.

On the questionnaire, Mr Leweng Mphahlele, Manager: Wholesale Services and Regulations, ICASA, said the purpose of the priority markets study was to identify a list of markets to prioritise for potential regulation. ICASA had published, on 30 June, a questionnaire requesting information from licensees.

Regarding high out of bundle rates, he said ICASA believed that there was no justification for the high out of bundle rates as the cost of providing in and out of bundle rates were the same and the out of bundle rates were exorbitant. He said some measures would be proposed for the revised End User Subscriber Charter regulations.

On the question of why South African data rates were so high, he said there were many factors that influenced the cost of data. Operators said that the lack of spectrum meant they had to deploy more base stations to accommodate for the growth in data, which resulted in increased costs which were passed on to consumers.

On the question of data expiry, he said the matter would be addressed in the revised End User Subscriber Charter regulations. He added that data bundle vouchers should last three years according to the Act.

Mr Ngwepe said that apart from the big cell phone companies there were other licensees numbering in the hundreds who paid license fees according to revenue.

On whether there is a complaints phone number, he said that there was an ICASA phone number linked to the ICASA switchboard and there was an ICASA website where complaints could be registered. Walk-ins to ICASA offices could also file a compliant there.

On the question of price collusion and price fixing, he said that as per the budget vote speech of the Minister of DTPS, the Competition Commission had been requested to conduct an investigation into these issues. ICASA was also conducting a review on the broadband market.

Regarding cross border spillage of network signal, he said that this should not occur. ICASA would work with the relevant Botswana authorities to attend to the issue.

Regarding school connections and the lack of coverage or inability to pay for usage in certain areas, he said that sometimes single operators had difficulty in providing coverage in particular areas or it was very expensive to provide coverage. In these instances, ICASA in conjunction with USAASA accesses the USAF to get one operator to roll out a subsidised network which was open to all service providers.

A Chief Director in the Department of Telecommunications and Postal Services said he would like to comment on issues pertaining to the White Paper. He said the White Paper was a consultative process which had started in 2013 and was now government policy. Hence the Department’s role was not to discuss the merits or demerits of the policy but to implement it. The policy was one based on an open access framework where infrastructure could be shared and which spoke to issues of monopolies and vertical integration.

Regarding spectrum, he said that while there were around 400 players in the industry holding ECN licenses, only six had been assigned mobile broadband spectrum. The result was an oligopoly and a highly concentrated market where a few firms dominated. The scarcity of high demand spectrum had an adverse effect on broader access to the market. Government wanted to implement a new framework to allow access and spectrum would not be exclusive any more.

He said the Minister had made it clear in his budget vote speech that there would be no expropriation until the end of the current license period so that companies could have investment certainty.

Regarding unassigned high demand spectrum, he said it had to be for a Wireless Open Access Network (WOAN) run by a private consortium which would build a network and provide for wholesale services so that the 400 other licences could could access it and render services. The White Paper called for ICASA to urgently prioritise the licensing of a WOAN.

He said the Regulator and its statutes might have to be changed to align itself and the ECA to the White Paper. The Regulator had to duly consider government policy and this begged the question of to what extent the Regulator was considering that policy. He acknowledged that the Regulator had to act according to existing statutes and therefore the consideration to amend existing government legislation to ensure alignment to the White Paper. The ECA must be amended to convert the facilities leasing chapter into an open access related chapter to give effect to the open access framework.

Mr Keabetswe Modimoeng, ICASA Councillor, said the DTPS input would help to understand why the two parties were in court. It illustrated the depth of the problem and the cost to communicate was too high. He said they were worlds apart. The Regulator was guided by the prevailing Act, even if there was a new policy that was coming, it did not suspend the existing Acts.

Mr Julius said his question on the questionnaire had not been answered as the answer given was not the issue he was referring to. He said the questionnaire he was referring to arose after a portfolio committee meeting where the public could respond. He said he would be satisfied with a written reply. He said he agreed with ICASA on the need to call for a speedy solution to the issue between ICASA and the DTPS as this stand off was hampering economic growth and transformation and prolonging inequality.

Regarding the cost to communicate, Mr Ngwepe said that there were three layers. In the short term ICASA was looking at prescribing minimum standards around data expiry and in transparency of out of bundle charges. In the medium term there was the enquiry into data prices ICASA was considering specifically the price of data and in parallel with the Competition Commission. In the long term there was the priority markets project.

He said that they would go back and check on the questionnaire issue.

On the issue of connections to schools and whether the costs were being passed on to the consumer,  he said that this was something that would require more investigation. Currently the requirement was that the operators had to provide connectivity to the schools and provide usage services at a 50% discount.
Another issue is
 
The Chairperson said she would consult with the Portfolio Committee on Telecommunications and Postal Services on a possible joint meeting.

The meeting was adjourned