ICT SMME Development Strategy implementation; Cost to Communicate update, with Minister and Deputy Minister

Telecommunications and Postal Services

13 March 2018
Chairperson: Ms D Tsotetsi (ANC) (Acting)
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Meeting Summary

The Department of Telecommunications and Postal Services briefed the Portfolio Committee on the cost to communicate and the implementation of the ICT SMME Development Strategy. The briefing was the result of the strategy meeting held the previous year.

The high concentration of the broadband market, as well as the vertically integrated companies, resulted in problems relating to the high cost of communication, accessibility of ICT and the lack of transformation of ownership in the broadband market. However, it was noted that the high cost to communicate, access to quality data and the high cost of data remained a concern in South Africa.  Many of the key interventions, including a Priority Market Study and the Competition Commission inquiry, were still in the process of being completed. The outcome of those processes sought to lower the cost of communicating.

Global ICT rankings measured how countries leverage ICTs to promote socio-economic development using various drivers for readiness, including infrastructure, affordability and skills, as those factors determined the impact on economic and social issues. The Global IT Report 2016 showed that South Africa was ranked 65 out of 139 countries. South Africa performed well in terms of policy and regulatory environment and business innovation but performed relatively poorly on access, affordability and skills.

Several studies had been conducted which analysed South Africa’s relationship to other African states. It was found that South Africa generally was more expensive in terms of the cost of data than other African states. The cost of data per Gigabyte in South Africa compared with nine other African states showed that only Zimbabwe was more expensive than South Africa. Voice dominant revenue drivers were declining due to exponential growth in data usage. However, the prices for data were not decreasing. The Call Termination Regulations, which would require new termination rates, would be in force from September 2018.

The Minister of the Department of Telecommunications and Postal Services outlined the primary challenges. He noted that there had been interventions from ICASA and the Competition Commission. However, the primary challenges were the high concentration of broadband markets, the high cost of data and the demand of South African citizens for data. The high cost of roaming calls hampered the markets. South Africa remained behind in that regard despite attempts to lower costs.

Members wanted clarity on whether the public discussions on the key recommendations to take place between March 2018 and June 2018 would be binding. How was the Department going to improve small operators?  What were the dominant service providers doing right? Could Telkom repair shops not fulfil the requirements of training? Mostly, when there was training, the requirements were Maths and Science. Would it be the same in that case? Were the centres for training were easily accessible? How much had the Competitions Commission inquiry cost?

The ICT SMME development strategy advanced the promotion of inclusive economic growth and employment creation. It primarily focused on transforming the ICT sector through accelerating the development and growth of small enterprises, creating support mechanisms to increase the levels of uptake and usage of ICT services by all SMMEs in various sectors of the economy. There was a clear need for local development and access to innovation centres for the youth. South Africa needed to compete internationally.

Interventions were required in four critical areas to make high impact.  Capacity building would involve entrepreneurship competencies and the improvement and promotion of digitalisation through skilling. Transformation of the sector had to occur through the infrastructure-related component of broadband markets. Access to funding for SMME’s would occur through leverage funding provided by direct foreign investments, government funding and other funding mechanisms by the private sector. SMME’s would be assisted to gain access to markets.   Specific timeframes and targets were not set but the Department would measure progress within annual periods.

The Minister of Telecommunications and Postal Services identified market dominance and monopolistic behaviour as problems that had to be resolved, as well as transformation of the industry. In respect of SMME development, the regulation or requirement to pay SMMEs within 30 days remained a challenge.  Even those that had cracked the market could not pay in time as they did not have enough revenue to cushion themselves. It was hoped that multiple stakeholders, which included the industry and government, could help in that regard.   Access was a big issue but once legislation had been enacted there was hope that things would change.  The Minister was impressed with the work on e-commerce.  Other countries had advanced platforms and were pushing for international rules. South Africa ought to play a role in developing e-commerce. He did not want BEE to be used by entities like Amazon to market their own products.  The big push was to liberalise the e-commerce platform and thus compete in that market. He wanted South Africa to play an active role in the international market.

Members noted that the Department had engaged with 50 stakeholders.  Who were they? Who was going to fund the SMME innovation fund?  Was there any specific training that related to how to tender for a government contract? Would the Department assist people to determine that they were setting appropriate standards?  Was there any involvement from the South African Bureau of Standards or any other authority? What incentives were being created to keep South African innovators in the country to create enabling environments? Members agreed that the project was too broad and ambitious to be achieved. They suggested clearer targets.

Meeting report

Election of Acting Chairperson

The Chairperson, Mr J Mahlangu (ANC), tendered his apologies as he was attending to party matters in the Eastern Cape. The Committee Secretary, Hajiera Salie, asked for nominations for an Acting Chairperson.  Ms J Killian (ANC) and Ms N Ndongeni (ANC) both nominated Ms D Tsotetsi (ANC) as the Chairperson for the meeting. All Members of the Committee agreed with the nomination.

Opening remarks

The Acting Chairperson welcomed all Members and entities to the meeting for the presentation by the Department of Telecommunications and Postal Services. She noted that the cost to communicate was a growing concern because people needed to be online for several purposes, such as applications for jobs and universities. It was observed that improvements had to be made by the year 2030, as stipulated by the National Development Plan 2030.

The Committee Secretary stated that the Minister and Deputy Minister of the Department of Telecommunications and Postal Services were on their way to the meeting. 

There were two presentations. The first presentation would address the cost to communicate and the second would address the strategy implementation.

Briefing on Cost to Communicate

Mr Robert Nkuna, Director-General, Department on Telecommunications and Postal Services, thanked the Committee for the invitation to discuss firstly, the briefing on the cost to communicate and secondly, the ICT SMME Development Strategy Implementation. The Director-General introduced his team which included Ms Mameetse Masemola, Acting DDG: ICT Policy Development Branch, Ms Tsholofelo Mooketsi, Chief Director: ICT strategy and Ms Nokuzola Ehrens, the Council chairperson for B-BBEE ICT Sector Council.

Ms Masemola made the presentation.  She stated that the primary focus was on modernising the economy and economic infrastructure through different means, such as the roll-out of ICT infrastructure, applications and services, and the roll-out of Postal and Banking Services.

Access to communications technology, specifically broadband and other services carried on ICT networks, was important for economic growth and equality. The Medium-Term Strategic Framework from government identified issues related to the high cost of broadband internet connectivity. The Department’s target for its Broadband policy was 5% of the possible income of South African citizens channelled into acquiring ICT services or communication services although, according to research, the current percentage was quite high.

In terms of the National Integrated ICT policy white paper, two issues were addressed: the supply-side interventions and the demand-side aspect of the interventions. It was noted that the main problem on the supply side was the high cost to communicate.  On the demand side, strategies were geared to increasing ICT uptake by individuals, households, businesses and government.   

The Minister had issued two policy directions to ICASA in the last three years.  ICASA was working on implementing the policy direction on policy transparency. The Department had also amended the End-User and Subscriber Charter Regulations. Furthermore, the Competition Commission’s Data Services Market Inquiry was probing the high cost of data in the country. ICASA was also working on the annual publication of SA ICT Sector Performance which looked at the revenue derived from mobile data and airtime.

The Market study emphasised two phases in which phase 1 involved obtaining information from stakeholders and market participants and which had been completed in October 2017. Phase 2 would be completed by 31 March 2018. ICASA would release the discussion document which showed the list of markets that are prone to ex-ante regulations and which would also contain key regulations. By June 2018, the findings document would be available for public consultation and might or might not have public hearings.

To implement the price transparency policy direction issued by the Minister, amendments had been proposed to the End-User and Subscriber Service Charter Regulations. Concern was raised at how data would sometimes disappear after being purchased and that needed to be corrected through the notification of service depletion to be sent to the end-user at set intervals. Other interventions included aligning the expiry of data bundles with the National Consumer Act, 2008 with a minimum expiry period of no less than 3 years and promoting consumer awareness and education. Public hearings were held on 1 and 2 March 2018 and the final regulations would be published at the end of March 2018.  

The outcome of the review of 2014 Call Termination pro-competitive conditions resulted in several findings. The competition in the relevant markets remained ineffective and the four market failures identified in 2014 existed in the absence of regulation. ICASA had extended the glide path as set out in the 2014 Call Termination Regulations by 12 months and new termination rates would be in force from September 2018.

The Competition Commission conducted a market inquiry into data services to understand the factors of the markets and value chains that might cause high prices for data services. The Commission’s formal call for submissions was released on 20 September 2017.  The team was conducting a detailed assessment of the submissions with a view to seeking further information from key stakeholders. After completion of the assessment, the Commission would release an interim report in April 2018 which would be followed by the release of a final report in August 2018. 

Information was obtained from tariffs filed to ICASA from July 2017 to December 2017.  Consumers buying large volumes of data benefitted significantly from low in-bundle rates per Megabyte. People on contract usually paid less than those using prepaid data. Out-of-bundle rates were substantially higher than in-bundle rates.  In-bundle rates per Megabyte (Mb) were 50% cheaper than out-of-bundle rates per Mb. That matter was currently being addressed by the End-User and Subscriber Service Charter Regulations to alleviate the significant price difference between in-bundle and out-of-bundle rates.

In terms of the out-of-bundle per Mb rates, Cell C was the most expensive at R1.10, Vodacom and MTN were both at R0.99 and Telkom at R0.29. 

The cost of data per Gigabyte in the country in comparison with nine other African states showed that only Zimbabwe was more expensive than South Africa.

Global ICT rankings used several indices to measure how countries leverage ICTs to promote socio-economic development. The main drivers for readiness included infrastructure, affordability and skills (e-astuteness). These factors determined the impact on economic and social issues. The Global IT Report 2016 showed that South Africa had moved up ten places and was ranked 65 out of 139 countries. The ICT Development Index ranked South Africa 88 out of 175 countries. Importantly, South Africa performed well in terms of policy and regulatory environment and business innovation but performed relatively poorly on access, affordability and skills.

Research by ICT Africa showed that South Africa currently ranked 13th out of 49 African countries. Egypt continued to charge a fraction (less than 33%) of what the cheapest OECD basket cost in South Africa. Only two SADC countries were better than South Africa: Madagascar (USD 3.4) and Mauritius (USD 3.3).

Voice dominant revenue drivers were declining due to exponential growth in data usage. However, the prices for data were still not decreasing. In terms of the tariff filings by operators to ICASA; Vodacom’s data revenue increased by 17.94% but its voice revenue declined by 2.9%. MTNs data revenue increased by 31.4%. Lastly, Cell C’s data revenue increased by 35% and voice revenue declined by 2%.  Voice tariffs had decreased significantly since ICASA’s intervention in the Wholesale Call Termination market 2010. Growth in data usage was driven in the main by over the top services and content. Smartphone and tablet penetration was growing at a rate of 30% per annum.

Briefing on Implementation of ICT SMME Development Strategy

Ms Mooketsi presented a briefing on the implementation of the ICT SMME development strategy.  She stated that the Department of Telecommunications and Postal Services (DTPS) had finalised the strategy in November 2017.  For the past few months the Department had been working on the implementation approach and would identify areas for prioritisation, particularly for the coming financial year. 

The ICT SMME development strategy advanced the promotion of inclusive economic growth, and employment creation. It primarily focused on transforming the ICT sector through accelerating the development and growth of small enterprises, creating support mechanisms to increase the levels of uptake and usage of ICT services by all SMMEs in various sectors of the economy. Lastly, the strategy was intended to establish a coordinated and integrated planning mechanism for development of ICT SMMEs.

DTPS had adopted a sector-wide integrated planning, implementation and reporting approach that required collaboration and partnerships between governments, private sector, academia and community-based organisations. It was the ideal approach owing to economic constraints and limited resources available within government and would be implemented over a three-year period between 2018 and 2020.   The financial resources amounted to R500 000

Interventions were required in four critical areas to make high impact. Firstly, capacity building which would involve entrepreneurship competencies which would improve and promote digitalisation through skilling, reskilling and upskilling ICT SMMEs in digital skills. Different interventions had to be made across different categories of SMMEs. Transformation of the sector had to occur through the infrastructure-related component of broadband markets, as well as other services. Access to funding for SMME’s would occur through leverage funding provided by direct foreign investments, government funding and other funding mechanisms by the private sector. There had be access to those markets where there was a need for access in order to facilitate market opportunities.   Important interventions included over that period would be facilitating the establishment of 30 black owned ISPs in all NHI sites which had broadband roll outs; supporting the participation of ICT SMMEs in International Telecommunication Union and BRICS summit, to be held in South Africa in 2018, and an annual report to track and measure the level of implementation on the integrated ICT SMME development sector.

Out of the 400 local Internet Service Providers, only 7% were black owned. Training was suggested for unemployed youth and entrepreneurial start-ups.

The first objective was to facilitate the accelerated growth and entry of SMMEs in the ICT Sector by the participation of SMMEs in the WOAN (Wireless Open access network). The Department was engaging with potential sponsors. Secondly, effective regulations were being established in consultation with ICASA.  The establishment of cell phone repair shops would prioritise women/youth owned and managed repair shops.  Software development and cybersecurity would be promoted to improve and encourage cybersecurity in South African households.

Manufacturing and localisation would accelerate growth. The Department was establishing partnerships with OEMs and operators to identify components and devices for local productions. Microsoft had indicated plans to build hyperscale data centres in Cape Town and Johannesburg to deliver cloud services to allow local SMMEs to get faster speeds and lower latencies and to cut costs. The Department would enter into a partnership with the Council for Scientific Industrial Research (CSIR) to increase youth employment in the TV/FILM sector through SMME growth.

The Department was engaging with Ekurhuleni and the Department of Energy on the establishment of a Hub for Data centres and with Denel to explore how technology could be customised for SMME use. Vodacom was analysing information to determine the feasibility of locally manufacturing devices to work, with Original Equipment Manufacturers (OEMs).

The Department of Trade and Industry was working on incentives for the ICT sector including the role that special economic zones could play in ICT SMME Development. In terms of the ITU Telecom and BRICS Summit, the department of telecommunications and postal services is engaging with sponsors to support ICT SMMEs. Lastly, the Swedish embassy has been identified as a strategic partner to support SMMEs through a variety of means.

 The second strategic objective aimed to increase uptake and usage of ICTs by the South African nation as a whole, and especially SMMEs. This would be done firstly, through e-Commerce in developing an SMME E-Mall/e-Commerce pilot project to be finalised by June 2018 and fully operational by 2019 and secondly, the State Information Technology Agency would be to rolling-out Tech Labs in all provinces to support ICT SMMEs. 

The third strategic objective aimed to establish a coordinated and integrated planning mechanism for the development of ICT SMMEs across all economic and social sectors through procurement, the creation of a central and national database, and a website for ICT SMMEs. Additionally, ICT SMME Incubation Centres would be established, focussing on the advancement of Broad-Based Black Economic Empowerment targets.

Partnerships would be set up with private sector companies to support ICT SMMEs, including Vodacom, MTN and Telkom. Partnerships would also include the University of the Western Cape and the Department of Higher Education and the Social, Economic and Governance and Security Chamber.

Effective monitoring and evaluation of activities in the ICT SMME sector was critical to ensuring targeted interventions both at policy and programme interventions. The Department would continue updating the ICT SMME Database and finalising a single portal for ICT SMMEs.  It would produce a Sector Wide Annual Report stemming from the collation and measurement of ICT SMMEs in the country.

Comments from Minister and Deputy Minister

Dr Siyabonga Cwele, Minister of Telecommunications and Postal Services, commented on the cost to communicate by outlining the primary challenges. He noted that there had been interventions from ICASA and the Competition Commission. However, the primary challenges he noted were the high concentration of broadband markets, the high cost of data and the demand of South African citizens for data. One thing that had not been mentioned in the presentation was the high cost of roaming calls which hampered the markets. South Africa remained behind in that regard despite attempts to lower costs. The termination rates were good for voice, but that no longer had as big an impact. The reason for the policy directives was to address issues such as broadband and data markets.

The Competition Commission had resolved one of the issues in terms of the market dominance in the awarding of the transnational contract to all government departments and spheres which had been engaging with the National Treasury. If the government reinforced dominance, then it became a problem as the government was responsible for facilitation. In terms of the comparison between international and national markets, communication cost the poor more than the rich. That did not serve the challenges South Africa faced as a country.

In respect of SMME development, the regulation or requirement to pay SMMEs within 30 days remained a challenge.  Even those that had cracked the market could not pay in time as they did not have enough revenue to cushion themselves. It was hoped that multiple stakeholders, which included the industry and government could help in that regard.   

As access was a big issue, once legislation had been enacted there was hope that things would change.  There had to be a continued focus on skills, with the private sector involved.

The Minister congratulated Members on the progress in e-commerce.  Other countries had advanced platforms in which they were pushing for international rules. He noted that there was a fear of developing countries that they could not implement those rules. Thus, South Africa ought to play a role in developing e-commerce. He did not want BEE to be used by entities like Amazon to market their own products.  The big push was to liberalise the e-commerce platform and thus compete in that market. He wanted South Africa to play an active role in the international market.

Ms Stella Ndabeni-Abrahams, Deputy Minister of Telecommunications and Postal Services, noted the concern that Members had about SITA and the establishment of cyber labs. She stated that the work had to be co-ordinated in order for it to be sustainable. She spoke of the difficulty of entry to the small businesses market, identifying the start-ups and an innovation hub. It won’t just be a cyber lab. In terms of e-commerce, South Africans had concerns about security, but the world was moving digitally, and the Department had to make sure that there was a South African digital platform. 

Discussion (Cost to Communicate)

Ms M Shinn (DA) wondered whether the Department, in investigating the cost of data, had looked at comparing not only the price, but the quality and reliability of the service as well as the geographic spread. She wanted clarity on whether the public discussions on the key recommendations, which would take place between March 2018 and June 2018, would be binding. On market failure, she agreed that there was dominance, but that did not mean the market had failed. A need for competition was noted. Furthermore, the Committee had made recommendations on a report at the previous cost to communicate hearings. One of those was to regulate the separation of wholesale and retail divisions or the operations of all mobile operators. Was that being considered as it had worked in the fixed line area and had made a big difference?

Mr C Mackenzie (DA) agreed with Ms Shinn on the topic of market failure. Telkom had the lowest price for a 20 Gb data package at 0.4c but had the lowest uptake amongst consumers, even amongst wealthy ones. He asked why service providers like MTN and Vodacom had market dominance even though they were more expensive.  How was the Department going to improve small operators?  What were the dominant service providers doing right? On the topic of networks, he noted that to build and roll out networks, one needed access to high points of land. If there were small hills or mountains it would be easier for networks than in flat areas like the Karoo. In terms of South Africa’s ranking, was there an increase or a decline in the ranking? The Competition Commission’s first mandate was to look at elements of inclusion, or, in other words, to look at devious means of keeping prices higher. Beyond that, what powers of enforcement did the Competition Commission have? ICASA could make a difference in that regard for telecommunications. He presupposed that the Competition Commission might not be useful and asked how the Department saw the Commissions terms of reference?

Ms J Killian (ANC) did not agree with the idea that there was not a market failure. If there had been a successful roll-out by the markets to all areas, there would not be significant gaps in access to quality voice and data services in South Africa. If one travelled in metro areas, one did not see it, as it was in remote areas where there was poor or limited service. That all related to the market and the number of people that the operators could sign up. Where it was not profitable, service providers would be unlikely to extend their service. Secondly, the Minister had referred to ICT operators and the Competitions Commission inquiry.  She asked whether that was related to government service or did it go beyond that? She stated that the Minister had expressed concern regarding the dominance that was reinforced by government. On the other hand, she found it difficult to understand how government would circumvent the Constitution that required economies of scale beneficial to government.

She suggested that spending money might not be the solution as there were different ways and scenarios that government could implement to ensure market entry for smaller operators so that there was more competition. Section 227 of the Constitution stated that it was important to deliver value for money governance and that issue could not be sidestepped. She did not understand how the same operators who were prominent in South Africa could provide cheaper rates in other countries. She was horrified at the excessive costs of data in comparison to other countries and, more specifically, the out-of-bundle data costs. It was just robbery. In terms of roaming costs, there had been a ministerial agreement. Was the issue was taken up with SADC? What was the reason that there was no progress?

The Chairperson asked whether Telkom repair shops could fulfil the requirements of training? She noted that there were young people who had not completed school but could still manipulate gadgets. Mostly, when there was training, the requirements were Maths and Science. Would it be the same in that case? She asked whether the centres for training were easily accessible. How much had the Competition Commissions inquiry cost?

The Minister emphasised that market failure and dominance were bad for society as it did not advance socio-economic goals. He noted that the reason for the existence of a market failure was that the dominant players in the market were formed in the last years of apartheid and protected and supported by the government at that time. Effective regulations were imposed on dominant players such as Telkom. Without those regulations, they would not have survived. He noted that the question was whether the regulations were effective and how they dealt with the dominance. In engaging with all the stakeholders individually, he had been told that they did not believe there was a need for more or new operators and that there should be only two networks.  That was typical monopolist behaviour. In the past 25 years, the challenges had been identified in the white paper and sector regulations were contributing to that. He did not believe the regulators had been captured but that there were clear weaknesses that needed to be addressed. In terms of legislation, South Africa’s constitutional dispensation required international law to be domesticated through legislation to give effect to regulations, unlike in other countries where there were other instruments. That was being addressed. The principle of reciprocity was key there.

On the question of lower rates from service providers, he stated that where a service provider had a monopoly of customers, the service providers spent more money on advertising and they did not respond to the realities of the market. It was an issue of dominance. Another issue was in connection with who had efficient lead weight. Those who had efficient lead weight had the means to run things efficiently. Dominant providers were not efficient. ICASA had conducted studies in which it had concluded that it was an issue of dominance with attempts to try to close the market.                  

In terms of the Constitution, there was the matter of redress. There was no right that was more important than another. Black people still did not have access to the economy and that had to be addressed. SMME’s were still capped by the market, which was a major problem for redress. Policy price was not a fair price, an efficient price was the fair price, but the monopolistic price was bad for society. It was a market failure, so government had to push regulations and licensing conditions so that service providers extended quality services to all areas where that had not happened. There were studies from StatsSA on the ICT issues. Those studies talked about population coverage and not geographic coverage. Government had to make sure that all people in all districts had equitable access to those services. Adequate resources had to be given to the regulators as it had been observed that whenever a regulator released a result, it was challenged. The had to be an increase in skills and resources for regulators.

The Minister discussed the problem of the Transversal Telecommunications Contract. The Department had written to the National Treasury a particular contract that was illegal. It was in breach of the SITA Act and did not meet the key requirements for government to procure.  In particular, it was in breach of BEE requirements. The Department was not saying that it should not continue, but it had to satisfy other requirements such as the SITA Act. The Department would engage further with the National Treasury.  Government was also hoping for the Competition Commission to consider other inquiries. What had been said in the tender was that government could not buy from any telecom service providers. Government had to go with one and it had to be clear what the benefits were from buying from that service provider. Thirdly, it was predatory because it brought security issues. SMMEs could help in that regard. Because the government had erred, the contract needed to be reviewed. 

It was observed that the mandate of the Competition Commission did not deal with just collusion, but also dominance, and the Commission could make recommendations. In the inquiry, domination was found and that was why there had to be a separation of the services and network aspect of the companies. The Commissions mandate was broad and was regulated by legislation. 

The Deputy Minister reflected on the behaviour of monopolies and market dominance. Firstly, if one looked at the legal representation in the private sector versus the government, the legal representatives were always on a retainer and the best brains in the industry worked in the private sector. Even when the government came calling they could not take a case. Regulators in that regard needed not only human resources but adequate funding so that, internally, government could get help. One of the other issues were the obligations for operators. Within the regulation, if one did not meet an obligation, the operators were fined 15 % of their annual income. The government had to identify the weaknesses and strengthen those weaknesses. The reality was that government had created an enabling environment for the operators to be where they were at that time. Government had to encourage meaningful participation and new entrants into the market.

The Director-General spoke on the issue of market failure. The global financial crises were caused by the idea that banks were too big to fail. Why was the Department not expecting competition between MTN and Vodacom? The Department had met with relevant stakeholders in previous weeks to address that issue. It was observed that government had to move away from driving prices down as it did not work in the economy. In responding to questions comparing prices and quality, the Director-General noted that there were other things that they had compared. In some of the other countries there were no roads to gain access to the mountains and no reliable electricity in comparison to South Africa (which had one of the cheapest electricity tariffs). There were issues around roads and financial services. When the Department looked at those countries, they argued that South Africa also had infrastructure which enabled industries to invest and which could not be seen in other countries.

In response to the question on recommendations by the regulator, he stated that the regulator would issue various recommendations, including interventions, during consultations before the report was finalised. In terms of the account separation, the current Electronic Communications Act did not deal with the separation of companies. But in the ICT policy, when a vertically integrated operator was sliding, it had two licenses: a retail license (service licence) and a network licence. The distinction had to be reflected in its report. They were separate licenses. ICASA indicated in the hearing that the infrastructure-sharing model had not been successful and that explained why the Department was proposing a new approach to infrastructure. In response to the question on regulating prices, when the Minister had engaged with the industry, Vodacom and MTN were specifically asked to commit to lowering prices.  That would occur if they were given a portion of the spectrum. However, there had been issues between ICASA and the two service providers in that regard. With respect to the Competition Commission, they were looking at the entire market. The other aspect was with the tender that had gone to the most dominant service provider. It was observed that there was tension between awarding the contract and the promotion of SMMEs. On the powers of the Competition Commission, it would depend on the wrongdoing the Commission found. Recommendations would be made, and remedies would be sought where there was collusion.          

In response to the cost, the Competition Commission would likely fund the inquiry. There would be co-operation between National Treasury and Department of Economic Development.

Discussion (Implementation of the ICT SMME Development Strategy)

Ms N Ndongeni (ANC) wondered which criteria would be used to train the SMME’s and asked whether the Department would meet with the Department of Higher Education in connection with the certificates for training.

Ms Shinn noted that that was an ambitious strategy for SMME development and she was sceptical as to whether the implementation could be achieved with the resources that the Department had. In terms of the two major interventions that had happened: firstly, the set-up box manufacturing policy had failed; secondly, a network infrastructure contact for the cell phone sites in Mpumalanga had been given to someone who was part of a major corruption scandal. She thought that the Department was overreaching.  There was a lot of duplication between the Department and DUMISA concerning ICT developments in business centres and main urban areas.

The Department had engaged with 50 stakeholders, who were they? What were the terms of the partnership?  Was it a share equity thing or just terms of business? In terms of the facilitating of Black Internet Service Providers (ISPs) in NHI sites, was there a commercial need for that? Were the new Chief Directors going to be around as there would be another R4 million required?  What were the figures? In terms of the partnership with the CSIR, surely that should go to the Department of Trade and Industry? What was meant by the term ‘crowding’?  Who was going to fund the SMME innovation fund?

Lastly, on the film app that was developed by CSIR, was there a fast track for the approval to the Film and Telecommunications Board?

Ms Killian stated that the report was good.  It was clear about what needed to be done. She had a concern with the ‘how’ part.  She observed that it was a broad strategy, but she was concerned with the strategy being over-ambitious.  It was better to have two or three goals and then to report and achieve rather than 20 and achieve two. She asked whether the database and SMME portal had been created and finalised. The Department should be able to identify promising SMME’s and give them additional skills and support, rather than starting with unemployed youth. That was what the SETAs did and the Department had to refrain from that.

There should be a clear implementation plan with clear targets. That had to occur so that something would be achieved. There had to be a link-up with the Department of Higher Education and Training. She observed that there was a gap that had to be filled in terms of the vast sums of money that needed to be raised for the fund to be established so that people could be brought on board and things could work. A link to the digital economy was essential to ensure that the future was bright.

In terms of the issue of small businesses taking part in the tender process in government, she asked if there was any specific training that related to how to get a tender? Would the Department assist people to determine that they were setting appropriate standards?  Was there any involvement from the South African Bureau of Standards or any other authority? She stressed the need for meaningful empowerment. Secondly, the tech laboratories reminded her of the model used in Brazil, which had techno park areas where small-sized businesses entering the market had practical oversight as well as training in the field. Once they had been involved in a program for a period of 18 to 24 months, they could move out. Was that what the Department had in mind, as Brazil had experienced extensive benefits from that?  

The Chairperson concurred with other Members that the project was ambitious.

Mr C Mackenzie (DA) wondered whether any form of discussion had occurred with any of the people that the Department was trying to empower. Furthermore, examples were needed to support the Department’s claims because it would help to explain the strategy. In terms of brains in the private sector, he stated that there were brains in government. He wanted more detail on the type of programs instead of just ideas. In terms of various successful people like Elon Musk, Mark Shuttleworth and Siyabulela Xuza, what incentives were being created to keep those innovators in the country to create enabling environments? He observed that there was no reference to techno parks, of which there were several in the country. There was also the Soweto empowerment zone.  What was happening with those hubs as that was where the interventions should occur. In terms of the budget, were there any allocations for the program and was there any indication of line items?

In terms of the out-of-warranty devices, he noted an error on the slide regarding SITA which should read SCTA. Furthermore, it was observed that in terms of cell phone repair shops, many of those shops had existed for a while and were not new. That would result in unemployed black youth competing against already established people in that market. Who dominated that sector and how was that dominance achieved?

Ms V Ketabahle (EFF) wondered when the hyperscale data centres in Cape Town and Johannesburg would be built and whether any centres would be built in other provinces.   

The Minister noted that the point of ISPs in NHI sites was about adapting to the market and the cost structure of the market. Furthermore, it did not mean that those ISPs had to remain in those markets. There was definitely a demand for their services. However, they had to be given an opportunity to grow and innovate. On the question of hyperscale data centres, the Department was unsure why they were not being built in other provinces. It was likely that it was a cost and infrastructure issue. For example, fibre was needed.  Lastly, in discussions with the Department of Trade and Industry, the Department had pointed out the necessity for innovation centres to be built. South Africa’s own local centres like Vodacom were developed locally.  There was a need to create those innovation centres. South Africa should aspire to create high end products and innovations. On SMME and BEE, he said all companies were starting to show promise.  For example, Vodacom had committed to the purchase of local products. There was no fast-track process. 

The Deputy Minister agreed that it was an ambitious project. In going through the presentation, she asked Members to clarify what role the Department should play as much of that work occurred in partnerships. For example, an entity would be responsible for funding in respect of ISP training. In certain other aspects, other entities such as NEMISA would help in that regard. The Department of Telecommunications and Postal Services would enlist the help of the Department of Small Business Development. Slide 26 listed the stakeholders involved in that process. In terms of targets, there were no specific goals.  However, it had been noted that achievements, broadly speaking, needed to be achieved by the annual periods set out. In relation to the terms of agreements with partners, the Department had a program called ‘Internet for All’, where it gathered interested players to create access to the internet which would ensure meaningful participation between stakeholders and trainees.

There was a need for rural areas to have ISPs for NHI sites. The role of ISPs in that regard was to help with unemployment. The Department was concerned with the fact that only 10% of the South African population had access to email addresses. There was a need for South Africans to understand the political economy of email addresses. In terms of the role of the Enterprise Development programme with the CSIR in relation to the TV/film sector, one would be able to broadcast one’s content from one’s cell phone without needing commissions from companies. That would allow easier access and promote local platforms.

The Department of Telecommunications and Postal Services had not yet identified all the SMMEs.  However, they had been doing other things, such as the Internet for All programme in Soweto. There was a need to create databases and a need to create access to varying programmes and to improve quality. There had been collaboration with the Department of Economic Development and the Department of Trade and Industry to do that.

The model for the tech labs was recruiting and investing in high school students who excelled at Maths and Science. However, it was not exclusively limited to Science and Maths as software developers were also sought. The driver behind it was the need to facilitate South African participation in the international ICT industry.

The Director-General stated that the Department was responding to the urgency of the youth. The fourth industrial revolution necessitated that the Department had to move with haste. There was no choice in that regard. For example, with infrastructure, Vodacom and MTN had spent over R 20 billion on infrastructure.  Where had that money gone? Some of that money had to go to other African states. That a difficult issue. On the issue of whether small ISPs would survive, that was the first phase.  The margins might be low, but those ISPs would graduate and provide innovations to internet updates in specific areas. It had to start somewhere. There was a vision with those SMME’s.

On the issue of the Chief Director, he was there, and the Department would try allocating more funds. In terms of the CSIR, there was a need to create new platforms which were government implemented to allow young people to develop their content for commercial use. The issue about ‘crowding’, was that the private sector was rolling out infrastructure as the biggest use of ICT money was with the private sector. The question asked was how could government make it easier for the private sector to invest more into the economy? Crowding in that context meant enabling. The SMME Innovation Fund was being discussed with the International Telecommunications Union (ITU).

The strategy of the key drivers was in terms of the Annual Performance Plan (APP). Certain issues could be dealt with in relation to the APP regarding stakeholders and programmes, and so forth. On the issue of phone repairs, that type of training would be supported by the OEMs and SMMEs would have to meet certain requirements.  

The Department had envisioned a number of ways of consulting with stakeholders. An example would be the meeting at the World Economic Forum between established players and SMMEs in the presence of big companies. There had been commitments by some of the big companies. In developing the strategy, the Department had undertaken a provincial road show in which most of the participants were young people. Other programs would take SMMEs as delegates, which would expose SMMEs to a variety of platforms.

Lastly, the ICT Chamber of the ICT Forum had been engaging with the Department of Telecommunications and Postal Services. Progressive Black people in ICT had also been engaging with the Department. On the SMME Innovation fund, the Department was engaging the ITU to say that exhibitions should remain in South Africa to support local SMMEs.     

Ms Mooketsi noted that there was a growing demand for internet connectivity. Apart from that, broadband was being taken to the NHI sites, which was the main reason why the Department had decided to leverage the broadband connectivity on all the sites. The Department did not want to just take broadband infrastructure but also wanted to look at the broadband elements, including content elements, for example, that could be delivered to those sites. There would be a commercial need for internet connectivity and for local internet service providers to actually operate in those NHI sites to provide websites and hosting services.  

In responding to the question on cell phone repair shops in townships, there were instances of people in rural areas who needed repair shops but had to take transport to reach the facilities. The Department needed to intervene and establish those facilities where there was a demand in those rural areas. Rolling out of cell phone repair shops would not be immediate as the owners would need to be trained and skilled. There would be further partnerships and engagements with the Department of Higher Education.  

Ms Ehrens noted that a report on ‘tech labs’ and SITA would be provided at another stage and was not appropriate for that meeting. Furthermore, more information would be provided on SAConnect at another time. 

Ms Masemola responded to the question of tendering and what sort of support would be provided. The strategy had identified that one of critical sectors for SMME’s was to have a knowledge of the field. Sentech and SITA, for example, would have suppliers and awareness campaigns where they helped the SMME’s in terms of training and compliance issues, and other regulatory issues. Those SMME would be helped in terms of standards as well. The SMME’s would be equipped and capacitated for business dealings.

SITA, for example, was setting aside contracts for R50 million and below for SMME’s. Contracts over R 50 million would have be awarded to OEMs. The OEMs were required to sub-contract to SMME’s and there were compliance issues to ensure that it happened. Those OEMs and SMME’s would be assisted.  

The meeting was adjourned.

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