The Committee held a third day of public hearings on the Electronic Communications Amendment Bill. The hearing was attended by officials from the Department of Telecommunications and Postal Services, representatives of Independent Communications Authority of South Africa (ICASA), industry stakeholders and members of the public. The Committee told industry that the Committee had an obligation to put forward a plan on how to move forward with the Bill for the Portfolio Committee on Telecommunications and Postal Services in the next Parliament.
The B-BBEE ICT Sector Council told that the Committee that the Broad-Based Black Economic Empowerment (B-BBEE) Act prevailed over laws that were inconsistent with the transformation agenda. The Bill was late because when the B-BBEE Act was passed in 2013, it had indicated that any law which sought to drive transformation had to be amended within one year. If the process of amending or aligning the law had not taken place within a year, the trumping provision would apply. Therefore, the processing of the ECA Bill was too late. Section 10 of the B-BBEE Act provided that every organ of state and public entity must apply any relevant Code of Good Practice issued in terms of the B-BBEE Act. The Council was interested in ensuring that the ECA Bill applied the relevant Code to bridge the digital divide, stimulate growth and eradicate poverty, increase skills development initiatives, and ensure that the minimum targets in the ICT Code were achieved.
The Council told the Committee that it needed to ensure that the transformation agenda was achieved by allowing more black people to have shares in companies operating in the ICT sector. The ICT sector had committed to 30% ownership of businesses as the minimum compliance target. The Council for the B-BBEE ICT Sector said that the Council welcomed the Bill because the amendments sought to transform the sector and comply with section 3 of the B-BBEE Act. The Committee asked the Council for the model it had used as the basis for progression of the ownership of businesses in different sectors. The Committee asked Council whether it had done a market review for ownership since 2003 to determine whether the industry had moved over the years.
The South African Communications Forum said it was concerned by the relatively short period provided for commentary and hearings on the Bill, particularly given the significant impact of the Bill. Given the impact of the Bill, the Department should have, but had not, conducted a comprehensive Regulatory Impact Assessment. The Communications Forum was of the view that a significant step had been omitted and the Regulatory Impact Assessment should be conducted before progressing with the Bill.
The South African Communications Forum argued that the Bill imposed several new obligations on ICASA, without providing a framework for the funding of the additional obligations. It also submitted that the Bill eroded the independence and powers of ICASA in respect of spectrum management. The Bill deviated from international best practice and the rationale for the departure from the current provisions was unclear, including the proposal to relocate ICASA’s function in respect of spectrum to the Minister. The Communications Forum believed that the Bill should be aligned with the B-BBEE ICT Codes. The Committee asked Communications Forum if it had members who had licences that they could not use because they did not have spectrum. Did the Communications Forum believe that the spectrum licensing process was fair and that it achieved the transformation agenda?
Cell C said the duopoly in the market was characterised by limited competition and co-ordinated effects on prices. More than 80% of the data market revenue in South Africa went to Vodacom and MTN. The two players would only compete against each other as a duopoly to maintain the status quo and high prices. Cell C cautioned against repeating what had happened to Cell C by not giving a new entrant the requisite support.
The major criticism advanced by Cell C was that many of the proposed amendments to the ECA were not necessary. The amendments were legally inappropriate and did not adequately reflect policy goals. Cell C said the wireless open access network was a potential enabler of competition and efficiency. If correctly implemented the wireless open access network could positively shift the market structure to provide more choice and value for consumers. That would also result in efficient network deployment, leasing, swaps, re-use, where possible, and new infrastructure where there was no coverage existed. Cell C was a strong and active advocate of open access infrastructure and services-based competition. The Committee asked if light touch regulations could accomplish the goal to reduce the cost to communicate. The Committee also asked if allocation of high demand spectrum to the wireless open access network would add an additional cost to doing business. Cell C was asked if there was any unfair competitive advantage that had made Vodacom and MTN more competitive than Cell C.
MTN informed the Committee that it was not true that MTN did not want to share its infrastructure. MTN was sharing most of its sites with Liquid Telecommunications, Telkom and MNVOs like Standard Bank and First National Bank. The Committee was informed that MTN was willing to share its infrastructure with all operators, big or small, but on commercial and mutually agreeable terms. MTN emphasised that the market regulated itself and did not need over-regulation. MTN requested the Committee not to rush the Bill and to give the industry more time to discuss the pressing issues in the Bill and to come up with proposals.
MTN stated that imposing blanket cost-based open access on a competitive market was draconian and irrational. The stated objective of the Bill was to abandon the current model of balanced infrastructure and service competition in favour of a purely service-based model. MTN indicated that the policy U-turn would have devastating effects on the model that had delivered more than R100 billion of investment in the last decade. It would destroy the incentives that had delivered over 98% 3G coverage, a world class 4G network and the growing fibre investment and would, as a result, jeopardise South Africa’s 5G future. Furthermore, MTN submitted that the Bill was unconstitutional. It violated the property clause in the Constitution, it failed to meet the rationality requirement imposed by section 1(c) and section 22 of the Constitution and it was impermissibly vague.
The Committee asked if MTN’s revenue and taxes generated in all its international operations were paid in South Africa and where MTN made most of its profits. The Committee asked if MTN had been denied infrastructure by any competitor and if it had ever denied any competitor access to MTN’s infrastructure. The Committee wanted to know if MTN would challenge the constitutionality of the Bill if it perceived the WOAN to be unconstitutional.
Progressive Blacks in Information and Communication Technology told that Committee that the gap between the rich and the poor continued to widen over time and that black people in the ICT sector had not been active in the telecommunications industry, which was dominated by a minority and by large foreign corporates that neglected black people in the deployment of networks and maintenance thereof. The telecommunications space. Consequently, the space was dominated by the big four mobile network operators resulting in high data prices and the negligence of rural areas.
The Bill gave a lot of power to ICASA while it failed to give effect to the B-BBEE ICT Sector codes. The Progressive Blacks in Information and Communication Technology proposed that organisations representing the interest of black SMMEs should be part of the Rapid Deployment Steering committee. It also submitted that the Bill should be passed as it was, or blacks and small businesses would continue to be excluded. The wireless open access network was the best way to achieve empowerment and transformation. The organisation suggested that there should be an ICT regulator. The Committee asked if there were some SMMEs that had been denied network access to network infrastructure by big players and if free band spectrum was available to SMMEs.
The Youth Economic Alliance informed that Committee that the wireless open access network had the potential of creating economic and employment opportunities for the youth. Therefore, the Youth Economic Alliance supported the establishment of the wireless open access network. It proposed that the Bill should provide for the following: the wireless open access network had to be 100% South African-owned and have a minimum of 40% youth ownership. In addition, the network had to have a minimum of 80% black ownership and its infrastructure had to be built by black SMME’s, 40% of which should be black youth-owned SMMEs. Equally important was that all high demand and unused spectrum had to be allocated to the wireless open access network and licensees requiring spectrum had to procure it from the network as a funding mechanism for the network. The Youth Economic Alliance was asked to explain how it saw the wireless open access network creating opportunities for the youth, and whether its members had funding to invest in the network.
An Economist told the Committee that the reduction in infrastructure-based competition sought by the Bill would cause the cost of communication to rise and the quality of services to fall. Reducing infrastructure competition would likely reduce coverage in South Africa and again increase the costs of communication. Rather than a wireless open access network, what was needed, according to the Economist, was to implement the open access framework already contained in the current Electronic Communications Act.
The Chairperson opened the meeting and asked Members of the Committee to introduce themselves, and thereafter requested representatives from the Department, ICASA and industry to introduce themselves. He asked Members to reflect on the presentations from Monday and Tuesday.
The Minister had sent apologies. Ms J Kilian (ANC) had been requested by the Chairperson not to attend the meeting because she had to undergo a medical operation.
The Chairperson asked Members of the Committee to reflect on the presentations of the first two public hearings. He indicated that there were a lot of divergent views on the WOAN and that it would affect competition in the market. He said that stakeholders that were not interested in the WOAN were supposed to tell the Committee how to achieve the objectives of the Bill. He reiterated that the industry had to propose something which could be accepted and would ultimately transform the sector. The ICT sector was the future of the world. Therefore, leaving out important players would not be in the best interest of the country.
Ms M Shinn (DA) said as Members of the outgoing Committee, they had an onerous obligation to put forward a plan for the next Committee on how to progress on the Bill. She highlighted that the Committee owed the next Committee a comprehensive report on all the inputs gathered from the public hearings which would guide that Committee and the entities involved. The Committee was legislating for the ICT end-users of the country. Without the end-user, the industry would not improve. As such, the end-users should be empowered through access to cost effective, reliable and affordable services. She said the Committee had to gather the best brains in the industry to guide the process forward in the next Parliament.
Mr C Mackenzie (DA) said it had become clear during all the hearings that the telecommunications sector was not an end goal. The end goal had to be job creation, economic growth and highly effective telecommunications services. He was of the view that many presenters had focused on the means as the end. The Committee had to reflect on whether the proposals in the policy and Bill had pushed the telecommunication industry forward over the past few years or had delayed the progress in the sector. He added that the next Committee had to drive the sector forward for economic growth and job creation.
Ms D Tsotetsi (ANC) said the main objective was to achieve transformation and the Committee needed the support of the big companies to ensure that the small players did not remain small. She appealed to the big companies in the sector to help the small businesses grow.
Ms N Ngongeni (ANC) said there was need for Members to work with the industry to achieve more.
Briefing by B-BBEE ICT Sector Council
Mr Raletlhogonolo Andile Tlhoaele, Chairperson of B-BBEE ICT Sector Council, stated that the Bill made reference to the B-BBEE ICT Sector Code. He indicated that the Council wanted to brief the Committee on what the B-BBEE ICT Sector Code was about and how it impacted on the Bill. The Broad-Based Black Economic Empowerment Act (B-BBEE Act) mandated the Council to present progress and status reports to the Committee. The Council consisted of ICASA, the Department, industry, communities, youth and women in the ICT sector.
The B-BBEE Act and the ICT Sector Codes had an impact on the ECA Bill. The objectives of the B-BBEE Act included promoting the transformation of the economy. Therefore, the Council had to ensure that that the Bill and the Code were aligned for transformation. The Bill was also designed to achieve the objectives of the B-BBEE Act and Code. He indicated that the ICT Sector Code, which the Bill made reference to, should seek to increase the extent to which black women owned and managed enterprises, and were given access to skills and economic infrastructure. With reference to the Code in the Bill, the Council expected increased economic participation of black-owned and managed entities. The Code was the tool that allowed transformation to take place.
The B-BBEE Act prevailed over laws that were inconsistent with the transformation agenda. The processing of the Bill was late because when the B-BBEE Act was passed, it had indicated that any law which sought to drive transformation, had to be amended within one year. However, if the process of amending or aligning the law had not taken place within a year, the trumping provision would apply. Therefore, the process of the ECA Bill was too late. Section 10 of the B-BBEE Act provided that every organ of state and public entity had to apply any relevant Code of good practice issued in terms of the B-BBEE Act. Therefore the Council was interested in ensuring that the ECA Bill applied the relevant Code to bridge the digital divide, stimulate growth, and eradicate poverty, increase skills development initiatives and ensure that the minimum targets in the Code were achieved.
The ICT sector had committed to 30% ownership of businesses as the minimum compliance target. From a transformative perspectives, the ownership referred to black people. The Code also differentiated between ownership, control and benefit. That was because some people could be given shares but would not benefit from those shares. In the current Electronic Communications Act, it was not clear whether one was entitled to dividends or whether one controlled the entity. The transformation required in the ICT sector was ownership of business.
The B-BBEE ICT Sector Council told the Committee that the Council welcomed the Bill because the amendments sought to transform the sector and comply with section 3 of the B-BBEE Act. The Bill provided for the B-BBEE Code to be used as a tool to transform the sector and remove ambiguity in the implementation of the Code by substituting the ICT Charter with the ICT Code. Moreover, section 9 of the Bill indicated that the B-BBEE conditions must be prescribed and the objectives of the Code must be applied by all organs of the state.
The Chairperson thanked the Council and asked Members to comment or to seek clarification.
Mr Mackenzie asked for the names of organisations that represented women and youth within the B-BBEE ICT Sector Council. He also asked for the model used by the Council for the progression of the ownership of businesses in different sectors.
Ms Ndongeni asked for clarity on what Mr Tlhoaele meant by stating that the Committee was late in the process of the Bill.
Mr Alf Wiltz, Chief Director: Telecommunication Policy, Department of Telecommunications and Postal Services (DTPS) said he agreed with the Council that the Bill sought to achieve transformation and ensure that the B-BBEE ICT Sector Code would become more enforceable through the ICASA licencing process. He looked forward to the transformation in the ICT sector.
The Chairperson thanked the Council and indicated that the participation of the Council would help the Committee and the Department to ensure that the Bill was complaint with the B-BBEE Act and ICT Sector Code. He also stated that the participation of the Council in a workshop on aspects of the Bill would also be helpful. He then asked the Council to respond to the questions raised by the Members
Ms Gwangwa asked for clarity on the proposed workshop so that the Council could attend.
The Chairperson said that Parliament would be in recess from the beginning of December. However, during the period before Parliament dissolved, the stakeholders would meet and discuss their differences. He proposed that during the recess, the Department should meet with different stakeholders and have a workshop on aspects where the industry had divergent views. He added that it was the Director-General’s responsibility that the differences were narrowed down to assist the next Committee, and he hoped that the Council would be part of the engagements.
Ms Gwangwa said there were Councillors who presented the youth. Ms Morwesi Ramonyai and Mr Thulani Tshefuta presented the youth in the Council. Further, Councillor Petronella Linders from the DTPS presented people with disabilities.
Mr Tlhoaele replied to Mr Makenzie’s question on ownership indicating that the process of transforming the sector had started in 2003 with a Charter. The Charter was a non-binding industry document or obligation. When the process started, some parties were asking for 40% compliance while others proposed 25.1 %. However, the ICT Sector Council agreed with the industry that the minimum had to be 30% ownership which was in line with the Telecommunications Act and that had been the starting point for ownership.
In response to Ms Ndongeni’s question he said when the B-BBEE Act was promulgated in 2013, it provided for one year for laws seeking to achieve transformation, like the Electronic Communications Act (ECA), to be amended. In the event that the amendment had not been effected, the B-BBEE trumping provision would apply. That put ICASA in a difficult position. ICASA was required by law to apply the Code and the laws used by ICASA, such as the ECA, referred to the Charter instead of using the Code. The process of amending the ECA to promote and support transformation should have happened in 2013.
He added that when the B-BBEE Act was promulgated, it provided for the B-BBEE Commissioner to act as an enforcer if the Code was not implemented. There were also fines and imprisonment in cases where companies circumvented the Code. The Bill was welcomed because it would ensure that the Code was enforceable.
Mr Mackenzie asked if the Council had done any market review for ownership since 2003. He asked how the industry had moved in terms of ownership of companies. Did the Council take into account listed companies, the Public Investment Corporation and other government shareholders when considering ownership of companies?
Mr Tlhoaele replied that no market review had been done since 2003 because the Council had only started working in October 2015. The Council produced annual reports. He hoped that the Council would present a three-year review on ownership and report to the Committee. He indicated that the Code was explicit on how ownership was measured. In the Code, government ownership was excluded. The listed investments were taken into account but depending on whether they represented real black people. In the Code, government shareholding was always excluded in the ownership because the black people referred to in the Code excluded state ownership. He reiterated that a report on how the Council had progressed would be presented.
Mr Mackenzie disagreed with the exclusion of government shareholding from determining ownership.
The Chairperson asked if Mr Mackenzie was suggesting that the government was black.
Mr Mackenzie said he could not understand why the people who own shares in companies and invested through government were not real black people.
The Chairperson responded that the government was colourless.
Mr Tlhoaele said he wanted to withdraw the phrase ‘real black people’. The black people referred to in the B-BBEE Act were South Africans by birth, naturalisation and those who had attainted their citizenship before 1994. Therefore, if the investments could be traced to those people, they would count as black people.
Ms Gwangwa said what had informed Mr Tlhoaele’s use of the phrase ‘real black people’ was because there were some companies that used trusts as beneficiaries but not human beings. The Council took a position that B-BBEE must benefit human beings at the end of the line and those people should be black people and not companies or trusts.
The Chairperson thanked the Council and asked Ms Katrina Pillay to present comments from the South African Communications Forum (SACF)
Briefing by South African Communications Forum
Ms Katrina Pillay, Managing Director at SACF, welcomed the Bill but was concerned about two processes on substantially the same issues running parallel: the policy direction on the licensing of high demand spectrum, and the amendments to the ECA Amendment Bill. SACF was concerned by the relatively short period provided for commentary and hearings on the Bill, particularly given the significant impact of the Bill. The period for consultation was very short.
Despite the probable impact of the Bill, the Department had not conducted a comprehensive Regulatory Impact Assessment (RIA). SACF was of the view that a significant step had been omitted and the RIA should be conducted before further engagement with the Bill.
The Bill imposed several new obligations on ICASA without providing a framework for funding the additional obligations. There had been numerous discussions concerning the underfunding of the regulator, including proposals for a new funding model. Best practice would have been an assessment of the regulator, including a review of the funding model. That had not been addressed, nor was it clear how funding would be addressed, particularly in light of the additional obligations imposed on ICASA.
Ms Pillay noted that the Bill required ICASA to define all relevant markets within 12 months of the ECA Amendment Act coming into effect. ICASA then had to conduct market reviews in each of those markets, starting with markets with the greatest impact on consumer pricing and quality of services. Market definitions would need to be reviewed at least every three years. The provisions imposed a significant obligation on ICASA, and again raised the question of resources – human and funding - to carry out the additional obligations.
The Bill used the term Historically Disadvantaged Groups (HDGs) rather than moving towards the use of the term ‘black people’. The Broad-Based Black Economic Empowerment (BBBEE) legislative framework was based on black people. The consequence of using two different measures, viz. black people and Historically Disadvantaged Groups, would increase the cost of compliance. Increasing input costs would ultimately increase the cost to the end user. SACF was of the view that the Bill should be aligned with the B-BBEE ICT Codes.
Ms Pillay stated that Bill sought to marginalise ICASA by stripping away its powers and reducing it to an implementation agency while further empowering the Minister. The purpose of the separation of powers was to create markets that were impervious to political tides. A separate and independent regulator would enhance government’s accountability. Such independence increased neutrality and insulation from political or operational pressures. This perception of independence was particularly important where government retained ownership of the PTO (Telecommunications Regulation Handbook, Overview of Telecommunications Regulation, Module 1, Page 6). The Bill proposed relocating ICASA’s function in respect of spectrum to the Minister. SACF was of the view that that deviated from international best practice and the rationale for the departure from the current provisions was unclear.
The Bill proposed that the Minister had to develop a Frequency Band Plan instead of issuing guidelines to ICASA. SACF was of the view that the Minister’s powers ought to be limited to issuing guidelines to the Authority rather than making determinations and, thereby, removing regulatory autonomy.
SACF was concerned about the level of detail on SADC roaming contained in the Bill. It was essential to recognize that the jurisdiction of the Bill was limited to services within the Republic. SADC roaming partners fell outside of South Africa’s jurisdiction. The regulator would have to enter into bilateral agreements with all of the SADC National Regulatory Authorities in order to enforce reciprocity principles.
Despite, electronic communications operators having contributed more than R3 billion to the Universal Access and Services Fund (USAF), those funds had not been used to promote universal access and service to electronic communications services and to reduce the cost to communicate. SACF proposed that the amendment to compel ICASA to carry out universal access and service obligations should not be adopted because it would add to the input costs of services. Instead, the current provisions of the ECA had to be retained where ICASA could use its discretion in developing regulations on universal access and service. SACF suggested that the funds in the USAF be used to promote universal access and service; or that licensees rollout services in accordance with guidance from ICASA.
Ms Pillay said that the Bill sought to avoid the duplication of electronic communications infrastructure. However, infrastructure duplication and infrastructure competition would promote differentiation. Service-based competition on a limited number of networks did not alone promote competition. Further, the Bill seemed to assume that there was a need to establish a new framework for a wireless open access network. SACF was of the view that the current ECA already provided for a wireless network through the Electronic Communications Network Service (ECNS) licence category, as an ECNS sold capacity to Electronic Communication Service (ECS) licensees. There should be clarity on the whether it was envisaged that there would be more than one WOAN.
The Chairperson thanked Ms Pillay and asked Members to make comments or seek clarification.
Ms Shinn asked about issues that were covered in the White Paper and which SACF believed should have been included in the Bill. She asked SACF believed ICASA should be given to implement the objectives of the White Paper and the Bill. Were there members of the SACF who had licences that they could not use because they did not have spectrum?
Ms Tsotetsi asked if SACF thought that the spectrum licensing process was fair and if it achieved the transformation agenda.
The Chairperson asked if ICASA Councillors and the B-BBEE ICT Sector Council had questions.
Mr Tlhoaele said he had none.
Mr Wiltz said the Department had to go through a difficult process of determining what should be included in the Bill from the White Paper. The White Paper was only a government policy and not enforceable. As such, if the White Paper stated that ICASA must do certain things, it did mean that everything should be done. The Department had to identify the critical enablers and include those in the Bill. He added that it was a mistake to include too much in the Bill, but the consideration was a balancing act. He added that the White Paper prescribed more roles for ICASA, but some roles had been excluded.
Mr Wiltz was of the view that there had been an extensive consultation process for the industry to make inputs. He said the Bill had received the most extensive consultation process in the history of the Department. The Minister had also engaged with the industry during the White Paper process in different areas ,including Sandton and Pretoria. He added that it was for the first time that the Department had had public hearings on a Bill. He stated that the Department had entertained engagements with the media and investors and had answered their questions. He thanked the Director-General and believed that the consultations had been properly conducted.
Mr Wiltz added that, at the time when the Bill was drafted, a decision had not yet been taken to formulate the Policy Direction. The provisions of the Bill were legally necessary to strengthen the WOAN and to ensure that future high demand spectrum had a proper governance and legal framework. The Bill would have to be aligned with the Policy Direction when it has been issued.
He indicated that requiring market definitions to be done by ICASA was to ensure that the problem was solved. Market definitions could not be a reactive process because the problem should be defined. In the past, ICASA was close to achieving what was required by the Bill in determining all relevant markets and determining priority markets for reviews. The Bill was taking it further in requiring a schedule of intended reviews. The Department believed that would create certainty and was aligned with international best practice so that the markets could be understood, while ensuring transparency and clarity in the process.
Mr Robert Nkuna, Director-General of DTPS, said a question had been raised as to whether the Bill had been rushed to Parliament. He stated that the Department was of the view that the Bill was not being rushed, since it had followed the right processes in coming to Parliament with the Bill. The Department could not tell the Parliament how to run its affairs because it was the principal of the Department.
He added that section 34 of the current ECA stipulated that the Minister must had to approve the Radio Frequency Plan (RFP) developed by ICASA. He indicated that there was a purpose in the legislature giving certain powers to the Minister and certain powers to the regulator. There was substance in each of the roles performed by the Minister and ICASA.
Mr Nkuna stated the Committee and Department had been told during the previous public hearing that the Minister should only approve and nothing more. He did not agree with that view. If it was the intention of the legislature to only give the Minister the powers to approve, the section would have provided for ICASA to develop and also approve on its own. The intention of the legislature had to be understood.
When the White Paper was developed in 2016, there were concerns that it was not in line with legislation. The White paper was issued under the constitutional powers of the executive and legislative power. After the concerns were raised that the White Paper was not in line with the law, the Department took most of the things in the White Paper and translated them into the Bill and subjected it to consultation.
Mr Nkuna informed the Committee that several issues were raised by the industry during consultations on the first draft. However, the Department chose to bring the issues to the Committee to ensure that the Parliament could guide and assist the Department and industry to resolve those issues. Furthermore, section 5 (6) of the current ECA was only partially adequate for ICASA to license the WOAN or to issue an Individual Electronic Communications Network Service (I-ECNS) licence. However, the problem was that the licensee might have a network without spectrum. Therefore, the intention of the Bill was to ensure that it resolved that problem by expanding section 5(6) to enable licensees to have spectrum so that they could operate.
In addition, Mr Nkuna stated that open access principles were defined as providing wireless open access on terms that were effective, transparency and non-discriminatory. The reason for that was to ensure that the big companies did not continue to share commercial deals worth billions and discriminate against small players. According to the presentation by Wireless Access Providers Association of South Africa, (WAPA), their members had 8000 sites which they had built. The WAPA members indicated that they wanted to interconnect with big companies and lease their sites.
He reiterated that it was possible for big companies to enter into deals and offer each other opportunities that they would not offer to smaller entities but the non-discrimination principle meant that the big companies had to offer the same access and opportunities to small businesses. He said the intention of the Bill was to protect small companies that wanted to access the infrastructure of big companies.
Mr Tlhoaele indicated that the Council concurred with SACF on the need to align the Bill with the B-BBEE Act. However, the Council was of the view that the transformation process was long overdue, while SACF had stated that the Bill was being rushed. He asked Ms Pillay to explain how ICASA would issue licences and comply with the B-BBEE Act in terms of the current of the ECA when the definitions were not aligned.
Ms Botlenyana Mokhele, ICASA Councillor, said that ICASA supported the recommendation made by SACF that there should be an alignment in the transformation measures incorporated in the Bill as well as the ECA and ICASA Act, particularly the definition of HDI (historically disadvantaged individuals) that had to be replaced by ‘black people’ in the different legislations.
The Chairperson said the rushing of the Bill referred to by SACF was that the Committee was rushing to compete public hearings. The submission was not directed at the Department but at the Committee. The Committee had planned the shorter period of public hearings because industry stakeholders had not submitted comments on the Bill. Very few submissions had been received at the time that the Committee set aside two weeks to deliberate on the Bill. However, when the Committee received more submissions, it became clear that the Committee could not proceed with the Bill, and it set aside time for public hearing. He reiterated that the accusation of rushing the Bill was not directed at the Department but at the Committee.
Ms Pillay agreed with the Chairperson that the first programme planned was too short and not sufficient for all industry players to make their comments, considering the importance of the Bill. However, the programme had been rectified and had allowed more time for public hearings. She would come back with the information on what should have been included in the Bill because SACF represented many organisations that she needed to consult.
Ms Pillay added that the issue of ICASA’s funding had been raised for over a decade. There had been many discussions on whether there should a self-funding model or a government-funded model. She was of the view that ICASA, as an institution, should be reviewed so that it could meet the needs of the industry. There was a need to look at whether ICASA was doing the right things. Assistance could be provided to ensure that it functioned sustainably and achieved the objectives of the Bill.
In response to the question from Ms Shinn, she stated that there were some members of SACF who had I-ECNS and ECS licences who were unable to begin operations. Some of the members of SACF had funding and had launched operations in other countries but could not start operations in South Africa because they could not access high demand spectrum from ICASA.
In reply to Ms Tsotetsi’s question, Ms Pillay said a fair and transparency process would be where everyone understood the rules. In terms of the policy, it would be the responsibility of ICASA to ensure that every entity understood the licensing process. She indicated that definitions had to be aligned because the process of applying was cumbersome costly and time consuming for both ICASA and licensees.
Ms Tsotetsi asked what SACF would consider to be fair in transforming the sector to assist small businesses that might not understand the law
Ms Pillay said that ICASA was assisting small players that did not understand how the licensing process worked. There was a need for awareness so that the small entities understood how ICASA processes worked.
Briefing by Cell C
Mr Graham Mackinnon, Chief Legal Officer at Cell C said that Cell C supported the Bill but the Committee and stakeholders had to be careful not to dismiss why some operators opposed the Bill. Cell C had played a large role in saving the South African consumer R47 billion between 2010 and 2015 through price competition at great cost to its own financial position. Notwithstanding the fact that Cell C, as a new entrant, did not enjoy support when it entered the market, unlike its competitors, MTN and Vodacom, it adopted the role of ‘consumer champion’ and disruptor in the market to reduce prices for the benefit of consumers.
MTN and Vodacom increased interconnection rates immediately before Cell C was launched. The current Cell C’s market share by revenue was between 12% and 13% while MTN and Vodacom together held more than 80% of the market even after 17 years of Cell C. As such, a duopoly structure persisted in both the wider retail and narrower data markets. He cautioned against repeating what had happened to Cell C and not giving a new entrant the requisite support.
The duopoly in the market was characterised by limited competition and co-ordinated effects on prices. Vodacom and MTN received more than 80% of the data market revenue in South Africa. Those players would only compete between each other as a duopoly to maintain the status quo and high prices. Large operators could match a challenger's prices, and make higher profits, due to their large economies of scale. The high profits allowed the large operators to engage in entrenching behaviour such win-back and retention discounts for high-value customers. Vodacom and MTN were unlikely to want to push each other and genuinely compete.
Mr Mackinnon said Cell C and Telkom had been trying to gain market share and improving competition, but were hampered by a number of factors, including, inter alia, poor quality of national roaming; lack of access to suitable radio sites; Vodacom’s incentive to ensure that Cell C had a lower-quality service by offering a low-quality roaming services. As a result, high-value post-paid users were unlikely to choose Cell C or, if they did, they would likely experience a poorer quality network than Vodacom's own customers. Small operators could only sustainably challenge to the extent that their higher underlying network costs allowed. Cell C was efficient but slashing its own costs would not help Cell C to challenge better; it would only make it weaker.
There was no incentive for the dominant players to bring cost down, but competition and the right framework could make a difference by addressing market failures and duopoly in the sector. The major criticism advanced by Cell C was that many of the proposed amendments to the ECA were not necessary. The amendments were legally inappropriate and did not adequately reflect policy goals. Equally significant, the Bill did not go far enough in explaining policy goals in the Act.
Mr Mackinnon was of the opinion that the WOAN was a potential enabler of competition and efficiency. If correctly implemented the WOAN could positively shift the market structure to provide more choice and value for consumers. It would also result in efficient network deployment, leasing, swaps, re-use, where possible, and building of infrastructure where no coverage existed. Cell C was a strong and active advocate of open access infrastructure and services-based competition. Some operators were using Cell C’s infrastructure, i.e. First National Bank and Standard Bank.
The WOAN required adequate spectrum to ensure national coverage, adequate offtake commitments and regulated facilities sharing. The ECA should also empower ICASA to provide the regulatory incentives that would support the success of the WOAN. In order for the WOAN to be successful, the WOAN had to receive the most high demand spectrum, and other operators should receive the remainder. The release of spectrum to the other operators had to be simultaneous with the WOAN actually securing its financing and becoming operational. He added that the WOAN could use existing infrastructure.
Mr Mackinnon agreed that the B-BBEE shareholding requirement should be mandatory for all new spectrum licensees in line with ECA. The regulation of national roaming would be critical in increasing efficiency. Mr Mackinnon emphasized that spectrum sharing, and spectrum trading should take place in terms of principles of openness and transparency. He proposed that ICASA should be allowed to administer spectrum, including independent licensing, and monitor usage. In conclusion, he mentioned that the Rapid Deployment policy had to be enforceable and adaptable at the municipal level of government to ensure its success.
The Chairperson asked Members to ask questions or make comments.
Mr Mackenzie asked if Cell C thought that light touch regulations could accomplish the goal to reduce the cost communicating or that ICASA could achieve the objectives of the Bill through spectrum auction with conditions attached to it.
He asked if the allocation of high demand spectrum to WOAN would add an additional cost of doing business and drive up the cost of communication rather than reducing the costs. He also wanted to know if Cell C had conducted research to determine why customers did not migrate or port from Vodacom and MTN to Cell C in response to the promotions and cheaper prices of Cell C.
Mr Mackenzie noted that Cell C had submitted that the release of spectrum to operators should happen simultaneously with the WOAN securing its funding and becoming operational. Other stakeholders had suggested that it would take the WOAN five years to start operating. He wanted to know if Cell C was suggesting that high demand spectrum should be rolled out after five years, and if that would not delay the benefits from the release of the spectrum.
Ms Shinn asked on what basis Cell C believed that the WOAN should be a non-profit company. She wanted to know why anyone would invest in the WOAN or go into business if there were no profits to be made. It was the first time she had heard that the WOAN should be a non-profit company.
Ms Shinn wanted to know if the South African economy and its population would support an additional network company. Some presentations had indicated that there were only two or three operators in much more densely populated countries. She asked if it would not be ideal for Cell C, Telkom and people who would form the WOAN to consolidate to compete with the big two companies, Vodacom and MTN. She did not think that having five network companies would be sustainable, particularly considering the amount of investment needed to roll-out network infrastructure in rural areas. She wondered if there could be a merger for the WOAN. She also asked if Cell C believed that splitting services into wholesale or retail would make Cell C more competitive in the market.
Ms Tsotetsi asked if there was any unfair competitive advantage that had made Vodacom and MTN bigger than Cell C.
The Chairperson said that Cell C had told the Committee that the two big companies had an unfair advantage when they were established. He wanted to know what Cell C thought should happen about the stiff competition that it faced from Vodacom and MTN.
He also asked for Cell C’s recommendation on the amount of spectrum that should be allocated to the WOAN for it be sustainable and the timeline within which the spectrum should be allocated. He added that he wanted information on international experience where the WOAN had been tried and worked. He also asked which factors would make a mobile operator sustainable. He said Cell C had to tell the Committee what to consider so that the WOAN could be viable.
Mr Wiltz mentioned that the Department was revisiting the wording in the proposed Policy Direction and the two periods--one being a three-year period might not be the appropriate solution. The Department was also considering moving from individual capacity procurement to collective capacity, but specifically a minimum of 30%. Nonetheless, ICASA could prescribe a higher percentage depending on circumstances. Furthermore, the periods were also being reconsidered, based on the submissions received. The Department would like to prescribe a minimum period for when the WOAN should start functioning, but leaving discretion for ICASA to make that period longer. The important part was that the WOAN needed to secure funding to take off. The Bill would be amended according to the extent that it had been overtaken by the developments under the policy directions. He agreed with the national roaming recommendations made by Cell C.
Mr Nkuna stated that certain interventions were necessary to ensure that the market was regulated. He indicated that it was difficult to determine when a Department should intervene in an industry. Cell C had mentioned that the Bill should regulate for the future. The question to be answered was: What was that future?
He was of the view that the future which Cell C referred to was in relation to the digital economy. in future the entire economy would depend on the ICT sector. The Department believed that the current market structure would not stimulate the growth of the digital economy without the requisite regulatory framework.
Mr Nkuna said there was a suggestion by some stakeholders in the industry that the WOAN would be a monopoly. He was of the view that the WOAN would not destroy investments, contrary to what had been argued by some presenters. The WOAN itself was an investment. The Department believed that the WOAN would consist of people who were practitioners in the industry and have the capacity to raise funding. There would be an invitation for people to apply for licences to utilise the WOAN. The application would be based on inter alia, business plans, ability to raise funds and technical abilities. He mentioned that it was not clear to the Department how the WOAN would reduce investments.
In relation to whether the creation of a wholesale open access regime would reduce investments in the sector, he said the issue required a detailed discussion. Mr Nkuna promised that the Department would try to engage with the industry on the issue.
The Chairperson said it was important to ensure that Parliament legislated for the future. He said that Parliament should ensure that the Bill addressed the concerns of the future.
Cell C’s Responses
Mr Mackinnon agreed with Mr Mackenzie’s suggestion that light touch legislation would be preferable, and indeed, the best method. However, if the market structure was resistant to change, there would be a need for intervention. Cell C believed that the intervention which the Bill brought was the required intervention to change the market structure.
Furthermore, Cell C was of the view that simply giving big companies additional spectrum would not reduce the cost to communicate. However, the normal construct in the decision-making process was a financial issue because the big companies would ultimately succeed in auctions. He was of the view that allocating additional spectrum could possibly increase the cost to communicate because the existing operators would continue to operate without much competition. However, the aggregation of the network infrastructure would be a catalyst to drive down the cost.
Mr Mackenzie said his question was whether the WOAN would increase the cost of doing business for Mobile Network Operators (MNOs) that would need high demand spectrum from the WOAN, rather than allocating spectrum to MNOs directly.
Mr Mackinnon responded that he did not think that the WOAN would increase the cost of doing business for the MNOs. The aggregation of networks in WOAN would ultimately reduce costs because operators would not incur the cost of building their own infrastructure. MNOs would off take from the WOAN without adding additional costs.
Mr Mackenzie said Cell C had done an extensive research concerning off-net and on-net pricing in the mobile sector. It had then submitted a complaint to the Competition Commission in 2013. After four years, the competition authority had agreed that there was a problem in the market and had referred the matter to ICASA. In France, companies were fined for on-net and off-net price discrimination. He said he would give the complaint to the Committee.
Regarding spectrum and timing, he said it would be too long for the spectrum to be allocated only after five years. Cell C had done some analysis on the issue and found that it would be reasonable if the spectrum could be released within 18 months to two years. He was happy to share with the Committee the work which had been done by Cell C .
Mr Mackenzie apologised for saying the WOAN would not be a profit-making company. He had meant that the intention of the WOAN would not be to get the typical type of returns that telecoms usually make. Cell C was of the view that the WOAN would start a company which would invest for stable returns. He did not view the WOAN as a fifth network company. Cell-C anticipated that the WOAN would be allocated spectrum and seek infrastructure from existing operators and avoid duplication of infrastructure. He did not think that the WOAN should be viewed as a fifth network company. He added that the WOAN was not intended to be a State-Owned Entitles.
In relation the advantage which had been given to Vodacom and MTN but not Cell C, he explained that what he was driving at was that what had happened to Cell C should not happen to the WOAN. The WOAN should be given the necessary support as a new entrant. When Vodacom and MTN entered into the market in 1994/95, they had entered into asymmetric interconnection regime with Telkom. They could charge a Telkom customer more than Telkom charged their customers. That interconnection advantage helped them to fund the infrastructure roll-out. However, when Cell C entered the market, it did not get any advantage and was granted licenses with similar conditions to the dominant players. As soon as Cell C entered the market, Vodacom and MTN had increased the interconnection rates which Cell C had to pay to them. Additionally there was no regulation to support Cell C and the disadvantage still persisted even after 17 years.
Recently, ICASA had promulgated the wholesale termination regulations to introduce the asymmetric regime and to support small operators. Those were interventions necessary to assist small operators. That was why Cell C recommended that the WOAN should be supported.
Mr Themba Phiri, Head Executive Regulator at Cell C, said there was a need for a commitment to ensure that the market could be transformed. The licensing of the WOAN could have happened in 2001 when Vodacom and MTN were being licensing. There should not be a piece-meal commitment to transformation. Therefore, Cell-C was concerned about the prerequisites for the business of the WOAN.
Mr Phiri said that Cell C was pleased to see the WOAN being allocated adequate spectrum. The WOAN was being licensed for 5G which would mean that infrastructure aggregation should also happen. Additionally, there should be empowering provisions that would allow ICASA to give regulatory support to the WOAN. An important aspect was the open access regime to allow the WOAN to enter into agreements to utilise the infrastructure and facilitate the effective utilisation of the spectrum awarded to it. Those were key recommendations which Cell C wanted to see in the regulations that would empower ICASA. He emphasised that it was not impossible to amend the ECA Act in order to give effect to the WOAN, even if the policy direction was to proceed.
Mr Phiri said that Cell C had taken note of the Council for Scientific and Industrial Research (CSIR) report which had been commissioned by the Department. However, Cell C had also commissioned a study to model scenarios on how the WOAN could be successful. The study found that the WOAN anticipated to have 20% percent market share which would not be competitive to achieve national coverage, and hence would not be viable.
With respect to spectrum, a 40% market share of a WOAN would take almost 70% of the spectrum currently available. A WOAN with 8% market share would utilise most of the spectrum which was available. In future bands, more spectrum would have to be given to the WOAN. He concluded by stating that the 5G world was imminent.
Mr Mackenzie asked for an overview of Cell C’s ownership structure.
Mr Mackinnon replied that 40% of Cell C was owned by Blue Label, 15% by NetOne and the management and stuff owned the balance.
The Chairperson thanked Cell C for the presentation and the various studies it had carried out. He reiterated that the industry should continue to engage during the recess period to assist the next Committee. He emphasised that the cost of communicating had to be reduced to ensure that the people would have access to affordable services.
The meeting adjourned for lunch at 13:00pm and resumed at 14:00 pm.
Briefing by MTN
Mr Godfrey Motsa, Chief Executive Officer at MTN, stated that MTN had invested a lot of money in capex to build networks to offer better services. He indicated that it was not true that MTN did not want to share infrastructure. MTN has 12 000 sites across the country. Over 4 000 of the sites were shared with Liquid Telecommunications and Telkom. MTN was also renting some sites from other operators and shared the radio frequency and fibre centres. However, the sharing of infrastructure was based on mutually agreeable terms. MTN was currently working with Liquid Telecommunications to build a fibre network from Johannesburg to Cape Town. It was being done on mutually agreeable terms.
The fastest growing businesses operators were Telkom and Cell C. Cell C was taking a bigger market share through roaming on 4G, using MTN infrastructure. Mr Motsa reiterated that it was not true that MTN did not want competition. Furthermore, MTN’s market share was about 30 percent contrary to what others had said. Moreover, MTN refuted that it was not investing in rural areas as compared to urban areas. MTN had the best network coverage across the continent because it was committed to investing and delivering quality access to internet.
The rate inflation and currency exchange rates were overlooked when people considered the cost to communicate. He stated that the cost of electricity was also driving up costs for maintaining sites. MTN’s infrastructure in certain areas was vandalised or stolen.
MTN supported transformation through supporting black SMMEs, graduate programmes for skills development, building of schools, libraries and computer centres. It subsidised phones so that they could be affordable and increase penetration. The view that MTN was not transformed in terms of it executive was not true because MTN had black managers, including black women. He suggested that there should be transformation pledges to accelerate the process of transforming the ICT industry and the economy.
The MTN supported the rapid deployment of infrastructure and indicated that it would boost infrastructure development in cities and rural areas. New technologies, such as 5G, would require massive deployment of infrastructure for South Africa to remain competitive. MTN also welcomed the Radio Frequency Spectrum sharing for the improvement of the current regulatory framework where spectrum sharing was not allowed. However, it raised concerns about infrastructure competition. Mr Motsa said there was need to engage with the different stakeholders and not rush the Bill.
MTN was of the view that to imposing blanket cost-based open access on a competitive market was draconian and irrational. The stated objective of the Bill was to abandon the current model of balanced infrastructure and service competition in favour of a purely service-based model. MTN indicated that the policy U-turn would have devastating effects on the model that had delivered more than R100 billion investment in the last decade. It would destroy the incentives that had delivered over 98% 3G coverage, a world class 4G network and the growing fibre investment. As a result, that could jeopardise South Africa’s 5G future.
The cost-based open access remedies proposed in the Bill would be, similarly, unthinkable in any other industry. In addition, MTN submitted that the Bill was unconstitutional. It violated the property clause in the Constitution, it failed to meet the rationality requirement imposed by section 1(c) and section 22 of the Constitution and it was impermissibly vague.
The abandonment of network competition in favour of a cost-based service model had no international precedent in telecommunications. Despite a lengthy policy debate, the cost benefit of the seismic shift had not been quantified, and MTN’s concerns had been consistently ignored. Similarly, the proposed WOAN was largely untested internationally. As configured, the WOAN risked reducing competition between networks and South Africa could become resigned to a common standard, low-quality network - the WOAN. While MTN was supportive of a level playing field hybrid model, a policy that tied the release of excess spectrum to the licensing of a contentious WOAN risked delaying the availability of much-needed spectrum for South Africa.
According to MTN, ICASA had the powers that day to do a simple set-aside for a future WOAN assignment, while at the same time immediately assigning the excess spectrum. ICASA should therefore, with haste, commence with the process of assigning sufficient high demand frequency spectrum. The aim should be to finalise the assignment process in the first quarter of 2019 so that the operators would be able to continue to cater for the exponential growth in data demand.
Mr Motsa stated that issues in the Bill were complex and critical to South Africa’s economic future. He urged that the issues be properly debated in a considered manner, not according to the rushed timetable that was being proposed. Too much was at risk for experimenting with untested and unquantified policies for such an important sector and engine of growth. MTN pleaded with the Committee to allow the operators to engage with the Minister and the Department to deal with the differences before the Bill was passed.
The Chairperson thanked MTN for the elaborate presentation and asked for Members to make comments. He said it would be easy for the Committee if the industry and Department found consensus on the divergent views and came up with measures to address the challenges in the sector.
Ms Shinn asked for clarity as to whether MNT had grown its user base to 50 million people or sim-cards. She also wanted to know the experience of Mr Motsa in the Rwandan WOAN. The industry players had been engaging with the Department since 2016 during the White Paper process. She asked what had changed from 2016 that made MTN believe that there was no need to fast-track the process of completing the Bill. There had been a lot of social pressure for MNOs to lower their data prices and regulations of prices. She asked what MTN believed would the most effective way to lower prices.
Mr Motsa replied that he had referred to population coverage when he had mentioned that MTN had grown its user base to 50 million people. From a network coverage perceptive, geographic coverage where the people reside would be used to determine the user base. However, the number of sim cards bought should also be taken into account. MTN had 30 million sim cards in use across South Africa.
He said the WOAN in Rwanda was owned by the Rwandan government and Korea. The WOAN had started in 2010 when the government of Rwanda wanted to issue spectrum for the 4G network but the networks were not ready for the WOAN to operate. The government moved ahead, even though the market forces were not responding. He said it was difficult to move forward when the industry did not support an idea. The internet access in Rwanda was less than in South Africa.
Mr Motsa added that he had been speaking with Mr Nkuna and the Minister of Telecommunications & Postal Services for a long time about spectrum. The White Paper had wanted to expropriate spectrum and he was happy that the Bill was not taking spectrum away from the operators. He believed that progress was being made in the industry.
He said MTN wanted to reduce prices and had been reducing prices over time. There were many factors that the companies considered in reducing prices. However, MTN had to be responsive to its customers. He said regulations had also played a role in reducing prices but regulation would become a problem if it overreached. He asked what MTN was doing to reduce the cost to communicate and if there was anything that it could do to accelerate the reduction of the cost to communicate.
Mr Mackenzie asked if MTN revenue and taxes generated in all its international operations were paid in South Africa. He asked where MTN made most of its profits. He asked if there were any instances in which MTN was denied infrastructure by any competitor and if it had ever denied any competitor access to MTN’s infrastructure.
Mr Mackenzie asked if MTN would challenge the constitutionality of the Bill if passed in its current form. Did MTN perceive the WOAN to be unconstitutional? Did MTN consider the powers of the Minister unconstitutional in relation to the independence of ICASA?
Mr Motsa replied that MTN had operations in more than 21 countries. MTN paid local taxes in all countries it operated in, including VAT, corporate tax, pay as you earn. After the taxes had been paid, profits would be calculated. A portion of the profit were upstreamed to South Africa. The biggest shareholder in MTN was the Public Investment Corporation (PIC) which held 24% ownership. All transactions for MTN were aggregated in Rands, including shareholder profit consolidation which was done in South Africa.
He indicated that MTN did not subsidise phones in other countries because it was illegal. Money made in South Africa was not used to finance operations in other countries. All MTN international operations raised money through different processes, such are external funders, shareholders, or through the MTN Group. He reiterated that MTN did not take money from one country to fund operations in another country. MTN had minority shareholders who, obviously, would not allow MTN to move money to subside operations in another country.
He said he was not aware of any operator that had blocked MTN from accessing its infrastructure. Similarly, he was not aware of any operator that MTN had denied access to its infrastructure. MTN had towers with antennas for 2G where it was hosting other operators. The industry was friendly and cooperative. From a national roaming perspective, MTN and Vodacom were roaming on Telkom. Similarly, Mobile Virtual Network Operators (MVNOs) like Standard Bank were also using the MTN’s infrastructure. The market was mature and controlled itself.
Mr Motsa added that MTN believed in innovation to be competitive. The reason why the prices for the high end market were reducing faster than lower end market was because of competition. He reiterated that there was more competition in high end market. MTN was of the view that innovation was important in designing prices. For instance, in the open market, MTN set 1Gig for R149 valid for a month. Knowing that a poor person would not buy that data, MTN designed 1Gig for R30 per day. On black Friday, the price were dropped to R25 for 1 Gig.
When MTN realised that most of its customers were using social media, it launched 1Gig for R10 and it got millions of customers over night. As a result, it had to increase the price so as to protect the network from overloading. There were different strategies for different packages, such as the splitting of prices and categorising data into different things. He stated that those things could not be regulated, and were done to stimulate competition. However, if operators received spectrum, the prices would be greatly reduced.
Ms Ndongeni asked if MTN had any intention of collaborating with small players. She also asked if MTN had engaged with the Department on the proposed balanced approach which it had recommended in its written submissions to the Committee. She also asked for clarity on what Mr Motsa had meant by ‘cost based access to exiting network and infrastructure’. She also asked why MTN wanted the remaining spectrum to be shared among the four big players.
Mr Matso replied that MTN was willing to collaborate with smaller players. MTN believed that the money made in the market should not only accumulate to big players. In the last three years, MTN had spent R3 billion on SMMEs. MTN owned more than 100 stores and those stores would be given to black entrepreneurs. MTN was outsourcing networks from other entities like Huawei. Those entities were being held accountable so that they also supported transformation, particularly black SMMEs. MTN was open to entering into MVNO contracts with small players as long as the contracts were on commercially agreeable terms. Currently, Cell C was hosting 19 hosting MVNOs while MTN was hosting 20, including Cell C itself. He reiterated that MTN was open to host small players.
Mr Matso said that MTN was of the view that the way the Bill was structured had to be reconsidered because it was too heavy-headed. The Bill would not allow operators to invest in infrastructure. Hence, MTN was calling for more time to debate the Bill to understand it better. There had been progress in engaging with the Department since 2016, but more time to debate was essential. If a company built infrastructure, that company should receive some benefit when other entities wanted to access its infrastructure. It did not make sense to build something and not make a profit from it. He said there should be commercially agreeable terms and not regulation. MTN had a cost-based approach to business with other entities. He added that Telkom was growing through roaming on MTN and Vodacom’s infrastructure. He reiterated that the industry was cooperating and competing.
MTN wanted competition in the sector but Mr Matso did not believe that a fifth MNO would be the best model to achieve the competition required. There was more competition through MVNOs with open access on commercially agreeable terms. The 5G space should be open for everyone, including new entrants, to compete in. MTN had never thought its competitor would be Facebook or WhatsApp but WhatsApp was competing with MTN on SMS business and voice calling. Facebook messenger was also competing. However, for an operator to do things properly, there should be a conducive regulatory environment and the necessary spectrum. He emphasised that the digital revolution could not be stopped by anyone.
Ms Ndongeni asked why MTN reduced the cost of data at night. Why do you do that when people would be sleeping?
Mr Matso replied stating that the R30 for 1Gig per day was available anytime of the day. He said the night bundles were cheaper, most importantly for students who study at night and the night bundles helped to reduce congestion on the network during the day.
appreciated MTN’s work on social responsibility and transformation. She asked for the items that attracted luxury tax. She also asked if MTN’s best engineers were South Africans.
Ms Tsotetsi wanted a breakdown of MTN ownership. How did MTN ensure that it reduced costs and made a profit at the same time?
Mr Matso replied that luxury tax was paid for smartphones. 30% of the phones being used were 2G phones and the people using those phones were missing out on the internet world. Those phones were also subsided. Luxury tax was paid was to reduce the cost of smartphones so that more people could afford them. The smartphone penetration for BRICS (Brazil Russia, India, China and South Africa) countries was high. However, South Africa’s performance was low compared to the other BRICS countries.
He indicated that MTN had started to enforce a regionalisation approach to ensure the networks were available in rural areas. In all different provinces, MTN was rolling out the network layers so that it could be competitive. In the last 2 years, MTN doubled its investments for network in Mpumalanga and Limpopo.
He added that the head of engineering at MTN was Italian but the people that did most of the work on the ground were South Africans. The Italian engineer was not a permanent employee of MTN because he was an expatriate. Globally, MTN’s head of networks and information system was an Iranian. When he left, he had been replaced a South Africa from Mokopane. Mr Matso stressed that MTN was multinational, but had a majority of South Africans in key positions. There was also transformation in the executive posts. Furthermore, MTN was running graduate programmes to get more engineering students into the system.
Mr Matso added that MTN took telecommunications policies seriously and there would be dire consequences if the regulations were not properly formulated.
The Chairperson asked how MTN was performing in South Africa compared to companies to other countries. He said he had the impression that it was more difficult to operate in urban areas than in rural areas.
The Chairperson also wanted clarity on the issue of violation of the right to property. He asked if the debate on expropriation of land without compensation would have an impact on the Bill. MTN had raised the question of rationality and vagueness of the Bill.
Mr Matso agreed with the Chairperson that it was more difficult to deploy network infrastructure in urban areas than in rural areas in a spectrum constrained environment. That was because there was more concentrated demand in the urban areas which meant that there would be a lot of strain on the scare spectrum. An operator would be forced to densify the network. However, if there was sufficient spectrum, sites would not be put on top of each other. He added that it was more complicated to build networks in urban areas because there were customers that used 2G, 3G and 4G networks. However, it terms of cost, rural areas would be more expensive due to the absence of roads, reliable electricity and distance.
Mr Alfred Cockreith said he was not an employee of MTN but an independent advocate from the Johannesburg Bar who had been briefed to come to Parliament and speak on legal matters. In reply to Mr Mackenzie’s question as to whether the WOAN was unconstitutional, he confirmed that he believed the WOAN to be unconstitutional. One of the fundamental principles of constitutional law was that Parliament had to act rationally. That meant that there should be a rational connection between the object to be achieved by Parliament and the legislation enacted. He said an example of the object of the Bill could be found in section 2 which stated that the Bill sought to encourage investment including strategic infrastructure investment and innovation in the telecommunication sector. Therefore, the question to be answered would be whether the Bill would encourage investment. He believed that the Bill was not going to encourage investment because the problem was cost-based pricing. Enterprises would be reluctant to make substantial investments if they could only recover costs.
Mr Cockreith stated that the WOAN would be unconstitutional because it would not need to make any investment but could go to MNOs and access their infrastructure on a cost-based basis. Since the WOAN would not invest in networks, the MNOs would also not invest if they could only recover costs. In the end, there would be a vicious circle where neither MNOs nor WOAN would invest because each would be looking to the other to do so. Therefore, the Bill would not achieve the objective of encouraging investment and hence be liable to constitutional challenge.
In relation to the Chairperson’s question on expropriation, Mr Cockreith said the amendment would not happen to the Expropriation Act but to the Constitution. The idea was to change the wording of section 25 to allow for expropriation without the payment of compensation. There was vigorous debate between lawyers as to whether the amendment was necessary because the current section 25 allowed for expropriation without the payment of compensation. He explained that the expropriation argument had nothing to do with the rationality test. The rational argument would continue to apply no matter what the Parliament did to section 25 of the Constitution.
Mr Mackenzie asked how long it would take to finalise the case if the Bill was challenged all the way up to the Constitutional Court.
Mr Alfred Cockreith responded that the decision to challenge the Bill would have to be taken by his client, MTN. The first step then would be to go to the high court which could take nine months. Although it would be difficult to go straight to the Constitutional Court, the law allowed a party to go directly to the Constitutional Court. The process at the Constitutional Court would normally take three or four months.
Mr Nkuna said there were different understandings of what constituted cost-based pricing. According to the Organisation for Economic Co-operation and Development (OECD) Glossary of statistical terms, cost-based pricing was defined as the general principle of charging for services in relation for the cost of providing the services. His understanding of cost-based pricing meant that the mark-up charged should be based on costs. There was need for the Department to engage with the industry because there were different understandings of the concept. There should be an agreement on the wording.
There also seemed to be fundamental differences on what a WOAN meant. Mr Nkuna said a WOAN was an electronic communications network services issued in terms of section 5(6) of the ECA un-amended. The current ECA allowed the Minister to issue policy direction for ICASA to license an ECNS in terms of section 5(6). The Minister could also issue policy spectrum to the extent that it would not conflict with section 3(3) of the current ECA. The WOAN was a merely an I-ECNS licence permissible in law to be licensed in terms of the Minister’s policy direction. He did not understand what was unconstitutional about the WOAN.
On the question of rationality and whether the WOAN would lead to investments, he suggested that there were other industry players, like Cell C, that wanted to be part of the WOAN and invest in it. Thus, he could not understand why the WOAN would not meet the rationality test when there were already industry players who had shown an interest in investing in the WOAN. The WOAN could not be irrational and so he did not understand how the WOAN could be challenged on constitutional grounds.
A regulatory impact assessment (RIA) had not been done since 1994 on the regulations and decisions in the sector. The Department had always relied on the industry to make decisions. However, when decisions affected others, such people would call for an RIA. Mr Nkuna added that outside the process of the Bill, it would be necessary for future purposes to determine the circumstances under which a RIA would be required.
In relation to the simultaneous licensing of the WOAN and the policy direction of the industry, he agreed that both processes should start at the same time. The Department was trying to ensure that the processes should start at the same time even though each process could take longer than the other.
Mr Wiltz said the Department had worked well and had reached an agreement with the industry on the return of currently assigned high demand spectrum. He said that many concerns had been raised before and the Department had tried to resolve those issues.
In relation to the unconstitutionality of the Bill, Mr Wiltz stated that the Bill had been amended several times to pass the constitutionality test. The Department forwarded MTN’s arguments to legal experts who had informed the Department that the arguments were general in nature and would not be sustainable in court. Some of the arguments raised by MTN were about vagueness. However, there was still an opportunity to fix the vagueness in the Bill.
He reiterated what Mr Nkuna had said that the cost-based pricing did not mean that there would not be any return. On the recommendation of MTN and others, the Department had changed the terminology from cost-based to cost-oriented after doing some benchmarking with the European Union. Section 47 of ECA stipulated that the pricing methodology that ICASA used should be fair and reasonable. He said the Department interpreted it to mean cost plus mark-up with a reasonable return. Therefore, there would not be risks to large incumbent operators. There was a rational connection between the Bill and what it intended to achieve, such as transformation, improving access and competition in the sector.
Mr Wiltz indicated that the WOAN in Russia had failed because there was no agreement between carriers, even though they had spectrum. The Russian model was different from the South African model. He believed that the WOAN would work in South Africa.
In relation to Mr Motsa’s suggestion to enter into commercially agreeable deals, he said that the roaming access seekers complained about delays in roaming deals and the access seekers were unable to do anything.
There was also a recommendation by Cell C for roaming regulations and there was a reason for that recommendation. He said if everything was fine, a major operator like Cell C would not have made such a recommendation. Roaming agreements were subject to non-disclosure terms and no one could see their contents so as to understand the problem or challenge the terms. Hence, open access would require that the terms were reasonable, including the wholesale rates that should be transparent and non-discriminatory.
The Chairperson asked MTN to make its closing remarks.
Mr Matso thanked the Chairperson and said that here was need to continue working with the Department. He stated that MTN would open its infrastructure to its competitors because it wanted competition and the prices to be reduced. He pleaded with ICASA to release spectrum.
The Chairperson emphasised that there should be transformation in the sector by bringing in small players and ensuring that all South Africans had access to the best telecommunications services. He appreciated the engagement and reminded the stakeholders to continue working with the Department.
Briefing by Progressive Blacks in Information and Communication Technology (PBICT)
Mr Leon Rolls, President of PBICT, said the gap between the rich and the poor continued to widen over time. The economy remained tilted towards one side in favour of the minority that controlled and continued to control the economy. Black people were spectators in policy decision making, economic opportunities and in new innovative ideas, such as the one of the WOAN.
Mr Rolls vehemently declared that black people in the ICT sector had not been active in the telecommunications industry, which was dominated by a minority and by large foreign corporates that neglected black people in the deployment of networks and the maintenance thereof. Consequently, the telecommunications space was now dominated by the big four with the result being high data prices and neglect of rural areas.
The Bill gave a lot of power to ICASA while it failed to give effect to the B-BBEE ICT Sector codes. Mr Rolls submitted that organisations representing the interest of black SMMEs should be part of the Rapid Deployment Steering committee. He also stated that the Bill had to be passed as it was as, until it was passed, blacks and small businesses would continue to be excluded. The WOAN was the best way to achieve empowerment and transformation. He suggested that there should be an ICT regulator. There should be a commission that would hear the concerns of all players in the industry.
The Spectrum was currently hogged by those that had the economic means or privilege. For transformation to be realized, all available spectrum had to be allocated to the WOAN. The current data monopoly had failed to provide connectivity in rural areas and had overcharged data for way too long without being challenged. That had led to many of his people being excluded from simple transactions, such as applying for university entrance through the Central Applications Office or for a bursary online.
The B-BBEE ICT Sector Code and the Competitions Commission would not ensure inclusivity. The reality was that they were both easily manipulated and influenced at execution. The ICT Charter had to be deleted and replaced with an ICT Sector Commission that advocated for inclusion and determined all sector standards. The ICT Sector Commission had to be established as an independent body made up of organisations that represented the sector, members of government, the Information Technology Officers Council, the Department of Telecommunications and Postal Services and the Department of Trade and Industry. The ICT Sector Commission should be consulted on all ICT policies, standards and had to have a seat at the Regulators Council. Furthermore, the ICT Sector Commission had to be funded by the Department under the Rapid Deployment Co-ordinating Centre budget.
Mr Rolls stated that open Access principles had to include the words ‘inclusive’, ‘considerate’ and ‘fair’. The principles had to be expanded to allow waivers for Black SMMES to gain access. PBICT recommended that the Bill specifically instruct the ICASA to allocate special concessions to black SMME’s in the issuing of individual licenses and the concessions had to include the waiver of licenses fees for a period of 3 years. It must further state that such incentives should be granted to SMME’s that are 100% black-owned with 50% women representation and 40% youth. In addition, people with disabilities had to be included.
The Authority had to be given 12 months from the passing of the Bill to setting up monitoring and evaluation systems as well as a performance framework. Penalties had to be applied to detractors and had to be paid into the proposed digital fund to be setup by Treasury for bridging the digital divide.
PBICT also proposed that the radio frequency licensees should contribute towards a digital fund which had to be directed towards bridging the digital divide. National Treasury should setup a special digital fund for that. The fund had to be made available to black SMMEs to rollout community networks using the WOAN with a particular focus being rural areas, townships and underserviced areas. The regulator had to assign special radio frequency spectrum and individual licenses for black SMME’s to rollout community based networks aimed at bridging the digital divide.
Further, PBICT was opposed to spectrum trading or re-farming because it could be used to discriminate or exclude Black SMMEs. It believed that any unused spectrum had to be assigned to the WOAN and should only be obtained from the WOAN. That would ensure sustainability of the WOAN and inclusive deployment of broadband in South Africa. Additionally, ICASA should assign all high demand spectrum being assigned to the WOAN and non-reserved spectrum to black SMMEs.
Briefing by Youth Economic Alliance (YEA)
Mr Afrika Mkhangala President of YEA representing the youth in ICT told that the Committee that South Africa's unemployment rate was high for both youth and adults. However, the unemployment rate among youth was 38.2% which meant that more than one in every three young people in the labour force did not have a job in the first quarter of 2018. In the ICT space, there had been the job losses in entities such as IS, BCX, SABC and many more. According to YEA, the future was bleak for those youth hoping to be part of the ICT sector.
In 2016 11.8 million youth were eligible to vote. However, only 6.3 million turned out to vote largely because the youth were marginalised and their issues were left unattended. Recently the State Information Technology Agency launched a data center project with Gijima and foreign partners that already controlled the ICT infrastructure in South Africa. The youth were not involved in many of the initiatives taking place in the country, but the youth would be the leaders in the Fourth Industrial Revolution.
Another challenge was that the education system was not producing young people with adequate skills for the market. The information that critical industries like ICT generated R 285 billion per annum was a secret shared amongst the elite and privileged. Therefore, spectrum and internet services had been exclusively allocated to the privileged minority. He emphasized that that system had to end.
YEA supported the Bill, especially in the areas of the WOAN, spectrum allocation, access to land and rapid deployment. The YEA was concerned about the relaxation of clauses as the Bill assumed that the B-BBEE Commission was working where it was not. The high data prices and data monopoly had been created with the regulator, competition board and B-BBEE Commission in place and yet the Bill assumed that they could make a difference.
Mr Mkhangala submitted that there was need for another body that would be part of the regulator, the Rapid Deployment Steering Committee. That body had to be independent and made up of industry, government and organizations representing industry players. That body had to have 40% youth representation and funded by the government and industry.
He added that the WOAN would have the potential of creating economic and employment opportunities for the youth so YEA supported the establishment of the WOAN. YEA proposed that the Bill should provide for the following: the WOAN must be 100% South African-owned and have a minimum of 40% youth ownership. In addition, the WOAN must have a minimum of 80% black ownership and its infrastructure must be built by Black SMME’s with 40% being allocated to the youth. Equally significant, all high demand and unused spectrum should be allocated to the WOAN and licensees requiring spectrum had to procure it from the WOAN it would be a funding mechanism for the WOAN.
The youth in the telecommunications sector were unable to participate due to the fact that there are no individual licenses and no spectrum allocation for them because it had been allocated before they were old enough able to start businesses. YEA felt that that was unjust and had to be corrected. YEA pleaded with the Committee that the ECA Act should ensure that the Minister would grant special concession for the youth and for black SMMEs to have access to individual licenses and a three-year fee exemption. More so, the regulator had to assign specific spectrum to 100% youth-owned black SMMEs in the space of telecommunications. That spectrum had to be issued at a zero-rate exception for a period of three years.
The Chairperson thanked the PBICT and YEA for their presentations. He was happy that the youth had participated in ITU Telecom World 2018 in Durban. He was worried about the future of the youth in the evolution of the ICT sector.
Mr Mackenzie asked for the details of those PBICT members who had made cell phones and their phones were rejected by the big telecommunication companies. He stated that there was a South American company that was rolling out low-cost networks in rural areas. He wanted to know if there were PBICT members or SMMEs involved in rolling out networks in rural areas.
He also asked if there were some SMMEs that had been denied network access to network infrastructure by big players. He said, there was free band spectrum available to SMMEs. He wanted to know if PBICT had looked at the free band spectrum for individual licences and the ability to roll-out networks in free bands.
He also wanted to know how SMMEs and members of PBICT would participate in the WOAN’s ownership structure. He wanted to know how the competing interest for ownership would be accommodated in the formation of the WOAN.
Mr Mackenzie asked how participation of the youth in the WOAN would be accommodated and what would happen to the youth WOAN ownership structure after the youth grew older and ceased to be youth. He explained that the definition of disability was not limited to people using wheelchairs. A disability could be lack of hearing or sight. Hence there was need for caution when discussing disability.
Ms Shinn asked how PBICT and YEA saw the WOAN creating opportunities for their members. She wanted to know if they would like to be part of the WOAN consortium or customers of the WOAN. She asked if they expected the WOAN to have universal service obligations which would give priority discounts to SMMEs and youth groups.
Ms Ndongeni asked both presenters if they represented their individual companies or a group of SMMEs.
Ms Tsotetsi said there was need for the Committee to call SMMEs and hear their concerns about transformation. It was important for government to understand the concerns of the people. She was concerned about big companies fronting and using black SMMEs to benefit from transformation.
There were big companies that had stated that they were injecting a lot of money into SMMEs, but the picture which had been painted by YEA and PBICT was different. She emphasised that small businesses were not supposed to remain small forever; they should gradually grow into big businesses. She expressed her appreciation to both YEA and PBICT and hoped that the next Committee would continue to drive the transformation agenda.
Mr Mackenzie said MTN had told the Committee that it was 33.64 % black-owned and 13.2% black women-owned. Mr Rolls had suggested that the figures were not true. He wanted to know if he was suggesting that MTN had lied to the Committee. He also wanted to know if he agreed with MTN that they spent a lot of money on black-owned entities and black women-owned SMMEs.
PBICT had mentioned that it had coverage over Pietermaritzburg. MTN had claimed 2G coverage of 99% and 3G coverage of 99%. He wanted to know if MTN had lied to the Committee.
The meeting adjourned for dinner and resumed after dinner
The Chairperson asked the YEA to respond to questions
Youth Economic Alliance’s Responses
Mr Mkhangala said the young entrepreneurs had a responsibility to be accountable socially and ethically. The YEA hoped to create a new breed of entrepreneurs who understood the role of policy and the mechanisms that existed in the country and why they should create platforms. YEA yearned to create a unity of entrepreneurs who cared for others. The dreams of YEA could not bought because they could not be quantified in financial terms. The role of young people was to dream above the ceiling. YEA realised that it was its responsibility to dream and part of the dream was see how WOAN could be used to improve the health infrastructure and health knowledge base.
Mr Mkhangala suggested that technologies like the WOAN should be used to drive knowledge across all sectors of the economy and all aspects of society. He said that he was not fronting or being used as he was not interested in that. He believed that the YEA could use WOAN to create jobs and economic opportunities. The WOAN created an opportunity for the creation of jobs that had never existed in the past. In the past 40 years, there had been people who would go door-to-door to deliver milk, and that was not happening today. The jobs of people in the postal services were being lost because people were now using emails.
Ms Shinn interrupted and asked if YEA wanted to be part- owners or customers of the WOAN.
Mr Mkhangala said YEA wanted to own WOAN, and that it should be South African-owned. YEA also want 40% of WOAN to be owned by the youth.
Ms Shinn said the WOAN would have to pitch a business plan to ICASA and that there should be the requisite funding. She wanted to know if YEA had the required capital to start or invest in the WOAN and if it had a business plan. She said that there had been presenters who also wanted to be part of the WOAN. As such, she wanted to know if YEA would compete with other entities interested in the WOAN or if it wanted to form part of one consortium with other entities since there would be one WOAN.
Mr Mkhangala responded that he was not representing his own business. He represented black entrepreneurs in the IC sector and in other sectors that would be affected by ICT. He indicated that the youth representation he had referred to did not mean an individual black entrepreneur should have 40% shares in the WOAN but that the totality of the ownership should have 40% youth representation.
He also stated that the YEA had already envisaged with other organisations how the WOAN ownership would be structured. YEA was encouraging its members, particularly the youth, to form consortiums and join their skills so that they could compete on a skills level. The combined skills of SMMEs, or youth entrepreneurs, would match the experience of big companies. In terms of the WOAN, no one had experience in it, so all parties would be starting on the same level.
Mr Mkhangala said YEA took a holistic view of the ICT sector and the critical role which the Department played. As the world changed, the methods of making money were becoming more digital. Technology like WOAN was not only for the ICT sector players. There was a need to think above and beyond the ICT sector. He asked what would connectivity mean for a youth entrepreneur in terms of access to resources. What would it mean for a child in a rural primary school who could be exposed to the whole country, continent and the world through the internet? What would it mean for health infrastructure if a hard copy file of a patient had been lost?
He stressed that when the WOAN was opened up and given to many smaller players, innovation would be enhanced. He stated that it was impossible to have an innovative environment where only four players operated. The lack of competition was a well-known reason for lack of innovation. There would be no reason for innovation if there was no competition.
Mr Mkhangala said there was a big uproar about MTN ripping off people and they had only given some free data there was a problem and there was nothing that they had done well. He said that the following day the CEO of a company that had ripped off a black person who had the innovative idea of ‘please call me’ would talk about innovation and how they were supporting black people but had not paid the person for his idea. He said, the company owned him R5 billion and, to date, had not paid.
He said that the Committee should ask the company why they had not paid, and indicated that the idea was one of the best innovations. YEA hoped to create jobs in order sectors.
Response by Progressive Blacks in ICT
Mr Rolls responded to Mr Mackenzie’s question saying that he had a list of the people who had invented their own devices. One of the people had who built some cell phones had showed them to the former Minister during a public engagement. At that meeting, the Minister had asked Telkom and Vodacom why they were not using the devices. The companies gave many excuses, such as asking who would maintain the devices. He knew three South African who had made their own devices. One was from Durban, another from Bloemfontein and the other person was from Kokstad. PBICT was working with the Technology Innovation Agency (TIA) to try and ensure that one of them could be funded.
In terms of PBICT members being blocked from access by big companies, Mr Rolls said there were some who had been denied access. One of the members that had been denied access was a person running Sifi-Net in Bloemfontein. He had been fighting for access to infrastructure for a long time, particularly in a government building and had been blocked by Vodacom and MTN because they had already set up on those buildings. PBICT had had to fight hard for that person to get access.
Mr Rolls said that he was part of the SA Connect project, wherein a company called Mzansi Connect invited SMMEs to form a consortium. 34 SMMEs had responded to the tender and formed one consortium and they would be ready to roll-out SA Connect. SA Connect had been denied access to a tower which belonged to an America company. In addition, Liquid Telecommunication and Dark Fibre Africa had also denied SA Connect backhauling services. In the end, SA Connect had to ask for huge loans to buy infrastructure. If it were not for SENTECH, SA Connect could not have been rolled out.
Mr Rolls explained that SMMEs and members of PBICT were using free spectrum but big companies also used free spectrum. As a result, if a big company was using a stronger device on the same tower as a small entity, the smaller players were not able to get connectivity or compete. He emphasised that the big companies knew how frustrating it was for the smaller players. In the end, smaller players spent a lot of time trying to configure how to get the strongest range in the spectrum for connectivity.
He suggested to Mr Mackenzie that the MTN figures should to be vetted. He said he had gone to a rural area with the SA Connect project where people were complaining that neither MTN nor Vodacom worked in those areas. If, as MTN was claiming, it had 92% coverage or 50 million people connected, it would not be asking for spectrum. He stressed that it was confusing to understand why they would ask for spectrum when the people were connected. Therefore, the figures needed to be vetted.
In relation to the ownership of the WOAN, Mr Rolls’ view was that an SMME would only need to build a community network for its people. In the absence of a tower in a community, an SMME would need a WOAN to build the tower. Because most SMMEs did not have the money to build a tower, they would then need backhaul to the Broadband Infraco (BBI) pole. The WOAN would put the backhaul to BBI and then the SMME would do their cross-connections. Thereafter, a community would have its own reliable and efficient network.
He said the WOAN had to focus on infrastructure while working with BBI, Telkom and SENTECH to do links and interconnection. The biggest problem would be buying IP addresses from Mauritius. Therefore the government would need to assist with buying the IP addresses.
Mr Rolls indicated that the PBICT had people who would be customers of the WOAN. Those people would provide the layer-three services. There was a company that was training people how to fix cell phones and laptops. He emphasised that if MTN and Vodacom were serious about assisting SMMEs, they should take their phones to the SMMEs for them to be fixed.
The SMMEs wanted to play a role in the WOAN on different levels. There were people who were interested in the infrastructure backhauling. Those people should be able to sub-contract to the WOAN and build the infrastructure. The model of ownership of the WOAN was perfect because different people played different roles. He stated that the WOAN would work if people did not partner with BBI or Telkom because of their capabilities and backhaul infrastructure.
Mr Rolls said some of the members of SA Connect were graphics designers and desktop technicians who were without jobs. Those people were now able to plan and build a network for a community. They could own a network in a ward. Thus, if a ward had 1000 people and 600 of those people paid R150 a month for the network, then the SMME would survive and maintain the network.
The Chairperson said it was important to invite the SMMEs that were working so that the Committee could understand what they experienced on the ground. He told the Director General of the Department to ensure that SMMEs were asked to speak on their own experiences as the Committee would then better understand what was going on.
Briefing by ACACIA Economics
Mr Ryan Hawthorne, Economist, told the Committee that the comments on the ECA Bill were his personal views and not those of ACACIA Economics. In the past, there had been infrastructure competition. However, the Bill sought to reduce infrastructure-based competition. The reduction competition would cause the cost of communication to rise and the quality of services to fall. In addition, reducing infrastructure competition would likely reduce coverage in South Africa, again increasing the costs to communicate.
Internet access in South Africa was abysmal although the problem was not so much about coverage. The biggest problem was access and use which were linked to the cost to communicate. There was gap between what the Bill was trying to achieve and what it focused on. The Bill proposed single trenching in areas that were not adequately serviced. The impact of that would be to reduce competition among fixed-line providers, ultimately raising the costs to communicate.
Mr Hawthorne stated that the creation a WOAN as a seventh wireless operator in South Africa was unlikely to be efficient. An open access LTE monopoly in Rwanda had not helped internet penetration or fostered ‘services-based’ competition. Most countries had assigned spectrum to three operators, or at most four operators. The assignment of spectrum to operators in most countries was done through auctions. Adding an intermediary in the value chain would raise the cost to communicate, due to an additional margin from an additional intermediary. As a result most of the WOAN’s capacity would simply be sold to existing mobile operators.
He suggested that one of the best ways to reduce the cost to communicate would be to allocate and assign spectrum. The Bill proposed spectrum sharing and trading and those amendments were welcomed. Competition could be protected and enhanced through efficient use of spectrum, resulting in the lowering of the cost to communicate.
Rather than a WOAN, what was needed was to implement the open access framework already in the ECA. Furthermore, targeting all licensees in terms of reference offers, quality control, transparency, and access to infrastructure would raise the compliance costs and therefore, again, raise the cost to communicate. The key reforms to regulation to make universal service more independent had been missed. The importance of simplifying the licensing framework had been ignored. The licensing framework could use the notification regime rather than an invitation process. That would lower barriers to entry and increase competition in the sector. The wide application of onerous regulations to non-SMP licensees should be reconsidered. In conclusion, Mr Hawthorne stated that the reduction of regulatory independence of ICASA was contrary to international best practice. He also proposed that ICASA should be enabled to raise funds directly from regulated entities.
The Chairperson thanked Mr Hawthorne and requested the Committee Members to make comments or ask questions.
Ms Shinn said there had been proposals about functional separation in the telecommunications to make them more efficient and competitive. She wanted to know if the functional separation was being done anywhere and if it was feasible and financially sustainable.
Mr Nkuna said there were three concepts used to explain spectrum management in telecommunication policy: allocation, allotment and assignment. He indicated that those concepts were misunderstood by most people during the engagements on the Bill. The Department had been consistent that the allotment of frequency was done by the International Telecommunications Union at the international level. The Department had explained in one of the hearings that allocation was the function of the Minister of a national administration while the assignment of licences was the responsibility of the Regulator. He added that section 34 of the current ECA, provided for ICASA to develop the Radio Frequency Plan while the Minister would approve. That had proved to a problem to many who did not understand the intention of the separation of roles between the Minister and ICASA. He suggested that people saw mischief in the disaggregation of the powers of the Minister and those of ICASA.
Mr Nkuna explained that the Rwandan WOAN was state-run and different from the South African model. He said a lot difficulties experienced in the discussions of the WOAN were because of the use of the name ‘WOAN’ which was understood differently by different industry stakeholders. Perhaps the name should be changed. His view was that the Bill was trying to provide for a new I-ECNS licence which would be a consortium of different parties that voluntarily formed a consortium.
In terms of market structure and the existing operators, Mr Nkuna stated that the reality was that the status quo had to be changed. There were many entities complaining about better access to capacity. The Department’s view was that vertical companies would not be the best model to enable the WOAN to start operating because they had not worked. However, the MVNOs examples of being given access to infrastructure by MNOs were also big companies like Standard Bank and First National Bank that had the financial means. From the presentation of Internet Services Providers Association (ISPA), and comments from Wireless Access Providers Association of South Africa, (WAPA), it had become clear that there were a lot of small companies that could exist in the market but were not participating fully. The Department believed that those small companies could constitute another tier and provide services in the digital economy. He added that the Department’s position was informed by the market structure that was emerging over a period of time.
In relation to the fixed infrastructure policy which was being proposed, there were constraints imposed by the local government. All networks were operating on open access networks but the Department sought to ensure that the local government could make concessions to enable the open access.
Mr Nkuna said that if one was to attend a transport policy meeting and discuss digging trenches, there would be different concerns which telecommunication might not understand. He emphasized that it was important to be mindful of the fact that other sectors could have different views. Recently, the Competition Commission had undertaken an inquiry into data prices and market structure. He hoped that the report of the Commission would be finalised before the Bill was completed. He added that the report would add value to the discussion on competition. However, from a pricing point of view, it seemed as if MTN and Vodacom did not charge prices that were too different. Even when small operators tried to lower data prices, the big two companies did not react.
Mr Wiltz said the presentation by Mr Hawthorne had only shown two operators competing on infrastructure and did not show those operators who could not compete. However, the WOAN would promote infrastructure competition for the incumbents on the wholesale level so MNOs would open their network voluntarily to compete for the WOAN customers. This would further enable service-based competition of the network.
Mr Wiltz stated that single trenching would apply where the Bill stipulated that it would be feasible to do so. Therefore single trenching would be selective because of the policy objectives. The primary objectives would be to avoid infrastructure duplication, less disruption to municipal services, environmental concerns, less capex investment and less way leave applications. The municipalities supported single trenching for a number of reasons. Municipalities had jurisdiction over municipal areas, and so ICASA would need to develop the rules in consultation with municipalities. The Department agreed with the municipalities and there could be exceptions to the rule if the area to be trenched fell outside a municipal jurisdiction.
He said the Department had consulted the Competition Authority on the Bill but the Commission had not objected, challenged or come to Parliament to give their views. As such the Department was under the impression that the Commission was satisfied with the Bill.
The current ECA was insufficient to transform or improve the sector and had proved be unsuccessful according to Mr Wiltz. The ECA had not achieved its objectives since 2006 and could not continue. There were too many mechanisms like economic tests that were used by incumbents to deny access to the small entrants, although some opening was taking place at mobile level. There was also a recommendation that ICASA must raise funds from operators. That would not be possible because it was against national policy.
Ms Botlenyana Mokhele, ICASA Councillor, said the presentation by Mr Hawthorne had provided an interesting perspective which should be explored when the Department, ICASA and the industry engaged in February the following year. She proposed that the effects of the Bill on competition needed to be examined in detail.
The Chairperson agreed with Ms Mokhele.
Mr Hawthorne said he had not heard of functional separation being imposed on MNOs anywhere in the world. However, functional separation was part of the rules imposed for fixed operators across Europe. In South Africa, Telkom had implemented a limited degree of functional separation. He was not sure whether the functional separation would be sustainable and feasible in South Africa for MNOs.
The Chairperson thanked everyone for their contributions.
The meeting was adjourned