Cost to Communicate: ICASA briefing

Telecommunications and Postal Services

26 February 2019
Chairperson: Mr J Mahlangu (ANC)
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Meeting Summary

The Independent Communications Authority of South Africa (ICASA) appeared before the Portfolio Committee on Telecommunications and Postal Services. The Committee was briefed on the cost to communicate. There are a variety of factors that drive or influence the cost and prices of data services. The inquiry by the Competition Commission, as well as a detailed market review by ICASA (both underway) will determine the exact factors.

Some Members of the Committee were interested in addressing the current situation involving ICASA and its chairperson who has been found guilty of an offence during his term as Chairperson of ICASA. Committee Members were interested in understand how the organisation was going to approached the situation. Although other Members acknowledged the importance of the issue involving the Chairperson of ICASA, they did not appreciate the fact that the Committee’s time was being use to discuss and issue that belongs to a different committee (i.e. Portfolio Committee on Communications)

Regarding the cost to communicate, Members were concerned about the rollover charges. It seemed that the benefits of data rollover were overturned by the costs associated with the rollover. There is need for ICASA to intervene and prevent mobile operators from making decisions that undermine and aim of the organisation to bring down the cost of data.

Another major concern for the Committee was the legal capacity of ICASA. In the past, was known that legal capacity was a major challenge for the organisation. There was interest in knowing if ICASA has beefed up its legal capacity.  

Other concerns raised by the Committee include the approach use in the benchmarking process, differential pricing in different countries by the same mobile operators, the decision to leave the determination of the lifespan of rollovers to mobile operators, and the progress made so far in terms of the high spectrum demand.

Meeting report

Presentation by ICASA on the Cost to Communicate

Ms Botlenyana Mokhele, Councilor: ICASA and Mr Wellington Ngwepe, CEO, ICASA, presented on the cost to communicate.

There are a variety of factors that drive or influence the cost and prices of data services. The inquiry by the Competition Commission, as well as a detailed market review by ICASA (both underway) will determine the exact factors. However, preliminary research indicates that such factors would include:

-Radio Frequency Spectrum availability

-Rights of way (way leaves)

-Topography (geographic factors)

-Access to network infrastructure (facilities leasing/sharing)

-Market Structure

-Market player behavior (abuse / anti-competitive??)

-Economic conditions: energy costs, access to (and cost of) capital, etc.  

-Technological Factors (rapid changes)

-Sub-optimal’ policy and regulatory framework

There is data available for a couple of recent market developments.

MTN adjusted its out-of-bundle (OOB) data rate effective from the 17th January 2019. The new OOB rate is R0.29 for customers who are non-bundle users and R0.49 for customers who use data bundles.

Cell C replaced 500MB (which was R99) with 750MB (priced at R100). This is 250MB (50%) increase in data for an additional 1% (R1) increase in price

Rain launched a data-only service. It charges R0.05/MB, which is R50 for 1GB. There is no contract package, sim and delivery cost of R120, and no out-of-bundle (OOB) rates

Discussion on ICASA’s Chairperson

The Chairperson noticed that Chairperson of ICASA was not present and an apology had not been tendered. He asked for an explanation on why that was the case.

Ms Mokhele explained that she had been delegated by the chair to lead the delegation. She acknowledged that it was an oversight on ICASA's part that it was not communicated in writing.

The Chairperson said that although this Portfolio Committee is not mandated to do oversight over ICASA, some of the things found in the public space raise several concerns and the Committee cannot ignore them. He Asked ICASA to provide clarity on how the law governing ICASA would deal with the matter which creates a bad image of the organisation with its chairperson. The chairperson of ICASA is a public figure, paid by the State and should be governed by the relevant Acts that deal with Councilors. There are things that should be done when one is found guilty to preserve the image of the organisation.

Ms Mokhele responded that according to the law, ICASA is not empowered to intervene. Only the Minister can intervene.

Mr Ngwepe said that the matter pertaining to appointment, qualification or disqualification of councilors and chairpersons is a matter that falls within the realm of Parliament and the Minister. Whenever there is a disqualification of either a councilor or chairperson, it is Parliament that must deal with the issue.Once Parliament institutes its proceeding in terms of the relevant provisions; the Minister is then empowered to also act following the institution of the powers by Parliament. The matter falls beyond the jurisdiction and mandate of the organisation.

He said that it is fair to acknowledge there is going to be concerns about the legality of the decisions that the organisation may take during this process while Parliament and the Minister are yet to act. The organisation has sought legal advice on the implications for the authority's decision in this period. The advice the organisation has received is that the Council takes decisions as a collective. It is not the chairperson who takes decisions neither is it a single councilor. From that perspective, the organisation is insulated from the legality perspective in terms of the decisions taken by the organisation. ICASA would be more than happy to share the advice with the Committee.

The Chairperson asked for clarity on that the Act says.

Mr Ngwepe said that section 6 of the ICASA Act talks to disqualification. According to the Act, a person may not be appointed as councilor if he/she has at any time been convicted, whether in the Republic or elsewhere, of theft, fraud, forgery or uttering a false document or any other offense involving dishonesty.

According to section 8, which talks to removal from office, a councilor may be removed from office on account of his/her being disqualified as contemplated in section 6. So, before being a councilor one cannot be appointed if they have been convicted. But, if a councilor is found guilty of an offense during his/her term, they may be removed.

He added that a councilor may be removed from office only on, (a) a finding to that effect by the National Assembly (b) The adoption by the National Assembly of a resolution calling for that councilor’s removal from office. Section eight goes on to say that  (a) the Minister may suspend a councilor from office at any time after the proceeding for the National Assembly for the removal of that councilor (b)  The Minister must remove a councilor from office upon adoption by the National Assembly of the resolution `calling for that councilor’s removal (c) The Minister must suspend the councilor from office at any time after the start of the proceedings of the National Assembly for the removal of that councilor upon the request of the National Assembly.

The Chairperson responded that once one is found guilty, their qualification falls off. The chairperson of ICASA has been found guilty and he is not disputing the guilty aspect. He is disputing the sentencing. The organisation is not insulated because all councilors know the law. The hope is that the litigation process was not funded by the organisation, because if that is the case the councilors would be held collectively responsible. The chairperson of ICASA should fight the battle with money from his own pocket.

Ms J Killian (ANC) said that every decision that ICASA has taken could be challenged based on the issue of the chairperson having been found guilty. She asked for assurance that ICASA was not funding any legal costs for its chairperson. Furthermore, she asked if ICASA has had an urgent meeting with the Minister responsible for ICASA.

She added that a legal opinion cannot give the organisation protection or insulate it. Although the organisation operates as a collective, the mere presence or participation of a person who should not be there could have an impact on all the organisation’s resolutions. There was need for a resolution on this matter before the National Assembly closes down on the 2oth of March. It is a very urgent matter.

Mr C Mackenzie (DA) agreed with everything that had been said on the matter. However, he suggested the Communications Committee should take up the Matter given that the Portfolio Committee on Telecommunications and Postal Services does not have oversight on ICASA.

Ms M Shinn (DA) highlighted that she had a problem with the Committee using its time to discuss and issue which belongs to another committee. Although it is a very serious issue, it is not the responsibility of the Portfolio Committee on Telecommunications and Postal Services to deal with the matter.

The Chairperson responded that the Committee cannot ignore this matter even though it is not part of the Committee’s mandate. The Committee has a public responsibility to advise and to get to know. ICASA is appearing before the Committee to present on a subject that belongs to the Committee, but the chairperson is not available. It would be irresponsible for the Committee to ignore the matter.

Ms Shinn suggested that it would have been appropriate to invite the Portfolio Committee on Communications to the meeting so as to present their view on the matter. They are the ones who should be driving it.

The Chairperson advised ICASA to take note of what had been said. The Committee might not have the mandate, but it cannot ignore the issue when it knows what will befall the organisation.

Ms Mokhele acknowledged that ICASA had taken note of what had been said. She clarified that ICASA is not taking care of any of the legal costs on behalf of its chairperson. The organisation had not had an urgent meeting with the Minister. ICASA has always relied on sections 6 and 8 of the Act and on the legal opinion. However, given the seriousness of the matter, it will have to be taken back to the Council and discuss it in detail and also confer with the Ministry.

Mr Ngwepe said that according to section 13, which talks to the validity of proceedings of council, the competency for removal and appointment is not for the organisation. However, once the appointment has been made, the organisation will have to work within its framework. When an opportunity comes for a removal to occur, while waiting for the relevant authority to undertake their responsibilities, it is important that ICASA secures the integrity of the decision-making process.

The Chairperson advised that the best thing to do as councilors would be to intervene and interpret the Act by themselves. Section 6, which deals with disqualifications, is very important. The fact of the matter is that the chairperson is disqualified.

Discussion on the Cost to Communicate

Ms L Tsotetsi (ANC) said that while rollover of data would be an incentive for consumers, those incentives are taken back by the charges that are incurred when the rollover is done. That situation is not favourable to the consumer. She wanted to know how transparent the prices are to consumers and for clarity on how consumers will be able to know what benefits are available to them. She also asked for an explanation why the same operators charge different prices in different countries in the SADC region.

Ms Killian was concerned about the notice from mobile operators that they intend to charge for the transfer of data or the rollover. She asked if there is anything that ICASA can change in the regulations that will enable ICASA to intervene and block such decisions, by mobile operators, to overturn the benefits of the end user regulations. She recalled that in the past, one of the challenges that ICASA had was legal capacity. It known that the industry wants to take the organisation on. She asked if ICASA had beefed up the capacity. Does ICASA have the necessary muscle now? Does the industry respect ICASA when it takes these matters on?  She added that the Committee wants ICASA to have the muscle and do the right things. She asked for assurance that ICASA can drive these processes. She was concerned ICASA's role vis a vis the Competition Commission review. At some point the Competition Commission complained that they did not have the resources. She asked when the process is going to be completed. Chapter 10 is a very cumbersome process. It is a sophisticated and very high-level process. If any little thing goes wrong, the industry pounces on that. She asked for assurance that ICASA was committed and would not redo, in their review, what the Competition Commission has done.

Mr Mackenzie congratulated ICASA on the consumer-friendly market interventions. Clearly, the organisation is acting in the interest of consumers without necessarily hamstringing the industry. The media is full of Vodacom and the R49 charged to rollover the data bundle. He asked if that does not go against the spirit of what ICASA is trying to do. The impression was that mobile network operators would be friendlier towards any government or Chapter 9 led initiatives to bring down costs. He asked if ICASA had engaged Vodacom specifically on this matter. Regarding the slide comparing data prices in SADC countries, he asked for the number of mobile operators present in each of the countries and also inquired about the licensing of spectrum. As, mentioned at the hearing, this will have a big impact on the cost to communicate and bring prices down. So, the sooner it is rolled out, the better. He asked if there is a time lime that ICASA has in terms of spectrum licensing. He wanted to know when the spectrum would be released to the market.

Ms Shinn pointed out that on core regulations, ICASA did not lay down a lifespan of rollover data but it was left to mobile operators to decide how long that would survive. She asked an explanation on why it was left up to the operators to make that determination. Is it advantageous to consumers? On the high demand spectrum, she asked for an explanation of the process that ICASA had gone through with the allocations. She asked if ICASA had gone back to the auction basis and if there was an appetite for wireless open access network license. This is because in the hearing on the bill, it was necessary to have special license. She asked if that had been discussed and possibly included. In the  bill there was a strong push to separate the whole sale and retail operations of the mobile network operators and she asked if that was going to be resuscitated in any way.

Ms N Ndongeni (ANC) was not convinced that factors data such as market to network infrastructure, market structure and market player behavior can drive data costs. She asked for further explanation on that.

The Chairperson had a problem with the international benchmark, because when benchmarking it is important to ‘compare apple with apples’. The demographics that were chosen for benchmarking would not provide ICASA with the answer that is needed. The approach used is wrong because there is nothing in the data that informs the analysis. To do a proper comparison, there is a need to look at countries with the similar demographics, population density, and income levels. Thailand has similar demographics to South Africa in the terms of the population, the middle class, income levels, and GDP. Comparing a Vodacom with a company in Thailand would be appropriate because the companies are operating in the same demographics.

Response by ICASA

Ms Mokhele explained that the factors that drive data cost are input costs that that dictate the final price that is charged by an operator. These factors were presented for illustrative purposes to indicate that when dealing with prices, these are the issues that influence the price. It is actually a section 67 inquiry that will identify specific sectors that need intervention.  What happens in a 67 inquiry is to establish effective competition in the market and establishing factors that affect that competition. The next phase is to implement core competitive measures. Once it has been identified that competition is ineffective, as a regulator, pricing is one aspect that can be dealt with to be able to address competition matters. When it comes to pricing, a number of exercises have to be done including the price modeling. It is a very involving process, but for procedural purposes, there is need to go through an inquiry, establish that competition is effectives. If competition proves to be ineffective, then establish the measure that can be implemented. Once the measures have been implemented, consumers can then see the actual benefit of the inquiry.

ICASA is also concerned that the charging may prevent the public from enjoying the benefit that the regulations are meant to provide to them. ICASA has started a process to engage with Vodacom to understand fully why they have opted to go this route. Once ICASA considers Vodacom's representations, the organisation will then deal with it from a regulatory perspective. It is also important to highlight that the legality of this practice might be one thing, but the ethics and morality of it might be another. It is not a matter that ICASA will ignore. Vodacom’s representations will be assessed and ICASA will then decide on the way forward.

Mr Ngwepe agreed that chapter 10 is a complex chapter of the ECA. Every time you want to deal with pricing, the law requires that you can only do it through the Chapter 10 process. ICASA has deliberately stayed away from pricing issues in amending the end user and subscriber service charter because it was really meant to be a consumer protection measure to deal with the business rules. Going to pricing rules would undermine the legality of the entire amendment. So, the pricing would follow through the process of the mobile services inquiry.

Legal capacity remains a challenge. ICASA has the resources needed to carry on operating but the organisation can do with more. The Department is aware of the constraints facing ICASA and where ICASA is not able to complete the work with internal resources, the organisation resorts to getting external support. Like all other entities, ICASA has a panel of attorneys where support is obtained.

Mr Ngwepe said that the Competition Commission process would likely come to an end by the end of the financial year. However, with the latest pronouncement, it is becoming clear that the time lime might not be met. ICASA sees its processes to be complementary. The process does not depend on the Competition Commission process to come to an end in order for ICASA to start. ICASA will carry on with the mobile services market inquiry and in that process, the organisation will be consulting extensively with the Commission to allow them to give ICASA input in terms of some of the recommendations that are likely to come out from their process that require the sector specific regulatory interventions.

In terms of public processes, the only thing that ICASA has done is withdrawal of the 2016 IGA in order to allow for the policy direction process to ensue. The process is run from the Department. There was a draft policy that was issued. From a regulatory front, ICASA has prioritised the work relating to the radio frequency migration plan and the radio frequency assignment plan in order to get ready for the licensing process. The council committee that was constituted to drive the licensing process in 2016 has been revived and all the back-end work that needs to be done, such as preparing the terms of reference for the appointment of the auctioneer or revisiting the work that was done at that time in light of the latest development that has taken place, is ongoing. The day ICASA gets the final policy directive; the organisation will then outline the step by step guide as to how ICASA will proceed with the licensing process including the tentative timeline that the organisation will be working towards.

Mr Ngwepe said that in terms of the current legislation, accounting separation and all functional separation is a remedy that ICASA can impose after following the chapter 10 processes. In terms of the inquiry that is underway, if ICASA gets to the end and finds that there are competition problems and it is deemed that the appropriate remedy that could be accounting separation or functional separation, the legislation does give the regulator the power to impose such a remedy.

Mr Owen Mhlanga, Market Regulation: ICASA, said that the slide with the factors affecting data costs shows the theoretical factors affect data cost. The market inquiry is going to pin point exactly which factors are actually driving higher data cost in South Africa. So, the list of the factors on the slide is not exhaustive. Regarding the factors such as access to network infrastructure, market structure and market behavior, the slide is just highlighting that at a high level; ICASA knows that these might be some of the factors of which ICASA is concerned about. In this market structure, as the organisation pinpoints the sectors, it is going to inform which pro-competitive remedy is going to be put in place to deal with these factors for ICASA to be able to drive to price of data down.

In terms of the number of operators in each country as far as the benchmark is concerned, the number ranges from two to nine especially among the SADC countries. For example, Angola had two operators, DRC had nine, Madagascar had four etc. ICASA is willing to provide the detailed information as far as the number of operators is concerned. ICASA already has that information in a detailed benchmark report.

Mr Mhlanga said that in terms of the basket which was used for the benchmark, ICASA had looked at all the factors including demographics, GDP etc. The detailed benchmark report outlines, for each country, information such as GDP size, GDP per capita etc. However, what was discovered was that there was no correlation between the pricing and the population size. The major driver was the roll out of spectrum. In countries where spectrum had been rolled out, they had lower prices than South Africa. The second issue observed was that in the market like DRC with nine operators had lower costs than South Africa. So, the conclusion was that those are that factors that affect data prices at a higher level. The market review will unpack these issues in South Africa to see what the real cause in South Africa is, and how ICASA can come in and enforce remedies to make sure that the costs are down. ICASA is happy to share the detailed bench mark report with the committee. It justifies the basket that was used.

He highlighted that when it comes to benchmarks, there is the weakness that you can never find a country which is comparable to South Africa as far as the economic factors, the core structures and the population is concerned. There will always be those shortcomings but you try as much as you can to find a logical mechanism which can lead to actually having sensible results.

Mr Mhlanga said that, regarding difference in costs in different countries, it all depends on the factors highlighted in the presentation. For example, if you allocate spectrum, it reduces the cost of providing the service. There are also different economic factors such as inflation rates. Countries also have different input costs. Also, different countries have different policies and regulations.

Ms Adelaide Masemola , Director: DTPS, said regarding the completion of the policy direction at ICASA for the licensing of high demand spectrum, that the Department has not received input from stakeholders on the draft that was issued previously. The Department has completed the analysis report emanating from the inputs that were received. That report looks at three areas. The technical issues specifically speak to the CRS report, they speak to the policy aspect, and they also talk to legal issues. The ISS report is also responding to those. The Department just extracted those matters that have been shared with the Minister with the view to redrafting the policy direction and those are the matters that will be considered once the draft is finalized and that draft will be shared with ICASA. The Department must consult with ICASA on the finalisation of the final draft policy direction. There is commitment from the Department’s side to finalise that as soon as possible.

Mr Ngwepe said that leaving determination of the lifespan to the discretion of the industry was a very difficult decision to make. ICASA was mindful not to get into the realm of regulatory overreach. Currently there are different packages in the market with different validity periods. If ICASA was to venture in to determining how many times the rollover of each ought to be, ICASA would find itself in a space where it is accused of undue interference and on limiting innovation. The organisation thought it would be best to leave it to competition to decide whichever offers the best format or the best solution in the market will then be the winner. That was primarily the reason why ICASA decided not to be prescriptive. However, even after deciding not to be prescriptive, ICASA consciously made the statement that it will monitor how the regulations are implemented by the different operators to assess if the implementation supports the spirit and purpose of the regulations or whether it seeks to undermine it.

Mr Ngwepe said that in terms of transparency, one of the things that the amendment regulation seeks to implement is to compel operators to be transparent. In addition to consumers being informed of the price of what they are buying upfront, the notification requirement that compel operators to alert consumers at different stages of depletion is primarily aimed at ensuring that there is transparency around the charges.

The meeting was adjourned.

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