Independent Communications Authority Bill: hearings

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Communications

14 March 2000
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Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
14 March, 2000
SOUTH AFRICAN COMMUNICATIONS REGULATORY AUTHORITY BILL: SATRA SUBMISSION

 

Documents Handed Out:
 

South African Communications Regulatory Authority Bill [B14-2000]
SATRA Submission (attached to end of minutes)

SUMMARY
The committee discussed the Schedules Section of the South African Communications Regulatory Authority (SACRA) Bill.

The DP argued strongly that Section 3(3) of the Independent Broadcasting Act should not be repealed as it was fundamental in ensuring the independence of the Independent Broadcasting Authority (IBA).

The Department of Communications responded that, after consultation with Constitutional experts, it had been decided the sentiments of Section 3(3) of the IBA Act were implicitly reflected in Section 192 of the Constitution.

The DP were unhappy with the reply, and called for further discussion on the matter.

The South African Telecommunications Regulatory Authority (SATRA) presented their submission on the SACRA Bill. They proposed that the new Authority be allowed to impose service fees on the industry as a method of additional financing. It was argued that the money raised through the fees would supplement the monies appropriated by Parliament, and would ensure that the new Authority had sufficient funds to perform the tasks that were assigned to it under the new Act.

All parties were generally in favor of the proposal.

MINUTES
South African Communications Regulatory Authority Bill
There was some discussion as to whether an additional clause should be added to the Bill pertaining to the establishment date. It was concluded that this would not be necessary, since reference to the establishment date under the definitions clause was standard practice in all legislation.

Schedule: Laws Amended or Repealed
Ms Smuts (DP) queried why section 3 of the Independent Broadcasting Act of 1993 had been repealed. She felt that 3(3) of the Act was fundamental in stating the independence of the Independent Broadcasting Authority (IBA).

Mr Tshongweni, legal advisor for the Department of Communications, replied that he had conferred with constitutional experts on this matter, and it had been decided that the sentiments of Section 3(3) of the IBA Act were implicitly reflected in Section 192 of the Constitution.

Ms Smuts (DP) denied that Section 192 of the Constitution maintained the same meaning as Section 3(3) of the IBA Act. The Chair agreed with Ms Smuts, stating the matter warranted further discussion.

SATRA Presentation
The Committee heard from Mr Eddie Funde, Deputy Chairperson of SATRA, and Mr William Currie, a SATRA Councilor, on the SACRA Bill. (see document)

Discussion
(Q) Mr Maserumule (ANC) asked by what acronym would they prefer the new Authority to be called?

(A) Mr Currie responded that their first choice was Independent Communications Authority (ICA), followed by National Communications Authority (NCA).

(Q) Mr Maserumule (ANC) asked if SATRA had prepared their financial statements, in terms of the merger, to be in line with the Public Finance Management Act?

(A) Mr Funde responded that they were properly prepared, and accepted that it was incumbent on them to follow the conditions outlined in the Act. Some problems were expected to occur since the Public Finance Management Act was so new, and it was hoped that a period of grace would be extended to SATRA while they adjusted to the merger.

It is expected that the Public Finance Management Act will be implemented by 1 April, 2000.

Ms Smuts (DP) commented that under the Public Finance Management Act, IBA would have to submit financial documents according to clause 40(1e), while SATRA would submit theirs according to clause 55(3) of the Act. As a result, it seemed apparent that one "umbrella Council" would not be able to carry out the vastly different functions of each existing Council, and that it would be necessary for there to be either two separate Councils, or two vice-councils established.

Ms Smuts (DP) agreed with the recommendation of SATRA that the new Regulatory Authority should be able to finance itself by implementing service fees in order to supplement the money it received through parliamentary appropriations. She then asked if SATRA's funding had been reduced?

Mr Mjwara, Senior General Manager of Broadcasting Policy for the Department of Communications, replied that there had been no funding cuts, and that the Department was not in favor of reducing funding to any of the agencies within the communications portfolio. He added that serious consideration must be given to imposing additional service fees, such as how the telecommunications and broadcasting industries would respond, and how the Authority would collect funds in line with the Constitution.

Mr Funde responded that the proposal was aimed at ensuring that the Authority had sufficient funds to perform the tasks that were assigned to it under the new Act. The service fees would not be substantial, and would be determined through a public enquiry conducted in terms of the underlying statutes. He believed their suggestion was both rational and practical in that it was not asking for loans, or "investments of resources", and that it would have significant benefits for the State.

Mr Currie noted that at current Budget levels, the Authority was unable to provide proper services, and imposing service fees would ensure that the new Authority would be able to perform the tasks required of it.

The New National Party (NNP) supported the idea, stating that it would relieve the tax burden on the public, and also give greater independence to the Authority.

(Q) The Chair asked whether the industry would support this type of taxation?

(A) Mr Currie replied that the taxation would benefit the industry in that if the Regulator was seen to be acting independently, it would attract more foreign investors.

(Q) Ms Vos (IFP) asked for clarity on sector-specific taxes?

(A) Mr Mjwara responded that sector-specific meant that different companies would be taxed differently depending on which sector of the industry they were in.

The meeting was adjourned.

Appendix 1:
REPRESENTATIONS ON THE SOUTH AFRICAN COMMUNICATIONS
REGULATORY AUTHORITY BILL


INTRODUCTIONThe South African Telecommunications Regulatory Authority (SATRA) supports the view expressed in the South African Communications Regulatory Authority Bill, that there is a need to establish a single regulatory body to regulate broadcasting and telecommunications. SATRA agrees that technological change is producing a convergence of the broadcasting and telecommunications sectors that makes it increasingly difficult to regulate the two sectors separately. This need was recognised in section 5.7 of the White Paper on Telecommunications Policy of 1996 which stated that:

"Telecommunications and broadcasting will in the medium term be regulated by a single authority".

SATRA also supports the dissolution of the Independent Broadcasting Authority (IBA) and SATRA and the transfer of their functions to the new Authority.

GENERAL COMMENTS
The Bill is a considerable improvement on previous drafts for the following reasons:
· it makes it clear in S2 that the new authority is the institution required by S192 of the Constitution;
· it integrates the requirements of the Public Finance Management Act into the Bill in S4(2) and by making the CEO the chief accounting officer in S15(6), it makes clear that the new authority is a constitutional institution in terms of the Public Finance Management Act;
· it retains the Portfolio Committee on Communications of the National Assembly as the body to run the nominations process for selecting Councillors and to advise the President on whom to appoint to the Council, rather than the fairly cumbersome method of a previous draft to have a Selection Panel run the nominations process;
· it retains the underlying statutes as the basis for regulating broadcasting and telecommunications;
There are, however, a number points to be made about the Bill by way of constructive critique.

2. THE NAME OF THE NEW AUTHORITY
The new name, South African Communications Regulatory Authority, is too long and the acronym, SACRA, may create the impression that the authority is a religious institution! It would be better to have a crisper short form such as Independent Communications Authority (ICA), National Communications Authority (NCA) or Communications Regulatory Authority (CRA). These are a better match with other regulators like the National Electricity Regulator (NER) or the Competition Commission.

3. INDEPENDENCE
Regarding the independence of the new body, SATRA would like to add sub-section (3) under section 3 of the Bill as follows:
"(3) The Authority shall function without any political or other bias or interference and shall be wholly independent from the State, the government and its administration or any political party, or from any other functionary or body directly or indirectly representing the interests of the State, the government or any political party."

4. DEFINITION OF SUBSTANTIAL OR CONTROLLING INTEREST
SATRA would like a definition inserted regarding substantial or controlling interest as referred to in section 6(1)(f) in section 1 as follows:

(iii) "Controlling interest or substantial financial interest" means that a person has a controlling interest or a substantial financial interest if that person:
(a) beneficially owns more than one half of the issued share capital of the entity;
(b)is entitled to vote the majority of votes that may be cast at a general meeting of the entity or has the ability to control the voting of a majority of those votes;
(c) is able to appoint or veto the appointment of a majority of the directors of the entity;
(d) has the ability to materially influence the policy of the entity in a manner comparable to a person who, in the ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (c).

5. FINANCING THE REGULATOR

5.1 BACKGROUND
Section 15 of the South African Communications Regulatory Authority Bill (SACRA Bill) dealing with Financing and Accounting by Authority provides as follows:
15 (1) The Authority is financed from money appropriated by Parliament.

SATRA is of the view that, in addition to Parliamentary funding, the new Authority should, in line with regional trends as demonstrated in the SADC Model Policy and Legislation, local practice in other industry regulators, international best practice, and the recommendations of Mr. Alan Darling, a consultant to the IBA and SATRA, be self-funding in addition to the funding proposed by the Bill, to better address the needs of the regulator. Mr Darling produced a report on the merger called 'Proposed Communications Authority of South Africa, 5 March 1999'.

In particular, the merged Authority should be permitted to obtain funding from, inter alia:
·
Parliamentary Appropriations;
· Interest earned on funds on deposit;
· Application fees; and Service fees

5.2 ALAN DARLING RECOMMENDATIONS
The SATRA Council fully supports the recommendations of the Alan Darling Report on the financing of the merged Authority.

The Report recommends that the Merger Bill provide that the regulator may get funding from the following sources: Appropriations, interest earned on funds on deposit, application fees, a service fee levied on holders of broadcasting and telecoms service license to cover any shortfall in the cost of administering the Authority not provided from the previously listed funds. It further recommends that Parliament approve a separate Vote for the Communications Authority.

The Alan Darling report recommends the collection by the Authority of a service fee which should be differentiated from fees specifically levied for the use for spectrum. The spectrum fee, according to Darling, should continue to be paid directly to the National Revenue Fund.

The Canadian Radio-television and Telecommunications Commission (CRTC) is financed entirely from such service fees paid directly to the CRTC, and not into the Consolidated Revenue Fund of the Government of Canada. This fee was established to recover the cost of administering the Broadcasting activities of the Commission in 1997, an offsetting reduction of an equivalent amount paid for spectrum use was made to the overall fee burden assessed on the industry.

The Report also highlights the need for a decision on the inclusion of the authority to collect annually from licensees a fee specifically established and paid directly to the Authority to meet its costs of operations. This would provide financing for the Regulator, as well as further reduce appropriation levels.

5.3 THE SADC REGION
The SADC Model Telecommunications Bill was approved as a guideline in respect of national legislation for implementing the SADC Model Telecommunications Policies in Swaziland on 26 June 1998 by the SATCC Committee of Ministers. SATRA notes that Section 15 (1) of the SACRA Bill is not in line with the recommendations of the SADC Model Telecommunications Policies and Legislation.

Indeed, Article 10.7 of the SADC Protocol on Transport, Communications and Meteorology states that Member States shall ensure the separation of the regulation and operation of telecommunication services through the establishment of "autonomous, independent, and national regulatory bodies." The current method of funding of SATRA makes our independence questionable to other regulators in the region.

The SADC Model Telecommunications Legislation further states that:

1. The Authority's funds shall consist of -
· such monies as may be appropriated by the Parliament;
· such fees as the Authority may impose for services provided under this Act;
· such fees as the Authority may impose for licences issued under this Act
· such other fees or monies as the Authority may by virtue of this Act raise or impose;
· fines and other monetary sanctions imposed by the Authority under this Act;
· contributions or endowments from any other source; or
loans.

2. The Authority shall use the funds raised under this Act to meet [the cost of its operation] its budget and shall use any surplus accrued for the development of telecommunications.

3. · The funds of the Authority shall be administered through a bank account approved by the Minister.
· The Authority shall issue policies and procedural rules necessary to administer the funds with approval of the Minister responsible for finance.

Examples of independently financed regulators in Southern Africa include the telecommunications regulatory bodies in Botswana, Tanzania, Malawi, and Mozambique.

5.4 SOUTH AFRICAN MODELS
Industry regulators such as SATRA are distinct from other types of public service agencies or regulators, such as the Youth Commission or the Human Rights Commission, in that the services that industry regulators provide are integral to the products and services provided in each industry.

They can be distinguished from most other regulators and public agencies which are cost-centers that cannot effectively "charge" those with whom they regulate. As such it can be argued that a Service Fee should be payable to the Authority for the costs incurred in administering the use of spectrum and dealing with complaints handling (from both industry and the public). This fee should not be confused with the Application fee, which is for only processing and administration of applications for license.

In South Africa there are examples of regulator funding through sector specific licences and fees. The National Energy Regulator (NER) is funded through regulatory fees. As per the Electricity Amendment Act, No.60 of 1 995 (The Act) which amended the Electricity Acts of 1994, and 1997, the NER is established as a juristic person and according to Section 5 (1)(b) of the Act, the funds of the regulator shall consist of-:
· licence fees obtained under subsection (2);
· donations or contributions received from any person, institution, government or administration; and
· interest on investments.

Furthermore, according to Section 5 (4)(a)(i) the regulator shall, "utilise its funds to defray expenses in connection with the performance of its functions." As such, the NER, can be construed as a truly financially autonomous regulatory body. Fiscal responsibility is however ensured through a system of checks and balances also described in the Act. For example, the Chief Executive Officer of the NER must report back to the Minister regarding annual expenditure and must get the approval or concurrence of the Minister and the Minister of Finance with regard to the investment of the funds of the regulator, and the acceptance of donations.

The case of the NER is not unique in South Africa. In addition, South African administrative and regulatory agencies that oversee the highways and airports, both similar in function to SATRA, are funded through service fees. The Civil Aviation Authority (CAA) is another example. The CAA is funded by a combination of user charges, a levy placed on all industry participants and Government funding for services which the CAA performs on its behalf. This creates a more efficient and cost-effective regulatory regime and a safer civil aviation system.

Section 14(1) of the Civil Aviation Authority Act (No. 40 of 1998) states that the Authority will be funded from
· prescribed civil aviation regulatory charges;
· prescribed levies on aircraft and passengers and participants;
· interest on invested cash balances; loans granted in terms of subsection 2;
· money received from any other source; money received from the development and management of its assets;
· any other money received in terms of the SA Civil Aviation Act...;
· prescribed levies on the supply of aircraft fuel; and monies appropriated by Parliament.

Thus, the idea of an independently financed regulatory body is not new in South Africa, and has proven to be an efficient and effective means of financing the operations of a regulator of a given sector.

5.5 INTERNATIONAL MODELS
Self-funding of regulators through industry assessed fees is a common practice among the most well recognized and respected regulatory institutions in both the developing and the developed world.

OFTEL, in the UK, for example, charges fees for spectrum applications, spectrum licenses and a small fraction of turnover (proposed at 0.065% for the large public switched telecommunications network services).

The Australian Communications Authority (ACA) imposes a fee structure similar to that proposed here with a "maintenance component" and an 'administrative component" designed to recover the costs of frequency management and applications processing. The structure also includes a spectrum access component or tax. A spectrum access tax component is designed to provide a return to government for the use of the scarce resource (spectrum).

Similarly, the Federal Communications Commission (FCC) in the United
States imposes licensing fees on the carriers and services that it regulates.

License fees are collected to cover the costs of enforcement, policy and rulemaking activities, user information services, and international activities (Title 1, Section 9 of the Federal Codes). The use of licence fees to fund these purposes are also subject to legislative appropriation. As such, the FCC assesses and collects licence fees to recover the costs of enforcement and policy.

As mentioned above, the CRTC of Canada is financed entirely from service fees paid directly to the CRTC, and not into the Consolidated Revenue Fund of the Government of Canada.

5.6 CONCLUSION
The proposal, as espoused in Section 15(1) of the Bill, of funding of SATRA solely through Parliamentary appropriation is unfair to consumers and industry providers that depend on regulatory services. As experienced recently, when the budget and operational needs of SATRA were suddenly cut, leaving consumers and industry providers without many of the requisite regulatory services, a regulator that is inadequately funded negatively impacts industry and the sector as a whole.

In line with regional trends as demonstrated in the SADC Model Policy and legislation, local practice in other industry regulators, international best practice, and the recommendations of Mr. Alan Darling, SATRA would like to amend the current Section 15(1) of the Bill to better reflect the needs of the regulator.

SATRA would like S15(1) to read as follows:
15(1) The Authority is financed from the following sources:
(a) such monies as may be appropriated by Parliament;
(b) interest earned on funds on deposit;
(c) application fees; and
(d) service fees.
(2) The service fee will be determined by the Authority through a public inquiry conducted in terms of the underlying statutes.

6. REMUNERATION
S10 on remuneration should be amended to require the Minister to determine remuneration 'in consultation with' the Minister of Finance rather than 'with the approval' of the Minister of Finance.

S7(5) on Councillors serving in a full-time capacity should allow councillors to take remunerative positions on boards provided there is no conflict of interest.

7. TRANSITIONAL PROVISIONS
S18(2)(b) of the South African Communications Regulatory Authority Bill provides that:
"If any councillor contemplated in paragraph (a) is not appointed in terms of section 5, that councillor must be dealt with in accordance with section 189 of the Labour Relations Act, 1995 (Act No.66 of 1995), and any other applicable provisions of that Act, with the changes required by the context."

The term "employee" is defined in the LRA as:
(a) any person, excluding an independent contractor, who works for another
person or for the State and who receives, or is entitled to receive remuneration; and
(b) any other person who in any manner assists in carrying on or conducting the business of an employer.

The definition provided above is silent on the issue of contract workers like
Councillors although it can be inferred from the wording of the definition that
contract workers like Councillors could be regarded as employees in terms of the LRA.

Councillors are contract workers like Directors General of State departments. The terms and conditions that apply to ordinary SATRA staff members do not apply to Councillors. For example, Councillors' contract of employment is with the government and staff members are contracted to SATRA. In dealing with Councillors, it would be appropriate to apply the same rules that apply to the DG's since their contract of employment is similar in nature.

Section 189 of the LRA deals with dismissal based on operational requirements. It makes provision for the dismissal of employees specifically and outlines the procedures to be followed.

The application of section 189 to section 18 of the SACRA Bill seems misplaced or based on misinterpretation of the circumstances under which section 189 should apply. As can be seen from reading section 18, it mainly deals with procedures that an employer must follow in case where he/she contemplates dismissing one or more employees on the basis of operational requirements.

It can be argued that the dismissal of Councillors as contemplated in section 18 of the SACRA Bill is on the basis of the operational requirements. However, the application of section 189 in these circumstances is not suitable in that section 189 simply places a burden on the part of the employer to follow certain procedures before dismissing the employees on the basis of operational requirements. In this case, no procedure prescribed in section 189 will have been followed because once the Bill is passed, Councillors will have been dismissed.

Although section 18(2)(b) of the SACRA Bill contemplates re-appointing some of the Councillors who may reapply in terms of the new legislation, such reappointment may not constitute the consensus reached between the consulting parties in terms of section 189 (2) of the LRA since no procedure outlined by the LRA has been followed before dismissal.

Also, assumptions made in section 18 (2) (b) of the SACRA Bill that Councillors in office need to reapply for their jobs even though contracts have not yet expired, not only contravenes section 185 of the LRA (right not to be unfairly dismissed) but also the general principles of the law of contract.

It is against this background that the application of section 189 of the LRA is inappropriate in dealing with Councillors who may not be appointed in terms of sec-ion 5 of the SACRA Bill.

Application of the general law of contract in this case is more appropriate whereby the contracting parties are required to perform in terms of their respective duties in the contract.

Councillors have signed contacts of employment with the government to serve SATRA for a specific period. The government now wishes to terminate such contracts and in the absence of any clause in the signed contract between the government and the various Councillors stipulating how to deal with the situation where one of the parties default, the defaulting party should pay damages that will be suffered by the other party to the contract as a result of the termination of such contract.

In addition, SATRA is of the view that the sitting Councillors should automatically be considered for the Council of the new authority and should not require renomination with the exception of any Councillor who chooses not to be considered for appointment.

SATRA, therefore, proposes that 518(2)(b) be changed to read as follows:
(b) the names of councillors, whose contracts will not have expired at the time of coming into effect of this Act, shall be included in the list of candidates from which five (5) to seven (7) councillors will be drawn.
(c) A councillor contemplated in paragraph (b) shall not be considered for appointment if he or she indicates in writing to the Portfolio Committee that he/she does not wish to be considered for appointment.
(d) If any councillor contemplated in paragraph (a) and (b) is not appointed in terms of Section 5, that councillor must be dealt with in accordance with the law of contract.

8. PENDING MATTERS
Regarding section 21, SATRA would like to insert the following sub-sections as follows:

"(3) The Authority replaces the former authorities in any Court proceedings in which the former Authorities were involved prior to the commencement of this Act."

"(4) Any pending enquiry or any other action instituted or intended to be instituted in respect of alleged misconduct committed by any person before the transfer date, shall be disposed of or instituted by the authority and the Authority shall take the appropriate steps against the person concerned in accordance with the laws, policy and conditions of service applicable to him or her before the transfer date."

9. SCHEDULE OF AMENDMENTS TO THE TELECOMMUNICATIONS ACT, 1996
9.1 Regarding Schedule 1 where section 28(3) of the Act is amended, SATRA would like to delete the phrase, "liaison committee" in the Bill and replace it with the phrase, "the Authority".

9.2 SATRA would like there to be consistency between the IBA Act and the Telecommunications Act when it comes to the issue of how the new communications authority will make regulations. Consistency in the manner in which the new authority makes regulations will help prevent any confusion regarding the status of the regulations themselves and the administrative procedures by which the regulations are made. SATRA has therefore proposed a number of amendments to both Acts which are aimed at achieving this consistency.

Regarding the procedure for the making of regulations SATRA would like propose that the IBA Act be amended in the Schedule and will read as follows:

"The amendment of section 78 by the insertion of sub-section (4) as follows:

(4) The provisions of sub-section (3) shall not apply in respect of -

(a) any regulation made by the Authority which, after the provisions of that subsection have been complied with, has been amended in consequence of comments or representations received pursuant to a notice issued under section 28 or
(b) any regulation which public interest requires to be made without delay."

The procedure for the making of regulation in Telecommunications Act must also be amended by the inclusion of these clauses in the schedule as follows:

"Section 96 is hereby amended by the insertion of subsection (4)A as follows:

(4)A The notice referred to in subsection 4 must invite interested person to indicate if they wish to make oral representations to the Authority.

(4) B Oral representations referred to in subsection 4A must be made in public."

"Section 95(3) is repealed"
"Section 96(6) is repealed"

9.3 SATRA is of the view that S3(3) of the BA Act and 55(4) of the Telecommunications Act should not be repealed as they will serve the purpose of underlining the impartiality and independence of the new Authority in addition to S192 of the Constitution.

10. PROPOSED AMENDMENT TO S96 OF THE TELECOMMUNICATIONS ACT, 1996 REGARDING THE MAKING OF REGULATIONS

SATRA would like to propose the following amendment to S96 of the Telecommunications Act approved by Council

"96. Regulations.-(1) the Authority may make regulations in relation to-

(a) any matter which in terms of this Act shall or may be prescribed by regulation;

(b) any matter of procedure or form which may be necessary or expedient to prescribe for the purposes of this Act.

The reason for including sub-section (b) is to enable the new Authority to formulate a common set of administrative rules and procedures for the Authority. The wording of sub-section (b) is identical to that of S78(d) of the IBA Act.

CONCLUSION
SATRA's representations have highlighted a number of concerns related primarily to the financing of the new authority and to achieving consistency between the underlying statutes with regard to how the new authority will make regulations. SATRA believes that the manner in which the Portfolio Committee on Communications address itself to these issues will have a significant bearing on the success of the new communications authority.

 

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