Sentech Amendment Bill: discussion

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
27 October 1999
SENTECH AMENDMENT BILL [B52-99]: SUBMISSIONS; SATRA REPORT

 

Orbicom Submission: Sentech Amendment Bill
Transtel Submission: Sentech Amendment Bill
Democratic Party letter to Chairperson: Portfolio Committee on Communications : withdrawal from closed meetings investigating SATRA.
Newspaper article, 25 October 1999: MIH sells Open TV equity for R190m

SUMMARY
Advocate Lutando S Mkumatela prewsented a submission on behalf of the Independent Broadcasting Authority (IBA) and Tshepo Rantho was there on behalf of Orbicom.

The IBA indicated their desire to regulate any transfer of shares by Sentech. They based this on the belief that they have jurisdiction over Sentech because they regulate signal distribution.

Orbicom stated that they want a regulation framework with proper checks and balances. They noted that the integrity of the framework related to social responsibility which included ensuring fair competition.

Regarding the closed meetings on the SATRA report it was indicated that the DP, who had withdrawn, was entitled to rejoin but their disrespect for the parliamentary rules was not appreciated. The DP said that they would make a decision with regard to joining the process now that the meetings were no longer closed.

A written submission on amendments to the Sentech Bill by Transtel was distributed.

MINUTES
Delegations from Sentech, the Department of Communications, Orbicom, and the Independent Broadcasting Authority (IBA) were present while oral submissions were made by Orbicom and the IBA only. Sentech and the
Director-General (DG) of the Department of Communications were given the opportunity to make comments and ask questions later in the meeting.

Independent Broadcasting Authority (IBA) submission
Advocate Lutando S Mkumatela presented the IBA submission. Their argument may be summed up as follows:
It was stated that in terms of S5 of the Sentech Act (1996) it is recognised that Sentech is licenced in terms of the IBA Act, 1993. The Bill however refers only to the objects of the Broadcasting Act of 1999 and not the objects of the 1993 IBA Act and accordingly it seems to contradict S5 of the Sentech Act (1996).

They proposed that the objects of the 1993 IBA Act also be referred to for the purpose of not confining the obligations of the future Sentech Act to one Act only, and, according to them, this will prevent any loopholes from occurring (by binding Sentech to both the 1993 IBA Act and the 1999 Broadcasting Act).

The second contention made by them was that the IBA should be the regulator of the process of transferring shares or there would be a danger of S38(A) of the IBA Act, which governs foreign control and ownership, being surpassed. In this regard they noted that this did not necessarily refer to foreign players only but also to local players. It was noted that a situation could be created where two dominant players had unfair control and were acting together.

Their rationale for this submission was related to the fact that Sentech is licensed as the common carrier for broadcasting signal distribution in South Africa and the IBA is the only body entrusted with the regulation of broadcasting signal distribution in South Africa. Accordingly, the IBA must have regulatory oversight of any transfer of shares in Sentech.

Questions by committee members
Mr Morkel (NNP) wanted clarification as to whether the IBA was saying that executive power to transfer shares should be subject to the IBA's scrutiny so that equity partners do not end up with shares in a duopoly.

In response to this it was stated that the IBA recognises the functions of those who are shareholders and that what they are saying is that any amendments should not violate the provisions in the IBA Act. Their primary concern was the impact which occurred as a result of the transfer.

Mr Waters (DP) asked what the IBA's involvement with Sentech was and he requested clarification of S38(A).
It was stated that they do have jurisdiction over Sentech in that they regulate signal distribution.

The chairperson asked whether the IBA was saying that when a shareholder wants to sell shares that shareholder must go to the IBA for approval of that transfer of shares.
They replied that when shares are transferred the change should go through the IBA because signal distribution is a broadcasting activity. Sentech is a signal distributor in broadcasting and signal distribution should be regulated by the IBA.

At this time Dr S C Cwele (ANC) noted that although he was trying hard to follow their argument he was quite confused. He wanted to know how S38(A) could be contravened?
The response was that, in terms of S38(A) there cannot be more than 40% control for a single distribution entity and if it stays as it is then the processes that were gone through to have this section will be undermined. Thus, there is a possibility of that section getting contravened unless specific reference is made to it.

The chairperson referred the IBA delegates to S4(7) of the Sentech Act (1996) (the principal Act) and noted that there are two aspects to it; the first aspect relates to getting a licence and the second one relates to the definition of a common carrier. He proceeded to ask what the IBA was saying when it said that Sentech was a common carrier. He asked whether they were referring to the kind of licence that Sentech was holding and whether any change in the shareholding of Sentech affected the IBA in terms of licensing requirements?

A committee member (ANC) noted that he was now more confused. He asked for an explanation of what the IBA feared (if their proposed amendments were not given effect to).
The response to these questions was that in broadcasting foreigners are not allowed to own more than 20% of the signal distribution. The IBA is ready to assist with positive input. Further, S4(7) referred to by the chairperson deals with rights which includes licences but is not limited to it.

Response by the Director-General of the Department of Communications
The following points were made by the Director-General:
The understanding of securities and exchange is that the public is allowed to buy and sell shares. Thus, when a company goes into the stock market the fact that the public can buy and sell is not an issue for debate. This is something that cannot be controlled especially in light of the globalisation of stock markets today. This is a fact which needs to be accepted.

He was curious regarding what the relationship with competition law would be. Should the IBA regulate securities, bonds, and the stock market. Also, what is the relationship between regulation and policy? Which follows which? Are policy makers being asked to follow regulations made by regulators?

He referred to S38(A) which relates to the limitation of foreign control of broadcasting signal distribution and noted that it is important for all in respective institutions to understand the dynamics of the market place in order to grow. He noted that the communication sector was growing at a limited rate compared to other sectors and the purpose of regulation is to enable growth of the market and not to stifle it. He warned that one must be careful in the interpretation of the Act or problems will be experienced.

The only comment made by the Sentech delegation is that they did not see the Amendment Bill doing any harm to basic conditions in the Act.

The IBA's response to these comments and questions
It was noted that M-Net had been created with the help of the IBA and they handled that situation with care. They submitted that listing was good for the economy but they were concerned with the process of listing and felt strongly that when there was a changing of shareholders it would be of public interest if such process involved the IBA.

Orbicom submission
Mr Tshepo Rantho presented the submission. (See Orbicom Submission)

Mr Morkel (NNP) noted that their submission gave the IBA more teeth for its mandate to ensure social responsibility. This can be enforced by looking at whether or not Sentech can fulfill its obligations as common carrier. It was asked whether the perpetualisation of monopoly/duopoly should be entertained.
Orbicom's response was that it was not suggested that the IBA be given more teeth but rather that a framework formulated for this sector should include all sectors. The integrity of the regulatory framework is important and applies to law as a whole. The objective of social responsibility includes ensuring fair competition. The efficient use of frequency resources was noted as being an important obligation on the regulator. Further, the underlying principles and obligations imposed on all operators relate to the efficient use of facilities and public resources.

Regarding the issue of exclusivity it was noted that they do not wish to pre-empt hearings. The White Paper suggested an intention toward an open market and while Orbicom endorses the concept of an open market it must be considered that South Africa is a developing nation and there may be certain justifications for not having a completely open environment. Accordingly, a flexible approach to this was suggested.

In response to this it was noted by a committee member (ANC) that the purpose of every law which has been passed has been to level the playing field.

The Chairperson noted that the White Paper states that South African broadcasting reaches only 60% of the population and wanted to know whether Orbicom wanted access everywhere or only where it would be profitable.

Orbicom's response was that you get three categories of signal distribution and that Orbicom's signal distribution is preferential. However, they believe that if you make a certain amount then you must put back into society.

Comments from Sentech
They stated that certain obligations come with certain licences. Sentech is the common carrier for South Africa and as they are regulated any changes will have a regulation process. They noted that they support the right of expropriation.

Response by the Director-General of the Department of Communications
The following points emerged:
In our country preferential basis means that you have the right to say no when a service will not profit you.

When you introduce private equity you need not be worried about issues of expropriation, and, in his view, there are checks and balances on this matter. He noted further that private equity holders would not necessarily respect the use of expropriation on certain terms but this did not mean that private equity holders would disrespect expropriation.

There is regulation of use on a frequency spectrum and not a vertical chain.

The Department of Communications believes that the Minister must be the regulator and that the IBA cannot regulate the Minister. This would result in an anomaly in that you seek approval from the Minister and then you want to regulate him. This will cause problems at a practical level.

Orbicom's response to these comments
They stated that as a selective distributor they act on different terms to the common carrier and that they are not criticising expropriation power but if engaged in a competitive environment then expropriation power must be checked to be in terms with legislation.

They noted that one must distinguish between a private and a public distributor. Sentech, being a public distributor, might even be called an organ of state. If it is accepted that Orbicom controls 10% of signal distribution and Sentech controls 90% then Sentech is in a very powerful position and in terms of competition law it has what is referred to as significant market power. It is this imbalance for a future deregulated market which concerns Orbicom. Thus, their concern is not for the present but for the future.

They noted that it must be ensured that the regulation framework of the future must be coherent and have proper checks and balances.

With reference to the Transtel written submission (Appendix 1), the chairperson noted that one must pay special attention when moving into a convergence environment as some laws apply to broadcasting and not to telecoms and vice versa.

SATRA report
The chairperson noted that this was not yet a formal document of the portfolio committee and accordingly they could not even refer to it. It was agreed that committee members submit their comments and opinions by Friday, 29 October. Tabling of the report could only happen when parliament was sitting and as next week was constituency week they had at least one week to complete this committee report.

Mr Morkel (NNP) suggested that they consider written rather than oral submissions from committee members as they may not have enough time on Friday. This was accepted and the chairperson noted that the deadline for written comments on this issue would be Friday.

At this time Mr Waters (DP) asked if a copy of the report had been sent to Ms Dene Smuts (DP) who had not been present. To this the chairperson replied that the DP had pulled out of the meetings investigating SATRA and noted that if they wanted to be a part of the subcommitee then they would be welcome but they would have to indicate this intention.

Mr Waters responded that his party did not want to participate in closed meetings as they felt that the process should be open and transparent.

The chairperson however, indicated that that was not the issue. The point was that the DP had agreed to closed sessions and then later pulled out; the issue was the non-compliance with the rules of parliament.

Morkel (NNP) expressed his disappointment at the DP's earlier decision to withdraw. He noted that in terms of Rule 157 this issue will have to be mentioned in their report to parliament. He added that he would like the DP to participate in the redrafting of the report.

An ANC committee member indicated that the DP was entitled to participate but that problems would be experienced if they withdrew whenever they did not agree with the committee.

A copy of the DP's notice of withdrawal was made available (Appendix 3). The chairperson stated that the meetings on SATRA were closed because of the confidential nature of the information asked of SATRA and were only closed until the last of the evidence was heard. The meetings shall now stay open.

Mr Morkel criticized the DP saying that if they did not respect the rules then how could they be trusted not to make the report public before it is tabled in parliament.

Mr Waters replied that the closed meetings had been leaked but the cause thereof had not been the DP. He indicated that he would be meeting with Ms Smuts to decide whether to rejoin the proceedings or not. This decision would be communicated to the committee.

The meeting was adjourned.

Appendix 1:
: Sentech Amendment Bill
Orbicom Submission
1.Orbicom (Pty) Limited ("Orbicom") is a private South African company conducting business as a signal distribution company in terms of a licence issued by the Independent Broadcasting Authority under Section 33(1)(a)(ii) of the Independent Broadcasting Act, 153 of 1993 ("The IBA Act"). Orbicom has been requested to provide comments to the Sentech Amendment Bill [B52-99] ("the Bill") which is presently being introducing into Parliament to amend the Sentech Act in order to facilitate the introduction of a new strategic equity partner and provide for a revised management structure for Sentech Limited ("Sentech").

2 Orbicom has a vital interest in the regulation of the broadcasting signal distribution sector in South Africa in so far as, aside from Sentech, it is the only other licensed broadcasting signal distributor in the Republic. Sentech is a common carrier in terms of Section 33(a)(i) of the IBA Act while Orbicom provides its signal distribution services for broadcasting Iicensees on a selective and preferential basis in terms of Section 33(a)(ii) of the IBA Act.

3. Orbicom supports the present legislative initiative to restructure the corporate affairs of Sentech in a manner which promotes investment of capital and intellectual resources into the domestic signal distribution industry by the new strategic equity partner . Orbicom also supports the objectives of the IBA Act in relation to signal distribution services, as augmented by the objectives contained in Section 34 in of the Broadcasting Act 4 of 1999 ("the new Broadcasting Acf').

4. However, in so far as the management and control of Sentech and the performance of its public functions is likely to be assumed by a new strategic partner, Orbicom wishes to alert the Portfolio Committee to some of the potential dangers of providing unchecked expropriation powers to the company's new management without providing for concomitant obligations in respect of South African the competitors in the signal distribution market. In particular, there is a danger that the new Sentech may use its expropriation powers to restrict competition in this important sector of our economy in a manner which may serve to undermine the underlying statutory objectives for the opening up of this market in the medium and long term.

5. Orbicom agrees that Sentech, in the performance of its public functions as a common carrier broadcasting signal distributor, should be entitled to expropriate land or real right if such land or real right is reasonably necessary for its public function and Sentech is unable to purchase the land or real right on reasonable terms from the owner. Although Section 9 of the Sentech Act expressly qualifies the power to expropriate land or real rights for the purpose of providing broadcasting signal distribution as a common carrier in accordance with the provisions of the IBA Act, there is nothing in the IBA Act at present to qualify or check this power.

6. Section 37 of the IBA Act only imposes obligations, upon common carriers in relation to their customers that is licensed broadcasting service providers. IBA Act does not impose any obligations upon Sentech in relation to its competitorsBy contrast see for example the interconnection and facilities leasing obligations imposed on Telkom in Sections 43 and 44 of the Telecommunications Act, 103 of 1996 ("the Telecommunications Act"). The new Broadcasting Act envisages a stronger policy in favour of fair competition in the broadcasting sector and ensuring more efficient use of broadcasting frequencies spectrum resources. More particularly, Section 33 of the new Broadcasting Act envisages in that Independent Broadcasting Authority must conduct c comprehensive enquiry to determine the licence conditions, obligations, and tariff structures for signal distribution including the regulatory regime for multi-channel distribution services and convergence.


7. In line with the Government policy contained in the White Paper on Broadcasting of 1998 and the express statutory objectives contained in the IBA Act and the new Broadcasting Act, Orbicom believes that regulation of the broadcasting signal distribution sector will now necessarily involve regulation of competition between competitors (horizontal competition) as well as between suppliers and customers (vertical chain of supply).

8. Accordingly Orbicom suggests that Section 9 (i) be amended by inserting the bold underline text below to read as follows:

"The Company may with a written approval of the Minister and subject to this section, the provisions of the Independent Broadcasting Authority Act, the Broadcasting Act and the conditions of any licence or regulations issued thereunder, expropriates any land or real right in or over land for the purpose of providing, as a common carrier, broadcasting signal distribution for broadcasting licensees in accordance with the provisions of the Independent Broadcasting Authority Act and Broadcasting Act"

9. Orbicom believes that an insertion of an express reference to the new Broadcasting Act and the licences issued under any revised regulatory regime imposed by the Authority following the enquiry envisaged in Section 33 of the Broadcasting Act is essential in order to avoid potential defeat of the objectives contained in the IBA Act and new Broadcasting Act. It is also important in order to ensure regulatory integrity of the Independent Broadcasting Authority in the regulation of the signal distribution sector in accordance with findings of the statutory inquiry envisaged in the new Act.

10. In this regard, Orbicom also refers to recent experience in the telecommunications sector where new management introduced by international strategic partners has tended to use the exclusive powers granted to Telkom in a manner which restrict competition rather than enhancing it in accordance with statutory objectives contained in the Telecommunications Act. Orbicom believes that at any exclusive public power, such as the right to expropriate land or real rights over land for the purposes of broadcasting signal distribution, must be subject to regulatory framework and licensing conditions imposed by the Authority in terms of the applicable broadcasting legislation.

ii. It is respectfully submitted that the suggested amendment does not prejudice Sentech or its management or the Minister's executive prerogatives in any material way but rather has the advantage in ensuring integrity of the overall regulatory framework for this vital growing sector of the broadcasting industry.

ORBICOM PROPOSED AMENDMENT TO SENTECH ACT

Orbicom suggests that Section 9 (1) be amended by inserting the bold underline text below to read as follows:

"The Company may, with a written approval of the Minister and subject to this section, the provisions of the Independent Broadcasting Authority Act. the Broadcasting Act and the conditions of any licence or regulations issued thereunder, expropriate any land or real right in or over land for the purpose of providing, as a common carrier, broadcasting signal distribution for broadcasting licensees in accordance with the provisions of the Independent Broadcasting Authority Act and the Broadcasting Act"

The definition of "Broadcasting Act" should be amended to mean the Broadcasting Act, 1999 [No.4 of 1999]

Appendix 2:

Transtel Submission
SUBMISSION BY TRANSTEL, A BUSINESS UNIT OF TRANSNET, ON THE PROPOSED AMENDMENTS TO THE SENTECH ACT, ACT 63 OF 1996.

INTRODUCTION
Transtel would like to thank the members of this Portfolio Committee for the invitation to comment on the proposed amendments to the Sentech Act of 1996. These comments are made principally with the aim of contributing to the process of enhancing the communications industry in South Africa.

At the opening of KwaNdebele Water Supply Project, the then Deputy President Thabo Mbeki said that government's policy was 'to ensure that all South Africans have access to a basic package of social services'. One of the policy instruments to achieve this is privatisation.

Transtel is fully committed to the privatization process. However one has to take cognisance of the fact that privatisation as envisaged in the proposed amendment, does not have any clear minimum guidelines to be followed in the selling of shares. Consequently, in some respect the process tends to lack certainty and predictability. By predictability is meant the extent to which, if one follows the minimum guidelines that would be prescribed, the result of doing so would be a fairly ascertainable outcome. Our call is, therefore for a framework that is consistent, even handed and objective.

Our main concern stems from the fact that, the Bill fails to adequately address the issue of privatisation save for the proposed amendment giving the Minister of Communications the right to transfer shares in the Company. Transtel is also conscious of sensitivity and complexity of the subject matter. We also acknowledge the fact that there is no single answer to the questions that arise in dealing with the sale of public utilities.

2. SPECIFIC COMMENTS:
The legislative powers that were conferred to public utilities (examples Schedule 1 to the Legal Succession To The South African Transport Services Act, Act No. 9 of 1989, section 12 of the Eskom Act, section 9 of the Airports Company Act, Act 44 of 1993) in the past to fulfil "a specific mandate" have to be revisited in light of the opening up of the economy and the newly enacted Competition Act.

This we believe would lead to the leveling of the playing field between the competitors in the specific industry and in particular broadcasting. How level the playing field should be is another question altogether, especially if one takes into account the kind of protection that might be needed to be given to prepare the entities for fair competition and taking on board the historically disadvantaged groups.

In this instance we will take the specific example of the power to expropriate property as provided for in the section 9(2)(A) of the proposed amendment which reads:

If the Company intends to expropriate any land or real right in terms of subsection (1), the [management board] ecxecutive committee referred to in section [7(1)(b)] 7(1)(d) shall submit to the minister a report explaining the intended expropriation.

We do not think it necessary to go into details of unfortunate events that took place in the past as a result of the exercise of the powers of expropriation (forced removals). Nor do we need to repeat the mistakes that derived from public policies and practices of the past.

The proposed amendment gives us an opportunity to once and for all, annihilate "statutory protectionism" in favour of our endowed regulatory regime. In this regard, Transtel would like to draw the attention of the Committee to section 70 read with section 69(2) of the Telecommunications Act, Act 103 of 1996. Briefly, section 70 provides that the:

fixed line operator (Telkom SA Ltd.) may, for the purposes of provision of its telecommunications services, enter upon any land, including any street, road, footpath or land reserved for public purposes… (our emphasis).


The proviso in section 69(2) of the Telecommunications Act read thus:

the Authority (South African Telecommunication Regulatory Authority) has to prescribe the procedures to be followed and consultations to be held between an operator and any affected person or authority.

Transtel therefore proposes that the exercise of the expropriation rights in terms of the Act be subject to the IBA Act and associated regulations.

The concern is more acute in the event the Minister and Cabinet elect to transfer shares in the Company as envisaged in the proposed section 6(1)(A) which reads:

Notwithstanding any provision of law to the contrary, the Minister may transfer so much of the State's shares in the Company as the Cabinet approves, for the purpose of achieving any applicable object of the Broadcasting Act, (Act No. 4 of 1999), referred to in section 2 of that Act, to such transferees in such manner and on such terms and conditions as the Cabinet approves.

Transtel proposes, in the interim, that the rights to 'expropriation' lapse immediately the Minister exercises the right to transfer shares in the company to private hands (privatisation).

Appendix 3
Democratic Party letter to Chairperson: Portfolio Committee on Communications
18 October 1999

Re: CLOSED MEETING 22 OCTOBER 1999

The Democratic Party's members of the Committee have deliberated on further attendance of closed meetings on SATRA and have decided not to attend.

The allegations made by the Chairperson of SATRA at the closed meeting in Pretoria and taken even further in public statements to Business Day the Tuesday thereafter, are so serious that they must self-evidently be investigated. Since investigations into allegations against Mr Maepa himself are already the subject of an investigation, it stands to reason that his counter-allegations should likewise be investigated, and no further purpose is served by closed meetings.

We have already conveyed the view to both the Ministry and the Public Protector that Mr Maepa's allegations require urgent investigation along with those made against him.

In addition, it is our view that the Committee has opened itself up to manipulation by holding closed meetings and we decline further attendance. The DP's view that urgent investigation is necessary is already publicly known: from the moment Mr Maepa's charges were made publicly it could not be otherwise.

We do not see what other conclusion the Committee could come to and believe a further closed session serves no purpose.

DENE SMUTS, MP
Spokesperson : Communications

VINCENT GORE, MP
Deputy Spokesperson

MIKE WATERS, MP
Spokesperson/Post Office and
Committee Member

SANDRA BOTHA, MP
NCOP representative

NELSON RAJU, MP
NCOP representative
. Questions and comments by the members