Spectrum Auction finalisation and future regulation; USAASA/USAF on framework and timelines for current investigations and consequence management processes

Meeting report

The Chairperson said the purpose of the meeting was for the Committee to receive an update on the finalisation and future regulation of the spectrum, and to receive an update on the status of cases and implementation of consequence management at Universal Service and Access Agency of South Africa (USAASA).

Department’s Opening Remarks
Mr Omega Shelembe, Deputy Director-General: State-Owned Enterprises (SOEs), Department of Communications and Digital Technologies (DCDT), provided an overview of the Independent Communications Authority of South Africa (ICASA) presentation. The Authority initiated the licensing process on 1 November 2019. It was done through the publication of the Information Memorandum for the radio frequency spectrum in the bands IMT700, IMT800, IMT2600, and IMT3500. This would result in national broadband wireless open access services. After the intensive consultative process, the Authority published the invitation to apply on 10 December 2021. Six applications, namely Cell C, Liquid Telecoms, MTN, Telkom SA, Rain, and Vodacom were received by the closing date of 31 January 2022.

Briefing by ICASA on the spectrum auction finalisation
Dr Keabetswe Modimoeng, Chairperson, ICASA board, presented the various stages of the licensing process, which are auction results, issuing of the radio frequency spectrum licences, and future regulations.

The auction results for the opt-in round reported Cell C, Liquid Telecom, RAIN, and Telkom SA were eligible to participate and took part in the opt-in auction. Cell C, Liquid Telecom, Rain, and Telkom all submitted valid bids and the winners were determined as per the opt-in round rules provided in the invitation to apply (ITA). The main auction consisted of competition of 33 lots across four bands. All six bidders participated in the main auction with the sub-1GHz, and overall spectrum caps were imposed to ensure equitable spectrum can be acquired by all. The Authority opened the main auction stage on 10 March 2022. The main auction stage concluded on 17 March 2022, after 58 rounds of bidding held over 6 days. Only one spectrum lot was not sold and the main auction stage raised a total of R11.8 billion.

One Lot in the IMT800 band was not sold because of the coverage obligation attached to it, which required the successful winning bidder to achieve nationwide population coverage of 99.8%. In aggregate, the opt-in auction and main stage raised a total of R14.48 billion.

[See the presentation for the breakdown of what each bidder won and future regulations.]

Briefing by USAASA/USAF on framework and timelines on all current investigations and implementation dates for consequence management processes
Ms Daphne Kula-Rantho, Chairperson, USAASA board, said USAASA would present the timeliness and framework of investigations currently being implemented as well as the consequence management processes. USAASA has six cases and some of these were in the court system. These cases date as far back as 2016/17 because of court delays. The Board would want to conclude the cases when USAASA’s winding down process commences.

Ms Chwayita Madikizela, Acting Chief Executive Officer (CEO), USAASA, said the USAASA disciplinary code and procedure requires the disciplinary process to be completed within 60 days, depending on the complexity of the matter. Investigation processes were delayed because of the complexities in the matter. The employees remain suspended to avoid compromising the investigation process.

On 2 October 2020, six employees were put on precautionary suspension with full payment because of allegations of misrepresentation and alleged financial misconduct. The investigation process is at its final stages and the Agency anticipates a draft final report at the beginning of quarter two of the 2022/2023 financial year.

According to the litigation report for the period ending 31 March 2022, USAASA entered various contracts for the following services which led to the current litigations and arbitrations: procurement of STBs; installation contracts with 27 installation companies; currency exchange rates related cases; and broadband-related cases. All the above matters were registered at the Arbitration Foundation of South Africa (AFSA) and related to arbitration and litigation processes. Some cases are enrolled in various courts.

The court matters involved the following parties: VBS Bank, R102 million; Leratadima Marketing Solutions, R4.7 million; KST Trading, R1.8 million; CZ Electronics, R4.6 million; and Grow Makhosikati, R7.4 million.

There was an investigation by National Treasury into a matter involving Brightwave Technologies, the installer of broadband connectivity. This matter was presented to the Board in the Draft Report compiled by National Treasury, and the meeting was held on 28 April 2021. The Board noted certain areas which were not covered or concluded in the investigation report. National Treasury cited the following challenges as reasons for incomplete areas: the expiry of the contract between National Treasury and KPMG, the non-delivery of certain information and non-cooperation of certain service providers. The CAE will enquire from Treasury the current status, and report to the Board accordingly.

Discussion
Ms A Mthembu (ANC) welcomed the stakeholders and asked Universal Service and Access Agency (USAASA)/Universal Service and Access Fund (USAF) if any of the legal cases can be handled outside the court system. She also asked what the estimated costs for the financial impact of defending all the cases mentioned in the presentation are.

Ms T Bodlani (DA) congratulated ICASA on the finalisation of the spectrum. She said ICASA spoke a lot about IMT 800, and she referred to the service provider saying it should have a population reach of 99%. She also referred to the comment made regarding one lot being left unsold. She asked what happens with such spectrums, if service providers will not comply with the regulations; and asked what it means for spectrum rollout, which is expected to improve jobs.

The presentation also mentioned the payment of the outstanding buyer. She asked for more details on this buyer with the outstanding payments. One of the obligations of the service providers is to have social obligations. Regarding this, she asked which monitoring tools there are to make sure such social obligations are carried out. This is part and parcel of the spectrum sale agreement and in regards to these social obligations, she wanted to know where Small, Medium, and Micro Enterprises (SMMEs) came into play, as one of the mandates of ICASA is to ensure SMME development takes place. She said she did not see this coming about as a result of the sale of the spectrum.  

To USAASA/USAF, she noted concern about the legal costs and battles taking place against one company. If the matters are sub-iudice then the effect of this is to silence Committee Members. The entity is winding down yet all these outstanding matters are currently in the court system. She suggested the Committee seek legal advice on the issues and on how the Committee should handle the issues. These matters were presented to the Committee, but now it feels the Committee’s hands are tied. The presentation did not provide any linkages between the suspended officials and the litigation which is currently underway.

Responses
Dr Modimoeng replied on the issue of the outstanding buyer and the SMME development. Regarding the buyer, ICASA was still finalising the balance of the payment with Cell C. It has paid, but the balance is being finalised and it should be concluded sooner rather than later.

As for SMMEs, looking at the spectrum auction may create the appearance there is no angle or aspect of SMME development. Procuring spectrum is one part of this. With this spectrum, there must be a network rollout and this is where the bulk of the economic activities for SMMEs will be. Oversight is being conducted by ICASA. It ensures operators involve SMMEs, as this builds networks. ICASA is concerned with SMMEs compliance with the Broad-Based Black Economic Empowerment (BBBEE) prescripts. There is a lot of scope for SMME development because, at the back of this raw network capacity spectrum bought at auction, ICASA will need to deploy in the outskirts of the country. The connection of police stations, clinics, and traditional offices required SMMEs to go out and deploy these services. Everyone involved should appeal to the operators as the operators embark on the network rollout and investment to pay serious attention to the development of SMMEs in the country.

Mr Willington Ngwepe, CEO, ICASA, said ICASA outlined in slide 11 the social obligations relating to the connectivity of various public institutions, which is in the process of being finalised. Connecting these public institutions first requires engagements with the Department, and also other departments in charge of the different institutions which were outlined. The consultations were to reach agreement on the model of connectivity and the specifications to be provided in those institutions. The intention was to conclude the consultations by the end of the current year. The allocations of the different institutions to the different licensees with details about the nature of the connectivity and the specifications which are to be provided will also be finalised by the end of the current year. All licensees will be required to report to ICASA on the progress of connecting the institutions allocated to it. This must be done on a bi-annual basis. After the completion of connectivity, the obligation will be on ICASA and the different oversight departments to monitor if the facilities connected are protected and functional for the beneficiaries. The monitoring lies firstly with ICASA to ensure compliance by the licensees, but the different departments will also be expected to share the responsibility of overseeing those facilities.

Primarily, the reason why the lot was not sold was the reserve price, which was excessively set at R1.1 billion. The second reason was the coverage obligations which accompanied the spectrum. The requirement was that whoever was going to get the lot must provide 99.8% population coverage within five years of issuing the license. The understanding appears to be that all the licensees and the bidders could not make a return within a reasonable time. ICASA has since said it will commence a new licensing process to license the slot. It will be a transparent and open process, which will consider the outcomes of the auction which took place, in light of the assignments to the current industry players and the need to ensure a competitive landscape is maintained going forward. There will be an information memorandum issued within this quarter or the next to initiate the licensing process for lot nine, which was not sold at auction. As to what obligations will accompany the lot, these will be informed by the outcome of the engagements which will take place when the consultation process starts.

USAASA/USAF
Ms Madikizela replied to the question about the cases and said there have been two matters which have been struck off the roll because it was resolved outside the courts. It was sitting at around R100 million. This matter was settled out of court. As for the court matter on connectivity, USAASA is still pursuing the service provider to settle the matter outside of court. It is in USAASA’s interests to do so.

The estimated legal costs which will be spent are about R12 million, and the overall cost of all the litigation is under R400 million. This is worrying, and so the Board and management have resolved to attempt to resolve these matters outside of the courts.

There is no link between the litigation report and the suspended officials. The matter around the suspended officials facing possible financial misconduct was linked to a service provider and the sister organisation South African Post Office (SAPO). The matters are in the advanced stage and all the parties were interviewed. Management was now awaiting the final report from the investigators working on this.

The interest is in bringing down the Bill, before the dissolution. ICASA is looking at ways to resolve these matters.

Ms Bodlani addressed the social responsibility of ICASA and said ICASA is not mandated for this. There must be deliberate interactions in intergovernmental relations because it is not ICASA’s key mandate. If ICASA is going to require the licensees to have social obligations, there must be proper inter-governmental relations so ICASA can be privy to avoid having terms and conditions for the sale which mean nothing to the man or woman on the street.

Dr Modimoeng noted the comments of the Committee Members and assured the Committee - ICASA will continue to help and support Committee Members, and the input from the Committee was received in a positive light.

The Chairperson said there was no clarity on ICASA and the commitment to ensure the spectrum is sustainable is appreciated. It must not only be an instrument for transformation, but people on the ground must see the fruit of it and the benefits of these services. It should be about advancing development objectives and strengthening inter-governmental relations so the positive impact is seen at different levels. When people fail to implement the service obligations agreed to, it is understood penalties will kick in. However, the penalties might be smaller than developmental value if those service obligations would have been implemented.

The Committee will monitor this to ensure it was not only a matter of compliance. The Committee acknowledges ICASA might require some time to avoid cutting corners but should always exert pressure and try to avoid past mistakes recurring. The consultations as it is being done, in the main, will be all about ensuring the impact on the ground is felt. Those who stand to benefit from this may not have the patience for many years to come. ICASA should ensure this process is fast-tracked and completed within a reasonable time.

There is a great concern at USAASA about a need to fast-track resolution of matters, including where possible, out of court settlements. These cases are legacy issues. The Committee would like an assurance that mismanagement of the entities, as shown in the reports, is not something which reoccurs. It should be about drawing lessons as the process of resolving these legal cases unfolds. There is an appreciation for consequence management because Committee Members can see there is action.

In in-house matters, Committee Members considered and adopted meeting minutes.

The meeting was adjourned.