Convergence Bill and Network Management: Telkom briefings

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE

Telkom PowerPoint presentation

SUMMARY
Telkom held a workshop, predominantly for the benefit of newer Members, about the way forward for the telecommunications industry in South Africa. They also touched on how the Minister's proposed changes would adversely affect Telkom, most particularly with the redraft of the Convergeance Bill. Various Telkom speakers delivered presentations on the current regulatory environment, the licensing system and numbering plans, financial accounting, number portability, and the proposed Square Kilometre Array. Members felt the briefing was rather technical and mainly asked questions of clarification, and about how consumers would be affected by the changes, and about potential job losses in the industry.

MINUTES

Telkom briefing: Regulatory environment
Mr Benito Lekalakala (Telkom Executive - Parliament, Policy and Legislation) started the presentation with an overview of the current regulatory environment in South Africa. He said that the international telecommunications industry and regulatory authorities had undergone major reforms since 1990. His focus was on South Africa's response to these changes. The country's reform could be divided into three phases. Phase One from 1996 to 2002/3 had dealt with sectoral reform, and Phase Two would run until 2007 and dealt with management liberalisation. Phase Three after 2007 would deal with full liberalisation. This three-phase plan had been adopted by South Africa to ensure a managed liberalisation of its communications sector, ensuring the optimal utilisation of existing investment in the sector.

Mr Lekalakala went on to explain the challenges faced by the Independent Communications Authority of South Africa (ICASA) as the telecommunications and broadcasting regulatory body. He presented an overview of the fixed line and mobile operator policy announced by the Communications Minister, Ms Ivy Matsepe-Casaburri, which would be implemented from 1 February 2005. While the Minister's statement are meant to liberalise the market, the announcements have raised more questions in terms of rights and obligations. Telkom trusts that ICASA will be able to provide guidance and clarity on these matters. Because of the significant implications contained in the Minister's policy interventions, Telkom has begun a process of conducting a detailed analysis and revision of its business model. The announcements have affected Telkom in the sense that the proposed changes have resulted in R2 billion market capitalisation being destroyed. Telkom would be over-regulated and there would be an adverse impact on job creation, and even job losses.

Discussion
Mr Maziya (ANC) asked Mr Lekalakala to clarify what was meant by job losses.

An ANC member asked if Telkom was paranoid that their monopoly would be broken.

Ms Smuts (DA) said that Telkom had a important role and responsibility in South Africa and the rest of Africa. She wanted to know how Telkom would approach the challenge to keep up infrastructure.

The Chairperson asked how the users would be affected.

Mr Lekalakala said more than 3 000 companies would be affected by job losses, and about 30% of these were Black Economic Empowerment (BEE) companies. About 60% percent of the 3 000 companies relied on Telkom for their business. Those who lost jobs would not necessarily be employed by the new service operator. Also, initially there would also be higher rates for customers.

Over and above the impact on BEE already mentioned, Telkom cannot sustain the current workforce in a fully liberalized market. It just makes sense that when more companies are introduced in the market, Telkom will lose a percentage of its market share and the first consequence of that is streamlining the workforce. There is a very strong possibility that some of the new entrants will 'poach' employees from Telkom.

Furthermore, Telkom is not paranoid about the future. Telkom has gone on record on numerous occasions stating that the Company welcomes competition and is ready for it. Telkom has also voiced its concern on the negative impact of the delay of the SNO on the sector as well as Telkom itself. Telkom has prepared for regulatory tools such as Carrier Pre-Selection and incurring costs as a result and there is no SNO. The sector needs the SNO and the country needs the SNO. Telkom is merely being honest about the impact of the announcement to its business.

Telkom briefing: Licensing system and numbering plans
Mr Graham Keet (Telkom Senior Specialist - Special Markets) presented an overview of Telkom's current licences. Telkom currently had three licences, a public switched telecommunications network (PSTN), a radio spectrum and station licence, and a value-added network service licence. The most important of these was the PSTN licence that covered national long-distance, international and local access, as well as public pay telephones. This licence had exclusively been given to Telkom for five years and had some conditions attached, such as fair trade and consumer protection. For instance, they needed to have a directory service and to provide a universal service to anybody who requested it. He went on to explain the route of long-distance calls between two primary areas and the routing of international calls.

Mr Jack Tlokana (Telkom Senior Specialist of Numbering Plans) presented Telkom's numbering plans, managed according to the telecommunications law and regulations. He explained South Africa's geographical and non-geographical numbering, and the short codes used for emergency and information services. In closing, he explained how South Africa's numbering plan would change in the future to be more competitive and open to other service providers.

Discussion
Mr Maziya commented that the presentation was very technical and asked for an explanation of the 081 GMPCS Code.

Mr Wally Broeders explained that the 081 GMPCS Code was reserved for low earth orbit non-geostatiionary satellites that would provide individual access to satellite services. Cellphones had replaced this plan but it had still been reserved for future use.

An ANC member asked what the 0860 and the 0800 numbers were used for. Mr Tlokana explained that the 0860 numbers were used for caller and called shared expense calls, and the 0800 numbers was used for numbers where the called party pays for the call

Telkom briefing: Technical and financial issues
After the lunchbreak, the Telkom delegation emphasised financial management, interconnection and how it affected customer pricing, carrier pre-selection and regulation. Other issues included number portability (which had not been introduced then in South Africa); and how network planning and network management needed to adapt to changing technology and to changes in customer requirements. The bid to host the Square Kilometre Array by the National Research Foundation on behalf of the Department of Science and Technology, could not be possible without the technology and research that had been invested the telecommunications infrastructure by Telkom. Information and communications technology was in the process of being liberalised, but regulation had been lagging behind technological advancement.

Mr Izaak Coetzee (Telkom Senior Specialist-Regulatory Economics), then briefed the Committee on the use of financial information. He explained that 'financial accounting' dealt with historical investments, 'recent revenue', expenses, asset and liabilities and was meant for external decision-makers and investors. 'Management accounting' concentrated on projections and how to optimise value, and was meant for internal decision-makers. The prime purpose of COA/CAM was to make sure that operators did not price below cost to exclude competition. Interconnection meant the logical and physical linkage of two networks so that a customer of one network could communicate with a person from another network. Interconnection included issues about which network should charge the customer, and thus which formal working relationships had to be formulated

He spoke about number portability which roughly meant the ability of a customer to retain his/her phone number. This was usually employed when a customer changing services, moved location or changed from one operator to another. Number portability would mean that operators had to bear their own costs. All telecoms operators had, at one time or another, had to transform their networks to keep up with technological changes and customer demands. Networks had to take into consideration high traffic volumes.

The National Research Foundation (NRF), with the help of Telkom, had been bidding for South Africa to host the Square Kilometre Array (SKA). The SKA would benefit South Africa in to the tune of around US$ 1 billion in the form of scientific research. The control centre for this massive project would be Cape Town. The areas where the SKA would be situated, such as the Karoo, would place limitations on future radio developments including wireless and television broadcasting. Cellphones and microwaves could interfere with SKA signal.

Mr Nkenke Kekana, Group Executive of Regulatory and Public Policy, presented concerns about the Convergence Bill. Convergence was defined as the provision of various communication services like text, data, image, and video over the existing infrastructure. There were three types: convergence of technologies, convergence of services, and regulatory convergence. Technology, the market, customers and regulation drove such convergence. Regulatory convergence had a strong influence on the granting of licences.

Mr Kekana compared licensing regimes in Australia and Malaysia to that of South Africa. The first draft of the Convergence Bill had been released on 25 July 2003 for public comment. The redrafted Bill was expected to be tabled in Parliament towards the end of 2004. He emphasised that South Africa had facilitated convergence legislation before the market was liberalised. Technology had changed faster than legislation had been able to adapt to the changes. There was a need for an effective dispute resolution mechanism for the converged licence regime. Regulatory bodies needed capacity and expertise to the challenges posed by convergence.

Discussion
Ms S Vos: (IFP) asked Telkom whether they had met their deadline as stipulated by ICASA.

Mr I Coetzee replied that Telkom had met the deadline but they were not sure about the readiness of ICASA.

Ms D Smuts (DA) enquired whether there was more traffic from mobile to fixed compared to the direction from fixed to mobile.

Mr W Broeders replied that many calls originated from fixed lines to mobile phones. Most cellphone owners used pre-paid vouchers and depended on receiving calls.

Ms Vos asked how often disagreements between operators had been handled in the past.

Mr M Matlala asked about Call Termination Relationship Charges among mobile operators.

Mr I Coetzee replied that there were few disputes in the past - from Telkom 's side, there was only one dispute he could remember. Telkom had forwarded that dispute to the regulatory body, ICASA. All operators had interconnection agreements with each other, and charges would depend on these agreements.

The Chairperson asked how much customers would pay when they moved with their numbers from one operator to another.

Mr Coetzee answered that number portability would cost numerous billing problems for operators.

The meeting was adjourned.