Independent Communications Authority of South Africa (ICASA) Annual Report

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE

Presentation on 2003/4 Annual Report
ICASA 2003/4 Annual Report [available soon at www.icasa.org.za]

SUMMARY
The presentation by the Independent Communications Authority of South Africa (ICASA) outlined its strategic objectives, telecommunications programmes, broadcasting programmes, engineering and technology initiatives, legal, communications, consumer protection and council support and its office finance and business support as well as a brief breakdown of its financial statements.

The Committee raised the following concerns during the discussion:
- whether the change of the 30 days payment to 60 days required legislative amendment;
- the measures taken to address its staff retention problem and the reduction or retrenchment of any of its personnel;
- whether the State would still be funding the regional television services as provided for in the legislation;
- whether the authority was monitoring the SABC closely enough for compliance with its licence conditions;
- whether it was acceptable for cellphone operators to roll out community service phones in areas that were not at all under-serviced, as they were competing on an uneven footing with commercial GSM service providers;
- how much funding the authority would need optimally regulate the industry;
- the amount of funds allocated to the Universal Service Agency and why it was proposed that the funding cap be removed;
- whether the authority would be playing a stronger role in regulating telecom prices;
- whether the authority was prepared to fulfil its role in ensuring the realisation of the policy shift mentioned by the Minister;
- whether it had put any measures in place to curb the overpayment of licence fees;
- whether the under-serviced area licenses could be traded or sold in any way;
- whether the numerous complaints from customers regarding Telkom's ADSL Internet service have been addressed;
- the precise nature of the service offered by the under-serviced areas licenses;
- whether the numerous complaints from customers regarding dropped calls have been addressed and
- clarity was sought on the motivation for the authority's labelling campaign.

ICASA delegation: Mr Z Masiza: ICASA Councillor; Ms B Mohlala: ICASA CFO; Ms J Manche: ICASA CEO; Dr T Cohen: ICASA Councillor; Mr L Mtimde: ICASA Councillor; Ms M Mohlala: ICASA Councillor and Mr P Mashile: ICASA Councillor

MINUTES
Briefing by ICASA
Mr Z Masiza apologised for the absence of ICASA chairperson, Mr Mandla Langa as well as Ms N Bulbulia, ICASA Councillor, as they were involved in prior engagements. He conducted the presentation (document attached) which outlined ICASA's strategic objectives, its telecommunications programmes, broadcasting programmes, its engineering and technology initiatives, its legal, communications, consumer protection and council support and ICASA's office finance and business support.

Ms B Mohlala, ICASA CFO, took the Committee briefly through ICASA's financial statements. ICASA had generated R123, 9m in revenue during the last financial year. This comprised of R116m from the Department, additional funds of R14m, and an amount of R7, 2m received for VAT. ICASA spent R112m and reported a surplus of R11, 6m, thus moving from a deficit of R21, 8m in 2003 to a surplus. The R11, 6m included an amount of R4, 6m that needed to be paid to the South African Revenue Services (SARS) for late payment of VAT.

The ICASA balance sheet showed non-current assets of R14,4m and total assets of R114,8m. She stated that the R114,8m had depreciated due to the accounting policies followed by ICASA and the extent to which it had implemented the Public Finance Management Act (PFMA) and had moved to the accrual system of accounting. With regard to ICASA's equity and liabilities, it reported a reserve of R9,2m which mainly comprised the deficit of the previous year and the start-up costs from the beginning of the year. The current liabilities stood at R105m, trade payables as of 31 March 2004 of R24,4m and provisions were made for bad debt to the value of R10,5m. The licence fees received by ICASA was allocated to the National Revenue Fund (NRF), and at 31 March 2004, ICASA owed the NRF, R33,2m with deferred income of R37,3m.

ICASA's interest on late payments for VAT stood at R4,6m, because it had an outstanding VAT debt over four years. Its fixed assets were worth R71m, and R14,4m of this total amount was attributable to depreciation. This increased from the previous year's assets of R63,4m and depreciation of R12m.

She stated that ICASA's debt owed to the NRF stood at R460,5m as of the 31 March 2004 cut-off point which it would be bringing forward, and it had thus far received R973m for the 2003/4 financial year. ICASA paid the NRF R1,4bn in licence fees and there was an outstanding amount of R29m. An amount of R3,5m was not allocated.

Discussion
Mr G Oliphant (ANC) stated that the presentation indicated ICASA's intention to amend the legislation to change the 30 days payment to 60 days, and asked whether this was such a difficult matter that it required legislative amendment.

Ms B Mohlala (CFO) responded that ICASA requested the amendment because the Office of the Auditor-General checked for compliance with legislation but could not suggest amendments, and it was thus up to the implementing entity to inform either National Treasury or Parliament that it was unable to comply as well as the reason for non-compliance. An additional reason for the amendment was that the current 30-day period did not coincide with the month's end or to a period of reconciliation. It was thus important that the 30-day period be amended because continued non-compliance would result in a qualified audit opinion from the Office of the Auditor-General.

Mr Oliphant asked ICASA to explain the measures it had taken to address its staff retention problem.

Ms J Manche, ICASA CEO, replied that this was a problem for a number of reasons, but the prime reason was its limited resources and the fact that its salary scales matched those of government departments. ICASA often competed with the industry as far as employment of personnel was concerned. It had commenced a process in October 2004 that introduced a performance management system which identified an innovative way to reward performance, so that in the long run personnel would see the merit in remaining with the institution. The fruits would become evident in April 2005.

ICASA was also constantly engaged in succession planning programmes, which enabled it to quickly replace an employee who left the institution with another. Young university graduates were also being considered for internships, in the hope that they would move up the ladder within the institution.

Mr Oliphant sought clarity on the Telkom and AT&T legal matter currently being dealt with by ICASA.

Dr T Cohen replied that the AT&T case had been set down for the middle of September 2004 and the parties agreed to place the matter on hold in light of the announcements made by the Minister on 2 September 2004.

Mr Oliphant stated that hearings had been held on the regional television licences in the Limpopo and Eastern Cape provinces, and asked whether other provinces would be included as well. He asked whether ICASA co-ordinated with other interested parties such as the SABC on this, and what the cost to each province would be in rolling out this service.

Ms M Smuts (DA) asked ICASA to explain at what point the under-serviced area licences suddenly received so much funds from the Universal Service Fund (USF).

Mr L Mtimde responded to these two questions by stating that the decision to conduct hearings in a particular province was in no way suggesting that that was where the service would be located. ICASA merely chose to go to provinces to indicate the character of the services provided, and it could unfortunately not go to all the provinces given its limited resources and tight schedules.

He stated that there was co-ordination between the institutions. The SABC was the applicant and there would be consultation during the process of considering their application. The regulatory framework needed to be provided for the SABC to prepare its application. Yet due to the timeframes set in the legislation, the SABC had to amend some of the aspects in its application as a result of the regulatory framework provided. These were the reasons for the length of time taken in completing the process.

Ms Smuts noted that a huge amount of R1,4bn was paid over by ICASA to the NRF. She sought clarity on the extent to which ICASA's monitoring unit 'kept an eye on the SABC' and the scope for enhanced monitoring, as it appeared that the broadcasters especially were not complying with the law and their licence conditions.

Mr Mtimde replied that ICASA's monitoring unit monitored compliance by broadcasters, including the public broadcaster. It was currently amending their licences to comply with the requirements of the Broadcasting Act of 1999 as amended, and once this process was completed the conditions would clearly be spelt out in their licences. He stated that ICASA's monitoring capability would be greatly enhanced by the new monitoring capacity provided for once this process was completed. ICASA had submitted proposals to Treasury regarding the strengthening of its monitoring capabilities.

Ms Smuts stated that the community service phones, which the cellphone operators rolled out as part of their community service obligations on the basis of a subsidised rate, were increasingly being rolled out in areas that were not at all under-serviced. This was unacceptable because the commercial GSM phone service providers were thus clearly competing on an uneven footing with the subsidised telephone call providers. She asked whether there really was a place for subsidised GSM phones if a whole commercial sector was starting up.

Ms M Mohlala replied that there were two types of telephones that operated in this space: firstly the community service telephones (CST) which were supposed to be provided by licenced mobile operators, which had specific inter-connection rates and tariffs. The new specimen of telephone that entered the market was the commercial public pay phone. It was introduced because consumers complained that they were not charged the correct tariffs, and ICASA also received complaints from the retail operators that actually provided the service that they were not being properly protected. ICASA stepped in and devised a process that would protect the rights and interests of consumers.

A Section 27 inquiry was launched which got to the bottom of the very nature of the service and, in the ultimate analysis and taking into account the ministerial determination, ICASA concluded that a registration process was needed that would lead to a simplified licensing process. This would allow ICASA to know who exactly the operators in the market were, and this then allowed it to deal with the complaints that emanated from consumers.

Ms Smuts expressed concern that Telkom was being granted access to the 3,5 ghz spectrum to roll out the Wymap protocol. She asked whether other operators would also have access to the frequency, because the dominant incumbent could not have sole access.

Ms M Mohlala replied that ICASA presently provided Telkom with a test licence within the spectrum, so too do Vodacom and MTN. ICASA was now finalising the obligation to be attached to the final obligation.

Ms S Vos (IFP) stated that ICASA operated on a budget of approximately R100m yet it brought in over R1bn in revenue to the NRF. Still, ICASA continuously indicated that it did not have the necessary resources to properly execute its mandate. She asked ICASA to explain how much funding it would need to acquire the skilled personnel it needed to enable it to function optimally, to properly regulate the industry and to encourage the investment needed in this sector.

Secondly, Ms Vos asked whether ICASA had considered the amount of funding it would need to properly process the regulations that would accompany the convergence legislation.

Ms Manche responded to these two questions by stating that ICASA's budget at the moment was approximately R144m, yet it collected well in excess of R1bn in licence fees. ICASA had stated its case to the Department, to Parliament as well as Treasury and there was in principle support from the Department to allow ICASA to retain at least a portion of its income. This would give the authority a predictable and sustainable revenue base, and ICASA was currently in discussions with the Department and Treasury to quantify the amount needed. She stated that the exact amount needed could not at the moment be ascertained with any certainty. This process would be finalised over the next 2 years.

Mr Mtimde added that Ms Manche was correct in saying that this figure could not be quantified at the moment, because there were continuous changes to the legislative landscape. ICASA was thus currently busy reviewing its ideal budget and would be able to comment once it had a clear framework.

Ms Vos asked ICASA to explain the amount of funds allocated to the Universal Service Agency (USA).

Ms Mohlala replied that ICASA would grant R15m in total to the USA over a 3-year period, which was undertaken via a public participation process facilitated by ICASA. The amounts indicated in the presentation were a separate matter and reflected ICASA's annual contribution to the USF, which was an annual contribution by operators to the USF based on their turnover. A cap was placed on the contribution to the USF but there was also a need to increase the extent of the contribution, and there was thus a call to remove the price cap in order to increase the allocation to the USF.

Ms Smuts asked ICASA to explain why the cap should be removed.

Ms Mohlala responded that the USA had a specific legislative mandate and, in order to fulfil that mandate, it needed more funds from the turnover reported by operators. This was the reason for removal of the cap.

Ms Vos said that the SABC CEO had indicated that National Treasury stated very clearly that the regional television services would now have to be funded by public private partnerships. She asked how long this process would take and who the investors would be.

Mr Mtimde responded that the SABC was currently discussing that proposal with government and would then get back to ICASA on the decision taken. ICASA would then consider the extent to which the proposal met the requirements of the licence, both in terms of the law and the regulatory framework. ICASA had not engaged the proposal yet because the SABC was still discussing it with government. The application currently before ICASA indicated that the regional television services would be funded by the State.

Ms N Mokoto (ANC) asked whether ICASA would be playing a stronger role in regulating telecom prices, and how it determined the prices.

Dr Cohen replied that it was general knowledge that increased competition within the market resulted in a smaller role played by the regulator in regulating prices, because the market would take care of it. ICASA would however have to implement its mandate which was that the sector must be regulated in the public interest, and it would thus not be stepping away from price regulation quite yet.

A consultation document would be published today on the review of the Telkom price cap, and it would set out ICASA's methodology for considering Telkom's price review. Written submissions would then be invited from the public by early December 2004, public hearings would be held on the price cap on 13 and 14 December 2004, regulations would have to be revised and then handed to the Minister by 3 January 2005 and the final regulations on the new rate regime would be in place by 15 January 2005.

Ms Mokoto asked whether ICASA had received complaints from the community regarding the high telephone costs charged by service providers and, if this was the case, how ICASA dealt with such complaints.

Secondly, Ms Mokoto asked ICASA to indicate the relevant channel that a person would have to follow in lodging a complaint with ICASA.

Mr Mtimde replied to these two questions by stating that ICASA had a consumer affairs unit with whom a member of the public could lodge a complaint. ICASA would then consider the complaint, would liase with the operator concerned and see how best the matter could be resolved. There were also processes such as the Section 100 process which could also be followed.

Ms Mokoto asked who the custodian of the USF was, and whether plans were in place to release those funds for other programmes.

Mr Masiza responded that ICASA collected the USF revenue and then handed it over to Treasury, who in turn gave it to the USF. It was thus a different jurisdictional matter. ICASA had tried to have regular meetings with the USA to negotiate how the funds would be utilised, but it had a specific mandate that it had to fulfil. The USA's CEO indicated at the last meeting that 50% of the USF was allocated to fund the under-serviced area licences. ICASA's role thus ended when it handed the funds over to Treasury.

Ms Mokoto asked when the under-serviced area licences would be in operation.

Ms M Mohlala replied that the ideal situation would be for them to operate as soon as possible, but the one obstacle that still faced them was approaching the USA for a grant. ICASA's discussions with the USA have indicated that the grants were available and it was just a matter of settling certain formalities before they were awarded. It was thus just a matter of time before the service was provided.

Mr S Kholwane (ANC) stated that the Minister had announced a major policy shift on various aspects that would come into effect on 1 February 2005, and asked whether ICASA was prepared to fulfil its role in ensuring the realisation of that policy shift.

Dr Cohen responded that ICASA had held a colloquium for the sector at large following the announcements made by the Minister on 2 September 2004, and there was quite rigorous debate on some of the issues. As a result of the colloquium, ICASA was currently busy finalising its internal position on what was required to implement the determinations by 1 February 2005, and this would no doubt require certain regulations to be passed or even legislative amendments.

Mr Kholwane asked whether ICASA was satisfied with the progress it had made in protecting the interests of disabled consumers.

Ms M Mohlala replied that ICASA had undertaken a public process with broadcasting and telecommunications operators to discuss disabilities and to identify systems to be put in place to ensure all the services accommodated persons with disabilities. The operators and disability groups were consulted in the drafting of guidelines for the sector, and comments were awaited from the sector on those guidelines. ICASA had since considered amending the licences to accommodate the needs of persons with disabilities, and amendments were proposed to Telkom's licence.

Mr Kholwane stated that ICASA's human resource report did not mention the reduction or retrenchment of any of its personnel, yet the report stated that certain officials were engaged in voluntary severance packages discussions. This appeared to be a contradiction.

Ms B Mohlala (CFO) responded that ICASA had to date been able to place 80% of the employees to the relevant posts, but not all posts were filled. Most of the unfilled posts were junior positions, and a number of 17-18 people were still on the excess list because they could not be placed in any of the posts. ICASA was currently exploring other avenues such as training or identification of skills possessed by such personnel in order to place them in one of the positions, if possible. No retrenchment was planned, but ICASA was considering alternatives. Those who elected not to be skilled or placed in another position were informed of the severance package offered voluntarily by ICASA.

Mr Kholwane asked whether ICASA's decision not to pursue litigation in certain matters was based purely on the legal merits of the case, or whether it was influenced by ICASA's lack of resources.

Ms Manche replied that it was a combination of a number of factors, including a lack of resources. She stated that ICASA's legal budget stood at R3m, and it was for this reason that it sometimes had to decide that a certain legal matter would not be worth pursuing. ICASA had put this forward to both the Department and Treasury in stating its case that a lack of resources was seriously hampering the institution's ability to properly execute its mandate.

Mr Kholwane asked whether ICASA had put any measures in place to curb the overpayment of licence fees.

Ms Mohlala (CFO) replied that the issue of the actual amount owed on a specific licence related to the interpretation of the legislation, because not all companies used the same method in calculating their total amount. If the amount had already been paid to ICASA it would forward the funds to the NRF, and if the person won the case ICASA would claim the money back because it did not retain any funds. The ideal situation would be to require a fixed percentage of the business' annual revenue to be paid over.

Ms Vos stated that ICASA had done its preliminary work on the provision of the regional television services based on the current legislative framework, which stated that the State must fund this initiative. Treasury had now indicated that the State could not provide funding and that PPP's must be considered for funding. Surely this deviation from the legislative provisions changed the entire picture and it would be back to square one?

Ms Smuts reminded Members that Parliament had only agreed to allow government to provide the regional television services provided the state paid, because it knew full well that these services could not be rolled out if there was no business or funding model. ICASA would thus have to return to the drawing board and would now be able to consider the possibility of commercial regional television services instead, which was the preferred option.

Mr Mtimde responded to these two concerns by stating that litigation was currently underway between ICASA and the SABC regarding the regional television services, and it was thus difficult to indicate the kinds of licence conditions that ICASA would prescribe as the matter was currently sub judice. He stated that it was for this reason that he referred to the regulation framework when responding to the questions posed earlier by Members, because that was the publicly known position which described the services.

With regard to the funding of the regional television services, the applicant indicated that it was engaged in discussions with the shareholder regarding possible funding options but have not detailed exactly what this meant. It would thus be difficult to speculate as to what the SABC's position would be in amending their application. He stated that he hoped Members understood ICASA's limitations in dealing with this question.

Ms Vos asked ICASA to explain why it was jamming the GSM signal in certain instances.

Mr P Mashile responded that jamming occurred when the regulator decided that the frequency had not been licensed or that it was being received illegally, and that it was within its technological jurisdiction to jam the frequency. It depended on whether ICASA had the necessary technology to intercede and jam unwanted frequencies.

Ms Vos asked whether the under-serviced licence areas could be traded or sold in any way by the holder.

Ms Mohlala replied that the licence contained a provision which specifically prohibited the holder from using the licence as security for accessing funding from financial institutions. The reason was that these licences were meant to be empowerment licences, and the authority could not licence a particular entity with the aim of ensuring that that entity was empowered and met all the criteria. Yet at the end of the day, due to financial difficulties, the licence ended up in the hands of financial institutions. ICASA received input on this provision but it felt strongly that this licence condition should be retained.

As to whether there could possibly be some interworking between the under-serviced area licences and other operators, this was possible to the extent that they complied with the provisions of their licence and that they operated within the stated geographic limitation.

Mr Smuts stated that the presentation indicated that ICASA was considering the possibility of local commercial television services and that a finding would be presented in September 2004, and requested ICASA to inform Members of this finding.

Mr Mtimde responded that ICASA had announced that it would not be licencing the new commercial television licences in the foreseeable future. In the following few weeks it would conclude the process of considering the regulatory framework for the community and commercial services, and would make a pronouncement on its findings in this regard.

Ms Smuts noted that ICASA had received several complaints from customers regarding Telkom's ADSL Internet service, and asked what ICASA had done about this so far.

Ms Mohlala confirmed that ICASA had received various complaints regarding the quality of the ADSL service. ICASA intended to undertake a Section 27 inquiry and was currently in the process of finalising a discussion document which would be put out for public comment. Hearings would be held and ICASA would then make a ruling and finding on ADSL and the steps to be taken.

Ms Smuts asked whether the under-serviced licence areas would simply be offering community service telephones, which was in any way part of the mobile service providers' community obligation, and which was not intended by the legislation.

Ms Mohlala responded that R15m would be allocated to the under-serviced licence areas over a 3-year period, and would be handed over to the different areas at a rate of R5m per year. The first R5m would be handed over immediately as a result of getting the licence, but the second and third R5m allocation would depend on whether they met their licence requirements.

ICASA had been presented with many different scenarios at the hearings at which the successful applicant had to be determined, and there were thus many different permutations with regard to the kinds of services that they could provide. They would be elements of public payphones, voice protocols, data services and networks. She stated that to her recollection there was not a single under-serviced area licence granted that stipulated that it would provide public pay phones exclusively.

Ms Smuts stated that ICASA had not indicated its view on the fact that mobile operators such as Cell C were currently rolling out subsidised community service telephones in high density telephony areas. Surely their licence obligations required them to roll out such services in under-serviced areas?

Ms Mohlala replied that this matter was unfortunately sub judice and it would not be wise for ICASA to pronounce on it at the moment.

Mr Kholwane stated that ICASA indicated during its presentation that it was too costly at times to collect the R36 licence fee, and asked ICASA to indicate what should be done to correct this.

Ms Mohlala responded that ICASA was currently considering the review of the amounts charged for licence fees, because these amounts had not been reviewed for the past 2-3 years.

Ms N Magazi (ANC) sought clarity on the kinds of consumer complaints received by ICASA in Guateng.

Ms Mohlala replied that the complaints varied. They included complaints regarding quality of service and disconnections with regard to both mobile and fixed line operators. The approach followed by ICASA's consumer protection unit was to attempt to resolve the complaint at the first call, but if this did not work then a Section 100 complaint would be lodged and then taken further.

Ms Mokoto sought clarity on the Memorandum of Understanding concluded with the Lesotho Telecommunications Authority, as indicated in the presentation.

Mr Mtimde responded that ICASA was currently discussing these under the Telecommunication Regulatory Authority of Southern Africa, which was a single body that brought together the different regulatory authorities in Africa. ICASA was thus engaged in discussions with neighbouring countries, and a framework would be established to manage these Memoranda of Understanding.

Ms Mokoto asked ICASA to explain the extent to which it ensured that the SABC complied with its licence requirements to reach the entire country.

Mr Mtimde replied that ICASA had completed the process of renewing the SABC's licence, and was now amending it to comply with the requirements of the amended law of 1999 and 2002. He stated that the SABC had applied to ICASA to amend their licence to allow them to increase their coverage, but they had only submitted this request once they had done the groundwork on their ability to provide coverage in those areas. ICASA then prioritised the consideration of these applications and accordingly based them on the need of disadvantaged communities. Apart from this ICASA initiated other interventions to ensure services were provided in the rural areas.

Ms Mokoto asked ICASA to indicate the findings of the feasibility study it had conducted on content regulation.

Mr Mtimde replied that ICASA had considered technical amendments to the local content regulations it had already finalised. They were reviewed and the new quotas came into effect in August 2003. The study was not aimed at changing the content of the regulations on a bigger scale.

The Chair asked whether ICASA had received any complaints from customers regarding dropped calls, and whether it was doing anything to address the problem.

Mr Mashile responded that this was a technological issue. It meant that the cellphones themselves were not contiguous and there was a gap between their signals. Thus the call would be dropped when one cellphone entered an area in which there was no intersection of the cellphones. In such a case the strength of the radiated power would have to be increased dramatically to reach the cellphone in a place which did not have this intersection. This could have a damaging effect because it may increase the input power of the cellphone, which could have a heating effect on the brain. Whether another cellphone could be inserted within that gap depended on the operator, because the gap could be just a small 5m area in which the cellphone was not received.

He stated that spillovers were inevitable. Radio frequency and radiation had no regional borders and there would always be spillover. The regulator itself might not even be able to intercede unless the transmission was transferred to a particular receiving station from which it was then retransmitted into the destination area.

Ms Mokoto sought clarity on the motivation for ICASA's labelling campaign, whether it had received the necessary co-operation and what the impact of the campaign had been.

Mr Masiza responded that this related to the questions regarding jamming and dropped calls. If, for example, a cordless phone that was manufactured overseas were used within the Republic it would actually enhance the dropped call rate. This was because the make and model was not a type approved by ICASA. Furthermore, banks had a tendency of jamming cellphone signals within their parameters as a safety measure against bank robberies.

The labelling campaign was thus aimed at educating the public that it was important to have communication devices that were approved by ICASA. A further complicating factor was the 'grey phones' which were fake cellphone brands, such a Mokai which passed itself off as a Nokia. All these devices had to be approved by ICASA.

The Chair thanked the delegation for its input and looked forward to future interaction.

The meeting was adjourned.