Convergence Bill: Submissions by Sentech and Orbicom

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
27 May 2005
CONVERGENCE BILL: SUBMISSIONS BY SENTECH AND ORBICOM

Chairperson:

Convergence Bill [B9-2005]
Powerpoint presentation on Sentech submission
Powerpoint presentation on Orbicom submission

SUMMARY
Sentech, a parastatal broadband provider and common carrier, and Orbicom, provider of wireless networks, appeared before the Committee to discuss their points of concern and agreement with issues raised in the Convergence Bill. Major concerns addressed were the role of the Minister in setting policy and the need for independence of the regulatory agency ICASA (Independent Communications Authority of South Africa), as outlined in Section 192 of the Constitution. Other topics of discussion included the need for a clear transitional framework for when the Convergence Bill takes effect, the need for technologically neutral language in the wording of the Bill, separate regulation of the carriers and the content and different licences for different categories of business in telecommunications. Main points raised by Members revolved around multimedia licences, competition, technological neutrality, content regulation, the role of the Minister and constitutional questions around the need for an independent regulator.

MINUTES
Orbicom Submission
Mr Zubair Munshi and Mr Linden Petzer from Orbicom laid out Orbicom’s main points of agreement and concern, while emphasising Orbicom’s welcoming of the Bill in general. They noted the need for content to be regulated separately from carriage, which should also be independent from the Minister as outlined in Section 192 of the Constitution. The objectives of investment, innovation, competition, open access, reasonable prices and clarification of roles of policy and regulation were emphasised. Orbicom felt that the Bill should be worded in a technologically neutral fashion, that monopoly markets should be distinguished from competitive markets and that issues of licensing during the transition period needed to be addressed.

Sentech submission
Sentech was represented by Mr G Marumo, Chief Operating Officer, Mr D Dube, Executive: Regulatory and Government Affairs and Ms J Mackenzie, legal representative from Cliffe Dekker Inc. The Sentech presentation described why convergence was needed, gave an outline of international convergence trends, the South African situation, Sentech’s common carrier status, regulations, competition and the transitional process. They were in favour of convergence and suggested that ICASA be funded from licensing fees, but felt that the conditions for transition were unacceptable and that all inhibitors to competition should be removed.

Discussion
Ms S Vos (IFP) said that she was glad that the Orbicom presentation had focused on definitions, particularly around licensing service providers by means of application. She asked if Sentech could give some idea of their business plan in terms of their common carrier licence, how digitisation would affect that and what would happen with pricing for community radio, under-serviced areas and implications for the Media Development and Diversity Agency. She asked if she could see the latest studies on prevailing trends in competition, asked about the regulation of content in terms of online publishing and the Internet and about implications for enforcement mechanisms after the removal of Chapter 8 of the Independent Broadcasting Authority (IBA) Act.

Mr R Mohlalonga (ANC) asked if Sentech felt there was resource capacity to live up to the objectives of policy intentions in order to ensure that the end user could receive international shortwave, that they were able to carry voice and lower costs. It seemed there was a financial shortfall in terms of problems with the performance around multimedia licences and the production of wireless. Broad legislation with enforcement and punitive measures, not just regulation, could be a way to improve the performance of multimedia licensing.

Mr V Gore (ID) said that Sentech had advocated for potential exclusive rights for common carriers, which would protect revenue, and were also asking for the removal of inhibitors to open up competition, and these seemed to be in conflict. They also raised the issue of regulation of broadcasting in terms of Section 192 of the Constitution, and Mr Gore asked for more discussion on this issue and its relationship to the Convergence Bill. Some of the main reasons for regulating broadcasting related to the analogue spectrum, but may become less of a requirement with digitisation. Orbicom had submitted that they needed to make a distinction between competitive and monopoly markets, and the Committee had heard from ICASA and the Competition Commission on role of technical and competitive regulation. He asked how they could overcome the obstacles that currently existed between technical and competitive regulation.

Mr G Oliphant (ANC) said that Orbicom had raised a concern that no provision had been made for amending existing licences, so he asked if they foresaw any problems with that process. They had spoken only to the benefits of technological neutrality, so he asked what some of the dangers might be. They had also raised the issue of the separation of content and carriage. Sentech had said that content should not be regulated, so he asked what Orbicom’s view on that was. It was important to raise issues of Black Economic Empowerment (BEE) and diverse participation in this sector, so he asked why Orbicom did not choose this as a priority object. He asked why Sentech did not think that content should be regulated, commenting on adult content on mobile phones being accessible to children. Sentech also raised the issue of the Competition Commission and the Regulator to say where they need joint responsibility and asked for more information. He asked that finances and costs be made available to the Committee.

Mr Marumo (Sentech) replied that if the obligation to be a common carrier was removed from Sentech’s licence, they would be happy. Their common carrier status was put on them because at the time of the adoption of the Sentech Act, if a radio station had a licence from ICASA, that radio station must be able to broadcast. The common carrier obligation meant that Sentech was obligated to carry anyone, regardless of financial viability, and in many cases, it was not financially viable. This was done to ensure access for a diversity of voices and access in rural areas and was the same obligation as that given to Telkom. Community broadcasting would be most adversely affected if there was no common carrier. It was an issue of public interest that should be protected, not an attempt by Sentech to protect its monopoly. No submissions were advocating the removal of that status. This issue should not be confused with inhibitors in licensing, which were a major hindrance. In some cases, new technological capability was available, but could not be used because of inhibitors, which was not good for Sentech or the consumer. Inhibitors did not make sense in terms of who was the end user in regards to the common carrier licence, and resulted in reduced competition. In terms of digitisation, they had done a study of pricing and implementation, but there would need to be an initial investment in infrastructure in order to benefit from it.

He continued that Sentech was completely state-owned, so they were not able to be innovative, because the Public Finance Management Act was applicable and the Minister of Finance must concur with funding. This meant that they sometimes missed market opportunities and were not able to explore outside markets, such as Lesotho. Their financial resources and capacity was dependent on parliamentary funding and under-investment caused problems, such as low coverage of wireless networks. Even with financial constraints, however, they were able to provide good service, had a good skill base and had become a more efficient organisation. The inhibitors must be removed and Sentech must be capitalised at the same time. There was no downside to technology neutrality, but they must be cautious in terms of standards, which was a regulatory issue. There needed to be a good regulator to avoid having a variety of technologies in the market that were not interconnected, because this would hurt the consumer. An independent study had been conducted on the cost of telecommunications, which they could provide to the Committee.

Ms Mackenzie, representing Sentech, said that the objection to the regulation of multimedia content was rooted in Section 16 of the Constitution, which protected the right to freedom of expression for the press and other forms of media to receive and distribute information. The licensing of broadcasting and a certain amount of content regulation had been justified on the grounds of frequency use and public interest in the broadcast of local content and the promotion of South African identity and culture. In order to balance that, Section 192 ensured that broadcasting was to be independently regulated so as not to infringe upon freedom of expression. In this Bill, there was a difference between broadcasting and other forms of content, so they needed to ensure that only broadcasting was subject to licensing or content regulation. Online publishing had never been subject to licensing or content regulation, but there was legislation to deal with unlawful content such as hate speech. The Electronic Communications Act dealt with unlawful content on the Internet and its regulation. If all multimedia services were rolled into one broadcasting service, content not previously regulated would become subject to regulation, so they felt that it was not desirable.

Mr Petzer (Orbicom) said that they had hoped that issues regarding Chapter 8 of the IBA Act would have been dealt with in the ICASA Amendment Act, seeing as they related to ICASA powers. Once ICASA had seen that Act, they would have the opportunity to come back with suggestions on that. He agreed that technology neutrality was very positive because technology progressed much faster than regulation and legislation, and saw few downsides. Orbicom supported what was said by Sentech in regards to the regulation of content and felt that the Convergence Bill could deal with the carriage side, while other legislation dealt with content.

Mr Munshi (Orbicom) said that he had not mentioned BEE because he did not see the need to draw particular attention to it, but did think it was important and could make a copy of Orbicom’s profile available. During the period when then Act comes into force until the time the licence has been converted as provided for in the Bill, there was no provision to allow for the development of new or innovative services. In reality, it would not be possible to amend all of the licences at once, so they were suggesting that a provision be allowed where licensees can amend their existing licences during the conversion process to make the process more efficient. The issue of competitive markets and monopoly markets had to do with technical regulation and competitive regulation. They needed to look at each sector under each type of licence. In certain sub-categories, there was substantial competition, but in others there was none. For example, in the mobile phone sector, there was a lot of competition, but on the fixed line side, there was only Telkom. To apply similar provisions around essential facilities and other regulations to both sectors would not make sense. Enforcing an ‘at cost’ provision in the monopoly scenario would make sense, but the forces of competition would ensure that the consumer was protected in the first sub-category. They needed to look at how to deal with case where ICASA was involved in the competition method and he felt that this depended on the specific situation. In some cases, it would make sense for the matter to be dealt with by the Competition Commission on the basis that they have the appropriate structures, like tribunals, to do so, but in other situations, the Commission might not be appreciative of the technicalities of the issue, so in these cases, ICASA should be involved. In mergers and acquisitions, both parties should act together.

Ms N Magazi (ANC) asked whether Sentech and Orbicom did not accept that the current Signal Distribution Bill fostered competition, and noted that the original broadcast regulator, the Independent Broadcasting Authority (IBA), no longer existed. She also challenged Sentech’s omission on issues of the convergence environment, particularly facilities and submarine cables, and their views on the role of the Minister, as represented by two cartoon slides in their presentation. She asked why Sentech wanted to retain its status as the common carrier and what benefits that would have for the market and consumers.

The Chair noted the common themes in the presentations and Members’ questions regarding the role, independence, and funding of ICASA, but disagreed with the proposed model of funding it directly from licensing fees revenue.

Mr Dube (Sentech) responded that Sentech agreed with Section 192 of the Constitution as "proper and sufficient," and noted that there needed to be a distinction between traditional and new broadcast models. Sentech’s status as the common carrier was of no financial benefit to Sentech, but was of great social and public benefit in providing access to all licensed broadcasters, and Members were invited to review Sentech’s written submission for more details on their views regarding all aspects of the Bill. The funding of the regulatory agency was key to its independence, and it was currently funded indirectly by the Universal Service Fund (USF). The fear was that limited funding would result in a small regulatory agency for a huge industry, resulting in less effective regulation and more challenges from better funded players in the industry.

Mr M Nchabeleng, Specialist in Government Regulations for Sentech, clarified that the cartoons represented the wish of operators that the Minister take a hands-off approach, which would result in the operators being effectively unregulated by policy. Sentech believed that this would cause high prices and consumer dissatisfaction, necessitating policy intervention by the Minister.

Mr Petzer of Orbicom differed from Mr Dube, stating that ICASA funding should be drawn from licensing fees, but via parliamentary approval of their budget, rather than directly from Treasury. This matter would be better and more appropriately debated during Committee hearings on the ICASA Amendment Act. He further clarified that Orbicom saw the Minister as having a role in policy-making and that the regulatory agency’s role was to implement that policy. Orbicom would like the addition of a clause to the Bill specifying that the Minister would not be involved in licensing issues, as that would fall under the regulatory purview of ICASA.

The meeting was adjourned.