Convergence Bill hearings: Submissions by Telkom, Second National Operator (SNO) Shareholders & South African Institute of Elect

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Communications and Digital Technologies

14 June 2005
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Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
14 June 2005
CONVERGENCE BILL HEARINGS: SUBMISSIONS BY TELKOM, SECOND NATIONAL OPERATOR (SNO) SHAREHOLDERS AND SOUTH AFRICAN INSTITUTE OF ELECTRICAL ENGINEERS

Acting Chairperson:

Mr K Lekgoro (ANC)

Documents handed out:
 

Telkom presentation on Convergence Bill
SNO Shareholders presentation on Convergence Bill
SNO Shareholders’ submission on the Convergence Bill
SAIEE presentation on Convergence Bill
Convergence Bill [B9-2005]

SUMMARY
Telkom, a group of shareholders for the promised Second National Operator (SNO) and presenters from the South African Institute of Electrical Engineers (SAIEE) appeared before the Committee to air their concerns and offer suggestions on the Convergence Bill. All three presenters agreed on the need for clarity and predictability of regulations, as well as the need for ICASA (Independent Communications Authority of South Africa) to have a clearly defined and independent role from the Minister of Communications. Additionally, it was agreed that definitions used in the Bill were overly complex and confusing, that the provisional framework was inadequate, and that there was need for additional public commentary. Telkom also highlighted issues relating to competition in the telecommunications sector and was particularly concerned about the potential diminishment of existing licences when converted. The SNO shareholders presented a detailed submission, including recommendations, and emphasised the need for additional regulation for those companies who are deemed to have "significant market power" (SMP). The SAIEE voiced its concern that the goals of the legislation were both unclear and not upheld by the tabled Bill, and recommended numerous technical amendments.

MINUTES
Telkom submission on Convergence Bill
Mr Nkenke Kekana, Group Executive of Telkom, spoke about Telkom’s concerns about the Convergence Bill in general and its specific implications for Telkom. As did previous submissions, Telkom emphasised the need for the ICASA Amendment Act to provide the Bill with clarity and stability in regards to potential regulatory actions, the independence of ICASA, and the confusion caused by the proposed licence categories. Telkom also stated that there had been inadequate public contributions to the formulation of policy, and that the policy framework behind the Bill was sorely lacking. Procedural issues were generally weak, and the process for converting existing licences was unclear.

Telkom also raised numerous questions regarding competition after the Bill was enacted, as the Bill had the potential to seriously change the monopoly market paradigm under which Telkom operated. Competition ought to be phased in gradually, and requirements regarding interconnections and facility leasing must be economically as well as financially feasible. Regarding competition policy, Telkom was concerned about the definition of "significant market power" (SMP), and that special terms and conditions to be imposed on the licences of those with SMP were lacking a framework and procedural safeguards to protect the interests of the licencee.

Other ex-ante market regulation outlined in the Bill was also troubling, as there was no forum for the licencee to be heard, no appeal, no procedural safeguards, and ICASA could act unilaterally. Finally, Telkom stated that the power to regulate competition in the telecommunications industry would be better vested in the Competition Commission, and that a free-for-all market would not benefit consumers, as that would destabilise the market and render it unsustainable. Rather, new entrants should be allowed to enter the market gradually.

SNO Shareholders submission on Convergence Bill
The SNO Shareholder’s delegation presented a detailed and comprehensive outline of their concerns with the Convergence Bill, noting both general and detailed issues of importance. The main issue highlighted was a lack of a clear policy framework, which set the entire Bill somewhat adrift and made predicting the regulation following from the Bill difficult, potentially shaking investor confidence. The SNO Shareholders’ designation noted that it also needed to be made clear how the passage of the Convergence Bill would affect existing legislation. The guiding principles of the Bill, largely echoed by other groups’ submissions, should be that: content and carriage be regulated separately, ICASA must regulate all aspects of telecommunications to the broadcasting standard, as outlined in Section 192 of the Constitution, ICASA must be financially independent, the Minister and ICASA must not have overlapping powers, and that there needed to be a clear distinction between regulation, policy, and operations in telecommunications. Additionally, the SNO group proposed restructuring the Bill to make it more logical, revising the licensing framework to be more clear and technologically neutral, inserting procedural safeguards when additional licence conditions were imposed. The SNO Shareholders suggested specific additional requirements based on whether a company has "significant market power" (SMP) and a clear framework for determining SMP. They also offered specific recommendations on the topics of universal service and access, and simplifying the transitional provisions.

Discussion
The Chair asked if the SNO Shareholders delegation was advocating going back to the beginning and redrafting the Bill after a Green Paper/ White Paper process.

Mr Karl Soukwa, Chief Executive of Transtel, responded that there must be a comprehensive process of policy creation to underpin the Bill, as this draft did not rest on a solid policy footing. However, this process did not have to take the form of Green and White Papers.

The Chair asked for definite procedural suggestions.

Mr Soukwa replied that while the Green Paper/ White Paper process had been successful in the past at creating comprehensive policy, there were strong timing imperatives in this case, and therefore a comprehensive policy should be drafted by whatever process is both effective and suits the timeframe.

South African Institute of Electrical Engineers submission on Convergence Bill
The SAIEE asserted that the guiding vision of the Convergence Bill was not well defined, which led to confusion and a lack of effectiveness in the Bill. The goals of the Bill should be to reduce the costs of business, reach developmental goals, increase technological leadership, and encourage innovation. To these ends, the Bill must be technically neutral and carefully drafted, drawing from other jurisdictions as necessary. The SAIEE was concerned about the definitions, noting that they were overly complicated, contained policy statements, and were often not used in the body of the Bill. Other major concerns included the lack of public input, especially in light of the substantial re-drafting the Bill required, and the absence of the ICASA Amendment Act to be considered simultaneously, which created uncertainty about ICASA’s independence and regulatory framework. Content and carriage ought to be regulated separately, with not all content requiring licensing. Broadcasting content and "informational" content must be legally distinguished from one another. Finally, the twelve month transitional period was unrealistically short and should be revised. SAIEE also offered a number of technical and definitional proposals for specific clauses in the Bill, dealing with radio frequency licensing and safety requirements.

Discussion
Mr R Pieterse (ANC) noted that SAIEE had raised a number of concerns, but had not tendered any specific proposed amendments. Furthermore, competition did not necessarily lower prices, as the current cell phone pricing showed, and hence another mechanism was required to regulate prices.

Mr Pieterse asked the SNO shareholders why, after discussing self-regulation in the industry and internal dispute regulation, they favoured resolutions by ICASA rather than internally.

Mr Soukwa replied that the market was imperfect, and that there would be a need for market intervention to ensure fair competition in the circumstances where a dominant company, or one with SMP, was uncompetitive towards smaller market entrants.

Telkom stated that the Bill must respect existing industry agreements in place before the Bill came into effect, for example, using an existing satellite uplink.

The Chair asked for a specific reference, asking Telkom to speak about the undermining of agreements on their under-sea cable, and repeated that the response must be specific.

Telkom replied that there were many companies that had reached agreements regarding the under-sea cable, and that these agreements must be understood and respected when the Bill came into effect.

Mr Pieterse remarked that Telkom would have to allow competitors to interconnect in a converged environment to foster new competition. He also questioned Telkom about statements made by the company regarding the jurisdiction of ICASA in relation to satellites, and noted that they were laying an under-sea cable via Melkbosstrand. He asked Telkom is ICASA should not have the power to regulate all South African telecommunications enterprises, including satellites and sea cables.

Mr G Oliphant (ANC) noted that many of the presentations had conflated the timeframes of regulation and policy making, stating that the regulatory direction in the Bill was not clear, a point also raised by the SAIEE. He invited the presenters to comment on specific issues, but noted that the regulations must follow the legislation.

Telkom replied that regulation and policy-making should not be seen as a struggle for power between the Minister and ICASA. Telkom agreed that the Minister must formulate policy and ICASA implement it. However, the Bill created the perception that the Minister would have additional powers over ICASA which had not been present in prior legislation.

Mr Ngwenya, from SAIEE, agreed that policy should be set by the Minister, and that ICASA should deal with the details of the regulations.

Telkom gave the example of the Broadcasting Act, which also sought to clarify policy issues, which had preambles in the Act outlining the policy directions continued in the Bill. Perhaps the Bill should include policy preambles in each section, as then the policy framework in which ICASA would regulate would be clearer.

Mr Oliphant commented that many presenters had complained that there was inadequate time to review the Bill and that the policy was incomplete and lacked a Green Paper/ White Paper procedure. The SAIEE had even suggested that significant re-drafting was necessary. However, he pointed out that there had been previous periods for public comment provided by the Department. The Committee now needed to finish the Bill timeously. He asked all presenters to comment on where the Bill was lacking in transparency.

Mr Soukwa, CEO of Transtel and presenter for the SNO shareholders, replied that the policy process for the Telecommunications Act of 1996, although it had not followed the Green Paper/ White Paper procedure, had been comprehensive. The policy behind that Act had been clear enough to entice foreign investment. In the Convergence Bill, the policy-making had undergone a less comprehensive process, and this needed to be addressed within the existing time constraints. For instance, the Minister could float potential policy directions to the public before they were finalised, ensuring that potential investors could have a clear understanding of the likely policy.

Ms Carla Raffinetti, law advisor to the SNO shareholders, noted that as the point of the Bill was both to harmonise existing legislation and reform the regulation of the telecommunications industry, especially infrastructure regulation, thorough debate of these policy changes was necessary.

Mr Phatang Nkhereanle, Head of Transtel’s regulatory department, commented that the Bill dealt with very serious policy issues. For instance, under the obligation to provide universal service and access, the SNO might be required to cover 80% of the country within 10 years. Currently, the draft licence could prescribe these obligations without knowing the existing conditions. However, if these issues had been dealt with in a Green Paper/White paper process, these issues would be more comprehensively dealt with at a policy level. The same was true regarding radio spectrum regulation.

Mr Neel Smuts, from SAIEE, asked the Committee to assess the quality of the Convergence Bill, and noted that the Bill must be done right, especially given its long-term effect. He also cautioned that if substantial changes were made, the public must be given the opportunity to comment on the changes.

Mr Joe Mjwara, the Deputy Director-General of the Department of Communications, emphasised that the process the Bill was following had been agreed upon when it was first drafted, and that there had been more opportunity for public comment than there would have been if the Green Paper/ White Paper procedure had been followed. It was not practical to return to debating the broad issues in the Bill.

Mr Oliphant asked the SNO shareholders what exactly in the Bill as it stood would undermine investor confidence, and also asked them to clarify their interpretation of what "significant market power" (SMP) entailed.

Mr Sharad Abhyankar, from the VSNL / Tata Group of India, replied that the most important market indicators to a foreign investor were an appropriate legal framework, a comprehensive policy direction, and clear legal interpretation of the policy guidelines. Essentially, the market needed certainty, continuity, and a clear policy framework.

Mr Soukwa continued that a clear definition of what a company with SMP entailed was necessary to streamline ICASA’s regulatory process to ensure a fair market and enable new entrants to be competitive.

Mr Nkhereanle continued that a detailed evaluation of the market would be necessary to determine whether a company had SMP in a market, in a geographic area, or a product, which could be more precise and useful than setting a strict percentage guideline. Additionally, it was vital to know what framework the regulator would be operating under in determining the course of action if a company was found to have SMP.

Ms S Vos (IFP) asked the Department, the SNO shareholders, and Telkom how SMP would be determined. She also asked the SAIEE and Telkom how the licensing provisions in the Bill were not catering for new technology, as Clause 10(c) gave ICASA the power to change the provisions "to the extent necessitated by technological change."

Ms Raffinetti replied that the phrase "such other services as may be prescribed" in 5(3)(c) would defeat the purpose of the licensing scheme to be general enough that revisions to it, due to technological advancements, would not be necessary. As the framework would be flexible enough to include new technology, ICASA must simply decide where in the framework the new technology belongs for licensing.

Telkom repeated that it was essential that the Bill be technology neutral, and that the Committee needed to be clear on the goal of the Bill, whether it was to harmonise existing legislation or to truly create a converged environment.

Mr Smuts agreed that the purpose of the Bill was to truly converge the telecommunications sector, and while the old legislation was for old technology, the new Bill must deal with new technology appropriately.

Ms Vos asked Telkom to clarify their comments on Clauses 5(2)(d) and 5(3)(c), and exactly where the problem lay with the definition of Value Added Network Service (VANS) in regards to "applications services" and "communications service."

Telkom replied that this was an example of the problems arising from inconsistent definitions, as a VANS was defined in the Telecommunications ACT as adding value to a "communications network service", which, as infrastructure, cannot have value added to it by an applications. However, a "communications service" could have value added to it. Therefore, there was confusion about whether a VANS was an "applications service" or a "communications services."

Ms Vos also asked Telkom about their fear of the word "surrender" when converting existing licences, and asked what their response would be if their licence were amended.

Telkom responded that, as the Bill spoke of a "surrender" of the existing licence, it was unclear whether the converted licence would contain the same rights. Although the Bill implied that ICASA could increase the rights and obligations of an existing licence when converted, it was unclear if ICASA could remove rights.

Ms Smuts (DA) commended the SAIEE for their clear view of how to regulate the radio frequency spectrum, and noted to the SNO that in the Bill the spectrum could be regulated by methodologies other than central assignment of frequencies, including frequency trading, if the wording of the Bill gave ICASA unspecific powers of regulation.

Mr Nkhereanle replied that the SNO shareholders dealt with the question of spectrum regulation in their written submission, but that they did not feel that the spectrum was an appropriate avenue for self-regulation. However, currently the spectrum was managed by both ICASA and the Minister, and it should only be in one jurisdiction. He agreed that frequency trading would be possible if the Bill made it explicit that the management of the spectrum was under the sole purview of ICASA.

Mr Mjwara replied that the Bill only involves the Minister in spectrum regulation on the policy level, for example cross-border policy issues, while the details were under the purview of ICASA. However, as frequency trading would have significant benefits and pitfalls for the telecommunications industry and represented a policy shift, this decision could not be taken by ICASA unilaterally.

Ms Smuts asked the Department to comment on broadband and the new universal service policy as the Committee would need clarity on these issues to deliberate on the Bill. She noted that it would be better to go slowly and draft the Bill right than to do a shoddy job and have to amend it in a few years.

Ms Smuts asked the SNO shareholders if they would follow the Malaysian model for economic regulation, and asked about their envisioning of the degrees of protection and interconnection given to and required from minor players in the market.

Mr Nekhereanle continued that a new entrant should not be complied by regulations to provide interconnectivity, as market and commercial imperatives would effectively require it anyway. However, the power of ICASA was to act as a surrogate competitor and intervene in specific cases where there was little or no competition, to open up the market, whose viability depends on interconnection.

Ms Smuts also asked if it would be possible for the Competition Commission to make SMP determinations via a comprehensive economic assessment, then have ICASA remedy the situation, providing regular updates to the Committee.

Telkom responded that the Yankee Group Report was a general survey of the telecommunications sector in South Africa, and was therefore inadequate to determine SMP as the SMP determination was based on different market factors than those analysed.

Mr Soukwa noted that the Yankee Group Report found that South Africa was the only middle-income country where there was a decline in the number of fixed lines during the last three years. This signalled a problem with the penetration level in general, and a problem with penetration in the second economy relative to the first economy, both of which facilities-based competition would help to address.

The Chair asked the SNO shareholders to comment on the idea of imposing additional obligations on companies with SMP instead of or in addition to introducing competition. He asked Telkom to clarify what they meant by an "applications service" versus a "communications service."

Mr Mjwara stated that the Department was not restricted to introducing competition when there was a case of SMP, but rather was empowered to do so when it was both in the public interest and market-sustainable. The introduction of competition must be feasible, efficient, and in the citizen’s needs. Although the Department was unaware of an SMP study, ICASA might have been in the process of conducting a study on competition in the mobile phone market.

The meeting was adjourned.

 

 

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