Convergence Bill: hearings

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
12 August 2005

Convergence Bill [B9-2005]
Universal Service Agency Supplemental submission
Universal Service Agency Oral submission
Universal Service Agency proposed amendments to the Convergence Bill
Freedom of Expression Institute submission
Internet Solutions presentation

SUMMARY
The Universal Service Agency (USA) presented proposals for amendments to the Bill. Representatives proposed that universal service be expanded beyond communications network service licensees, and that the application of money in the Universal Service Fund (USF) be expanded. Training and skills development were identified as critical areas. It was essential that end-user equipment for telecentres was equipped and maintained. Public and private partnerships could facilitate increased service access, and the ongoing lack of dial tone in rural areas in particular was noted. They emphasised that issues of data were also relevant.

The Freedom of Expression Institute (FXI) stressed the historical inequality of service provision in South Africa. They felt the Objects of the Bill did not sufficiently emphasise the redress of imbalances. The Institute questioned whether both economies were ready for convergence. Telkom should not be operating in a competitive environment, but instead under a public mandate.

The Internet Solutions presentation raised the issues of affordability, licensing and access. The Committee was reminded that service providers were dependent on the incumbent for baseline services, and the high costs of these were passed directly to the consumer. There was an urgent need for a wholesale pricing structure. A distinction should be made between the bigger value added network service (VANS), such as Internet Solutions, and the multitude of other VANS. In terms of access, Voice-over Internet Protocols (VoIP) had revolutionised telephony access, as the number was no longer bound to a fixed telephone. It was suggested that Internet addresses be prioritised in the short-term, while recognising that the ideal was Internet provision in homes.

MINUTES

Universal Service Agency submission
Mr L Petzer (USA Board member) explained that the USA had an obligation to promote telecommunications, do research in terms of ICT and the achievement of universal service and access, to advise the Minister and ICASA about universal service and access, and to administer the Universal Service Fund (USF). The USF, with a budget of R88 million, was intended to subsidise the needy, schools and communities, the Under Serviced Area Licensees (USALs).

The USA commented on four clauses of the Convergence Bill, namely Clause 73 on the continued existence of the USA, Clause 74 relating to the functions of the USA, Clause 80 relating to the application of money in the USF, and Clause 92 relating to competitive tender for universal service projects. It proposed that Clause 73(4) be inserted to provide for compulsory consultation with the Agency before the making of policy, regulations or other determination relating to or impacting on universal access or service. It was further proposed that, in Clauses 74, 80 and 82, "communications network services be replaced by "services set out or provided for in this Act". It was noted that in Clause 75, the board of the Agency should appoint the Head of the Agency, and not the Minister as currently provided.

In respect of Clause 80, it was proposed that the money in the USF should not be utilised exclusively for the payment of subsidies, but should be extended to the provision of services set out or provided for in the Act, the provisioning and maintenance of such services, for the activities of the USA as set out in subclauses 74(1) and 74(4) of the Act, and for the payment of associated project costs. Training and skills development for universal service projects was a high priority, and this would have to be funded from the USF, as would the equipping and maintenance of end user equipment for telecentres.

In respect of Clause 82, the Agency submitted that subsidies be awarded to universal service projects by competitive tender. The criteria for evaluating proposals should also have to take into consideration the Objects of the Act as set out in Clause 2, and it was proposed that the further criteria set out in Clause 82(3) be deleted.

Discussion
Ms S Vos (IFP) referred to the application of funds and the proposed amended wording for tenders, and asked the reason for the proposed amendment.

Ms L Thornton (Legal Advisor) replied that the current Telecommunications Act allowed the USA to award a competitive tender for any project. The Convergence Bill proposed to limit this, and the reversion was proposed, as it was more flexible.

The Chairperson asked whether the USA felt that the Bill attempted to cover universal service obligations to a satisfactory extent.

Mr Petzer replied that the Bill laid out the framework, but the actual obligations would be laid out in the regulations and licence conditions, and would depend on the type of licence. These provisions should not only appear in legislation.

The Chairperson asked whether experience had shown that, where obligations were placed on licensees without results, these should be tightened up.

Mr C Choeu (Chairperson) replied that the USA was working with all industry stakeholders in trying to look at the objectives of the Telecommunications Act of 1996, and it was felt that this study would inform the Department of Communications and the regulations. Most of the objectives of that Act were still in the Convergence Bill. Operators were co-operating and working together.

Ms D Smuts (DA) noted that the old Section 66 and calculations of beneficiaries had resulted from the original conceptualisation of universal service. Had this been deleted because of the need to re-conceptualise the whole idea of universal service? The Committee needed to ask how and whether the concept could be transposed into a converged framework, as the whole sector had undergone considerable shifts in emphasis. What was needed if many people had access to voice services through cellular communications, and should the Bill concentrate on data through broadband, for example? Should telecentres still be considered?

Mr Petzer replied that the issue of universal service had involved basic voice services in 1996 and before. It was essential to move beyond that as the original definition had been tied to fixed line services. There were many more subscribers on mobile networks than on fixed lines, but data IT was even more important. Telecentres, in the short to medium term, would remain an important access point. The USA would ideally like to see broadband connect in every home at an affordable price, and this should be worked towards. This was also the motivation for not confining the provisions to infrastructure, but including service.

Mr Choeu noted that issues of data had not been covered originally. It had been noted that people needed more than voice access, and telecentres had been started. Finances and skills had become a challenge, and there was a need to extend services, especially in terms of security. Two organisations, Buffalohoeks Trust and the Africa Foundation, had been involved with the USA in the development of telecentres. The Buffalohoeks Trust was located in the north of the Kruger National Park, and there had been no Telkom access. The Trust had originally only been able to put in computers, as there was no connect, but this had now changed. The Africa Foundation owned the Phinda Game Lodge, and was doing marvellous work, developing hubs in centres supporting small telecentres. The co-operation illustrated that dial tone was still a challenge, and that when centres were developed, skills were needed.

Dr S Gulube (CEO: USA) noted that the definition of universal service was dynamic, and this had been recognised in the Telecommunications Act. An international study on the use of telecoms, and the definition of the indicators of universal service and universal access was under way. The study was also looking at who was accessing services and why. Access was being investigated first; with broadband access a qualification of service.

Mr Choeu reiterated that the question of access also related to the user’s skills of access, citing the fact that it was now possible to have electronic tablets on which users could write.

Ms C Nkuna (ANC) expressed concern at the question of consultation by the Minister, in this case on issues of the USA, asking what they anticipated might happen if the Minister did not consult.

Dr Gulube noted that this was possibly not a legislative matter. There was concern about the different mandates of the Department of Communications. As the USA was a specialist group, there were times when it was difficult for it to implement policy within its mandate. One of the key goals was to increase teledensity by 30%, and this emphasised the importance of consultation. When the Independent Communications Authority of South Africa (ICASA) was formulating license obligations, USA should be consulted on universal access processes.

Mr Choeu noted that money was budgeted, and there might not be money to spend on directed programmes within a specific financial year.

Mr G Oliphant (ANC) noted that there were clear funding constraints, and asked whether there was resistance to the proposed amendment to Clause 80, and whether it was a purely legal problem.

Mr Choeu replied that, in the Telecommunications Act, money would be used for specific things, including skills development. Access included the need to skill people using telecentres, and this was very important because of the expansion of services from dial tone to Internet, for example.

Mr Oliphant referred to the proposed amendment to Clause 75, regarding the appointment of the Head of the USA, and asked what the current relationship was between the board and the executive.

Mr Choeu replied that the proposal had been made to bring the provision in line with corporate governance. The Board had been introduced in 2001, and the Minister had continued to appoint a Board and Chief Executive Officer.

Mr Oliphant asked for clarity on the proposed change to Clause 79(2). Ms Thornton replied that it was a technical amendment.

Ms Vos asked whether the USA had been able to project the effect of privatisation on universal access, particularly in respect of the fixed line. Dr Gulube replied that the USA was looking into the impact of privatisation, and would revert to the Committee.

Ms N Mokoto (ANC) asked whether it would still be relevant to say that fund money usage should be restricted to telecommunications in terms of the Convergence Bill, and whether the USA would like to extend this.

The Chairperson asked for comment on the submission that broadcasters had said that they would not contribute to the fund. Dr Gulube replied that this had been widely debated. Contributions from broadcasters were not legislated but voluntary, and the fact that a legislated contribution was proposed was a step forward. It was to the advantage of broadcasters to contribute to the fund.

Mr Petzer noted that this point was one of the reasons for the argument that the USF should not be restricted to infrastructure.

Freedom of Expression Institute (FXI) submission
Mr C Tleane (Head: Research, Media and ICTs Programme) noted that the background to the Convergence Bill had been characterised by a lack of access, excessive and inhibitive charges, and a lack of rollout, or reverse rollout. Convergence meant the coming together of telecoms and broadcasting. Submissions had cited the best practices of South Korea and Malaysia, but it was submitted that these were not equivalent areas. It was debatable whether the conditions for convergence existed in South Africa. There were parts of the country where convergence was still a basic dream, and where even cell phone access and penetration, and television coverage, were non-existent. The deliberations should reflect on the realities of the two economies. Which economy was ready for convergence, and would the second economy be left behind?

Since the Convergence Bill was a revolutionary step within the sector, it was unfortunate that there had been no green and white paper process. The Bill also seemed to suggest a move away from a managed liberalisation to full liberalisation. The two main objects of managed liberalisation, namely the move to digitisation and an attempt to achieve universal service access, had, however, not been realised. It was important that the Objects of the Bill reflect the current state of affairs. The country required redress and transformation. The proposed legislation appeared to assume that problems had been resolved, as there was, for example, no emphasis on targeting unserviced and underserviced areas. It was also important to ensure that none of the Objects could lend themselves to abuse and varied interpretations, and the Objects should be redrafted to ensure that transformation was back on the agenda. Services and access should be required to be "affordable", as "reasonable" could mean anything. Rollout to the poor should be made a priority, and clear class biases should be clearly pronounced.

The reasons for the individual and class distinctions in respect of licensing were not convincing, and the final say with respect to infrastructure licenses should not be given to the Ministry. It was also not the role of the Ministry to be involved in formulating guidelines, as this should rest with the regulator. Universal service obligations should be imposed on licensees, and the regulator should be a more powerful body, not less powerful. ICASA should also regulate the radio frequency spectrum.

The rights of users should be guaranteed, and the Bill was insufficient in this regard. A permanent consumer forum should be formed, with a Consumer Services charter made a license condition. ICASA should also be required to conscientise the public. It was critically important that this opportunity be taken to upgrade the independence of the USA, as it needed to play more of a watchdog role. Its ability to monitor and enforce universality was still lacking. The process where the Board of the USA and its senior members of staff were appointed by the Minister should also be investigated. The process might in fact afford an opportunity to reconsider the legislation and the standing of the Agency itself.

Internet Solutions submission
Mr A Ngcaba (Chairperson: Dimension Data) noted that South Africa was a leader in technology, as could be seen from its ranking at 23 in the world in terms of telecommunications. Market forces, in conjunction with the legislature and the public sector, had made this possible. Despite the favourable ranking, telecoms development in South Africa continued to reflect the two economies, and large areas of the country, particularly rural areas, remained unserviced. The need for continued economic empowerment of historically disadvantaged communities was thus critical for the implementation of the Convergence Bill. Change was inevitable. Voice-over IP (VoIP) could be likened to the move away from telegraphy, in its inevitability. Africa had 4% of global traffic, and this was split equally between VoIP and PSTS traffic. VoIP was thus growing much faster, and was the means of the future. VoIP did not differentiate between voice and data, and therefore required a creative regulatory environment.

Mr A MacRobert (CEO) introduced Internet Solutions as the leading South African ISP and converged service provider, founded in 1993 as a pure ISP. The company turned over more than a billion rands, and was a major Telkom customer. The government’s intention to bring down the cost of telecommunications had been noted and was welcomed. The problem with high cost was that it was simply passed on to the end consumer, who could not afford it. It was also important to move with deregulation, and to note what new technology could do for South Africa. There had to be an environment where companies such as Internet Solutions could offer competitively priced broadband solutions. No distinction was currently drawn between the home user, the SMME user and the corporate user. There were still key bottlenecks in the access and backbone areas of base infrastructure in the country. It was hoped that the Convergence Bill and the Second Network Operator (SNO) would address some of this. A wholesale pricing regime was required in respect of access to the undersea cables, SAT4, and so on.

A phased unbundling of the local loop was needed, and new generation telecommunications companies needed access to it. There was also a need for innovative spectrum management that would encourage development of next generation networks. Not every value added service provider should be able to self-provide, although certain operators should be able to do so, provided license obligations were met. Interconnects were critical to generating increased Internet connectivity, increased voice communication and primarily to bring down the cost of communication.

Mr S Madyibi (Head, Regulatory Affairs) referred to the market structure as proposed by the Convergence Bill, and noted that it was characterised by a suggestion of two forms of licenses. Whilst the idea of a tiered market structure was supported, it was felt that simply creating a class license for both a communications service and an applications service would invariably either distort the market or have inadvertent consequences. A class license implied that simple notice would be given to the regulator, and there would be no regulatory oversight. Those services, such as reselling, which did not require any oversight, should either be class licenses, or be exempt from licensing. Certain service providers had the capacity of Internet Solutions, which had, with a value added network service (VANS) licence, established points of presence in all the metropolitan areas, and had been able to enter into agreements with international operators. Other VANS, however, held the same license, but offered their services to a limited group of persons. This distorted the market, and a distinction had to be made in the future. Creative legislative solutions were required, to prevent stagnation of the market.

Mr H Shrock (Director) emphasised the understanding that regulation was necessary. Issues such as access were strategically important, as they linked all role players in the market. It was essential to promote real choice in all parts of the value chain. It was important not to leave in place the dependency on infrastructure service providers, on an understaffed and possibly underskilled regulator. At an individualised licensee level, service providers should at least be able to provide a threat to the incumbent in terms of service delivery and pricing. Access should be addressed at various levels, including international access and gateways. There was an opportunity for South Africa to become a traffic hub for the rest of the continent. A number of opportunities were coming up, and Internet Solutions believed that it would be an opportunity to break the monopoly once and for all. The same would apply to access to the local loop. Over the past ten years, there had been noticeable discrimination in the way in which Telkom had treated its internal units and the rest of the local market, and provision had to be made for this to end.

In respect of wholesale pricing, in terms of current market structure, operators such as Internet Solutions were obliged to buy underlying structures from the incumbent. Those facilities were provided on a retail basis. It was very encouraging that the Convergence Bill had set out a structure for wholesale pricing, but that structure had to be transparent. It was also important that the pricing models in between categories of licensee should be uniform. If there was dependency, any pricing discrimination should be based on legitimate objective criteria. The very heart of liberalisation lay in interconnection. The basic purpose of interconnection was that any customer could call any other customer, regardless of the network concerned. It was vital that South African consumers be able to use this facility. Regulatory intervention, sanctioned by statute, was needed to ensure interconnection.

Mr Ngcaba reiterated that South African companies needed to be able to compete internationally, and that communications had become global in nature. The Convergence Bill should facilitate this.

Discussion
Mr Oliphant asked FXI to propose amendments to the Objects of the Bill. Mr Tleane welcomed the invitation, and emphasised the difference between policy intent and policy interpretation and implementation.

Mr Oliphant agreed that there would have to be ongoing engagement on the powers of the Minister as opposed to the regulator.

Ms Mokoto noted that there had to be a balance of powers between the Ministry and ICASA and asked for comment from FXI.

Mr Ngcaba replied that it was important to create a positive environment for investors, and processes had to be made more efficient. The complete process from application to announcement should b a maximum of four to five months. Delays were very costly, and this led to processes becoming litigious.

Mr Tleane replied that he was coming from a public interest argument, where the broad ICASA processes had a stage for public participation and that public voices were heard that would otherwise not be heard at a Ministerial level.

Ms Mokoto noted that the agenda for development remained, and suggested that it would not be government’s intention to lock profits or growth. It would be irresponsible to have a "big bang" approach, and she asked for clarity on the proposal for "creative regulation".

Mr Ngcaba emphasised that Internet Solutions had not proposed a "big bang" model. Whatever was done had to be innovative in terms of taking the sector forward.

Ms Smuts concurred on the need for a non-discriminatory pricing structure, and asked whether there were further developments on the new cable, and whether Internet Solutions were part of the new cable discussions.

Mr Ngcaba replied that Internet Solutions had not been permitted to participate in a European Community meeting because of the way in which legislation had been written. Legislation should be drafted so that South African companies were not excluded, and could be accepted as players.

Ms Smuts suggested that it seemed wrong that the regulator would only be able to entertain applications for network licenses once the Minister had gazetted a date and geographical area. Entrepreneurs should be allowed to approach the regulator, who would then decide. How would a differentiated license system, as proposed by Internet Solutions, work, and on what criteria? Clause 5 appeared to be the Clause under which this should be addressed. It seemed critical that VANS and similar entrepreneurs should have the right to self provide.

Mr Ngcaba replied that there was an historical context to any legislation or regulation. Internet Solutions, for example, managed over 600 networks, and this had to be taken into consideration. It was not possible to take the limited resources of the country and spread these across 300 or more entities. Some VANS had historically developed infrastructure, and that differentiation had to be made.

Mr R Pieterse (ANC) expressed his doubt that all schools would soon be connected, particularly those in rural areas, and asked whether Internet Solutions would be able to achieve it. What were the inhibitors in the current Bill that prevented connectivity to rural, poor, disadvantaged and disabled communities, or was this simply an excuse?

Mr Ngcaba replied that in those areas, interconnect, access, wholesale and affordability issues were fundamental. The model of VoIP for schools could give people access to a number and an address. New technologies would definitely address the issues of schools and rural areas.

Mr V Gore (ID) asked for comment on the way in which certain role players, especially Telkom were using technology to limit the use of VoIP, particularly by restricting certain ports in the network.

Mr Tleane replied that one of the reasons for Telkom’s "muscling out" of other players was that it had to compete with them. It was debatable whether Telkom should be competing, and its structure should be investigated, so that it served a public mandate not motivated by profit.

Mr Gore noted the confirmation that the main cost component of a call was from the incumbent not the service provider, and asked for the view of Internet Solutions on the Bill’s attempt to get competition into this area.

The Chairperson asked whether the argument was that the Bill would take affordability to the end user. The lack of skills was part of the problem, but the real problem was that the services were not reaching the home base.

Mr Ngcaba replied that affordability was the heart of the issue. Access required a number for voice services or an address for data. A person in Atteridgeville, for example, would need an Internet address more than a computer. The idea was, of course, to have Internet access at home, but there were circumstances where the short-term attempt should be to provide access. VoIP was not linked to a fixed phone, and this made the number very flexible.

Mr Tleane concurred that the question of whether services were affordable and accessible should be at the core of the determinations.

The meeting was adjourned.