Electronic Communications Bill: submissions by ICASA, MTN, Vodacom, World Space

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LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
29 November 2005
SUBMISSIONS BY VODACOM, MTN, WORLDSPACE SOUTHERN AFRICA & ICASA ON ELECTRONIC COMMUNICATIONS BILL

Chairperson:
Ms M Themba (ANC) [Mpumalanga]

Documents handed out
Electronic Communications Bill [B9B-2005]
Vodacom submission
Vodacom PowerPoint presentation
MTN submission
MTN PowerPoint presentation
Internet Solutions submission
Worldspace Southern Africa Submission

SUMMARY
In the morning session the Select Committee heard the submissions from Vodacom, MTN, Worldspace Southern Africa and ICASA on the Electronic Communication Bill, formerly known as the Convergence Bill. Issues raised by the presenters included the unqualified discretionary powers granted to ICASA under Clause 10, the need for a proper definition of ‘interconnection’ to minimise scope for disputes, the need to provide ICASA with guidance on how to select and define markets eligible for regulation and a stronger definition of the significant market power. Concerns were raised regarding the treatment of ‘permissions’ under the Bill, the need for ICASA to be mandated to deal effectively with empowerment, ownership and control in the industry, the exclusion of broadcasting signal distribution from the ambit of Clause 5(6) to give effect to Section 192 of the Constitution and the unusually wide scope of offences listed in Clause 74.

Vodacom raised concern with the consultation process for the amendment of the licence in Clause 9, but the Committee agreed to the retention of the current wording on the advice of the State Law Advisor. The Committee questioned the MTN proposed amendments to Clause 76(4) and (6), as they appeared only to benefit "the big players" and, as such, those amendments were not in the public interest. The MTN proposed amendment to Clause 43 could not be entertained because it appeared to protect market failures, which would erode normal business risks.

The Committee met for an hour after the lunch break before the official meeting starting time in order to discuss with the State Law Adviser and the Department the written submissions made by World Space, MTN, Vodacom and Independent Communications Authority of South Africa.

MINUTES
Introduction by Chairperson
The Chair requested the presenters to restrict their input to specific issues or concerns in the Bill, and to avoid long-winded meanderings.

Vodacom Submission
Mr Pakamile Pongwana, Vodacom Managing Executive: Government Relations, stated that the Vodacom submission focused on Clauses 10 and 93(4)(b) dealing with additional grounds for amendment of individual licences conferred on ICASA by the Bill. ICASA was empowered to increase universal service and access obligations at any time without completing a market analysis and assessment process to identify the true access gap and the most appropriate, proportionate and least intrusive regulatory remedy to address any such gaps. ICASA could also amend licences by linking the necessity of such amendments to objectives of the Act.

This stipulation placed an investor in an untenable position as it made the determination of the total obligations for incorporation into a business case impossible. Licensed rights could also be amended by qualifying the need for amendment in terms of the objectives of the Act. A key criterion for investment is a stable and predictable regulatory environment. These broad sweeping powers of the Authority to amend a licence and increase obligations in this manner would deter investors and will result in existing investors re-evaluating such investments.

Vodacom proposed that amendments to licences should be in consultation with licensees, or alternatively, after consultation with licensees on the basis that such amendments would not cause undue prejudice to licensees.

Section 93(1) stated that the conversion of existing licences should take place through the granting of one or more new licences on no less favourable terms. Vodacom argued that 93(4)(b) should be made consistent with the terms of conversion, i.e. "no less favourable" (as stipulated in 93(1)) in that additional rights must accompany commensurate obligations during the licence conversion process. The insertion of the words, "additional" and "commensurate" ensured that 93(1) and 93(4)(b) were aligned and would not create uncertainty during the licence conversion process.

MTN Submission
Mr.Nkateko Nyoka, MTN Group Executive: Legal & Regulatory Affairs, indicated that MTN was pleased that revisions in the Bill, especially Chapter 10, have cleared much of the confusion between regulating the fixed-line monopoly and the competitive mobile market. He explained the current complexity of the intervention process in chapter 10, and proposed the following editorial amendments that could be used to address these issues and ensure that the Bill delivered its objectives: a proper definition of interconnection to minimise scope for disputes, providing the Independent Communications Authority of South Africa (ICASA) with guidance on how to select and define markets eligible for regulation so that the scope of ex-ante regulation was made clear to all, providing an unequivocal definition of the significant market power (SMP) threshold so intervention can be applied quickly to the right players and ensuring proportionality of remedies to avoid under or over-regulation of the sector.

Discussion
Mr D Mkono (ANC) [Eastern Cape] asked Vodacom to motivate its proposed amendment that ICASA amend an individual licence "in consultation" with the licencee.

Secondly, he asked Vodacom to elaborate further on its concerns regarding the unqualified discretionary powers granted to ICASA in the licensing process.

The Chair sought clarity on the different between the phrases "in consultation" and "after consultation".

Mr Pongwane replied to the three questions by stating that Vodacom was of the view that an opinion was subjective in nature, whereas ICASA must remain objective at all times. It was for that reason that reason that Vodacom proposed the use of the phrase "in consultation", which implied the reaching of an agreement. He stated that the phrase "after consultation" was cautioned against because it could allow ICASA to take the views of the licensee into account, but still make its own decision on the matter. Licences were, by their very nature, decided upon by negotiation, and the specific terms and conditions were agreed upon by ICASA and the licensee. That is the true meaning of "in consultation".

Mr Mkono asked whether Vodacom was of the view that ICASA should not have the final decision regarding the amendment of the licence.

The Chair asked why Vodacom sought the inclusion of its amendment in the provision.

Mr J Sibiya (ANC) [Limpopo Province] asked whether Vodacom was trying to slip in an "indirect veto power" for itself.

Mr Pongwane responded to the three questions by stating that the existing licences currently made provision for such consultation, and agreements were accommodated in so far as that was possible. Vodacom did not currently have a veto power over ICASA nor was it seeking one, and ICASA would have the ultimate decision. The inclusion of the phrase "in consultation" would also ensure that due process was followed, and enshrined the position that ICASA would take the final decision.

Mr Sibiya was of the view that the phrase "in consultation" could allow the licensee, whose application for amendment of his licence conditions had been refused, to "cry foul". He proposed instead that the provision read "after consultation with the licensee, in accordance with proper procedure".

Mr Pongwane replied that the primary issue was not due process because the Promotion of Administrative Justice Act did apply here, and procedures were set out in Chapter 10. Those procedures where however not related to the amendment of the licence. Secondly, the major issue was open-ended power. The Bill had 26 objects, any of which could be used to amend a licence. That created a huge uncertainty, especially for investors, as the perception that a particular object of the legislation could be used to amendment the licence of a listed company such as MTN or Telkom could wipe out the entire share price of listed entities..

Mr D Gamede (ANC) [Kwazulu-Natal] expressed concern with the terminology used, as it appeared to detract from the constitutionally enshrined principle that ICASA must have teeth. He favoured "after consultation" as the Bill put proper checks and balances in place. He requested the State Law Advisor to comment.

The State Law Advisor replied that he was of the view that "after consultation" did not mean "after informing the operator" but instead meant after giving the licensee the opportunity to influence ICASA’s decision. This was included in the Clause 9 of the Bill, and it allowed parties other than the operator himself to comment on the amendment of his licence. He stated that he had not yet had the opportunity to thoroughly consider the matter, but believed that there was a legal precedent to substantiate his view.

Ms Magda Stoeder, Vodacom Executive Head: Market Regulation & Regulatory Affairs, responded that Vodacom agreed that the proposed Section 9 set out a due process model which would also apply to the amendment procedure set out in the proposed Section 10. The crux of the matter was however not the requirement that the parties consult with each other, but was instead the scope of the powers granted to ICASA via Clause 10(1)(f) and (g). She stated that Vodacom would be happy with insertion of "after consultation", provided that Clause 10(1)(f) and (g) were deleted because Clause 10(1)(f) was very broad in scope with regard to the kinds of amendments that ICASA could effect to a licence.

The Chair stated that Vodacom expressed valid concerns, but ICASA was the appropriate body to adjudicate the licence terms and conditions. She stated that there was thus no need to "fear the unknown", as the State Law Advisor believed Vodacom’s concerns would be cured by the use of "after consultation".

Mr Mkono stated that a wide variety of stakeholders were consulted on the Bill, and they were satisfied with the definitions contained in the definitions clause. He asked MTN to explain why, in light of that, it was of the view that the current definitions were inadequate. He questioned whether each and every particular concern raised by stakeholders could be adequately accommodated in a piece of legislation.

Mr Nyoka replied that the Bill was initiated in 2003 and had gone through radical revisions over that period. He believed that the changes that had been effected were a reflection of the Department of Communications’ understanding of the challenges and complexities that faced the telecommunications industry. It was also a triumph of the South African Constitution, which entrenched and enshrined public participation as a key lever for ensuring that all legislative instruments passed by Parliament could withstand all forms of scrutiny. The input made by MTN was thus aimed at ensuring that the ultimate legislative product sought to address all public policy concerns, and also to ensure that the proper environment was created within the telecommunications industry for the flourishing of the South African economy.

The definitions proposed were based on sound research conducted by MTN, and involved a comparison of its standing and position with roleplayers in other telecommunications markets. They were definitions that were used consistently in other jurisdictions, such as the definition of interconnection. MTN was of the view that the Parliament could effect its proposals, which would add greater value to the Bill and would ensure clarity in a multi billion Rand industry.

Mr C Van Rooyen (ANC) [Free State] disagreed with MTNs contention that is was proposed ‘editorial amendments’ to the Bill as they were in fact rather significant, such as the definition of ‘interconnection’.

Mr Nyoka responded that if Chapter 10 recognised that regulatory intervention in a competitive segment of the telecommunications market should only occur in instances of demonstrable evidence of market failure, as it currently stood in Chapter 10, then by implication it could be argued in a court of law that that principle must also apply to the leasing of telecommunications facilities in a competitive segment of the telecommunications market. The MTN amendments were aimed at ensuring that the acknowledged principle already enshrined in Chapter 10 could be extended to areas such as leasing of facilities.
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Mr Van Rooyen was of the view that the MTN proposed amendments to Section 76(4) and (6) would only benefit "the big players", whereas the Bill must also accommodate the small players. He was thus of the view that those amendments were not in the public interest. In fact, they could create a barrier to market entry for the small players.

Mr Nyoka replied that the Bill recognised the presence of ‘big players’, and it liberalised the other types of licences such as the class licences. The Bill also contemplated that for any small player to become a significant market player, some form of co-operation between the big and the small players was required. MTN agreed with that principle. All MTN was saying was that the matters of commercial arrangements and negotiations between the big and the small players in an environment of robust competition must be left to the market players themselves. However, when it was evident that the market was failing to deliver, then regulatory intervention became a necessity.

Mr Van Rooyen disagreed with the MTN proposed amendment to Section 43 as it was not correct to protect market failures, because it would erode normal business risks.

Mr Nyoka responded that the industry was aware of cases in which the market failed to deliver certain goods and services and, if the telecommunications industry were faced with that situation, MTN believed that government had the right to intervene and correct the market failure. However, before those regulatory interventions were made through ICASA, there must be demonstrable evidence of market failure. He was of the view that the Bill, by and large, acknowledged that principle. MTN was of the view that its amendments were simply correcting minor oversights in the legislation.

The Chair asked MTN to indicate how the entry of new players into the telecommunications market would affect its business.

Mr Nyoka replied that competition was always a challenge to incumbent operators, and all the businesses of MTN would be affected. However the enthusing principle in the Bill was the recognition that competition was healthy for the industry. MTN supported the introduction of competition because it believed that it was through competition that many of the public policy concerns such as telecommunications pricing would be addressed. In short, MTN was ready for competition and it would compete head-on with the new players.

The Chair stated that Worldspace and ICASA would now make their submissions, and the Committee would pose questions after lunch.

This submission dealt with proposed changes to Section 62(2)(b) of the Electronic Communications Bill which stipulated that those electronic licence licensees that provide broadcasting signal distribution or multi-channel distribution must grant this only to a broadcasting service provided under an appropriate and valid broadcasting licence. This precluded World Space from obtaining broadcasting signal distribution from other electronic communications licensees authorized to provide such services. This had a detrimental effect on the permission holders under the Broadcasting Act as they would simply be unable to distribute broadcasting services. This section should be amended to avoid the unintended consequences.

It was suggested that World Space be made subject to the licensing process to avoid further delays in obtaining a licence under Chapter Three of the Electronic Communications Bill. This was because ICASA had to prioritise the conversion of existing licences before turning its attention to licensing new applicants. The company had been waiting since May 2003 for ICASA’s framework on Subscription Broadcasting licensing.

Worldspace Southern Africa Submission
Mr Hamza Farooqui, Worldspace Southern Africa Managing Director: Afristar Region, outlined the operations of WorldSpace and its satellite radio service, key regulatory considerations affecting Worldspace Southern Africa such as its existing rights, the treatment of ‘permissions’ under the Bill and the effect of exclusions included in the Bill.

Ms Janet Mackenzie, Attorney from Cliffe Dekker Inc representing Worldspace Africa, outlined the proposed amendments to permissions and permission holder’s rights granted under the Broadcasting Act. She explained the proposed changes to Section 62(2)(b) of the Electronic Communications Bill which stipulated that those electronic licence licensees that provide broadcasting signal distribution or multi-channel distribution must grant this only to a broadcasting service provided under an appropriate and valid broadcasting licence. This precluded World Space from obtaining broadcasting signal distribution from other electronic communications licensees authorized to provide such services. This had a detrimental effect on the permission holders under the Broadcasting Act as they would simply be unable to distribute broadcasting services. This section should be amended to avoid the unintended consequences.

It was suggested that World Space be made subject to the licensing process to avoid further delays in obtaining a licence under Chapter Three of the Electronic Communications Bill. This was because ICASA had to prioritise the conversion of existing licences before turning its attention to licensing new applicants. The company had been waiting since May 2003 for ICASA’s framework on Subscription Broadcasting licensing.

Mr Jim Myers, Worldspace Regulatory Consultant, explained the Worldspace’s commercial rationale for the amendments it proposed.

ICASA Submission
Mr Paris Mashile, ICASA Chairperson, thanked the Committee for granting ICASA "a second bite of the apple". Most importantly, ICASA was constitutionally mandated to regulate in the public interest, and to that extent it was guided by policy and regulation.

Combined with the ICASA Amendment Bill, the proposed EC Bill presented a significant revision to regulation and to the current telecommunication and broadcasting sectors, and was thus critical to the future of the sector. ICASA supported the central purpose of the EC Bill, but wished to make the following general points:

It was critical to ensure that, in consolidating the legislation, there was no dilution of constitutionality required for ICASA in terms of Section 192 of the Constitution and Section 3 of the ICASA Act, and that no unintended consequences arose. The ICASA Amendment Bill and the EC Bill commencement dates must be linked, as they were inseparable.

Ownership, empowerment and control
ICASA would like to take the opportunity to encourage the NCOP to consider its submission with regard to enacting ownership and control amendments. ICASA needed a mandate to deal effectively with empowerment, ownership and control. The recommendations flowed out of a comprehensive policy process that involved extensive public and industry consultation. On 13 January 2004 ICASA launched the position paper on the review of ownership and control of broadcasting services and existing commercial sound broadcasting licences, which contained draft recommendations and the final recommendations were sent to the Minister on 6 May 2004. Those recommendations had to be tabled in the National Assembly as per Sections 49(7) and 54 and 55 of the Independent Broadcasting Act. Alternatively ICASA proposed that they be included in the EC Bill.

Definition of ‘licensee’
A drafting error might result in radio frequency spectrum licenses being excluded from the ambit of the wording of the current definition of ‘licensee’. ICASA recommended that a reference to Chapter 5 be included in the definition, in order to avoid this.

Clause 5(6)
ICASA may only issue invitations to apply for individual electronic communication network licences on a date determined by the Minister. It was important to note the ramifications of that provision for radio licences. Unintended consequences could be for example, that ICASA granted new subscription broadcasting licences next year, and the new licensees might be unable to obtain a licence for broadcasting signal distribution until the Minister determined a date when individual electronic communication licence applications could be invited. Such a situation could unduly prolong the current status quo in the subscription broadcasting market, and it could also lead to constitutional challenges based on Section 192 of the Constitution.

Section 192 required ICASA, to the extent that its work related to broadcasting, to be functionally independent. ICASA thus recommended that broadcasting signal distribution be excluded from the ambit of Clause 5(6).

Clause 74
The current formulation was not appropriate nor was it in line with the normal offences and penalties provision in a piece of legislation. Offences were criminal matters and fell within the jurisdiction of the courts. To the extent that failure to meet licence conditions were criminalised, it would take jurisdiction over licensees out of the hands of ICASA and place it with the courts. This would appear to be in conflict with the very purpose of the creation of a complaints and compliance committee in the ICASA Act Amendment Bill.

ICASA thus recommended that the range of what should be criminalised should therefore be limited to the supply of false information when applying for a licence, the provision of a service without a licence and failure to keep records as required by the Act. ICASA noted that that should be complemented in the ICASA Act Amendment Bill by a range of offences that were particular to that Act. To the extent that the proposed offences contained in this submission were not dealt with by that Act, they should be contemplated in this Bill.

The Committee broke for lunch.

Discussion
Mr Sibiya enquired about World Space’s listing on NASDAQ. What were the benefits of this listing? Related to this, how did the company’s dependence on foreign direct investment impact on the programmes and decision-making processes in the company?

World Space responded that when the company had gone public in August 2005 it shares were available to the public capital markets. This listing had raised an additional $250 million. The company since its inception had raised about $1.4 billion. When a company had its funding and cash needs secured by way of public placements, it could take those proceeds to invest in other markets. Due to the company’s large geography, four different markets were concentrated on: China, India, Africa and Europe. The existence of these kinds of resources coupled with their public listing process, enabled the company to invest directly in countries like South Africa in areas such as purchasing of equipment, employment creation, skills development and numerous entities. Thus the benefit of the presence of big multinational companies such as World Space was its impact on local development. The company has recently made public its intention to invest up to $150 million in India The South African entity hoped to draw on this example so as to make a similar commitment here.

World Space was not totally dependent on foreign direct investment. As global infrastructure was needed to transmit the signal, the kinds of investment needed to fund this infrastructure could only significantly be sourced by foreign investors. Therefore, the critical nature of foreign investment in relation to local investment was apparent. The company followed a strategy of co-investment of both local and foreign investors and not the predominance of one player. The size and scale of satellite investment made it very difficult for the South African sector to absorb this. World Space was the only company to have invested in its own satellite, unlike other companies which leased space from other satellite operators. He stressed their commitment to South African participation in the building of the business base in South Africa.

A committee member commented that World Space’s submission was motivated by self interest. Amendments to public policy such as the Electronic Communication Bill could not be based on the protection of self interest. The Committee could not consider that. If the company had made the necessary investments and provided sufficient services, it would not have a problem with applying and receiving a licence.

Mr Hendricks (ANC) [Western Cape] said that the issue of licence was a critical factor. He asked why there was such a delay in the process of licensing permission holders. Why World Space had not yet secured a licence? He stressed that the company should be privy to broadcasting regulations.

A representative of World Space replied that the company had no framework against which to apply for a licence. ICASA had still to regulate the industry and had only recently issued a position paper and had not yet issued invitations to apply. There was no framework which regulated the entire industry, therefore the company sought the protection of the "deemed permission status" within the Electronic Communications Bill. They were not looking at self interest, but protection.

The framework of subscription broadcasting had to be clarified. There had been a requirement to clarify some provisions in the Broadcasting Act. In 1998/9 a public process had been launched to develop a regulatory framework but the process could not be concluded because clarity had to be sought on amendments to the discussed framework. This had been done in 2002. Subsequently, the process had to be started afresh. Thus an intense process was launched similar to the past process of ownership and control which took about 18 months. That process then brought about the position paper that had been published last year. Currently this was being translated into regulation and an invitation to apply was in the process of being made public. An announcement could be expected within the next few weeks on these issues.

The ICASA representative responded that there was no licensing for subscription broadcasters but there were many players commencing these services. The Act thus stipulated permission to continue at own risk. It did not use the words "deemed to licence". This placed no obligations on companies in terms of content or communities. The law merely prevented competition until a framework had been presented.

The Chairperson thanked all those who had participated. The Committee would consider their proposals and recommendations.

The meeting was adjourned.

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