Telecommunications Amendment Bill: hearings

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
27 September 2001
TELECOMMUNICATIONS AMENDMENT BILL: PUBLIC HEARINGS

Chairperson:

Telecommunications Amendment Bill B65-2001
South African Chapter of the Internet Society submission
Tertiary Education Network submission
Telkom submission
Thintana Communications submission
AT&T Global Network Services submission

SUMMARY
Thintana, AT&T Global Network Services, the Internet Society and the Tertiary Education Network and made representations to the Committee in the afternoon. [There was no morning session]

MINUTES
The Chair noted that the Director General had made a World Trade Organization (WTO) position paper available to the members, which should be taken into account in their deliberations. Copies of press clippings were also available to give members insight into the public debate surrounding the Bill.

Thintana
Donald Cain (SBC International) introduced himself and his delegation, Ray Sulsh, Scott Manneheim (Telekom Malaysia) and Nancy Morgan.

He noted that the strategic equity partnership of SBC and Telekom Malaysia had successfully invested 1,3 billion dollars into South Africa, and this success was based on the vision and objectives of former president Mandela, namely universal access, technological upgrading, societal transformation and value maximization, all of which have been achieved for the most over the last five years, and all of which had benefited the peoples of South Africa.

The new Bill showed the way forward for the next 3-5 years. Its legacy would be universal service (a second national service provider and third cell phone operator), competition (consistent with the 1997 WTO representations, contrary to submissions made at earlier meetings by others) and value maximization (providing room for new infrastructure developments).

Thintana saw the objectives of the Bill as being the following:
· Facilities based competition, which would add value to the industry, add jobs in the manufacturing and software production support area
· Any unbundling of Telkom would provide no incentive for new services, for further maintenance of the old network, etc. and the Bill did not make this mistake
· A second national operator is introduced for which hopefully there would be enough consumers; it is wise to liberalize on a gradual measured basis and the Bill achieves this
· Reciprocal connection requirements are provided, in that the parties are free to negotiate on trade terms but if they cannot agree then the regulator has provided terms in the legislation
· Symmetrical license requirements have been provided for Telkom and the second National operator (SNO), which are appropriate and reasonable and will add value to the sector
· Long term sustainable job creation has been insured in the industry directly and in ancillary services
· Value maximization of the assets of the government i.e. 70% share of government in Telkom, which benefits the entire country

The legislative changes suggested are as discussed in the presentation paper, however additional comments were as follows:
· The Bill was unclear about number portability in s 89, and this should be addressed as the costs may outweigh the benefits.
· There are various types of number portability including location portability (telephone number kept when switching locations), service portability (telephone number kept when switching from landline to cell), and one number for life portability (telephone number kept regardless of location and service provider).
· Only Hong Kong has made portability mandatory so far.
· There is a debate surrounding the recovery of costs associated with portability, with one line of thinking saying only those who use the service should pay, and another saying that everyone should pay because the intrinsic benefit of choice has been provided to all consumers.
· The projected approximate costs for Telkom customers (based on the equivalent USA experience) would be approximately R4 every month for the next 5 years for residential consumers and R20 every month for the next 5 years for business customers
· In the USA 7% of residential customers make use of the portability service and 20% of business customers

In closing, Mr. Cain noted that sometimes when one tries to solve on problem, one creates another; the new Bill however had avoided this.

Discussion
Q: Has the cap on foreign ownership been removed?
A: Mr. Sulsh responded that he supported the removal of the cap and that the SA consumer would benefit from such a move, though it was sometimes difficult to determine the extent of foreign ownership due to the legal structures of investing parties

Q: What was SBC’s Mexican experience?
A: Mr. Cain replied that he was not sure of the ownership limitation on the float of stock in that instance.

Q: How does Thintana feel about the ICASA definition of a VPN (Virtual Private Network)? It is thought that VPN can only be provided by a Public Switched Telecommunications Network (PSTN) over public switches, but what about cellular networks?

A: It was noted that a VPN is defined in the presentation paper. Value Added Network Services (VANS) takes a lot of services away from Telkom and the SNO, and will not benefit rural communities. The principle is that the more people are connected, the more value the network has for everybody. PSTN’s should have proprietorship over the networks. VPNs are not carriers i.e. they can pick and choose their customers. Telkom and SNO are obligated to provide a total service to everyone who requires it, whether this is cost effective or not. A limitation should be placed therefore on the VPN’s services, otherwise ‘cherry picking’ occurs. VPN is not necessarily a private facility; this would be confusing technology with services. Regarding mobile networks, there cannot be a limitation over the provision of services over such a network, unless these services become ‘fixed ‘ in some form or another.

Q: What about the notion voiced by the American Chamber of Commerce in its submission that the Bill would deter foreign investors by falling foul of GATT. What will competition look like after 2002, given the 30% set aside for empowerment purposes and the lack of restriction on foreign business holding in the national provider? Also how practical is it for a user to change and select the SNO?

A: The Bill does not conflict with the WTO document. It adds a second landline service provider and a third cellular service, all of which takes place in accordance with past agreements - and it is not clear where the this conflicts with the WTO agreement. Even after these new introductions, there is still scope for more services and investment. Thintana has no problem with the 30% set aside and no restrictions on foreign investment. Cellular and landlines will compete in the market after 2002.
As regards resale, a consumer would contact the SNO, pursuant to advertising, for the service. The SNO would contact Telkom to make the change and the billing agreement would go hand in hand with this process.

Q: Has Telkom the ability to fairly allow the use of its facilities by other service providers?
How do ordinary South Africans benefit from the new measures?
What about the physically handicapped and disadvantaged communities e.g. how do blind people benefit from liberalization of the communications industry?

A: There have been complaints that there is the provision of illegal services. No resale of VANS is allowed, though this still continues and is difficult to police. It is a question of economies of scale: the collective good as judged by government and private enterprise wanting to get more of the pie. The issue of pre-selection is to be resolved by 2005. In the USA AT&T was ordered to separate its local and long distance traffic, but the practical difficulty of this is vast. A call is call. In the Internet world ‘distance is dead’. Access rates cater for the switching from local to distance and back. The whole issue requires customer education i.e. knowing who one’s service provider is and what they offer.

Q: An article in Business Day did a cost benefit analysis of carrier selection vs. carrier pre-selection. Any comments?

A: Thintana does not necessarily support pre-selection, it is merely that prudence is required here and one should wait until 2005. A significant number of switches cannot handle pre-selection and need upgrades. Pre-selection also has a rates impact. Regarding disabled consumers, in a competitive environment, government must oversee and protect the unprotected; this is what government does best i.e. the provision of special facilities for these people should be part of the licensing agreements e.g. a deaf relay service as provided currently by Thintana.

AT&T
Mr. Glenn Spies, accompanied by Ms Thornton (Attorney) and Mr. Frans Cilliers (Senior Counsel), noted that the Bill seemed to be very restrictive on AT&T’s activities in SA. He stated that current and forthcoming investment by AT&T would have to be reviewed if the Bill was passed as is.

Mr. Cilliers then presented AT&T’s submission (see document) and added the following comments:
· The division of licenses reflects a real division in the global market; if any local legislation such as the Bill makes use of non-customary divisions, this will create havoc.
· The basic service divisions are PSTS (in s 36 of the Act), VANS (in s 40) and PTN (in s 41).
· AT&T supplies VANS under s 40 of the Act
· PSTS is the basic transmission service, common carrier e.g. Telkom i.e. someone who must provide the service to anyone who subscribes. The Bill will provide that this current monopoly will become a duopoly.
· VANS occur where the basic service is used as a facility to carry a value added service, the ICASA definition of which appears in p10 of the submission.
· The proposed Bill carries "hidden cargo", and in passing the Bill as it is, the legislator will create effects "the end of which is unknown to the beginning".
· VANS can only be provided by leasing the basic service from Telkom, and may in addition not carry voice.
· PTN is a private telecommunications network and can carry all manner of services, but is restricted to private use, and is restricted in that spare capacity may not be resold.
· VPN is a marketing term and not a term of art. A VPN has the same advantages as a PTN, but uses the shared public system that is not dedicated to the private purposes of the provider. As such the prohibition in s 45(1) on reselling does not apply and s 41(7) in respect of bypassing Telkom does not apply.
· However, Telkom is, through the change of category/ definitions in the Bill, trying to get hold of this VAN/VPN business. VPN is a desirable ‘apple’, but the Bill defines it as a subcategory of ‘pear’, because Telkom wants to be the only reseller of that service. The categorization in the Bill is factually incorrect, creates a definitional nightmare and results in legal havoc.
· "A fiction always takes its vengeance". Since the Bill’s classification of VPN is a fiction, the Bill tries to support " what has been smuggled in on the peripheries and shadows of spurious definitions and false argument" by factually incorrect justifications.
· This fiction that VPNs are PTNs is the main objection to the legislation. This fiction is unwise, as it destroys the VANS industry, is legally prohibited by the WTO, and can be the subject of constitutional challenge.

Discussion
Q: Mr. Moosa (ANC, NCOP) stated that he was a representative to the WTO and GATT and the issue of conflict with WTO/ GATT is biased and inaccurate. The premise of the WTO/ GATT rules is that all parties, foreign or local should be treated equally and fairly, and the Bill does not contravene this. Thus there will be no sanctions from the WTO.

It is understood that AT&T has made an investment and wants to see a return, and the Committee would wish to engage with AT&T on that level to keep the industry alive and do good business.

Regarding the definition, if PTNs are private and VPNs are not private, but software has enabled VANS to provide similar services to a PTN, then a change in the definition or categorization of a VPN is actually a reflection of the reality of the nature of the service provided?

On the issue of reselling, despite the value added, is AT&T’s business not also a resale of Telkom’s basic service?

A: The submission regarding WTO is not distorted; Telkom is indeed being unfair and a monopoly is fundamentally still incorrect.
On the classification issue, it is correct that a VPN is essentially a PTN i.e. a closed service created by technology, but the nature of the service is the distinctive feature i.e. a PTN is put in for the user’s own purposes and cannot be on sold. This is not the case with a VPN, which is open to general public use and able to be on sold. Private systems should be separated from public systems; VANS should be able to serve many customers, otherwise the industry is dead.
Regarding the concept of ‘resell’, this means something different to the colloquial i.e. the object of the prohibition on resale is where a basic facility is bought in bulk and the same facility is sold on at a profit. This is not the case with VANS, in that AT&T leases the facility from Telkom and then adds value, and it is the added value which is sold to the consumer. The facility is merely used to sell the value added, that is why VANS suppliers do not have the prohibition against resale.
Further, AT&T has invested a great deal in the physical telecommunications network, but this is not the only relevant point. AT&T’s interest must coincide with the public interest. The distinction attempted in the Bill and the monopoly of Telkom will take South Africa out of the global market and this is not in the public interest. The deprivation of AT&T’s ability to trade in its product has contractual and physical repercussions. The Bill essentially effects an arbitrary expropriation, for which massive compensation could be required. Property rights and intellectual property are protected by the Constitution.
Should the Committee accept the submissions of AT&T, the organization would be happy to render any assistance in the redrafting of the legislation.

The Chairperson commented:
- With reference to GATT and the WTO, one should not take for granted what has happened all over the world regarding the negative feeling toward globalization – at the heart of any international treaty should be the benefit of all parties, developed and undeveloped nations. There is always a tension in this area.
- As an investor in another country, the interest to conduct business must be balanced with the expectation of benefits to the people who have invited one into their country - in this country for example the digital divide requires to be addressed.
- The world is not the same after 11 September, and it is now accepted that the State must play a role in many facets of private life, especially in communication regulation e.g. the controversial Interception and Monitoring Bill, which now seems reasonable.
- The Committee does not appreciate the threats of WTO sanctions
- Legislation must address the challenges of our country and not only the sectarian interests of investment into our country. In this regards threats are not helpful and raise the temperature unnecessarily. Our goal is to pass good law.

Mr. Cilliers noted that it was not his client’s brief to threaten and he excused the fact that if such was the appearance then such appearance was created by his delivery alone and did not reside in the attitude of his client.

South African Chapter of the Internet Society and the Tertiary Education Network
The South African Chapter of the Internet Society (ISOC-ZA), represented by Mr Kelvin Brown, and the Tertiary Education Network (Tenet) also made submissions. These presentations were not minuted.