Local Loop Unbundling: briefing by Department

COMMUNICATIONS PORTFOLIO COMMITTEE
5 June 2007
LOCAL LOOP UNBUNDLING: BRIEFING BY DEPARTMENT

Chairperson: Mr G Oliphant (ANC)

Relevant documents:
Local Loop Unbundling – Department of Communication presentation
Proposed Policy Directions – Department of Communication presentation
Department’s proposed policy directions [Gov Gazette 25 May 2007 (Vol. 503, No. 29923)
Local Loop Unbundling Committee Report 23 May 2007
Executive Summary of Local Loop Unbundling Committee Report (see Appendix 1)
Ministry of Communications Media Statement (see Appendix 2)

Audio Recording of the Meeting

SUMMARY
The Department briefed the Committee on the contents of the Local Loop Unbundling Committee (LLUC) Report and the Department’s resulting proposed policy directions. The LLUC was tasked with overseeing the development of the local loop unbundling process and make appropriate recommendations. The unbundling of the local loop has been identified as crucial towards increasing innovation, increase the quality and quantity of services, lower the prices paid by the customers and increase the number of available business opportunities. The LLUC completed its investigations and submitted its report to the Minister who issued the proposed policy directions on 25 May 2007.

Members asked about the termination of the SAT-3 agreements and the integration of Thusong centres and post offices.  Members were concerned about ICASA’s lack of capacity to carry out its responsibilities for unbundling.

MINUTES
Department of Communication (DOC) briefing on local loop unbundling report
Ms Mashila Matlala (DOC Director: Telecommunications Policy) briefed the Committee on the DOC’s Local Loop Unbundling (LLU) project (see attached document). The Local Loop Unbundling Committee (LLUC) had submitted its report and the Minister, Ms Ivy Matsepe-Casaburri, had resleased the draft policy directions on 25 May 2007 for public comment.

The briefing explained the definition of Local Loop (also referred to as the “Telkom last mile”), LLU and the intentions of unbundling. An overview of the four different LLU topologies (full unbundling, line sharing, bitstream access and sub-loop unbundling) was given, as well as implementation and strategic issues, and the recommendations contained in the LLUC Report.

Dr Harold Wesso (Deputy Director-General: DOC) remarked that unbundling was a highly technical and complex process and that much will depend on the work done by the regulator, the Independent Communications Authority of South Africa (ICASA), and on the co-operation of the incumbent (Telkom).  The purpose of the LLUC’s investigations was to determine what was involved in unbundling, how it must be dealt with and how long the process would take.  He said that South Africa had the benefit of the experiences gained by other countries.  The LLUC had concluded that most of the unbundling process was achievable within four years and that the first results can be seen within one year.

Discussion
Mr Oliphant asked if the LLUC had disbanded.

Ms Matlala replied that the LLUC had fulfilled its brief but that it may be required to consult with the Minister and she may decide to reconvene it in future.

Mr M Mohlalonga (ANC) congratulated the LLUC for the work it had done and remarked that there was significant intellectual capacity resident in the committee.  He asked which topology was applicable to which market segment.

Ms Matlala replied that the type of topology would depend on the needs of the customers in the various market segments.  She stated that the availability of more than one topology increased flexibility and allowed operators to offer a range of services in their chosen market segment.  She added that the regulator gave guidelines for the different topologies.

Mr Mohlalonga commented that there was an existing infrastructure backlog in the country and asked what scenario was envisaged for the rollout of infrastructure in terms of unbundling.

Ms Matlala replied that there were examples in other countries where parts of the infrastructure were sold off by the incumbent to new entrants.  In such cases any infrastructure development depended on the arrangement made between the incumbent and the new entrant.  She added that the regulator may determine the level of access required in a particular area and that the provision of additional infrastructure to provide the necessary service will be the responsibility of the operator in that area.

Mr Mohlalonga asked what measures were in place to compel the incumbent to ensure the continued provision of service by maintaining and upgrading the existing infrastructure.

Ms Matlala replied that the responsibility for the maintenance of the existing local loop remained with the incumbent.  She mentioned the example where British Telecom (BT) formed a company (OFCOM) to manage its infrastructure and to ensure continued access by maintaining and upgrading the existing infrastructure.  She added that, in the case of true unbundling, the operator will be responsible for the maintenance of its own infrastructure.

Mr Mohlalonga asked if Newtel (the new service provider who had entered the market and was installing its own infrastructure) was also subjected to local loop unbundling of its own “last mile”.

Ms Matlala replied that she was not sure how far the new entrant had progressed but that all operators were subject to the Electronic Communications Act (ECA).  The operator had to indicate to the regulator what infrastructure it intended to provide in terms of its licence.  She thought that the new operator’s own last mile needed to be accessible by other operators.

Mr Mohlalonga asked if any interaction had taken place between the LLUC and Telkom and if the incumbent’s attitude to unbundling was known.

Ms Matlala replied that the LLUC was independent of the DOC.  She was aware that meetings were held with officials from Telkom, the regulator and other operators but she was unable to comment on the outcome of the discussions.

Ms D Smuts (DA) remarked that in terms of the ECA, the regulator was responsible for ensuring the provision of essential facilities.  The Minister had appointed her own committee but it has no jurisdiction and must be disbanded.  She welcomed the sense of urgency that was conveyed by the Minister but felt that the time scale for implementation was ambitious.  She noted the Department’s confidence in carrying out the process but expressed reservations about its ability to do so in the given timeframe.

Ms Smuts observed that at the time the second national operator (Newtel) entered the market, the issue of unbundling was crucial.  She pointed out that Newtel may no longer be as dependent on the copper loop as it was using wireless technology to meet the increasing demand for wireless access.

Ms Smuts compared the recommendation that a new entity be formed by the incumbent to provide utilities and service management on terms and conditions agreed by the DOC to the situation in Britain with BT and OFCOM.  In that case it was found by OFCOM that it was impossible to cut off the dominant incumbent from the process.  She pointed out that as the major shareholder in Telkom, Government will have to attend a board meeting to adopt a ruling to form a new unit.

Mr Oliphant remarked that the recommendations on best practice contained in the report were more extensive than those given in the presentation.  He noted Ms Smuts’ concern that there may be loopholes in the recommendations.

Ms Matlala replied that the DOC was in the process of studying the report and that any decision made regarding the recommendations will be in terms of what was best for the country.  The formation of a separate entity was a good idea in full unbundling and pointed out that it may be decided to apply one or more of the other topologies in different parts of the country.

Mr Oliphant remarked that it was a complex issue and that there were no easy answers.

Mr Mohlalonga repeated his earlier questions regarding the rollout of infrastructure and whether Newtel’s “last mile” will be subject to LLU.

Ms Matlala replied that she does not have access to Newtel’s business and technical plans.  She said that unbundling and the maintenance of infrastructure were two separate issues and that maintenance of the existing infrastructure was the responsibility of the regulator.

Ms Lyndall Shope-Mafole (Director-General – DOC) advised that discussions were held with the CEO of Newtel, who had indicated that unbundling remained an important issue.  She pointed out that the bulk of the business came from corporate clients, who had different demands for technology than those from private households.  Whilst wireless technology was important for households, businesses relied more on copper and fibre-optic lines and building its own infrastructure was too expensive.

Ms Shope-Mafole remarked that the department had the opportunity to learn from the experience of other countries and that this allowed it to save time in the implementation of the unbundling process.  The DOC had the skills and ability to implement the most crucial parts of the process by 2011.

Mr Oliphant concluded that the Committee would like to know what the attitude of the incumbent was as well as the readiness of ICASA to take on the challenge.

Department briefing on the proposed policy directions
Ms Matlala gave the background to the changes in policy directions, summarised the national objectives and listed the issues raised by the repealed Telecommunications Act of 1996 and the Electronic Communications Act of 2006 that had replaced it.  She explained that the policy decisions were taken to promote open access to and the affordability of electronic communication.  The policy directions to the regulator were to allow for the privatization of communication services to be implemented as soon as possible.

Discussion
Ms Smuts referred to the first paragraph in the draft policy directions and asked why the date of 1 November 2007 was decided on to declare the exclusivity provisions in the SAT-3 agreements null and void.  She understood that the members of the SAT-3 consortium were Western European telecommunications companies and asked why the Minister was consulting with governments on the matter.

Ms Matlala replied that the terms of the SAT-3 agreements were complex and the DOC was engaging with Telkom to establish which agreements were ceasing to exist. The Minister was engaging with other governments to establish what their approach was when their agreements with SAT-3 came to an end.

Mr Oliphant wanted to know if only some agreements were to be declared null and void.

Ms Smuts remarked that contracts between parties cannot be revoked and that the Minister can only consult with them on the matter

Ms Shope-Mafole answered that the Department did not want to regulate other people. The Minister cannot hold talks with other companies but can talk to other governments.  She explained that the DOC was responsible for implementing the law and that a six month lead time was considered sufficient to obtain comment and to formulate strategies to meet the Department’s objectives.

Mr Mohlalonga noted that the second and third paragraphs in the draft policy directions referred to Thusong Centres (previously known as Multi-Purpose Community Centres), Thusong Post Offices and South African Post Office (SAPO) post offices.  He asked for clarity on the authority, whether there was going to be integration between the post offices and the centres and what was the difference between the two. 

Ms Shope-Mafole replied that the implementation of the Thusong Centres was coordinated by GCIS.  She said that connectivity was one of the key issues and the DOC was responsible for ensuring that the centres and the various government departments were connected.  She explained that it was decided to use and expand the existing structure of the post offices as they were identified as the core access points.  She said that the process of converting the SAPO offices was underway and that it involved several government departments.  The DOC was responsible for implementing connectivity where it was not yet in place.

Mr Mohalonge asked how many Provincial Under Serviced Area Network Operators (PUSANO) will be established.

Ms Matlala replied that there will be seven provincial operators.

Ms Shope-Mafole added that the definition of what constitutes an ‘under-serviced area’ was currently being debated and that the context and applicable criteria need to be established.

Mr Mohlalonga was concerned about the capacity of the regulator to carry out its tasks in the unbundling process.  He said that, in terms of the ECA, there were many responsibilities that have to be completed by ICASA within the set deadlines and wanted to know if the regulator had the financial and human resources to do so.

Ms Shope-Mafole replied that the lack of funding and capacity was a general problem and that the DOC was committed to service delivery in spite of the constraints on its capacity.  She said that the DOC appreciated the pressure on ICASA in terms of its capacity and had held a number of discussions with the regulator to determine both its long- and short term needs.

Mr Oliphant concluded that unbundling was still a work in progress and adjourned the meeting.

Appendix 1:

Executive summary Local Loop Unbundling Committee Report

This report is a response to the mandate by the Honourable Minister Ivy Matsepe-Casaburri for the Local Loop Unbundling Committee (LLUC) to recommend how Telkom’s last mile network should be unbundled.  Unbundling is intended to facilitate affordable open access, lower prices of telecommunications and offer a wide choice of access to ICT services. Such open access and customer choice will not be meaningful without ensuring that customers can switch between service providers expeditiously. The overall task of the committee was to investigate possible local loop unbundling (LLU) methods and to make appropriate recommendations in this regard.  In this report, the local loop is that portion of the telecommunication network that is situated between the end of subscriber’s telephone connection and the Main Distribution Frame (MDF), where all the user lines come together before being connected to the telephone exchange.

In this report the LLUC has assumed that the local loop will continue to be owned by Telkom, and therefore this report does not deal with issues of ownership. Furthermore the report does not deal directly with the pricing of access to the local loop.

This report covers the technological aspects, legal and regulatory issues, as well as the economic implications of unbundling the local loop.  Firstly, the report gives a general introduction on issues around unbundling the local loop, including the characteristics of the incumbent operator and new entrants, and gives the background to broadband technologies and relevant applications. Secondly, the report explains the forms of collocation in the unbundled local loop, the LLU methods and explains the technical limitations of the process of the LLU. Thirdly, the report discusses the issues relevant to the implementation of the LLU, the incumbent’s anticipated response to this process based on foreign experience as well as strategic issues that need to be considered in the process of the LLU. Fourthly, the report explains the economic, legal and regulatory impact of the process of the LLU. Lastly, the report presents a design and implementation process based on case studies for the LLU from countries such as the USA, Europe and Asia.

Based on the above the LLUC has come up with the following recommendations:

·         That it is appropriate to have a combination of three unbundling models, namely,

o        Full unbundling

o        Line sharing and

o        Bitstream (wholesale) access

·         That a new facilities and services management entity be formed by the incumbent on such terms and conditions as shall be agreed with ICASA (Refer to case studies in this report). 

·         That the pricing levied by the incumbent for access to the local loop be regulated.

·         Regardless of who owns the local loop, any operator appropriately licensed by ICASA should have access to the local loop to deliver voice and/or broadband services.

·         The regulator should implement carrier pre-selection as soon as possible so that customers would have a choice on who would transmit voice and data on the local loop infrastructure to their premises regardless of who owns the local loop.

·         That any form of collocation of facilities for LLU be fully allowed as may be necessary to ensure flexibility and reasonable access to the LLU for the new entrants.

·         The costs of collocation must be regulated taking into account factors such as cost of renting space, electricity and security

·         That ICASA be capacitated to physically inspect the incumbent’s premises to establish the size, location and other information about the incumbent’s premises as may be required for the implementation of the unbundling of local loops.

·         That a regulatory guideline be developed and overseen by ICASA to ensure that strategic issues such as the quality of the local loop, its maintenance, technical compatibility are optimized for regulation and service delivery.

Based on these recommendations the LLUC believes that customers will be able to:

• Select carriers of their choice for the transmission of voice and/or data
• Exercise carrier pre-selection choice as effortlessly as possible.

It is postulated in formulating this report that the implementation of the LLU process should improve the prospects for better pricing, affordable services and improve the quality of services.

Appendix 2:

MEDIA STATEMENT    25 May 2007

MINISTRY OF COMMUNICATIONS CLARIFIES THE PROCESS OF UNBUNDLING THE LOCAL LOOP

The Business Day’s lead story of the 25^th May 2007 headlined “Minister adds four years to Telkom’s monopoly” which was quite amazing in its lack of understanding of Communications Minister Dr Ivy Matsepe-Casaburri’s Budget Vote Speech delivered on Thursday, 24^th May 2007.

In her speech before Parliament, Minister made several policy decisions and directives on a wide-range of issues in the Information and Communications Technology (ICT) sector, with the unbundling of the local loop as one of the areas of Minister’s speech. The unbundling of the local loop has been identified by the department as key to facilitating affordable open access, lower prices of telecommunications and offer a wide choice of access to information and Communications Technology services.

To say that by putting a deadline of 1 November 2011 would be extending the monopoly of Telkom is not only unfair, but a clear misrepresentation of facts in an embarrassing and unfortunate manner. The journalists concerned should have informed themselves enough to see how other countries have gone about opening the last mile for the benefit of all the players. Actually we are advocating a process that will be faster than what has been witnessed in other countries such as the UK which, is still to complete an unbundling process started in 1998.

Nobody has ever achieved these efforts in less than four years as it takes about 8 to 10 years for the unbundling process to be completed. We in South Africa are proposing lesser time to ensure that we open up the local loop to competition which will increase the quantity and quality of services, lower the cost to communicate and increase the number of available businesses. The process is only complete when customers are exercising their choice of receiving their telecommunications services from any operator that is licensed by ICASA.

ICASA will take the recommendations of the Committee into consideration. ICASA must also make sure that South African specific factors are taken into consideration.

It would be helpful if the media does not confuse issues but instead assist people understand a complex process which is not an event.