Electronic Communications Amendment Bill: hearings

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
31 October 2007
ELECTRONIC COMMUNICATIONS AMENDMENT BILL: HEARINGS

Chairperson: Mr I Vadi (ANC)

Documents handed out:
Electronic Communications Amendment Bill [B 38-2007]
Electronic Communications Amendment Bill No. 38 ot 2007
Sentech presentation
Cell C presentation
M-Net, MultiChoice and Orbicom presentation
Internet Service Provider’s Association submission
Internet Society of South Africa submission
Independent Communications Authority of South Africa submission
National Association of Broadcasters presentation
Vodacom presentation
Internet Solutions presentation
Telkom presentation
Smile Communications presentation
Neotel presentation
MTN submission

Audio recording of meeting

SUMMARY
The Electronic Communications Amendment Bill empowered the Minister of Communications to issue a policy directive to the Independent Communications Authority of South Africa (ICASA) for the licensing of a public entity. The Bill allowed for the licensing of Infraco, the state-owned provider of wholesale communications network services. Thirteen organisations submitted oral representations on the proposed amendments. All supported government’s objectives for the communications sector but objected to the proposed amendments to the Electronic Communications Act. Clarity on the intentions of the Bill was requested. The current Act was considered to be adequate for the licensing of any type of entity. The major objections were that the proposed amendments resulted in renewed state intervention in the communications industry and constituted a violation of section 192 of the Constitution (which protected the independence of ICASA). The proposed amendments contradicted provisions in the Electronic Communications Act and the ICASA Act and compromised the licensing process. The submissions included alternative suggestions to provide for the licensing of state-owned enterprises. The suggested solutions however allowed for multiple licenses to be issued by ICASA to other applicants, who will then compete with the state-owned entity. The industry welcomed the competition and was opposed to any preferential treatment of state-owned entities. Delegates warned of potential legal action against ICASA and challenges in the Constitutional Court. Should the amendments be absolutely necessary, it was more appropriate to amend section 3 of the Act.

The need for State intervention in the licensing of state-owned entities was accepted by the Cabinet. Members shared the concern of the industry that the proposed amendments had far-reaching consequences. Members requested clarity on the objections raised in the submissions and asked for suggestions on the specific wording of the amendments. Questions were asked about the desirability of issuing multiple licenses for services considered by Government to be of a strategic nature.

MINUTES
Sentech submission
Mr Dingane Dube (Executive – Regulatory and Government Affairs, Sentech) proposed an amendment to section 2 of the Bill, which provided for the insertion of subsection 13 to section 5 of the Electronic Communications Act (ECA). The proposal was that paragraph (b) of subsection 13 of section 5 applied only to public entities in which state held 75% or more of the shares in the relevant public entity. This would be in line with the provisions of the Broadband Infraco Bill.

Sentech proposed that the Public Finance Management Act (PFMA) and the Sentech Act were amended to make Sentech a Section 2 company and allow Sentech to compete with Infraco on an equal footing. Current legislation imposed onerous borrowing constraints on Sentech, which were not applicable to Infraco.

Discussion
Ms M Smuts (DA) said that, although Members were sympathetic to Sentech’s plight, the hearing was not the appropriate time or place to deal with Sentech’s proposal to amend the PFMA. She noted that Sentech’s proposal was limited to subsection 13 of section 5 and did not address the proposed amendment to the ECA that allowed the Minister to intervene in the issuing of licenses by the Independent Communications Authority of South Africa (ICASA). She asked for clarity on Sentech’s position on this issue.

Mr Dube replied that Sentech regarded Infraco as a major threat (he used the analogy of a crocodile). The re-classification of Sentech was a priority and the only way to deal with this threat.

Mr R Pieterse (ANC) said that the purpose of Infraco was to provide infrastructure to operators at a wholesale rate and asked whether Sentech and Infraco should not enhance each other’s roles rather than be competitors.

Mr Dube replied that as Sentech focused on wireless and Infraco on cable technology, the issue was the shareholding. From a policy and regulatory point of view, both organisations were on the same footing.

Ms C Nkuna (ANC) asked for further clarification of the onerous borrowing constraints mentioned in the presentation.

Mr Dube explained that as a Schedule 3 company, Sentech had to obtain the concurrence of the Ministers of Communication and Finance to enter into financial arrangements with other companies. This was a lengthy process and resulted in the loss of opportunities. The restriction did not apply to a Section 2 entity.

Mr P Hendrickse (ANC) said that the Portfolio Committee on Public Enterprises, of which he was a Member, advised Sentech to discuss its classification with the Minister of Public Enterprises. The matter of the State becoming involved with broadband services was dealt with in deliberations on the Broadband Infraco Bill. It was not appropriate to deal with Sentech’s objections to its classification in this hearing.

Ms Smuts concurred and said that the issues under discussion extended beyond Infraco.

Mr Dube replied that the matter was taken up with the Minister of Public Enterprises as recommended by the Committee. The re-classification of Sentech was a critical issue and he wished to place Sentech’s position on record. He pointed out that the Portfolio Committee on Public Enterprises referred the matter to the Portfolio Committee on Communications to be dealt with.

The Chairperson said that the matter will be followed up at a later stage. He thanked Mr Dube for his presentation.

Cell C submission
Ms Zeona Motshabi (Chief Corporate Officer, Cell C) introduced the delegates from Cell C and gave an outline of the presentation to the Committee. Mr Shumani Gereda (Manager – Licensing and Policy, Cell C) outlined the current licensing framework as provided for in Sections 5(1), 9(1) and 9(2)(a) of the ECA. In terms of the ECA, only ICASA may grant a license. Cell C submitted that the phrase “any person” referred to in the ECA included public entities as defined in the PFMA. Section 3(3) of the ECA made it clear that the Minister did not have the power to grant a license. The ECA specified that the granting of licenses was the responsibility of ICASA and set out the process that must be followed for applications for licenses. Applications may only be submitted after an invitation to do so was issued by ICASA. The Minister retained the right to issue policy directives. Cell C submitted that there were no grounds for the proposed amendments to the ECA and suggested that section 3 of the Act (rather than Section 5) was amended to allow for ministerial intervention for strategic purposes.

Discussion
Ms Smuts agreed with Cell C’s position that amendments were not necessary and said that if the Minister had issued policy directives under section 5 (6), the granting of a license to Infraco could have been proceeded with. She understood from discussions with the Department of Communications (Department) that the intention of the amendments was to allow for the licensing of Infraco to proceed without resulting in a “beauty contest”. The proposed amendments however went far beyond that objective as it created a new licensing regime. The Department had indicated that the need for state intervention was seen as desirable but this was contrary to the intention of the ECA. She asked if Cell C agreed with the implication that other entities would be able to apply for licenses if the Minister issued a policy directive that allowed Infraco to apply for a license.

Mr Gereda said that was correct.

Mr Hendrickse asked for clarity on the Cell C position. He wanted to know if the company objected to the proposed amendment itself or to the involvement of the State.

Mr Gereda replied that Cell C objected to both and saw no need for the Minister to be granted extra powers.

Mr Hendrickse said that the intention was to allow the State to enter the market and the purpose of the amendments was to allow state-owned entities to do so rather than private companies.

Mr Gereda replied that the ECA established ICASA as the authority to grant licenses and he did not see the need for the Minister to do the same.

Mr Hendrickse said that the intention was to include conditions for the application of licenses by state-owned entities and that ICASA will remain as the licensing authority.

Mr Gereda replied that ICASA can issue the license without the proposed amendments.

Ms Smuts said that the problem was that ICASA was being told what to do by the Minister.

Mr E Sikhumbuzo (ANC) said that the Cabinet had approved the need to intervene and asked for suggestions to amend section 3 in a manner that would meet with the approval of the industry.

Mr Gereda replied that section 3 granted the power to the Minister to issue policy directives and should that occur, he assumed that section 5(6) would still apply. The processes to be followed were set out and state-owned entities were subject to the same requirements and conditions as any other entity.

Mr Sikhumbuzo pointed out that although the current ECA allowed anyone to apply for licenses, Infraco was already identified as the state-owned entity the State wished to be licensed. He asked how the amendment could be phrased to be acceptable to the industry and also achieve Government’s objective.

Mr Gereda replied that the intentions of the proposed Amendment Bill were not made very clear and said that Cell C would be able to respond with specific suggestions once they were aware of the underlying intentions.

Mr Pieterse agreed that responsibility for the granting of licenses should remain with ICASA. He said that the main purpose of the establishment of Infraco was to reduce the cost of communication. There could be other applicants for licences but there was no certainty that services will be provided at a lower cost. There was a need to ensure that the license was not granted to anyone else as the reality was that so far the industry had failed to reduce the cost of communication.

Ms Motshabi agreed that costs needed to be lower. Cell C believed that its submission on the proposed amendments would allow it to provide services at a lower cost. It was necessary to consider other regulations as well.

Mr C Wang (ANC) agreed that ICASA’s regulatory and licensing role should remain. He agreed with Mr Hendrickse that ICASA should be provided with the tools to deal with the granting of special licenses.

Ms Smuts said that the ECA made it clear that the Minister may give policy direction but may not deal with licensing. She said that it was being assumed that other companies were not interested in providing the services envisaged for Infraco when in fact there were two expressions of interest from private enterprises. She asked Cell C to clarify their opposition to the proposed definition of “public entity” and to explain why it was considered to be undesirable.

Mr Gereda replied that section 1 of the ECA included public entities under the definition of “a person”. “Public entities” as defined in the PFMA included the South African Broadcasting Corporation (SABC) and Telkom, which were already licensed by ICASA.

Mr Sikhumbuzo was aware of the provisions under section 3(3) prohibiting the interference of the Minister in licensing affairs. He respected the point made that there should be no interference with the regulator (i.e. ICASA). He asked again how the amendments can be made in a manner acceptable to all parties as it was not sufficient to merely state that the amendments were disagreed with.

Ms Smuts pointed out that the submissions were made on the amendments proposed by the DOC and the parties present at the hearing had to be allowed to have their say.

Mr Sikhumbuzo said that the Committee was not married to the proposed amendments and any alternative suggestions were welcomed.

M-Net, MultiChoice and Orbicom submission
Ms Karen Willenberg (Director – Regulatory and Legal Affairs, M-Net) introduced the delegates and gave an outline of the presentation. Mr Aynon Doyle (Manager – Regulatory Affairs, MIH Group) said that M-Net agreed with the point made by Cell C that the ECA in its current form was conducive to achieving Government’s objectives. He referred to the provisions under sections 5(6) and 3 of the Act and warned that the proposed insertion of subsection 13 into section 5 will result in the Minister violating Section 192 of the Constitution. M-Net believed that the public process specified by the ECA must be followed. The ECA introduced the concept of managed liberalisation and government’s objectives can be achieved by allowing normal market forces to operate without State intervention. Provision was also made for ICASA to convert existing licenses.

Ms Amanda Armstrong (Director, Werksmans) discussed the adverse implications of the proposed amendments. The inclusion of subsection 13 into section 5 introduced a separate framework for the licensing of public entities. The meaning of “public entities” was understood to be as defined in the PFMA and included major players in the communications sector such as the SABC, Sentech, Telkom, Vodacom, Eskom and Transnet. The insertion of this clause served to further entrench these entities and conflicted with Government’s policy of managed liberalisation of the sector. Favourable licensing conditions for public entities resulted in unfair competition with the private entities operating in the sector. Section 192 of the Constitution would be violated as ICASA would no longer be an independent authority. The independence and impartiality of ICASA in terms of the ICASA Act and in terms of section 3(3) of the ECA would be compromised. M-Net proposed that paragraph (d) of section 2 of the ECA was amended by inserting the phrase “including strategic ICT infrastructure investment” into the existing clause. This would allow the Minister to issue a policy direction to ICASA to achieve Government’s objective in respect of Infraco.

Discussion
Ms Smuts asked whether the amendment to Section 2(d) suggested by M-Net would still result in a “beauty contest”. She realised that the proposed amendments to the ECA had implications for broadcasting services as well and recalled the difficulties experienced when the Broadcasting Act was amended to allow the SABC to apply for a license to provide regional television services.

Ms Armstrong replied that if the Minister issued a policy directive and ICASA issued an invitation, other entities would not be precluded from applying for a license. Given the constitutional and competition imperatives, M-Net saw no harm in this and considered the expansion of competition in the sector to be a good thing.

Mr Doyle confirmed that the amendment to the Broadcasting Act was drafted in such a way that the SABC was obliged to apply for a regional broadcasting license within the specified timeframe. He recalled that ICASA had to develop a policy framework for the SABC’s license application and although the license was issued, the SABC had not yet made use of it.

Mr Pieterse asked whether it was possible that, after due consultation with the Cabinet, the Minister could issue a policy directive that would exclude potential competitors and ensure that the license was issued to the desired candidate.

Ms Armstrong replied that the challenge was to draft the directive in such a way that it achieved Government’s objective without violating the constitutional provisions. It must be phrased in a neutral manner that did not restrict or specify who may apply for the license. Obviously, Infraco would be one of the applicants but others may also apply and ICASA might consider all the applications impartially and based on merit.

Adv P Swart (DA) agreed with Ms Armstrong and acknowledged the need for Government intervention in the granting of a license to Infraco. Given the intentions of government and the clear indication that the Amendment Bill was designed for Infraco, he wondered whether there was a risk that ICASA’s decision to grant a license to Infraco would be challenged in court by one of the losing competitors.

The Chairperson commented that a façade of a fair and open process was being created when everyone knew that in reality it was a closed bid by Infraco.

Adv Swart asked how the objective can be achieved without impeding on the independence and impartiality of ICASA as envisioned in the Constitution.

Ms Armstrong replied that Infraco will be subjected to fair competition. It was imperative that ICASA dealt with all applicants and followed a licensing procedure in a fair and substantive manner.

Mr Pieterse said that well-crafted policy directives issued by the Minister after consultation with Cabinet was the answer and that amendments to the ECA and the Constitution must be avoided.

Mr Wang assumed that the proposed Amendment Bill was checked against the Constitution by the Departments law advisers. Infraco was not created with the intention of competing against non-state-owned entities and it could be considered to enjoy an unfair advantage. Other public entities in which government owned a minority share could be affected. He asked whether the amendments should not be limited to entities where the Government held the majority shareholding and whether state-owned entities utilised for strategic purposes should not enjoy privileged treatment.

Ms Armstrong agreed that amendments to the ECA should be minimised and considered that no changes were necessary. She suggested that objectives were clearly stated and that amendments were limited to support the objectives for ICT infrastructure.

In response to Mr Wang’s question, Mr Doyle said that the purpose of the ECA was to create a level playing field and that privileged treatment of state-owned entities would counter-act that. He pointed out that Government’s goal of universal access to telecommunications services was achieved by the independent operators rather than by the state-owned monopoly of Telkom. He did not regard government interference as conducive to providing better services. There were a number of players in the market who were interested and who should be allowed the opportunity. He said that the proposed amendments extended beyond the issue of Infraco’s license and suggested that the objectives were amended without violating section 192 of the Constitution. He warned that a level playing field would attract foreign investment but attempts by Government to protect certain entities would be a discouragement.

Ms Smuts urged the repeal of Section 5(6) of the ECA and said that the problem was policy failure rather than market failure. M-Net’s proposal was an elegant solution and it was clear that the content of the policy directive was important. She asked if the specific objectives of Infraco (e.g. the provision of wholesale, cost-based services, etc.) should be included under section 3 or included in the brief to the Minister on the policy directives. She remarked that local operators were waiting for ICASA to issue the regulations that would allow them to build their own infrastructure but an amendment to the ECA that allowed Government intervention could discourage local enterprises from making further investments.

Ms Armstrong cautioned against including such detail in the statute. It was desirable to remain fluid in a very fast-moving sector and it was better to provide the detail in the policy directives. The directives would also provide guidance to ICASA in the future.

Internet Service Providers’ Association (ISPA) submission
Mr Mike Silber (Regulatory Adviser, ISPA) briefed the Committee on the background and membership of ISPA. The Association was concerned by the lack of a clear context for the proposed amendments as no green or white papers were issued. ISPA understood that the acquisition of ESKOM’s Easytel and Transnet’s Transtel communication networks by Infraco included the licenses issued under the Telecommunications Act of 1993 to those entities and asked whether it was not possible for the existing licenses to be converted by ICASA and transferred to Infraco. It may therefore not be necessary to issue a new license to Infraco at all.

The proposed amendments introduced a parallel licensing framework for public entities and opened the door for infinite state intervention in the communications sector. A comparison between the objects of the proposed Amendment Bill and those contained in the ECA was drawn. Mr Silber illustrated how the proposed amendments impacted negatively on objects (d), (f), (h), (j), (y) and (z) in particular. He emphasized the implications for BEE initiatives and the fact that no investigation took place in terms of section 4(b) of the ECA, which was considered by the Committee to be a significant safeguarding mechanism.

The existing five major entities dominated the market but they had so far failed to achieve the objectives for pricing and market penetration. The subsidiaries owned by public entities were also considered to be public entities. ISPA considered the definition of “public entity” in the PFMA to be inappropriate in the context of the ECA as it included local government entities such as municipalities. The licensing of yet another public entity in addition to opening the door for many more such entities to enter the market was a major concern.

ISPA argued that the scope of the amendment was too broad (if the intention was merely to license Infraco) or too narrow (if the intention was to change the make-up of the electronic communications market). It was imperative that the intentions of the amendment were clarified and that the investigation as required by section 4(b) was carried out. The wider implications required further debate. The restrictions on Infraco and a pre-emptive declaration of its facilities would be useful for the market to consider acceptance of the preferential treatment enjoyed by state-owned enterprises and public entities.

Discussion
Ms Smuts asked the representatives from ICASA to comment on the possibility of converting the licenses issued to Easytel and Transtel.

Mr Sikhumbuzo commented that the definition of “public entity” required further consideration.

Mr Pieterse remarked that a degree of predictability was required. At the time of drafting the ECA, the possibility of Infraco was not a consideration. It was not desirable to change the Act every time a new intervention was required. He asked for suggestions on drafting the amendment to the ECA to cater for future requirements.

Mr Silber was encouraged by the Members’ responses and said that there were a few options that would require further debate. He said that the ECA indicated an application and a process that needed to be followed but did not indicate a “beauty contest”. There were other ways of issuing licenses without prescribing to the Authority on how it should carry out its responsibilities. He suggested that the amendment was restricted to the Infraco intervention only and avoided ongoing amendments to the ECA as a result of future state interventions.

Internet Society of South Africa (ISOC) submission
Mr Alan Levin (Past Chairperson, ISOC) extended the apologies of Mr Glen Thompson and provided an overview of ISOC. Although the society agreed with the objectives of the Amendment Bill, it was concerned about the methods used in achieving them, in particular in regard to public entities. The cost of internet access had reduced in recent years as a result of increased competition and this scenario should be encouraged. He cited the example of a recent announcement by Infraco that it would reduce the cost of internet access by 20%. A competitor announced an 80% reduction before Infraco countered that it would reduce costs by 85%. The industry was concerned by attempts made by the Department to block private enterprise in the sector as this discouraged the industry-competitive environment required by foreign investors.

Mr Levin said the challenge was to provide universal access. The fundamental issues were price, cost-effectiveness and reach and these issues needed to be addressed to encourage BEE initiatives in the sector.

He urged the Committee not to allow the Minister to have any power over ICASA as this would undermine the Authority’s independence. He recalled that the ICT Act included a national ICT strategy, which had similar objectives. The strategy had not yet been developed. Spam was a major concern for the industry yet there was still no legal precedent for dealing with it. Mr Levin offered to provide the Department with a list of other outstanding issues arising from the ICT Act that required attention. He said that the Committee had to proceed with the Bill if it was a good idea and there was no other way for the Minister to deal with the licensing of Infraco but there were more important things to dwell on if it was a bad idea.

Discussion
Ms Smuts was concerned by the implication that costs could in fact rise as a result of the creation of a new entity.

Independent Communications Authority of South Africa (ICASA) submission
Dr Marcia Socikwa (Councillor, ICASA) briefed the Committee on ICASA’s submission. ICASA was finalising the terms and conditions applicable to all converted and new licensees. It was recommended that the definitions of “public entity”, “state-owned enterprises” and “state entity” were inserted in section 1 of the ECA. ICASA cautioned against introducing a duplicate licensing framework and seeked clarity on the framework applicable to entities where the State held more than 25% of the shareholding.

ICASA recommended that the contemplated licensing framework was included under section 2, that the powers of the Minister were provided for under section 3 and that sections 5(6), 9(1) and 9(2)(a) and (b) of the ECA were amended to exclude electronic communications network services (ECNS) from a competitive licensing process. Additional proposals included limiting strategic infrastructure interventions to wholesale services, providing services on a non-discriminatory basis, providing access to networks on a cost-orientation basis and including requirements for financial accounting and the methodology used to determine the cost of services.

Discussion
Ms Smuts asked if the proposal to amend Section 9(2) avoided a “beauty contest” in the granting of a license. She recalled a clause in the Telecommunications Act that allowed for the auctioning off of the frequency licenses, which was then used for unintended purposes because it was badly drafted. She wished to avoid similar problems in the wording of the Bill and requested more information from ICASA on their recommendations.

Dr Socikwa replied that Section 9(2)(a) and (b) related to the historically disadvantaged individuals (HDI) threshold of state-owned public entities, ITA and the criteria for the reduction of costs.

Mr Wang said that the aim of the Bill was to address the need for a special licensing framework for public entities and asked whether ICASA considered the Amendment Bill as the most appropriate way to achieve this aim.

Dr Socikwa replied that ICASA suggested that the proposed amendment should be inserted under Section 3(3) of Chapter 2 of the ECA rather than under Chapter 3 (which dealt with licensing frameworks).

Ms Smuts disagreed that Section 3(3) was the best possible place for the amendment.

Adv Swart requested a reply to the earlier question asked by Ms Smuts regarding the possible transfer of an unused license to Infraco.

Ms Zolisa Masiza (Councillor – ICASA) replied that the matter was discussed with the Department of Public Enterprises but the response was that the license issued to Transnet was required for critical core transport network activities and was not available for transfer to Infraco.

Dr Socikwa added that Infraco did not have an existing license that could be transferred.

Ms Smuts said that she understood Mr Silber’s point to be that Infraco would acquire existing licenses from ESKOM and Transnet.

Dr Socikwa replied that the matter was discussed on several occasions and ICASA was unable to establish whether Infraco was taking over the Easytel and Transtel licenses.

Mr Sikhumbuzo said that Infraco was taking over certain assets from Eskom and Transnet but the licenses were not included in these assets.

Dr Socikwa said that, based on their submissions during the process of converting the licenses, it would appear that ESKOM and Transnet wished to retain the licenses. In response to Ms Smuts’s earlier comment, she said that if strategic interventions were included in chapter 3, additional amendments to the ECA would be necessary. ICASA therefore recommended that the section where the Minister’s powers were defined was amended.

National Association of Broadcasters (NAB) submission
Mr Johann Koster (Executive Director, NAB) provided an overview of the NAB and said that the Board shared the same three main concerns that were raised by the other organisations during the hearing, i.e. the potential violation of section 192 of the Constitution, the broad definition of “public entity” and the contradictions of the provisions in the ECA and the ICASA Act.

The effect of the Bill was to remove the jurisdiction conferred upon ICASA and place it in the hands of the Minister. ICASA had no discretion to refuse a license application arising from the Minister’s directive should it decide that it was in the public interest to do so. The ICT industry was regulated for a reason and the licensing process was designed to allow ICASA to identify an applicant’s ability to satisfy the legal requirements and obligations. ICASA regulated the industry to ensure that service providers acted in the best interests of the public. The proposed amendments extended beyond the licensing of Infraco and could result in negative unintended consequences for consumers. NAB felt that ICASA functioned adequately and the current ECA already contained provisions for strategic considerations, providing services at an affordable price and the protection of the consumer.

Mr Koster said that the need to fast-track Infraco’s license application was understood but if the entity received any special treatment, it was likely that ICASA would attract litigation. A violation of section 192 of the Constitution would be challenged in the Constitutional Court.

Discussion
Ms Smuts commended Mr Koster for reminding the Committee of the basic reasons for the regulation of the industry.

Vodacom submission
Mr Pakamile Pongwana (Managing Executive – Government Relations and Regulatory Affairs, Vodacom) said that Vodacon’s submission focused on where the proposed amendment should be placed. Chapter 3 of the ECA addressed policy directions and the need for strategic interventions. Section 5 dealt with the licensing framework and clearly made ICASA responsible for the issuing of licenses. Chapter 10 addressed possible failure of the Act. He said that it was debatable whether Infraco would in fact be able to deliver the services it was intended for. There were no reasons why more than one license could not be issued and why competitors should be excluded from the opportunity to deliver the desired service.

Ms Amanda Grobler (Executive Head of Division – Market Regulation, Vodacom) said that the proposed amendments to sections 1 and 5 were vague and superfluous as the current ECA was adequate. The proposed amendments added no benefit to the Act but merely served to create conflict with existing provisions. The amendments would detract from the existing licensing process and result in further delays in the issuing of licenses. Vodacom considered any amendments that circumvented the safeguards built into the Act to be undesirable.

Discussion
No further questions were asked by the Members.

Internet Solutions (IS) submission
Mr Siyabonga Madyibi (Director, Internet Solutions) supported the stated objectives of the ECA and the Amendment Bill. He said that competition can only thrive when local market conditions were taken into account. The provision of infrastructure was the one area where the sector had failed and where there was a need for a strategic intervention by Government. The Minister had stated that she intervened because she wanted more investment in infrastructure. One of the reasons for the failure to provide infrastructure was the five-year exclusivity deal made with Telkom that prevented other players from entering the market. Sadly, 60 – 70% of the new lines rolled out by Telkom had been disconnected and the major reason for this failure to deliver communications services was the high costs. Sentech also did not deliver the desired results, for a variety of reasons. IS urged the Committee not to repeat the mistakes made in the past.

Currently, there were ten big operators at the services level. Access remained expensive and was largely restricted to metropolitan areas. The reason was a bottleneck in the provision of infrastructure as Telkom was a monopoly and controlled prices. Telkom was a vertically integrated company and operated on both the service and infrastructure levels. IS was concerned that Infraco would be a similar vertically integrated company with no motivation to reduce costs. The policy framework had to restrict the creation of vertically integrated companies. He concluded by stating that the reality was that only big companies were able to provide infrastructure and the VANS that were being granted licenses by ICASA would be unable to compete on Telkom’s scale for many years to come.

Discussion
Mr Wang said that the issue of vertical integration was addressed in the Broadband Infraco Act, which limited Infraco to provide wholesale services. He asked the DOC whether it was feasible to change the Amendment Bill so that Cabinet rather than the Minister was responsible for strategic interventions. He wondered if provision should be made for a license to be withdrawn in the event that a state-owned enterprise was privatised or government no longer held a majority shareholding.

The Legal Adviser to the Department confirmed that as the Bill was in front of Parliament, they would take the views presented to them.

Ms Smuts remarked that section 5(6) of the ECA was responsible for causing the bottleneck in the delivery of infrastructure as everything hinged on the Minister issuing a policy directive. She asked whether IS was in favour of a scenario where multiple licenses could be issued by ICASA.

Mr Madyibi replied that significant progress was made in the broadcasting field after Sentech entered the industry. The most expensive part of providing a service was the building of the network. By allowing other entities to compete in the provision of infrastructure, vigorous competition would arise and ultimately lead to a reduction in the costs.

Telkom submission
Ms Mpumie Plaatjie (Senior Stockholder Manager, Telkom) introduced the delegates from Telkom.

Dr Andrew Barendse (Executive - Regulatory Strategy and Management, Telkom) noted the concerns that were raised about the challenges of implementing the ECA. For example, the process of converting the existing licenses was expected to be completed by July 2008 but the Amendment Bill introduced a new dynamic to the existing processes. He said that the implications of the amendments were not properly considered or understood. Telkom’s presentation focused on two issues – the process of licensing state-owned enterprises and playing by the same rules once the licences were issued.

Mr Graham Keet (Senior Specialist – Regulatory Compliance, Telkom) said that there needed to be a separation between the formulation of and the carrying out of tasks as envisaged in clause 2(j) of the objects of the ECA. ICASA was active in the implementation of the ECA and the process of formulating the regulations was far advanced. Telkom believed that licensing was the responsibility of ICASA and the ICASA Act included the necessary mechanisms to allow for the licensing of public entities. The licensing of public entities was not limited to Infraco and it was expected that municipalities would soon require licenses as well. A framework for the licensing of public entities was necessary. Many new licensees were expected to enter the market and it was essential that any frameworks, terms and conditions applied to all the players. There should be no special rules applying to some of the entities.

Mr Keet explained that there were two types of communications licences – ECNS and electronic communications services (ECS). ECNS provided services to ECS organisations and the latter served the public. He presumed that one of the intentions behind the ministerial directive was the practical matters of a limited available frequency spectrum and the need to limit the number of entities who was allowed to dig up the roads to lay infrastructure.

Telkom’s plea was for certainty in the regulatory environment and in the licensing process. Public entities should be subject to the same orderly process as any other entity. As the regulatory authority, ICASA should be formulating the necessary framework.

Discussion
Mr Pieterse remarked that Infraco resulted from Telkom’s failure to reduce the cost of telecommunications. He asked to what extent Telkom expected the services offered by Infraco would be taken up.

Mr Keet replied that it was difficult to determine at this stage but it would depend on the price, service levels and the areas where infrastructure would be available.

Dr Barendse mentioned that Telkom provided input into ICASA’s current survey of the industry and the various market segments. Although issues of price, access and connectivity were important, it must also be remembered that no other operator had such a large investment in communications or made such a big commitment as Telkom. All the operators wanted to grow the size of the market and it came down to a facilities-based competition.

Ms Smuts asked how much detail should be included in the policy directive for ICASA to develop a framework for the licensing of public entities. She understood that municipalities of district size or less were entitled to a class license and only had to be registered. She asked if Telkom could explain which portions of the undersea cable were licensed and what should be included in the process for the licensing of the undersea cable.

Mr Keet explained that municipalities were more than 25% state-owned and therefore qualified for individual licenses. He suggested that the mechanism to direct ICASA was the proposed insertion of paragraph 13(b) into section 2, which could be appropriately phrased to facilitate the formulation of a framework and a process by ICASA.

Mr Keet explained that under the Telecommunications Act, the types of networks, connections, cables, satellites and switches were defined but many of the definitions were left out of the ECA. The ECA included the undersea and fibre-optic cables necessary for providing international connectivity.

Mr Sikhumbuzo asked Telkom to submit suggestions for the wording of clause 2(13)(b).

Smile Communications submission
Ms Lee-Ann Cassie (Head of Regulatory Affairs, Smile) gave an overview of Smile Communications and explained the context of the company’s submission. Although Smile focused on the provision of services for the lower end of the market, it was constrained by the difficulty of the licensing process. South Africa was a developing country and Smile supported Government’s intervention in the communications sector. However, Smile suggested that the proposed amendments applied to private enterprises as well as state entities. Smile recommended that the proposed amendments were goal-oriented and not limited to specific entities. It was necessary to reduce costs by 20 – 30% but this was achievable if the focus was on the goal. Smile proposed that objectives stated by entities were backed up by sound business plans and concrete commitments. Smile suggested that there was a “sunset clause” for the intervention by the Minister and included suggested wording for such a clause.

Discussion
No further questions were asked by the Members.

Neotel submission
Mr Phatang Nkhereanye (Senior Manager – Regulatory Affairs, Neotel) said that Neotel’s submission included the points raised in the earlier presentations. He briefed the Committee on Neotel’s history, its relationship with the Department of Public Enterprises and its interest in Infraco and the Broadband Infraco Bill. Neotel was opposed to the proposed amendment that allowed the Minister to intervene in the licensing of Infraco. ICASA had set a timeframe for the conversion of licenses and Neotel was concerned that the conversion process would be jeopardised and subjected to further delays. He mentioned the additional risk of legal challenges. The proposed solution was that state-owned entities followed the same framework as everyone else. Preferential treatment of state-owned enterprises would undermine the licensing process and create uncertainty in the industry. Such uncertainty would impact negatively on investment in the sector.

Ms Michelle Hajari (Manager – Legal and Regulatory Affairs, Neotel) explained the impact of the DPE’s digression from its original policy on Neotel. Neotel relied heavily on the ESKOM and Transnet infrastructure that was subsequently transferred to Infraco. Effectively, the basis of Neotel’s license was taken away and Neotel had no means to counteract it.

Ms Hajari said that as public entities, municipalities were under the impression that the proposed amendments would allow them to be issued with licences. As a result, Neotel was regarded as a competitor by certain municipalities and was refused access that would enable it to roll out infrastructure. Neotel was being held to ransom by certain municipalities who were taking advantage of the situation. Neotel believed that the proposed amendments would further complicate matters and have a negative impact on its ability to achieve its objectives.

The ICASA license conversion process was still underway and Neotel felt that no opportunity to implement any initiatives was given to other licensees before Government decided to intervene and formed Infraco. There was no guarantee that Infraco would in fact deliver on the objectives. Neotel suggested that Infraco also be assessed on its ability to deliver the desired results by a thorough testing of its business plan. There was a need for transparency and the public should be invited to comment as well.

Discussion
Ms Smuts was unaware of the expectations of municipalities and asked if they expected that their license applications would be fast-tracked.

Mr Sikhumbuzo referred to a written submission from Neotel at a hearing on the Broadband Infraco Bill that was held in June 2007. In that submission, Neotel proposed that Infraco was granted a deemed license for operational purposes. He wanted to know why Neotel had a significant change in their attitude with regard to Infraco.

Ms Hajari and Mr Nkhereanye explained that they were unable to answer the question as they were prohibited to disclose any information without the permission of the DPE.

Ms Smuts remarked that the Committee needed to know what arrangements existed between Neotel and the Department of Public Enterprises.

Mr Pieterse asked if the granting of a license to Infraco would be the death knell for Neotel.

Mr Nkhereanye explained that the parties had entered into a commercial arrangement whereby Neotel leased and managed infrastructure on behalf of Infraco. Once it was licensed, Infraco was obliged to make that infrastructure available. If a license was not issued, the duration of the arrangement would not be affected.

MTN submission
Mr Graham de Vries (General Manager – Regulatory Affairs, MTN) confirmed that MTN’s submission correlated to the earlier presentations. He said that the Bill was clearly designed to license Infraco but the provisions extended beyond this intention. The current ECA provided for the Minister to issue a policy directive but if an amendment was really necessary, it was preferable to do it under section 3 rather than section 5 of the ECA. MTN was concerned that Infraco’s license may be issued with different terms and conditions than those applicable to other licensees. All applicants should be subjected to a fair and non-discriminatory process.

Discussion
No further questions were asked by the Members.

The Chairperson thanked the presenters for their valuable input.

The meeting was adjourned.