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South Africa telecommunications overview, commentary, and statistics (policy brief) Submitted by Editor on 2 May, 2001 - 22:39.
South African telecommunications policy-making is at a crossroads. The path towards national economic growth and equitable development within the information, communication and technology (ICT) sector has been tortuous, given the difficult and sometimes conflicting tasks of liberalization. The critical question is how the government should approach changes in the telecommunications sector to foster the emergence of a globally competitive information economy in South Africa that will encourage the use of ICTs to improve people’s lives. This report looks at the current telecommunications sector of South Africa, focusing on existing and proposed government policy, and describing the interests of telecom businesses and other constituencies that influence government decision-making. It also provides analysis and recommendations for balancing the needs of ICT users and the concerns of the public and private sectors, while fostering competition and bringing down telecommunications costs.
South African telecommunications policy-making is at a crossroads. The path towards national economic growth and equitable development within the information, communication and technology (ICT) sector has been tortuous, given the difficult and sometimes conflicting tasks of liberalization. The Government has been uncertain about committing to difficult choices, and has pursued a phased and partial privatisation of state assets, short-term policy planning, and an attempt to maximize the value of the forthcoming Telkom IPO, possibly at the expense of long-term economic growth. The critical question is how the government should approach changes in the telecommunications sector to foster the emergence of a globally competitive information economy in South Africa that will encourage the use of ICTs to improve people’s lives. This report looks at the current telecommunications sector of South Africa, focusing on existing and proposed government policy, and describing the interests of telecom businesses and other constituencies that influence government decision-making. It also provides analysis and recommendations for balancing the needs of ICT users and the concerns of the public and private sectors, while fostering competition and bringing down telecommunications costs. Telecommunications deregulation can be a critical component of a government’s plan to promote a low-cost telecom environment, encourage the widespread diffusion of the ICT sector, and enable broader economic and societal benefits from technology integration. In numerous countries, deregulating telecommunications has successfully brought down communication prices and made Internet connections more affordable, encouraging people to use technology and foster economic growth. Naturally, telecommunications is only one piece of the puzzle and policy reform is often required in other sectors as well. The South African Government has stated its commitment to promote the technology sector in order to stimulate economic growth. [1] As part of that strategy the Government has been engaged in limited telecommunications deregulation activities for a number of years since granting wireless operator licenses in 1993 and implementing the provisions of the Telecommunications Act of 1996. Currently, there is one fixed line operator in South Africa -- the 67% government-owned Telkom -- and two mobile operators -- Vodacom (50% Telkom owned) and MTN (partially government owned). In 1997, Telkom was given a five-year monopoly in providing non-wireless telecommunications infrastructure in South Africa through its public switched telecommunication service license issued under the Telecommunications Act 103 of 1996 on 7 May 1997. This license expires in May 2002. [2] During the monopoly period Telkom is tasked to meet detailed license targets on issues such as quality of service and rural access, of which it is has achieved most. Telkom has absolute monopoly over all public switched telecommunications services (PSTS): [3] including local, national, and international telephony, as well as value added network services (VANS) like voice over Internet Protocol (VoIP, which is currently banned by Telkom). [4] MTN and Vodacom were issued mobile licenses in 1993, [5] and a third mobile (GSM) license was to be announced in July 2000, but was delayed. In February 2001, the third license was awarded to the Cell C Consortium, which is expected to be active by Christmas 2001. [6] The Government’s proposed telecommunications deregulation plan The Government has proposed new regulations that will bring limited competition into the fixed-line and mobile markets. On 16 March 2001 the Minister of Communications proposed a managed liberalisation strategy to deregulate telecommunications. The new policy directions extend fixed line services into the mobile arena, provide for the sharing of infrastructures, make the 1800kHz band open to fixed and mobile carriers, address digital divide and universal access issues, allow for a limited used of voice over IP, ensure black empowerment criteria are met, maintain government interest in the telecommunications sector, alleviate communications costs for certain schools, introduce number portability, and set clear timeframes for new licensing regimes. Specifically, the main points of the plan include:
Time-frame for Government decision-making A formal statement of the proposed regulations (a 'Government Gazette') was published on 23 March 2001, opening up the debate to public comment for 30 days. The deadline for comment was 2 May 2001. 34 responses to the new policy directives were made directly to the Department of Communications; many submissions were the result of various forums convened in South Africa. [7] The policy directions will come into immediate effect, except where amendments are needed to the Telecommunications Act and to Telkom's license. Stakeholders in the New Policies A number of stakeholders and contributors are involved in the policy-making process, including:
The Department of Trade and Industry advocates early and open deregulation to encourage foreign investment, while the Department of Communications is pushing for extending the monopoly to raise Telkom's IPO value and foster more equitable development. Externally, Telkom and COSATU are advocating slow deregulation and job security, through maintenance of Telkom's monopoly for years to come. The business community, many individual Telkom users, and ICASA, South Africa's nascent regulatory authority, are pushing for rapid deregulation of telecommunications and value added services. ICASA's powers are effectively limited by its position relative to the Department of Communications and a lack of resources. The Second National Telecommunications Colloquium On 2-4 February 2001, the Department of Communications hosted the Second National Telecommunications Policy Colloquium in Gauteng to give the public and private sectors the opportunity to discuss the government's telecommunications policy plans. A number of stakeholders submitted recommendations for policy at this event. [9] Many felt that the Department of Communications used the colloquium to fast-track the policy-making process, that it paid scant attention to the private sector submissions, and then disregarded constructive input by sticking to its original plans for managed liberalization. Critics claimed that the colloquium was merely a facade for a participatory policy process, and the proposed legislation announced on 23 March ignored feedback from the colloquium. The main thrust of the managed liberalisation is a restructuring of the telecommunications market in South Africa so that the demands of organised labour are balanced with generating state revenues. However, this does not take into consideration the need to ensure South Africa’s competitiveness within a global economy. The plan does little to address the lack of consumer confidence in regulated services. The high access costs for fixed line or mobile users will continue and further raise Internet access costs. The new policy does not meet the global and local voice and data communication needs of corporate business and SMEs. There is an ongoing perception that a privatised telecommunications sector will negatively effect job creation. Furthermore, the policy debate has begun to illustrate the uncoordinated efforts by various government departments to develop a national ICT framework. What do the proposed policies mean for the current monopoly operator? In broad terms the phased deregulation of Telkom’s monopoly entails the limited unbundling of telecommunications services, the introduction of price competition among five operators, a decreased responsibility for the roll-out of universal access services, and an increased role for ICASA in regulating Telkom’s commercial relationship with the SNO. These proposed changes have also increased market speculation over the viability of the proposed Telkom IPO later this year. More specifically, Telkom will retain its PSTS license, thus continuing its role as infrastructure provider and value added service provider in the telecommunications market. The current monopoly on these services will become a duopoly with the addition of the SNO. Under the new regulations, Telkom will maintain a monopoly over VoIP, despite a October 1997 ruling by SATRA that Internet access services do not fall under public switched telecommunications services, [10] . Value added network service providers can provide VoIP at reduced costs, but this is restricted by the current telecommunication regulations. The business community and others have heavily criticized Telkom's control over VoIP and other VANS, since it will negatively impact on South Africa’s ability to compete globally in telecommunications and electronic commerce services. [11] Telkom's argument in favour of this restriction is that this monopoly over value added network service ensures their revenues so that Telkom can fund the provision of universal access to the under served (mainly rural) areas. A third implication for Telkom is the possible rise of self-regulated private telecommunications networks (PTNs). [12] These networks are not restricted from providing voice over IP or data services. The restriction on a private telecommunications network is its inability to bypass Telkom’s infrastructure, especially a call that originates outside of its network. The potential of a private telecommunications network, however, lies in the decentralisation of telecommunication network services at a regional or local level. Finally, the issuing of a second PSTS license means that the SNO will have to duplicate the Telkom infrastructure over time as well as shadow Telkom’s costs in the interim period. The network economics, in this instance, impact both on the SNO’s profitability and the costs passed on to consumers. Telkom has advocated this position as it effectively protects its interests for another few years while the SNO builds its infrastructure. It is worth noting that the Unions also support this position, as they are trying to protect jobs within the sector. However, under the proposed duopoly, the SNO is disadvantaged because it has to rely on the existing Telkom infrastructure to roll-out its services, it has to include Transnet and Eskom’s telecommunication assets, it cannot encourage significant international investment, and has tight time-frames (with resultant penalties) in which to meet the licensing directives set by Government – a deferral, in many ways, of some of the obligations which Telkom itself has not even met, for example, the implementation of telecommunications networks to ensure universal access. What is the impact on mobile operators? The new policy direction effectively creates five telecommunications operators in South Africa. The extension of Telkom and the SNO’s fixed carrier license into the mobile arena, while encouraging the convergence of networks and services, places a significant burden on the market’s ability to sustain competition. While “Telkom and the second operator are to be licensed for fixed-mobile services with technology-neutral licenses, all operators, including MTN and Vodacom, are to be given access to the data-rich 1800MHz GSM frequency spectrum at a fee. All operators are also to be offered third-generation licenses at an unspecified future date.” [13] The resultant price war may drive one or more players out of business within the next few years. Consequently, the future telecommunications sector could look much like the current status quo. Anti-competitive deals may occur between the three mobile operators. Telkom has a 50% stake in Vodacom and, as a result, price collusion could occur across a fixed-mobile service network incorporating the Telkom and Vodacom networks. On the other hand, Johnnic, through its subsidiary M-Cell (owner of MTN), may secure the SNO licence, in which case it may lead a MTN-based convergence of fixed-line and mobile communications. The implications for Cell C, the third mobile provider entering the market, are less clear even though their late entry into the market may allow them to take advantage of convergence technologies and strategic alliances within the telecommunications sector.Telecommunications deregulation in the context of the South African political division The current and forthcoming policy seems likely to perpetuate political division in South Africa if it follows the current course. The Government voices support for economic growth in the ICT sector but it ignores business interventions in the policy process and over-compensates for equitable development in its policy-making process. [14] The division within government (namely, that of the opposing agendas of the Department of Communications, on the one hand, and the Department of Trade and Industry and Department of Public Enterprises, on the other) has created a situation where the social imperatives of job creation, empowerment and redress are pitted against strategies for sustainable development in the ICT sector. A high-level national policy framework that all departments work within and towards would help. The situation is exacerbated as the government tries to satisfy the needs of its shareholders (the voters) and its clients (the taxpayers), because for historical reasons in South Africa these two constituencies often have widely diverging agendas and objectives. Responses to the proposed legislation The Government faces significant challenges to its proposal. Overall, the South African business community and the media have expressed pessimism about the prospects for the plan: the proposed policies for telecommunications have not gone far enough. In particular, the recent decision to license only one fixed-line telecommunications operator to rival the monopoly of Telkom has come under sharp criticism. International business leaders point out that the policies do not go far enough to encourage investor confidence. Similarly, the US Trade Representative may lodge a complaint to enforce World Trade Organisation (WTO) rules on competition. The local business community continue to express fears about South Africa’s ability to compete globally in the e-commerce arena due to high bandwidth costs. The regulatory authority, ICASA, raised concerns that the plan will undermine its independence and ability to regulate the ICT sector. Conclusions and recommendations Telecommunication policy has been inconsistent as the Government pursues ICT enabled economic growth, but is unwilling to take the path that this requires. The Government must put forward a coherent high-level national policy framework that all departments work within and towards. This policy should include the rapid licensing of at least one additional fixed-line operator, and the de-bundling and licensing of VANS from basic telephony. Even rudimentary competition would improve the current low quality of service and reduce high costs. Universal Service Provisions should be retained for all licenses to promote equitable development. The current spider’s web of conflicting state interests in the various telecommunications companies must be disentangled. Additionally, telecommunications infrastructure should be de-bundled from telephone service to prevent the needless duplication and fracturing of infrastructure. Moreover, the independence of South Africa's regulatory authority, ICASA, must be established to avoid conflicts of interest in the future.
Marina Bidoli and James Eedes. Mobile Commerce: A pedestrian business?, Future Company, 16 March 2001. http://www.futurecompany.co.za/2001/03/16/covstory.htm – a feature article on the state of the mobile commerce market in South Africa. Marina Bidoli. Local not lekker if you're used to better, Financial Mail, 13 April 2001. http://www.futurecompany.co.za/2001/04/13/covstoryb.htm – a feature article on how the Telkom monopoly and an ineffective regulator are discouraging foreign investment. Matthew Tattersall. A Leash for Telkom, Business Day, 23 February 2001. http://www.bday.co.za/bday/content/direct/1,3523,798197-6078-0,00.html – article arguing for the need to introduce phased competition into the South African telecommunications market. Telecommunications Act (Act 103 of 1996). Key governmental presentations on telecommunications policy as of 1994 can be found at: http://www.doc.gov.za/regulations.htm. ANNEX 2: Fixed-Line market growth and statisticsTelkom was granted fixed-line market growth exclusivity for five years as of May 1997. During this time Telkom was tasked to meet detailed license targets. Statistics for the 1998/99 financial year:Telkom met 14 of its 16 licence targets for the financial year, but failed to meet the targets set for repairing business and residential faults.
15 of the 16 license targets met during this financial year - the best Telkom performance in the three years since the issuing of the license. All line roll-out targets set in the license were met, with a cumulative:
Data and multimedia revenues grew by 39% to R3.5 billion in 1999/2000, driven by increased customer demand, product enhancements, the development of additional sales channels, price reductions on data and Internet-based products, and the ongoing reduction of Integrated Services Digital Network (ISDN) and Diginet backlogs. At the cutting edge of technological development In the new financial year, Telkom will begin the migration towards a Next Generation Network (NGN) that will support one connection capable of handling voice, data and video. Through this connection, customers will have access to high bandwidth and optimum availability, while being able to manage their communication devices, whether fax, phone, modem or data lines, through just one phone number.
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