Regulatory flaws in SA’s spectrum auction process will result in the alienation of the country’s biggest mobile network operators (MNOs) – MTN and Vodacom – and, in turn, deprive almost 75% of South Africans of good quality digital services.
This is one of the key findings of the Socio-Economic Impact Assessment (SEIA) paper on SA’s ICT and spectrum policy, commissioned by the Free Market Foundation (FMF) and conducted by ICT consulting firm dotadvisors.
The report provides a landscape of the regulation of SA’s telecommunications sector and highlights several proposed failures of government’s policy on high-demand spectrum and policy direction on licensing of a wireless open access network (WOAN).
The findings of the SEIA were released during a virtual event held by the FMF yesterday, titled “Government ICT policy is harming the consumer”, authored by industry expert Christoph Klein, CEO of dotadvisors, in collaboration with FMF president Leon Louw.
Among its arguments, the report challenges the Independent Communications Authority of South Africa’s (ICASA’s) decision to implement a spectrum auction structure that creates two categories of mobile operators, namely Tier 1 and Tier 2.
It also questions the use of an opt-in auction round in which Tier 1 operators (Vodacom and MTN) have been systematically disadvantaged from participating in the auction process of the high-priority 3.5GHz radio frequency band, due to them being considered dominant players in the local telecoms industry.
This is because in terms of regulation six of the Radio Frequency Spectrum Regulations 2015, as amended, operators that have a market share that exceeds 45% in over 50 municipalities around SA are classified as dominant operators, and as such, an inflexible exclusive procedure applies to ensure fair competition for all players.
In its findings, the FMF points out that misguided competition policies within the current regulatory framework will result in over 75% of South Africans, who depend on services provided by MTN and Vodacom, missing out on opportunities presented by access to the 3.5GHz radio frequency band, which is touted as key for delivering next-generation 5G broadband services and emerging mobile services.
This, in turn, harms consumers and defeats the very purpose of the policy,purported to put citizens’ interests first, notes the paper.
“Denying the two biggest carriers of spectrum in the 3.5GHz frequency band could create a situation in which over one-third of SA’s population are robbed of their fundamental socio-economic benefits – this is unparalleled on a global basis,” said Klein, during his presentation.
“The current regulatory framework of assigning spectrum to MNOs (and other economic entities) on an inflexible exclusive basis is unfit for the future of further massive increases in data demand and cutting-edge innovations such as in 5G, Internet of things and other emerging technologies.”
Through the WOAN policy, the communications minister directs that a portion of unallocated high-demand spectrum must first be assigned to a network category of licensees, known as wholesale open access networks, and the remainder must be assigned to other eligible licensees.
Government’s stance, according to the policy, is underpinned by three simple guidelines: the more players the better; the less market share a carrier has, the better for competition; and infrastructure should always be open access.
However, the FMF believes technological facts, historical experience and economic theory do not support the view that “insufficient competition will result in market failure” as the customer always decides which service provider they prefer.
Sinking Titanic
ICASA was set to auction the long-awaited high-demand spectrum by 31 March 2021. However, it was dealt a blow when MTN, Telkom and Etv took the regulator to court, challenging some aspects of the auction process. They claimed the process was flawed and said ICASA must address their concerns before proceeding with the allocation of high-demand spectrum.
MTN dragged ICASA to the North Gauteng High Court in January, challenging the way in which the regulator intends licensing 3.5GHz spectrum, which it said would result in Tier 1 operators being side-lined in the auction.
Telkom filed its legal dispute for a number of reasons, including that the way the auction is structured will entrench the dominance of its rivals MTN and Vodacom.
Another major part of the flaw in the spectrum policy, according to the SEIA, is that the spectrum auction includes frequency bands that are currently being used by TV broadcasters, and the failure of completing the analogue-to-digital migration will bring added ramifications to the auction process.
“While most other countries have been able to use LTE-800 and carrier aggregation for five years or more, SA remains years away because digital migration has been badly managed. Progress of South Africa's digital migration project is like watching the Titanic movie. You know the collision will happen, the ship will sink, and you know it's too late to change the script,” it notes.
Necessary evil
Telecoms and tech industry expert Spiwe Chireka is of the view that ICASA’s overarching mandate is to maintain a fair and competitive environment and to eradicate vertical integration, which makes it very difficult for new competitors to compete in the sector.
The notion that millions of South Africans will be left out of the digital economy if MTN and Vodacom are not included in the high-demand spectrum bidding process is not true, she adds.
“It goes to be expected that the dominant players will feel alienated, and yes, there is a possibility that the Tier 2 players may leave the Tier 1 group without any spectrum at all. However, the stance which government has taken means that whoever gets the spectrum will become a provider to the other operators – this process is a necessary evil,” notes Chireka.
Leon Rolls, president of the Progressive Blacks in ICT (PBICT), points out there will always be flaws in any policy, but the critical question is the impact of those flaws.
“Our position as the PBICT, South African Black Internet Service Providers' Association and Youth Economic Alliance is that government has been too lenient to industry. The flaws in the policy allow for the data monopoly to dictate government policies. The very monopoly then dictates to the regulator, as well as bodies like the B-BEE Sector Council,” he notes.
Discussing the impact on South African citizens of the alienation of Vodacom and MTN from the high-priority spectrum, Rolls adds the smaller ICT providers should be able to fill this gap if given the opportunity.
This will highly depend on the outcome of the current court cases, he notes.
“This will not impact millions of citizens negatively; MTN and Vodacom have obligations attached to their individual licences which they have never lived up to. We need new players that must be rapidly deployed in the areas where the millions live, using local partners, preferably the SMMEs. Only new players can bridge the digital divide.”
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