Following several drafts, the latest of which was published in November 2017, the Department of Telecommunications and Postal Services of South Africa (DTPS) is currently redrafting the Electronic Communications Amendment Bill, with the view to finalise legislation by early 2019. The bill introduces several major changes, of which the most noteworthy is the creation of a Wireless Open Access Network (WOAN) to operate at the wholesale level in the mobile market. Reactions of the industry to this proposal have been mixed; however, it is possible to create a model which reconciles different positions, and guarantees increased competition without harming the necessary investment.
ICASA expressed concerns on several grounds
At a workshop held by the DTPS in March 2018, the national regulatory authority ICASA defended its independence, which could be significantly reduced by the current proposal. The regulator warned about being required to implement policy directions without careful assessment; not only does this go against international best practice, but could also go as far as violating the country’s Constitution, and international agreements which require the presence of an independent regulator. Similarly, concern is expressed for the part of the bill that requires ICASA and the Competition Commission to “align” their decisions and recommendations as much as possible, which would undermine ICASA’s ability to carry out ex-ante determinations independently.
ICASA also expressed concern on the proposal to create the WOAN, which would require existing licensees to return rights of use, with the NRA required to stipulate terms and time frames for such return. This is seen as “expropriation” of a licensee’s rights; a better idea would be to pursue a different model, based on infrastructure sharing and enhanced competition. The bill should also define better what a “functional” WOAN is, since the presence of a functional WOAN is the condition for ICASA to issue licences for unassigned, “high-demand” spectrum not awarded to the WOAN.
Lawmakers will have to rethink the Open Access model to improve competition while retaining investment
Industry’s response to the new law was, as expected, nuanced across stakeholders; however, operators agreed on the need to make amendments to some key provisions. Strikingly, despite the different viewpoints, all the main operators argue it can be part of a hybrid model in which the WOAN sits next to privately owned infrastructure.
The WOAN causes more concerns to Vodacom and MTN, which currently hold most of the spectrum. Under the current draft, they would have to return their current licences; spectrum holdings would be subject to open access and non-exclusivity, and MNOs would have to provide cost-based wholesale access to their networks. Vodacom noted the network will take a long time to become fully functional; time during which MNOs will not be able to invest in network upgrades, due to lack of spectrum, and the WOAN itself will not be able to compensate for such loss. Once the network becomes functional, it is likely to dominate the market and reduce MNOs’ incentives to compete and invest. MTN noted that the bill ends up going against the country’s overarching development objectives. The operator suggests a hybrid model, where only some spectrum is allocated to the WOAN (thereby avoiding monopolisation) and a balance between service-based and infrastructure-based competition is achieved.
Cell C and Telkom, which currently hold less spectrum and have lower shares in the mobile market, welcomed the WOAN more warmly. However, they agree that the return of existing spectrum licences needs rethinking, and that the network needs not own all infrastructure. Cell C sees the WOAN as a potential enabler, provided it is thought as a “catalyst” rather than a monopoly, and can play a key role in ensuring coverage across urban and rural areas. Telkom took a similar stance on spectrum, and also warned about potential regulation of wholesale fixed networks, which is now becoming a more competitive market segment due to the deployment of FTTH and the rise of new access providers.
A new draft of the law is expected in May 2018
Having gathered feedback from the industry, the DTPS is now redrafting the bill. It is expected that more detail will become available in May 2018, with the view to complete the passing of the law by 1Q19. The open-access model envisaged in the current version of the bill is in many respects ambitious, and driven by the need to provide connectivity to underserved areas of the country – an issue with which a large number of countries in the world will continue to grapple for some time.
There is no precedent to a model similar to the WOAN in any other country. The only possible exception is the recently launched shared network in Mexico; however, this is limited to the 700MHz band, and it is too early to assess its success and shortcomings. The lack of international examples should not discourage South African lawmakers from the implementation of this model; however, industry concerns about guaranteeing certainty and facilitating investment are founded, and will have to be addressed if the WOAN is to be turned into a success. A model which resulted in less private investment would likely do more harm than good in the long run – something of which a country like South Africa should be wary. Infrastructure-based competition generally provides more durable benefits to telecoms markets compared to service-based competition; if lawmakers get the balance right, there will be wins for all stakeholders.
