Postal Services Amendment Bill: Department's Strategic Plan and Legislative Programme: briefing

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
20 August 2003
POSTAL SERVICES AMENDMENT BILL: DEPARTMENT’S STRATEGIC PLAN AND LEGISLATIVE PROGRAMME: BRIEFING

Chairperson: Mr M Lekgoro (ANC)

Documents handed out:
Postal Services Amendment Bill [B40-2003]
Presentation on Postal Services Amendment Bill
Presentation on Department’s Strategic Plan
Department projects on ISRDP nodes

SUMMARY
The Postal Services Amendment Bill will repeal Section 16(5) to eliminate a loophole in the Act. This would make clear that the South African Post Office has exclusive rights over delivery of letters and packages under one kilogramme. Members questioned the growth of the Post Office and the impact of the repeal on courier companies. The Bill will be formally considered on 3 September 2003.

The Department’s strategic plan provides the outline for their strategy on convergence of telecommunications, IT, broadcasting and multimedia. Strategies will be developed to take advantage of convergence. The regulator’s role in the converged area would be defined so that fair competition could be ensured. The Department will seek to promote black economic empowerment and SMMEs in the industry. The Department’s funding decreased from 2002/3 to 2003/4, and would experience no real increase from 2003/4 to 2005/6. The Department’s legislative programme for the rest of the year included only the Convergence Bill. The Committee raised questions about the strength and resources of ICASA, the ability of the ICT sector to create jobs and contribute to GDP, and how to ensure that convergence benefited as many people as possible.

MINUTES
Briefing on Postal Services Amendment Bill [B40-2003]
Ms P Ntombela-Nzimande (Deputy Director General: Postal Business Unit, Department) briefed the Committee. SAPO (South African Post Office) was granted a twenty-five year licence to provide services. It was granted exclusive rights to provide postal services for letters and packages up to one kilogramme. In exchange for this, SAPO is required to provide universal service. The exclusivity arrangement is reviewed every three years.

In May 2001, the Department noticed a loophole in Section 16(5) of the Act which effectively took away the exclusivity. The State Law Advisers advised that the Department not take legislative action on the loophole whilst SAPO was proceeding with a related case. SAPO has now won its case against IPC and the Department can proceed with the repeal of Section 16(5) to close the loophole.

The Amendment thus does not take away or add anything new. It merely strengthens the existing tool (giving exclusivity to SAPO) for providing universal service. Ms Ntombela-Nzimande noted that the exclusivity was due to be reviewed in August 2004. The regulator will then consider its effectiveness.

There have been suggestions that the Section need not be repealed since the Court judgement provides an adequate remedy for the problem. The Department’s view is that since they had already identified the loophole as needing closure, and since it is not a good idea to leave the loophole in the legislation and rely on the court decision, it would be best to proceed with the repeal. The outcome of the amendment will be that exclusivity is protected. Ms Ntombela-Nzimande noted that exclusivity covered only a small segment of the market. The amendment will also serve to end debate and misinterpretation of the law and allow SAPO to focus on service delivery.

The obligations placed on SAPO are onerous. They are expected to open offices even where this did not make business sense. Exclusivity was thus essential to prevent other operators from cherry-picking the best segments of this part of the market. Post offices tend to be concentrated in large cities and the network needs to be rebalanced.

Debate around how to deliver universal service is not a purely South African debate. The matter has been considered in the universal postal union. Ms Ntombela-Nzimande cited examples of several other countries that followed the exclusivity route, often with a larger portion of the market restricted. She noted that when countries sought a tool to provide universal service, they de-linked the profitability debate from the discussion. Even countries like Sweden where the postal service is profitable, require universal service – in Sweden’s case supported by public funds.

Exclusivity was not about ensuring the financial survival of SAPO but about providing a universal service. The Department thus requested that Section 16(5) be repealed.

Discussion
Ms M Smuts (DA) stated that if the basis for the monopoly is universal service, could the Department provide an assurance that there had been an increase in service?  She noted that revenue had not grown in the past two years. If SAPO was rolling out universal service, why is this not reflected in revenue growth?  She acknowledged that SAPO losses were shrinking but stated that they were still very large.

Mr A Maziya (ANC) stated that Ms Smuts’s argument was answered by the projections from SAPO. They project a reducing subsidy – he stated that he did not have the figures with him, but recalled that it would be below R154 million by 2005. This reduction alone indicated that there is growth. He noted that when companies scale down debt, profits are not visible because they are servicing debt. In response to Mr Gore, he pointed out that if any jobs had been created they were illegal since they were based on illegal activity. He stated that the court interdict showed that the person that created the jobs did so illegally. Arguments based on the loss of these jobs held no water since the court order restricts people from providing these services. The amendment would simply make clear that the terrain was reserved.

Ms Ntombela-Nzimande added that the revenue debate was important but should not be raised in the context of universal service. The tariff for postage was the same for an item in the reserved segment wherever it was sent. This meant that revenue would not increase. Further, there was an obligation on SAPO to open post offices in all areas. In the competitive area however, one needed to engage with SAPO on revenue. Everyone could compete outside the reserved area.

Mr V Gore (DA) asked if there had been a public process on the repeal. What impact would it have on the vested rights of courier companies?  Would they lose revenue and jobs?  Had there been a study on the impact on couriers?

Mr E Magashule (ANC) responded that members should accept what the Department had said. There had been an appeal judgement, so there had been a public process already. The repeal would not be a move away from the fundamental objectives of the Act. Members had seen on tours how post offices had moved from the losses of the past. The change proposed is just to bring clarity.

Ms Ntombela-Nzimande replied to Mr Gore that the issue of the reserved segment of the market had been canvassed extensively. The loophole had been exploited by very few people. Most courier companies had understood that there was a reserved area – there were not a lot of IPC situations.

Ms S Vos (IFP) asked if it was contemplated that all courier services would have to reapply for licences with new terms and conditions.

Ms Ntombela-Nzimande replied that Section 16(2) of the Act stated that applications for licences would be at the invitation of the Minister. Couriers would be registered. The regulator was finalising regulations for the registration. The Minister would issue the invitation at the appropriate time.

Ms A van Wyk (NNP) stated that the Committee could not reasonably not support amendments. Fulfilling obligations to meet a public service is important. Competition is allowed and more extensive than in many countries – it was a good area for the entry of SMMEs.

The Chair asked if the Department had received any correspondence objecting to the repeal.

Ms Ntombela-Nzimande replied that the Department had received only one email passed on to her by the postal regulator. She was not surprised since the regulator had held workshops in all provinces on provisions in the Act. People at the workshops were aware of the IPC case.

Ms N Magazi (ANC) proposed the adoption of the Bill.

The Chair responded that he had expected the debate to continue for longer. Preparations for formal consideration of the Bill were not yet complete.

Mr Maziya stated that he supported Ms Magazi’s proposal. The amendment reinforced SAPO’s authority in the reserved area. Public debate was not necessary – SAPO had a 25 year licence, with triennial evaluation of exclusivity. Opposing the amendment suggested that the Act had not been properly considered when it was adopted. There was nothing new in the amendment.

The Chair responded that the Committee could not proceed to formal consideration immediately and would have to do so at a later date. At the end of the meeting, the Chair stated that the Committee would formally consider the Bill at their meeting on 3 September 2003.

Briefing on Department’s Strategic Plan
Ms P Ntombela-Nzimande briefed the Committee on the environment which the strategic plan addressed. The Department aimed to make South Africa a knowledge-based society and create an information economy. They wanted to provide access to information technology to improve people’s lives. Their mandate is to develop, formulate and implement policies for the telecommunications, postal and broadcasting services sectors. The Department favoured development in the ICT (Information and Communication Technology) sector to ensure that South Africa was at the cutting edge in terms of policy and the Department would make strategic plans to support this.

After ten years of development in the ICT sector, which included the establishment of mobile telephony, the establishment of ICASA and consideration of the Second National Operator (SNO) licence, the Department would next be addressing convergence. The process of convergence of telecommunications, information technology, broadcasting and multimedia had begun and the strategy plan for 2003-2005 would address this.

Ms Ntombela-Nzimande stated that the Department had identified strengths, weaknesses, opportunities and threats. Strengths included their clear mandate, extensive infrastructure in portfolio organisations, regulatory and legislative frameworks were in place, and a strategic plan in line with national priorities. Weaknesses included the high turnover in the ICT sector. This was exacerbated by the Department’s lack of resources, relative to private companies, to attract ICT talent. The Department also had limited presence in provinces. Opportunities included the key role of ICT in economic growth. The drive to breach the digital divide was now considered as important as water and other services. Black economic empowerment (BEE) and SMMEs could be advanced in the ICT sector. Threats identified included the possible negative effects of competition on service to historically disadvantaged individuals, the loss of ICT experts to the private sector, the consolidation of ICT players, and the depressed state of the global economy in the ICT sector.

Mr J Mjwara (Deputy Director General, Department) briefed the Committee on the strategic plan for convergence. The plan covered convergence, fostering BEE and SMMEs, the promotion of South African languages and content, the repositioning of PostBank to provide banking services to South Africans that were not banked, and connecting South Africans to the network.

Convergence is ‘the migration from separate service sectors with separate infrastructure to a spectrum of services provided on a multi-service general-purpose network infrastructure’. It was not just considered because technology forced it on South Africa. Convergence also provides economic benefits. These would come from economies of scale. Dealt with properly, it could provide greater choice, range and quality of service for consumers, it could provide broadband access to historically disadvantaged communities, and help achieve efficient and effective utilisation of infrastructure. Convergence had social benefits, including e-government, opportunities for entrepreneurship, and the development of skills.

South Africa is a relatively networked country and economy. This drove convergence. It was important to bring diversity in content, with broadcasters that will prioritise languages not prioritised by current services. South Africa had to face globalisation to be competitive. New technologies were constantly emerging and had to be integrated. Regulatory reform was needed because digitisation allowed the use of networks for services other than initially intended. If convergence was approached properly, it would result in billions in investment and job creation.

A colloquium on convergence had been held and had provided a consensus report to the Minister. A drafting committee was working on a convergence Bill –  the committee were on the second draft of the Bill. The Bill would be submitted to Cabinet later in the year and then tabled. A legal framework that is sustainable and predictable was necessary to encourage investment. If investment came, then services could be rolled out and new services added. Infrastructure is necessary for fair competition in converged areas and most companies in the area have vested rights. Changing the legal framework to accommodate convergence required transparent transitional mechanisms. The role of the regulator had to be defined for the convergence environment – a referee would be needed to preserve a level playing field. The Department need to consider how to attract job-creating investment.

Mr Mjwara stated that ordinary copper wire networks could be enhanced and even used to deliver a multi-channel broadcasting service; there should be a return on this investment. Spectrum management was important, since those with part of the spectrum had an advantage. The Department had to ensure that the spectrum was managed fairly to ensure fair competition. The Department would have to consider Government’s role in facilitating and building new infrastructure which would involve consideration of universal service obligations. Incentive and disincentive schemes had to be devised for this.

The Department would have to consider ICT infrastructure over any appropriate infrastructure, including existing infrastructure (including water, sewerage and electricity infrastructure), and whether infrastructure provision and licensing should be technology neutral. For example, should free-to-air stations continue to incur heavier obligations than satellite pay channels?  The regulator had to be independent and well resourced, and had to relate to other regulators where their domain related to ICT (for example the electricity regulator for ICT infrastructure over electricity infrastructure).

The Department would strive to bridge the digital divide. They would take action to ensure all South Africans benefit from convergence. A strategy would be evolved to support SMMEs. The Department had studied the experience in other countries where SMMEs played a fundamental role, such as Ireland and Australia, and would like to follow their example. An industry charter would be developed, with an annual review of key indicators of development. People would be empowered to take advantage of convergence through SETAs (Sector Education and Training Authorities). People would not just be trained to find employment, but to be entrepreneurs and create employment. A strategy would be devised to incubate SMMEs in the sector. The Department would follow a clear BEE policy for procurement.

South Africa needs to promote South African languages and content, and ensure that they are used in broadcasting and ICT. English is the dominant language and other languages must be given space. There should be internet, education and government content in all South African languages. ICT provided an advantage in that knowledge transmission is made easier. E-government initiatives should allow administrative actions through electronic means. South African networks had to be digitised and enabled to interact with one another. South Africa had to move towards a digital future within the converged environment. A cut-off date for analogue transmissions must be considered and production of the electronic devices necessary for digital transmission and reception was needed. There are still gaps, with approximately four million South Africans without broadcasting services. The strategy would aim to expand service, BEE, gender equity, rural development, NEPAD and SMMEs.

Mr H Mathabathe (CFO, Department) briefed the Committee on the Department’s resources. He stated that resources were limited and the Department did not have the money to do what they aspired to do. Funding for 2003/4 is R842,515 million, R866,843 million for 2004/5 and R907,129 million for 2005/6. The increases are inflation-related and did not represent a real increase in the budget. Further, the budget for 2003/4 was lower than that for 2002/3 (R887,69 million). The bulk of the Department’s budget went to transfers to a range of organisations, including ICASA (R128,646 million 2003/4, R134,947 million 2004/5, R137,489 million 2005/6). Additional funding has been approved, but this fell far short of what was requested.

Ms Ntombela-Nzimande stated that the Department’s legislative programme for the rest of the year included only the Convergence Bill.

Discussion
Ms Smuts complimented the presenters on a well-argued presentation. She asked if the Department had parastatals in mind when it considered ITC infrastructure over other infrastructure.

Mr Mjwara replied that the Department was concerned to ensure fair competition in the converged industry, including for state companies. The Department would look at all parties prepared to invest in infrastructure. If private companies did not see any potential in investment, then state companies might be mandated to provide the service.

Ms Smuts asked how close the discussions on the migration to digital were to a concrete decision.

Mr Mjwara replied that once the convergence discussion was completed, consideration would turn to digitising broadcasting. The earliest date suggested for the cut-off is 2006, with technology used to deal with problems caused by the early switch – digital transmission can be converted to analogue near the point of reception. Others suggest a ten year period for the transition, allowing a more evolutionary approach.

Ms Smuts asked for clarity on the proposed regional language stations. The Department had previously said that Parliament had to vote the funds for the stations. What was the situation with Bop TV?

Mr Mjwara replied that Parliament would have to vote an allocation for regional services. He hoped this would be provided for in February. The SABC would have to apply for the licence in December. Bop TV ceased transmitting as of 21 July 2003. It was envisaged that the regional service would replace Bop TV with a wider broadcast footprint and so a greater benefit. ICASA will look at licensing conditions for the regional services. A discussion document on regional television will be announced in 2003. This would not be limited to the public sector – there would be private sector involvement too. However, public support would be needed in the form of grants since the broadcast languages might not be attractive to advertisers. The services would be part of ensuring that South Africans are better informed. Electronic media is the most pervasive – providing information through it would allow all South Africans to take part in developments.

Ms Smuts asked if the SABC would apply for the licence for the southern language service in 2003 too.

Mr Mjwara replied that the SABC would have to apply for both, though he did not know if the SABC could roll out both services at the same time. He noted that the Bop TV facilities are owned by the SABC.

Mr Gore noted that the ICT sector comprised four to six percent of GDP, yet the White Paper stated that ICT should be an economic driver. Four to six percent is too low. He noted that Brazil and other developing countries had ICT sectors whose percentage contribution to GDP was in the mid to late teens. Germany’s ICT sector represented over 20% of GDP, and in some European countries the proportion was over 30%. How would ICT’s contribution to GDP be increased?

Mr Mjwara replied that one needed to make a proper comparison. Four years ago, ICT contributed only one percent of GDP so there had been at least a three hundred percent increase. As the economy became more networked, the proportion of GDP due to ICT would rise. The low base was because of monopolies – as more providers were allowed, the sector would grow.

Mr Gore stated that there was a lot of concentration on software and content. He was concerned that there was not enough attention given to hardware, for example infrastructure. The lack of infrastructure is an impediment to providing services to rural areas. Would there be incentives for the roll-out of services?

Mr Mjwara replied that there was no incentive scheme he could talk about then but that incentives were under discussion in the convergence discussion. One could look at spectrum licensing, etc. The Department would be clear on incentives at the end of the convergence discussion.

Mr Gore asked if there was not a conflict of interest between the Department’s policy development and shareholder management roles. Would the shareholder role be passed to another Department?

Ms Ntombela-Nzimande replied that the nature of the Department’s shareholding was such that it was concerned not only for a return on investment but also for providing social services. They would encourage universal service delivery and monitor the delivery. Aspects of the shareholding had been outsourced to the Department for Public Enterprises. The Department saw no contradiction between the roles.

Ms Vos noted that lately Bills related to communications had been going through the Intelligence Committee, such as Bills on interception. She stated that she wished to table her concern that communications issues were not going through the Communications Committee.

Ms Ntombela-Nzimande responded that this was a parliamentary issue but she was pleased that a member of the Committee was raising it. It is imperative that the two Committees work together, especially on security in electronic communications.

Ms Vos stated that convergence was gong to impact on the regulator. Would there be an audit on the existing regulatory capacity and what would be required under convergence?  One did not want the regulator to end up unable to do the job because they lacked resources. She stated that international investors, speaking to her and other members, had objected that the regulator is too weak.

Mr Mathabathe replied that one reason for merging the regulators into ICASA was resources. ICASA had only recently provided finalised information on the resources they needed. The Department would work to capacitate them based on this information.

Ms Vos responded that convergence would mean a ‘new ball game’ and so the information would be useless.

Mr Mathabathe responded that the regulator(s) would be developed as the convergence discussion proceeded.

Ms Vos asked if this meant that attention would turn to the regulator only after the legislation was passed.

Ms Ntombela-Nzimande replied that it would all happen at the same time, with ICASA participating in the process. It had to be a parallel process.

Ms Smuts responded that she assumed this meant that the regulator would be vastly more powerful.

Ms Vos noted that legislation promoting BEE companies in under-serviced areas had been passed. Yet, she received a lot of email from people having trouble providing service in such areas. What was the issue with rolling out licences?

Ms Ntombela-Nzimande replied that this was new terrain for the people involved and that they did not fully understand the area. The challenges were not just regulatory. There were also issues around empowering people financially to provide the services. There are high costs associated with providing such services and people in the rural areas were unlikely to have access to the necessary funding, so the Department has had to assist them in this.

An ANC member asked for a summary of the main points of the convergence colloquium and that the Committee receive a copy of the report on the colloquium sent to the Minister.

Mr Mjwara agreed that the report should be available to the Committee. He hoped that the Committee would set aside time to engage on convergence and suggest solutions to the challenges it entailed. The important consensus positions at the colloquium were that licensing should not be compartmentalised as before – instead, the ICT industry should be categorised differently. For example, ICT players might be licensed for providing education, however that was provided rather than receiving a licence for broadcasting and then using that for education, amongst other things. The colloquium agreed that the Department had to be inclusive in drawing up the convergence Bill and the Department was following this advice.

An ANC member noted she had had discussions during the Committee’s oversight trip on improvements in technology for the disabled. Convergence had to keep up with the needs of the disabled. Why was the budget for this being reduced?

Mr Mjwara replied that the Department recognised that technology allowed better services for the disabled. They were examining laws to see how they had failed the disabled so that this could be properly taken into account with convergence. Although there had been a cut in the overall funding of the Department, disability funding had not been reduced. The Department was establishing a unit for disabilities.

Mr Gore stated that ICASA had raised as a problem that, unlike the Competition Commission, their pronouncements did not have the same force as those of a court, so their decisions could be contested. Would the regulator be given more power so that they had the same standing as a court?

Mr Mjwara replied that the cases of ICASA and the Competition Commission were different. The latter investigates matters and hands down judgement. ICASA is an administrative body – it issues licences, etc. It must thus act in a particular way – it must be transparent. It was necessary then to ensure that their actions could be taken under review. The rights of people overrode the rights of the regulator, and they could take ICASA to court to correct their actions. He did not think it would not be possible in the legal framework to give ICASA the last word on matters. Administrative bodies must be subject to review.

Mr Gore noted that there was considerable emphasis on black economic empowerment. He expressed concern that economic empowerment of women and the disabled was not being emphasized enough.

Ms Ntombela-Nzimande replied that it was important that the process of black economic empowerment not leave out women, the disabled and people affected by the geographic divide, by which she meant people in rural areas. This was high on the agenda. Women in ICT have been active in ensuring that women’s empowerment stayed on the agenda. Ensuring that these groups were not left behind was something to watch out for.

Mr Magashule noted that there was an argument that the ICT sector was shedding jobs. Mr Mjwara had stated that ICT would lead to job creation. How would the Department ensure this?

Mr Mathabathe replied that there were situations where the job shedding had been justified. For example, Telkom had to prepare for competition. Overall though, the ICT sector had probably created more jobs than it had shed – one should consider the contribution to employment by MTN, Vodacom, Cell-C and e-tv, amongst others. Undertaking software development is a great opportunity for job growth.

Mr Magashule opined that the Department’s budget should be increasing.

Mr Mathabathe stated that in real terms the budget was shrinking, however it was not only the Communications Department that had to deal with this.

The Chair noted that people in the communications arena always referred to millions of people without access to radio and television. Mr Mjwara had suggested that the figure was about four million, the CEO of the SABC had suggested two and a half million. In each case though, it was always just a figure quoted, without any plan to bring services to these people. There was an argument that they would not benefit from convergence. There should be a deliberate plan to carry them into convergence. The SABC and other stakeholders cited lack of funds for this. What was the Department’s vision for these people in convergence?

Mr Mjwara replied that the Department was conducting a study on the infrastructure gap. This had determined that broadcast reach was sometimes hampered by geography – it would be extremely difficult to broadcast to people living in the shadow of mountains. Over R35 million had been spent to extend the broadcast footprint, so the gap was being addressed. The Media & Diversity Agency had raised a further problem of people that received broadcast services, but in languages that they did not understand.

Mr P Sithole (ANC) stated that Mr Mjwara had not answered Ms Vos’s question about whether the regulator was a weak regulator. If ICASA were a strong regulator it would not be subject to so much litigation.

Mr Mjwara replied that he had been trying to indicate that, as an administrative body, ICASA had to perform their functions in a certain way and had to be subject to review. Their decisions were binding, but people could take them on review. He did not think this option could be closed. On the matter of whether ICASA were a strong or weak regulator, he preferred not to express an opinion, but stated that they appeared a strong regulator to him. There was agreement that their resources had to be reconsidered and possibly improved. The requirements imposed on them should also be looked at. For example, every time ICASA had to license a community radio station, the councillors had to be away from head office at public hearings for an extended period. Such a requirement might be too onerous. There were thus instances where impossible procedural requirements may have been placed on them.

Ms Ntombela noted to members that the Department had distributed information on their projects on ISRDP (Integrated Sustainable Rural Development Programme) nodes. She asked that members provide feedback on these.

The meeting was adjourned.