Electronic Communications Amendment Bill: public hearings day 4

Meeting report

Opening remarks

The Chairperson welcomed everyone to the meeting, especially the Department of Telecommunications and Postal Services (DTPS), the Independent Communications Authority of South Africa (ICASA) and Telkom, which would be the first to present.

Before he began the day’s hearings, the Chairperson asked if any of the presenters or other experts in the room could explain what 5G held in store for South Africa. Would there be more base stations or fewer? How was the landscape going to change? Under Telkom, there had been copper cables that people had begun to steal. Currently there were masts and towers. How would 5G impact on people and their environment?

Ms Irene Charnley, CEO, Smile Communications, who had just arrived, volunteered an explanation, even though she had not heard the question. She stated that 5th generation technology was all about what could be delivered using spectrum. One could have a whole number of devices and could download data on all of them at the same time at high speed. Buffering meant waiting for data downloads but with 4th or 5th generation technology, there was no buffering because it uses a very high band width such that broadband is always supported. Only a 5th generation spectrum could cover vast distances and that would enable drones to deliver goods to even distant farms. The speed could go up to 1GHz per second.

The Chairperson explained that the question had been about the infrastructure needed for 5th generation technology. Would the country need more masts, etc.?

Ms Charnley’s responded that South Africa had 30 000 base stations but one had to remember that the tower was passive. It was the base station equipment that carried the signal. One could use any tall infrastructure to carry the equipment. If one put the equipment on a tower or tall building, it carried the signal. However, the spectrum currently in use only carried the signal so far. 5G would make a single tower much more powerful so one could use the same towers but the network would be immensely more powerful.

Ms Charney conceded that a few more towers might be needed in rural areas to ensure full coverage, but she recommended that the country use the current masts.

Mr C Mackenzie (DA) asked whether the country needed more bases stations.

Ms Charney believed that the additional number required would be minimal. SA currently used 30 000 base stations as well as ground-laid fibre and six undersea cables. 200 000 km of fibre had been installed and Telkom was the largest owner of fibre in the country. It would be a waste of resources to have more base stations. The only reason cell phone companies were saying that more were needed was because they were protecting their turf. Everyone should be able to put one’s base station equipment on any mast and then the country would be able to use the current infrastructure.

The Chairperson welcomed a dissenting view, or more education, from anyone else in the room. He appreciated the fact that CEO’s themselves appeared before the Committee. The Committee had benefitted from the CEO’s. For now the Committee wanted to see where the telecommunications companies stood and what had to be done to ensure that the 56 million people in the country could access data at an affordable price.

He said that the Committee had the mandate to make laws but it did so to respond to a situation. The law was the last mechanism for dealing with situations. Peer review mechanisms would suffice if they worked. If people had shared the economy, there would have been no need for the B-BBEE Act. If everyone had shared their land, there would have been no need for the Land Expropriation Act.

The Chairperson told the industry players to think about whether they really needed laws to force them to reduce the costs of communication and to share. How could companies make a profit while ensuring participation? He believed that CEOs were best placed to talk to their boards and to make that the things that the DTPS was doing, happen faster.

The Chairperson asked the Department to confirm the amount of the fine that it had asked for in the legislation.

Mr Alf Wiltz, Chief Director: Policy, DTPS, said that the fine was R100 000.

The Chairperson informed the meeting that the Committee had upped the fine to R500 000 and the prison sentence to 10 years. Having listened to the outcry of young black people and black women, the Committee was going to make law if the industry did not open up and allow participation. He welcomed the CEO of Telkom, saying that he was a big man who carried the country on his shoulders.

Presentation by Telkom

Mr Sipho Maseko, CEO, Telkom, commended the Department for its work. He asked how the Department imagined the future and how it could legislate with that future in mind. SA was not an island and the Bill was an opportunity to access the world. Open spectrum and open access was important for the future. The Fourth Industrial Revolution was the future reality and the country had to be prepared for it. By 2020, 50 billion devices would be connected in the country. Everything would be connected and everything protected. The relevance of ICT was cross-cutting. It would impact on how doctors worked, young people learnt and farmers farmed. The question was how ICT could alleviate poverty and inequality. It was important not to legislate in a way that some would be left behind and others would go forward.

The CEO stated that networking had moved from 1G in 1980 and that by 2020 5G would require significant infrastructure. Access to radio high sites was currently a challenge and the need for high sites would increase with the introduction of 5G. The number of nodes would depend on the significant use. Nodes for 5G might be different from the nodes for 3G. People needed to talk about spectrum-sharing, licensed and unlicensed spectrum. A lot more fibre would be needed to eliminate the digital divide but there was a growing demand for digital content. Mobile was the preferred form of communication, especially in SA.

The key measures proposed by the Bill included wholesale open access, wholesale open access network (WOAN), spectrum licensing, trading, sharing and re-farming, spectrum obligations and rapid deployment. Telkom believed that open access and active infrastructure sharing should only be mandated where operators were unable to share resources voluntarily. Telkom also believed that regulating wholesale fixed services through cost-based pricing would stifle infrastructure deployment, investment and jobs in a growing dynamic market. That, in turn, would hamper economic development.

Telkom did not support the need for regulatory approval for spectrum re-farming. The need for regulatory approval would delay or hinder the introduction of new technologies and curtail market developments. Spectrum policy should not be treated differently from any other policy that the Minister. Telekom was concerned with the application of universal access obligation retrospectively on existing licensees. The application of a rural first obligation would harm Telkom, which required access to sub-1GHz spectrum, including in urban areas.

Telkom strongly opposed the current draft in respect of the obligation to purchase capacity from the wholesale open access network (WOAN) as it was irrational to agree to buy capacity in future at an undefined and unregulated price. Telkom believed that the introduction of a hybrid model for WOAN would destroy value and have far-reaching implications for broadband access, cost and competition. The desirability of WOAN should be independently researched as the policy had failed in Mexico, Rwanda and other countries.

Mr Maseko said that the Bill was an opportunity to enable SA’s participation in the Fourth Industrial Revolution. The legislative environment should accommodate growing demand for data and connectivity and retain international best practice on technology neutrality for spectrum. It should allow for secondary markets for spectrum and mandate ICASA to find ways to address the skewed market structure through spectrum assignment.

Discussion

Ms M Shinn (DA) asked why there was a need to split the network into wholesale and retail. What value would WOAN add to the SA market? She was concerned that the WOAN would become a monopoly. Was WOAN going to be a reseller of spectrum and if so, why did the sector need it? What value would be added?

Mr Mackenzie congratulated Telkom on a very impressive set of results. Telkom was doing something right. What was it? People had spoken about the evils of duopoly but Telkom had initially had a monopoly, so how could Telkom be against it? The improvement in the number of Telekom subscribers said that a duopoly was not impossible to overcome.

Mr Mackenzie asked about the number of mobile network operators in SA? What was the Telkom’s ownership structure and the percentage of black ownership? Was it theoretically possible for the WOAN to sell the spectrum without doing anything? Were there any areas with monopoly in the current system?

Ms D Tsotetsi (ANC) had heard Telkom’s comments on the future of ICT, and appreciated that everyone lived in the world of ICT. How would the new policy impact on jobs? She was concerned about all the small players and her concern was that it was contrary to the transformation policy that supported small business.

Mr Robert Kuna, Director-General, DTPS, agreed that it was necessary to regulate with the future in mind, but what was the future? The debate was focused on technologies. He noted that the 5G symposium the following year and the world 5G conference in Egypt at the end of the year would be very important in terms of addressing some of the issues facing the sector. How would 5G impact on Siyabuswa? What would it mean to people in such a rural community? That was the mother of all discussions. The nuts and bolts of the matter was what it would mean to the people and businesses out there. There had been a call to licence 5G spectrum. The last African Planning Meeting before the world conference would take place in SA the following year. The Department would keep Parliament abreast of developments.

The DG noted that, combined, the duopoly of Vodacom and MTN had 500 to 700 distribution shops. Who owned them? How many were black-owned? Was it possible that they were not black-owned because it was not a requirement? There should be a bare minimum of 51% of black-owned distribution in the value chain. He suggested that as part of confidence-building measures, the industry should come with proposals as to how that could be done without legislative processes.

Secondly, Spaza shops sold airtime. They bought capacity from companies that sold to them at a high cost. One needed to know what was going there. What margins were the spaza shops and re-sellers making? That market was a good market for entrepreneurship, but the spaza shops were being squeezed out. Would a wholesaler provide a better deal for the spaza shops? He thought so. Currently those small and micro entrepreneurs were not sustainable in the long term.

The DG stated that Cabinet intended proceeding with the hybrid model. The Department’s job was to determine how it going to be constructed. Government had moved away from the initial conceptualisation in the White Paper. It would be a WOAN with South African characteristics: WOAN LTE.

He spoke of the debate on the open access regime. It came with a dispensation that would favour it.

At the level of four, five or six operators, things were fine and hunkey dory. What about operators smaller than the big six? Mr Maseko had said that Telkom was outside of the big six. Should a new dispensation be created for giving leverage to very small suppliers?

The 800MHz spectrum was not in the Bill but it would define where things would go. The 800MHz spectrum would have to be central to future developments. The CEO of Telkom had said that existing operators had access to 900 MHz, and had suggested giving small operators access to the 800Mhz spectrum.

Fibre had very high costs because once it had been laid, it could not be moved. Despite the huge costs, the market was still opening up. One would think that fibre line operators and undersea cables would expand access quick rapidly and had opened the market to small players. Expansion, together with competition, had seen prices in the fibre market coming down, even though the operators had huge immovable costs in respect of the in-ground fibre. If it could be done in the fixed line industry, was it not that much easier to do that in the wireless industry?

The Department identified two issues. Firstly, there were those issues necessary to drive transformation that did not need the Bill. The Department would engage with companies and come back to the Committee with an agreed transformation package. On the other side, there would be a legislative package.

Mr Wiltz noted that Telkom had said that the deemed entity concept was too wide and, linked to that, access to the high demand spectrum implied SMP because SMP was one category and access to resources was another category. The real question was whether the access to scarce resources concept in the Bill was too wide. The Department thought that details should not be in the Bill but in the ICASA regulations. Those regulations could determine what a scarce resource was. It was like the Essential Facility Regime where the law had not, upfront, determined the essential facilities. The Bill gave the parameters and ICASA was to prescribe the details within the parameters. If an entity had access to a high demand spectrum, the definition of which had to be updated from time to time, then one would be entitled to be declared a deemed entity. Telkom had said that the system restricted competition, but the Department said the opposite. Even without the Bill, the Department should declare deemed entities.  Proper processes were included in the Bill to ensure rationality in the process.

Telkom said that wholesale fixed but especially fibre access should not be opened up but the White Paper said that it was critical infrastructure as it enabled last mile provision. Policy needed to avoid unnecessary duplication of infrastructure to enable access. Telkom had also said that fibre addressed the needs of affluent communities and if not regulated, would result in fibre overbuild on commercially viable routes. Last mile fibre was a commercial process which could be oversupplied and not realise open access as required in the Bill.

Mr Wiltz appealed to Members not repeat the mistakes of copper that was never opened up. Fibre had to be open. It was the key enabler to connect thousands of base stations that would go up. It was essential for the Bill to be proactive to ensure that fibre was subject to sharing.

Mr Wiltz had taken Telkom’s comments on spectrum and incorporated those into the Bill but Telkom did not want to see approval of re-farming. Re-farming referred to the re-use of an assigned band for a different technology. For example, 800MHz spectrum had been used for 2G mobile and had been re-farmed for use in 4G LTE. Re-farming could not be used by licensees to reduce licence fees or retrench existing licences. The policy provided for everyone with access to similar bands to pay similar licence fees and have universal service obligations. Competition would be negatively affected by re-farmings. He could, however, see the practical difficulties in going to ICASA every time there was a re-farm. The Department was open to advice on how to implement it in a way that was practical, but without compromising policy. DTPS had to respect the Constitution in respect of the right to equality in sharing spectrum.

Mr Wiltz said that the DG had mentioned that operators had agreed with the hybrid model. Telkom said that if WOAN received all the spectrum, that was okay. However, ICASA would make the decision as to how much spectrum would go to the WOAN, taking into consideration the CSIR study.

The Chairperson welcomed the CEO of Vodacom to the meeting and invited Telkom to respond.

Mr Maseko, responded to Ms Shinn about the separation of wholesale and retail. Telkom had taken a business decision following studies of other jurisdictions, such as the BT (British Telecommunications) model and the New Zealand model, amongst others, to make sure that every part of the business could stand on its own feet in a financially viable way. It presented a challenge in how to rethink the wholesale model to make it sustainable. In the fixed market, there was competition, as could be seen by the number of players who were investing at different levels of scale from the access market to the service market. There was competition in the last mile and long distance markets and competition would lead to efficiency and price drops.

Telkom had been a monopoly and it was an undesirable state of affairs as the introduction of the first two mobile players in the industry certainly created competition which had led to innovation and competition. But the two mobile players had had massive, massive subsidies from Telkom in the form of termination rates. With the benefit of hindsight, there was nothing wrong with a subsidy as the mobile sector would not have grown without the subsidy, but there was a time to stop the subsidy and that was when the intent had been achieved and the market took over.

Would the WOAN become a monopoly? Mr Maseko said that Telkom could consider a WOAN if it was determined by a forward-looking study and evaluated relative to other options in order to find the most appropriate option in terms of feasibility and desirability. If one had to have it, and if the policy objectives were unshakeable, one needed to think of spectrum as a leverage. It would also need capital for investment, capability, and people etc, to be viable. It was not contradictory to say that the fixed line sector was competitive as it had led to choice in the last mile, etc. People now had choice about fixed broadband services.

How come Telkom had done well? Mr Maseko felt that the team had done well but, until Telkom was half the size of Vodacom, he would be hesitant to say that Telkom had done well. He could attribute successes to a choice made to focus on broadband rather than voice. Broadband services would become more and more unlimited and uncapped. Consumption patterns of consumers told one that they wanted outsized and uncapped bundles. Telkom was embracing that consumer demand. But it was still a small operator. It had experienced lots of headwinds and needed some tailwinds such as those which Vodacom and MTN had had with the termination rates. Those tailwinds had lasted a long time and the termination rates had given them cash for investment.

Mr Maseko said that the Minister needed to drive consensus around the future that SA was looking at, so that the policy framework embraced that future. Everything that was put in place had to be intended to get the country to that future. If one did not legislate with the future in mind, and set policy with that future in mind, there would be massive errors. In 1994, Telkom built millions of kilometres of lines but people did not use them because the timing was wrong - it was the beginning of mobile and people wanted mobile. The country had to impair billions of Rand because of the wrong technology thrust. One had to be careful not to misread the technology evolution or one would get it horribly wrong and have to catch up later on.

How many players in market? Mr Maseko thought that it might be a trick question but it depended on the concentration level. No competition at a high level was a barrier to growth and competition which was something SA experienced in its economy generally. Telkom had initially thought access funding was critical for small and medium players and undertook some research which showed that it was because of the higher input price that smaller players could never compete. The medium and small players could not compete because they paid higher unit prices and higher interest rates at the bank. They simply could not compete. Secondly, small and medium businesses could not be accessed by the market because they had no visibility. Funding was only the fourth issue of concern for medium and small players. There was a need to find ways of giving support to small and medium businesses because that would be to the benefit of the SA economy.

Mr Maseko responded to the question of ownership of Telkom. Black ownership stood at 12%. Telkom had two big shareholders so Telkom was penalised by the points system. The Public Investment Corporation (PIC) held 12% to15 % and government had 40% of the shares.

He hoped that the WOAN would not be allowed to sell on spectrum without doing anything. As the Fourth Industrial Revolution approached, the IT sector should be a catalyst for jobs. Telkom had a leading position on the copper side but it was in decline and stealing was accelerating Telkom towards the end of using copper.

Mr Maseko addressed questions related to the future. Telkom straddled the digital and non-digital divide. Telkom owned the Yellow Pages, which was the original Google. People now used the Yellow pages to roll up zol or make a doorstopper. Those people were in the print business but it was in massive decline and they had been replaced by a massive move to technology. The challenge was to anticipate what technology would do so that one could start new systems and develop new skills. In the past, a lady or gentleman had driven a van and climbed up a pole. Now someone in the office re-programmed a system. The service had improved but that had changed how people worked. What was an acceptable level for employment? As margins became thinner, jobs would disappear.

Telkom was doing training in coding and IT-type jobs for those people who would be replaced. Telkom was looking at robotic replacements for human employees. In the latest test a person had taken eight days to do a job that a robot now took 30 minutes to complete. So how did one employ people? One needed to look at the cross-sector implications as well because one could not say that one did not want the Fourth Industrial Revolution: it was going to happen. The DG had referred to the digital summit as one had to look to the future and people had to put their heads together and to factor in the issues, the service had improved so that one could adapt, and adapt faster.

Mr Maseko asserted that smaller players had to be given finite support. They should not rely on the regulator. The greater the competition the more rational prices would be and the greater the efficiency. Without competition, there would be no excellence.

The CEO responded to the comments by the DG on providing cheaper airtime units to spaza shops. He did not know if the selling of airtime would survive. As more smart devices came into use, the consumers would buy online on the device, like banking services where many customers never went into a bank. He was not saying that the guys should not be brought into the economy but one had to figure out how to bring them into a digital economy.

Telkom was still very concerned about the WOAN and would push back. He was particularly worried about buying capacity and whether there would be a minimum percent that had to be bought. As to fibre access, he thought that legislation might well want to define the minimum speed that the public needed over time and the network provider could decide how to provide that minimum speed, rather than determine technology choices. The forms of technology would definitely change. Fibre should not be regulated because then the costs would go up. For example, LTE was cheaper than fibre for the same speed and one might need satellite technology for those in deep rural areas.

Mr Maseko responded to the question of wholesale or fixed services. He was not sure whether fixed services were available on open access. He had not been in that sector when there were consultations around bundling. His company had been trying to reduce the monopoly of last mile fibre. Competition had been introduced and no one had died. The retail business of Telkom used either fibre or services. There was no loyalty to the company. They went for the best service and price, regardless of who the provider was. He could assure the Committee that no one had a captive market, and business had to be transparent and efficient to survive.

Mr Maseko agreed that there would have to be further consultation on re-farming. He agreed that whatever rule was put in place, it should not hinder speed. SA would always lag in technology but the policy framework should ensure that SA did not lag too far behind. Europe was lagging behind US. Europe had low prices but no investment, no innovation and little development. The USA had completely outpaced Europe. It was not just about the network but about what ecosystems could be built on top of the network.

Ms Nicole Theron, Economist, Econnex and Advisor to Telkom, referred to the question of whether a wholesale monopoly would be desirable. Telkom had not stated that the WOAN would be a monopoly but it might be in a position to charge excessive prices or monopoly prices. One needed to be able to examine the details in order to determine whether the WOAN would charge monopoly prices and to do that one had to invest in a forward-looking study to see how it would work in the future. The policy needed to limit the pricing power. The WOAN could not make the same returns as a normal telecommunications player; hence the need to limit prices. A wholesale access player could not charge monopoly prices to new players.

In response to the question of how many players the sector could afford in the retail market, Ms Theron said that the WOAN should not be seen as another player. MTN had, the previous day, said that operators shared networks and there was room for competition, etc. Ms Theron noted that there was a highly concentrated retail market but the wholesale market was limited. If one wanted to roam, the only choice was MTN or Vodacom as only they had the necessary infrastructure. It was not a competitive market with two players. What the smaller players needed was access to the wholesale market.

Ms Theron stated that the CEO had explained how the fixed market was opening up, despite the higher cost of investment. However, from an economic aspect, one could look the players like OpenServe or Vumatel in the fibre market who did not offer services to customers but needed to get as many people as possible onto their fibre network to reduce costs. It was a big investment but that was an incentive to get as many subscribers as possible.

In the mobile sector, Ms Theron explained, there would not be the same level of competition and one would not get newcomers buying in unless one could buy through a wholesaler such as WOAN or some other construct and so the legislators needed to think carefully about large vertically integrated players.

Mr Mackenzie had asked Mr Maseko whether the WOAN could simply on-sell the spectrum and he had said he hoped not and that there should be conditions on the licence.  In terms of total spectrum available to mobile network operators, how much did Telkom own? He told Ms Theron that the Committee research had shown that over time and since the introduction of the two Mobile Network Operators (MNOs), quite a number of players had entered the sectors and there was lots of competition. Empirical data showed that prices had gone down.

Mr Maseko replied that if the WOAN was simply going to sell on, that would increase costs. If the WOAN did not add value and only added cost and a margin, one would need to find mechanism to add value so that the value was sold. However, he did not think that on-selling was the intent.

He added that it was one question to ask how much spectrum a company had but another question was whether it was being used efficiently. The question should always look at both quantity and usage.

Mr Johan Smit, Executive: International and Spectrum Regulations, Telkom, stated that it was commonly known that Telkom had spectrum. The company had historically had spectrum but spectrum was not equal so it could not say what percentage or how much of the spectrum it had. What was critical was that Telkom did not have access to sub-1GHz spectrum. The lower frequencies were needed to improve the quality of communication inside buildings because the signal did not always reach into the building. Alternatively, one would need to establish more base stations. Some of the spectrum had been used for legacy technologies and Telkom had deployed YMax technology but, because the technology had failed on an international level, that technology was being phased out and the spectrum could be re-farmed, maybe for mobile technology.

Mr Smit added that one could also not compare subscribers because it depended what the subscribers were using. For example, one could not compare a limited voice only subscriber with an uncapped data and voice user.

Ms Theron responded to the Mr Mackenzie’s question about technology. She explained that Telkom was talking about the mobile market because that was the primary means of access to technology in the country. The most important metric would be market shares, and not sim card market share but revenue market share. Vodacom and MTN had 85% of the market share. Those market shares had been stable for a long period. The history had been stable for a very long time and did not welcome competition. She also referred to the increase in the mobile termination rate to R1.25 just before the entry of Cell C and the asymmetric mobile termination rates (MTRs) announced too late in 2010 for new entrants. The Competition Commission was concerned about the lack of competition, especially in pricing. It was also concerned about lack of transparency. Even if data prices had declined recently, what would the counter factual have been if there had been more competition in the market. The problem was that if the smaller players lowered prices, the club effect kicked in with the limited market and the price was not sustainable if others did not follow suit.

Mr Riann Hawthorne, an economist, was invited by the Chairperson to ask a question.

Mr Hawthorne thanked him for the indulgence. He had a question about spectrum. If Telkom was assigned enough spectrum, especially the load band spectrum, would it be competitive and would prices come down?

Mr Maseko replied that prices would come down because one of Telkom’s constraints was that it did not have indoor penetration so it had to build more stations to improve the quality of the service given. With sub-1Ghz spectrum it would help with reach which would mean that costs would be lower and Telkom could be more competitive in that dimension. He was sure that Telkom could bring prices down.

Mr Wiltz responded to Mr Mackenzie on the matter of whether the spectrum could be sold on or sold off, as there was a risk that parties would want get rich quick with WOAN. In the current Bill, it was covered under the broader spectrum. Clause 31(b) prevented trading but was subject to approval from ICASA and ICASA still had to make regulations, which had to take into account competition. It was therefore unlikely ICASA would approve a sale. If the Bill was not law by then, under the Electronic Communications Act (ECA) one could sell WOAN, but the competition authorities and ICASA had to come into play. A Radio Frequency Spectrum could not be sold or transferred without approval from ICASA and ICASA was unlikely to give approval.

Mr Siyabonga Mahlangu, Group Executive: Regulatory Affairs, Telkom, stated that the fact that Cabinet had approved the hybrid model did not constrain Parliament from assessing whether the WOAN was the correct medicine to address the ills. Was a WOAN, in whatever form, the right medicine in the correct form? The Telkom Act of 1996 had helped to mature the mobile industry, and the ECA had helped with hyperscale, hypersensitivity and hyper speed. It was a question of how the sector had to deal with it to move forward. Parliament should not be constrained by the Executive branch.

The Chairperson said that the Committee would continue to engage and was trying to narrow down the issues with which people were not comfortable. The Committee was pleased that almost everyone had revised their presentations - he could see that there had been movement towards consensus. After the presentation by Mr Maseko, people were thinking that everything would be done for them and their cups would Uber their coffee to them. The discussion had been enriching. He hoped that ICASA would speak to the gaps that everyone was speaking about. ICASA was the authority and everyone wanted ICASA to move with speed. The role of and the gaps experienced by CASA in carrying out its role and responsibility would be addressed. The Committee had to address the problem of inclusionary exclusion in the country.

Mr Maseko appreciated the robust engagement and apologised for his need to leave at that point.

The Chairperson stated that he was adjusting programme so that Mr Joosub could go to the mosque. He would allow Smile to present next.

Presentation by Smile Communications (Pty) Ltd

Ms Charnley said Smile Communications employed people in SA but operated outside of the country. It was a fourth generation operation and operated in Nigeria, Uganda and Tanzania and soon in the Democratic Republic of Congo. Smile Communications had an interest in the Bill because Smile had been the first company to apply for spectrum in South Africa.

Ms Charnley addressed the key issues in the ECA Bill. She understood that it sought to implement the White Paper which would change the status quo. The policy and Bill were clear about the need to change market structure and involve players beyond ‘the usual suspects’. WOAN appeared to be the main vehicle but the Bill needed to be more explicit about transformation objectives and the critical role of new entrants and entrepreneurs in the WOAN, and in the sector as a whole. It needed to be clear on the role of the various elements in the broadband value chain to support the WOAN.

In terms of licencing, WOAN should be a vehicle for transformation and should be assigned all spectrum needed, leaving one bloc to be auctioned. The ownership and transformation targets needed to be clearly stipulated in the Bill and at least 60% of the WOAN should be black-owned with half of the ownership being women. Access to the 700 MHz band would add a ‘futureproof’ element to the WOAN.

Industry support would be required in the form of offtake and implementation of the open access regime.

The Offtake Agreement had to support the WOAN business case as a late entrant with a minimum of 30% minimum offtake by the operators that currently had spectrum. WOAN would be a Universal Service sector objective.

Ms Charnley stated that permission should be granted for spectrum trading, spectrum pooling or spectrum sharing, as long as each of those activities was subject to regulatory approval. South Africa could not afford to waste any more time before licensing spectrum.

Discussion

Mr Mackenzie thanked Ms Charnley for the presentation which he had enjoyed. He asked whether the company was SA owned and domiciled. Were the profits repatriated into an account in SA? He commented that the telecommunications sector was least affected by policies of the past and so the sector could innovate and elevate inclusivity.

Mr Mackenzie recalled that her company had been the biggest black women investment company in MTN. Did she still own those shares? How did she feel about the principle of once empowered, always empowered? She had said that only two companies, he assumed she meant MTN and Vodacom, could afford to bid for spectrum. What about Telkom? He assumed that Telkom would have access to vast swathes of money. Given the value of spectrum, he wondered whether Foreign Direct Investors would be interested in supplying funding to other companies that wanted to bid.

Mr Mackenzie noted that suggestions had been made that competition was re-enforced by competition at both infrastructure and the services level. He asked for Ms Charnley’s comment on that point as the Bill assumed that infrastructure would be regulated, and the service level would be more competitive. She had said that the primary object was to bring the cost of spectrum down. If operators had to buy spectrum from WOAN, how did that bring costs down? Did it not add to the input costs? The ECA in its present form would not take off, so would Ms Charnley support some spectrum being offered to a spectrum-hungry market while at the same time setting aside some spectrum for when Bill reached consensus.

Ms Shinn asked Ms Charnley if she owned networks in the African countries in which she operated. If so, how much had she invested? What percentage of revenue had she spent on development, infrastructure and upgrading to keep pace with the technological evolutions? What was the business model for WOAN? What was the product that she was going to be selling and what value did her invoice deliver to the end user? How would she finance her stake in the WOAN? Would it be her own money or funds from, for example, the PIC or some other quasi-government body?

She had said that the WOAN would bring down costs to communicate. Was that going to be on her own infrastructure or that infrastructure on which she was hosted that was mandated by law to be the existing mobile network operators?

Ms Tsotetsi appreciated the brevity and directness of the presentation. What was the reason for MTN overtaking Smile? She also wanted to thank small businesses for going into business but acknowledged that government could not leave small businesses without support. The country has a transformation policy that talked to small businesses. She asked Ms Charnley what should be done to bring the policy alive and to make it meaningful and serve its purpose.

Ms N Ndongeni (ANC) asked Ms Charnley how many people she employed in her company, especially black women in high positions.

Mr Wiltz noted that Ms Charnley’s presentation had said that an unallocated amount of spectrum had to go to WOAN, but it could not. It would need provisions in the Bill to do that. At the moment the discussion was about 4GHz spectrum but soon it would be about 5GHz spectrum. The Bill ensured that the Minister and ICASA had to determine what percentage spectrum went to the WOAN and what percentage went to the industry. That was why the provisions in respect of that allocation were needed in a Bill, even beyond the policy process.

The Chairperson requested Ms Charnley to respond.

Ms Charnley responded to Ms Shinn. Smile Holdings owned all the assets in each of the four countries and the same shareholders owned the company in SA. In SA, Smile Holdings had no operations, although it had an ECA licence. The company used to employ 40 professionals for testing of technology and technical services, but currently employed 24 people who delivered a service for the other countries. Three operations were commercially operational and they employed 1 000 people directly within the three countries.

Smile had used 800MHz spectrum in one country, and 2.6MHz and 800MHz in two countries to put up the infrastructure for the network. It was fourth generation and Smile sold Gigabytes. Smile leveraged passive infrastructure from third parties, either a network operator or an independent tower operator. The equipment was put on the base station to deliver the service. The base station equipment contained their signal. Basically, Smile leased towers and owned equipment and data centres to deliver 4th generation services which meant that people could download any content without buffering.

From a technology point of view, Smile was the first to roll out in East and West Africa using spectrum and voice over LTE. Investment came from shareholders which included families in Saudi Arabia as Smile struggled to get investors. Smile was still very small but the investors believed in the system and knew that for every 10% broadband penetration in a developing country contributed 1.38% to Gross Domestic Product (GDP). All her money was invested in the business because she knew it was a good quality system. The debt was accessed from development banks and it was all based on normal corporate financial principles where there was x% equity and long term finance over a period.

The WOAN would sell capacity or data. A business person would buy x-capacity at x-price from the WOAN. The WOAN would leverage capacity from the current passive infrastructure: the undersea cable, fibre such as OpenServe plus 10 000 of the current 30 000 towers in the country. WOAN would put the network together to sell the most cost-effective data in bulk to a third party. Using current infrastructure, it could be done at cost plus. It would be linked to fibre and undersea cable. Any third party service provider could buy from the WOAN in bulk. Her people had the expertise. There were other people who had worked on towers and so on. Smile would put a consortium together, including women, young people, black people and women and disabled, and key people to manage the consortium. She knew what it cost to deliver a Gigabyte, so she knew it could be done more cheaply.

Ms Charnley agreed with Mr Mackenzie that the sector was one that had empowerment but people had pushed very hard for it. The first empowerment deal at MTN had bought an 18% stake and 3 200 people benefitted financially. The PIC had provided the debt and took 65% of the upside while only 35% went to the 3 200 people who had held the shares. The share price was at R8.30 when the deal was done and was bought at R9.34. They had built it up to R90 per unit. MTN was built by black people. There was no such thing as ‘once empowered, always empowered’. Black people had to own the economy. They did not have a stake in the economy. It was not possible to continue unless that changed. When one added value, one had to take the value and do it again.

Ms Sharnley declared that spectrum was a national asset and it should be shared just as the ground should be shared in the country.

She believed that the fiscus could make a lot of money out of an auction. She would suggest that government auction the spectrum at R8 billion to R10 billion. If South Africans did not buy, internationals would buy. That was her view. Telkom had access to money but she thought that there were others who would pay a lot more.

Ms Charnley responded to the question about competition at infrastructure level. She believed that there was enough infrastructure in the country. Nigeria had 180 million people and 32 provinces and yet Nigeria had an equivalent number of towers and other infrastructure. Most of the infrastructure was owned by third parties who leased the towers to the players. It was like leasing property to the best party. SA needed competition at the service level to bring prices down. She could prove it. Prices would not go down unless there was competition at the service level. When SA got 3G, data remained expensive, even though operators had not paid for the spectrum as operators in other countries had done.

Ms Charnley noted that government had stated that spectrum would be available by April 2019. Both the auction and the WOAN would start at the same time if it could be divided by a third. If the policy was clear, it could be implemented by April next year. As soon as ICASA received the directive, it would have to be implemented.

Ms Charney told Ms Tsotsetsi that Smile was very small and would complement the big operators who had done well in SA, and across Africa. They had done well but now SA had to look for a vision for the next 20 years. Where should the ownership lie? What should government do to accommodate and facilitate black empowerment?

Ms Charnley wanted to respond to the question about transformation but she and her team had only looked at the principles. They had not looked at the specifics in the Bill. She told DTPS that technology was neutral. All the sub-1GHz spectrum was technology neutral and served a similar purpose, be it 600MHz, 700MHz or 800MHz. The spectrum above 1GHz gave much more capacity.

Ms Shinn asked whether Ms Charney was saying that SA did not need any more infrastructure. Did SA have enough for 20 years ahead, and to implement the Fourth Industrial Revolution?

Ms Charnley believed that SA would need infrastructure but Ms Shinn had to separate passive infrastructure from active infrastructure, which was the base station that sent out the signal. The country needed more active infrastructure. SA had lots of towers. Maybe a few more were needed in the rural areas but active infrastructure definitely needed large investment. There was a need for passive infrastructure but not a large investment.

The Chairperson said that Ms Charnley represented women in the sector very well. She was the first woman to be a main speaker for women in the sector. She had been around from the time of no demand to the time of high demand. The sector would be transformed, either through coercion or legislation. As with all presenters, he would ask her to work with DTPS.

Ms Charnley appreciated the Chairperson because he played a very important role. She appreciated the questions that forced her to consider her responses. The Committee played an important role in society because the Committee was the driver of the policy and it would be the one to make change happen.

The Chairperson welcomed Vodacom. He appreciated the fact that the CEO of Vodacom had returned to the country to show respect to the Committee. There had been rich engagements and the Committee had been convinced to ensure the transformation of the sector so that everyone in SA would become a beneficiary in the sector. There had been an outcry from young people and black businessmen and they had to be allowed to participate. No one wanted inclusionary exclusion. The Committee wished to coerce everyone to move towards the middle and see the Committee’s view of transformation.

Presentation by VODACOM

Mr Shamiel Joosub, CEO, Vodacom, briefed the Committee. He was assisted by Mr Andrew Barendse - Managing Executive, Ms Taki Netohitomzhe - Chief of Corporate Affairs, Nkateko Nyoka - Head of the Legal Department and Louw Middel - Regulatory Affairs.

Mr Joosub made a few introductory remarks. He agreed that the industry was at the crossroads and the legislation was important. His view was not to rush it as it would shape the country going forward for the next 100 years. Operators did want to drop data prices, and prices had dropped 45% in last three years. One of the big things affecting the industry was the availability of spectrum. Most successful countries had between two and four mobile operators. The Bill gave smaller players the opportunity to form a consortium. Lesotho was on 5G but SA not yet fully rolled out 4G. There had been no policy since 2004. The sector needed investment but people would not invest because of the lack of policy certainty. The industry had lost R140 billion in the past two years because the White Paper said that the government would take everything away from operators.

Mr Joosub made a fairly detailed presentation of investments made by Vodacom and its contributions to social development, as well as a detailed response to the Bill.

Mr Barendse briefed the Committee on the economic impact of the Bill. He informed the Committee that Vodacom had forwarded an economic impact assessment, a technical economic impact study, an opinion and a re-write the Bill to the Committee. He said that if the Bill were implemented, the market would suffer policy uncertainty and then there would be lower investment and that would impact on the consumer and on the economy. WOAN would take, conservatively, five to seven years before it would be fully functional. The assessment compared the difference between the implementation of the Bill versus no Bill.

Mr Joosub concluded by summing up the four key points that Vodacom had concerns about in the Bill. Firstly, access and sharing had to be based on commercial agreements and be economically and technically feasible, and able to achieve efficiencies. Secondly, the renewal of existing spectrum licenses should be preserved as long as its conditions remained fulfilled and the relevant fees were paid. Thirdly, as far as coverage was concerned, the mobile network operators should be subject to inefficient coverage obligations requiring them to roll out in rural and underserviced areas before being able to deploy spectrum in urban areas. Fourthly, Vodacom envisaged a competitive WOAN and was committed to support the WOAN by buying capacity. The WOAN should have favourable spectrum payment terms and commercial rates had to be charged for its services but it should not have coverage obligations.

Mr Joosub suggested that the policy direction, under the existing Act, should be allowed to proceed but the Bill should not be rushed through Parliament and a panel of experienced telecommunications engineers should review the technical specifications.

Discussion

The Chairperson noted the concerns regarding policy uncertainty and the confusion as a result of the issuance of the Minister’s request which questioned certain clauses in the Bill. He said that the DG would deal with the question about the contradiction in the auction approach when operators could just as easily go to the WOAN. Vodacom had raised the issue of the failure of WOAN in other countries such as Mexico and Rwanda. Another issue was that of open access. Mr Joosub was concerned about government rushing the deal, a change of attitude had unfolded during the past three weeks that the Committee had been dealing with the Bill. He assured Mr Joosub that there was no intention of Parliament to rush the Bill. He would not embrace a situation where there was policy uncertainty. It was Parliament’s responsibility to thrash it out. The Department could present any Bill but Parliament had to apply its mind to ensure that the Bill was workable.

The Chairperson stated that, whereas there was a view that the sector was at a crossroad, the Committee saw a great opportunity in the transition from the Fifth to Sixth Parliament. The Committee had only five working days left in Parliament. The opportunity was that the Committee could accept all submissions, even those that were only written, collect all the data and identify contentious issues that needed to be addressed. The Committee had identified six or seven issues, including constitutionality; encroachment of the powers of ICASA and the constitutionality of such a move; issues to do with land expropriation in the Bill; the issue of rapid deployment and its mandate; and the spectrum management issue. 

He added that, over the next week, the Committee would discuss the desirability of the bill. If the Committee could find consensus, it could hand over the Bill to the new Parliament. The Committee could get the Department to get views and opinions on contentious issues in the meantime. The Bill would lapse when Parliament prorogued although the Committee could look at the Bill at the end of January and listen to the Department’s response to the submissions. Whatever happened, it was about addressing what the Bill was trying to achieve.

If the contentious issues were reduced, and ICASA committed itself to move at a proper pace, the Parliament could invoke a new Bill in the new Parliament. No matter what happened, Parliament would not fail the country.

The Chairperson added that the question was whether there was a need for the Bill, or whether the industry could move in such a way that some of the sections of the Bill could be scrapped on the basis of the industry managing the necessary transformation processes.

The Chairperson called for questions and comments

Ms Shinn asked Mr Joosub to provide details in respect of his statement that Vodacom had lost over R140 billion over four years. Which four years was he talking about?

Ms Tsotetsi said that the difference in perception between small and big players was quite confusing. Some of the comments were quite scary. Many small players were appealing for space and wanted at least two-thirds. If Vodacom heeded the call and gave the small players two-thirds, would Vodacom be harmed? What effect would it have on the profit margin?

Ms Tsotetsi applauded Vodacom on its contribution to society but she wanted a geographic understanding of the where social involvement was taking place so that the Committee could verify the presentation when the Committee conducted oversight visits. She appreciated the tablets for school kids.

Ms Tsotetsi asked what he had meant when he said that they had been overtaken by events. The statement that lower population density areas meant higher prices was really scary. The CEO said that the Bill had failed in other countries but the Committee thought things were different in different countries and SA would learn from their failures.

Ms Ndongeni asked how many smaller players had been adopted by Vodacom, especially in rural areas. How come the network was not the same in urban and rural areas? The signal was clear in town but faint in rural areas. Coverage was 90%, so why not give spectrum to smaller players? If Vodacom thought the smaller players would fail, what had they done to support them? No one wanted anyone to fail but she was not sure how Vodacom supported them because it was a commercial exercise. What did Vodacom charge to maintain a quality network, and how much were schools charged? Why were five of the 14 SMMEs responses to Vodacom’s Request for Proposal declined?

Mr Mackenzie started with a disclaimer: he used Vodacom on his tablet. Vodacom had lost R140 million in market capital but the market had been dismal. How did that impact on Vodacom’s figures? Vodacom had promised to invest R50 billion but Mr Mackenzie assumed that the investment would only be made if the legislation was not passed. Was he correct?

Mr Mackenzie asked about the access to free websites provided by Vodacom. Did any of his competitors do anything like that? If he, Mr Mackenzie, had a Vodacom contract, could he access those sites without data? He really believed that IT would change the economy and the lives of citizens but, during the week, presenters had said that the bigger telecommunications companies had been embarking on retrenchments. Had Vodacom been embarking on retrenchments? Was its workforce bigger than it had ever been? What was the level of skills in Vodacom in comparison to the general workforce in SA? Were there any initiatives to develop mobile virtual network operators (MNVOs) on the Vodacom network?

Mr Wiltz referred to Vodacom’s concern that spectrum might be assigned on an open access basis and non-exclusively. He stated that the open access policy was a fundamental policy change in the White Paper and the Bill. Chapter 9 of the White Paper was clear on the need to transform from the six operators controlling spectrum to many operators being able to share in the use of spectrum. To provide clarity, he stated that the Bill was referring to high quality spectrum that would be released after the Bill had been signed. It did not mean that suddenly there would be interference. However, if operators had an active sharing obligation in the future, that operator could not claim inoperability based on vested rights because the operator did not have an exclusively assigned right. Active sharing, by implication, meant a sharing of the spectrum. For example, where RAIN had been implemented, sharing was done in a way that ensured minimal interference.

Mr Wiltz noted that MNOs would not be able to refuse to provide access to the spectrum, but there was a condition, i.e. that it was economically feasible. The presentation showed that the Department had identified the bottleneck accurately. For years officials had heard that MNOs used economic feasibility to frustrate and block access. Vodacom was saying that the WOAN should be subject to the same facilities as those of the MNOs but doing that might allow the WOAN to block access to MNO facilities. Under the current ECA, ICASA had to ensure effective facilities leasing and resolve disputes between the WOAN and the providers. The framework would change in the Bill. An operator could not refuse to share access on the basis of economic feasibility, but could refuse to do so on the basis of technical feasibility.

Mr Wiltz commented on Vodacom’s position that a rural-first roll-out would not work. The Department had clarified that the term ‘underserviced area’ might not be rural. It might be in urban areas. It might be more expensive to use the spectrum in the rural areas but that would depend on the geography of the area.

If the obligation was not imposed at that point, there was a risk of lack of access being perpetuated. There was discretion for ICASA to decide how the obligation would be applied that took practicalities into consideration.

He added that the Department would have to see how to make spectrum re-farming more practical but without losing the requirement to ensure commensurate obligations for the same spectrum bands. Vodacom wanted a WOAN for the urban areas of high demand. The policy stated that the WOAN should extend to rural areas to ensure full population coverage in a reasonable time and at the required capacity. That meant that anyone buying from the WOAN could also service rural areas if the WOAN had rural obligations. The Bill did not provide that all MNO operators would attract the open access obligations. Some would if, after following due process, they were classified as operators having significant market presence, but it would happen in due course. It was necessary to reduce data costs so it would be implemented, but due process had to be followed.

Mr Wiltz agreed that there were differences between the policy and the Bill. He stressed that the two could not be the same. The policy direction had been issued under the current legislation in the ECA. The Bill would provide a future legal framework. The two documents were released at different times, but now that the Department knew that the policy would go through first, the Bill would take the policy directive into account. The Bill would not become irrelevant because it included a number of critical issues such as international roaming regulations, driving down costs, etc. The policy was not a mess but it favoured SMMEs, social upliftment and transformation and not the large MNOs. The Bill did not kill the regulator. DTPS supported its Regulator’s independence.

Mr Robert Nkuna, DG, DTPS, spoke from a strategic policy perspective. He agreed with the approach by the Committee because it made sense to deal with things as the Committee had indicated. The first issue was the debate how many operators could be in the market. The big operators had suggested only three operators. But how did government or Parliament tell people that they were too late as one could only have three operators? It could not happen that way. If people wanted to invest in the sector, the job of the Department was to support such an investor. If the company collapsed and the investors fell by the wayside, it was the Department’s responsibility because all that government could do was to create an enabling environment.

He agreed that 12 years later the spectrum issue had not moved. It was not good for the country and it did not speak well of government but the difficulty was around finding consensus, and many other issues. The small companies thought that it could be resolved outside of Parliament. They had said that the Department should give them more, and give the big companies little and the problem would be solved. The big companies said that big was good and government should give them more and the small operators less. So they could not find each other,

Mr Nkuna admitted that the CSIR study might have imperfections for scholars of models but there had been no other way to achieve consensus. It was the best that DTPS could do. The Bill was a translation of the White Paper into a legislative instrument that would facilitate public comment and would involve Parliament. He knew if he were sitting on the other side, he would have said that the policy could have been written in one day. But, there was value in going to Parliament because now everyone had had a chance to ventilate the issues.

He responded to the question of whether the focus was on the wireless sector only or also on fibre. The issue was how did one ensure rapid roll-out of fibre? Everyone was grappling with the issue. So DTPS was paying attention to fibre. The Department was working on that. If a number of things could be done under the current Act, then the Bill could be restructured and be made more futuristic. The policy directive had gone through and ICASA was running its processes. There was an opportunity to ask how to deal with the issues not covered by policy directive and ICASA regulations.

Mr Nkuna stated that WOAN had made good progress now that the big companies were sharing international roaming. But would the same approach apply to small operators and how could it be done? If it was a non-issue, how could it be done? He added that in dealing with ICASA powers, the Department had cited the current Act. The Bill elaborated on some issues in the Act. For example in section 4, ICASA had to develop a radio frequency plan and the Minister had to approve. But was it approve or sign? Those were different things. The Department felt it should be approved by Minister. There had recently been a dispute between ICASA and Minister about the radio frequency plan and that had taken time to resolve.

He concluded that the question was about what was going to happen next. Would the Department review the policy or focus on a legislative instrument that would stand the test of time?  The Department would scope the issue but did not want that to paralyse matters or result in endless discussion. The Department undertook to work with the operators in good faith to resolve the contentious issues, although it was probably inevitable that the final decisions would probably not suit everyone.

The Chairperson said that the Vodacom CEO said had found something confusing. There had been an agreement that the industry would take 30% of the WOAN as an offtake, but in the Minister’s proposal it was suggested that the offtake had to be 30% per operator.

The DG said that it was an issue that he would have to go back and look at but the Chief Director could give his view. The DG had understood that the industry would buy the equivalent of 30% minimum, collectively. He might have to re-word that section.

The Chairperson asked DTPS to look at the issue outside of the meeting.

Mr Wiltz said that in May 2017 there had been a discussion and a kind of agreement but it was not a written agreement. If one did not have to return the current spectrum, then the industry would have to buy 30%, but if the MNOs were given additional spectrum, then they would have to buy up to 50%. The agreement had not said whether it would be individually or collectively. The Bill said 30% per operator but then the operators had raised the concern that it was not what had been agreed and if the operators each bought 30%, the industry would have 90% of the spectrum. That left too little capacity for the rest of the sector.

He explained that because it was confusing, the Department had built in a two-pronged approach in the policy direction. It had two parts. The first period would be one to three years, as determined by ICASA, and talked about individual capacity of 30% and when that lapsed, the second period saw the process move to the collective purchase. That solved the practical dilemma. He said that the Department was leaning towards 30% in total for the MNOs. The new Minister would have to agree, and then the Bill had to be aligned.

The DG said that the Department was working towards clarity. At the moment, the Department was looking at a minimum of 30% combined so that there was no ambiguity. The Department and the MNOs also had to find each other in re-farming, etc, which could be quick wins. Those issues would be resolved but the transformation package had to be clear because that was at the heart of it.

Mr Joosub responded to the questions put to Vodacom. R140 billion had been lost by the three players as the share prices had gone down significantly from two years previously and that did not take into the latest MTN drop as a result of the issue in Nigeria. It was not only but, certainly mostly, about the uncertainty in the policy environment. The White Paper had said that the government would take away the spectrum that the MNOs currently had. Then the Amendment Bill wanted to make everything open access. The fundamental question was what was one buying when one bought spectrum? The input from the experts had not made it any clearer for him. If the country was going open access, then that was the route.  There were other routes that could be chosen. But, when there was a mismatch of things, the country landed up with uncertainty. Investors wanted to know what they were investing in.

Mr Joosub added that digital migration had still not happened in the country and the MNOs had to get agreements from neighbouring countries to manage the interference. The 700MHz and 800MHz frequencies had not been rolled out three years after the international deadline because there were fights about who would get the box tender and fights between eTV, SABC and MultiChoice. The spectrum that they were fighting about just was not there. The 2 600GHz was the only one. The digital migration for TV was not out of the starting blocks. The issue with ICASA had to be sorted out quickly.

He said that if two-thirds of the WOAN was black-owned, it would not hurt Vodacom, which supported the WOAN, but the Department could not say that both parts were open access. If one wanted to be in the open access part, then one had to join the open access network. On the MNO network, operators were being charged and had obligations such as rural coverage. That was a clear distinction.

On the geographical aspects of where Vodacom engaged in social development, Mr Joosub promised to make a submission showing the location of schools, training centres and so on.

Mr Nkateko Nyoka, Chief Legal & Regulatory Officer, Vodacom, said that he had been listening to the discussions over the past couple of weeks and they were exactly the same discussions that had taken place ten years previously. The biggest issue was a policy directive and a Bill dealing with many complex issues, but fundamentally the Department wanted to change the market structure that had existed over the past 15 years. It was prudent to focus on a single instrument. If the issue was that government wanted to enable the WOAN and encourage sharing, the first question was whether the WOAN could be created under the existing legislative framework. If so, and he believed it was so; the Department did not need to table a new instrument. The Bill also introduced new policy issues that created a level of nervousness. The Committee needed to consider whether it was appropriate, especially taking into account that the Fifth Parliament was soon to rise, to consider the draft legislation. He added that, at least the Department now had comments on the policy.

He suggested that the Department should focus on the goal of implementing policy. If one tried to juggle 100 balls, one would lose control of all balls, but if one juggled only three balls, one had chance to keep them in play and achieve the outcome. If the industry considered introducing a WOAN, there had to be a focus on policy. He thought that government could auction spectrum by September the following year and deal with the concerns of the small operators by the end of that year. He suggested that with so many issues in the Bill, Parliament would not be ready to pass the Bill. The main concern was that the Bill would override the policy once it became law. As long as there was an impression that there was going to be new legislation, the market would be concerned and exercise caution. If the spectrum was auctioned in an environment of uncertainty, the price offered to government would take into account the risks inherent in the situation. In Mozambique several bands were offered on auction and the government was only able to sell the 800MHz band. The pricing was not underpinned by the realties of the market but by the uncertainty in the sector at the time. Investors in Mozambique had reached the same conclusion as SA investors had and so an auction under those circumstances would not fare well.

Mr Joosub, in response to the question as to why costs would be 15% higher, explained that competition existed in two parts: in infrastructure and in pricing. The country had a lack of fixed lines because Telkom had had no competition. It had had a monopoly. 80% of the fixed line market was still with Telkom. So the sector had to ensure competition. If the WOAN’s intention was to aggregate everything into a single monopoly, it would not work because there would be no competition. Telecommunications companies were about investment and some would have capital and others not. If one put all one’s eggs in one basket and the basket failed, then the country would be in deep, deep trouble. He agreed that there was duplication in infrastructure in SA, but that was evidence of the competition. There were a lot of studies on why the WOANs around the world, especially the Mexican WOAN had not worked and those had to be considered by the Department.

In response to the DG’s assertion that the sector could have 100 players, Mr Joosub said that telecommunications companies could not have 100 players. The spectrum did not exist for that to happen. There was a limited number of blocs of spectrum. In the 800MHz spectrum, there were only 35MHz of spectrum available, which was not enough. At least 10MHz would be required to make a network operate properly. That meant there could only be three players. In respect of giving more spectrum to the WOAN, he noted that Vodacom had 44 million customers, MTN 33 million and Telkom 12 million, and it had taken them 25 years to get there. There was no way that the WOAN needed more spectrum. His recommendation was to give all players equal blocs.

How many operators were there in rural areas? Mr Joosub explained that Vodacom was trying to ensure that local entities built towers. They had put the towers out to tender but had to limit the work to four or five players or they would not be viable contracts. Normally there was an aggregator to work with smaller players and Vodacom had always worked with middlemen but previously those middlemen had been white. So on that level, too, Vodacom was transforming. The trouble was that the charter for telecommunications companies used to be very stringent and it had been difficult for small players to meet the requirements. 

Mr Joosub informed the Committee that Vodacom also had 280 franchise stores of which 118 were owned by black owners. Every year Vodacom bought back franchises from whites and gave them to blacks. He was quite honest in saying that Vodacom needed to transform and to have appropriate B-BBEE certification because it needed business from government.

In response to the question about why the network was not the same in rural areas, Mr Joosub said that in rural areas, the distances were vast and there were very few people. Telkom did not have the network in those areas, so it became very costly as Vodacom had to build long microwave links to close the gap and get 3G in smaller areas. Vodacom had built hundreds of new microwave links as it was trying to get to 100% coverage across the country. In the cities, one had 4G so it was much easier to connect towers in the city. Vodacom was the only player going for 100% coverage.

Why not give spectrum to smaller players? Mr Joosub explained one could not break up spectrum. Distribution was given to smaller players. For example, 150 000 people sold airtime.

Ms Taki Netshitenzhe, Chief Officer: Corporate affairs, Vodacom, said that schools and teacher centres across all provinces did not pay for the use of the network as that was where Vodacom gave back.  It spent R350 000 per school and teacher centres cost between R2 million to R15 million and included set-up, maintenance and connectivity. She promised to include details in the geographic report.

Mr Joosub stated that Vodacom continued to invest because when it stopped investing, the quality of service would deteriorate and the company would lose customers. Vodacom planned to invest R50 billion. In respect of the move to digital television, he stated that there was data available to identify which people were entitled to subsidised connectivity to digital television. All it would take for connectivity was a dongle for those who had not, in the past few years, upgraded to a smart television. It could be done quickly if there was focus and if the Ministers did not keep changing.

He added that the free sites were available to all Vodacom customers because the urls were zero-rated. Government had digitalised the entire school syllabus but now needed the tablets that Vodacom was accessing for them. But learners could access the school syllabus from their cell phones in the interim. Access to that data would be free for all Vodacom customers, obviously including schools. Vodacom was working with government, looking for subsidies and sponsors for the 14 million tablets required. He was pushing Google and Facebook to help with the tablets. He added that competitors did not offer free sites.

Mr Joosub stated that Vodacom continued to grow its headcount. It had outsourced a lot of functions but now, like many other companies, Vodacom was trying to re-insource skills, especially in the IT field. If a unit in Vodacom was restructured, the people in the unit were re-trained. Vodacom first protected own staff. The demand for data, music etc was increasing, so Vodacom needed more skills. Vodacom worked with universities to develop skills as he did not believe that SA would not have sufficient skills for the Fourth Industrial Revolution. Only one or two universities offered training in artificial intelligence (AI) and then only at a basic level. That was not enough.

He told the Committee that because Vodacom was spectrum constrained, it had gone for the roaming option. The mobile virtual network operators (MVNOs) had gone to Cell C and because Cell C had been a big customer, Vodacom had not wanted to take them away, but now that had changed and Vodacom was open to taking MVNOs. However, government had to choose what it wanted: MVNOs, open access or the WOAN, but it could not have all three. Vodacom did not block access to anyone. Vodacom was sharing with Rain and Telekom. There were six players with spectrum but two were not using their spectrum because they did not want to put in the investment. Some players were not prepared to put in the investment and the CEO cautioned that the sector needed people with money. He believed that six players in the sector was a lot by international standards.

Regarding the rural issue, he was merely giving advice acquired over decades. If the WOAN had to do rural first, it would be an unnecessary burden and the WOAN would struggle.

Mr Joosub cautioned that spectrum obligations should not be based on bands but should be based on covering an area at a minimum speed. It was too complicated to have to get approval for re-farming spectrum. Getting approval would take the country back 15 years. Spectrum re-farming had to take place dynamically. He suggested that the Department get some of the engineers who were working on the spectrum and re-farming to show them how it worked so that it could understand the implications of the proposed policy. The issue around the Bill and the directive was that the directive would be in place by March 2019 and the Bill talked to the next 100 years.  Government was looking at charging R3 billion for the spectrum, as per the policy. However, if the Bill was enacted and the spectrum became open source, that would give away one’s rights to the spectrum. So, why would anyone pay the R3 billion for those rights that could be taken away? It would be more intelligent not to pay for spectrum and to wait for open source.

Mr Joosub believed that it was a travesty that the players had to come to Parliament to resolve issues. He could not understand why the industry could not resolve the issues.

He explained that rapid deployment was not fibre. It was the means to roll-out fibre. Fibre was a big issue for the country. Wi-Fi led to cheaper data and offered unlimited capacity. It would take too long for the country to get 5G. The focus was on fibre into every house in Europe, New Zealand and so on. By focusing on mobile, SA was neglecting fibre and Wi-Fi in homes which was the important thing. The government should already be looking at the tariff per household for fibre.

Regarding the issues with ICASA, Mr Joosub said that the DG would have ICASA reporting to him. The two Departments and ICASA had caused complexities but once the two departments became one, the issues could be resolved.

He concluded that the agreement that the industry would purchase 30% of the spectrum was the correct approach. He had suggested 30%, but the drafting of the Bill had not made the agreement clear.

The Chairperson said that the issue of the 30% agreement was confusing. He understood Vodacom’s answer but Mr Wiltz had offered a complicated response that he had not understood. The drafter should write in straightforward language. Clause 1.2.2 had to be rewritten.

Closing remarks

The Chairperson stated that the Committee had come a long way and Members were better educated for all the information shared with them. The Committee had more knowledge and understanding. The Department and the Committee needed to engage. He wanted to see the Department and industry becoming closer. The merging of the two departments should close the gaps so that Parliament did not have to legislate in the gap.

Parliament and the Department should do what they could do to transform the economic landscape of the country and to include the people so that they felt part of the evolving economy.

He admitted that the questions had gone beyond legislation but the feedback had been very good. The spectrum should not continue to perpetuate the apartheid spatial economy. He hoped that the Vodacom shops in Sandton Centre were owned by black women. There was also a need to achieve the advancement of children who had been left behind by apartheid.

The Chairperson said that the Committee was rounding off the hearings and had only two hours the following week to discuss what Members had learnt, but he would try to find more time so that the Committee could prepare a short report and see what the new Parliament would do.

The Chairperson thanked everyone.

The meeting was adjourned.