AMERICAN CHAMBER OF COMMERCE OF SOUTH AFRICA’S SUBMISSION
to the
TELECOMMUNICATIONS AMENDMENT ACT B65 – 2001
19 September 2001
The telecommunications sector is one of the most critical infrastructure requirements for multi-nationals when considering sites for expansion or investment as many new business models require sound and stable Telecommunications infrastructures with high levels of availability at competitive rates. This is a country specific issue as well as an international one as Global competitiveness begins to dictate economies of scale through the use of the converging technologies of data, voice and video and Global centralized data storage, system applications and transmission of information over Telecommunication infrastructures.
Investors also see a strong and well-managed telecommunications sector as vital to the potential growth of any national economy, along with an open and Competitive market and adherence to international terms and conditions of trade. This aids investor confidence in the clarity of controls and stability and predictability of the market for future profitability projections.
The present and proposed amendments to the Telecommunications Act, aims to bring South Africa’s primary telecommunications legislation in line with subordinate legislation, in line with ministerial policy directions and in line with licences. The American Chamber of Commerce in South Africa (AmCham) applauds and supports this aim and wishes to draw attention to sections of the Act where these amendments would cause Multi national companies to reassess investment opportunities in South Africa.
This "new" Service allows for Telkom and the SNO to be a competitive threat to existing cellular operators by allowing these operators to offer roaming within the GSM network, even if confined to the fixed area network, this will result in serious discounting of the value of existing mobile licences and is clearly in breach of the cellular tender conditions.
It further undermines investor confidence in the long-term consistency of the Government’s Telecommunications policy, thus devaluing foreign investor interest in, for example the M-Cell equity sale.
Section 36A - Proposed amendments that would expand the definition of PSTS to include the provision, repair and maintenance of equipment located on the customers premises and any other telecommunications apparatus, would potentially mean Telkom’s extension of their monopoly to include customer premises equipment connected to the telecommunication network - for e.g. Telephone handsets, desk-top computers, PABX’s and Fax machines? This is clearly a matter for concern and raises the issues of competition in the market again as Telkom tries to expand it’s current monopoly.
The Bill will make it impossible for competitive VANS to service customers by prohibiting the shared customer use of facilities used for VPN’s. The Bill attempts to define Virtual Private Networks (VPN’s) as Private Telecommunications Networks (PTN’s) – Thus requiring regulation of VPN’s as PTN’s and prohibiting shared customer use.
ICASA recently rejected Telkom’s assertions that VPN’s require the same regulation as PTN’s. Instead ICASA found that "a VPN has no physical substance and is a software based technological intervention in the operation of VANS to ensure certain characteristics (security, privacy, guaranteed levels of availability and reliability) in communications between specified participants." ICASA accordingly concluded that VANS licensees could lawfully provide services to multiple customers over a shared infrastructure through the use of VPN’s. The Bill therefore proposes to reverse ICASA‘s findings by imposing a statutory definition of VPN’s as a PTN (Section 1q)
Section 40(2) - The change in terminology for VAN’s to "electronic transaction services", gives Sentech the right to offer the same services as VANS, but without the VOIP restrictions that are placed on VANS, giving rise to unequal treatment and gives Sentech a clear Competitive advantage.
VAN suppliers to be able to provide services must obtain the telecommunications equipment necessary from Telkom and the SNO on a reciprocal basis. This needs to be clarified as no reciprocal business is possible if Telkom and the SNO are the only entities who will be authorized by the Act to engage in these telecommunication activities.
To limit VOIP services to Telkom, the SNO and SMEs and not other operators will inhibit market growth, based on technology developments elsewhere and is unequal treatment for Telkoms current and future competitors (other than the SNO and SMEs). This clearly gives Telkom, the SNO and SME’s a competitive advantage in the market place.
Section 40(3)(b) - Allowing Telkom the SNO and SME’s to provide VOIP is in contravention to the SATRA ruling of 1997, in that the provision of Internet Protocol is to be provided in terms of a VANS licence and not a PSTS licence, which raises the question – Does Telkom have a VANS Licence? If not how can they, the SNO or any SME provide VOIP services?
It is therefore strongly recommended that the Ministry re-look at limiting VOIP to Telkom, the SNO and SMEs only.
Sentech’s multimedia licence will require a Constitutional amendment as Broadcasting services of this nature are regulated under the constitution and not the Telecommunications Act.
The valuation and operating contributions of Esi-Tel and Transtel are unclear. The objective cannot be served by prescriptive policy making in the absence of material benefit, or worse, in the presence of material disadvantage to another National Operator. The nature of the policy with regard to the equity participation of Esi-Tel and Transtel prior to selection of an international strategic equity partner provides a level of inflexibility that is not conducive to attracting investors. It is also our belief that this should not be made part of the Act and should be handled within the natural course of market forces.
In spite of the fact that the introduction of a TNO is now subject to the outcome of a feasibility study, the remaining wording in the Bill has not been amended to reflect this change. It leaves one with the impression that the feasibility study will only be lip service. If this impression is shared by potential International Service Providers, then it will undermine their confidence in the South African market as an investment destination and will certainly affect the possibility of adequate competition in the market place and leave South Africa with a controlled Duopoly.
Sections 32B and 35 allow for a 30% set aside for historically disadvantaged persons for the SNO and all licences, give rise to significant doubts as to their ability to finance their participation and to finance capital requirements as the business grows, the stability of the shareholders and the eligibility of potential applicants. Generally this is seen as a carried interest by foreign investors. The concept of BEE will need to be carefully structured to either add value to the SNO or to ensure that it does not add another level of complexity, risk and value dilution to the SNO. There is no indication of how BEE will be calculated, monitored or financed. The possibility of giving Telkom a competitive advantage is clear and this needs to be guarded against.
The implications for competitive advantage for Telkom are clear as the SNO will have major problems competing with Telkom on a level basis due to Telkom’s entrenched position, the weakness of the Regulator and the experience of its strategic partners in protecting market share. The SNO consortium will need competitive experience equal to that of Telkom and its strategic partners and with HDI in place at 30% this will be a difficult task and give a clear competitive advantage to Telkom.
The question, which is still unanswered is: Will Telkom be imposed with the same regulations to set aside 30% for HDI to ensure a level playing field?
The definition for Fixed Mobile Service needs to be clarified in the context of current cellular services within the act.
Section 36A - The definition of customer-premise telecommunications equipment needs to be clarified as Section 36A conflicts with Section 36B, which defines PSTS as not including CPE?
Section 40: Changes in the terminology being used for VANS to "electronic transaction services", needs clarification and we recommend that the definition is stated as per ICASA’ s recommendation. This section contradicts the definition of VANS as recommended by ICASA and other International definitions, which creates a question around the validity of all ICASA recommendations. Why is the ICASA’s definition ignored?
Clarification around the workings of leasing of equipment to VAN operators and the proposed "reciprocal business" aspect, as this does not seem possible if only Telkom and the SNO have the authority through the proposed amendments to the Act to provide these Value added services.
The policy directive stated that the legislation should be technology neutral which is not the case in Section 36B(c). Section 15(b), which includes a new definition of VOIP, this is problematic in that technological advances make it impossible for the Regulator to enforce such restrictions as it is difficult to distinguish between voice packets and data packets traveling over Internet protocol. Clarification is therefore sought on this point.
The presiding outcome of the above mentioned issues, which are raised by the amendments to the Telecommunications Bill, ensure that Strategic and Competitive Advantage is given to Telkom, the SNO and to Sentech. This is in conflict with South Africa’s World Trade Organisation commitments as South Africa is a signatory to the General Agreement on Trade in Services (GATS). This agreement provides that South Africa or any other signatory country cannot treat service suppliers from other countries any less favourable than they treat service suppliers from South Africa (including Telkom and the SNO). This is generally known as the Most Favoured Nation principle and affects the members of AmCham directly.
South Africa’s commitments to the WTO (GATS, South Africa Schedule of Specific Commitments, GATS/SC/78 Apr. 1994) include: Access to basic telecommunications facilities, opening basic telecommunications market to competition and regulatory principles.
The GATT Annex on Telecommunications requires access to public telecommunications facilities on "Reasonable and non-discriminatory" terms. Thus in accordance with South Africa’s (SA) commitments to the telecommunications annexure in GATS, the provider of Telecommunications facilities (Telkom or Telkom and the SNO) cannot discriminate in favour of it’s own VANS services or in favour of other SA company’s VANS to the detriment of other VANS suppliers who come from outside SA’s borders. These provisions became effective in 1994.
SA made certain commitments in moving to a competitive market for basic telecommunications and to establishing an "appropriate " regulatory environment. This became effective in February 1998. See Regulatory environment under Section 2.5 of this document.
Although SA’s WTO commitment does make note that the Telkom monopoly will be followed by a Duopoly for a period in facilities based services, it makes no reference to a Duopoly in Resale services. Section 32A of the Act, states that Telkom and the SNO will be the only holders of public switched Telecommunications licences through May 2005 and that further service based competition from at least one operator will then be licenced. It is therefore evident that only the SNO will be allowed to engage in resale before 2005? This is contrary to WTO commitments, which allow no limitation on the number of suppliers following liberalization of resale services by 2003.
Section 34 and 40(3)(b) undermines the licencing process by allowing the SNO to apply for a ‘combination of telecommunications’ licences without due process and to provide VOIP services without a VAN’s licence. This will result in the destabilization of the Telecommunications industry and devalue the ICT sector from a foreign investment perspective.
An independent Regulator from a process and independence perspective is critical in the eyes of foreign investors. It is critical to ensure that the regulator will not be overruled by the Minister or Government departments, without appropriate justification
Several sections undermine the independence of ICASA as well as rulings made by SATRA by increasing the Minister’s powers and undermining the role of the independent regulator, e.g. Section 35, Section 32A, Section 35A, Section 43 and Section 65.
ICASA is seen as lacking authority, resources and experience to regulate the Sector. The Amendments give the Minister powers to overturn decisions made by SATRA/ICASA, without providing any explanation for these decisions and cedes powers to the Minister that should reside with the Regulator. This undermines confidence in the Regulator and undermines investment in the Sector as this practice is clearly open to abuse.
The first major concern of an international strategic equity partner in either M-Cell or the SNO, will be the ability of the Regulator to settle disputes quickly and fairly, thus acting as a disincentive to rule-breakers.
Not only is an Independent Regulator seen as a necessary requirement, but essential that the Regulator be fully empowered and resourced to arbitrate and make decisions for market stability.
The SNO will have major problems competing with Telkom on a level basis due to Telkom’s entrenched position, the weakness of the Regulator, the legal complexities and experience of its strategic partners in protecting market share.
The policy as currently drafted will ensure a steady stream of persistent and highly contested legal battles among the leading players and representative organizations in the Telecommunications industry.
In terms of Investment, potential investors will be reluctant to commit to strategic long- term equity partnerships until this legal uncertainty is resolved. This can only have a negative effect on South Africa’s economy and the requirement to adhere to competitive commitments given to the WTO.
AmCham on behalf of it’s members therefore requests that the issues raised in this submission not be taken lightly and that they are acted upon swiftly so as to clear up the uncertainty that is currently prevailing in the market place and ensure a competitive market environment for all players into the future.