Eskom Submission on the Telecommunications Amendment Bill
19 September 2001
Eskom would like to thank the honorable members of the Portfolio Committee on Communications for the opportunity to provide input to the debate on the Telecommunications Amendment Bill as published in the Government Gazette No. 22630 – 29 August 2001.
Eskom welcomes the amendment bill and the intent of Government to liberalise the telecommunications market by introducing competition to Telkom in a controlled manner. The balance to be achieved in preserving sector value whilst introducing a sound regulatory environment and a basis for effective competition is most praiseworthy.
Eskom’s submission is divided into two sections, being those few issues of greatest importance to, and impact on, Eskom and the SNO and many issues of a lesser or editorial nature which Eskom respectfully believes can add value to the bill and process thereafter. These latter issues are included as annex C to this submission.
SECTION 1 PRIMARY ISSUES
1 SERVITUDES Section 32 of the amendment bill.
Eskom and Transnet currently operate their existing businesses over land to which they hold servitudes, leases, rights of use and other real rights. The physical infrastructure that Eskom and Transnet have installed on this land has significant value for the cost effective and high speed roll out of the SNO networks. In order to use this infrastructure it is necessary to modify the existing servitudes to include use for public telecommunications. To modify the servitudes individually by negotiation with landowners will incur significant costs to the economy and take a period in excess of one year. Eskom proposes a legislative change to allow the servitude modification to be carried out in a more effective manner. This legislative change will not adversely affect the rights of individual landowners and will immediately increase the value of state assets. The contemplated extension of use of the servitudes does not increase the area of land used nor does it inhibit use by the owners of the land.
Eskom recommends that the wording proposed in Annex A be added to section 32 B (5) of the amendment bill.
This wording provides for :
(a) definition of the servitudes and other rights involved (b) The extension of existing servitudes to include public telecommunications operation ( c) Use of the ammended servitudes by the SNO (d) Compensation for any servitude condition more onerous than the original (e) Notice to landowners of intended change of servitudes to include public telecommunications Eskom proposes that the wording in annex A be inserted into clause 32 of the bill as sub clause 32C.
2 Inclusion of ESI~TEL and TRANSTEL - set aside value Section 32 of the amendment bill
It is contemplated in clause 32B(2) that ESKOM and TRANSNET participate in the SNO by means of an equity set aside mechanism. In bringing State owned assets into the SNO it is important that value is not destroyed.
Clause 32 B (3) has reference to "the final equity interest of ESI~TEL or TRANSTEL …shall be calculated with reference to the value……"
Eskom is concerned that this wording is too vague and that there exists a risk that significant discounting of value may take place within its interpretation.
It is proposed that the following wording is added to section 32B (3) of the amendment bill in place of the existing wording. "The final determination of the equity interest of ESI~TEL or TRANSTEL or ESI~TEL and TRANSTEL, in the second national operator must be determined by the value of the contribution of ESI~TEL or TRANSTEL or ESI~TEL and TRANSTEL, as the case may be, in the second national operator." Eskom proposes the above wording to eliminate the risk of devaluation of state assets.
3 Private Telecommunication Network Section 41 (5)(a)(1) of the amendment bill
Eskom proposes that the date after which the operator of a private network with telecommunication facilities be permitted to resell spare capacity should be fixed at 7 May 2002. This will allow Eskom to potentially support the Public Safety Network, EDU-NET and the SMME licence holders with spare capacity in its private network and / or place its private network into the SNO.
Without this certainty of date Eskom may technically not be able to participate in the SNO or any of the other possible public telecommunications initiatives.
It is proposed that the following wording be added to section 41 (5)(a)(1) : "shall until 7 May 2002, not be entitled to resell spare capacity on such facilities or to cede or assign his or her rights to use such facilities or to sublet or otherwise part with control thereof;" Eskom proposes the above wording to facilitate the use of spare capacity and to maximize state asset value in supporting the above listed important initiatives.
4 Number Portability and Carrier Pre-selection Eskom is of the view that number portability and carrier pre-select are essential to the development of both the SNO and SENTECH as viable competitors to Telkom SA. Delayed introduction of number portability and carrier pre-select materially inhibits customer choice and entrenches and extends the de facto monopoly of the incumbent operator. The loss in NPV of the SNO if number portability and carrier pre-select are delayed has been calculated to be R3b.
Annex B includes a detailed discussion of the impacts of delaying number portability. Eskom strongly recommends that number portability and carrier pre-select be introduced with immediate effect on establishment of the SNO 7 May 2002.
Conclusion Eskom wishes to express its appreciation for this opportunity to make inputs and to influence the process to produce effective legislation for the liberalization of telecommunications in the national interest.
SECTION 1- ANNEX A
Eskom recommends that the wording proposed in Annex A be added to section 32 B (5) of the amendment bill. (a) For the purposes of this subsection (5), the word servitude means any servitude, lease, right of use or other real right (whether registered or not) in or over land in favour of Eskom or Transnet, as the case may be, for purposes of conveyance or provision of electricity, telecommunications, pipelines, railways, transport, electrical substations and any rights of access or rights of way in respect thereof or in connection therewith.
(b) Every servitude is hereby extended to include the additional right to use the land to which such servitude relates, for purposes of providing a public switched telecommunications service or network by means of telecommunication facilities.
( c)It shall be lawful for Eskom to allow any subsidiaries in respect of Eskom servitudes and for Transnet to allow any subsidiaries in respect of Transnet servitudes to -
(i)Utilise the servitude in respect of such additional rights on terms and conditions agreed upon with Eskom or Transnet, as the case may be.
(ii) Allow any third party in which Eskom, Transnet or any of their subsidiaries, have an equity interest to utilise the servitude in respect of those additional rights on such terms and conditions as may be agreed between the parties; or
(iii) Utilise a servitude in respect of such additional rights in order to provide public switched telecommunication services to any third party on such terms and conditions as may be agreed with such third party. (d) Compensation as contemplated by Section 25(3) of the Republic of South Africa Constitution Action (Act 108 of 1996), if any, shall be payable by Eskom or Transnet, as the case may be, in respect of any servitude and such additional right, to the registered land owner concerned, inasmuch as the servitude with additional right has become more onerous than the original servitude. (e) Notice of the exercise or use of such rights as contemplated in subsection (c) shall be given in writing to the registered owner of the land concerned, either by personal service or by prepaid registered post, and the compensation contemplated in subsection (d) shall be payable and shall be assessed as at the date of such notice". (f) The provisions of Sections 9, 10, 11, 12(3), 12(5), 14 and 15 of the Expropriation Act (Act 63 of 1975) shall be mutatis mutandis applicable in respect of any compensation claim, compensation offer and the payment and determination of such compensation".
SECTION 1 ANNEX B
Number portability and carrier pre-selection The thrust of the telecommunication policy directions is to enhance competition in South Africa. In this context, the proposed postponement to the introduction of number portability to 2005 as against earlier indications of April 2003, is in Eskom’s view an impediment to the introduction of competition. We believe that delayed introduction of number portability and carrier pre-selection to 2005 will adversely impact the SNO in a number of ways. The consequence of the delays in introduction of number portability and carrier pre-selection, is a loss in NPV of the SNO estimated to be Rand 3bn.
Number portability and carrier pre-selection are, in Eskom’s view, extremely important for the SNO to attract customers in the crucial initial years of operation. Postponing number portability and carrier pre-selection to 2005 severely handicaps the SNO: it limits the ability of the SNO to compete effectively against Telkom.
Further, the SNO will face competition from a potential TNO in 2005, which will benefit from number portability and carrier pre-selection to compete far more effectively against the SNO in targeting new customers. Moreover, once number portability and carrier pre-selection are introduced in 2005 as per the draft Bill, the SNO will also have to compete with the TNO to retain its hard-earned customer base.
In Eskom’s view there is an element of inconsistency in the draft bill which needs to clarify how the sharing of local infrastructure with Telkom in the first two years (7th May 2002-04) reconciles with the absence of number portability and carrier pre-selection until 2005.
SEPs typically assess the attractiveness of a license on the basis of the regulatory regime. With current sentiment towards any fresh investments by international telecom operators (potential SEPs) being very negative, it should be the endeavour of the DoC to create a regulatory environment conducive to attracting foreign investments.
Recommendation Eskom strongly recommends introduction of number portability and carrier pre-selection with immediate effect from 7th May 2002. It is likely that Telkom SA will cite technical constraints and hence its inability to provide number portability and carrier pre-selection facilities to the telecommunication users in South Africa in the proposed time frame. We however do not believe that these ‘technical constraints’ provide sufficient grounds for delaying the introduction of number portability and carrier pre-selection to subscribers in South Africa. Delayed introduction of number portability and carrier pre-selection materially inhibits customer choice and entrenches and extends the de facto monopoly of the incumbent operator
In the event that Telkom is able to tangibly demonstrate a genuine inability to implement number portability and carrier pre-selection by 7th May 2002, we recommend a phased introduction of number portability and carrier pre-selection to initially extend to business and corporate users within 6 months of 7th May 2002 and residential customers to 12 months thereafter.
SECTION 2
ANNEX C Eskom respectfully suggests the following wording changes (underlined) to the following sections of the telecommunications amendment bill to provide greater clarity to the issues contained therein. Section 1 ( c ): "directory enquiry service" means a service for the provision of information contained in directories to customers or users of a telecommunication service;
Section 1 (g): Add before existing text"international telecommunications operator" means the holder of a licence to provide international telecommunications services;
Section 32A
(2) (a): For a period of two years after the date of the commencement of its public switched telecommunication service licence the second national operator shall be entitled to use Telkom’s facilities on a resale basis in accordance with agreements concluded between the parties for the purpose of providing public switched telecommunication services.
(b) The agreements contemplated in paragraph (a) shall become effective within 60 days of the issuing of the public switched telecommunication licence to the second national operator.
(3) Where Telkom and the second national operator fail to conclude agreements contemplated in subsection (2), or if after the parties have negotiated in good faith and used their reasonable endeavours to resolve disputes relating to such agreements and failed, either party shall be entitled to request the Authority in writing to resolve all outstanding issues in respect of the agreements";
Section 32A (4) ( c ): The agreement contemplated in subsection (3) shall lapse two years after the date on which it becomes effective.
Section 32A (6) (b): The holder of a licence contemplated in paragraph (a) shall -.
Section 36A (1) (h) the installation, bringing into service, maintenance and repair of that part of the public switched telecommunication network that is provided, maintained and operated by the public switched telecommunication services licensee for the purposes of providing any telecommunication service or facilities for ---. Section 1(e)defines "fixed-mobile servce" but does not deal with the issue of limited mobility. The degree of mobility and the situation in which fixed –mobile service would be permitted, require clarification. Tied to this is the need for greater clarity on the definition of the "licensee’s end-office", and the "end user’spremises". These will materially affect the offering by the SNO. It is suggested that the following wording be inserted in section 1(e) "--------licensee’s end offices, such as exchanges, base stations, and high sites and the end user’s premises, including limited mobility to permit movement within the end user’s cell. - The resale of services by the SNO as contemplated in Section 32A(2)(a), in the same manner, requires further clarification. In particular, three issues need to be addressed:
when an end-user is signed on by the SNO, will such a user be issued with an SNO number, or a Telkom number?
will this user then be billed as a Telkom customer, or an SNO customer?
if the user is issued a Telkom number but is billed as an SNO customer this will provide difficulties when the facility sharing comes to an end in 2004, as number portability will only be effective from 2005. The SNO customers will be forced to either switch to Telkom to maintain their telephone numbers or be issued new numbers if they want to stay as SNO customers. (Solutions to this stumbling block have been suggested elsewhere in this submission by way of a change to the date at which number portability becomes
effective.) In section 45, the Minister is given power to set Telkom's pricing methods in fields where "no or insufficient competition" exists. This power is limited to a period of 12 months from the commencement of the Act. However, the SNO may not have started operating effectively by such a date, and the section's goal of protecting the SNO from predatory pricing would be missed. Rather, to give the SNO adequate opportunity to commence operations, the time limit on such powers should be set at 24 months from the commencement of the Act. "(2) The manner of determining fees and charges shall be prescribed only in
respect of fields where no or insufficient competition exists: Provided that
within 24 months after the date of commencement of this Act, the Minister
shall determine such fees and charges...."