Submission by the South African Communications Forum ( SACF) to the Parliamentary Portfolio Committee on Communications on the Occasion of the Draft Bill to Amend the Telecommunications Act,1 996
19 September 2001
1. Introduction and Background 1.1 The South Africa Communications Forum (SACF) was founded in April 2001. It is a successor to the African Telecommunications Forum (ATF), founded in 1993, when African business and liberation movements saw the need to set up a forum to encourage African participation in the entire spectrum of the telecommunications industry. The transformation of the ATF was due to the convergence of technology in the ICT sector and also due to the adoption of a constitution
1.2 The SACF is primarily a representative of the historically disadvantaged South African practitioners in the information and communications technology and broadcasting industry. It is a truly mass organisation of all the stakeholders of the CT and broadcasting sectors.
1.3 The SACF is committed to addressing the ICT infrastructure deficit - the digital divide- as a matter of particular urgency if South Africa, and indeed Africa, is to escape the trap of social exclusion and marginalisation.
1.4 Among the objectives of the SACF is to promote the ownership and control in the CT industry by persons from the historically disadvantaged communities and individuals as well as to contribute to the development of policy initiatives by government in the CT sector.
1.5 In support of these objectives, SACF would like to make the following comments on certain aspects of the Draft Bill as they impact on bridging the digital divide in our communities and promote the participation of historically disadvantaged individuals and companies in ownership and control of the CT industry.
Section 32AA
2. Second National Operator 2.1 SACF notes that the decision to move from immediately licensing two new National Operators to licensing only one was taken following extensive consultation and inputs from a large number of important stakeholders.
2.2 While SACF supports the managed liberalisation process, we had advocated and supported the introduction of two new National Operators in 2002. Our support for licensing two new operators was based on our desire for increased competition, greater consumer choice, and price reduction in the telecommunications industry. SACF also believes that more competition will lead to job creation and will provide the opportunity for greater foreign direct investment.
2.3 We encourage Government to license the TNO as soon as practically possible. At present the Bill calls for a study to be conducted by 2005 to determine the feasibility of licensing the TNO. SACF would strongly urge that the study be conducted before 2005-possibly soon after the SNO is operational in 2002. In the telecommunications industry 3 years might be too long. New generations of technology are made obsolete in less than three years time.
2.4 The SACF would also recommend that local experts conduct the study. Through Government, private industry and other initiatives, South Africa has developed a broad range of expertise in the telecommunications industry. After investing in creating home-grown expertise, such specialists must be given the opportunity to conduct the feasibility study.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
Amendment of Section 32A (1) (b): Delete "from" 7 May 2005
Substitute "before" 7 May 2005
Amendment of Section 32A (5) (a):
Delete "before" 31 December 2004
Substitute "after" 7 May 2002
Amendment of Section 32A (5) (a) (i):
Insert "conducted by local experts" after "market study"
Amendment of Section 32A (6) (a) (ii):
Delete ~after 7 May 2005"
Substitute "after the market study referred to in 32A(5)(a)"
3. Regulatory Environment 3.1 The telecommunications industry is a crucial and strategic factor for South Africa to lead the advance to the African Century.
3.2 One of the most important requirements for growth in the industry is having a credible and transparent regulatory regime in which potential operators can have confidence. When developing business plans and models the regulatory regime is a crucial factor in determining the market size, targets and potential. Not having clearly defined regulations can cause havoc with business planning which may cause potential investors to opt out or for already established businesses to suffer serious injury.
3.3 Telecommunications is also a dynamic, fast moving environment. New technology can change the rules of the game overnight. The regulatory agency must be nimble to keep up with the needs of the industry.
The SACF recommends as follows:
3.4 The relationship between the Policy Maker and the Regulator must be clearly defined. The issuance of the Third Cellular License was an example that should not be repeated, as it will have grave consequences for the future of our industry. In the case of the Third Cellular License, the ambiguous relationship and demarcation between the Minister and Icasa contributed to the confusion and ultimate delay in issuing the license.
3.5 South Africa should follow the SADC model for telecommunications regulation. Under this SADC approved model, the Regulator would be appointed by the Policy Maker in a well-defined process.
3.6 The SACF would propose that the process for appointing the regulator be amended to the following:
3.6.1 The Minister to appoint a selection panel for four to five years and which will sit as required.
3.6.2 Nomination for the serving on the regulatory body would be received from the general public, industry stakeholders and other related bodies.
3.6.3 Selection panel to submit a short list of candidates to the President for final endorsement. Prior to decision, the President shall consult with the Portfolio Committee for scrutiny, but the President acts as final arbiter, the consent of the Portfolio Committee is not required.
3.7 This revision of the appointment of the regulator will further the aims of constitution by providing for accountability of the regulator to the policy maker.
Therefore, SACF would like to propose that Act No.13 of 2000 - ICASA Act be amended as follows:
Amendment of Section 5(a) Delete "on the recommendation of the National Assembly"
Insert "in consultation with the Parliamentary Portfolio Committee on
Communications"
Amendment of Section 5 (b) Delete ''and'' after ''broadcasting''. Substitute with
Insert after "telecommunications", "and other related disciplines"
Amendment of Section 5 (b) (1) (lA) (b) (iii) Insert after "President", 'which list must be in a greater number than the number of positions available"
4. Funding of the Regulator 4.1 At present Icasa is completely dependent on monies as appropriated by
Parliament. This has several implications and the SACF strongly recommends that more resources must be made available to the regulator.
4.2 The SACF notes the amendment of repeal of Section 15 (1)(2) and (3). relationship with the Authority. The funding mechanism for the Authority. addressed above in our representation.
section 5 of the ICASA Act, and the These sections affect the Minister's SACF suggests the below-mentioned The appointment of Councilors is also
4.3 In this regard, SACF recommends that the regulator be permitted to retain a number of fees paid to it, including a service fee. The service fee, which constitutes a portion of the license fee, will be derived through consultation with industry and public, and approved by the Minister.
4
4.4 It is furthermore recommended that the ICASA's funding be submitted to and approved by Parliament through the Minister. Icasa's budget is not included as a portion of the Department's budget.
Therefore, SACF would like to propose that Act No.13 of 2000 - ICASA Act be amended as follows:
Amendment of Section 15 15 (1) The Authority is financed from the following sources:
(a) such monies as may be appropriated by Parliament
(b) interest earned on funds on deposit
(c) application fees;
(d) a portion of the license fees determined by the
Authority through a public enquiry conducted in terms
of the underlying statutes.
(2) The Authority-
(a) must in each financial year, at a time determined by
Parliament, submit a statement of estimated income
and expenditure for the following financial year to
Parliament for approval, through the Minister of
Communications in consultation with the Minister of
Finance.
may in any financial year submit adjusted statements of estimated income and expenditure to Parliament for approval, granted with the approval of the Minister of Communications; and
(c) must use its money in accordance with the statement of estimated expenditure.
(d) must submit any monies in excess of the estimated income and expenditure collected in respect of application and service fees to the National Revenue Fund.
5 5. 30 Percent of Equity to be reserved for the Participation of Historically Disadvantaged Individuals 5.1 The Telecommunications Act of 1996 has, as its primary objective, "to provide for the regulation and control of telecommunications matters in the Public Interest, and for that purpose to-
(c) make progress towards the universal provision of telecommunication services;
(g) ensure that, in relation to the provision of telecommunication services, the needs of the local communities and areas are duly taken into account
(I) encourage ownership and control of telecommunications services by persons from historically disadvantaged groups.
(n) encourage the development of human resources in the telecommunications industry;
(o) promote small, medium and micro-enterprises within the telecommunication industry;
(q) promote the empowerment and advancement of women in the telecommunications industry;
5.2 When in 1996, this historical formulation and enactment of a progressive telecommunication legislation was achieved, the State was clear about its intention to redress past imbalances and enable the growth of the sector.
5.3 In hindsight, however, progress has been less than the expectations of the target groups, namely the HDI's. Ownership and control of the South African Telecommunication industry still resides with the minority of white South Africans and in some cases foreign partners.
5.4 As the industry is liberalised through this Bill, the State needs to take steps to ensure the primary objectives listed in section 2 of the 1996 Act and quoted above are realised.
5.5 The Bill should have the following effect:
5.5.1 Enable and facilitate equity participation by PDI's;
5.5.2 Enable and facilitate operational and management participation by PDI's
5.5.3 Enable and facilitate job creation by PDI's and groups;
5.5.4 Enable and facilitate procurement policies that favour PDI's and groups;
5.6 The Draft Bill does address these objectives in part by stating that PDI's would be reserved up to 30% of the equity of any newly issued major license. The SACF strongly feels that this policy as set forth in the Bill does not go far enough and can act as a hindrance in some ways to the advancement of BEE in the telecommunications industry.
5.7 Instead and in addition to the language of the Bill the SACF would like to recommend:
5.7.1 Traditional approaches to financing equity acquisition and operational start-up remain a major hindrance to advancing empowerment. For example through the SPV structure created to enable BEE groups to acquire a significant portion of MIN, the financiers will be realising almost 93% of the economic benefit of this these transactions. What had been an exercise to empower BEE companies will result in financing groups being empowered rather than the empowerment groups themselves. This same scenario is being played out in many BEE deals. At the end of the day for genuine empowerment to be effected, the State must commit to facilitating equity funding for PDI's through existing funding structures such as IDC, DBSA, Khula and others. For this purpose the State must look at other Government financing instruments, such as providing a guarantee-which would make access to finance less costly. The SACF notes the BEE Commission included in its report a call for the State to create a financing vehicle in support of true empowerment. Without this assistance from the State then no real empowerment will take place and the status quo will be maintained, even though on the surface or in the press the illusion of empowerment might be created.
5.8 The SACF applauds the Minister for setting a specific measurable target for 30% of any major licenses to be acquired by PDI's. However, the language must be changed to reflect a real commitment to ensuring that PDI's hold 30% of any new license. By couching the 30% commitment in the context of "up to" this percentage is only an implied objective - not a firm commitment. As well, this language implies that there is a ceiling on PDI involvement. Instead the commitment should be made that "at least" 30% of any new major licenses will be held by PDI's By being firm on this requirement, foreign and other investment partners will focus on assisting their PDI partners to achieve at least 30% equity percentage and might provide funding or other financing options under this regime. Otherwise there is little incentive if there is no clear commitment to include PDI's of least 30%.
5.9 As noted in the Objectives of the 1996 Act the encouragement of ownership and control of telecommunication services by PDI's is a specific focus. The State must commit to ensuring that at least 30 per cent of the communications industry will be owned by PDI's in 5 years. In order to achieve this target the tools at the disposal of the State are licensing and procurement.
5.10 Procurement policies have been put in place in the communications parastatals that favor PDI's and the outcome of these policies should be audited to provide a clear picture of the impact they are making in the industry.
5.11 The smaller, non-"major" licenses provide an even greater opportunity to achieve this objective. These licenses do not require as much financing capacity and should include PDI's in greater number if the target of 30% over-all participation in the industry is to be achieved in 5 years time. Rather than as presently set-out in the bill new language should indicate that in other licensing opportunities that at least 30% of the equity of all licenses should be allotted to PDI's or PDI groups.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
Amendment of Section 35 (5): Delete "up to" 30%
Insert new Section 35 (5) (a): The Minister shall facilitate equity funding for historically disadvantaged groups to achieve the aims of Section 2 and 35(5) in consultation with the Ministries of Trade and Industry, Public Enterprise and/or Finance.
Insertion of Section 35B in Act 103 Of 1996 35B The Authority shall give due preference for at least 30% of such equity ownership or such higher equity ownership percentage as may be prescribed to be held by historically disadvantaged groups.
Sections 34, 35
6 Licensing
6.5 The SACF notes with concern the problems that have arisen regarding licensing new entrants in the past and the present confusion surrounding the licensing of the SNO. In order to build a solid business case then all potential entrants must be given clear measurable definite guidelines as to their licensing conditions, definition of services to be provided and the relative weighting of key factors.
6.6 The SACF recommends that any Invitation To Apply for a License must list all relevant criteria. Such weighting must be included in the ITA as well as a clear list of all determining factors to be considered in awarding the license. Section 34(c) of the Act obliges the Minister to consult the Authority in determining the evaluation criteria and weighting for major licenses. The SACF would like to stress that it is critical that this is determined before the ITA is issued and made available to all potential bidders. Furthermore, we would like to stress the importance of the consultation stage between the Minister and the Authority, as it is the Authority that will assess the bids and use the criteria and weightings.
6.7 The SACF notes that the present uncertainty as to which of Esi-Tel and Transtel will be included in the SNO is creating another drag on the industry reminiscent of the time lag experienced in the Cell-C saga. This determination needs to be made as soon as possible so that the industry, the SNO participants, the foreign operators who might be bidding for a stake and other possible BEE participants will understand the bidding rules and environment.
6.8 Presently, the definition of fixed mobile as provided by the Bill is still unclear. A more distinct definition should clearly spell out whether or not the end-users communications device needs to be fixed or if it can be mobile as well. When stating fixed mobile - can this also be wireless. Mobile within what geographical point as defined in terms of cells or distance? These important questions will have to be answered in order for potential bidders to determine the appropriate technology to incorporate in their business plans as well as determining their desire and capacity to participate in the bid. The definition of fixed mobile as presently included in the bill should be more clearly delineated.
6.9 The SACF believes that the word "intended" in section 35 (1)(a)(i)(aa) was included by mistake since the entire concept of an intended recommendation was abandoned.
The SACF supports the streamlining of the licensing process.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
Amendment of Section of Section 35: Delete "intended".
Amendment of Section 34(c): Insert:
"and such evaluation criteria and the applicable weighting factors shall be published in the Invitation to Apply for such license."
7 Regional SMME's (Section 40 of the Act) 7.5 The Draft Bill proposes that in those geographic areas where less than 5% of the population has access to telecommunications services or facilities may apply for under-serviced area licenses.
7.6 The SACF welcomes this opportunity for greater development of SMME's in the telecommunications industry as well as for community participation in the provision of communication services tot heir areas.
7.7 The definition of 5% teledensity needs to be defined further as to whether it refers to access to fixed PSIN services or to any other criteria. The definition of the this percentage will be crucial in determining if such services can be provided in areas in which the penetration from cellular services but not fixed services might exceed 5 %. The Act must clarify this definition of teledensity or the SACF foresees that another situation might arise in which lack of clarity in the regulatory sphere creates ambiguity and resultant delay in rolling out the intended infrastructure.
7.8 The Bill should indicate the license be granted to small businesses and the local communities in combination. Each license should have a local community component in an amount determined by the regulator and clearly defined in the ITA.
7.9 For the purposes of determining "teledensity", the proposed definition should be the total number of working telephone lines in each household per hundred households.
7.9.1 This means, for example that if there were a total number of 10 million households in South Africa and only 2 million had telephones in them, the teledensity would be calculated as follows:
2, 000,
000
100=20
x %
10,000,00
0
The value of this definition is that it eliminates the distortion caused by including business lines.
It must be noted that the definition of household is not only restricted to formal settlements.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
Amendment of Section 1 Delete "where less than 5% of the population has access to telecommunications services or facilities"
Substitute "where there is less than 5% teledensity". Insertion of definition:
"teledensity" means the total number of fixed, working telephone lines in each household per hundred households.
Amendment of Section 40A: Insert:
The Authority should give due preference to members of the under-serviced area to be served by the license in evaluating the application.
Amendment Section 40A(1) Insert "including co-operatives" after "small businesses"
Amendment Section 40A(2) Insert " including co-operatives" after "small businesses"
Delete "grants" and substitute with "issue"
Swap section 40A(2) and Section 40A(4) to clarify that the granting of the license precedes the issuance.
8. Carrier pre-selection 8.1 The SACF believes that carrier pre-selection will promote competition in the best interest of consumers. In order for thew SNO to compete effectively with Telkom, in long distance services and internationally, it is critical that carrier pre-selection be implemented as early as is possible. We suggest that this be introduced in 2003.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
Amendment of Section 1 Insertion of definition:
"Carrier" means any licensed operator who provides a communication conduit over a defined distance, including but not limited to local, national and
international destinations.
9. Definition of Multimedia Service 9.1 The SACF notes that a separate category for multimedia should be established if this type of license will not be exclusive to Sentech. The SACF argues that the multimedia license, which contains several services already offered today by broadcasting, VANS and PTNs, should be open to competition. As such, section 33(1)(a), which prescribes this service, should be amended. Presently it refers to section 32C(1)(b) which only makes provision for Sentech's multimedia licenses, thus limiting the category to just Sentech.
Therefore, SACF would like to propose that the Draft Bill be amended as follows:
"S33(1)(a) as contemplated in sections [32C(1)(b)~ 34(2)(a)(l) to (v) and 39 to 41, and 1(1); and
9.2 SACF notes that multimedia service is defined as a "digital broadcasting service". However, technically these services can be provided on analogue, similarly they can be provided through telecommunications services. Also, constitutionally the Telecommunications Act does not regulate broadcasting matters.
Amendment of Section 1(i) definition of multimedia service.
Delete" Digital broadcasting service"
Substitute " Communication services"
10. Section 29: Frequency band plans 10.1 We propose that sub-section 29(5) be retained, and insert "may" before "hold a hearing" . Since this is a national resource it may be in the interest of stakeholders to go beyond written submissions so that the issues can be fully interrogated.
Amendment Section 29(5)- Insert "may" before "hold a hearing"