In these brief representations on the Telecommunications Amendment Bill we have addressed only the critical issues in the Bill where amendments could be affected and/or additional clarity in the drafting of the amending provisions could be undertaken.

From Thintana Communications' perspective we consider that the proposed Telecommunications Amendment Bill to be very positive for the development of a robust, open competitive telecommunications market in South Africa and the fulfilment of a number of critical social objectives of the Government. In particular, we consider that the policy stance as reflected in the Telecommunications Amendment Bill will facilitate and incentivise continued investment in and rollout of national telecommunications network infrastructure.

In general terms, Thintana Communications strongly endorses the Government's policy for the South African telecommunications sector as outlined in inter alia:

The Statement issued by the Minister of the Ministers of Economic and Investment Cluster, 15 August 2001;

The Policy Directions released by the Honourable Minister of Communications, Ivy Matsepe-Casaburri MP on 21 August 2001; and

The Telecommunications Amendment Bill as released on 7 September 2001.

In particular, Thintana Communications continues to endorse the above policy which inter alia embraces:

facility based competition. This is the optimal mechanism in the longer term for South Africa to increase the country's telephone penetration and 'bridge the digital divide' which currently. Thintana Communications - via its joint venture owners SBC International and Telekom Malaysia - know firsthand the critical importance of telecommunications infrastructure to a nation's ability to stimulate investment, expand industry and commerce and build opportunities for its people

managed liberalisation as the best adjustment process for the South African telecommunications sector to facilitate national economic growth and employment opportunities. In particular, Thintana Communications is strongly of the view that the licensing of only the Second National Operator ('SNO') and Sentech in 2002 (to be followed in 2005 by further competition subject to economic feasibility) is the correct policy approach. Such a policy also provides an opportunity for Telkom SA to become a world class telecommunications operator responsive to the needs of its customers and a company representative of the demographics of South Africa; and

technology neutral regulation which will facilitate convergence and the provision of multimedia services by Telkom SA and other market participants.

In addition to the above, Thintana Communications also congratulates the Government on its informed stance on a number of key sector policy issues including no legislative restrictions on foreign ownership in the sector, resale arrangements for the SNO being limited to a period of two years, and limiting the scope of the international telecommunication licence to be granted to Sentech to 'carrier of carriers' services.

The specific comments and representations which Thintana Communications would like to make in relation to Telecommunications Amendment Bill are set out below [references to sections are references to mainly the Telecommunications Act]:

Amendment of Section 1(e) Thintana Communications considers that the clarity of this definition would improve if its name was changed from 'fixed-mobile service' to 'fixed-wireless service'. This would be consistent with global industry practice;

Amendment of Section 1(n) We are opposed to the inclusion of many of the proposed 'non-physical' facilities in this definition. As well as being contrary to international practice in the telecommunications sector we also consider there are problems in law with such a proposal. A right of way is a common law right, that is it is a proprietary right (rights in rem) as opposed to a personal right (rights in personam).1

[1 A right of way is a form of an easement granted by the property owner that gives another person the right to use the land for a specific purpose as long as it is not inconsistent with the property owner's use and enjoyment of the land.]

In this context, since such a right is granted for a specific purpose how can such a common law right be included within the definition of telecommunication facility? Likewise, the proposed inclusion of the word 'area' is imprecise and extremely broad.

In addition, Thintana Communications does not consider that Government-imposed co-location rights are appropriate for facilities-based competition which has been endorsed in South Africa. As co-location is both confiscatory and costly it ought not be mandated in South Africa.

Consequently, we consider that the definition of telecommunication facility instead should read- "includes any wire, cable antenna, pole, mast, conduit, equipment cabinet, rack or other thing which is or may be used for or in connection with telecommunication"

Amendment of Section 1(q) Thintana Communications does not support the proposed new definition of virtual private network. From our perspective, a virtual private network should only be provided by a PSTS operator. Therefore, Thintana Communications considers that the words "or other telecommunication facility" contained in the proposed definition above are inconsistent with the language in other provisions of the Act. Thintana Communications' proposed change would act to reduce any confusion and would provide clear guidance to all market participants as to their permitted scope of activities as well as the underlying rights and responsibilities which have been accorded to them.

Given the above, we consider that this definition should read as follows:

virtual private network or VPN' means a private telecommunication network provided only by a licensed PSTS operator that makes use of the public switched telecommunication network [or other telecommunication facility].

Amendment of sections 30A(2) and 30B(2) Thintana Communications does not understand the rationale (if one has been articulated by Government) that requires Telkom SA to wait six months after the SNO is granted a public switched telecommunication service licence before it is granted spectrum in the 1800 Mhz and 3G frequency bands (see section 30A(2)(b) and 30B(2)(b)). We consider that Telkom SA should be regulated in a symmetrical manner with it being treated equally in this regard with the SNO given such spectrum could be put to good use to provide services.

In addition, Thintana Communications supports the change below which would allow Telkom SA and the SNO to lease such spectrum to an affiliate third party who may be better placed to run such services. Sections 30B(2)(a) and 30B(2)(a) would therefore read:

"The second national operator and Telkom shall each be deemed to be a holder of a radio frequency spectrum license in the 1800 Mllz [3G] frequency band to be used by the licensee to provide, or leased by the licensee, to an affiliate third party to be used to provide, public switched telecommunication service, fixed -wireless services, mobile services and such other services as each of the second national operator, Telkom or its affiliates from time to time is licensed to provide."

Amendment of section 32A(2)(b) From Thintana Communications Shareholders' experience in their respective home markets we find it difficult to consider that an agreement with the SNO on a resale agreement is likely to be reached within 60 days and, where the parties fail to do so, ICASA - will be able to determine such commercial terms and conditions for such an agreement in the following 30 days! This will be even more true absent clear guidance as to the extent of Telkom SA's obligations to offer resale services to the SNO. We would therefore suggest that additional time be provided, which as a minimum should be 90-120 days. Since mutually agreed commercial arrangements are generally more sustainable than regulator imposed decrees, the parties should be given reasonable period of time to negotiate mutually satisfactory terms5

Proposed amendment of section 35(5) Thintana Communications strongly supports the goal of the Government to improve and enhance the position of historically disadvantaged persons who were systematically discriminated against during the apartheid years. To this end, Thintana Communications and the seconded representatives of SBC International and Telekom Malaysia have worked in accordance with both the letter and the spirit of its various legal agreements to uplift the skillsets of its workforce and transform Telkom SA so that the composition of its workforce more closely resembles the demographics of South Africa.

Given our approach, Thintana Communications therefore supports the amendment detailed in section 35(5) for a set aside up to 30 percent of the shareholdings in all new major telecommunications licences for persons from historically disadvantaged groups so long as shareholdings in Telkom SA held by Government, Government investment holding companies, unions and/or Government controlled empowerment entities are also eligible to be included within in any such set aside. Such a treatment would be consistent with the approach in other countries which have adopted such strategies.2 In any event, given the possible impact on the valuation of Telkom SA during the 'P0 and ongoing forward the sanction for not continuing to maintain such levels (when, for instance, Telkom SA is fully privately owned) should not be a breach of Telkom SA's licence.

Given our above position we would support the following amendment to provide additional clarity in relation to this issue:

"35(5) Without derogating from subsection (4), in the evaluation of equity ownership held by persons from historically disadvantaged groups or women in an application for a licence in terms of this Act, the Authority shall give due preference for up to 30% of such equity ownership or such higher equity ownership percentage as may be prescribed. For the purpose of this subsection (5), any interest held by the Government of South Africa, any entity controlled by the Government of South Africa, any government agency, government controlled empowerment entities, government controlled investment holding companies or unions shall count towards the minimum equity ownership requirement described above."

[5 We are sure that Telkom SA will be pragmatic as it would rather come to an agreement than have one forced upon it. The SNO will also have to be realistic in its request.

2 Examples include Khazanah Holdings in Malaysia and Temasek Holdings in Singapore.]

Amendment of section 44(7)(b) While Thintana Communications considers that it understands the policy intention behind this proposed amendment that Telkom SA or any other public switched telecommunication service licensee is not required to unbundle its local loop for the initial two years when the SNO is licensed we would not support any view based on this provision that after this period however, Telkom SA's network could be unbundled. Consequently, we consider that this amendment ought to be changed so that the last line reads "... unbundle its local loop including the period referred to in section 32A(2)(a) and (4)." This clarifies the situation and provides more certainty for Telkom SA and the SNO which should encourage them to make greater investments in network infrastructure.

Proposed Addition of new section 45(2)(b). Thintana Communications supports the inclusion of a new subsection dealing with the issue of the rate control to which Telkom SA is subject. Such a new section should provide:

"45(2)(b) The manner in which fees and charges are determined by the Authority in accordance with subsection 2(a) above shall be no worse than that

provided for in the Ministerial Directive on Fees and Charges for Telecommunications Services (Notice 772 of 1997, 7 May 1997)."

From our perspective, the Independent Communications Authority of South Africa ('ICASA') has a responsibility to ensure that operators meet their build-out and quality of service obligations. At the same time, ICASA must ensure that the fees they allow operators to charge, at a minimum, recover the cost of capital required to meet government-imposed obligations. Unfortunately, Thintana Communications considers that the Notice of Intention issued by ICASA and later Statements3 to make regulations on fees and charges does not support the Government's objectives nor does it allow Telkom SA to make an acceptable return going forward. The change in the law proposed by Thintana Communications will ensure that all operators have the ability and necessary resources to comply with such build-out and quality of service obligations by putting a floor under the tariff regulation which may be prescribed by ICASA.

We would also highlight to the Portfolio Committee that they wish to review the entire section which regulates retail tariffs as it current applies only to Telkom SA. As the SNO (and later market participants, if any) may be the only provider of facilities and services in certain areas and to specific market segments (as it is a developing country market where there is no universal service) there are material public policy considerations in ICASA having broader tariff regulation powers. Otherwise there will be no mechanism for ICASA to limit or supervise the retail tariffs imposed by market participants other than Telkom SA. Because of such considerations, the tariff regulation in South Africa ought to be symmetrical.

[3 See Government Gazette 22240, Notice 886 of 2001 issued on 23 April 2001 and the new ICASA statement of 13 September 2001]

Amendments of sections 58, 61, 65, 66, 67 and the new 67A relating to universal services. Thintana Communications supports mechanisms to utilise the universal service fund ('IJSF') to compensate licensees (such as Telkom SA) who are already incurring considerable operational costs in relation to the provision of the universal services and will continue to do so after May 2002. Any funds raised should principally be granted as a subsidy to licensed operators such as Telkom SA for their operational costs,4 because the continued provision of uneconomic telecommunications services is considerably more difficult and expensive than simply rolling out the initial infrastructure.5 This will become even more important as the SNO and potentially numerous small, medium and micro enterprises ('SMMEs') interconnect with and make use of Telkom SA's infrastructure to provide service. Telkom SA must be provided with real incentives to invest, and be reimbursed for any investment it makes in this infrastructure when it is utilised by other licensees.

Therefore, Telkom SA, itself, should not be required to contribute to the USF as it is already incurring significant internal costs in providing universal service throughout South Africa (ie it is 'playing' rather than 'paying' (or contributing) for universal service!).6 Certainly

In specific terms, Thintana Communications advocates the deletion of the proposed section 67A(1) regarding competitive tender for universal access projects. The Government has a proven track record through Telkom SA of specifically detailing in its license the areas it requires to be served and it should follow the same successful path with all new operators. Thintana Communications would also note that Australia, which recently sought competitive bids for two areas in universal service trials, received no competitive bids. As new entrants tend to focus on more profitable urban areas, the proposed amendment is unlikely to be successful in South Africa and hence the focus of legislation should be on compensating operators such as Telkom SA for the provision of service in under-serviced and other high-cost areas.

Amendment of section 89A Thintana Communications strongly considers that the introduction of carrier pre-selection ought to be delayed to at least 2005 and hence we are able to support the Government's proposed amendment in this regard. We would however, suggest the revision of this section 50 that section 89A should state:

[4 Which will include a proportion of capital costs via the inclusion of depreciation.

5 For the computation of such operational costs we believe it is appropriate to include joint and common costs in determining the universal service cost to which other operators must contribute. This approach is consistent with the approach adopted in other countries and acknowledges the fact that Telkom SA's network rollout

decisions have the objective of providing a complete national infrastructure and supplying services to all customers on a non-discriminatory basis, rather than on the basis of profit maximisation.

6 If Telkom SA is required however to contribute to the USF this should only be in relation to its regulated business activities not activities which are not licensed.]

'89A(1) The Authority shall prescribe regulations-

(a) establishing a framework for carrier pre-selection facilities including slamming guidelines and penalties, customer education, operator verification, any other necessary rules subject to best international practices in terms of which subscriber to a telecommunication service can access the services of an interconnected national long distance telecommunication service and an international telecommunication operator; and
(b) requiring all holders of public switched telcommunication services licences to phase in the carrier pre-selection facilities referred to in paragraph (a) from 2005.

The framework contemplated is subsection (1) shall ensure that the implementation and maintenance of the carrier pre-selection facilities referred to therein are non-discriminatory, providing cost recovery for operators. and give effect to section 2Q)."

We support the inclusion of additional guidance to ICASA as detailed be above on the issues which such a framework for carrier pre-selection should deal with.

In conclusion, Thintana Communications would reiterate its broad support for the proposed amendments detailed in the Telecommunications Amendment Bill. We consider that such amendments support and facilitate both the IP0 process of Telkom SA and the development of a mature competitive telecommunications sector in South Africa.

Thintana Communications would be pleased to further spell out on its views on the Telecommunications Amendment Bill as detailed in these representations during any sitting of the Communications Portfolio Committee over the coming weeks.