1. Sentech Limited ("Sentech") hereby lodges its written representation and comments on the Telecommunications Amendment Bill ("the Bill") which was published in Government Gazette No. 25508 on 26 September 2003 ("the Notice") by the Portfolio Committee on Communications.
2. As required by the Notice, Sentech confirms that it would like to make oral representation to the Portfolio Committee on Communications ("the Committee") in respect of the Bill and hereby request that it be allocated a time slot to make such oral representations on 11 November 2003.
3. Sentech welcomes the managed liberalisation of the Telecommunications sector in which consumers will benefit from competition and choice. Sentech further commends the Department of Communications and this Committee for its initiative with regard to the intention to declare Sentech as a Public Operator.

1. BACKGROUND

1. Sentech carries on its business as a licensed provider of international telecommunication services in terms of the licence issued to it under section 32C(1)(a) of the Telecommunications Act. In terms of the aforesaid licence, Sentech is authorised to provide an international telecommunication gateway service as a carrier of carriers ("the carrier of carriers licence).
2. In terms of its carrier of carriers license, Sentech is entitled to convey voice and data calls and other signals originating in the Republic on the telecommunications systems of public switched telecommunication service licensees (Telkom is currently the only one), mobile cellular telecommunication service licensees (these are MTN, Vodacom and Cell-C) and under serviced area licensees to international destinations. Once Sentech has carried the call to an international destination, Sentech hands the call to an international operator who then delivers the call directly to the end user or person receiving the call in the destination country. Although Sentech does not interact directly with end-users, the traffic it conveys comes from the end-users via the licenced telecommunication operators.
3. Similarly, Sentech is entitled to convey voice and data calls and other signals originating on the telecommunications systems of telecommunications operators providing services outside of the Republic (i.e. international operators). Sentech conveys these calls for international operators into South Africa. On arrival in South Africa the calls are handed over by Sentech to public switched telecommunication service licensees, mobile cellular telecommunication service licensees and to under-serviced licensees (via a public switched telecommunication service licensee), who, in turn, deliver the calls directly to the end user or person receiving the call.
4. Sentech is also a licensed provider of multimedia services. In terms of its multimedia services licence, Sentech is authorised and obliged, as a common carrier, to provide multimedia services to any person who reasonably requests such a service on a reasonable, equitable and non-discriminatory basis.

2. the new competitive telecommunications regime

1. On 29 November 2001, the Telecommunications Amendment Act No. 64 of 2001 was promulgated ("the Amendment Act"). The Amendment Act had its roots in a consultative process, which entailed the issuing of three separate policy directions in terms of section 5(4)(a) of the Telecommunications Act by the Minister for public comment during the course of 2001. It is clear from the policy directions that, by introducing the amendments in the Amendment Act, the government intended to liberalise the telecommunications sector and open it to competition on a managed basis.
2. The purpose of the Amendment Act is set out in the memorandum on the objects of the Telecommunications Amendment Bill as follows:-

3. The multimedia licence awarded to Sentech is also crucial in ensuring that South African telecommunication services are in alignment with international technological developments and are able to cater for the increasing convergence between information technology, telecommunications and broadcasting. This is in fact one of the objects referred to in section 2(r) of the Telecommunications Act.
4. Sentech’s carrier of carriers licence would provide additional competition in the provision of international telecommunication services by affording greater choice to customers.

3. the licenses issued to sentech

1. There are certain conditions attached to Sentech’s carrier of carriers and multimedia service licenses, which are significant in relation to this response.

 

2. As pointed out above, Sentech, in terms of its carrier of carriers licence, is not permitted to terminate international traffic to end-users directly within the Republic (i.e. carry voice traffic, such as telephone calls and other data, all the way to the intended recipient of those calls or that data – the calls or data would reach the end-users via a mobile cellular telecommunication service licensee, a public switched telecommunications service licensee or an under-serviced area licensee). It is therefore essential for the conduct of its business that it interconnects with operators who are permitted to terminate international traffic to end-users directly.

4. The first draft supplementary facilities leasing guidelines

1. At the beginning of 2002, ICASA published a number of draft regulations in the Government Gazette for public comment. Regulations were published, inter alia on carrier pre-selection, universal service fund contributions, new telecommunication service licence categories, the manner in which telecommunication service licences were to be transferred, the accounts and records to be kept by telecommunication licensees, interconnection and facilities leasing.  The publication of the aforesaid regulations was necessitated largely as a result of the amendments which had been made to the Telecommunications Act through the promulgation of the Amendment Act and to give concrete effect to the managed liberalisation of the telecommunications sector.
2. In light of the changes to the Telecommunications Act, it was necessary for ICASA to supplement the existing facilities leasing guidelines, as, in many instances, they fail to cater for those licences issued pursuant to the Amendment Act.
3. On 15 March 2002, ICASA published under notice number 358, in Government Gazette number 23236, draft supplementary facilities leasing guidelines ("the first draft guidelines") for public comment.
4. In terms of the first draft guidelines, interested persons were requested to furnish ICASA with written submissions on the proposed regulations. Sentech, Telkom and a number of other interested parties made written submissions to ICASA.
5. On 23 May 2002, public hearings on the first draft guidelines took place before the committee of ICASA delegated to attend to the finalisation of the regulations. Sentech made an oral presentation at the public hearings, as did Telkom and the other institutions.
6. In all its written and oral submissions, Sentech's main concern was that it be accorded the status of a "public operator" for the purposes of both its carrier of carriers licence and multimedia services licence. The reasons as to why Sentech required to be accorded the status of a "public operator" are detailed below.
7. The first draft guidelines provided as follows:-

1. The first draft guidelines would therefore have recognised Sentech as a public operator only in relation to its carrier of carriers licence. The significance of being included in the definition of public operator is that only public operators are entitled to lease facilities from facilities providers such as Telkom, at–

0. cost based charges, as were provided for in section 4 of the first draft guidelines, and
1. Ultimately, long run incremental cost (LRIC) based charges, as provided for in section 13 of the existing guidelines.

 

2. It is crucial both for the viability of Sentech and its ability to perform its statutory mandate in relation to both its licences that it be able to lease facilities on the cost bases referred to above. Sentech is essentially a provider of services at the level of wholesaler. Its status as a wholesale provider of telecommunications services is fixed by section 32C(1) and (2) of the Telecommunications Act, read with sections 1 and 40A(6), as well as the licences under which it operates. If it is excluded from the status of public operator, it is forced to lease facilities from Telkom at retail prices. This would render Sentech’s operations commercially unviable.
3. Both the Telecommunications Act and Sentech’s licences envisage that it will compete with Telkom and the SNO. If Sentech is not accorded public operator status for the purposes of its carrier of carriers service, it will be at a serious competitive disadvantage relative to Telkom and the SNO, who are also providers of international telecommunication services. The reason why this is so is explained in detail in paragraph 8 below. The need for Sentech to be recognised as a public operator was clearly recognised in the first draft guidelines in that Sentech was included as a public operator for purposes of its carrier of carriers licence.
4. Similarly, as multimedia services are provided by other operators, including Telkom, and as Sentech is statutorily obliged to provide its multimedia services as a common carrier, Sentech also needs access to facilities at the same prices afforded by Telkom to other public operators. If Sentech does not have access to pricing on this basis, it will be precluded from competing with other public operators providing multimedia services and from fulfilling its statutory obligation as a common carrier of multimedia services. Again, the reason why this is so is explained in detail in paragraph 8 below.
5. In as much as the first draft guidelines recognised Sentech as a public operator for its carrier of carriers licence, but not for purposes of its multimedia services license, its written and oral submissions focused on the need for it to be included as a public operator for both its licenses.

4. The interconnection guidelines

1. Interconnection is the physical and logical linking of telecommunications systems in order to allow the users of one telecommunications system to communicate with the users of another system or to access services provided by another telecommunications operator. "Interconnect" is defined in section 1 of the Telecommunications Act and regulated by section 43. Interconnection requires the use of telecommunication facilities such as transmission systems and links to carry calls, signals and data for and on behalf of the interconnected party and between the interconnected networks. It is inextricably linked with facilities leasing because facilities leasing necessarily entails interconnection with the telecommunication system of the lessor or provider of the facilities. As a result –

1. the two are invariably dealt with together whenever agreement is sought between a provider and an acquirer of facilities; and
2. Any rational regulatory system must deal with facilities leasing and interconnection in a consistent manner.

2. ICASA duly published draft interconnection guidelines under notice 784 of 2002 in Government Gazette No 23458 on 24 May 2002. In those guidelines, it is provided that –

"‘Public Operator’ means a provider of a public switched telecommunications service or a public mobile telecommunications service, or an under-serviced area licensee or Sentech for the purposes of its provision of multimedia services or carrier of carriers service." (Sentech's emphasis)

3. Having correctly recognised the need for Sentech’s having the status of public operator in the draft interconnection guidelines in respect of both of its licensed activities; there was no rational basis for following any different approach in the facilities leasing guidelines.

5. Amended draft facilities leasing guidelines

1. On 13 June 2002, ICASA published under notice 994 of 2002 in Government Gazette No. 23520, a new set of proposed supplementary facilities leasing regulations ("the amended draft guidelines"), which had been amended pursuant to the written and oral submissions in respect of the first draft guidelines.

 

2. In the amended draft guidelines, ICASA had taken cognisance of the request made by Sentech and other interested parties that the definition of public operator, as contained in the existing guidelines, be amended. However, despite Sentech's submissions, the amended draft guidelines still failed to include Sentech as a public operator for the purposes of its multimedia services licence. In this regard, in terms of section 1.2.3 of the amended draft guidelines, a public operator was defined as:–

 

 

"a provider of a public switched telecommunication service, public mobile cellular telecommunication service and Sentech in respect of its licence to provide an international telecommunication gateway service as a carrier of carriers".

3. In its comments on the amended draft guidelines, Sentech welcomed its recognition as a public operator for purposes of its carrier of carriers licence. Believing and legitimately expecting that its position as a public operator in relation to its carrier of carriers licence was secure, it focused its attention in the comments on its exclusion from the status of public operator in relation to its multimedia services licence.
4. In its comments Sentech pointed out, amongst other things, that:-

1. whilst some comments on the first draft guidelines had been incorporated in the amended draft guidelines, others which affected the long term viability of Sentech had not;
2. its exclusion from the definition of public operator, at the same time as the application of the guidelines to all facilities acquirers, would preclude it from fulfilling its obligations as common carrier on a reasonable, equitable and non-discriminatory basis in terms of section 32C(2) of the Telecommunications Act;
3. its exclusion from the definition of public operator would discriminate against Sentech vis-à-vis other public operators who were also entitled to provide multimedia services in terms of their licences, such as Telkom, and provide them with an unfair competitive advantage;
4. it was inconsistent to recognise Sentech as a public operator for both licences in the interconnection guidelines, but not in the facilities leasing guidelines;
5. its exclusion from the status of public operator in the facilities leasing guidelines for multimedia services undermined any benefit derived from its inclusion as public operator in the interconnection guidelines for both services;

 

6. the exclusion of undersea cables from the list of essential facilities in section 3.3 of the amended draft guidelines provided Telkom with an unfair competitive advantage when Sentech competed with it in the provision of international telecommunication services, particularly on account of the superior quality of such cables for the transmission of voice data in comparison with satellite.

6. Final supplementary facilities leasing guidelines

1. On 9 July 2002, less than a month after the publication of the amended draft guidelines, the supplementary facilities leasing guidelines were approved and published ("the final guidelines") under Notice 1215 of 2002 in Government Gazette no. 23613.
2. From Sentech’s perspective, the final guidelines constituted a dramatic departure from the first draft guidelines and the amended draft guidelines, as all proposed amendments to the definition of public operator were excluded and the definition of public operator as contained in the existing guidelines was followed. This has the effect of excluding Sentech from the status of public operator for purposes of both of its licences. This was completely in conflict with the original purpose of the supplementary facilities leasing guidelines and ICASA’s approach throughout the drafting process.
3. A number of other provisions which were not contained in the first draft guidelines or in the amended guidelines, have now been included in the final guidelines. Of particular concern are the following provisions:-

1. Section 3.3 provides that the essential facilities of a major operator shall include "transmission facilities connecting two or more local exchanges within a local exchange area". Yet long distance transmission facilities, particularly the undersea cables, have not been declared to be an essential facility. For the reasons set out above, this is irrational and unfair. It also represents unequal treatment as between the providers of local telecommunications services (who have access to those transmission facilities) and Sentech as a provider of international telecommunications services, which is not given access to the necessary transmission facilities to perform its statutory mandate.

 

2. Section 3.5 provides that:-

"In the application of section 3.3 or section 3.4 above, the Authority shall not require a Facilities Provider to make telecommunication facilities available where such Facilities Provider does not also make such telecommunication facilities available to itself or an affiliate or otherwise uses such telecommunication facilities in offering its own competing services".

In terms of this section, Telkom will be entitled to refuse access to a facility if it "uses such telecommunication facilities in offering its own competing services". In effect, Telkom could simply refuse to provide access to any facility when requested to do so by any other competitor in terms of section 3.5 of the final guidelines. The provisions of section 3.5 are in direct conflict with the provisions of section 44(2) of the Act, which places a positive obligation on Telkom to make available its facilities. In this regard, section 44(2) provides as follows: -

"S44(2) – Telkom and any other provider of a public switched telecommunication service shall, when requested by any other person providing a telecommunication service, including a private telecommunication network, lease or otherwise make available telecommunication facilities to such other person pursuant to an agreement to be entered into between the parties, unless such request is unreasonable."

3. Section 3.7 of the final guidelines is devoid of any meaning.

7. impact of sentech’s exclusion as public operator

1. As pointed out above, the exclusion of Sentech as public operator for purposes of both its carrier of carriers licence and its multimedia services licence has serious implications for Sentech. These will effectively prevent it from fulfilling its statutory mandate as provided for in the Sentech Act and the Telecommunications Act.
2. As is common knowledge, the caller pays for the telephone call, despite the fact that voice data or signals are transmitted in both directions.
3. In order to be able to perform its function as a carrier of carriers, Sentech must interconnect with both Telkom and the overseas operator.

 

4. However, for Sentech to be able to perform its carrier of carriers function in terms of the Telecommunications Act, it requires facilities -

1. to be able to interconnect with and transmit data to Telkom; and
2. To receive and transmit data between South Africa and the rest of the world via the undersea cable.

 

5. The undersea cable is a facility, which is owned as to one half by Telkom (termed "Telkom’s half circuit") and, as to the other half, by a consortium of institutions in the global telecommunications industry. For Sentech, the undersea cable is an essential facility, which it requires for the carrying of data or signals in the performance of its carrier of carriers function. It cannot (if it wishes to be competitive) use satellite technology because of the delays, which that form of transmission involves, and the potential degradation in the quality of voice or sound, which reaches the end users.
6. It is in the determination of the cost component that Sentech is seriously prejudiced by its exclusion from the definition of public operator. A central component of Sentech’s costs include –

1. the costs of leasing facilities to be able to interconnect with Telkom and
2. the costs of leasing from Telkom the use of its half circuit of the undersea cable.
3. With Sentech having been excluded as a public operator, being able to charge Sentech, as its competitor, retail and not cost based charges in respect of both its use of Telkom’s half circuit of the undersea cable and its use of the facilities for linking Sentech and Telkom.

7. It is important to add that, although Sentech's has its own facilities, in certain instances, to interconnect with Telkom, they do not allow Sentech to use these and insist that Sentech use its own.
8. Accordingly, the effect of Sentech’s exclusion from the definition of public operator will be that it will not practically and feasibly be able to provide a telecommunications service which originates on the telecommunications system of Telkom, as the only public switched telecommunication licensee (currently), and terminates in a telecommunications system in another country or vice versa. This is directly in conflict with section 32C(1)(a) of the Telecommunications Act read with the definition of carrier of carriers in section 1, which requires that Sentech be licensed to provide an international telecommunication gateway service enabling it to operate as a carrier of carriers as defined.
9. In terms of the definition of carrier of carriers in the Telecommunications Act, it is also envisaged that Sentech will carry data or signals between mobile cellular telecommunication service licensees and telecommunications systems in other countries and vice versa.

1. each of the telecommunications service providers will charge a termination rate;

10. Sentech is therefore forced to lease from Telkom the facility of its optic fibre cable and to interconnect with Telkom for purposes of transmission of data between Sentech and, for example, the Gauteng branch of Sentech’s customer.
11. Because Sentech has been excluded from the definition of public operator for purposes of its multimedia services licence, Telkom will charge it retail rates.
12. In this regard, it is important to point out that Telkom’s licence allows it to provide similar competing multimedia services. Once again, Sentech will be completely at Telkom’s mercy and will not be able to compete on a fair basis because Telkom will be able to use its optic fibre cable at cost.

1. The result will be that Sentech is unable to earn any meaningful margin or any margin at all in providing multimedia services.
2. Sentech is a commercial entity, registered as a public company, which is required to earn a return for its shareholder. This it will not be able to do if it is denied the status of public operator for purposes of leasing the facilities from Telkom, which are necessary to provide multimedia services.
3. The effect of this will be to undermine the statutory objective of promoting competition.

10. BENEFIT OF INCLUDING SENTECH AS PUBLIC OPERATOR

 

1. The inclusion of Sentech as public Operator for purposes of both its carrier of carriers licence and its multimedia services licence will result in serious benefits for End Users. These will effectively enable Sentech to fulfil its statutory mandate as provided for in the Sentech Act and the Telecommunications Act.
2. The effect of classifying Sentech as a Public Operator will be in conformity with the statutory objectives of introducing a managed liberalisation of the Telecommunications sector, promoting competition and offering choice and reasonable rates to the End-Users.

 

3. The effect of including Sentech as Public Operator will enable it to comply with section 32C of the Telecommunications Act.
4. The inclusion of Sentech with the definition of Public Operator and the inclusion of the undersea cables on the list of essential facilities will be appreciated, regard to the statutory mandate of Sentech and its licences and the circumstances.
5. The inclusion of Sentech within the definition of Public Operator manifests equal treatment as between Sentech and the other institutions, which recognised as Public Operators.

11. CONCLUSION

1. The exclusion of Sentech from the definition of public operator manifests unequal treatment as between Sentech and –

1. the other institutions which are recognised as public operators;
2. The other institutions which are common carriers, which is arbitrary, irrational and serves no legitimate governmental purpose.
3. The exclusion of the undersea cables from the list of essential facilities manifests unequal treatment as between carriers of international traffic and domestic traffic which is arbitrary, irrational and serves no legitimate governmental purpose.

2. The effect of classifying Sentech as a public operator status in relation to its multimedia service licence will enable it to comply with section 32C(2) of the Telecommunications Act, as mentioned in paragraph 8 above.

 

3. the inclusion of Sentech from the status of public operator and the inclusion of the undersea cables from the list of essential facilities, is so reasonable, having regard to the statutory mandate of Sentech, its licences and the factual circumstances mentioned throughout this document.

Sentech would like to thank the Committee for giving it the opportunity to express its views on the Bill, and looks forward to making its oral representation and assisting the Committee with such additional inputs as it may require.

Sentech trusts that its various concerns in respect of the Bill will be given consideration by the Committee. Sentech wishes that it be classified as a Public Operator.