PARLIAMENT

RESEARCH UNIT

BRIEF: The Electronic Communications Amendment Bill No. 38 ot 2007 and its relevance to

Infraco. 24 October 2007

Background

In August 2006, the Department of Public enterprises and the Second National Operator (SNO), Neotel signed a Heads of Agreement (HOA). The agreement allowed Neotel access to Eskom and Transnet's Full Service Networks (FSN), Le. long-distance telecoms assets owned by the two parastatals. According to media reports, this deal would have saved Neotel about R2 billion.

Neotel was established as the Second Telephone Operator licenced according to the Electronic Communications Act (ECA) to compete with Telkom, with the hope of reducing prices.

In April 2007, Cabinet announced that it had approved the establishment of the Broadband Infrastructure Company (INFRACO) as a state-owned enterprise that will provide electronic communications network services.

The non-core Full Services Network (FSN) assets of Eskom Ltd and Transnet Ltd, which were originally intended to be utilised by Neotel were transferred to INFRACO. The State through the Department of Public Enterprises decided to maintain ownership of the FSN, since there was no guarantee that Neotel would reduce prices while competing with Telkom.

Subsequently, the Department of Public Enterprises announced that a Broadband Bill to establish Infraco as a legal state owned enterprise would be tabled in Parliament this year.

The main objectives of the Bill were to promote access to and affordability of the electronic communication network. The Bill's provisions prescribed for:

·         The licensing of Infraco.

 

·         The borrowing powers of Infraco and regulations.

 

·         The acquisition of the Infraco shareholding by government.

 

·         The future conversion of Infraco into a public company.

 

·         Expropriation of land or rights in land by the Minister on behalf of Infraco.

 

On the 1st and 2nd of August 2007, Parliament held Public Hearings on the Broadband Infraco Bill.

In the same month, a year after the HOA had been signed; government announced that Infraco would be 100% state owned

The Department of Public Enterprises stated that the driving force behind a state owned Infraco is the need to accelerate the process of lowering broadband telecoms costs.

Perhaps government also realised that Neotel and Telkom could form a cartel and engage in price-fixing activities, defeating the purpose of the existence of the Second National Operator.

Infraco is meant to be a wholesale operator with open access on the market therefore it will provide its services to Neotel and other telecommunication service providers.

Correlation between Infraco and the Electronic Communications Bill No. 38 of 2007

In order for Infraco to carry out its operations, it is required by law to have two licences relating to the provision of electronic communications network and services. Initially, the Bill stated that Infraco would obtain a "deemed" licence. Therefore, once the Bill becomes an Act Infraco would be deemed to have obtained its network and services licences.

During the Broadband Bill hearings, stakeholders contested this section as it contradicted provisions of the Electronic Communications Act (ECA) No. 26 of 2005. The Act requires that:

Independent Communications Authority of South Africa (ICASA) to issue out an invitation for a licence.

 

·         A notice of application to be gazetted.

 

·         Terms and conditions be determined.

 

This process would reportedly delay the licencing by several years. In terms of the proposal, Infraco would get preferential treatment, as it would obtain its licence without undergoing the process as stipulated by the ECA. Stakeholders stated that the Department should also comply with ECA regulations.

At the hearings, a few options were discussed:

·         The Department of Communications mentioned that the ECA states that ICASA should issue an Invitation to Apply for a licence to all interested parties and no single invitation may be issued by ICASA. Therefore the Department suggested that the Minister of Communications carry out the licencing process.

 

·         ICASA responded that in terms of the ECA, the Minister is authorised to make policy direction but these do not include licencing policies. ICASA stated that such a move would interfere with the regulator's impartiality and independence as dictated by the Constitution.

 

·         Legislative intervention was therefore needed to licence Infraco. As a result, the Department of Enterprise decided to scrap the licencing clause and seek other ways of obtaining a licence, which are consistent with provisions in the Electronic Communications Act.

 

Summary of the Electronic Communications Amendment Bill No. 38 of 2007

This Bill seeks to amend the Electronic Communication Act of 2005.

Two sections are to be amended namely, Section 1 and Section 5 of the Act.

The changes in Section 1 are cosmetic. The definition of a public entity is to be inserted after public broadcasting service.

The amendment of Section 5 has implications for the licencing of Infraco.

It gives the Minister powers to intervene on infrastructure investments in the Telecommunications Sector whenever it deems necessary.

According to the Bill; Clause 2 should be added to the ECA.

Clause 2 prescribes that "The minister may, after having obtained Cabinet approval, issue a policy direction in order to a) initiate and facilitate intervention by government to ensure strategic ICT infrastructure investment and b) provide for a framework for the licencing of a public entity".

Implications

·         According to the Bill, in the short to medium term, the Minister can issue a policy direction that will provide Infraco with a licence to operate and be recognised as a company by the ECA.

 

·         The Bill also paves a way for Government to establish similar companies speedily without the current delays involved.

 

·         The adoption of the Bill could also be interpreted as anti-free market system and interfering with ICASA's independence as it promotes the involvement of the State in the licencing of companies.

 

References:

1.Boskati E. 2007. Summary and Analysis of the Infraco Bill (B26-2007). ISS Research Unit. Cape Town, Parliament.

2. Department of Public Enterprise, 2007. Public Hearing on the Broadband Infraco Bill: PowerPoint presentation to the Portfolio Committee on Public Enterprise. Parliament of the RSA. 1August 2007

3. Electronic Communications Amendment Bill No 38.2007.

4. Mawson N. (2007). SNO signs network deal [internet]. ITWeb. Available from http://www.itweb.co.za/sections/telecoms/2007/0708011 044 .asp?S= IT%20in%20Government&A=ITG& O=FPTO P [Accessed 19 October 2007]

5. Neotel. (2007). SNO secures access to Eskom and Transnet telecom assets

[Internet]. News. Available from

<http://www .neotel:co.za/neotellview/neotel/en/page65?oid=980&sn=Detail>[Accessed 19 October 2007]

6. Parliamentary Monitoring Group. 2007 a. Minutes for the Public Enterprises' Portfolio Committee: Public Hearings on the Braodband Infraco Bill. 1 August 2007.

7. Parliamentary Monitoring Group. 2007b. Minutes for the Public Enterprises' Portfolio Committee: Public Hearings on the Braodband Infraco Bill. 2 August 2007.