Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunications3. Current Regulatory FrameworkThe most crucial factor influencing the structure and performance of themarket is the regulatory regime. This section examines the regulation of thetelecommunications market in South Africa as a basis for the discussion ofstructure and conduct in the next section.3.1 Background and Objectives of Current RegulationThe momentum towards restructuring the telecommunications market inSouth Africa came in the late 1980s when the previous governmentinvestigated the option of having the public telecommunications managed asa commercial enterprise. The momentum came from both observation ofchanges internationally and the fact that inefficiencies in the delivery ofcommunications services locally resulted in poor returns to capital and risingdebt – hindering its ability to serve the needs of a growing modern economy.After Telkom was incorporated in 1990, a study by Coopers & Lybrand wasinitiated to examine the policy options for restructuring the industry tomaximise the economic and social benefit, including improving telephonepenetration, affordability and service levels. The recommendations of thereport, released in 1992, included most of the elements of the eventualregulatory regime enacted in the Telecommunications Act of 1996. Theseincluded an exclusivity period for Telkom, resale of capacity for voice trafficprevented for 3-5 years, stringent licence conditions for Telkom during thisperiod of exclusivity, and the establishment of an independent regulator. Italso included a call for some immediate steps to be taken – including theissuing of two mobile communications licences and the opening up of theVANS and customer equipment markets.The government acted on the mobile licences (issued June 1994) and theopening of the VANS and customer equipment markets (1993). However, themajor revamp of the regulatory regime would have to wait for a change ingovernment and a process of broad consultation through a Green/WhitePaper process. The White Paper was only released in March 1996 and theensuing legislation enacted in November 1996. This meant that although afive-year monopoly period was recommended for Telkom back in 1992, thatmonopoly period only began to take effect in 1997.The Green/White Paper process did, however, contribute to the finalregulatory outcome because it included a number of objectives other thanincreasing competition, efficiency, innovation and profitability in the industry.In particular it called for the following social goals to be part of the objectivesof a telecommunications policy:• promote the universal and affordable provision of telecommunicationservices;• ensure that, in relation to the provision of telecommunication services, theneeds of the local communities and areas are duly taken into account;• encourage ownership and control of telecommunication services bypersons from historically disadvantaged groups;26
Competition and Regulation in Telecommunications• encourage the development of human resources in thetelecommunications industry;• promote small, medium and micro-enterprises within thetelecommunications industry;These are the public interest considerations that permit the deviation ofregulation from full promotion of competition. The most important economicgoals expressed in the objectives were:• promote the provision of a wide range of telecommunication services inthe interest of the economic growth and development of the Republic;• encourage investment and innovation in the telecommunications industry;• encourage the development of a competitive and effectivetelecommunications manufacturing and supply sector;• ensure fair competition within the telecommunications industry;• ensure efficient use of the radio frequency spectrum;3.2 Independent Regulatory Body – SATRA to ICASAAn important component of the new telecommunications regulation was theestablishment of an independent regulatory body, a function that used toreside with the Department of Communications and Telkom. The new body,the South African Telecommunications Regulatory Authority (SATRA),consisted of 3 to 5 councillors and one chairperson, all Presidentialappointments based on the recommendations from a parliamentarycommittee. The act specifically excludes people who may have conflictinginterests such as a financial interest in the industry itself, and demands thatthe committee be representative of the population and with sufficient expertiseamongst them. The councillors are appointed for 4 years and the chairperson5 years. The council can appoint a sizeable staff and occasional consultantsto assist it in performing its function. In 2000 SATRA was merged with the IBA(Independent Broadcasting Authority) to form ICASA (IndependentCommunications Authority of South Africa). The rationale behind the movewas the increasing convergence of broadcasting, telecommunications andcomputing.The source of funding is an important determinant of the independence of theregulator. The intent of the regulation was that in the long run SATRA/ICASAwould be wholly financed through various licence and tender fees from theindustry itself. This would give the Authority an important financialindependence from the Department of Communications (DoC). However,currently the Authority requires supplementary financing through the budget ofDoC subject to the usual approval of parliament. The telecommunicationsindustry has perceived the tying of SATRA/ICASA funding to DoC as animportant loss of independence as its actions may be subject to politicalinterference. ICASA acknowledges that it is under-resourced and so unable toregulate the sector properly (Business Report January 2001). This isproblematic enough while they are managing the Telkom monopoly position,but is very worrying for the future when regulation becomes more complex(phasing in competition and regulating access and retail prices more closely).27
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