Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in TelecommunicationsThe purpose of SATRA/ICASA is to regulate the industry in terms of theTelecommunications Act (1996) and pursue any new policy directions that areissued by the Minister of Communications as long as they are consistent withthe broad objectives expressed above and if prior consultation has takenplace. Many aspects of the Telecommunications Act provided only limitedguidance and regulatory principles and so much of the initial work ofSATRA/ICASA was to put some concrete guidelines together for the purposeof regulation. The regulatory aspects left to the discretion of the regulatorincluded interconnection, facilities leasing, GPMCS (global personal mobilecommunications services) and licence conditions.Despite this show of independence, the Act permits the Minister ofCommunications to amend, withdraw or substitute any decision by theregulator. This provision has already been used by DoC to withdraw SATRA’sguidelines on interconnection and facilities leasing. Further, the implication ofthe Minister setting policy means that the shape of deregulation is left to theMinister. Although the White Paper provides guidelines for deregulation, it issubject to review by the Minister who also is entrusted with setting the datesfor which segments of the market are opened for competition, and the numberof new entrants. The regulator role is merely to call for tenders for licencesand issue licences according to fair and transparent criteria.SATRA/ICASA has lost credibility in the industry as both independent andeffective through failure in a number of crucial regulatory episodes. The firstincident occurred shortly after the passage of the Act, when Telkom claimedthat the Internet was a basic service and therefore fell under its exclusivityagreement. Although SATRA eventually ruled that this was not the case,Telkom took the challenge to the courts ensuring that the matter dragged onanother 6 months.The second major incident was the as yet unsuccessful issuing of a thirdcellular licence through a ‘beauty contest’ process. SATRA made arecommendation for Cell C to be awarded the licence, going against theexternal consultant’s recommendations. One of the losing bidders, Nextcom,challenged the outcome and has succeeded in delaying the process in thecourts for over a year. In the process, it has been alleged that there waspolitical interference in the licensing process, eroding the credibility of SATRAas an independent body.Finally, Telkom accused VANS operators of illegally providing telephony totheir clients in contravention of the Act. The action it took was to deny furthercapacity to them and in some cases withhold services. SATRA ruled againstthe unilateral action by Telkom but was duly ignored by the operator. Theissue has been partly resolved after AT&T threatened to take the issue to theWTO where South Africa has committed to an opening of the VANS sectorand to a telecommunications reference paper that upholds action against anticompetitivepractice by industry players.28
Competition and Regulation in Telecommunications3.3 Fixed line Networks3.3.1 Local AccessThe attainment of social objectives played an important role in deciding howto regulate the fixed line market. It was felt that rapid infrastructure rollout topreviously under-serviced areas was critical to the promotion of universalservice and economic empowerment. As these areas are generally either lowincomeor rural, the feeling was that immediate competition in fixed lineservices would not serve the objectives best. The reasoning was:• new entrants would target the more lucrative and easily establishedbusiness and long-distance markets first and not seek to rollout in theseunder-serviced areas,• competition in these markets would squeeze the profitability of Telkom andso limit its own ability to rollout in these unprofitable areas, and• the option of contributions to a universal service fund was not desirableuntil basic exchange infrastructure was in place in some areas to whichlow income households could be more cheaply connected.This coincided with the need to restructure Telkom itself to face competition –such as improving efficiency and rebalancing its tariffs to remove crosssubsidisation.It is also felt that the granting of an exclusivity period helped toraise the market value of Telkom allowing for a better price on the equity sale.For these reasons, the Telecommunications Act gave Telkom a regulatedmonopoly for five years, extendable to six, in the local access market. Toensure that the exclusivity period fulfilled the goals of infrastructure rollout andpreparing Telkom for competition, strict licence conditions were placed on thenetwork provider. The licence conditions included rolling out 2.81 million newlines over the exclusivity period, of which 2/3rds will be in under-servicedareas and for priority customers. It is estimated that this will require capitalinvestment in the region of R53 billion. The specific rollout targets arepresented in table 3.1 below. The only part of local access network that is notcovered by the exclusivity agreement is customer premises equipment (CPE),which was opened to full competition immediately on passing the Act.Telkom wins an extra year of exclusivity if by the end of the fourth year it hasachieved a roll-out of 90% of its cumulative five-year total line target and 80%of its five-year under-serviced line target. This will be granted if Telkomaccepts a new five-year total of three million new lines and a proportionateincrease in its under-serviced line target. There are financial penalties forfailing to reach these targets. Telkom pays penalties of R450 per line for thefirst 100,000 and R900 per line for each extra line missed. If it misses PriorityCustomer targets the penalty per unit is R4,500, schools R900, publicpayphones R2,250 and villages R1,125.29
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