Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunications3.3.4 Private Networks (voice)Eskom and Transnet both have large private networks that could potentiallybe used in competition to Telkom. In fact, it is widely believed that one ofthese two would likely get the second public switched licence in partnershipwith an empowerment group and an international operator. There are evenmoves at this point to combine the two into a single corporate entity. Theyhave the advantage of not only having a large existing network, but alsoextensive transmission networks over which to layout a new communicationsnetwork. There are also numerous other private networks that operate withina corporation on their land and lease capacity from the PSTN. The WhitePaper envisaged that resale of leased capacity could occur in year 4. This hasnot happened.In terms of the Act, a licence is required to operate a private network thatextends beyond the boundaries of land owned by the corporation, except forTransnet or Eskom. No such licences are available until notice from theMinister. In addition, in order to limit the potential competition from Transnetand Eskom at the end of the exclusivity period, or at the point where resale ofcapacity is allowed, the Act states that neither of these two may “install orextend their telecommunication facilities so as to cause unnecessaryduplication of such facilities with the telecommunication facilities of Telkom, orembark on any major installation or extension of their telecommunicationfacilities, without the proposed installation or extension in question havingbeen referred to a liaison committee”. The liaison committee includes Telkomand so they must authorise network expansion. If agreement is not met,SATRA may intervene and make a decision on network expansion.3.4 Mobile communications3.4.1 CellularThe Telecommunications Act recognises the licences of Vodacom and MTNto operate a cellular network. It also requires that within two years SATRAinvestigate the feasibility of issuing more licences. This has occurred and onemore licence was due to be awarded in early 2000 (currently pending).SATRA is required to conduct a further feasibility study for a fourth cellularlicence by July 2001. The Act allows SATRA to establish licence conditionsfor any licence that may help achieve the objectives laid out above. Thusfarthey have included limitations on foreign ownership, requirement to have aBlack empowerment partner, economic development through local purchasingand exports, universal service obligations (beyond USF contributions) andhuman resource development. The scheme developed for the cellularlicences was to attach values to certain development actions for which thenetwork operators were credited. The requirement was for a credit amountand the licence holder could choose the mix of activities that fulfilled thisobligation.In addition, there were some specific service conditions:32
Competition and Regulation in Telecommunications• MTN and Vodacom were required to install 7,500 and 22,000 communityservice telephones respectively to under-serviced areas over a period offive years• Achieve a population coverage of 60% within 2 years and 70% within 4years.• Price increases limited to the CPI or below in any one yearThe conditions for a new licence have similar requirements but have beenrelaxed to attract international investors. In particular, the new entrant will beallowed domestic roaming on the MTN and Vodacom networks to providethem with extensive coverage while their network is being rolled out and theywill be protected from further new entrants for 5 years. There is also nospecified shareholding size for the required empowerment partner.The Act also recognises that in order to provide a cellular service, the licenceholders will need to provide long-distance and international services, oftenthrough alternative technologies (satellite or fixed line). To protect the Telkommonopoly, the cellular providers are not allowed to make use of any fixedlines other than those from Telkom, and all international services must berouted through the Telkom network. They are of course free to negotiateinternational roaming services for when the consumer is out of the country.The key structural issue for the cellular industry is the separation of networkfrom service provider. The network providers provide wholesale airtime toretailers who then retail this airtime to customers on a per minute basis. Thisseparation has been the regulatory path in the UK and makes regulationeasier as the focus becomes regulation of the network provision and not anypotential abuse of dominance in the service supply component stemming fromvertical integration.3.4.2 SatelliteSatellite networks can be used for transmission of national long-distance andinternational traffic, as well as Global Mobile Personal Communications. AsTelkom does not have any satellite network itself, the network provision isopen to competition. However, in order to protect the Telkom monopoly oninternational traffic, all signal distribution for incoming and outgoing calls to SAthrough earth stations must take place through the Telkom service provider. Inthe event that the Satellite network is able to bypass the Telkom facilitiesthrough satellite-to-satellite links or earth stations positioned outside theborders, a bypass fee must be paid. This fee has yet to be negotiated. Thisarrangement will end when Telkom exclusivity ends.3.5 Interconnection, Facilities Leasing and NumberingInterconnection is crucial to a competitive environment as the value of anetwork depends on the number of subscribers. It is also necessary for aseparation of service providers from network providers. Under the Act andsubsequent guidelines issued by SATRA, interconnection with a majorprovider is ensured• At any technically feasible point in the network,33
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