Commission mulls 'functional separation' at Vodacom, MTN - TechCentral

Commission mulls ‘functional separation’ at Vodacom, MTN

The Competition Commission has floated the idea of enforcing functional and/or accounting separation on South Africa’s large mobile operators — a move that would not be dissimilar to what it required of Telkom a few years ago — to promote competition in the mobile broadband industry in South Africa and bring down prices.

This is one of a wide range of possible interventions proposed in the commission’s provisional findings and recommendations following its inquiry into the data services market. The details were announced at a media conference in Pretoria on Wednesday.

Though the commission doesn’t specifically name MTN and Vodacom in the context of functional and accounting separation, it’s clear it is referring to these two companies in its findings. The share prices of both companies fell sharply in afternoon trading on the JSE.

If implemented, this regulator-imposed separation should facilitate the entry of new mobile virtual network operators (MVNOs), which piggyback on network infrastructure providers, the commission said. To date, only Cell C offers wholesale services to MVNOs.

Though government’s proposed wholesale open-access network (Woan) is one way to address what the commission calls “market failure”, more immediate regulatory intervention is required while the Woan is being established.

“Some form of functional and/or accounting separation may be required of the larger networks if there is to be greater transparency as to the costs of the radio access network and core network relative to the retail services,” the commission said.

Lessons from Telkom settlement

“Such separation may also provide more appropriate incentives to the network layer to engage in fairer access pricing to third parties relative to the operator’s own retail division. These are certainly some of the lessons from the Telkom settlement agreement with the commission, which is widely perceived as having had a transformative impact on wholesale infrastructure access in fixed lines.”

Commissioner Tembinkosi Bonakele emphasised that no decision has been taken on functional or accounting separation. “We have put it in the basket — it’s one of the options,” he said in response to a question from TechCentral. “We are not saying it will be in the final recommendations. If there are other measures … maybe functional separation is not necessary.”

The commission has proposed a number of other short-term and intermediate interventions, including the urgent allocation of additional radio frequency spectrum to operators.

“In the assignment of spectrum by (communications regulator) Icasa, the objective should be to improve affordability and enhance competition,” the commission said in the provisional report. “Any assignment should be contingent upon obligations to pass through cost reductions from greater spectrum access, alongside other obligations to improve affordable access.”

This, it said, could include the provision of free public Wi-Fi in some lower-income areas, including commuter routes, or the extension of fibre backhaul infrastructure to such areas. “Pro-competitive assignment may include spectrum caps on larger operators, asymmetric assignments and set-asides for new entrants such as the Woan, in a manner that ensures a prospect of commercial success.”

The provisional report, released two weeks before South Africa goes to the polls, follows the launch of the inquiry in August 2017 in response to a request by economic development minister Ebrahim Patel. “This request followed persistent public concerns about the high cost of data in South Africa,” Bonakele said at Wednesday’s media conference.

The purpose, Bonakele said, was to assess the state of competition “in every stage of the value chain for the provision of data services to identify areas of market power where consumers might be exploited or excluded … or determine other structural, behavioural or regulatory issues that might impact pricing”.

The commission found that mobile data prices in South Africa are high when benchmarked against a wide selection of countries, including other countries in Africa. The country, it said, compares poorly with other members of the Southern African Development Community and other members of the so-called Brics countries (Brazil, Russia, India, China and South Africa).

“The retail pricing structure is anti-poor and lacks transparency,” said Bonakele. Lower-income consumers pay disproportionately more per megabyte than high-income users, he said. This can be as much as four times more for those buying small data bundles.

Bonakele said the operators’ pricing also lacks transparency.

Interested stakeholders have until 14 June to make written submissions on the commission’s report. The commission will then have “further engagements” before publishing the final report. – © 2019 NewsCentral Media

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