Gov't playing Russian Roulette with ICT sector - TechCentral

Gov’t playing Russian Roulette with ICT sector

Duncan-McLeod-180-profileGovernment’s plans for shaking up the management of radio frequency spectrum in South Africa could backfire badly, crimping investment and harming consumers. It’s a risk that’s too big to take.

The department of telecommunications & postal services this week published the long-awaited national integrated ICT policy white paper, a sweeping — and in parts highly controversial — document that proposes radical changes to the way the telecommunications industry is governed.

From network neutrality to universal access, it’s clear that the policy document is meant to reframe the way the ICT sector is managed. Its broad objective — extending the benefits of technology to all South Africans — is laudable. But the way it proposes doing it, by betting the farm on the untested model of a single national wireless broadband infrastructure provider, risks undercutting the very significant achievements the industry has made to date. In essence, government wants South Africa to go it alone, ignoring global best practice.

The problem with the white paper is not so much that government wants to reserve spectrum for its planned wholesale open-access network, but that it wants to reserve all unassigned “high-demand” spectrum (spectrum where demand outstrips supply) for this purpose.

Under this plan, none of the spectrum in the 700MHz, 800MHz and 2,6GHz bands, for example, will be made available on an “exclusive-use” basis to operators. (This goes far beyond what has happened even in Mexico, which government cites as a case study. Mexico reserved 90MHz at 700MHz for its network, with the rest still available for assignment to operators.)

Government’s plan means that big operators, including Vodacom, MTN and Cell C, will not be able to build their own 4G/LTE networks without participating in government’s wholesale network. In effect, they won’t be allowed to compete on infrastructure. The new wholesale provider will have a monopoly.

Telecoms minister Siyabonga Cwele denies government is recreating the situation of two decades ago, when one company, Telkom, had an absolute hold over the sector and prices were sky high. He said anyone is welcome to invest in the wholesale network, and providers are expected to compete vigorously at the services layer.

But what’s to stop the wholesale provider from hiking its prices? Will it be heavily regulated? Does government enforce price caps on it? None of these interventions is preferable to allowing market forces to set prices.

Also, if there’s only one operator, does that mean South Africa will be lumped with only one technology choice? What if this network had been created 10 years ago, and the choice had been to go with the now-defunct WiMax instead of LTE? South Africa would have been left up the proverbial creek without a paddle.

“The new spectrum management regime set out in this policy encourages that licensees work together as far as it is practicable,” the white paper says optimistically. “The value of sharing and collaboration between licensees is that it will result in the more effective use of a scarce resource (spectrum) and the reduction of the duplication of infrastructure while facilitating services-based competition.”

Government seems to think infrastructure competition is bad, that duplicating networks is akin to building multiple freeways between Johannesburg and Durban. That analogy is far too simple. It presupposes that networks are precise replicas of each other, which is not true. Vodacom and MTN, for example, make very different technology choices that ultimately affect their market positions.

Sharing infrastructure often makes business sense, and many operators already share high sites, fibre networks and other infrastructure because it doesn’t make sense to duplicate it. Using the blunt instrument of a wholesale open-access network, in which operators are forced to participate, smacks of a command-and-control approach. It makes much more sense for the market to decide where it makes business sense to share networks, and to facilitate this through regulation.

But the white paper gets more problematic still. Government not only wants to reserve future assignments of high-demand spectrum for open access, it has also hinted that it wants to reclaim spectrum already allocated to mobile operators. This is madness of another order.

The white paper calls on the regulator to investigate how existing mobile spectrum assignments could be returned in accordance with the new policy.

Government is playing Russian Roulette with the ICT sector, says the writer

Government is playing Russian Roulette with the ICT sector, says the writer

“The regulator will be required, following adoption of this white paper, to conduct an industry-wide public consultation process to determine the terms and conditions, as well as the timeframe, under which the currently exclusively/individually assigned high-demand spectrum will be returned in accordance with this policy,” the white paper says.

This is an unworkable proposal. Not only does it smack of the sort of populist lunacy that has left economies such as Venezuela and Zimbabwe in tatters, but in practice it might not even be possible to do.

South Africa’s mobile networks have invested tens of billions of rand in technology that utilises these bands. Instead of doing what it should be doing — figuring out how to maximise future investments by these operators — government has come up with a proposal that could not only inflict real damage on them (and for what?), but also potentially do immense harm to consumers.

This clause in the white paper should on its own see it challenged in the courts (which, of course, it will be).

Ultimately, however, the problem with the white paper is not so much that government wants to experiment with the concept of a wholesale open-access network, it’s that it wants to do it at the expense of a model that has worked well. There’s no middle ground in the white paper. There’s no high-demand spectrum reserved for exclusive-use access. Government’s message to operators is: it’s our (untested) way or the highway. That’s wrongheaded and dangerous!

The white paper also takes a distinctly anti-markets view by banning trade in spectrum assets that are in high demand, such as those that can be used for 4G broadband. “The trading of high-demand spectrum would perpetuate the current market structure, which places inherent value in the spectrum and its exclusive use. It would furthermore undermine the ‘use it or lose it’ principles and the application of open-access provisions to networks using high-demand spectrum,” it says.

Icasa’s spectrum auction had proposed a much more sensible approach. It’s a pity the high court stopped it in its tracks by granting an interdict against it in favour of the telecoms minister.

The regulator had reserved four lots of spectrum for exclusive-use access (Lots B, C, D and E), with a generous fifth lot (Lot A) reserved for future allocation, presumably for the wholesale open-access network (although it never said as much).

By doing that, Icasa hedged its bets — it allowed for (and encouraged) continued investment by the big operators, while reserving spectrum that would allow for experimentation. The invitation to apply had flaws, but it was an eminently more sensible approach than what’s proposed in the white paper.

Government has tried to defend the extreme position it has taken on spectrum.

“Without the policy shift set out in this integrated ICT policy white paper, and this particular spectrum and open-access framework, the specific challenges of extending access to rural and underserviced areas and lowering the cost of communication will not be achieved within the timeframes set out in [government’s] South Africa Connect [broadband policy]and the National Development Plan. This particular transformation is imperative to ensure inclusive economic growth.”

To be fair, a wholesale network might turn out to be an enormous success, with smaller industry players who haven’t been able to participate until now getting access, shaking up the market in the process. But it might also be a big failure. If it is, then it could drag the entire industry down with it. That’s too a big a risk to take. Government must go back to the drawing board.  — (c) 2016 NewsCentral Media

13 Comments

  1. I’d say the situation is a bit worse.
    There is probably 4 bullets in that gun, not one. This is going to end in tears but they won’t listen. Just like with eTolls, the visa debacle and so many many more disasters.

  2. Hitting Thefan on

    This is what happens when none experts decide on policy and only listen to there own consultants that looks at there own narrow interests. The sooner these people get out of government the better.

  3. VD and MTN Have dominated the market for far too long and between them have kept prices artificially high and kept out competition. They deserve what’s coming to them for not being progressive with their greed.

  4. all motivations are channelled towards enriching the few elite cANCer com-rats which is what its always been. This government and more specifically the anc has lost the confidence of the people.

  5. The major networks are spectrum constrained. This means that if they had to significantly drop their prices right now, usage will increase drastically and this will negatively impact the speeds / experience for all on the network. Give the networks more spectrum and data prices will come down faster as a result. It is that simple.

  6. Either you are very young, or very naive. It is the mobile operators that have made communications almost ubiquitous. It is infrastructure competition that has driven down the cost of communications over the years, making unimaginable services available almost everywhere in South Africa at prices that would have been impossible to imagine previously. You can moan a little about how the massive amount of data and immense speeds that you want to use today are nearly as expensive, in real terms, as a single basic telephone line before we had competition and these enormous private network investments, but that’s about it. By the early 1990s, after many, many decades of Telkom’s monopoly, fixed copper line phones were available to a couple of percent of the population, largely in urban areas. A privileged few could afford a car phone the size of a car battery, for roughly R14000 (that’s 1990 Rands!), with a few spots of coverage in the major cities. Do you really think that going back to that is a great idea?

  7. Wow, if I knew only what you wrote above, I’d swear the networks were our heroes or something. You and I both know that is not the case. The white paper may be radical, but let’s not paint the greedy networks as saviours. They are little more than profiteers.

  8. Nope. Yes, you are right: the networks are overwhelmed. But if we look at history, the networks are more likely to plunge spectrum windfalls back into their own pockets. Let’s not forget that data prices were a problem before spectrum became a leading issue.

    This is a business model problem: data is not as lucrative as voice and sms, but the networks are not adjusting fast enough. Instead they fight any attempt to create more data-centric models (the OTT resistance is a prime example). So it’s not that simple, not if their track record is what we use to judge them.

  9. You make very valid points and the white paper should be carefully approached. But is it a monopoly? Telkom’s arrangement was quite different and didn’t involve wholesale partners, nor anything resembling industry involvement such as a collective board. For years we have wanted them to unbundle the local loop to give good access – the above already gives far more access that Telkom ever did historically.

    I also worry that venom aimed at this will lead us to forget the real problem: the two major networks and their relationship with ICASA. There is actually a very simple way to fix this: fix the regulator. Instead the situation has gotten so toxic that we are bickering over spectrum like starved kids over a loaf of bread. Meanwhile we are all convinced the above is a government plot to loot us.

    I’ll be honest: if the gov can cut data prices by half, they can loot. Corruption will be a mild problem if we cannot get our digital competitiveness going. Data is too expensive: startups can’t afford it, enterprises swallow horrendous data bills that could be put to better use and services are not being developed. We are becoming a country that, digitally speaking, is effectively a consumer of other countries’ services. We are becoming an import economy in a digital sense. Every month I pay money to services that I need, but sit abroad and we see a fraction of the tax – if any tax at all. That is FAR worse for our futures than the prospects of a potential wholesale monopoly.

    I like the sentiment of your last paragraph: that this could be a good thing. But ultimately data must come down drastically: not to indulge consumers, but as a growth and business imperative. I think we should support the above because in this case the devil we know – the duopoly – is not going to save us.

  10. Anthony Bingham on

    The question really is: who is actually advising the ANC scumbags – because they certainly are incapable of coming up with this policy document solely on their own.

  11. And whose fault is all of the above? The same government that granted Telkom a mandated protected monopoly, screwed up ROYALLY with Sentech and Broadband Infraco, licensed Cell C and Neotel 5 years later than promised, allowed a regulatory vacuum to suffocate consumers by keeping ICASA weak and under funded, hamstrung Neotel by taking away the fibre optic network they were supposed to get, fought against operators rights to self provide, almost stopped international submarine cables from landing in RSA, killed Wimax before it could even crawl, failed to bring about LLU, created a disaster out of the digital tv migration project and made RSA the laughing stock in Africa (forget the rest of the world), and now this ongoing 10+ year mess with regards to spectrum.

    Or maybe I’m wrong, government is completely innocent, and the private sector must take all the blame.

  12. That is government’s fault for allowing them to get away with murder, over and over again, instead of protecting its citizens. Regulation and laws are supposed to prevent these type of things. But what would you expect from a government like ours, with their grubby fingers all over the telecoms pie?