Government’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.
“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
- Duncan McLeod is editor of TechCentral