Spectrum trading, use-it-or-lose-it conditions and wholesale and open-access networks will deliver the broadband growth governments in SA and sub-Saharan Africa are looking for, according to a new research report published by telecommunications investment group Convergence Partners.
The report, titled “Let My People Go (Online)”, says that without proper spectrum management for wireless connectivity, regulators risk short-circuiting Africa’s wireless broadband revolution.
“Informa Telecoms estimates that by 2015, 20% of Internet traffic on the continent will be carried by cellular networks, compared to the global average of 3%,” the report says. “[This] translates into an increase in spectrum bandwidth demand.”
Yet, it says, telecoms regulators in sub-Saharan Africa have not kept pace with their peers in Europe and the US in making spectrum available for telecoms. An average of only 360MHz of spectrum has been made available to telecoms operators in sub-Saharan Africa, compared to an average of 550MHz in the US and Europe.
“These developed countries plan to nearly double this allocation, while African regulators are navel-gazing and have yet to decide on even an optimal spectrum allocation model for the continent,” the report says. “In practice, demand for additional spectrum in sub-Saharan Africa is likely to be even greater than in high-income countries owing to the phenomenal mobile growth on the continent and as wireless and mobile broadband only supplements wireline broadband in the first world as it is not their primary means of access to the Internet.”
The Convergence Partners report, which was authored by Envir Fraser and Teni Ntoi, also criticises the “vertically integrated” approach to running telecoms companies. This is where operators own and operate all elements of their networks. This, it says, is an “outdated business model that not only inhibits investment into telecoms infrastructure but also acts as a barrier to entry to new players, owing to the high sunk costs central to rolling out a network.”
Furthermore, it says current frameworks, both policy and regulatory, are a “disincentive to investment as they are technically and economically inefficient giving rise to above-cost prices at a socially undesirable level of output”.
Convergence Partners proposes a radical shake-up in the way spectrum is awarded and managed, saying the “administrative rigidities of the current static allocation model not only result in vast underuse of spectrum due to the inflexibility of the current licensing system, but also promote rent-seeking behaviour among incumbent operators seeking to use the regulatory process to protect their economic rents, as evidenced by the submissions to the regulator, the Independent Communications Authority of SA, concerning the spectrum licensing framework for high-demand bands”.
“It is critical that the regulatory authorities and incumbent operators look to innovative business models such as network sharing and wholesale network deployments to accelerate broadband penetration.”
Convergence Partners is a proponent of a national, wholesale and open-access wireless network using the bands such as 800MHz and 2,6GHz as a way of delivering broadband connections to more South Africans. It has formed a new company, called SpectraCo, to investigate options and to lobby for changes to policy and regulation.
The report says the digital dividend — the spectrum around 800MHz that will be freed up for telecoms purposes when the country’s broadcasters move to digital terrestrial television — should be used to improve rural connectivity. It does not want the band simply to be allocated to incumbent operators to extend their offerings in urban centres only.
“The strategic management of the digital dividend and currently underutilised but in high demand spectrum at 2,6GHz and 3,5GHz on the continent are likely to advance broadband to a critical point where network effects and economies of scale accelerate broadband adoption,” the report says.
“Regulators should permit the existence of secondary markets to mitigate the inefficiencies of the current static allocation of spectrum.”
The report also cautions against using auctions as a way of allocating spectrum, saying that although this maximises revenue generation for the state it leads to market failures and favours incumbent operators with large financial resources. “This may also have the undesired effect of compounding the digital divide between urban and less commercially viable rural areas as spectrum owners look to recover the cost of the spectrum by deploying networks in higher income centres as opposed to rolling out services to rural communities.”
It argues that the network operators’ vertically integrated models, where they have built end-to-end networks, has “hampered meaningful broadband penetration by stifling service-based competition and meaningful access to the incumbent operators’ infrastructure”.
“We are of the view that an independent wholesale player would provide significant benefit for both operators (incumbents and new entrants) and consumers,” the report says, adding regulators should allow for dynamic usage of frequencies and allow reuse and reallocation of spectrum. “An open-access, carrier-neutral wholesale network is the most appropriate model to achieving developmental imperatives.”
This model splits the infrastructure and service layers, allowing more service-based competition, the report says. “Open-access networks are able to fill a gap left by the failure of the incumbent operators to roll out broadband to underserviced areas at sustainable prices, as infrastructure sharing in a liberalised market provides the incentive and market signals for costly infrastructure deployment.”
It also encourages market entry and competition by lowering the barriers to entry, as operators no longer have to deploy costly network infrastructure.
Creating a wholesale network operator also creates concerns that it would be bestowed with monopoly pricing powers. The report says that to mitigate the risk, regulation needs to balance the commercial interests of the wholesaler with developmental imperatives.
“As with toll-road concessions, the allocation of wholesale licences needs to be a regulated, transparent and competitive process,” it says.
“If regulators continue allocating spectrum in the piecemeal manner they have, there will neither be sufficient incentive for incumbent operators to deploy infrastructure in rural areas nor an enabling environment for new entrants to scale the high barriers to entry.” — (c) 2012 NewsCentral Media
- The full Convergence Partners report is available here