It's a beauty parade or an auction - TechCentral

It’s a beauty parade or an auction

Duncan-McLeod-180-profileNews this week that government appears finally to be making progress in publishing a policy for the allocation of radio frequency spectrum for broadband deployment is to be welcomed, even though it’s disgraceful that it’s many years late.

Well-placed sources say government’s final spectrum policy is set to be discussed and approved by cabinet in the coming weeks.

This, they say, comes after the department of telecommunications & postal services sought and received the green light from cabinet’s economics cluster for the policy.

Telecoms operators and service providers have been waiting years for Icasa, the communications regulator, to issue licences giving them access to the so-called “high-demand spectrum”. But Icasa has had its hands tied waiting for government to finalise the policy.

Much is up in the air until the final policy is published. It’s not known, for example, if government will seek to create some sort of national broadband operator owned by industry players (a model favoured by Cell C and some other market players), or whether service providers will be allowed to compete against each other for access to the bands (an approach favoured by the big incumbents, including Vodacom). The state could even seek a role for itself in the broadband market, by owning or taking a stake in a national broadband operator that owns valuable spectrum assets. Most industry players and analysts believe this would be a mistake.

Assuming the policy is published in the next few months — which now looks possible — and assuming market players will be given the opportunity bid for spectrum, then Icasa can begin the complex process of deciding who gets what and why. Tens if not hundreds of billions of rand are at stake, so the lobbying will be intense.

Operators are keen to get their hands on two spectrum bands as soon as possible: 800MHz, currently occupied by television broadcasters, and 2,6GHz, which is lying largely fallow. It’s 2,6GHz that will be made available first, with 800MHz (and bands immediately below it) to follow once South Africa gets a move on with fixing the train wreck that is its digital migration project.

Icasa will have to choose between two broad models in allocating new spectrum.

One is the “beauty parade”, where prosective licensees put forward their case as to why they — and not someone else — should get the spectrum. The regulator then has to assess the bids and decide who is most deserving of receiving licences. Operators then pay a set fee for access.

The other is the auction model, where those who bid the most for access get it. Different auction types — ascending-bid auctions, simultaneous multi-round ascending auctions, combinatorial clock auctions — have been applied in markets around the world.

Those who favour the beauty parade say it’s better because operators don’t take on huge debts before they even build their networks, which, they argue, lead to higher prices for consumers.

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Those in favour of auctions say they they’re more efficient and transparent in that government bureaucrats — suspectible to financial and other inducements (an ever-present problem in South Africa) — are removed from the decision-making process. In theory, they also separate the proverbial men from the boys.

Though auctions can maximise revenues for the national fiscus, they are an additional effective tax burden running into billions of rand on the telecoms industry.

Also, the temptation for prospective licensees to collude ahead of time is high. Indeed, the opportunities for corruption abound in business, in government and at the regulator if the project is not executed perfectly.

Icasa must ensure upfront that the rules of engagement are clear. It would do well to rope in the help of national treasury and external auditors to ensure that the process is thoroughly above board.

Whichever licensing model Icasa chooses, and whatever the role government takes in the process, the high stakes involved demand that it’s done in as transparent a manner as possible.

Research by bodies such as the GSM Association and the World Bank shows that opening new spectrum for broadband will expand South Africa’s economy while getting millions more people online. It will be a great pity if it’s allowed to be mired in controversy from the start.

  • Duncan McLeod is editor of TechCentral. Find him on Twitter
  • This column is also published in the Sunday Times

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