SA's ICT sector is facing its Brexit moment - TechCentral

SA’s ICT sector is facing its Brexit moment

Denis Smit

I noted, with an element of morbid curiosity, the following exchange in the UK’s house of commons two days ago:

The government has not carried out any impact assessments of leaving the EU on the UK economy, Brexit secretary David Davis has told MPs.” In 2016, Davis had said: “We are in the midst of carrying out about 57 sets of analyses, each of which has implications for individual parts of 85% of the economy…”  — BBC, 6 December 2017

Is South Africa’s ICT industry facing its Brexit moment? I think so.

We all remember the Brexit process. David Cameron, the British prime minister at the time, elected for a referendum on whether to stay “in” or get “out” of the European Union. The decision divided a proud country.

Of course, they would vote to stay in, I believed — and so did many others. How wrong we were! The issue gripped the island nation and rapidly polarised its citizens. Friend turned against friend, partner against partner, young against old — rapidly, deep polarisation and distrust set in.

The result was shocking. Recently, analysts have shown that both sides conjured up untested research or fake news to bolster their own arguments.

The thing is, such enormous decisions have unintended consequences, both good and bad, and it will probably take at least 15 years before a post-Brexit review is able to conclude whether it was a good decision or not.

Those with some life experience know all too well that plans often go awry.

South Africa’s draft Electronic Communications Amendment Bill has now been gazetted and the ICT industry and various stakeholders are working overtime to get the comments in by the deadline, which has been extended slightly from 17 December 2017 to 31 January 2018.

Decisions made in the coming months will impact significantly on South Africa’s ICT industry for decades to come. Most of those involved in the decision-making processes now, both in government and industry, will have moved on by then and others will have deal with the consequences.

Areas of concern

I am not going to deal with every revision proposed in the amendment bill, but would like to pick out a few matters of concern. These are:

  • Can we fundamentally restructure the industry and reconfigure the communications regulator, Icasa, at the same time? As with Brexit, have we fully understood the complexities and sheer volume of work that needs to be done and how long it will take?
  • Is services competition the way to go? Consider how infrastructure competition has driven down prices in the fibre-to-the-home market. One operator is even proposing to take fibre into the townships. Of course, it seems rational not to duplicate infrastructure, especially when roads are being dug up repeatedly to make way for fibre. The rapid deployment guidelines (more on this below) are desperately needed by the industry to help with this issue. The fact is that an oversupply of infrastructure “wastage” left to the market results in consolidation when competitors fail and assets are snapped up for a bargain. Prices consequently come down. International bandwidth prices are incredibly low because there was a crazy period when many companies criss-crossed the world’s oceans with cables, paid for them at their own financial risk and then went bust, allowing more astute players to snap up hundreds of thousands of kilometres of cables for next to nothing and were able, because of this, to drop their prices dramatically.
  • Government, and others, want to break the duopoly of MTN and Vodacom. What I can’t understand is how replacing a duopoly with a monopoly in the form of a government-initiated wholesale open-access network, or Woan, makes things better. Have we fully examined more practical alternatives?
  • Enforcing wholesale separation on an “open-access” basis makes sense and I wonder why MTN and Vodacom, in particular, did not suggest this proactively earlier as an alternative approach to the planned Woan. Throw in an auction, which makes some money for our deeply indebted national fiscus, impose significant and extensive roll-out obligations on those allocated spectrum, and use the existing provisions of the Electronic Communications Act to moderate price gouging, and you have a solution. It’s not perfect, but it’s practical and a lot faster to implement, thus saving the consumers years of delay before prices come down. Access on a cost basis to wholesale services does not make economic sense at it does not allow for capital replenishment and investment in newer technologies.
  • Mandating that operators “may” get some “leftover” high-demand spectrum (if any) and then specifying that this will only happen when the Woan is “functional” does not generate investor confidence and will disincentivise the industry. “May” get some unspecified spectrum — or perhaps none at all — does not encourage new investment today for the benefit of tomorrow. And what does “functional” mean, anyway? When it goes Ebitda positive? When it has repaid its debt? Insisting that each licensee commit to taking up 30% capacity (it’s undefined what this is) is a good idea as the Woan will only survive if the existing networks roam on it. But do all licensees pay the same amount or commit the same amount of traffic? What happens if six operators are involved? Do they commit to procure 180% of the “capacity”? How long will this all take and what are the opportunity-cost benefits of a speedier solution?
  • The rapid deployment guidelines in the bill are welcomed and have been sought after by the industry for many years. But having worked in the geographic information system and data management game for a long time, I can vouch for the fact that the suggested processes and requirements are far too ambitious. The suggested amendments need to be simplified significantly and a more pragmatic approach adopted.
  • Where is the socioeconomic impact study or regulatory impact study that formed the basis of the proposed amendments to the act? Are we, like the UK with Brexit, flying blind with inadequate analysis? These are major decisions government plans to make and the citizens require that that best minds have been applied and a rigorous analysis done.
  • Is it really a good idea to reduce the independence of Icasa and make government a player, judge and jury all at the same time? How will investors react to this?

Are we doing brain surgery on the ill patient when a strong antibiotic would suffice?

There is an African saying: “When the elephants fight, the grass gets trampled”. In this instance, the “grass” is the unfortunate consumer, mostly poor, who will suffer the consequences of the industry and government not making the best decisions for the sector.

I am sure many readers have their own views on this bill. Can I suggest that we use the hashtag #ICTrexit on social media to air these views and share these widely to ensure that as many people as possible are informed about these changes and stimulate more public awareness and debate?

  • Denis Smit is consulting director at BMIT

7 Comments

  1. disqus_b8dAYU9qcW on

    Excellent points. Apart from Brexit, SA has it’s own examples of disastrous legislation – the way Home Affairs crippled our tourism and Brand SA for a while (and destroyed the livelihoods of many people) by pushing through poorly-consider requirements for birth certificates for children entering SA.

  2. Denis provides rare insights than we are accustomed to in these columns. He offers solutions and asks pointed questions. A case in point, it was 24 years ago when MTN and Telkom (with Vodafone and not Vodacom) were licensed before democracy they were obligated to -and signed on- the universal services conditions, among others. This meant that they would bring services to the poor rural areas, urban and peri-urban townships. For whatever reasons, this did not materialise. Two and a half decades later, we are faced with a yawning digital divide and operators who are crying out as facing a spectrum crunch. It is therefore correct that whatever we achieve or fail to achieve through the the ECA Bill today will haunt us in the next twenty years.

    Whilst the MNOs fulfilled their commercial objectives (and exceeded them!) there remain an unkept part of the bargain. Today some very old, “urban townships” such as Umlazi, Mamelodi and Soweto (to mention a few) still struggle with services which are taken for granted in the affluent areas, believe it or not. The draft ECA Bill is an intervention to fix these historical infringements as it prepares the South African nation for equal access to ICTs services and opportunities in the Fourth Industrial Revolution.

    With regards to Icasa, as the macro environment changes, the regulatory regime must also change. People may argue for capacitating, instead of overhauling, the Authority. It’s not an either or choice as various elements of regulation will be impacted differently. While others may well be ripe for wholesale changes others may do with soft-touch or even be left as they are.

    DTPS needs to release the CSIR spectrum allocation report. If the industry were informed of the findings thereof our responses in the submissions would be greatly enhanced. This Report is an important reference document; particularly as the industry grapples with our submissions.

    The Woan is not a monopoly. That’s a false argument and a deliberate misnomer by the detractors. Neither is it (the Woan) envisaged as a replacement of a duopoly (not my word) of MTN and Vodacom. The Woan and these businesses are different; they have totally different activities in the value chain system. They are modelled differently to appropritely serve their particular commercial ends. They represent a customer-supplier relationship. In fact, even before the Woan became a talking point operators themselves were already at loggerheads (and they still are) with regards the ownership of infrastructure. The outcome of spectrum negotiations was that operators will acquire 30% minimum of their collective capacity from the Woan on a commercial basis. The fact that there is 70% capacity being procured from elsewhere disqualifies the Woan from being perceived as a monopoly of any sort. The Woan will have to be a profitable business in a competitive environment.

    I think it would have been a folly to auction the spectrum when a policy framework (the ICT White Paper) was still under review. That would be tantamount to a unilateral restructuring of the telecoms sector. The Nationalist Party did that in 1993 with the GSM licensing and got away with it. We cannot be fightiing those battles today; we are now in a democracy. The ECA draft does not discount the “auction option”. So, let’s keep it in our options basket rather than preserve it as an exclusive for some.

    Denis has posed some vexed questions, shared genuine concerns and offered plausible alternatives; these are the ingredients of a sound legal framework formulation process to be welcomed.

  3. There’s too much sweeping change going on. Everything is changing extremely quickly. And people react in panic and fear – Making bad decisions. Everybody needs to take a good deep breath, chill out, and start thinking realistically.

  4. Bring on the WOAN! A duopoly is stronger than a monopoly. If the duopoly isn’t dealt with, we’ll have it for another 5 decades, no thanks!

  5. It would indeed be reckless if government proceeded with legislation without a thorough analysis.