There may be a way to resolve the spectrum impasse in South Africa, in which the big operators, MTN and Vodacom, are squaring off against government over its plans to create a wholesale open-access network (Woan) and force them to open their networks to rivals. It’s a solution that should please everyone, while driving down prices.
Government wants to break the dominance of Vodacom and MTN in the industry while using a Woan to give smaller players a leg up and encouraging new players into the industry. The two big operators argue that creating a Woan and giving it most (and possibly all) available unassigned spectrum would result in an infrastructure monopoly. They are right.
But both sides have valid arguments. Government is right that there is a need to drive down data prices, especially in a country where fixed-line services are poorly developed and where most people rely on mobile phones to get online. This can only happen if more players have access to infrastructure.
The problem is, new entrants and smaller players such as Telkom and Rain (formerly Wireless Business Solutions) and even Cell C don’t have the balance sheets to build networks of national scope. Neither do the Internet service providers that are also keen to get access to spectrum. They simply can’t match the capital investments being made by Vodacom and MTN, which had an early-mover advantage by being licensed first.
If the smaller players can pool their resources, in a Woan-type arrangement — without the fear of the competition authorities scrutinising their every move — then the argument is they’d be able to take the fight to the two dominant incumbents.
The problem is, government, in effect, will create a new infrastructure monopoly if operators are forced to buy network access from one entity, which has access to all future broadband spectrum assignments for 4G and later 5G. What incentives will that Woan have to provide excellent service and good prices if it controls all the spectrum? Government says its services and prices will be regulated. But regulators aren’t good at determining fair prices — that should be left to the market to decide, not bureaucrats.
One only has to look at the awful experience South Africa had with Telkom, which abused its monopoly (and its customers) for many years and has only recently been forced to reduce its prices and make itself more appealing to consumers thanks to competition from the mobile operators and new fibre upstarts. If Telkom’s monopoly hadn’t been broken, the company would still be happily ripping off consumers and dishing up lousy service. Do we really want a situation where one company is able to provide infrastructure for next-generation services? No!
What’s the solution?
But there is a need to foster greater competition, particularly in the mobile industry. So, what’s the solution?
A Woan could help normalise competition in the industry and allow smaller players to compete more aggressively with the two big mobile incumbents, forcing prices down in the process. But it should not be given a monopoly over spectrum assets. Doing that is a recipe for failure.
In a maturing mobile industry, there are, in effect, only three entities that can afford to build networks of national scope using spectrum: Vodacom, MTN and, possibly, a consortium of providers in the form of a Woan. So, why not give all three access to sufficient spectrum to build networks of national scope?
There are many ways this could be done, but it’s fair to say the Woan will have some disadvantages relative to Vodacom and MTN. It won’t have as many towers, or the same fibre backhaul to hook up those base stations (even with Cell C and Telkom leasing capacity on their high sites). It could be given a leg up. But how?
One option is to given the Woan spectrum at no charge, while the two big incumbents are made to pay an agreed price — perhaps as much as a few billion rand each, which national treasury would no doubt welcome to help plug the hole in South Africa’s fiscus. Would this amount to unfair competition? Perhaps, but it could certainly be argued that Vodacom and MTN were given a head-start (it was six years before a third competitor was licensed in the form of Cell C). And the two companies paid relatively little for their spectrum licences.
Telkom and Cell C have already voiced their support for the Woan and are keen to invest in it. There will be others that want to invest — including Internet service providers, but perhaps also aid agencies and even non-governmental organisations keen to stump up cash to help bridge the digital divide. There are dozens of smaller players that would want to take part.
With all their money pooled, the Woan could be a significant competitor in both 4G and 5G infrastructure, without the risk of creating an infrastructure monopoly that wouldn’t have the incentives to compete robustly or keep its prices in check.
Telkom has called for the Woan to get all unassigned spectrum, which is wrongheaded. It allows Telkom to score political points (and, let’s not forget, the company is still 40% government owned), but it would not be good for the long-term health of the industry, or for consumers.
Cell C thinks the Woan should get “most” of the spectrum, according to its CEO, Jose Dos Santos. But why not split available spectrum equally between the three companies? Split three ways, there would be ample spectrum available to allow all three to build very high-speed and robust networks. Vodacom and MTN have already agreed — reluctantly, I’d imagine — to acquire 30% of the Woan’s capacity. But it might help them reduce costs in rolling out 4G and 5G networks in underserviced parts of the country.
To ensure the entire country is covered by mobile broadband, new spectrum licence conditions could require the operators to roll-out services not only in urban areas but also to cover a certain percentage of rural areas by a certain period. Other countries have taken a similar approach. If MTN and Vodacom could pool infrastructure in uneconomical or less economical areas through the Woan to achieve those targets, then let them do it and provide funding to the wholesale network. I see no reason why they wouldn’t.
I know there are plenty of other details that would need to be ironed out, but at a high level would these proposals not solve the current impasse? Vodacom and MTN could build their own networks, a powerful Woan would put smaller players (including black-owned companies) in a much stronger position to compete with the big incumbents, and new entrants could leverage the Woan to bring innovative and cheaper solutions to the market. Lastly, South Africa will not be lumbered with an infrastructure monopoly that could ultimately leave the country in a worse position than it is now. — (c) 2018 NewsCentral Media
- Duncan McLeod is editor of TechCentral