What must be done to fix Icasa - TechCentral

What must be done to fix Icasa

Alan Knott-Craig

[By Alan Knott-Craig] In the world of telecommunications, you get awful regulators and you get bloody awful regulators.

Fortunately, SA has only had awful regulators. The US, Europe and other unfortunates have had bloody awful regulators.

In the US, they destroyed one of the greatest companies in the world and issued hundreds of wireless licences with too little spectrum. In Europe, they managed almost to bankrupt credible telecoms operators with horrendously high 3G licence fees and naïve roll-out obligations.

The recent debacle over mobile interconnect tariffs in SA yet again illustrates the importance of having a properly functioning regulator, in this case in the form of the Independent Communications Authority of SA (Icasa).

It is easy simply to blame Icasa or anyone else within firing range for the current interconnect fiasco. It is particularly easy for government to blame all and sundry. The mere fact that it has yet to be resolved, despite all the finger pointing and involvement of heavyweights, simply illustrates the inadequacy of the current regulatory structure.

So I have a suggestion which I believe could radically improve Icasa’s effectiveness in future and which would avert issues such as interconnect before they become nasty public spats in the future.

The core of my suggestion is that Icasa must be run along the lines of a business. It must adhere not only to sound business principles, but also to codes such as King III. For that to happen, Icasa cannot report directly to government. Reporting directly to government means it will be subjected to the populist political pressure of the day and will find it difficult to act independently and consistently, and with the intelligent and objective consideration of matters before it.

Though I believe that this can as easily apply to Icasa’s responsibilities in broadcasting and postal services, this article primarily deals with telecoms.

Step one is to be clear about what Icasa is mandated to do.

What Icasa is not is a consumer watchdog in a competitive environment. That role falls to the Competition Commission and the Competition Tribunal.

The authority’s sole mandate should be to ensure that the industry functions as efficiently as possible, that government policy is carried out as effectively as possible, and that operators adhere to their licence conditions. In the absence of clear government policy, it is not for Icasa to assume the role of policy-making.

But there is no reason why it should not try to ensure the efficient functioning of the telecoms industry at all times. By efficient functioning, I am referring to the most optimal use of resources under its control, such as spectrum, as well as issues such as interconnect which affect the cost structure of the industry.

Effectively carrying out government policy would include the issuing of licences, with any obligations considered necessary by the government.

Icasa also has a responsibility to the shareholders of operators insofar as it cannot be blind to the legitimate expectations of these shareholders when it comes to a return on their investment. Should the authority not consider a priority, it will have nothing to regulate since investment will dry up and the infrastructure will simply deteriorate and disappear.

Icasa must also create an environment where new players and their investors can enter a market that provides certainty.

It is not for the authority to judge what the market can bear in terms of the number of players in a market. That is for the shareholders of would-be players to consider.

But it most certainly is Icasa’s responsibility to ensure that when a new player does enter the market that that operator has enough resources, such as spectrum, without compromising the operations of existing operators. Since most of the resources are limited, it is incumbent upon the authority to ensure all players use these resources efficiently or return underutilised resources for reallocation.

It also means that in an industry where resources are limited, the number of players who depend on those resources will be limited. That means that when available resources have been depleted and efficiently applied, there can be no new entrants, or at least not until an incumbent exits the market.

This is not an unreasonable mandate, as long as Icasa is properly resourced and governed.

The most fundamental resource is money. Money will enable the authority to secure the services of seasoned executives and experts as well as the equipment and support structures that these people will require to do their jobs properly.

I would suggest that Icasa is funded purely from licence fees, and that government only receive the normal tax on profits and dividends of operators, including other “normal” taxes such as value-added tax and import duties.

Any excess funds it doesn’t use from licence fees should then be paid over to government by way of a dividend.

The above is the easy bit — only requiring government to treat the telecoms industry as it would any other in terms of taxation.

The difficult bit is the governance necessary to make such a structure work properly. To this end, I would suggest a board of directors, as one would find in any private company or commercialised state-owned enterprise.

It is critical that the composition of such a board adhere to the recommendations as set out in King III. It is essential that nonexecutive directors be independent and have the necessary experience and expertise to carry out their fiduciary duties, which would include ensuring that Icasa carries out its mandate properly and expeditiously.

Such directors cannot be political appointees. They must be sourced from both SA and other countries. Clearly the government, as sole shareholder, will have to approve such appointments. But it should do so in good faith.

Icasa itself should then be structured as any well-managed company would be. It should have:

  • A competent board-appointed CEO who can face up to the current operators with confidence born of character, knowledge and experience;
  • A board-appointed chief financial officer who can ensure proper financial discipline;
  • An internal audit division to ensure that corporate governance is always above reproach; and
  • World-class technical, legal and economics divisions.

In other words, it should have the things any normal company would have if it wants to be successful.

In 2007 Icasa received R190m in funding. The mobile operators alone have a joint turnover of nearly R100bn. Icasa never had a chance.
Under my proposal, I believe Icasa should have a budget of closer to R3bn. That would allow it to build respectable capacity and attract serious talent to run the show.

And the interesting thing is that the operators would benefit with clear and consistent regulation, consumers would benefit due to a more efficient system, and government would probably earn more in taxes due to less wastage and better financial performance by the operators.

And the current interconnect circus would never have come to town.

  • Alan Knott-Craig is former CEO of Vodacom Group

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4 Comments

  1. Sorry, but this like having the man who stole your horses come back with advice on how to build a better barn door. From my perspective Alan Knott-Craig has forfeited his right to offer this sort of advice. ICASA may be awful but companies like Vodacom have conspired to make it worse by bombarding it with litigious delays, obfuscations, and other legal interventions all aimed at resisting change and especially resisting new competition.

  2. @ Steve: Agreed, however all companies have to maximize profit. It is their duty to their shareholders and it is the only yardstick by which we can judge them in a monetary system. Business ethics is an oxymoron in this system. As we all know, the best way to maximize profit is to create monopoly and create barriers to entry- companies do this by amongst other things political lobby for protective legislation, technological unemployment and rarely…..innovation. Alan should not really be blamed for his past… he was working in the only way he and most of us know how in this monetary system. BUT maybe there is a system where there is not the corrupting influence of money. Check out thevenusproject.com and thezeitgeistmovement.com to find out more about what’s possible 🙂

  3. Matthew French on

    One minor observation: many if not all the 3G licenses in Europe were sold by auction, so the operators determined the price of a license. Not sure how the regulators can be blamed for the operator’s dot-com fueled exuberance.

  4. Agree with Mr. Steve Song. If you read a book ” Fat cats and running dogs” about Enron, the case of Alan Knott-Craig becomes clear. And no surprise that he wants to run ICASA as a business. Would R 3 billion in budget give ICASA a muscle against big guns? If Alan Knott-Craig sits in ICASA that doesn’t matter. What ICASA is supposed doing doesn’t take R 3 billion to do. I remember listening to Radio 702 interview with Mr. Alan Knott-Craig in which he battled and managed not to disclose the real cost of interconnecting. To the direct question about the real cost of interconnecting, he said that all information is publicly available. I felt it as a slap in the face. Obviously, he doesn’t understands his role as the regulator of communication sector moraly obliged to disclose full information to public, but to protect “fat cats”.
    When we know where he is coming from, we know what the answer is. He is “running dog”. Again, read “Fat cats and running dogs”. It is an eye opener.