Fears over government spectrum plans

Concerns are growing in the telecommunications industry that government plans to abandon the nearly universal model of auctioning off precious radio frequency spectrum. By Duncan McLeod.

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Concerns are growing in the telecommunications industry that government plans to abandon the nearly universal model of auctioning off precious radio frequency spectrum to private-sector operators, instead allocating it to a single wholesale provider in which the state has significant input.

The decision, on which tens billions of rand of future investment by the telecoms sector is riding, looks set to determine the competitive shape of the industry for decades to come. The decisions will have a direct impact on how widely broadband gets deployed, including in underserviced areas, and how much consumers will pay to access the Internet.

Government was set to outline its plans for spectrum in the key 700MHz, 800MHz and 2,6GHz bands as early as this week as it prepares to publish the integrated national ICT policy white paper, a precursor to legislative amendments that should help modernise the policies that govern the sector in South Africa. However, a delay now looks likely as the white paper is still being debated in cabinet committees.

Siya Qoza, the spokesman for telecoms minister Siyabonga Cwele, said the licensing of spectrum can only proceed after the finalisation of the policy by cabinet.

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Cell C CEO Jose Dos Santos

The white paper process is meant to address policy gaps that were identified in government’s broadband policy, South Africa Connect, and in the integrated ICT policy review, said Qoza.

“The spectrum policy is part of the policies that are being finalised. It is hoped that [the spectrum policy] will be finalised in a manner that ensures that this scarce national resource is allocated [in] such [a way] that we achieve national objectives that include ensuring universal access, affordability and transformation.”

But some operators are expressing concern privately that government plans to introduce a model in South Africa that diverges from the one adopted by many other countries. A big concern is that instead of allocating spectrum at 700MHz, 800MHz and 2,6GHz to private operators through a competitive auction process managed by communications regulator Icasa, government will decide how it will be allocated, using administrative processes. This would be much more susceptible to manipulation and corruption.

A worry is that government will hoard the spectrum or hand it over to a single wholesale provider, in the process doing away with the infrastructure-based competition that has been the hallmark of the industry since the mid-1990s.

Cell C is the only big mobile operator that is in favour of the creation of a wholesale national network. Its CEO, Jose Dos Santos, said spectrum should be pooled for efficiency.

“Cell C continues to support the establishment of a national broadband network to provide wholesale access to all operators and service providers to the benefit of consumers,” Dos Santos said.

MTN and Vodacom are against the idea, favouring the auction of spectrum as well as infrastructure competition.

South Africa will be left behind if additional spectrum is not released

MTN South Africa CEO Mteto Nyati said there is “significant research and literature from independent experts that indicate that an auction is the most optimal approach for a regulator to take when licensing spectrum”.

“In a competitive market, spectrum auctions are a viable mechanism to ensure that spectrum is used as effectively and efficiently as possible [by] those that are the eventual winners of the auction,” Nyati said.

Auctions are more transparent and are not subject to disputes and litigation, he added.

MTN South Africa CEO Mteto Nyati

MTN South Africa CEO Mteto Nyati

Dos Santos said access to additional spectrum is imperative for economic and social growth.

“Already operators abroad are rolling out next-generation technologies and South Africa will be left behind if additional spectrum is not released,” he said.

“Operators cannot effectively roll out next-generation technologies such as 4G and 5G without this spectrum. In addition, South African consumers will not experience the benefit of future devices and new products and services when launched globally if we cannot support these new technologies. This will prohibit innovation and South Africa will not be able to compete globally.”

  • This piece was first published in the Sunday Times

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  • Ofentse Letsholo

    Man the delays and delays and delays… Every year there’s always a delay when it seems like things are moving forward. One can only hope for the best I guess :-/

  • Joe Black

    We cannot have nice things, because we could not have nice things, because we could not have nice things, because we could not have good governance.

  • Ferdi

    Our government time and time again has to explore the wrong avenue first, like tourism and extended birth certificates, and too many others to mention before realising that everybody was actually correct in their criticism, and then try to make a U turn, or maybe it’s already allocated to the Guptas?

  • Co

    First thing that struck my mind as well when I saw the intro – GUPTAS!!

  • Marcan

    Maybe the main reason that Cell C is in favour of a national wholesale network and against an auction for the new frequencies, because they simply do not have the financial resources. They already are till the neck in debt, and will find it very difficult to raise new heaps of cash to buy spectrum for the new 4G and 5 G technologies.
    But we need the smaller operators like Cell C to keep the BUTs, the Big Ugly Telcos, who were in the past colluding, fixing their prices in check,

  • Ferdi

    This is one time that I really pray that I am wrong as no U turn will be possible….

  • Hitting Thefan

    All about looking at ways to make money for themselves and there friends!

  • Ferdi

    What I read between the lines:
    Concerns are growing in the telecommunications industry that government
    plans to abandon the nearly universal model of auctioning off precious
    radio frequency spectrum to private-sector operators, instead allocating
    it to a single wholesale provider(Telkom or Gupta’s) in which the state has significant(continuous)
    input/share(in order to be in a permanent position to re-allocate spectrum according to the agenda of the day be it Guptas, political gain, nepotism, BBBBEEE or simply regular increases to the benefit of state coffers as and when needed).

  • Ferdi

    I think Cell C as relatively young kid on the block, may just still be a bit naive in the ways that business gets done in this country. I have followed their “near” sale to Telkom who wanted to grab the whole pie while Cell C was actually just looking to restructure their debt to a more stable ZAR in a local sense, and it seems their primary backing has access to some considerable resources when and if needed but that will make them vulnerable to an uncertain US$ based debt again from a local perspective. Remember how Vodacom started off selling prepaid recharge vouchers in ZAR vs US$ denominations like R12?

  • tmc Faber

    IT would seem more like the Government doesnt want South African consumers will to experience the benefit of future devices and new products and services when launched globally if Operators cannot support these new technologies. IT(Government) also does not seem to want innovation and South Africa will not be able to compete globally.

  • Ofentse Letsholo

    And what is sad is that the very same government wants all South Africans to be connected by 2020, that’s a dream that will never happen if they keep on doing this.

  • It is not obvious that spectrum auctions are the best way to assign spectrum. They are notoriously difficult to design well. Attempts to create incentives for new market entrants and/or to promote rural access as part of the auction design often do not achieve the intended outcomes. They are often subject to challenge from incumbents if they see a likelihood of not getting what they want or worse a competitor getting something they don’t want them to have. It is also quite hard to ensure that corruption and bribery are not a factor. The Indian 2G auctions are a classic case of this. Not to mention the fact that the huge sums now paid for spectrum are an effective tax on the consumer ulimately.

    Wholesale wireless mobile networks are largely untested with Rwanda and Mexico being the only countries that I am aware of who are trying this in the 700/800MHz bands. That does not mean they are a bad idea however although given the lack of evidence on outcomes, it may be worth having a back-up plan for this strategy.

    Then there is Morocco. In March, the Moroccan regulator, ANRT, made a massive assignment of spectrum to all the major operators making spectrum in the 800MHz, 1800MHz, and 2600MHz bands available to them. This has the significant downside of not creating space for new market entrants but, on the other hand, it gets spectrum out there and a ‘use it or lose it’ or even a ‘use it or share it’ policy could be used as a safeguard.

  • William Stucke

    Oh, come, on Steve. That’s rather like saying democracy is a bad way to run a country. True, but it’s WAAAY better than any of the alternatives.

    With hundreds of spectrum auctions having been conducted around the world, there are plenty of experts to guide one in doing it, and doing it well. As the Indian experience, amongst others, shows, the alternatives are far too erratic and corruption-prone to be viable.

    Wholesale wireless networks are still experimental, true .

    Don’t talk to me about Morocco. I just got back from there a week or so ago (DNS Africa Forum & ICANN 55) I was so unimpressed with their illiberal approach that the one person that I DIDN’T introduce myself to was their Regulator

    The real problem we have here is that our beloved Government has spent the last 8 years obstructing the release of High Demand Spectrum. I suspect that not even they know why!

  • Anthony Bingham

    Everything this rotten ANC government touches eventually turns to sh!t.

  • kuli

    This model could work if it is driven by the industry players and not by the government. The industry should decide in what proportions they will invest/operate the wholesaler. If it’s left to government we will be sitting with another Telkom.

  • Sonic2k

    Delayed, because they are discussing who will get what out of the deal, and whether the Guptas will be involved.

  • The democracy analogy doesn’t hold as spectrum auctions are a comparatively recent phenomenon. Their biggest downside of spectrum auctions, as currently conceived, is that they entrench the notion of property rights when it comes to spectrum. This will not stand the test of time as demand for spectrum increases. The PCAST report in the US puts out a much better model which awards the “right to protection from interference” as opposed to spectrum exclusivity. In Canada, attempts to create spectrum set-asides in auctions to encourage new market entrants has largely failed.

    A well-managed wholesale network with the right incentives could work but obviously the devil is in the details. Morocco may be autocratic but at least they have got the spectrum out there. Maybe there is room for a hybrid model where the incumbents get some of the spectrum and some of it is made available via a wholesale network to all registered iECNS license holders. Perhaps all players who get spectrum awards are obliged, in exchange, to carry the the radios of the wholesale network on their towers.

  • Konstabel Koekemoer

    Exactly right Marcan, this is the only reason Jose is opposing the auction.

  • Konstabel Koekemoer

    It is obvious that the current majority shareholder does not want to sink any more cash into Cell C, why else would they accept to have their Shareholding significantly diluted through the Blue Label deal.

  • Ferdi

    Sinking more cash from outside the country into a business that has no immediate, clear intentions of expanding abroad(thus earning foreign currency) will expose Cell C hugely to a fast and constantly devaluing ZAR, so decisions needs to be made based on the long term strategy of the company in a local sense. First will be to detach yourself as far as possible from foreign debt. I would personally rather own 70% of a hugely successful company which may become dominant over time in a given market, than 100% of one going nowhere. But I am also sure that investors will protect their investment if pushed to a point where the long term survivability of the company comes at stake. On the other hand it could also be seen as a form of dis-investment from the side of Oger Telecom, if they have a very pessimistic long term view on the value of the South African economy and the ZAR as a whole.
    I m not privy to their internal reasoning and longer term goals, so these are only my superficial opinions.

  • William Stucke

    Haven’t I shared my High Demand Spectrum auction proposals with you? I have put together a scenario that makes provision for:

    1 The incumbents, with coverage obligations a la Germany (800/2600 MHz)
    2 New national infrastructure competitors (700/2300/2600 MHz)
    3 New regional infrastructure competitors (3.5 GHz)
    4 A wholesale national network (800/2600 MHz)
    5 New national (or regional) services competitors.

    While not exactly one happy family, there is sufficient spectrum available to accommodate all the above. Plus a bit spare.

  • No you haven’t. Would love to see the whole thing.

  • Andrew Fraser

    It does require, however, that there is some spectrum in the 800MHz band available to assign…

  • tongue in cheek

    ditto

  • William Stucke

    Well, Andrew, as per ICASA’s published Frequency Migration Plan 2014, which is coordinated with all neighbouring SADC countries and via the ITU, there is a significant amount of both 800 MHz and 700 MHz spectrum to become available. This does, of course, presuppose that Government becomes “officially” aware of the requirement for a second, digital to digital migration, and budgets accordingly. Yes, I know that they know about it, because I (and others) have told them. However, I’m not yet aware of any budget put to this purpose, nor any official statement from either Minister.
    Maybe I just haven’t been paying attention since I left ICASA? I hope so.