Telkom Oral Submission to the Portfolio Committee on Communications Convergence Bill 14 June 2005

Telkom delegation Nkenke Kekana - Group Executive Benitto Lekalakala - Executive Dr. Gabriele Celli - Executive Izaak Coetzee - Executive Nozicelo Ngcobo - Snr. Manager (Parliament) Keso Mbali - Snr Specialist Francois Slabbert - Snr Specialist Maphelo Mvunelwa - Specialist Kenny Pasensie - Specialist

Discussion Points Policy vacuum Licensing framework Limited time to comment Amendment of the ICASA Act Managed liberalisation Powers of ICASA Licensing framework Conversion of existing licenses Special terms and conditions for licences Interconnection and facilities leasing Competition issues

The Convergence Bill Telkom recognises the reality of convergence in content, in the technological platforms used to convey and distribute such content, and in the equipment that people use to access it Telkom recognises the necessity of legislating for convergence and supports the core objects the Bill The Bill will assist the development of the communications sector in South Africa if it creates certainty in the sector for investors, and it enhances consumer benefits through better services and lower costs of communications The Bill is primarily aimed at harmonising the regulation of infrastructure and the powers and functions of the regulator However, the Bill does not fully address content regulation, although it consolidates the regulation of broadcasting services within a single statute

Policy vacuum Major legislative initiative since the IBA and Telecommunications Acts First draft of Bill published for comment in 2003 without a Green Paper and White Paper process Many complex policy issues underlying convergence have not been debated Essential to raise and debate issues to establish broad policy principles as basis for such fundamental legislation: market liberalisation, powers of ICASA, competition issues, transitional provisions Recommendation: The PCC should allow a thorough debate on essential issues and allow the sector to contribute to the passing of good law

Limited time to comment Very tight time for comments on the Bill has been given Telkom has not had the opportunity to make detailed comments on all the provisions of the Convergence Bill

Amendment of the ICASA Act Bill contains references to an amended ICASA Act, which has not been passed Both pieces of legislation are inextricably linked and one cannot be debated without the other Transparency, stability, predictability, certainty and fairness cannot be achieved Recommendation: The Convergence Bill must be read with or after an ICASA Act A/B to provide certainty and avoid any ambiguity

Managed liberalisation Lack of a policy framework for market development Bill deviates from current policy of managed liberalisation, not yet completed Move towards convergence most appropriate in markets that have been liberalised Recommendation: A phased approach to the revision of the market structure and licensing framework is recommended

Powers of ICASA (1/3) Previous legislation: Limited independence in Telecommunications (licensing, regulations, policy directions) Constitutionally protected independence in Broadcasting Attempt to address the discrepancy not fully successful

Powers of ICASA (2/3) Enhanced powers: Requires ICASA to simply “consider” ministerial policy directions Regulations do not need ministerial approval ICASA has final say over the award of individual licences

Powers of ICASA (3/3) Impaired powers: Minister has final say over Conditions for individual licences (including broadcasting service licences) Approval of the radio frequency plan Minister need not consult with ICASA or to invite comment from the PCC before issuing a policy direction

Procedural Issues Dispute resolution processes s37,s42 (unwillingness to negotiate): parties not heard; s40, s45 (disputes under agreement): Complaints and Compliance Committee? Amendment of individual licences Licensee “consulted”, no public process unlike for new licenses or renewal Conversion of existing licences (s85) ICASA may grant additional rights and impose additional obligations. No guidance as to the circumstances or the nature of such additional rights or obligations Defining markets, market power and dominance for the purpose of competition No process or consultation stipulated

Licensing framework (1/4) The Bill proposes the following licence categories: communications network services communications services broadcasting services - (online and internet content excluded?) application services: the provision of enhanced services (e.g. VANS) radio frequency spectrum other services as may be prescribed: why? content services - defined but not included as a licence category

Licensing framework (2/4) The Bill proposes the following licence categories (cont): Individual licences: communications network services broadcasting services, radio frequency spectrum and other Class licences: for communication services, application services and other Licence exempt services

Licensing framework (3/4) Confusing and flawed framework No rationale for distinction between individual and class licences (lack of policy framework) Individual licence for all communications network services (e.g. PSTN, local broadcasting signal distributor) but class licence for all communication services (e.g. PSTS, small ISP) Recommendation: Individual licences should be issued, across all categories, for major licences with large social and/or economic impact, or where scarce national resources such as spectrum or numbers, have to be used Guidance to be provided in policy framework and/or legislation

Licensing framework (4/4) Confusing and contradictory definitions and provisions inconsistent use of "communications services" “Application services” definition points to VANS, but VANS classified as “communication services” in s85 Recommendations A major review of the licensing regime is required, together with a revision of the various service definitions, to provide consistency and clarity to the licensing framework The revision should be based on an appropriate and consistent policy framework

Conversion of existing licences (1/4) Protection of existing investment is the cornerstone of investor confidence The licensee business case on which it based its investment in the South African telecommunications market remains unchanged Conversion must take place on no less favourable terms than the existing licence terms and conditions

Conversion of existing licences (2/4) The Bill does not provide for the automatic recognition of existing licence rights and obligations and fails to provide adequate protection of investment interests An existing licensee must offer to "surrender its licence upon conversion and to be granted one or more new licenses" The licence holder is coerced, by the risk of loosing its existing rights, to relinquish such rights in return for undetermined, and possibly inferior, rights at an undetermined price

Conversion of existing licences (3/4) ICASA can, in converting licences, grant additional rights to licensees “with commensurate licence obligations”. no restrictions on ICASA’s powers licensees have no choice No indication as to the nature of the additional rights or obligations, and no guidance as to the criteria to be applied in deciding whether or not to grant additional rights or impose additional obligations

Conversion of existing licences (4/4) Existing licence types mapped: to communications service, or to communications network services to application services? from USALs, public payphone services? Ambiguity created by combining communications network services and communications facilities. No specific license exist to provide communications facilities and no conversion is required

Special Terms and Conditions for licences (1/2) The Bill proposes: Special conditions applicable to certain licensees to prevent market abuse Conditions in licence or in regulations? Authority can act unilaterally no procedural safeguards, licensees have no right to be heard Misalignment with Competition Act Conflates dominance with market power

Special Terms and Conditions for licences (2/2) Recommendation: A market in which competition concerns suggest that ex ante regulations may be necessary, must be dealt with in accordance with the principles of competition law (see e.g. EU, Malaysia, SA Competition Act): accurate definition of the relevant market accurate analysis of its non-transitory entry barriers, be they structural or statutory, and of its dynamic character, and unbiased and rigorous analysis of the market participants to assess the existence of market power Appropriate and proportionate remedies must be applied Critical framework absent in the Bill

Requests for Interconnection Criteria for determining reasonableness of Interconnection request: Technically and financially feasible Promote efficient use of communications networks Propose following amendments: Technically and economically feasible Implementable on reciprocal basis

Requests for Facilities Leasing Criteria for determining reasonableness of Facilities Leasing request: Technically and financially feasible Propose following amendments: Technically and economically feasible More efficient use of communications networks The Bill must create certainty w.r.t. international communications facility agreements. This has implications for future investments

Competition Issues (1/4) Ex ante - prevent, by regulatory intervention, potential abuse of market power: is a forward-looking intervention in potential market failure Ex post - punish actual abuse of market power: is a backward-looking intervention in actual market failure

Competition Issues (2/4) Ex ante and ex post both require: Critical market review processes based on sound economic analysis: market definition in accordance with the principles of competition law identification of market participants existence of dominance or market power Extensive public consultation, and right to be heard of persons likely to be affected Remedy proportionate to the nature of the problem

Competition Issues (3/4) The Bill empowers ICASA to act unilaterally, with full discretion over eligible markets, licensees, facilities and applicable regulatory remedies Prospective or actual licensees are given no opportunity to be heard. No procedural safeguards No hierarchy of: an investigative body, an adjudicative body, and an appeal body

Competition Issues (4/4) Competition authorities have expertise and experience in economic analysis of markets and market practices Competition authorities operate within a well defined structure and procedures ICASA has primary expertise in licensing, technology, and public interest matters in the communications industry Identification of market risks, dominance and power should vest with the competition authorities. Appropriate remedies should be decided in conjunction with ICASA

Concluding Remarks Telkom recognises the necessity of legislating for convergence and supports the core objects the Bill We need more players, more consumer benefits in an orderly and sustainable market place The Bill will assist the development of the communications sector in South Africa if it creates certainty in the sector for investors, and it enhances consumer benefits through better services and lower costs of communications We trust that the key concerns raised and the recommendations made in this submission will provide valuable input in the process moving forward

Thank you Regulatory & Public Policy Telkom Tower North Proes Street, Pretoria 012 311 7061 telephone