Neotel’s Presentation to the Portfolio Committee on Communications on the Draft Electronic Communications Amendment Bill GG NO 30307 01st November 2007

Structure of Presentation Introduction Policy Framework of ECA Infraco Bill Ministerial Directive ICASA’s Licensing Powers Lack of Certainty Creation of parallel Licensing Regime Under-Sea Cables Conclusion Q&A Session

Notice issued on the 17th September 2007 Introduction Notice issued on the 17th September 2007 Objective of the proposed amendment Impact on Neotel - erodes business case - delay in roll-out - Impact on competition Purpose of Legislative Enactments- repeal of Telecommunications Act, Promulgation of ECA Notice issued pursuant to the deliberations on the Infraco Bill 2. the bill sought to confer on Infraco a licence, This is not within the power of the Portfolio Committtee on Public Enterprises A statutory body has been established through legislation to issue licences together with terms and conditions There is a categoric and specific piece of legislation which provides for the issuing of licences-the ECA Infraco is no exception and has to comply with these pieces of Legislation

Policy Framework of ECA Publication of White Paper Adopt a Process of Managed Liberalisation Telecoms Act - was the basis for reform - provided for Licensing of SNO ECA – progressive liberalisation of the Communications sector Objective of the proposed amendment- reduce costs of telecommunications; Universal Service and Access Improving Government Service Delivery 1.Talk about the detailed process that led to the Repeal of the telecommunications Act 2.Purpose of embarking on a manged liberalisation process- need to create a sustainable market structure 3.Why embark on progressive liberalisation instead of big bang 4.Look at the targets to be achieved by this policy implementation which includes US & Access 5. Government also seeks to improve service delivery The ECA was also intended to implement Governments policy objective of increasing competition in the sector The licensing regime in the ECA is the next logical step in the liberalisation programme The licensing structure has not as yet been implemented so how can it be concluded that there isn't sufficient competition There is a detailed process in the ECA that provides for assessing the degree of competition in the market and then concluding that there is market failure and then that there is no competition-requires a qualitative and quantitative analysis Having these provisions is pointless if without having to follow them a conclusion is reached that there is no competition and a duopoly has failed. It has been widely accepted that competition through privatisation and liberalisation initiatives in the sector together with effective regulation helps create a level playing field for new entrants and is central to a more efficient communications sector.

To facilitate the Licensing of Infraco The Infraco Bill To facilitate the Licensing of Infraco Further state owned Telecommunications service provider- is this consistent within the context of Government’s policy towards a liberalised & competitive sector Concept of “Public Entities”- is it intended to facilitate the licensing of Municipalities Provisions of section 5(d) of ECA- “state entity. ownership interest of greater than 25% of share capital…” Licensing is adequately dealt with by ECA 1.Whilst it may not be explicitly stated the amendment is to deal with providing a licence for Infraco. 2.The provisions of section 5 call upon the Authority to prescribe regulations for the application and consideration of individual licenses 3.Section 5(7) provides that the authority is mandated to prescribe regulations which set out processess and procedures for applying , registering , amending , transfering and renewing of such licences; L4.What is the purpose of seeking an amendment when the ECA already makes provision for the Licensing of such entities?

Creation of SNO Licensing Structure Policy Digression Creation of SNO Licensing Structure SNO (NEOTEL) SEPCo 51% SOECo 30% Eskom Transnet BEE 19% Nexus Connection The policy established the shareholding structure of the SNO; This was a detailed consultative process involving the respective government departments There was a clear intent on the part of the respective government divisions on what was to transpire Licensing structure created with a clear perspective of the role that the SOE’s would play.

SOE’s contribution to shareholding Effect of the contribution Policy Digression SOE’s contribution to shareholding Effect of the contribution Enabling Neotel to obtain time - to - market Introducing effective competition-ability to compete effectively New products and services Neotel not prepared to counter policy change Delay in roll-out- no long distance network 1.The shareholding of the SOE’s were strategic in that they provided Nt with the required infrastructure to operate a long distance network as well. 2.This would have given NT the required competitive edge to provide comparable and competitive services to the incumbent; 3.NT would then have been able to launch competitive products and service offerings which would benefit consumers. 4.The policy change has left NT in a precarious position, caused delay in roll-out, also impacts on the quality of service etc.

Ministerial Directive Current state participation in Licenced operators-Telkom, Vodacom, Neotel - has this had a positive impact on the licensees ability to perform in the market place Sec 3(2) of ECA – permits Minister to issue policy directives consistent with ECA - relate only to enquiries, determination of priorities and consideration of matters within ICASA’s jurisdiction, placed before the Minister Does not cover the ambit of granting, amending, transfer, renewal, suspension or revocation of Licence The amendment seeks to confer on the Minister this power to make such policy directions. 1.The state at present has a presence in various operating licences; 2. Has the states participation had an impact either positive or negative on the cost of communications 3.What are the various provisions of the ECA designed to achieve-have these provisions obtained their objective 4. Is there to be no sepeartion between the Executive and the Legislative functions of State 5. The expansive powers granted to the Minister is problematic on two fronts This suggests that there is a different licensing procedure to be adopted for these entities as compared to the provisions in section 9 of the ECA. No conditions or guidelines are imposed on the exercise of the Ministers powers. 6. Allows the Minister to effectively make Law, 7. A policy directive cannot be elevated to the status of a legislative instrument.

ICASA’s Licensing Powers The licence sought is an individual licence Infraco requires such a licence to Operate and to sell ECN services on a RETAIL OR WHOLESALE basis Needs to await the issue of an ITA by ICASA ITA needs to concisely stipulate the qualifying criteria Infraco need to comply with each of the criteria before it can obtain a licence What if it does not satisfy this criteria - Can ICASA refuse to issue a licence? The ECA clearly provides that before an individual licence can be issued it has to be preceded by an ITA. 2. Will infraco operate on the wholesale level only or at wholesale and retail 3. If at both levels then like all other licencees it will have to comply with regulatory requirements This ranges from interconnection obligations through to tariff fillings.

Power to be conferred on the Minister is vague Lack of Certainty Power to be conferred on the Minister is vague Could intervene or make any policy directions “to ensure strategic ICT infrastructure development” A delegated discretionary power- should not be so broad to the extent that it does not define the nature and scope of the power conferred This could lead to arbitrary exercise of the delegated power As drafted currently the power to the Minister is so broad that there is no limit to the steps which ICASA could be directed to take What would be the extent of the intervention by Government 2. does this not impact on investor confidence-stability in a licensing regime There has to be some constraint on the discretionary powers exercised so that effected parties will be able to know the extent to which such powers may be exercised; Such constraints usually appear from the provisions of the empowering statute as well as the policies and objectives of that statute. The amendment as proposed will result in uncertainty as to what is and what is not permitted in the ECA as the Minister could at any time authorise an intervention.

Creating a Parallel licensing Regime Amendment creates a separate licensing regime for “public entities” to the disadvantage of private operators No basis in the ECA for licensing procedures to be different Objective of the ECA is to eliminate differences and preferential treatment Sentech, Telkom and SABC are also “Public Entities”- they can be licensed on a separate basis in terms of this policy directive What is the scope of the definition of a “public Entity” Is it envisaged that there is an alternate licensing regime for public entities as compared to other licenced entities-what is the basis of the preferent licensing regime ECA intended to do away with preferential treatment in relation to licencees Definition of “Public Entity”- is it as per PFMA or is there an alternate definition? Are municipalities covered in the definition?

Under-Sea Cables vs Infraco Infraco to be part of the Nepad broadband initiative to link Africa with Latin America & Europe Ministerial intervention on private cable development initiatives Impact of such intervention - Foreign direct investment/investor confidence

Recommendations Infraco may not have a preferential licensing regime-has to follow process set out in sec 5 of ECA Will have to apply for an individual licence pursuant to an ITA ITA to stipulate criteria to be complied with Criteria to include technical, financial and empowerment criteria to be evaluated Publish draft terms and conditions that will be applicable to the licensee ICASA is required to give notice of the application (sec 9) Allow for public representations-in the interest of transparency and non-discrimination

Conclusions Further state-owned operator unlikely to achieve the desired objectives Establishment of Infraco militates against competition-undermines Neotel’s efforts t establish itself as a viable competitor The amendment is far to vague, broad and uncertain- impacts on investor confidence Blurs the distinct roles of executive and legislative branches of government Creation of a separate licensing regime for “Public Entities”

THANK YOU

QUESTIONS AND ANSWERS SESSION