Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development PRESENTATION ON COST TO COMMUNICATE TO SELECT COMMITTEE ON LABOUR ND PUBLIC ENTERPRISE. BY MR THEMBA PHIRI, DDG ICT POLICY & STRATEGY 31 JULY

SOUTH AFRICAN ICT LANDSCAPE (i)  South Africa with a population of about 51m is the largest economy in Africa.  It is also the 28 th largest economy in the world.  It is classified as an upper middle income economy in Africa by the World bank.  The total since 1994 has been increasing at an average rate 3.3% with a GDP per capita of R35,905. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 2

SOUTH AFRICAN ICT LANDSCAPE (ii)  The ICT landscape is characterized by high access and usage cost, low PC ownership and weak IT literacy.  Growth in the sector is supported by the middle to high income groups who are able to pay high prices.  The high percentage of the population have been financially excluded from the Knowledge economy due to the high cost of the ICT services/prices.  The South Africa fixed line market is dominated by Telkom and Neotel the new entrant has less than 10% of the market share. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 3

SOUTH AFRICAN ICT LANDSCAPE (iii)  The Mobile market is also dominated by the two biggest operators who between account over 91% of the market share.  The internet market is characterized by high prices and low penetration.  The high prices of the Broadband services have kept penetration levels low.  The telecommunication sector is plagued with high prices for both retail and wholesale products.  In recent study conducted by Research ICT Africa, South Africa was ranked 30 th out of 46 as having the most expensive prepaid mobile tariffs among African countries Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 4

THE SOUTH AFRICAN TELECOMMUNICATIONS MARKET STRUCTURE (i)  The South African Telecommunication sector grew from about R7billion in 1992 to over R100 billion in 2009, a growth has however been masked by a number of unintended Policy and regulatory outcomes which include: -Negligible fixed line growth; -High retail wholesale prices; -Widespread job losses in the sector accompanied by super profits of incumbents; -Minimal new foreign direct investment; -Institutional inability to anticipate, regulate and mitigate these challenges; -Pricing Information are presented in a complex manner that, even the most sophisticated consumer cannot comprehend for informed decision making; Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 5

-Whilst the prepaid mobile prices have reduced to some extent, the prices are still too high; -We are convinced that the current MTR rate of 40cents is still far above the cost of an efficient operator; -The level of fair competition which is expected to contribute to stimulating further reduction in prices is slow and radical Policy and regulatory interventions are needed. -The South African telecoms market continues to reflect a market with a number of vertically integrated operators with two very strong incumbent mobile operators and a fixed line incumbent operator. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 6 THE SOUTH AFRICAN TELECOMMUNICATIONS MARKET STRUCTURE (ii)

PRICE CHANGES IN MOBILE TARIFFS, Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 7 PRICES OF MOBILE CALL RATES BETWEEN MARCH MARCH 2013 OPERATOR CALL TARIFFS OPERATORS CHEAPESTMOST EXPENSIVE On-netOff-netOn-netOff-netOn-netOff-netOn-net Off-net VODACOM MTN CELLC PERCENTAGE PRICE CHANGES OF MOBILE CALL RATES BETWEEN MARCH MARCH 2013 OPERATOR CALL TARIFFS OPERATORS CHEAPEST PACKAGE MOST EXPENSIVE PACKAGE On-netOff-net On-netOff-net VODACOM28% 9% MTN52%60% 10% CELLC60%65% 00

MOBILE AND SMS TARIFFS (ii)  Mobile retail prices are still relatively high particularly for the major network operators with SMP (Vodacom & MTN in our example).  The small operators who in total have less than 10% of the market share (CellC & others) in the mobile voice market, are more price competitive on their lowest package offering to prepaid clients.  On the other hand, the highest package price for Operators with SMP range from R2.60 – R2.89 per minute which is much higher than that of non SMP operators.  While MTRs reduced by 80% between 2010 and 2013, the most expensive packages of the SMP operators are below the percentage reduction for the same period.  Our observation is that the operators with an SMP are most resistant in passing the MTR price reductions to consumers and are mainly responsible for the high mobile voice prices in South Africa.  We strongly recommend that, tariff package information should be published in simple and clear format for the understanding of the unsophisticated consumer. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

DOC`s INTERVENTIONS TO ADDRESS THE HIGH COST TO COMMUNICATE Measures being undertaken by the DoC to contribute to the lower cost to communicate include the following:  Broadband Value Chain Analysis  Policy Directive on Price Transparency  Development of the ICT indicator Portal  Policy Directive on Premium Content  Marginal Termination Rates Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 9

DOC`s INTERVENTIONS TO ADDRESS THE HIGH COST TO COMMUNICATE Measures being undertaken by the DoC to contribute to the lower cost to communicate include the following: InterventionsTime Lines - Broadband Value Chain Analysis - Policy Directive on Price Transparency - Development of the ICT indicator Portal - Policy Directive on Premium Content - Marginal Termination Rates March March June - December 2013 June March 2014 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 10

BROADBAND VALUE CHAIN ANALYSIS  DoC is currently collaborating with ICASA conducting an electronic communications network and services value chain analysis of the South African telecommunications industry.  The purpose of the study is to analyse the broadband market identify challenges in the market propose potential remedies to address market failures.  The project implementation team consisting of Senior Manager from the DoC and ICASA are being constituted to guide and project manage the study.  The final output coming from these project will contribute to the development of various interventions that will assist in the lowering the cost to Communicate. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 11

POLICY DIRECTIVE ON PRICE TRANSPARENCY  The former Minister Pule, during the budget vote speech for 2013 announced the intention to issue a policy directive on transparent pricing as part of cost to communicate currently holding consultations with the authority the solicit support to implement the Policy Directive.  The scope of the policy directive aims to ensure that the information disclosure on the retail tariffs, costs and service quality information of the telecommunication services that include voice, sound and data for fixed and mobile services consumed are presented in simplified and transparent formats to assist end-users/consumers to make informed decision on the services they wish to consume.  Lower prices cost to Communicate and transparency in price information will stimulate competition in the market and contribute further to price reduction and job creation and economic growth in the count ry Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 12

DEVELOPMENT OF THE ICT INDICATOR PORTAL The Doc, ICASA AND STAT SA have collaborated and developed a Data Portal that gives access to timely, accurate information on ICTs. This ICT Data Portal will serve as an intelligence information centre to provide storage and retrieval of critical ICT The ICT data is populated on quarterly basis and is currently available for only this group of stakeholders use at the moment. The Co-operation received in providing information to the Portal has confirmed the willingness of the Private sector to team up with Government in developing adequate information Portal for the ICT. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 13

POLICY DIRECTIVE ON PREMIUM CONTENT (i)  The market for wholesale access to premium TV content is of increasing importance to competition in the broadcasting and electronic communications markets. This market includes in particular access to premier sports events and major movies in their first subscription TV release time window, and possibly also some premium TV content (e.g. TV content from many of the major Hollywood film studios).  Currently, experience indicates that rights to these types of content are often sold on an exclusive basis, giving the TV provider obtaining these rights a very strong competitive advantage in the pay TV sector that it can leverage into the traditional voice and broadband markets through the bundling together of these services. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 14

POLICY DIRECTIVE ON PREMIUM CONTENT (ii)  This has led to competing service providers finding it difficult to compete on an equal footing with the TV provider that has obtained these rights on a level playing field, as obtaining access depends on the market pricing, terms and conditions set by the TV provider obtaining these rights.  The Department took a decision issue a policy directive to ICASA to begin with the market definition process in order to address the wholesale and retail market, particularly the lack of effective competition and to create conditions that will contribute to ensuring that all bottlenecks can be addressed.  ICASA will continue with its on-going work to address the wholesale transmission market definition issues, this Directive directs ICASA to also recognise the wholesale market for access to premium TV content and/or the bundling in retail market definitions. The policy directive on premium content is being consulted upon within the Departmental structures after which it will be submitted to the Minister for formal consultation with ICASA in August 2013 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 15

MTR MARGINAL TERMINATION RATES  The DoC and ICASA are collaborating in conducting a comprehensive market review of the Impact of the Call Termination regulation of  The objective of this study is understand the extent to the MTR intervention has achieved its stated objective.  Necessary corrective actions will be speedily implemented from both policy and regulatory perspectives based on the outcome of the study and its recommendations to further support the reduction of the cost to communicate in South Africa. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 16

THANK YOU Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 17