Click to edit Master subtitle style 9/9/11 Presentation to the Select Committee on Labour and Public Enterprises 7th September 2011 ICASA 11

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 22

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 33

9/9/11 Mandate of ICASA Vision: – To advance the building of a digital society. Mission: – To ensure that all South Africans have access to a wide range of high quality communication services at affordable prices. 44

9/9/11 Object of the ECA Section 2: The primary object of this Act is to provide for the regulation of electronic communications in the Republic in the public interest and for that purpose to— (a) promote and facilitate the convergence of telecommunications, broadcasting, information technologies and other services.... (b) promote and facilitate the development of interoperable and interconnected networks, the provision of the services.... and to create a technologically neutral licensing framework (c) promote the universal provision of electronic communications networks and... services and connectivity for all (d) encourage investment, including strategic infrastructure investment, and innovation.... (e) ensure the efficient use of the radio frequency spectrum (f) promote competition within the ICT sector (n) promote the interests of consumers with regard to the price, quality and the variety of electronic communications services (y) refrain from undue interference in the commercial activities of licensees....

9/9/11 The new regulatory approach Future regulation should focus on:  encouraging market entry  responding to developments that inhibit effective competition Ex ante regulation only for entities with SMP Speedy and transparent investigation of complaints Pro-active compliance monitoring and market surveys Where competition is effective and sustainable, regulation should be withdrawn Continued need to allocate scarce resources and ensure social obligations are met

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 77

9/9/11 Mandate to focus on fair prices Government Policy is to ensure fair retail prices through promotion of competition – Competition Act of 1998 – Electronic Communications Act of 2005 Implementation of policy: – Evaluate bottlenecks to competition – Such bottlenecks are prevalent in supply chains, e.g. cement, bread etc 88

9/9/11 Promotion of fair prices under the ECA Authority may regulate prices where: – There is a lack of effective competition in a particular market – There are barriers to competition in entering/competing in the particular market What must the Authority do? – Evaluate the value chain over which retail services are provided – “Regulate away” bottlenecks to fair competition 99

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 1010

9/9/11 Call Termination and Retail Prices Retail Price consists of three components: – Cost of originating a call – Cost of terminating a call – Mark-up If any of these are artificially high, retail prices are artificially high Why focus on the cost of termination? – Only cost element not controlled by the service provider (off-net calls)

9/9/11 Interconnection rates “Moral Suasion” approach Market Review Wholesale Call Termination Regulations Glide Path – March 2011 – March 2014 Effects – wholesale rates have an indirect effect on retail rates 1212

9/9/11 Step 1: End-user A starts a call to End-user B Step 2: Network A routes the call through its network to End-User B End- user A End- user B Network A OriginationTermination Outcome: Network A completely controls retail price On-net calls and termination

9/9/11 End- user A End- user B Network A Network B OriginationTermination Step 1: End-user A starts a call to End-user B Step 2: Network A routes the call to Network B Outcome: Network B has an impact on the retail price Step 3: Network B routes the call to End-user B Off-net call and termination

9/9/11 What has the Authority found Call termination rates are set at excessive levels Ability to compete is hampered by existing commercial terms in interconnection agreements – High bank guarantees – High minimum monthly traffic requirements

9/9/11 Regulation Reduce termination rates Mandate change in access conditions, i.e. remove restrictive terms of trade for new entrants Outcome: – Networks now have more control and ability to charge lower retail prices – Do not face high barriers to entry/operations – Networks may now effectively compete on price

9/9/11 Impact of Call Termination regulations Access conditions: – MTN & Telkom have removed requirement for up- front bank guarantees – MTN, Telkom and Vodacom also now offering IP- based interconnection, indicating modernisation of networks Competitive landscape: – Smaller licensees report increase in call volumes and customer acquisition based in part on the reduction in call termination rates Retail prices: – Retail call fees from fixed to mobile have reduced by the reduction in termination rates – Some reduction in mobile to mobile calls

9/9/11 On-net peak hour rates (pre-paid packages) 1818 Process StartGlide Path

9/9/11 Retail prices & reduction in termination rates 1919 Mar-2011Apr 2011May-2011Jun-2011Jul-2011Aug-2011 Cell C – customers who make R50 worth of recharges in a week receive an extra 500MB data, 50 bonus SMSs and 50 Cell C to Cell C mins Cell C also offers R25 airtime “welcome bonus” to new customers who subscribe before 15 July Telkom new tariffs became effective from 01 Aug 2011 Telkom 8ta launch per second prepaid billing on 15 May 2011 New termination rates came into effect on 01 Mar 2011 MTN introduced free incoming calls and SMSs for both post-paid and prepaid customers travelling in the South & East Africa region Neotel – voice calls to MTN and Vodacom phones will now cost 95c/minute during peak hours and 85c/minute in off-peak times. Voice calls to Cell C and 8ta cost R1,20 at peak and 96c at off-peak. VC and MTN confirmed that they have no plans to cut retail prices as a result of reduction in the wholesale rates Vod launch Airtime Advance – allow customers to take R10 airtime in advance. Vod debits customers account with R10 and R1 service fee from next recharge VC customers who recharge with R29 or more. “Night Shift” allow prepaid customers to talk for free for 60 mins between midnight and 5am for one week

9/9/11 Trends in overall Telecoms Prices % reduction in retail prices

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 2121

9/9/11 Approach to Broadband 1. By September 2011: Broadband Colloquium with Stakeholders 2. Establish an ICASA, Industry sector and nationwide broadband committee 3. Finalise and publish Local Loop Unbundling ( LLU) framework by November By March 2012: Identify possible bands for additional 500 MHz spectrum for broadband wireless access 5. Promote the sharing of infrastructure for the provision of broadband services 6. Improve coordination of infrastructure initiatives between Local and Provincial Governments, and the Broadband Inter-Governmental Implementation Committee 7. Identify hindrances to broadband penetration and propose corrective measures 2222

9/9/11 The 4 Regulatory factors that affect broadband penetration and take-up Infrastructure sharing Removal of Barriers to network rollout Spectrum allocation Digital Dividend ICASA will facilitate access to the local loop by November 2011 ICASA will develop a framework for infrastructure-sharing between licensees ICASA will assign & release all available spectrum for wireless broadband ICASA will explore the opportunity for three possible digital dividends for wireless broadband: MHz MHz (WRC-12/15) white space spectrum There are barriers to network rollout at local level, e.g. EIA’s, municipal regulations etc. ICASA will identify hindrances to broadband penetration and propose corrective measures Successful broadband penetration and take-up Local Loop Unbundling

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 2424

9/9/11 Broadband Infraco Licences Ministerial Directive6 February 2009 ITA13 March 2009 Application by BI14 April 2009 Hearings29 June 2009 Consideration by ICASA Decision: -20 January 2010 – Grant Individual ECNS Licence – Deny Individual ECS Licence Reasons Amended Policy Directive17 May

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 2626

9/9/11 Litigation 2727 Cases BroughtCases SettledWithdrawnReferred to CCC High CourtCases Cape Town1 South Gauteng2 Bloemfontein1 Current Cases

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 2828

9/9/11 Types of Complaints 2929

9/9/11 Complaints by Province 3030

9/9/11 Complaints per Licensee 3131

9/9/11 Agenda Mandate of ICASA Implications of legislative framework Fair prices and competition policy Interconnection Rates Approach to Broadband Broadband Infraco Licence Litigation Complaints received Interests of the Poor Future initiatives to reduce the cost to communicate 3232

9/9/11 Interests of the Poor Universal Service and Access Licensing Framework Consumer Protection Community Licences Reduction in the cost of Communication 3333

Click to edit Master subtitle style 9/9/11 Future initiatives to reduce the cost to communicate 3434

9/9/11 Approach to reducing the cost to communicate Reduce of the cost of supply of inputs faced by licensees: – Infrastructure sharing – Engage DoC on rapid deployment guidelines Reduce cost of services paid by end-users – Principle of fostering competition to: Drive innovation Drive down prices – Market reviews (Chapter 10) 3535

9/9/11 Mechanisms to reduce cost of services paid by end-users The Authority may introduce – “price controls, including requirements relating to the provision of wholesale and retail prices” if found necessary (S67.7(h)) A price control can only be introduced if the relevant market is ineffectively competitive The Authority MUST conduct market reviews to establish the need for price controls 3636

9/9/11 The process of a market review Identify relevant market Establish whether the market is effectively competitive Identify licensees with significant market power Determine remedies to address market failure Conduct regulatory impact assessment on identified remedies Develop cost model to set prices Implement regulations 3737

9/9/11 Challenges in conducting market reviews TIMELINE: minimum of 2years CONSTRAINTS: – Budgetary: Market review, RIA & cost model may cost over R 3 million each! – Skills: ICASA does not have skills to – effectively conduct market reviews – Conduct RIA – Develop cost models Local suppliers do not have skills to: – Conduct RIA – Develop cost models 3838

9/9/11 Thank You 3939