Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development COST TO COMMUNICATE IN SOUTH AFRICA TO THE PORTFOLIO COMMITTEE ON COMMUNICATIONS. BY MR THEMBA PHIRI, DDG ICT POLICY & STRATEGY 29 NOVEMBER

POLICY AND LEGISLATION (I) The Mandate of the Department of Communications, derived from relevant Legislation, is as follows:  “To create a vibrant ICT Sector that ensures that all South Africans have access to affordable and accessible ICT services in order to advance socio-economic development goals in support of the African Agenda and contribute to building a better world”. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 2

POLICY AND LEGISLATION (II)  The Minister can make policy and issue policy directives to ICASA under section 3 of the ECA on the following:  Spectrum;  Universal service and access;  Guidelines for determination by ICASA of licence fees including incentives that may apply to individual licences where the applicant makes binding commitments to construct electronic communications networks and provide ECS in rural and under-serviced areas;  Mechanisms to promote the participation of SMME`s in the ICT sector; Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 3

The ECA makes provision for defining ICT markets;  Identify the retail and wholesale markets or markets segments in which it intends to impose pro competitive measures;  Set out the methodology to be used to determine the effectiveness of competition in the ICT markets or market segments; Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development POLICY AND LEGISLATION (III) 4

POLICY AND LEGISLATION (IV)  Set out the pro-competitive measures the Authority may impose in order to remedy the perceived markets failure in the markets or markets segments;  Declare licensees in the relevant market or market segments, as applicable, that have significant markets power;  Set out a schedule in terms of which the Authority will undertake periodic review of the markets and market segments;  Provide for monitoring and investigation of anti-competitive behaviour in the relevant market and market segments. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 5

HISTORICAL CONTEXT  Improved and less expensive electronic communications services were recognized by the DoC as key levers that can enhance South Africa’s international competitiveness and support the achievement of its economic and social goals.  Despite the progress that has been made to date, there is considerable evidence that the country’s telecommunications sector still lags well behind international standards, even compared to other countries at similar stages of development.  The DoC therefore decided to address this challenge by commissioning the B-MIT to conduct an International Peer Benchmarking Study on South Africa’s ICT Sector in 2009, with specific focus on the following :  telecommunications voice, data and broadband services and product prices at  international, national, retail, business and residential levels in  South Africa, Brazil, Chile, Korea, India and Malaysia to assess its relative performance in respect of  Cost, usage, access and quality. 6 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

HISTORICAL CONTEXT CONTD.  The key objective of the study is to:  Develop convincing and comprehensive evidence, based on global experiences and comparisons with the selected five countries and South Africa regarding performance of the telecommunications sector.  Formulate recommendations for short to long-term interventions to improve the ICT sector’s performance and overcome any challenges identified. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 7

CONCLUSIONS OF THE STUDY & PoA ON COST TO COMMUNICATE  The key conclusions of the study amongst other include:  South Africa expensive for fixed local access  South Africa fixed lines connectivity is declining year-on- year.  South Africa has most concentrated mobile market  South Africa has relatively high mobile penetration  South Africa has lowest mobile usage which are also expensive  Wholesale fixed and mobile termination rates are expensive in South Africa  The results of the study led to the development of Programme of Action on Cost to Communicate (PoA) which has been revised to accommodate changing circumstances. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 8

INTERCONNECTION REGULATIONS  Concerns about South Africa’s high cost to communicate from all sectors of society got to its climax in 2009 with the PCC’s public hearing on the matter. This contributed to some extent to:  The first MTR voluntary reduction from a peak mobile rate of R1.25 to 89 cents per minute facilitated through negotiations between ICASA and the telecom operators by the then Minister, General Nyanda.  ICASA later on issued its MTR Regulations in Government Gazette notice number 1015 of 2010 and imposed pro-competitive measures on the markets for mobile and fixed wholesale call termination services after following the required process and published a glide path MTR reduction. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 9

REGULATED GLIDE PATH TERMINATION RATES  From 2011 to 01 March 2014 any licensee which is identified in regulation must charge the wholesale voice call termination rates to a mobile according to the table below: Peak Off Peak 01 March March March  Call termination rates to a fixed location must be charged according to the table below: Peak Off Peak (within on area) 01 March March March Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 10

REGULATED GLIDE PATH TERMINATION RATES (II)  Call termination rates to a fixed location must be charged according to the table below: Peak Off Peak (between on area code) 01 March March March Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 11

POLICY INTERVENTIONS  In view of the dynamic nature of the Telecommunications market, Government policy needs to evolve and be amenable to the changing market conditions;  The Department has therefore reviewed and revised the PoA on cost to Communicate as shown in the slides below. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 12

REVISED PROGRAMME OF ACTION (I) OBJECTIVES  Monitor and evaluate changes in wholesale and Retail Prices of fixed and mobile. telecommunications services and their impacts on Retail Prices and average calling time. ACTIONS  Develop a monitoring plan.  Implement and monitor the plan.  Measure the impact of MTR reduction on retail prices.  On average calling time in SA from 2010 to date (in progress) Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 13

PROJECTS  Monitor the implementation of the Facilities Leasing Regulation, No ACTIONS  Develop a monitoring plan  Implement and monitor the plan.  Prepare a report with recommendations on the achievement of the objectives of the regulation. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development REVISED PROGRAMME OF ACTION (II) 14

REVISED PROGRAMME OF ACTION (III) PROJECTS  Develop and national standard ‘basket’ of monthly telecommunications services consumption and benchmark the cost of the standard basket in selected OECD countries. ACTIONS  Design and develop a methodology for building representative composite services to include in the basket.  Update of the basket as usage patterns change so as to measure the telecommunication services usage  ICASA consults with key stakeholders including the operators to determine the contents to be included in the basket.  ICASA develops the model of the ‘basket’ of services.  ICASA to develop services to be included in the CPI basket in order to customise the basket to be telecoms-relevant (specific). 15 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

REVISED PROGRAMME OF ACTION (IV) OBJECTIVES  Review ECA and licensing conditions to ease barriers to entry in a manner that reflects current realities without disadvantaging new entrants.  Effect legislative or institutional changes to tighten coordination between Competition Commission and ICASA & avoid 'forum shopping'. ACTIONS  Amendment of the ECA in progress.  In progress under ECA review.  ICASA and CC to review and finalise their MoU in the light of the implementation bottlenecks being experienced Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 16

REVISED PROGRAMME OF ACTION (V) OBJECTIVES  Review the Electronic Communications Act to increase the effectiveness of USAASA and ICASA in advancing government’s strategic intent.  Finalise the revised national broadband policy aligned to vision 2020 in consultation with provincial and local government and key government departments. ACTIONS  Review of ICASA Act is in progress (include regulation of wholesale and retail prices, national roaming).  Consult stakeholders on the revised broadband policy.  Obtain approval for the revised broadband policy.  Develop implementation plan for the revised broadband policy Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 17

REVISED PROGRAMME OF ACTION (VI) OBJECTIVES  Facilitate and support the rollout of broadband infrastructure programmes and ensure that it is accessible and affordable.  Promotes prepaid Broadband/internet subscription.  Explore the application of a broad-band incentive to encourage private sector infrastructure investment prioritising rural and under- developed areas through the Universal Service Access Fund ACTIONS  Develop the strategy which gives guideline to the 2020 vision.  Implement the broadband implementation strategy  Conduct Research to determine prices of services and access.  Implement recommendations  Monitor and report on implementation  Develop strategy and implementation plan to promote mobile internet applications. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 18

REVISED PROGRAMME OF ACTION (VII) OBJECTIVES  Design incentives to encourage investment in local innovation and R&D capabilities by operators.  Support the implementation of the DST ICT R&D Innovation roadmap. ACTIONS  Develop strategy and implementation plan to promote mobile internet applications.  Increasing training and investment in application development Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 19

MOBILE AND CALL RATES PER MINUTE AS AT 25 NOVEMBER 2012 (I) Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development Operator VODACOM Prices Charged per MinuteProductsOn-net mobileOff-net mobile LowestVodacom All DayR 1.40 HighestVodacom 4uR 2.58R 2.78 SMS R 0.50 Operator MTN Prices Charged per MinuteProductsOn-net mobileOff-net mobile Lowest MTNOneRate R1.75 Highest MTNMuziq R2.50 R3.00 SMS MTNOneRate R0.50 Operator CELLC Prices Charged per MinuteProductsOn-net mobileOff-net mobile Lowest99c for RealR 0.99 HighestRed Bull Mobile per secR 2.85 SMS R 0.50 Operator VIRGIN MOBILE Prices Charged per MinuteProductsOn-net mobileOff-net mobile Lowest True Per Second BillingR 0.99R 2.60 Highest SMS R 0.60 Operator 8ta Prices Charged per MinuteProductsOn-net mobileOff-net mobile Lowest Per Second R1.50 Highest Per Minute R2.75 SMS R

HIGH MOBILE CALL RATES (II)  Mobile retail prices are still relatively high particularly for the two major network operators.  The small operators who in total have less than 25% market share of the mobile voice market, account for the lowest retail prices (as shown in slide 16)  The lowest package prices range from 99c – R1.75 per minute.  On the other hand the highest package prices range from R2.50 – R2.85 per minute.  Again, the highest package prices are charged by the two operators with the 85% market share between them.  Our observation is that the two major operators are most resistant in passing the MTR price reductions to consumers and are mainly responsible for the high mobile voice prices in South Africa. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 21

HIGH MOBILE CALL RATES (III)  Mobile call rates are still relatively high despite the glide path termination rate reductions from R1.25 to R0.56 (52.2% reduction from1 Mar – 1 Mar. 2012).  The two operators with SMP are using information asymmetry to withstand their competitors aggressive price cuts.  Package offerings are structured in complex and confusing manner to comprehend.  It is observed that international call rates are even lower than local call rates e.g. Vodacom’s int. 89c rate.  South Africans’ mobile spending as a percentage of GDP is one of the highest internationally (3.5% of GDP).  South Africa in comparison with 47 countries is the 3 rd country with the highest percentage mobile spent on GDP. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 22

Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development HIGH MOBILE CALL RATES (IV) 23

Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development HIGH MOBILE CALL RATES (V) 24

Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development HIGH MOBILE CALL RATES (VI) 25

NEED FOR RADICAL POLICY INTERVENTIONS In view of the challenges being experienced in achieving the objectives of the Mobile termination rates regulation of 2010, the following policy interventions are needed:  Amendment to the ECA especially in addressing matters which hinder competition and other related matters (in progress).  Imposition of a flat rate regime on mobile voice calls in South Africa.  Standardization of national roaming retail prices for mobile services.  Regulation of transparency in the pricing and publication of mobile retail prices. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development 26