SNO shareholders’ submission on the Convergence Bill

SNO shareholders’ submission on the Convergence Bill
14 June 2005

Introduction (1) The SNO shareholders thank the portfolio committee for the opportunity to comment on the Bill The Bill envisages a fundamental overhaul of the regulatory framework governing the broadcasting and telecommunications sectors in South Africa The Bill carries with it the prospect of reforming policy in the sector Phatang

Introduction (2) The Bill is the most significant regulatory event since the current telecommunications and broadcasting regulatory frameworks were put into place post 1994 Ordinarily a statute of this magnitude would be preceded by a Green Paper / White Paper process Green Paper: analyses the market / raises all the important policy questions for public debate White Paper: crystallises the policy framework on which the proposed legislation will be based

Introduction (3) As a result of the absence of a policy framework, many complex policy issues underlying convergence regulation remain unventilated Although the drafting of the ‘05 Bill is an improvement on the ’03 Bill, the two Bills are conceptually similar on many levels The unresolved policy issues cannot simply be “fixed” by better drafting, needs to be underpinned by a policy foundation Eg of outstanding policy issues: Spectrum allocation methodology upon market liberalisation – in the past, first come first served methodology could be applied because there were very few operators. Priority needs to be aligned to the cost structure of the operator Same for numbering

Introduction (4) It is recommended that a comprehensive policy framework be put into place before the Bill is finalised This is crucial for regulatory certainty and stability in the future, and in order to promote growth and investment

Outline of this presentation
General principles Licensing Economic regulation Technical regulation Universal service / universal access Rights of way Transitional provisions

Universal service / universal access Rights of way
General principles Licensing Economic regulation Technical regulation Universal service / universal access Rights of way Transitional provisions Carla

Aims of the Convergence Bill
Harmonise and reform infrastructure regulation across transmission networks (telecommunications and broadcasting signal distribution) Consolidate duplicity of legislation relating to broadcasting (it is not proposed to harmonise content regulation, but to regulate broadcasting only to the exclusion of internet and other forms of online content) Harmonise and reform the powers of the regulator by disposing with bifurcated levels of independence of ICASA in relation to telecommunications and broadcasting

Impact on the existing legislative framework
The Bill will become the primary piece of legislation governing infrastructure & broadcasting regulation. The Bill will replace the following statutes: Telecommunications Act IBA Act The Broadcasting Act will remain in force Should be renamed the SABC Act ICASA Act to be amended

Guiding principles that should inform the Bill (1)
Transport and content regulation should be separated The level of independence of ICASA should to the broadcasting standard, both in respect of content and infrastructure regulation in accordance with s192 of the Constitution ICASA should be given a greater degree of financial independence by allowing it to retain a portion of licence fees Transport & content regulation – policy factors are very different. Telecoms – networking, curtailing abuses of SMP, promoting competition, universal access / universal service Broadcasting – content, plurality of opinions in the marketplace of ideas, etc

All traces of co-regulation between ICASA and the Minister should be removed In line with international best practice, a clear distinction should be maintained between: Regulation (ICASA) Policy making (Minister) Operations (Industry)

Issue Policy or regulation Minister or ICASA Making of regulations Regulation ICASA Issue of policy directions Policy Minister Awarding of licences Setting of licence conditions Market structure for facilities-based competition Spectrum management

Structure of the Bill Theme areas should be grouped together:
Introductory provisions (definitions and objects) Powers of the Minister, Regulation-making powers of ICASA Infrastructure regulation Service licensing, Economic regulation (access, pricing, accounting separation, competition) Technical regulation (spectrum, type approvals, numbering) Universal service / universal access Rights of way Broadcasting regulation Co-regulation (consumer protection) Offences & penalties Transitional provisions Schedule of legislation to be amended or repealed

Service licensing regime (1)
The main impact of the Bill is on the authorisation regime (licensing) Key feature: adoption of a horizontal licensing regime (actually a grid, as there will be vertical service based distinctions in each licence category) Purpose is to allow flexibility in the licensing framework for new services, unlike the old service-specific regime where new licence categories had to be prescribed each time a new service was developed

Service licensing regime (2)
As currently formulated, the service licensing framework in the Bill is not workable There is confusion around some of the fundamental concepts

Licence categories (1) As it stands, there are 7 activity categories:
“Communications network services” – network facility providers “Communications services” – connectivity providers “Application services” – enhanced services “Broadcasting services” – only terrestrial, cable & satellite radio and television content is licensable “Content services” – inclusive of broadcasting and online content “Radio frequency spectrum licences” “Other services as may be prescribed”

Licence categories – recommendations (1)
There should be two infrastructure service licence categories, and the labels used to describe them should be changed to better reflect the underlying nature of the service: Carriers (Aus) / electronic communications networks (EU) / network facility providers (Malaysia) Carriage service providers (Aus) / electronic communications services (EU) / network service providers (Malaysia) Application service category should be deleted

Licence categories – recommendations (2)
Broadcasting services Should be dealt with separately from infrastructure services All references to “content services” must be removed, as only broadcasting services are regulated under the Bill Spectrum licences Should be dealt with in Chapter 5, not Chapter 3 Prescription of other licence categories Should be deleted, not necessary

Licensing methodologies (1)
3 authorisation methodologies Individual licences Require the pre-approval of the regulator Appropriate for: Major licence categories that have a significant socio-economic importance Licence categories that are limited to competition Class licences Do not require regulatory pre-approval, although may need to register with the regulator Appropriate for activities that are liberalised, but where there are nevertheless policy reasons for regulating such activities Licence exemptions Do not require regulatory pre-approval or pre-registration. Not subject to any licence conditions Appropriate for activities that are technically caught within the ambit of activities that are subject to regulation but where no rationale exists for regulation

There is considerable confusion in the Bill between individual and class licensing methodologies All references in the Bill to the “approval” of ICASA for class licences should be removed UK class licensing registration procedures – require minimal information: company registration number name of contact person operator’s address short description of network estimated start date Approval of class licences Remove references to this in order to reduce the administrative burden on ICASA. There should only be a registration requirement

Licensing methodologies have been fixed to certain licence categories Not workable as this creates inflexibility in the regime – licence categories should be delinked from licensing methodologies Authorisation regime in the Convergence Bill Category Authorisation method Carriers Individual licence Connectivity Class licence Applications Broadcasting services Spectrum

Examples of where fixing licensing methodologies to licence categories is not workable: Connectivity – not appropriate for all connectivity services to be class licensed (MCTS, PSTS should be individually licensed) Infrastructure – not appropriate for all infrastructure services to be individually licensed, especially if the entry of new players is to be tied to Ministerial pre-approval The Minister should only set the market entry date in respect of individual infrastructure licensees The determination of the market structure for facilities-based competition is a policy – fine for the Minister to have the final say in this

Licensing methodologies – recommendations (1)
Specific activities (market sub-segments) should be identified within each horizontal licence category and mapped against a licence methodology

The Bill needs to specify the following: Existing licence activities should be mapped out in advance in Chapter 13 to new horizontal licence categories and licensing methodologies ICASA should determine whether a new activity should be individually licensed, class licensed or licence exempt The process for demarcating market sub-segments within each of the horizontal licence categories should be preceded by a rigorous market analysis

The Bill also needs to indicate the criteria for mapping activities to licensing methodologies (individual / class / exemptions), which should include: the socio-economic importance of the activity to the country the prevalence or absence of competition within the relevant market sub-segment the need to promote universal access / universal service

Setting of licence conditions (1)
The Bill makes provision for ICASA to set: Standard licence terms and conditions for individual and class licensees Additional licence terms and conditions on licensees who: have significant market power (SMP) have control over essential facilities should have universal access or universal service conditions imposed are vertically integrated in a way that ICASA determines could harm competition Should also include: special conditions for licensees under the managed liberalisation framework, must common carrier obligations (broadcasting)

Setting of licence conditions (2)
Generic provisions of the Bill apply to all relevant activities Standard licence conditions common to individual and class licences Standard licence conditions common to individual licences Special conditions Undertakings Individual Class Exempt SOURCE: ICASA presentation to Parliament on

Processes for setting licence conditions (1)
Procedure for setting standard licence conditions Public notice and comment process Procedure for setting additional licence conditions There should be a rigorous process for determining the presence of SMP, etc As far as possible, additional obligations should be contained in regulations, not rather than in licence conditions (for the sake of uniformity)

General principles Licensing Economic regulation Technical regulation Universal service / universal access Rights of way Transitional provisions Phatang

Economic regulation All provisions in the Bill dealing with economic regulation need to be grouped together Access regime (interconnection, facilities leasing, etc) Price controls (retail and wholesale pricing) Accounting separation obligations (COA/CAM) Competition regulation

Access regime (1) Principal considerations:
Activities covered by the access regime – what facilities / services are covered? Access providers – who should be obligated to provide access? Access seekers – who is entitled to seek access? Access prices – who should be obligated to provide access at cost-based prices?

Access regime (2) Activities covered by the access regime
Currently confined in the Bill to interconnection and facilities leasing May be too narrow – excludes conditional access systems / common carrier obligations for broadcasting signal distributors

Access regime (3) Access providers
Currently, the obligation to provide access is linked to licence category (infrastructure layer) The Bill will have the have the effect of opening up the market for facilities based competition in the long term It will be unworkable for all licensees of a particular category to provide access – the obligation to provide access should be asymmetrical / linked to significant market power (SMP) SMP essentially consists of the ability of a firm to act, to a large extent, independently of its competitors, customers and end users There is no incentive on SMP operators to provide access – can act independently on the market For non-SMP operators such as the SNO, there will always be the commercial incentive to provide access – to increase their market share

Price control regulation
Price control regulation should only be imposed in those market segments where no or insufficient competition exists Processes need to be put in place to determine relevant product and geographic markets characterised by a lack of competition Consideration needs to be given to the question of local loop unbundling, that is the obligation to provide access to the local loop at cost based prices

Accounting separation
The obligation to file regulatory accounts should be asymmetrical Only licensees with SMP should be required to file regulatory accounts in accordance with the COA/CAM

The concept of SMP (1) One of the most important conceptual shifts in the Bill is the introduction of the notion of SMP Incorporates ex ante regulation where there is SMP – shifts the focus of regulation to established operators who wield market power SMP is / should be linked in the Bill to: The imposition of additional licence conditions Access, pricing, accounting separation, general competition regulation

The concept of SMP (2) There is no alignment of the concept of SMP in the Bill with that of market power in the Competition Act The Bill conflates the concepts of dominance and market power, which are treated as discrete notions in the Competition Act The thresholds in the Bill, the Competition Act and the Interconnection and Facilities Leasing Guidelines are out of synch with each other

Processes for determining SMP (1)
There are no processes in the Bill for determining SMP In line with international best practice (EU), the Bill should include an explicit SMP determination mechanism

Processes for determining SMP (2)
The SMP determination should define and analyse the following: Relevant product and geographical markets Non-transitory barriers to entry (both statutory and structural) The market participants ICASA must give notice of its intention to make an SMP determination in the Gazette, together with reasons ICASA must invite written representations from the public ICASA must publish the SMP determination in the Gazette once it has been finalised

Principles for SMP determinations
SMP determinations should be rational, based on the outcome of a market analysis SMP obligations should proportional ICASA should be required to conduct periodic market reviews Asses the continued appropriateness of existing SMP obligations, etc Determine the need for the imposition of new SMP obligations, etc

General principles Licensing Economic regulation Technical regulation Universal service / universal access Rights of way Transitional provisions Phatang

Technical regulation All aspects of the Bill dealing with technical regulation should be grouped together: Spectrum regulation Equipment type approvals Numbering (including carrier pre-selection, number portability, numbering plans, directory services, etc)

Spectrum regulation (1)
Spectrum policy Spectrum regulation framework has been largely functional up until now However, consideration needs to be given to the policy considerations tied to managing the spectrum under a convergence regulatory regime

Examples of areas that require policy consideration: Alternative spectrum allocation methodologies (spectrum trading, anti-hording mechanisms) The bundling of analogue spectrum to broadcasting service licences The transition from analogue to digital The spectrum allocation methodology should take into consideration the cost structure of the licensee, rather than being based on a straight forward first-come, first-served methodology

Regulation and management of the spectrum The Bill grants the Minister and ICASA co-jurisdiction over certain aspects of spectrum management which were not there previously The Minister should be empowered to set spectrum policy only ICASA should be vested with the power to regulate the spectrum – including setting the band plan, assigning spectrum, grant licences, etc Eg the Minister will be involved in the finalisation of migration plans

Spectrum licensing Spectrum licensing should be dealt with in Chapter 5 The licensing of the spectrum should not be linked to any particular licensing methodology (as currently conceived, all uses of the spectrum need to be individually licensed) Confused spectrum licensing and service licensing

Co-ordination to prevent harmful interference The Bill proposes to allow spectrum licensees to co-ordinate between themselves to prevent harmful interference This is not appropriate. ICASA is best placed to tackle this

Equipment type approvals
The Bill currently requires ICASA to type approve equipment In order to simplify administrative processes, ICASA should be empowered to recognise the type approvals of other certifying agencies (such as SABS (local) and ETSI (international))

Universal service / universal access
Chapter 12 of the Bill is largely a copy and paste from the Telecommunications Act We respectfully question the incorporation of the current framework into the Bill, as the existing framework has not worked as well as it should As a general principle, universal access and universal service obligations should not be imposed on an operator until it has demonstrated its commercial profitability

Rights of way Chapter 4 of the Bill is largely a copy and paste from the Telecommunications Act, and come from a time when the incumbent was the only fixed line operator The provisions of this chapter need to be aligned with the applicable environmental legislation: Greater consideration needs to be given at a policy level to the granting of rights of way in a liberalised market In liberalised market, ultimately there will be hundreds of licensees. Not feasible to grant all of them rights of way. Needs to be a process for deciding applications for rights of way

Impact on ICASA (1) Relicensing process likely to consume significant resources Mechanisms should be put in place to ease the regulatory burden on ICASA as much as possible

Impact on ICASA (2) Consideration should be given to ways of easing the burden on ICASA, eg: Not necessary to “convert” broadcasting licences under the new regime, as the licence categories will essentially remain the same. These should simply be grandfathered under the Bill Only individual licensees need reapply to ICASA for pre-approval to convert their licences. Class licensees need only register with the regulator

Conversion of licences (1)
Old sector-specific licences will need to be converted into the new horizontal licence categories Bundled licences issued under the old sector-specific regime will need to be unbundled Transitional arrangements will need to be put in place to cater for promises that the government has made to existing licensees (eg duopoly in the case of the SNO)

Some practical examples: Telkom Telkom’s PSTS (public switched telecommunications service) licence authorises it to roll out a PSTN (infrastructure) and to provide PSTS (services) to customers Under the new regime, Telkom’s licence will be unbundled into 3 categories – infrastructure, connectivity and applications (if retained as a licence category) Sentech Sentech’s broadcasting signal distribution licence authorises Sentech to provide the basic transmission network (infrastructure) and to distribute signals to customers (connectivity) Under the new regime, Sentech’s licence will be unbundled into 2 categories – infrastructure and connectivity

For the sake of regulatory certainty, existing licensees: Need to be mapped against broad horizontal licence categories Specific activities need to be mapped against a licence methodology (individual licence, class licence or licence exemption) Needs to be set out in Chapter 13 at the outset to avoid delays and regulatory lacunae

Licensing category Individual licence Class licence Exempt / unlicensed Network facility providers PSTN, PLMN, UASTN, broadcasting signal distribution networks, GMPCS earth gateway, carrier of carriers network, multimedia network, national long distance telecommunications network, local access telecommunications network, international telecommunications network (network facilities based in SA only) Niche or limited purpose network facilities Broadcasting & production studios, incidental network facilities, PTN facilities Network service providers PSTS, MCTS, USAL (transmission services), GMPCS services, bandwidth services, broadcasting signal distribution services, carrier of carriers services, national long distance telecommunication services, international telecommunication services Niche customer access services, niche connection services, public pay telephone services, Incidental network services, LAN services, PTN services, router internetworking, application services Broadcasting Terrestrial, cable, satellite broadcasting (including subscription & free-to-air, radio and television) Low power sound broadcasting services Webcasting, other online content VANS?

Other transitional matters
There aren’t savings mechanisms for all transitional matters in the Bill – eg type approvals, existing disputes, pending enquiries, pending applications, etc Existing licences should continue in force until converted to the new licensing regime (ie there should be no lapsing of licences if the time lines for conversion are not met) Licences should be converted on no less favourable terms and conditions than what previously existed

THE END THANK YOU

SNO shareholders’ submission on the Convergence Bill

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SNO shareholders’ submission on the Convergence Bill

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