1. An Investigation into the Optimum way Forward for the South African Telecommunications Industry By: Luke Hardman Supervisor: John Ebden 2 November 2004

2. Project Outline Investigation into the South African Telecommunications industry with reference made to special cases from around the world. Include: –Taiwan –U.S.A –India –South Africa

3. Project Outline Assess the liberalisation processes of countries that have been successful in telecommunications liberalisation Assess the economic issues of having a telephone monopoly and the positive effects of liberalisation.

4. Approach Case Study based approach –Allows isolation and comparison of different cases –Broad spectrum coverage of the topic rather than individual laws affecting South Africa Assumption that laws could change in the course of the project VoIP liberalisation an example The case studies chosen for: –Representation of different countries around the world –Different stages of telecommunications liberalisation. Compare and contrast different cases so as to learn lessons from each.

5. Some Definitions Liberalisation –Noun: the act of making less strict Privatisation –transitive verb: to change (as a business or industry) from public to private control or ownershipprivate

6. Taiwans Telecommunication Reforms Initially controlled by government owned Directorate General of Telecommunications (DGT) Stunted growth in telecommunications industry although profitable Taiwanese government saw the importance of liberalisation in developing their economy and catching up with major industrialised nations

7. Taiwans Telecommunication Reforms In 1996 three new telecommunications laws were introduced which paved the way for industry liberalisation.

8. Taiwan: Main points to come from the liberalisation bills There should be a separation of operator and regulator and the regulator should ensure that: –Contractual obligations are met by the licensees –A fair and competitive market is maintained DGT (Regulator) separated from Chunghwa Telecom Co. (Operator)

9. Taiwan: Main points to come from the liberalisation bills Chunghwa Telecom would continue to operate but be privatised at a later stage Telecommunication services divided into two types –Type 1: Primary infrastructure and basic services. i.e. fixed lines, submarine cables etc. –Type 2: Value added services. i.e. Internet Services, Domestic Satellite communication Reason for this was to maintain control over different sectors of the market independently.

10. Taiwan: Developments since 1996 Taiwanese telecommunications has flourished and government has liberalised other businesses with success using this case as a template for liberalisation. Growth Cellular phone penetration rate: 20 th to 1 st

11. Taiwan: Developments since 1996 Also notable is the growth in number of both type 1 and type 2 companies July 1996Dec 1999Dec 2002 Type 113673 Type 267207380 Source: Telecom Database on www.dgt.gov.tw

12. Taiwan: Developments since 1996 Taiwans internet population has also grown rapidly. –Doubled in the last 4 years with penetration of 51.1% Government also actively promoting broadband usage. –Decreased operating costs –200 000 to +3,000,000 users in 4 years (>15x)

13. South Africa’s Telecommunications Reforms The South African Industry was a monopoly controlled by the SAPT (South African Posts and Telecommunications) Liberalisation began in 1991 with separation of telecommunications arm of SAPT into Telkom. Government saw it as a loss making division which it thought would better serve the public if privatised. –South African government was using SAPT for its benefit without considering the costs of doing so ie. Low productivity resulted

14. South Africa’s Telecommunications Reforms In 1993 and 1994 the two cellular providers Vodacom and MTN were given licences to operate as cellular service providers and are both very successful. In November 2001 Cel C, the third cellular provider was announced. In 1994 South Africa sold 30 percent of Telkom to investors Privatisation halted to achieve government goals (more phone lines)

15. South Africa’s Telecommunications Reforms In 2000 Independent Broadcast Authority and South African Telecommunication Regulatory Authority merged to form Independent Communication Authority of South Africa (ICASA).

16. South Africa’s Telecommunications Reforms Main functions of ICASA: –Make regulations and policies –Issue licenses to providers of telecommunications services and broadcasters –Monitor the environment –Protect customers

17. South Africa’s Telecommunications Reforms In March of 2001 Second Network Operator (SNO) announced Competition intended to bring prices down High prices affecting individuals as well as businesses

18. South Africa’s Telecommunications Reforms On the 2 nd May 2002 Telkoms exclusive rights over services came to an end but we are still awaiting the arrival of the SNO for which the license has already been awarded. SNO expected early next year.

19. VoIP VoIP legalised –Effective as of 1 February 2005 –Consumers have a choice of provider for the first time (Competition) –Should see downwards pressure on prices.

20. Comparison of Cases Regulation of the industry is important for fair competition and making sure service providers meet customers needs Greater bandwidth should be a priority of the South African government and those within the telecommunication industry. Efforts should be made to decrease prices in all services, especially broadband.

21. Comparative Prices of Services SATaiwanUSANigeriaEngland ADSL R1,000,00 pmR133.00pmR251.00pmR280.00pm ISDN R198,00 pm Installation = R40, thereafter pay per minute with minimum of R20 pm.R129.254R316,33 Data/56K R79,00 pm Almost non- existent R58, 146R195,00R163.00

22. Penetration Rates of Countries Studied Penetration Rate as a Percentage of Population United States68.8% Taiwan58.1% South Africa7.4% Egypt3.9% Nigeria0.5% Average of Africa1.4% Source: www.internetworldstats.com

23. Benefits of Complete Liberalisation Downward pressure on prices for services. Better standard of serives. Improved telecommunications infrastructure. Greater Foreign Direct Income (FDI) from investors. Total predicted gain to South African economy of +- R1.3 billion (0.05 percent of GDP). –Depends on barriers to trade in the sector. High barriers to trade = high gains Low barriers to trade = small gains

24. Questions ?