A friendly network is coming your way

In a historic judgement two weeks ago, the High Court ruled in favour of an application brought by Altech Autopage Cellular on the question of whether operators of Value Added Network Services (Vans) may build (or, in telecom parlance, “self-provide”) their own networks.

The simple consequence of this ruling is that every Vans licence holder now has the right to build their own network. There are, however, other barriers to entry such as the substantial costs of building such a network, estimated at between R300-million to R1-billion depending on the size of the network.

But Vans operators now have their legal foot in the door and a central regulatory barrier is set to crumble like the Berlin wall.

The judgement provides a clear endorsement of the approach taken by the minister of communications in promulgating a series of policy directions including self-provision, and the Independent Communications Authority of South Africa’s (Icasa) approach in implementing them, in 2004.

There has been much water under the bridge since then and for over two years the industry was — erroneously — content to leave an about-face by the minister and Icasa on this issue unchallenged. The Altech application was brought to the High Court as a result of the licence conversion process required in terms of the Electronic Communication Act of 2005. Icasa proposed that only some Vans licensees would be granted the right to self-provide and only if they complied with a set of criteria laid down by the minister of communications in a subsequent policy direction in 2007. To qualify, a Vans licensee needed to show that it would have a “significant impact on the socio-economic development of the country”. The ministerial directive then listed precisely what such impact would look like.

In his judgement, Judge Dennis Davis argued that such a specific list of criteria undermined the independence of the regulator as it entails a direct instruction to the regulator and “oversteps the line of pure policy”.

As a result, the judge dismissed the ministerial determination of 2007 and reinstated the earlier 2004 directive that Vans could in fact self-provide. This has clear consequences for the relationship between regulators and government departments in South Africa. The regulator can no longer fulfill an adjunct role to government departments but has to steer its own course, with reference to the policy objectives of government.

In their court papers, Icasa and the department of communications argued that allowing any Vans operator licensed prior to 2006 the right to build their own networks would result in an “absurdity” because the scarcity of resources would not be able to sustain the demand from so many Vans operators.

This is a puzzling argument because the scarcity referred to is radio spectrum and its allocation is quite clearly a different process to licensing.

This, combined with the capital required to build a network, means that there will be a natural market selection process. The more serious problem is that, although Icasa and the department have important policy and licensing roles, they should not view themselves as the sole arbiters of telecom services demand and attempt to determine how many operators the South African market can sustain.

The gist of the problem is a misunderstanding of the role of the regulator: Icasa and the department continue to see licensing as a mechanism of control when in fact it is merely a hygiene factor. This is a by-product of a mind-set that still sees telecommunications as a natural monopoly.

Both the 1996 Act and the Electronic Communications Act explicitly support increased levels of competition. To oppose the licensing of Vans operators is in direct opposition to this legislative mandate.

Before free market fundamentalists point out that if the market had been left to its own devices the lack of competition would never have arisen in the first place, I would point out that 28 of the 29 respondents were from the industry and opposed the Altech application. Quite clearly, increased competition is not in their interests either.

So what is the correct role of the regulator? The regulator is theoretically in a unique position to balance the demands of the state, industry and consumers. Although the removal of the regulatory barrier to Vans operators building their own networks is a major first step, it is just that: a first step. There are other critical building blocks to increasing the level of competition, including the speedy finalisation of licence fees, access regulations such as interconnection and facilities leasing, and an equitable and efficient spectrum allocation policy. If this sector is to transform into a dynamic and competitive one, and if the regulator is to be credible, optimal regulatory decisions, such as the original view of Icasa that Vans could self-provide, must serve the interests of the broader South African consumer and not narrow sectoral or governmental interests.

Steve Esselaar is a telecoms consultant and former Icasa adviser

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