/ 21 October 2011

Political clout might put Telkom right

Political Clout Might Put Telkom Right

I never thought I would say this but perhaps it’s time to bring General Siphiwe Nyanda back into the communications fold.

Now, I understand that Nyanda’s term as communications minister was highly problematic, not least of all because of his fine taste in cars and hotel accommodation. However, the stakes are very high in the telecoms sector and some political will is sorely needed.

Last week communications regulator Icasa squared up against Telkom in a fight over unbundling the local loop — a dispute that is likely to be settled by the courts.

As the drama unfolds at the public hearings hosted by Icasa, an executive of one of South Africa’s cellphone players turned to me and suggested that perhaps a political solution was needed to resolve this stand-off.

The executive understood all too well what could be achieved through a little “moral-suasion” — or through what another stakeholder described as Nyanda’s “panzer politics”. After all, it was the cellphone operators that were on the receiving end when Nyanda sat them down around a table and explained that interconnection rates would drop and that the operators would probably be better off if they made the cuts voluntarily.

Realising that they were facing an inevitable cut in the interconnection rate, the operators complied and, in Parliament in November 2009, Nyanda announced a 39 cents cut. Political persuasion had trumped regulatory intervention.

With this in mind, the government must focus on unbundling the local loop. If it is serious about liberalising the information and communications technology sector and creating competition, lower prices and greater penetration, then it needs to act now.

Unbundling of the loop
Already the unbundling of the local loop is almost 10 years too late and, if the government leaves it up to Telkom, it may be another five years of legal challenges before we get anywhere.

Take, for instance, the Competition Tribunal hearing that Telkom is currently appearing in. The original complaint was laid in 2002 and the Competition Commission completed its investigation and referred its case to the tribunal in 2004.

Then Telkom began to play legal games, challenging the commission’s jurisdiction, which resulted in a five-year delay in the case.

When the commission tried to amend its legal papers, legal delays once again resulted and the tribunal now finds itself fighting a case that is seven years old.

So can the government afford to sit on its hands?

A 2009 World Bank report, “Economic Impact of Broadband, Information and Communication for Development”, says that every 10% increase in broadband penetration in a developing country equates to a 1.38% increase in that country’s GDP. According to Statistics South Africa, our GDP was estimated at R723-billion in the second quarter of 2011. This would mean that for every 10% increase in broadband penetration we could add R10-billion to our GDP.

This is reason enough for the government to make it happen and, as the majority shareholder in Telkom, it is in a prime position to apply a little pressure.

The government owns just under 40% of Telkom and, if the Public Investment Corporation’s shareholding is included, the government’s stake adds up to more than 50% of Telkom.

With such a powerful position, it can surely convince Telkom that the local loop must be unbundled, whether Telkom fights it or not.

Indeed, Telkom pulled out all the stops in its fight this week at the local-loop unbundling hearings. After enduring two days of digs from its competitors about its monopoly status, lack of efficiency and poor service, Telkom stepped up for its presentation in combative mood and raised “grave concerns” about Icasa’s handling of the hearings.

Structural separation
What riled Telkom most was when earlier in the day the Icasa panel had discussed the possibility of a structural separation being applied to Telkom, which would see the company being split into sections for competitive reasons.

Telkom’s senior legal adviser for regulatory affairs, Thamsanqa Kekana, a former Icasa councillor, argued that the scope of proceedings and questions posed to Telkom should be limited to the ground covered by the original discussion document.

He said that Icasa had overreached its mandate in the hearings and that Telkom would only answer questions relating to the original discussion document although he added that Telkom was not prescribing what questions Icasa could ask.

But Kekana demanded that Icasa should give it an undertaking that these issues would not be included in the hearings.

Icasa councillor William Stucke sat stone-faced as the Telkom presentation continued and when Kekana had finished he stood up and requested that the Telkom team meet him behind closed doors. Stucke was seething and it looked as if Telkom was about to get a telling off.

After 40 minutes the public hearings resumed but the engagement between the Icasa panel and Telkom was hostile, with Stucke describing its evidence as “misleading” on the final day of the hearings.

The following day Stucke was hailed as a hero for standing up to Telkom.

MyBroadband, a consumer activist website, made light of the situation with a PowerPoint slide that showed a cute kitten plus a picture of Stucke as a lion — and from that point on Stucke had a new nickname — the “Lion of Icasa”.

“What we saw from Telkom yesterday is that they want to stall or stop this process,” said Rudolph Muller, the head of MyBroadband.

Muller then quoted some of the consumers from the website.

“Telkom wants to play victim, Icasa must show some balls,” said one, and another posted: “Clever yet sneaky Telkom lawyers, they get paid for one thing, stall tactics”.

Dominic Cull, the telecoms lawyer representing the Internet Services Providers’ Association, said that Telkom had thrown down the gauntlet with its presentation. “Telkom will litigate,” said Cull. “This will lead to extreme delays, a minimum of five years.”

Although the Icasa hearings on local-loop unbundling are over, it is no clearer how this process will play out. Hence it is time for some real political will.

Telkom still faces the tribunal hearing into allegations that it is abusing its dominant position by charging excessive prices, refusing access to an essential facility and engaging in price discrimination, thereby making its downstream rivals less competitive in the telecommunications market.

It appears that Telkom is caught between a rock and a hard place.