Where’s our Broadband?. “Managed Liberalisation” Monopoly 3 years after deadline Stalled licensing of SNO Unclear policy Flagrant support for vested interest.

Where’s our Broadband?

“Managed Liberalisation”

• Monopoly 3 years after deadline• Stalled licensing of SNO• Unclear policy• Flagrant support for vested interest• Bankrupt Universal Dis-Service licensees

The result?

• South Africa’s managed liberalisation has been a disaster.

• Cost jobs• Cost economic growth• Cost Taxes (1% growth = R3bn per year)• Cost to SA’s competitiveness

SA’s cost of telecommunications – The SA

Foundation Study• International broadband

• International Leased lines

• Domestic Leased lines

• Domestic call costs

Cost of international lines

• South Africa was the most expensive broadband of all fifteen countries sampled

• It was more than nine times as expensive as the cheapest country surveyed.

International leased lines

• Almost three times as high as the next most expensive country sampled

• Thirty one times more expensive than the cheapest country

International leased lines

0

50000

100000

150000

200000

250000

300000

HK to LA India to NY SA to NY

Annual cost of an international 2Mb line – US$

Costs of Domestic Leased lines

• South Africa was the most expensive of twelve countries surveyed

• Almost fifteen times more expensive than the cheapest country surveyed.

Retail costs• In both US$ and PPP terms, South African ADSL

broadband is the most expensive of the fifteen comparison countries

• Our ADSL fee is eight times as expensive as the cheapest country surveyed.

• South Africa’s monthly ISP fees are the highest in the comparison group of thirteen countries, or five times as expensive as the cheapest country surveyed on a PPP basis.

Monopoly + Obligations…

• Re-balancing of the tariffs meant local costs rose 316% between 1997 and 2003

• Of the 2.8 million lines connected during the monopoly period 70% were subsequently disconnected.

Price = Penetration

Effect of high costs…

SA Foundation said:

“If telecoms prices are higher than their competitive level, they act as a

tax on industry and a drag on economic growth.”

Internet penetration vs 10 yr Economic Growth

y = 0.0103x + 1.0551

R2 = 0.4102

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0 100 200 300 400

People per 1000 with Internet access

Growth = 1% per 100 internet users.

% GDP pc growth

Introduce Competition

International Broadband Deployment: The Impact of Unbundling Martha

García-Murillo and David Gabel

After calculating the odds ratio we find that those countries whose local markets are competitive have

a 24 times greater odds of having access to broadband.

““

””

The Market Perspective

• Telkom is NOT the enemy

• Bad laws create bad incentive systems.

• We have BAD laws.

How do we fix BAD laws?

• Green Papers• ETC Act• Colloquia• Convergence Part I – Star Laws• Convergence Part II – ICASA Strikes Back• Convergence Part III – Return of the Class

Licence• ???

What do we need on the legal front?

• Technology neutral laws

• Market-orientated allocations

• Political certainty

The Convergence Bills Licences were required for any kind of

communication business;

Forced sharing of network assets and

regulated pricing;

Ability to force interconnectivity;

Ability to set retail prices if there is found to

be “ineffective competition”;

ICASA to have same rank as High Court;

Telecoms Policy - Key issues

1.Freedom to trade

2.Freedom to contract

3.Freedom to set prices

1. Freedom to Trade

The SA Constitution says:

“22. Every citizen has the right to choose their trade, occupation or profession freely. The

practice of a trade, occupation or profession may be regulated by law.”

1. Freedom to trade

Section 5. (1) The Authority may, in accordance with this Chapter and the

regulations prescribed hereunder, grant individual and class licences.

(2) The Authority may, upon application in the prescribed manner, grant individual licences for the following: communications network services, radio frequency, broadcasting services, other services as may be prescribed

(3) The Authority may, upon application in the prescribed manner, grant class licences for the following: Communication services, application services, other services which may be prescribed

(4) The Authority may only accept and consider applications for communications network services licences as from a date to be fixed by the Minister by notice in the Gazette.

(5) The Minister may determine the date when and the geographical area within

which communication network services licences may be granted

1. Freedom to trade

• Licences– What do they to the country’s competitive

edge? – How do they generate jobs? – Will the red-tape harm South Africa?

• What is different about telecoms?– General competition law– Show regulation is in public interest

2. Freedom to contract

• The market system requires

– Private property rights– Freedom to choose the use of those

assets– Freedom to trade the use and ownership

of those assets

2. Freedom to contractObligation to interconnect

37. (1) A communications network service licensee must, on request, interconnect to any other communications network service licensee in accordance with the terms and conditions of an interconnection agreement entered into between the parties for the purposes of delivery of any service authorised in terms of this Act or the related legislation, unless the Authority considers such request to be unreasonable.

2. Freedom to contract

37.(4) In the case of unwillingness or inability of a communications network service licensee to negotiate or agree on the terms and conditions of interconnection, either party may notify the Authority in writing and the Authority may —

(a) impose terms and conditions for interconnection consistent with this Chapter

2. Freedom to contract

• Telkom’s Assets are private• “Essential Service”• A new undersea cable will cost

$650m.

3. Freedom to set prices

• Prices are the interplay of Demand AND Supply

• You mess with the price mechanism at your peril– Too high = Reduced consumption– Too low = Shortages / Black Market

3. Freedom to set prices41. (1)Where—

(a) the Authority determines that there is insufficient competition in a relevant market or market segment as defined by the Authority; or

(b) the interconnection requested in terms of section 37(1) involves a party found by the Authority to have significant market power in the relevant market or market segment or involves essential facilities, the Authority may prescribe regulations establishing a framework of interconnection rates to be charged for specified categories of interconnection and associated interconnection services.

(2) Interconnection rates must be determined on the basis of the following principles, namely that—(a) rates must be related to costs

3. Price competition

• ICASA have agreed Telkom’s prices this year. – Why aren’t prices dropping?

Shouldn’t ICASA should get bonuses based on how low the average price of telecoms falls in a year?

Dept. of Land and Spectrum

• Spectrum is a scarce resource…like land

• Private owners take more care of their property than tenants.

• Markets allocate efficiently

Trading spectrum

• List the markets• List the regulator’s approach (ie no

interference in market process once allocated).

• No need to refer to regulator other than as the registrar.

Methods of Allocation

• auctions: economically efficient, since spectrum always goes to those who place the highest value on it

• beauty contests: may be economically inefficient since assignment can be made based on factors that do not relate to the economic value of spectrum

• ‘first-come, first-served’ (FCFS): economically inefficient since they are awarded on the basis of the ability to queue

• lotteries: economically inefficient since they are awarded according to luck of the draw

Spectrum Leases

• Don’t forget that we’re also interested in ‘leases’ of spectrum. Ownership and use may not be vested in the same owner. Flexible arrangements for temporary reallocation of value may be arranged.

• Do not determine use

Opportunity?

• Land began to generate wealth in Africa when it was traded. It got allocated to the right use – agriculture, industrial, retail

• Now, we have an opportunity to create property rights in spectrum, with a choice of First Owner– BEE?

Fears?

Won’t somebody buy it all up?

“Who’s in charge of making sure somebody doesn’t buy all the

land?”

Fears

There is a finite supply of spectrum:

“No it’s not. Our definition of what is scarce is dependent upon our current technology. Double the throughput,

double the effective spectrum.”

Liberalisation Agenda

• Liberalise the markets under general

competition law.

• Privatise government parastatals;

• Privatise use of the radio spectrum;

• Focus on consumers not producers.

Conclusion• The Electronic Communications Bill must

subscribe to the principles that have been laid out, or the exercise will have been pointless.

• Competition is the best regulator– Unaccountable bureaucrats will not protect you.

• Telecommunications will be the foundation of modern growth – we need public policy that embraces what is known to generate wealth (markets), and bring benefits to consumers.

Thank you