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9/9/11

Presentation to the Select Committee on Labour and Public

Enterprises7th September 2011ICASA

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Mandate of ICASA

• Vision:– To advance the building of a digital society.

• Mission:– To ensure that all South Africans have access to a

wide range of high quality communication services at affordable prices.

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Object of the ECASection 2: The primary object of this Act is to provide for the regulation of electronic communications in the Republic in the public interest and for that purpose to—

(a) promote and facilitate the convergence of telecommunications, broadcasting, information technologies and other services....

(b) promote and facilitate the development of interoperable and interconnected networks, the provision of the services .... and to create a technologically neutral licensing framework

(c) promote the universal provision of electronic communications networks and ... services and connectivity for all

(d) encourage investment, including strategic infrastructure investment, and innovation....

(e) ensure the efficient use of the radio frequency spectrum

(f) promote competition within the ICT sector

(n) promote the interests of consumers with regard to the price, quality and the variety of electronic communications services

(y) refrain from undue interference in the commercial activities of licensees....

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The new regulatory approach• Future regulation should focus on:

encouraging market entry responding to developments that inhibit effective competition

• Ex ante regulation only for entities with SMP• Speedy and transparent investigation of complaints• Pro-active compliance monitoring and market surveys• Where competition is effective and sustainable, regulation

should be withdrawn• Continued need to allocate scarce resources and ensure social

obligations are met

9/9/11

Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Mandate to focus on fair prices

• Government Policy is to ensure fair retail prices through promotion of competition– Competition Act of 1998– Electronic Communications Act of 2005

• Implementation of policy:– Evaluate bottlenecks to competition– Such bottlenecks are prevalent in supply chains,

e.g. cement, bread etc

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Promotion of fair prices under the ECA

• Authority may regulate prices where:– There is a lack of effective competition in a

particular market– There are barriers to competition in

entering/competing in the particular market• What must the Authority do?

– Evaluate the value chain over which retail services are provided

– “Regulate away” bottlenecks to fair competition

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Call Termination and Retail Prices

• Retail Price consists of three components:– Cost of originating a call– Cost of terminating a call– Mark-up

• If any of these are artificially high, retail prices are artificially high

• Why focus on the cost of termination?– Only cost element not controlled by the service

provider (off-net calls)

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Interconnection rates

• “Moral Suasion” approach• Market Review• Wholesale Call Termination Regulations• Glide Path – March 2011 – March 2014• Effects – wholesale rates have an indirect

effect on retail rates

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Step 1: End-user A starts a call to End-user B

Step 2: Network A routes the call through its network to End-User B

End-user A

End-user B

Network A

Network A

Origination Termination

Outcome: Network A completely controls retail price

On-net calls and termination

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End-user A

End-user B

Network A

Network B

Origination Termination

Step 1: End-user A starts a call to End-user BStep 2: Network A routes the call to Network B

Outcome:Network B has an impact on the retail price

Step 3: Network B routes the call to End-user B

Off-net call and termination

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What has the Authority found

• Call termination rates are set at excessive levels

• Ability to compete is hampered by existing commercial terms in interconnection agreements– High bank guarantees– High minimum monthly traffic requirements

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Regulation

• Reduce termination rates• Mandate change in access conditions, i.e.

remove restrictive terms of trade for new entrants

• Outcome:– Networks now have more control and ability to

charge lower retail prices– Do not face high barriers to entry/operations– Networks may now effectively compete on price

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Impact of Call Termination regulations

• Access conditions:– MTN & Telkom have removed requirement for up-

front bank guarantees– MTN, Telkom and Vodacom also now offering IP-

based interconnection, indicating modernisation of networks

• Competitive landscape:– Smaller licensees report increase in call volumes

and customer acquisition based in part on the reduction in call termination rates

• Retail prices:– Retail call fees from fixed to mobile have reduced

by the reduction in termination rates– Some reduction in mobile to mobile calls

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On-net peak hour rates (pre-paid packages)

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2007 2008 2009 2010 Pre Mar2011

Post Mar2011

Rand

/min

ute 8ta

Cell C

VodacomMTN

8ta increased peak rate &reduced off-peak rateVodacom reduced peak rate by 10 centsAll operators introduced free minute benefits

Process Start Glide Path

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Retail prices & reduction in termination rates

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Mar-2011 Apr 2011

May-2011 Jun-2011

Jul-2011 Aug-2011

Cell C – customers who make R50 worth of recharges in a week receive an extra 500MB data, 50 bonus SMSs and 50 Cell C to Cell C mins

Cell C also offers R25 airtime “welcome bonus” to new customers who subscribe before 15 July

Telkom new tariffs became effective from 01 Aug 2011

Telkom 8ta launch per second prepaid billing on 15 May 2011

New termination rates came into effect on 01 Mar 2011

MTN introduced free incoming calls and SMSs for both post-paid and prepaid customers travelling in the South & East Africa region

Neotel – voice calls to MTN and Vodacom phones will now cost 95c/minute during peak hours and 85c/minute in off-peak times. Voice calls to Cell C and 8ta cost R1,20 at peak and 96c at off-peak.VC and MTN confirmed that they have no plans to cut retail prices as a result of reduction in the wholesale rates

Vod launch Airtime Advance – allow customers to take R10 airtime in advance. Vod debits customers account with R10 and R1 service fee from next recharge

VC customers who recharge with R29 or more. “Night Shift” allow prepaid customers to talk for free for 60 mins between midnight and 5am for one week

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Trends in overall Telecoms Prices

2020

40

50

60

70

80

90

100

110

120

Inde

x (2

008=

100)

CPI

Food

Telecoms

Source: StatsSa

27% reduction in retail prices

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Approach to Broadband1. By September 2011: Broadband Colloquium with

Stakeholders2. Establish an ICASA, Industry sector and

nationwide broadband committee3. Finalise and publish Local Loop Unbundling ( LLU)

framework by November 20114. By March 2012: Identify possible bands for

additional 500 MHz spectrum for broadband wireless access

5. Promote the sharing of infrastructure for the provision of broadband services

6. Improve coordination of infrastructure initiatives between Local and Provincial Governments, and the Broadband Inter-Governmental Implementation Committee

7. Identify hindrances to broadband penetration and propose corrective measures

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The 4 Regulatory factors that affect broadband penetration and

take-up

Infrastructure sharing

Removal of Barriers to

network rolloutSpectrum allocation

Digital Dividend

•ICASA will facilitate access to the local loop by November 2011• ICASA will develop a framework for infrastructure-sharing between licensees

•ICASA will assign & release all available spectrum for wireless broadband

•ICASA will explore the opportunity for three possible digital dividends for wireless broadband: • 790-862MHz • 694-789MHz (WRC-12/15)• white space spectrum

•There are barriers to network rollout at local level, e.g. EIA’s, municipal regulations etc.• ICASA will identify hindrances to broadband penetration and propose corrective measures

Successful broadband penetration and take-up

Local Loop Unbundling

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Broadband Infraco Licences• Ministerial Directive 6 February 2009• ITA 13 March 2009 • Application by BI 14 April 2009• Hearings 29 June 2009• Consideration by ICASA• Decision: - 20 January 2010

– Grant Individual ECNS Licence– Deny Individual ECS Licence

• Reasons• Amended Policy Directive 17 May 20102525

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Litigation

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Cases Brought Cases Settled Withdrawn Referred to CCC

200927 5 2 2

201021 14 0 2

High Court Cases

Cape Town 1

South Gauteng 2

Bloemfontein 1

Current Cases

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Types of Complaints

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Complaints by Province

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Complaints per Licensee

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Agenda• Mandate of ICASA• Implications of legislative framework• Fair prices and competition policy• Interconnection Rates• Approach to Broadband• Broadband Infraco Licence• Litigation• Complaints received• Interests of the Poor• Future initiatives to reduce the cost to

communicate

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Interests of the Poor

• Universal Service and Access• Licensing Framework• Consumer Protection• Community Licences• Reduction in the cost of Communication

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Future initiatives to reduce the cost to communicate

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Approach to reducing the cost to communicate

• Reduce of the cost of supply of inputs faced by licensees:– Infrastructure sharing– Engage DoC on rapid deployment guidelines

• Reduce cost of services paid by end-users– Principle of fostering competition to:

• Drive innovation• Drive down prices

– Market reviews (Chapter 10)

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Mechanisms to reduce cost of services paid by end-users

• The Authority may introduce– “price controls, including requirements relating to

the provision of wholesale and retail prices” if found necessary (S67.7(h))

• A price control can only be introduced if the relevant market is ineffectively competitive

• The Authority MUST conduct market reviews to establish the need for price controls

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The process of a market review

• Identify relevant market• Establish whether the market is effectively

competitive• Identify licensees with significant market

power• Determine remedies to address market failure• Conduct regulatory impact assessment on

identified remedies• Develop cost model to set prices• Implement regulations

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Challenges in conducting market reviews

• TIMELINE: minimum of 2years• CONSTRAINTS:

– Budgetary:• Market review, RIA & cost model may cost over R 3

million each!– Skills:

• ICASA does not have skills to – effectively conduct market reviews– Conduct RIA– Develop cost models

• Local suppliers do not have skills to:– Conduct RIA– Develop cost models

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Thank You

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