SNO shareholders’ submission on the Convergence Bill

SNO shareholders’ submission on the Convergence Bill 14 June 2005

Introduction (1) • The SNO shareholders thank the portfolio committee for the opportunity to comment on the Bill • The Bill envisages a fundamental overhaul of the regulatory framework governing the broadcasting and telecommunications sectors in South Africa • The Bill carries with it the prospect of reforming policy in the sector

Introduction (2) • The Bill is the most significant regulatory event since the current telecommunications and broadcasting regulatory frameworks were put into place post 1994 • Ordinarily a statute of this magnitude would be preceded by a Green Paper / White Paper process • Green Paper: analyses the market / raises all the important policy questions for public debate • White Paper: crystallises the policy framework on which the proposed legislation will be based

Introduction (3) • As a result of the absence of a policy framework, many complex policy issues underlying convergence regulation remain unventilated • Although the drafting of the ‘05 Bill is an improvement on the ’03 Bill, the two Bills are conceptually similar on many levels • The unresolved policy issues cannot simply be “fixed” by better drafting, needs to be underpinned by a policy foundation

Introduction (4) • It is recommended that a comprehensive policy framework be put into place before the Bill is finalised • This is crucial for regulatory certainty and stability in the future, and in order to promote growth and investment

Outline of this presentation • General principles • Licensing • Economic regulation • Technical regulation • Universal service / universal access • Rights of way • Transitional provisions

General principles • Licensing • Economic regulation • Technical regulation • Universal service / universal access • Rights of way • Transitional provisions

Aims of the Convergence Bill • Harmonise and reforminfrastructure regulationacross transmission networks (telecommunications and broadcasting signal distribution) • Consolidate duplicity of legislation relating to broadcasting (it is not proposed to harmonise content regulation, but to regulate broadcasting only to the exclusion of internet and other forms of online content) • Harmonise and reform the powers of the regulatorby disposing with bifurcated levels of independence of ICASA in relation to telecommunications and broadcasting

Impact on the existing legislative framework • The Bill will become the primary piece of legislation governing infrastructure & broadcasting regulation. The Bill will replace the following statutes: • Telecommunications Act • IBA Act • The Broadcasting Act will remain in force • Should be renamed the SABC Act • ICASA Act to be amended

Guiding principles that should inform the Bill (1) • Transport and content regulation should be separated • The level of independence of ICASA should to the broadcasting standard, both in respect of content and infrastructure regulation in accordance with s192 of the Constitution • ICASA should be given a greater degree of financial independence by allowing it to retain a portion of licence fees

Guiding principles that should inform the Bill (2) • All traces of co-regulation between ICASA and the Minister should be removed • In line with international best practice, a clear distinction should be maintained between: • Regulation (ICASA) • Policy making (Minister) • Operations (Industry)

Guiding principles that should inform the Bill (3)

Structure of the Bill • Theme areas should be grouped together: • Introductory provisions (definitions and objects) • Powers of the Minister, • Regulation-making powers of ICASA • Infrastructure regulation • Service licensing, • Economic regulation (access, pricing, accounting separation, competition) • Technical regulation (spectrum, type approvals, numbering) • Universal service / universal access • Rights of way • Broadcasting regulation • Co-regulation (consumer protection) • Offences & penalties • Transitional provisions • Schedule of legislation to be amended or repealed

Service licensing regime (1) • The main impact of the Bill is on the authorisation regime (licensing) • Key feature: adoption of a horizontal licensing regime (actually a grid, as there will be vertical service based distinctions in each licence category) • Purpose is to allow flexibility in the licensing framework for new services, unlike the old service-specific regime where new licence categories had to be prescribed each time a new service was developed

Service licensing regime (2) • As currently formulated, the service licensing framework in the Bill is not workable • There is confusion around some of the fundamental concepts

Licence categories (1) • As it stands, there are 7 activity categories: • “Communications network services” – network facility providers • “Communications services” – connectivity providers • “Application services” – enhanced services • “Broadcasting services” – only terrestrial, cable & satellite radio and television content is licensable • “Content services” – inclusive of broadcasting and online content • “Radio frequency spectrum licences” • “Other services as may be prescribed”

Licence categories – recommendations (1) • There should be two infrastructure service licence categories, and the labels used to describe them should be changed to better reflect the underlying nature of the service: • Carriers (Aus) / electronic communications networks (EU) / network facility providers (Malaysia) • Carriage service providers (Aus) / electronic communications services (EU) / network service providers (Malaysia) • Application service category should be deleted

Licence categories – recommendations (2) • Broadcasting services • Should be dealt with separately from infrastructure services • All references to “content services” must be removed, as only broadcasting services are regulated under the Bill • Spectrum licences • Should be dealt with in Chapter 5, not Chapter 3 • Prescription of other licence categories • Should be deleted, not necessary

Licensing methodologies (1) • 3 authorisation methodologies

Licensing methodologies (2) • There is considerable confusion in the Bill between individual and class licensing methodologies • All references in the Bill to the “approval” of ICASA for class licences should be removed • UK class licensing registration procedures – require minimal information: • company registration number • name of contact person • operator’s address • short description of network • estimated start date

Licensing methodologies (3) • Licensing methodologies have been fixed to certain licence categories • Not workable as this creates inflexibility in the regime – licence categories should be delinked from licensing methodologies

Licensing methodologies (4) • Examples of where fixing licensing methodologies to licence categories is not workable: • Connectivity – not appropriate for all connectivity services to be class licensed (MCTS, PSTS should be individually licensed) • Infrastructure – not appropriate for all infrastructure services to be individually licensed, especially if the entry of new players is to be tied to Ministerial pre-approval

Licensing methodologies – recommendations (1) • Specific activities (market sub-segments) should be identified within each horizontal licence category and mapped against a licence methodology

Licensing methodologies – recommendations (2) • The Bill needs to specify the following: • Existing licence activities should be mapped out in advance in Chapter 13 to new horizontal licence categories and licensing methodologies • ICASA should determine whether a new activity should be individually licensed, class licensed or licence exempt • The process for demarcating market sub-segments within each of the horizontal licence categories should be preceded by a rigorous market analysis

Licensing methodologies – recommendations (3) • The Bill also needs to indicate the criteria for mapping activities to licensing methodologies (individual / class / exemptions), which should include: • the socio-economic importance of the activity to the country • the prevalence or absence of competition within the relevant market sub-segment • the need to promote universal access / universal service

Setting of licence conditions (1) • The Bill makes provision for ICASA to set: • Standard licence terms and conditions for individual and class licensees • Additional licence terms and conditions on licensees who: • have significant market power (SMP) • have control over essential facilities • should have universal access or universal service conditions imposed • are vertically integrated in a way that ICASA determines could harm competition • Should also include: special conditions for licensees under the managed liberalisation framework, must common carrier obligations (broadcasting)

Setting of licence conditions (2) Generic provisions of the Bill apply to all relevant activities Standard licence conditions common to individual and class licences Standard licence conditions common to individual licences Special conditions Undertakings Exempt Individual Class SOURCE: ICASA presentation to Parliament on 24.05.05

Processes for setting licence conditions (1) • Procedure for setting standard licence conditions • Public notice and comment process • Procedure for setting additional licence conditions • Public notice and comment process • There should be a rigorous process for determining the presence of SMP, etc • As far as possible, additional obligations should be contained in regulations, not rather than in licence conditions (for the sake of uniformity)

Economic regulation • All provisions in the Bill dealing with economic regulation need to be grouped together • Access regime (interconnection, facilities leasing, etc) • Price controls (retail and wholesale pricing) • Accounting separation obligations (COA/CAM) • Competition regulation

Access regime (1) • Principal considerations: • Activities covered by the access regime – what facilities / services are covered? • Access providers – who should be obligated to provide access? • Access seekers – who is entitled to seek access? • Access prices – who should be obligated to provide access at cost-based prices?

Access regime (2) • Activities covered by the access regime • Currently confined in the Bill to interconnection and facilities leasing • May be too narrow – excludes conditional access systems / common carrier obligations for broadcasting signal distributors

Access regime (3) • Access providers • Currently, the obligation to provide access is linked to licence category (infrastructure layer) • The Bill will have the have the effect of opening up the market for facilities based competition in the long term • It will be unworkable for all licensees of a particular category to provide access – the obligation to provide access should be asymmetrical / linked to significant market power (SMP)

Price control regulation • Price control regulation should only be imposed in those market segments where no or insufficient competition exists • Processes need to be put in place to determine relevant product and geographic markets characterised by a lack of competition • Consideration needs to be given to the question of local loop unbundling, that is the obligation to provide access to the local loop at cost based prices

Accounting separation • The obligation to file regulatory accounts should be asymmetrical • Only licensees with SMP should be required to file regulatory accounts in accordance with the COA/CAM

The concept of SMP (1) • One of the most important conceptual shifts in the Bill is the introduction of the notion of SMP • Incorporates ex ante regulation where there is SMP – shifts the focus of regulation to established operators who wield market power • SMP is / should be linked in the Bill to: • The imposition of additional licence conditions • Access, pricing, accounting separation, general competition regulation

The concept of SMP (2) • There is no alignment of the concept of SMP in the Bill with that of market power in the Competition Act • The Bill conflates the concepts of dominance and market power, which are treated as discrete notions in the Competition Act • The thresholds in the Bill, the Competition Act and the Interconnection and Facilities Leasing Guidelines are out of synch with each other

Processes for determining SMP (1) • There are no processes in the Bill for determining SMP • In line with international best practice (EU), the Bill should include an explicit SMP determination mechanism

Processes for determining SMP (2) • The SMP determination should define and analyse the following: • Relevant product and geographical markets • Non-transitory barriers to entry (both statutory and structural) • The market participants • ICASA must give notice of its intention to make an SMP determination in the Gazette, together with reasons • ICASA must invite written representations from the public • ICASA must publish the SMP determination in the Gazette once it has been finalised

Principles for SMP determinations • SMP determinations should be rational, based on the outcome of a market analysis • SMP obligations should proportional • ICASA should be required to conduct periodic market reviews • Asses the continued appropriateness of existing SMP obligations, etc • Determine the need for the imposition of new SMP obligations, etc

Technical regulation • All aspects of the Bill dealing with technical regulation should be grouped together: • Spectrum regulation • Equipment type approvals • Numbering (including carrier pre-selection, number portability, numbering plans, directory services, etc)

Spectrum regulation (1) • Spectrum policy • Spectrum regulation framework has been largely functional up until now • However, consideration needs to be given to the policy considerations tied to managing the spectrum under a convergence regulatory regime

Spectrum regulation (2) • Examples of areas that require policy consideration: • Alternative spectrum allocation methodologies (spectrum trading, anti-hording mechanisms) • The bundling of analogue spectrum to broadcasting service licences • The transition from analogue to digital

Spectrum regulation (3) • Regulation and management of the spectrum • The Bill grants the Minister and ICASA co-jurisdiction over certain aspects of spectrum management which were not there previously • The Minister should be empowered to set spectrum policy only • ICASA should be vested with the power to regulate the spectrum – including setting the band plan, assigning spectrum, grant licences, etc

Spectrum regulation (4) • Spectrum licensing • Spectrum licensing should be dealt with in Chapter 5 • The licensing of the spectrum should not be linked to any particular licensing methodology (as currently conceived, all uses of the spectrum need to be individually licensed)

Spectrum regulation (5) • Co-ordination to prevent harmful interference • The Bill proposes to allow spectrum licensees to co-ordinate between themselves to prevent harmful interference • This is not appropriate. ICASA is best placed to tackle this

Equipment type approvals • The Bill currently requires ICASA to type approve equipment • In order to simplify administrative processes, ICASA should be empowered to recognise the type approvals of other certifying agencies (such as SABS (local) and ETSI (international))

SNO shareholders’ submission on the Convergence Bill