Empowering SA Telecommunications: Convergence Bill Overview

1. Presenting Team • Andile Ngcaba Chairman Dimension Data (SA) • Angus MacRobert CEO Internet Solutions • Hillel Shrock Director: New Business Development • Siyabonga Madyibi Head: Regulatory Affairs

2. Opening Remarks • IS welcomes the opportunity to comment on the Convergence Bill • IS congratulates the Minister and the Department of Communications for drafting and tabling the Convergence Bill • IS appreciates the opportunity to address the Portfolio Committee on the Bill • IS believes the Bill goes a long way to creating a solid legislative and regulatory framework, within which convergence can take place

3. The context of the Convergence Bill • The birth of our new democracy heralds SA as a leader in African telecommunications deregulation and development • SA ranks 23rd in the world in terms of telecommunications development and needs to continue to liberalize the market progressively in order to maintain this developmental path • Despite this favorable ranking telecommunications development in SA continues to reflect disparities of first and second economy • Large areas of the country, especially rural areas remain unaffected by telecommunications development.

4. The context of the Convergence Bill • Need for continued economic empowerment of historically disadvantaged communities through: • the extension of affordable and accessible telecommunications services to these communities; • by providing required infrastructure as well as by generating employment in the sector itself; • establishing networks to serve e-learning, telemedicine, e-government and small to medium enterprises. • Our fundamental goal - balance the provision of basic universal service in telecommunications to disadvantaged rural and urban communities.

5. Change is Inevitable • Telegraphy PSTN VoIP • Need to regulate convergence creatively. • Convergence Bill must make provision for: • Convergence of fixed and mobile; • Voice, data and content (images) carried by same technologies; • Blurring between fixed line and Wireless services; • Regulatory regime able to deal with the converged environment.

6. Angus MacRobert

7. Overview of Internet Solutions (IS) • Leading ISP and a Converged Communications Service Provider in SA; • Turnover – R1 Billion; • More than 5000 direct corporate customers (including 80% of top 250 listed corporates); • 65% of consumer dial up market on our network – 600, 000 dial up subscribers; • Slow take up of ADSL – 8000 customers; • Manages more than 600 MEGs of international bandwidth; • With VoIP, Mobility, Broadband, IS is poised to become the Next Generation Telco.

8. Changing the communications regulatory landscape through the Convergence Bill • Government at various levels has indicated its intention to bring down the cost of telecommunications. • SA needs to move with speed in the deregulation path in order to realize the benefits of liberalisation. • The Convergence Bill presents the country with an opportunity to fulfill government’s objectives.

9. Changing the communications regulatory landscape through the Convergence Bill • To realize these objectives the Convergence Bill needs to address the following: • Absence of a wholesale pricing regime which means high input costs for companies like IS – this translates into high input costs for the economy • Creation of an environment where companies like IS are able to offer competitive broadband services • Key bottlenecks to competition still remain in both backbone and access layers • Development of a regulated wholesale price regime for access to the SAT-3 cable, SAT-4, EASSy submarine cable, Satellite etc

10. Changing regulatory landscape…cont • Introduction of phased measures for unbundling the local loop • Efficient and innovative spectrum management that encourages the deployment of next generation networks • Allow competitive deployment of a variety of different access technologies from traditional wire line solutions to emerging wireless technologies like WiMax • Use of interconnection as a competitive tool – allow horizontal and vertical application

11. Siyabonga Madyibi

12. Market Structure – Current Draft of the Bill • Convergence Market - Horizontal Segmentation: • Application Service Licence • Communication Service Licence • Communication Network Service Licence • Infrastructure competition limited – Individual Licence • Serviced based competition completely liberalized – Class licence

13. Content Services Applications Services Network Services Network Facilities Malaysian Model Less regulation Licensees can compete in any of four markets within the sector, i.e. Facilities, Connectivity, Applications, and Content Applications Individual Class Exempt Licensed Unlicensed

14. Effective services based competition • The proposed three tier model results in aggregation into same broad class of disparate types of service providers; • Inappropriate application of uniform licence terms and conditions regardless of scope of services; • Artificially distorts the market and makes it difficult to differentiate oneself as a services based player in the market; • Definitions of application services and communication services need to be clarified. • Need for individualisation of communication service licenses that require access to scarce resources for provision of services.

15. Access to scarce resources • Inability to individualise certain service based licenses creates an unrealistic demand on critical resources like: • Wholesale pricing; • Numbering and number portability; • Spectrum; • Carrier pre-selection. • Only a three tier market structure with individual licenses at network and communications services layer will unlock effective facilities and services based competition.

16. Lack of Facilities based competition • SA history of monopoly resulting in absence of facilities based competition; • Bill contemplates closed group of infrastructure licenses and Ministerial intervention necessary for new licenses; • Bottlenecks in the market to be retained and bandwidth problems likely to perpetuate.

17. Lack of Facilities based competition • Uncompetitive consolidation of dominant operators (Malaysia and Australia); • Bill needs to encourage development and introduction of new technologies – categorization of technologies as facilities likely to result in market stagnation; • Communication service licensees with individual licenses should be entitled to provide own communication facilities where the provision is incidental to the service being provided.

18. Hillel Shrock

19. Access • Network access strategically important • Dependency on infrastructure providers vs. individualised licensee setting market price and raising bar for facilities delivery • International bandwidth and gateways • Opportunity for SA to become a traffic hub for the African continent • Restrictions at home hinder international business • IS participation in cable consortia > limitations are self imposed • Access to local loop • Basis of supply • Unbundled and non-discriminatory • Unwilling or unable > unworkable and litigious • Ideally> as little regulation as is possible • Rapid deployment of new technologies and use of IP services

20. Wholesale Pricing • Transparent wholesale pricing structure > uniformity of pricing models as between different categories of licensees • Dependency > any price discrimination should be based on legitimate objective criteria • Definition of ‘wholesale’ - appears to envisage provision of wholesale rates between licensees in the same licence category • Wholesale pricing not permissible for direct services not intended for resale

21. Interconnection • Interconnection is critical to allow new entrants to compete • Closed user communities • SA consumers “unhooked” > ensure “any to any” access • Track record postulates for prospective intervention sanctioned by statute • Services level interconnect > innovative packages and pricing • ICASA has entrenched IS’ right to interconnect through licensing • Interconnection pricing principles • SMP> unbundled and non discriminatory in relation to supply of own downstream business (“itself or affiliate”)

22. Convergence: Critical Success Factors • Clear definitions • Appropriate licensing framework- with flexibility to accommodate market developments and rapid technological change • Efficient spectrum management • Equal rights to international gateways and connectivity • Strike balance between: • attracting investment to the sector and facilitating further competition • removal of universal service anomalies • best long term sustainable interest of end users

23. Andile Ngcaba

24. Position SA as an African business Hub • SA strategically positioned to play a leading role in development of Africa’s communications development; • Already the United Nations runs large parts of its infrastructure in Africa from SA; • In order to compete globally we need to embrace global technological and regulatory developments; • The Convergence Bill needs to create space for SA telecommunications players to compete in the global stage for African traffic.

25. Conclusion • Government objectives: • lower retail prices; • unlock bandwidth; • create a more competitive market; • increase opportunities for BEE players; and • contribute to the development of modern infrastructure that puts SA at the forefront of economic competitiveness. • Bill (with some modification) is a good measure to achieve these government objectives

26. Closing remarks • IS thanks the committee for the opportunity to make these oral submissions. • We are pleased to be part of the discussions on this important piece of legislation and we look forward to the finalization of the Convergence Bill.