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competition commission

south africa

DATA SERVICES MARKET INQUIRY


FINAL REPORT

SUMMARY OF FINDINGS
AND RECOMMENDATIONS
NON-CONFIDENTIAL

competition commission
south africa

YEARS

2 DECEMBER 2019

competition regulation for a growing and inclusive economy


SUMMARY OF FINAL FINDINGS AND
RECOMMENDATIONS OF THE
DATA SERVICES MARKET INQUIRY

1. The Data Services Market Inquiry (the which had received limited input in the
“Inquiry”) was initiated by the Competition initial submission and hearings.
Commission in terms of Section 43B(2) of
the Competition Act No. 89 of 1998 (as 3. This report provides the final findings and
amended) (“the Act”) in August 2017. The recommendations of the Commission.
initiation of the Inquiry followed persistent
concerns expressed by the public about the BENCHMARKING AND
high level of data prices and the importance PROFITABILITY ANALYSIS CONFIRM
of data affordability for the South African SOUTH AFRICAN PRICES ARE HIGH
economy and consumers. The purpose
of the Inquiry as set out in the terms of 4. The Terms of Reference required that
reference is to understand what factors or the Inquiry undertake an international
features of the market(s) and value chain benchmarking of South African data prices.
may cause or lead to high prices for data Notwithstanding the challenges involved,
services, and to make recommendations international price comparison studies do
that would result in lower prices for data have some probative value by providing
services. a simple and effective cross-check on the
general level of advertised prices in a market.
2. Following the initiation, a formal Call Their use has become relatively standard
for Submissions was published on 20 internationally and the Commission was able
September 2017. Sixteen submissions were to draw on an extensive volume of existing
received, including the major operators benchmarking exercises including that of the
and consumer rights organisations. The International Telecommunication Union (ITU),
Commission’s Inquiry team also held public Tarifica, the Independent Communications
hearings in Pretoria from 17 to 19 October Authority of South Africa (ICASA), and
2018 where oral and written submissions Research ICT Africa. Whilst these focus on
were received from 15 stakeholders. advertised prices for 30-day bundles and the
The Commission has also requested and effective prices, which incorporate free data
received information on services and prices offers and short-validity bundles but also
from major operators as well as information data expiry, may differ to advertised prices,
from other market players. The Provisional this is the case for all countries and not just
Report of the Inquiry was published on South Africa.
24 April 2019, outlining the provisional
findings and recommendations. Seventeen 5. The existing international comparisons on
submissions were received in response mobile prepaid data prices collectively
to the Provisional Report. Following the indicate that South Africa currently performs
submissions, the Inquiry team had further poorly relative to other countries, with prices
engagements with all the operators as generally on the more expensive end.
well as other stakeholders. This involved
5.1 The ITU data shows that South Africa
further requests for information or clarity
ranks poorly when compared across a
related to their submissions, but also further
worldwide selection of countries and is
investigation of the fixed line supply gap
considerably more expensive than the

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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FIGURE 1: MOBILE PREPAID DATA PRICES IN USD (PPP), 500MB (2017)

Source: Adapted from ITU 2018 Measuring the Information Society Report

FIGURE 2: COMPARISON OF 1GB PRICE FOR SA AGAINST 36 AFRICAN COUNTRIES (Q3 2015
TO Q3 2019)

Source: RIA RAMP Index and data submissions to the Commission

cheapest offers. The ITU also finds that 5.2 The more recent Tarifica Global
South Africa also ranks poorly relative to Benchmark Report for Q1 2019 confirms
other African countries as a group. Whilst that not much has changed over time.
there is a lag in the release of the data, Tarifica looks at usage profiles and
its findings are relatively consistent year examines the cheapest data bundles
to year and domestic headline prices available for that usage group. For
have not been declining substantially. mobile prepaid data-only plans, Tarifica
Furthermore, prices in other markets are ranks South Africa 22nd out of 25
also on the decline. The figure above countries for heavy users and 18th for
shows the international comparison moderate users. Its light user measure is
based on ITU data. not meaningful as a large number of the
countries do not offer small packages.

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FIGURE 3: VODACOM 1GB TARIFFS ACROSS AFRICA (2019)

Source: Vodacom and Vodafone websites (updated November 2019)

FIGURE 4: MTN 1GB RETAIL DATA TARIFFS ACROSS AFRICA (2019)

Source: MTN websites (updated November 2019)

5.3 Research ICT Africa (RIA) RAMP index prices are higher than most countries by
data which has prices up to Q3 2019 some distance, even in Lesotho where
across 37 African countries, concludes Vodacom is the effective monopoly
that not only does South Africa perform provider. This is notwithstanding the
poorly relative to our continental peers, recent price reductions of Vodacom
but this has worsened over time. This South Africa which are captured in the
result is independent of exchange rate figure above.
fluctuations and is driven by headline
prices declining in other countries but 6. Vodacom and MTN have argued that such
not South Africa. comparisons are uninformative because
cost and quality differences across countries,
5.4 Furthermore, current comparisons of the including spectrum allocations, may account
prices charged by Vodacom and MTN for the differences in pricing. They have
in other African markets in which they also argued that such comparisons involve
operate also reveal that South African headline 30-day tariffs and that effective

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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prices, including promotions, short-validity holding demonstrate that the
bundles and free data, are a better basis for capital and operational expenditure
comparison. implications are small relative to the
price differentials observed.
6.1 However, despite having detailed cost,
quality and effective price information 6.3 The operating margins and profitability
across the different African markets of these two operators across the
in which they currently operate, the different countries is further evidence
operators have failed to make use of that neither differences in costs nor
this information to demonstrate that the use of effective prices changes the
cost and quality factors do account conclusion that prices in South Africa
for the price differentials or that South are high. The financial statements
African effective prices are in line with reflect the actual costs of operations
other markets. The failure to do so as well as the net revenue generated
leads to the obvious conclusion that and therefore capture such factors. For
the results are unhelpful to their case Vodacom, the South African operations
and therefore one can deduce that have consistently seen materially higher
these factors do not account for the earnings before interest and taxes
price differentials observed and that (EBIT) and earnings before interest,
South Africa still performs poorly when taxes, depreciation and amortisation
assessed on effective prices. (EBITDA) margins over time, as well
as higher returns on capital employed
6.2 This is confirmed by analysis (ROCE). The latest financial year is no
undertaken by the Commission which different as reflected in the table below.
finds that there is no strong correlation MTN South Africa’s EBITDA margins
between many of the factors cited are only marginally lower than that of
and differentials in costs. This is even Vodacom at 35.1% in FY2018. The MTN
the case for factors such as spectrum comparators include several high profit
holdings, where there are countries countries which means these also have
that are cheaper than South Africa higher margins on average.
which have also not released the
digital dividend spectrum. Indeed, 6.4 Furthermore, applying the price-
Vodacom’s own submissions on the cost test (as used in excessive
cost impact of the lower spectrum pricing investigations) to Vodacom’s

TABLE 1: VODACOM FINANCIAL PERFORMANCE IN SOUTH AFRICA AND OTHER MARKETS (FY2019)

Country EBIT margin EBITDA margin Capital intensity Estimated ROCE


Overall Group 26.0% 37.4% 14.4% 23.7%
South Africa 28.4% 38.9% 13.4% [55% - 60%]
International 17.2% 31.3% 16.9% [10% - 15%]

Source: Vodacom Group Annual Report year ended 31 March 2019, Vodacom Pty Ltd Annual Financial Statement for the year
ended 31 March 2019 (Confidential); Commission calculations

TABLE 2: VODACOM SOUTH AFRICA’S PRICE-COST MARK-UPS, FY2014 - FY2019

31 March 31 March 31 March 31 March 31 March 31 March


2014 2015 2016 2017 2018 2019
Calculated price-
[20% - 25%] [20% - 25%] [15% - 20%] [20% - 25%] [20% - 25%] [15% - 20%]
cost mark-up
Sources: Vodacom Pty Ltd Annual Financial statements for years ended 31 March 2015 – 31 March 2019; Commission workings

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FIGURE 5: EXAMPLE OF VODACOM'S PRICE DISCRIMINATION BY BUNDLE SIZE (2019)

Source: Own construction based on data collected from Vodacom’s website as at November 2019

annual financial statements for South finding is indicative of a potential structural


Africa reveals that its overall mobile problem with retail prices in South Africa,
operations, inclusive of data and voice, whereby poorer, prepaid consumers are
have consistently delivered mark-ups exploited with relatively higher prices than
of prices in excess over economic costs the wealthier postpaid consumers.
(which include a fair return on capital)
in the region of [20% - 25%] on average ANTI-POOR RETAIL PRICE
over the past six years. This level of STRUCTURES LACKING
mark-ups is sufficiently high to establish TRANSPARENCY
a prima facie case of excessive pricing 8.
The Provisional Report identified that,
by Vodacom. A similar exercise for MTN consistent with the benchmarking, lower
reveals lower, albeit positive mark-ups. income consumers who purchased smaller
High levels of profitability and mark- data bundles were faced with inexplicably
ups are also indicators of market power higher costs per megabyte (MB) relative
and a lack of effective competitive to the consumers who purchased much
constraints on pricing levels. larger data bundles. This pattern of price
7. As identified in the Provisional Report, discrimination is illustrated in the figure
South Africa performs a little better on above for Vodacom’s 30-day data bundles,
the same international benchmarks for which shows that pricing per MB for smaller
mobile postpaid data prices relative to bundles is multiple times the price per MB
the prepaid data prices, although South of larger bundles even if the absolute cost is
Africa is still considerably more expensive lower.
than the cheapest countries and is seeing 9. As the Provisional Report noted, such
its ranking decline over time. The global differences in pricing cannot be explained
ITU sample (2017) ranks South Africa 37th by cost differences. Those operators that
(of 167 countries) worldwide and 12th (of have cited cost differences as a factor
43 countries) in Africa. Tarifica (Q1 2019) have not put up any compelling evidence
ranks South Africa 19th (of 25 countries) for to support that assertion despite being
heavy users and 6th for moderate users. This afforded the opportunity to do so. This

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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leads to the obvious conclusion that cost such partitioning strategies and exploitative
differences cannot explain such differences price discrimination.
as otherwise the evidence would have been
tendered. 13.1 The strategy in South Africa for the
two dominant operators has been
10. Rather, the operators have sought to to maintain the high pricing levels of
argue that this represents pro-competitive 30-day prepaid data bundles despite
price discrimination which raises overall headline price reductions by challenger
consumer welfare, and that poor consumers networks. This is in stark contrast to their
elect to make greater use of short-validity behaviour in other African markets in
data bundles (hourly, daily and weekly which they operate, where there have
bundles) and URL-restricted bundles (e.g. been reductions in the 30-day prepaid
WhatsApp bundles) which, along with data bundle prices. This indicates
free and promotional data use, result that they are more capable of price
in either the same or lower effective discrimination strategies in South Africa
rates per MB as wealthier consumers. where they dominate.
They seek to demonstrate this through
alternative approaches to identifying 13.2 Successful partitioning is also evident
poorer consumers, with Vodacom using from the vast differences in data prices
geolocational data on overnight residency that the operators have been able to
and MTN using average revenue per user charge different subscriber groups. For
(ARPU) data. instance, Vodacom has responded to
some of the high volume postpaid data
11. The Commission does not find any of these deals of Telkom Mobile with pricing as
arguments compelling and remains of low as R199 for 20GB (20 gigabytes)
the view that poorer consumers in South anytime data (with 20GB night-time data),
Africa are being unduly exploited relative and yet it has successfully prevented
to wealthier consumers. Furthermore, that such deals from ‘contaminating’ its
this outcome is likely to be in part driven by prepaid side where 1GB persisted at a
the lack of competition in the mobile data cost R149 for a number of years even
market and the lack of data alternatives for if it came with another GB free (only
the poor relative to the wealthy, such as recently did Vodacom drop the price to
fibre to the home (FTTH) and Wi-Fi in the R115, with a R99 price available only on
workplace. the operator app).

12. Firstly, whilst price discrimination can be 13.3 The gathering and analysing of
welfare enhancing, it can also be exploitative. personal data usage in order to make
As recognised by the OECD (2016), personalised offers also seems to be
firms with market power can make use of premised on identifying opportunities
partitioning strategies to facilitate greater to expand revenue per subscriber
levels of price discrimination in order to rather than offer lower prices to more
raise the overall level of margins and prices price sensitive subscribers.
above what they would otherwise achieve.
Partitioning strategies include taking steps 13.4 As identified in the Provisional Report,
to prevent arbitrage, to distinguish between the complexity of pricing structures
sophisticated and naïve customers, to alone often leads to behavioural biases
distinguish between high volume and low that are exploited by operators, a
volume purchasers, as well as gathering common critique of price discrimination
and analysing data on individual customers’ in telecommunications markets.
willingness to pay for a product. Complex pricing structures can
discourage consumers researching
13. The pricing behaviour of the dominant the best price (incl. across operators),
operators in South Africa and the outcomes resulting in consumers sticking to
of high profit margins are consistent with what they are familiar with even if it is

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inferior, or making judgement errors by data services. Data for one operator
switching to ultimately inferior options. shows data purchased by lower income
For instance, punitive out-of-bundle consumers is on average valid for less
rates result in a behavioural bias to than a third of a month, a level far lower
buying larger bundles than required than wealthier consumers. Alternatively,
and the short-validity of other bundles poor consumers must pay a materially
may result in low utilisation such that higher price per MB if they wish to have
consumers do not realise the full benefit a continual service. The point of an
of data bundles. affordable data service to all citizens is
that they have continued access to that
14. Secondly, short-validity bundles are clearly service at an affordable price.
inferior options in contrast to monthly data
bundles as they only provide access for a 15. Thirdly, the Provisional Report made use
short period, and therefore it is no answer of monthly volume usage as a proxy for
to state that poorer consumers can and poorer consumers and this demonstrated
do turn to these alternatives in search of that those purchasing smaller volumes paid
better value. At best for the operators, all materially higher effective prices than those
this indicates is that poor consumers must consumers purchasing greater volumes.
accept receiving an inferior intermittent Whilst criticising this exercise, the operators
data service if they wish to pay a similar have not provided compelling evidence
amount per MB as the wealthy. At worst for themselves that poorer consumers receive
the operators, the poor still pay more per any better effective pricing than wealthier
MB than the wealthy and on top of that get consumers even with access to short-validity
an inferior, intermittent service. Either way, bundles, URL-restricted bundles and the
what is apparent is that on a like-for-like occasional free or promotional data.
basis, a monthly data service provided to
the poor is inexplicably more expensive per 15.1 Neither operator ultimately rebutted the
MB than to the wealthy. exercise undertaken in the Provisional
Report. Both Vodacom and MTN instead
14.1 A monthly data bundle seeks to ensure focused on arguing for alternative
continued data service availability proxies for identifying lower income
over the entire month, and at the consumers other than volume of data
same price per MB. Short-validity purchased. However, what is self-evident
bundles, especially hourly or daily from the evidence provided is that whilst
bundles, provide data access for a the Commission’s proxy is not a perfect
very brief period only. Furthermore, it delineator of income groups, neither
is uneconomic to purchase hourly or are the other measures proposed by the
daily bundles on a continual basis and two large operators. In addition, their
purchasing four weekly bundles is no delineation still revealed the trend that
cheaper than a monthly bundle. The volume usage is correlated with income
short-validity also risks lower levels of which is the Commission’s measure.
utilisation as subscribers fail to fully
exploit the bundle before it expires. 15.2 MTN made use of the same sample
as that used by the Commission but
14.2 The evidence provided by the sought to argue that ARPU was a better
operators does indeed show that proxy for the income of the subscriber
poorer consumers have become rather than the volume of data used.
increasingly reliant on short-validity data It also sought to ‘clean’ the data, after
bundles and to a far greater extent than which it claimed to demonstrate the
wealthy consumers. The numbers are counterintuitive outcome that lower
particularly concerning and suggest income consumers paid far less per
that the bulk of poor consumers are MB than wealthier ones. However, what
likely to be in the position where they is apparent is that the result is highly
do not have continual daily access to sensitive to this ‘cleaning’ exercise as

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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well as the weighting used. It also used a 16. The Commission therefore finds that the
period where MTN promoted its service current pricing strategies of the two larger
by offering 1GB free data with each operators are anti-poor insofar as lower
SIM, strongly impacting on the results. income consumers who may purchase less
Using reasonable assumptions that also data pay inexplicably higher prices than
preserve more of the sample, and simple wealthier, larger volume consumers on
averages which more accurately reflect a like-for-like basis. This is in the context
the mean, results in the completely where pricing overall is already high. Poorer
reverse (and more intuitive) conclusion, consumers are faced with little option but to
namely that most poorer consumers resort to purchasing short-validity bundles
do indeed spend more per MB than in pursuit of lower prices, but this is no
wealthier ones. answer as it does not provide them with
continual data access at affordable prices.
15.3 Vodacom sought to do a more complex
exercise of using the night-time location 17. Furthermore, the Commission also finds
of the subscriber as a determinant that the evidence is consistent with
of their income level based on the larger operators being actively engaged
average income per suburb from the in exploitative price discrimination and
2011 census. The Commission team partitioning strategies in order to push up
has consistently found anomalies and margins and prices. These partitioning
errors in this exercise which have been strategies also work against the poor as
acknowledged by Vodacom, and most it has enabled the operators to engage in
likely are the result of an ambitious but far lower pricing to postpaid high-volume
complex exercise. However, even if the data customers in response to the fixed
results are accepted at face value, at best LTE offerings from Telkom Mobile and
they demonstrate that poor consumers RAIN, whilst still preserving the prepaid
historically did far worse than wealthier mobile phone data services at much higher
consumers, and that only very recently prices. These strategies precisely exploit the
this gap may have been eliminated but lack of alternative data services to poorer
only through an increased dependency consumers, at least for lower volume usage
on short-validity bundles. As already levels. The figure below demonstrates
discussed, this is cold comfort for the this vast disparity between postpaid and
poor. prepaid.

FIGURE 6: PRICE DISPARITIES BETWEEN PREPAID AND POSTPAID DATA PLANS ON VODACOM

Source: Vodacom’s website (November 2019)

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18. In addition, the operators benefit from an price-cost mark-ups are at such high levels
overly complex pricing structure resulting that a prima facie case of excessive pricing
from price discrimination which reduces exists. MTN South Africa has marginally
pricing transparency in the market and lower EBITDA margins relative to Vodacom
allows them to benefit from consumers and consistently positive price-cost mark-
making poor decisions around which ups.
options are best for them, including which
operator to subscribe to. The further shift 22. The pricing analysis undertaken by the
to personalised pricing in the context of Commission in the Provisional Report and
market power and existing exploitative the evidence provided to the Commission
price discrimination is extremely concerning since confirm that these two operators are
for the Commission. to a large extent able to price independently
of the challenger networks, regardless of the
PRICE-BASED COMPETITION IN recent adjustments in price by Vodacom.
MOBILE MARKETS INADEQUATE
22.1 On headline data prices, Cell C has
19. Based on the evidence before the historically been more aggressive and
Commission, we find that price-based yet the two larger networks have found
competition is inadequate, the challenger it profitable to not follow their pricing
networks of Cell C and Telkom Mobile are downwards. As a result, it seems that
unable to effectively constrain the two first- Cell C has recently determined that it
movers, and that Vodacom has substantial cannot win sufficient share by lowering
market power, with MTN to a lesser degree. prices and has proceeded to raise
There was a consensus in the submissions them back upwards. More recently, it
to the Commission on this point, with the has been the turn of Telkom Mobile
obvious exception of Vodacom and MTN to be more aggressive on pricing,
themselves who continued to maintain that dropping headline rates well below its
the market was competitive. rivals. However, the larger networks,
especially Vodacom, have historically
20.
The retail mobile market has remained not sought to respond with lower
stubbornly concentrated despite the headline prices themselves and it is
entry of two challenger networks over not apparent that Vodacom’s recent
time. Vodacom has a share in mobile adjustments to pricing on its 1GB
services more generally, and data services bundle represent a direct response to
specifically, that exceeds the thresholds another operator.
used in the Competition Act for a conclusive
determination of dominance. MTN has 22.2 Whilst the two largest operators claim
constantly skirted around the threshold level to respond in other ways, such as short-
where there is a rebuttable presumption validity bundles and selective free or
of dominance. These shares have barely promotional data, the Commission
changed over time, and even the most has found little evidence of any direct
recent estimates confirm this scenario with and relatively immediate responses
the two incumbents collectively holding at to the price reductions by challenger
least 70% of data revenue and 80% of total networks on like-for-like products. In
subscriber service revenue. all the cases cited by the dominant
operators, the alleged response
21. The existence of market power and appears to have no relation to the
ineffective competition is also reflected timing of the competitor’s change.
in the profitability of Vodacom and MTN, The only case where there appears
both in absolute terms and relative to their to be a direct response on a like-
operations in other markets. As reflected for-like product is on high usage
above, Vodacom’s South African operations postpaid data-only bundles offered
have materially higher margins than its by Telkom. What is also of interest is
operations elsewhere, and its estimated that Vodacom did not even mention

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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Cell C in its discussion of competitive 23.2 The constant battles Cell C has
constraints. The difficulties that Cell C had with its debt levels and equity
currently faces has clearly impacted on refinancing over an extended
its ability to impose any real constraint period are reflective of precisely this
on the dominant operators. challenge for the newer networks. Its
current financial woes only serves to
22.3 The fact that the challenger networks highlight this difficulty entrants face.
hold a much higher share of actual Telkom Mobile has had the benefit of
data traffic relative to their share of a parent company with other business
data revenue indicates that revenue lines, but it is still having to fund new
per GB for the dominant two networks infrastructure with debt. It too has
is considerably higher than that recently had to go out to the market for
of the challenger networks. This financing to fund its mobile business
evidence demonstrates that short- expansion despite showing healthy
validity and promotional data, which subscriber growth. This places the
would be included in the revenue smaller networks at a disadvantage
per GB measure, has not been the in providing the same subscriber
means of competitive response to coverage and network quality.
challengers’ pricing. Rather, this is
further confirmatory evidence that 23.3 The network infrastructure and
the two largest operators have the profitability advantage in turn
power to price independently of their weakens price-based competition as
competitors. lower prices from challenger networks
do not necessarily get a pronounced
23. The resilience of the dominant positions subscriber switching response
lends credence to the submissions which due to network quality differences.
suggest certain market features serve to This permits the larger networks
perpetuate the incumbent positions of to be less responsive on price and
Vodacom and MTN, including first mover maintain higher levels of profitability,
advantages, and that the failure to regulate perpetuating the cycle of higher levels
these in the past has contributed to this of infrastructure expenditure. It also
dynamic. The market features which seem softens price competition from the
to play more of a role are the following: challenger networks as aggressive
23.1 The larger subscriber base and price declines may become financially
levels of profitability of the two unsustainable, especially considering
largest networks provides them with the need to still fund investment
a considerable advantage in rolling in infrastructure. Where there is an
out new technologies and services insufficient subscriber response, lower
relative to the challenger networks. prices provide less revenue from which
This is because the large capital to fund capital expenditure. Where
expenditure requirements to provide lower prices do attract subscribers,
wide coverage of such services and the network capacity will be placed
ensure sufficient capacity to maintain under pressure requiring more capital
high network quality levels can be expenditure but also risking the loss
funded out of retained earnings whilst of subscribers if network quality
still providing ongoing shareholder degrades. The outcome is that the
returns. In contrast, the smaller and challenger networks may have to
less profitable subscribers of the resort to softer price competition in
challenger networks means they are order to protect their financial viability.
not able to fund capital expenditure 23.4 The greater scale built through first-
to the same level, in part because they mover advantages provide other
need to do so through shareholder benefits to the incumbents, namely a
equity or debt funding.

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lower unit cost base than the challenger the other will influence the outcomes
networks. Their coverage advantage of these negotiations and whether
coupled with uncompetitive roaming challenger networks receive a competitive
agreements have also provided the arrangement. The Provisional Report found
ability to be the network of choice in that historically these agreements have
rural and less populous areas. This been one-sided in favour of the incumbent
means that challenger networks are operators, with high minimum payments
less able to impose a real pricing required, high marginal rates, poor
constraint on the larger networks. The roaming quality through lack of seamless
stickiness of more valuable contract handover and denial of roaming for new
customers, more favourable site data service lines.
locations and spectrum assignments
are also factors that have played into 26. The Commission finds that whilst the
the hands of first-mover networks latest agreements provide improvements,
historically, albeit that their role or most especially on the quality of service
effect may have reduced over time. but also on price, they remain generally
unfavourable to the challenger networks,
24.
The findings in the retail market also especially those with less bargaining
point towards potential problems in the leverage. It is also not evident that the
wholesale markets. This is because later bargaining dynamic has necessarily
entrants (and retail service providers such changed materially, but rather that lower
as Mobile Virtual Network Operators - unit costs for data made a downwards
MVNOs) generally rely on the wholesale revision inevitable.
supply of infrastructure and other services
from first-mover incumbent operators for 26.1 From a pure bargaining dynamic,
the supply of their own services. Whilst Vodacom and MTN are the only
this provides an opportunity to provide networks with national coverage
challenger networks with some of the and therefore the only options for
benefits acquired by the larger networks, those seeking a national roaming
the reality is that it is rarely in the interests arrangement. Whilst Vodacom roams
of the larger networks to provide access, on RAIN for capacity in metro areas,
or to do so on fair and reasonable terms, RAIN is not an option for the other
where they have high market shares and challenger networks nor are Cell C and
market power. This was evident with call Telkom Mobile options for RAIN. The
termination rates, but is also evident in universal coverage, strong brands and
other areas where there is no current high subscriber numbers of Vodacom
effective regulation. Aside from facilities and MTN means that these networks
leasing discussed further below, these are also not reliant on roaming
areas include national roaming and MVNO partners to bring customer volumes to
arrangements. reduce unit costs on their networks, or
only marginally so. There is therefore
25. Wholesale roaming arrangements are clearly an imbalance in dependency.
necessary for challenger networks to
achieve national coverage whilst still 26.2 It is also clear that where there is more
rolling out their networks. What matters leverage for the challenger, it is able
in the roaming agreement is not just the to extract a better outcome even if
price of the service, but also the quality not a great outcome. For instance, as
in terms of handover arrangements and Vodacom required the extra metro
technology access. Such agreements capacity from RAIN, it in turn could
are subject to negotiation as there exists extract better site access and roaming
no economic regulation of roaming. rates on Vodacom. Similarly, Telkom
As a result, the outside options of each more broadly has other commercial
party and the degree of dependency on interactions with Vodacom which may
provide some additional leverage. This

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


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confirms the bargaining framework branded resellers. The two largest
approach to understanding outcomes incumbents have had no incentive
in the wholesale markets. to offer such services as an MVNO is
unlikely to capture customers which
26.3 However, the Commission found that they themselves are not capable
the new agreements have roaming of capturing, whilst Telkom Mobile
rates which are frequently above has not invested in the technical
what we could reasonably expect of capabilities to offer such services. As a
a wholesale rate when considered result, the bargaining dynamics do not
relative to the effective rates per GB favour MVNOs getting competitive
in the retail market. This indicates wholesale access. They have limited
that the so-called ‘wholesale rate’ is viable options other than Cell C, and
not wholesale in nature at all given the Cell C network is not the lowest
its level relative to the retail rate. cost network in any event. As a result,
As challenger networks also price MVNOs are simply not a material
more aggressively to win business, feature of the South African market
it is not surprising therefore that the and have remained niche operations
roaming rates are even higher relative designed to provide benefits to
to the effective price per GB on the support the retention of other
challenger networks. Our analysis also customer bases.
suggests that effective rates are likely
to continue dropping faster than the 27.2 The wholesale open access network
contracted roaming rates in future. (WOAN) has therefore been touted as
The obvious implication is that this the solution to bring in more service-
makes aggressive pricing costly for based competition. The ICT Policy
the challenger networks given the White Paper and the Policy Directive
additional traffic will be costly relative on spectrum from the Department
to the revenue it earns. of Telecommunications and Postal
Services (DTPS) promote the WOAN,
27. A further area where wholesale markets and ICASA’s Information Memorandum
have visibly failed is in providing wholesale on spectrum proposes a set aside of
network access for the purposes of retail spectrum for the WOAN. However, the
competitors in the form of MVNOs. future of any WOAN is still uncertain
MVNOs have the potential to bring more as it is still not apparent whether
competition on the retail aspect of the feasible applications will be received
operations only given their reliance and if it will get up and running within
on a network provider. This can still be a reasonable time frame, and even
beneficial if they are more efficient than then whether it will be able to offer
existing networks on the retail services, competitive rates is uncertain.
and even more so if the MVNO has its own
core network and only requires access to A LACK OF SPECTRUM AND COST-
the radio access network given it can then BASED FACILITIES ACCESS DRIVES
contest a greater portion of the operating UP COSTS
margin. However, to be effective, MVNOs
need competitive wholesale access to 28. It seems to be common cause that the failure
network providers. As outlined in the to release high demand spectrum due to
Provisional Report, this has simply not been delays in digital migration has left mobile
the case in South Africa. operators with both insufficient spectrum and
a lack of access to favourable low frequency
27.1 In effect, only one network – Cell C bands, raising costs unnecessarily. This is
– historically emerged as a supplier because operators need to compensate
of such services. While MTN has for the lack of spectrum through increasing
recently provided wholesale access, the volume of base stations, raising capital
this has largely been in the form of and operational costs. In a similar manner,

DATA SERVICES MARKET INQUIRY


12
different frequency bands have different demand spectrum, the imposition of
propagation qualities which may impact on spectrum caps (albeit that the level is not
the extent of capital expenditure required determined yet), the imposition of social
to service demand in different areas. Low obligations (albeit not specified as yet),
frequency bands are more favourable for avoidance of too burdensome immediate
less populated areas as fewer base stations coverage requirements initially to ensure
are required to achieve coverage, but they challenger networks can also meet the
are also better at providing indoor coverage targets, and regulation of aspects of the
even in dense urban areas. Digital migration WOAN such as non-discrimination. The
should free up precisely these lower Commission welcomes these provisional
frequency bands. requirements for spectrum licensing and will
continue to engage ICASA as the process
29. It was within this context that the Provisional unfolds. However, ICASA still faces a number
Report called for the urgent licensing of of challenges in implementing the IM.
high demand spectrum. Subsequent to the
Provisional Report, the Presidency has made 31.1 The first challenge for ICASA is the
it a priority, the Minister of Communications current financial woes of Cell C which
has issued the Policy Directive to ICASA in could remove it as a potential bidder
order to kick-start the process and ICASA has for the lots. The implication is that
issued an Information Memorandum (IM) outside of the WOAN set aside, the IM
outlining possible assignment criteria. The would then effectively offer a relative
Commission welcomes this development. guarantee of the same spectrum to
each of the likely three bidders, with a
30. The Provisional Report also emphasised the fourth parcel of Time Division Duplex
need for a focus on a licensing arrangement (TDD) spectrum to one of them. This
which promotes affordability and access will not change the market structure,
over revenue generation. To achieve this, nor will it facilitate competitive bidding
the Provisional Report recommended outcomes. Addressing this challenge
potential pro-competitive assignments will require ICASA to be flexible in how
which may include spectrum caps on larger the lots are determined based on market
operators, asymmetric assignments in developments.
favour of smaller players and set asides for
new entrants such as the WOAN, in a manner 31.2 The second challenge is implementing
that ensures a prospect of commercial the WOAN assignment in a manner
success. It also recommended the use of that secures a commercially viable
obligations such as reductions in prices to consortium to make the WOAN a
reflect cost reductions. The Policy Directive competitive force in the market, unless
also seemed to heed these calls, providing one of the current challenger networks
scope for ICASA to incorporate universal seeks to secure that licence. The
access obligations within the licensing Commission engagements with ICASA
process, but also spectrum caps and WOAN have provided further recommendations
set asides. The Commission welcomes these in this regard.
developments too.
31.3 The final challenge is a policy one,
31. The final part of the process is the ICASA namely of accelerating digital
decision on how to approach the spectrum migration such that the spectrum
assignment. The Commission engaged with becomes available for actual use.
ICASA on how to approach the IM following
the Policy Directive. These submissions are 32. Another large cost driver is that of passive
included as an appendix to this report. The infrastructure, such as base stations and
ICASA IM has incorporated a number of the high sites, but also ducts and poles for
recommendations from the Commission, fibre backhaul and of course last mile
including the imposition of cost-orientated FTTH. The Commission is of the view that
facilities leasing on all licensees of high efforts to enhance facilities access and

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


13
sharing can substantially reduce operating by the facilities leasing arrangements,
costs and ensure the rapid deployment of there appears to be no access to these
competing infrastructure, to the potential whatsoever provided to other operators.
benefit of lower prices eventually. Indeed, A further critique is that it is only the
operators have already engaged in facilities of licensed operators that ICASA’s
mutually beneficial passive infrastructure regulations cover, and they exclude the
sharing arrangements amongst each other poles and infrastructure of municipalities,
in order to reduce operating or capital and the independent tower companies.
costs. There is also a legislative basis within
the Electronic Communications Act (ECA) 35. The Amendment Bill in respect of the
for regulating facilities access and ICASA ECA seemed to plan on tackling this
has put in place such regulations. regulatory vacuum prior to its withdrawal
from parliament. In particular, it sought to
33. However, despite this there remain institute cost-orientated pricing for facilities
persistent complaints around gaining under a broader wholesale open access
access to facilities and doing so on fair regime, the regulatory rules to which ICASA
commercial terms. In reality commercial would put in place within 18 months of the
models are typically successful where there Amendment coming into law. However,
is mutual benefit from bringing similar the withdrawal of the Amendment Bill has
infrastructure to the table or agreement as left a vacuum in terms of how this will be
to a mutual investment programme. Where dealt with going forward. ICASA appears
there is inequity in passive infrastructure reluctant to determine essential facilities
holdings between operators, there is often regulations as they argue it provides no
a resistance to infrastructure sharing by the guarantee of more rapid access, but there
incumbent holder of more infrastructure also seems to be little appetite for cost-
facilities. This is because a denial of access, orientated price regulation of facilities
or strategies that amount to a constructive which may require essential facilities being
denial, provides an incumbent with a determined.
competitive advantage over a newer
rival and such strategic behaviour may ADDRESSING THE FIXED LINE
also slow the expansion and competitive SUPPLY GAP FOR ALTERNATIVE
significance of the new rival. Whilst some DATA SERVICES
operators argue that this may undermine 36. The overwhelming focus of initial submissions
the incentive to invest in new facilities, in made to the Commission focused on mobile
reality the leadership position in facilities data services, which is unsurprising given
and other infrastructure is often a result that mobile data coverage is effectively
of simply being a first-mover and historic universal and it is the primary means through
restrictions on entry. This applies both which most consumers get data services.
to operators such as Vodacom in mobile There were limited submissions on fixed line
facilities, but equally to operators such as and alternative infrastructure for delivering
Telkom in fixed line facilities. data services. Despite this, the Provisional
34. The critique of current regulations is that Report highlighted the role of alternative
they fail to address strategic behaviour infrastructures for data, including fixed line
by incumbents with a hold over a high supply, and the potential role it can play in
proportion of facilities, namely that the reducing data prices more generally and to
regulations fail to adequately deal with poorer consumers more specifically.
spurious claims that sharing is technically 37. A reason for the interest by the Commission is
infeasible (e.g. on base stations) and also that fixed line supply remains the backbone in
do not regulate the price at which sharing the supply of not just household and business
takes place, resulting in cost escalation. access, but also public data services such as
For instance, whilst ICASA has confirmed public Wi-Fi or even community networks.
that Telkom’s ducts and poles are covered These represent alternative sources of data

DATA SERVICES MARKET INQUIRY


14
services, and therefore have the potential to the homeowner. In addition, submissions
provide cheaper (or even free) data services at highlighted the potential impediment of IP
different geographic places and/or different Connect pricing by Telkom Openserve in
points in the day to consumers. This is in areas where infrastructure already existed,
part because that infrastructure is frequently or future Telkom Openserve rollout areas.
cheaper for large data volumes given costs
are largely fixed and sunk. There are also 41. As a result of the Provisional Report’s focus,
FTTH providers which are experimenting the Commission received more extensive
with business models for lower income areas. submissions on this alternative infrastructure.
The team also actively engaged various
38. Cheaper prices are important in themselves, stakeholders on their views around the
but the Commission is also of the view that possibilities of developing this infrastructure
this infrastructure can be an alternative and the provision of free Wi-Fi. The team
source of competitive pressure on mobile also engaged Telkom Openserve on its IP
data services to bring those prices down. Connect pricing.
This is largely because fixed line services are
typically provided through Wi-Fi at the point 42. In terms of IP Connect, the evidence
of use, and hence available for smartphones indicates that there is indeed a prima facie
to connect to. However, such competitive case of excessive pricing against Telkom
pressure is only likely to occur if these Openserve. In particular:
services are far more pervasive (to give 42.1 FTTH (and previously ADSL) rollout
more opportunity for off-load), and if they requires a high fixed investment to pass
also have reach into poorer communities households in an area and the need for
which currently have no options outside of at least 40% of those households to take
mobile and are being exploited as a result. up the service for it to break even. For
39. The Commission is of the view that one this reason, there tends to be localised
cannot focus exclusively on trying to fix monopolies. The FTTH provider is also
mobile competition as a solution to high data an infrastructure provider, and therefore
prices. Insufficient competition amongst sells the service wholesale to an Internet
mobile operators has been a persistent Service Provider (ISP) which in turn
concern for decades, proving difficult to contracts the household for Internet
change effectively through interventions access, adding its own component in the
and also dependent on competitor firm process. The only apparent constraint
performance. The Commission therefore on this local FTTH wholesale pricing is
considers that efforts to extend the reach of the need to sign up a high proportion of
alternative infrastructure such as fixed line the houses in the neighbourhood which
or fixed wireless into poorer areas, even if requires ensuring pricing is attractive.
only in the form of public Wi-Fi, remains an 42.2 However, these localised monopolies
important solution to high data prices now still need to get the traffic from the
and in the future. local area to one of the major data
40. The Provisional Report highlighted some of centres where it can be passed to the
the commercial barriers to extending such contracting ISP. Most FTTH providers are
infrastructure to lower income areas. These not vertically integrated and make use
included the lack of legacy infrastructure in of third party open access infrastructure
those areas due to the inequity of apartheid such as Dark Fibre Africa. However, for
service delivery, the high fixed cost nature of areas covered by Telkom Openserve,
providing the service which in turn requires it only provides the option of using
a large fixed monthly revenue model that is the IP Connect product to move the
ill-suited to poorer households, and lastly traffic to the handover points. The local
the need for high demand for data intensive monopoly therefore extends to the
services along with data-ready devices backhaul part of the network too.
to make the greater capacity valuable to

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


15
42.3 The Commission team requested on the usual revenue model of high
Telkom Openserve to provide the costs fixed monthly fees is a key challenge.
of providing the IP Connect service. Different operators are experimenting
Applying the price-cost mark-up with different models, but until there
assessment used in excessive pricing is a commercial model that works
investigations, the results for the 2018 then scalable rollout in low-income
financial year as calculated by FTI areas will remain unlikely. Naturally,
Consulting on behalf of Telkom were that commercial model is made less
positive and significant. Given Telkom complicated if the high investment costs
Openserve has benefited from prior state can be reduced.
investment and a licensed monopoly
position, the Commission is of the view 44. In terms of the provision of alternative Wi-
that a prima facie case of excessive Fi and local wireless data network services
pricing exists for this level of mark-up. to lower income and rural communities, the
This conclusion is strengthened by the Commission uncovered a host of interesting
fact that prices for the service have been initiatives which are documented in the
coming down over time, indicating that report. These include successful free Wi-Fi
mark-ups viewed over a longer period programmes such as in the City of Tshwane,
would be found to be even higher. local Wi-Fi community projects such as
Zenzeleni in Mankosi in the Eastern Cape,
43. In terms of FTTH infrastructure rollout into which provides uncapped Wi-Fi services
lower income areas, the Commission found to a community of around 6,000 people at
that there is considerably more backhaul R25/month, and Wireless Internet Service
infrastructure that passes low-income areas Providers (WISPs) such as Herotel connecting
than initially anticipated. This is further smaller towns and wealthier rural farming
promoted by Broadband Infraco’s (BBI) towns using Wi-Fi spectrum for microwave
initiative to roll out infrastructure to over 6000 backhaul. In addition, there are increasingly
government sites in eight underserviced initiatives by online companies such as
districts in line with its mandate under the Google and Facebook to experiment with
SA Connect policy. The impediment at least services in lower income areas.
in urban areas is therefore more around the
actual last mile FTTH rollout. Whilst some 45. These initiatives provide a number of
commercial activity is starting to occur, it useful insights into the use of alternative
faces several key challenges, including: infrastructure in providing data services to
rural areas, including:
43.1 The pricing, processing and practice of
attaching certain conditions to wayleave 45.1 The range of initiatives indicated that
applications by municipalities can it is possible to provide cheaper data
make the deployment of infrastructure services using alternative infrastructure
economically unfeasible. It seems that to that of mobile or FTTH in lower
many municipalities see this as a form income and rural areas. However, what
of revenue generation and impose is needed often is a scalable model that
unreasonably high prices for wayleaves can move beyond one community or
(or impose conditions) whilst others municipality.
are incapable of processing them 45.2 Data services, unlike voice services
expeditiously. In some areas this is where coverage and interconnection
further complicated by business forums is paramount, do not require a national
which seek to extract the 30% set aside network in order to provide a useful
for local historically disadvantaged service to the community. Data services
businesses. simply need to access a backhaul
43.2 Identifying revenue models that enable service to move traffic to an ISP, which in
the commercial success of a venture turn provides the peering link to access
with high fixed costs, without relying the entire Internet. This means that

DATA SERVICES MARKET INQUIRY


16
driving these forward need not be done prices to support a broader consumer and
through a large national champion, but industrial demand required to make digital
can be localised in nature (including platforms and solutions commercially viable.
municipal-based). It also requires competitive mobile and
fibre infrastructure markets to ensure prices
45.3 The BBI initiative also highlights the fact remain low as investment and development
that government demand can not only
of new technologies, such as 5G, are rolled
bring broadband infrastructure into
out.
underserviced areas, but also can then
be a point for the provision of free Wi-Fi 47. Note that where we refer to DTPS, this
to the local communities in those areas. should also be interpreted as also referring
There is also demand for such services to its future successor, the Department of
where it can be feasibly rolled out. Communications and Digital Technologies,
once the merger with the Department of
45.4 The Commission also identified that
Communications is completed.
frequently in rural areas the mobile
spectrum is not utilised by an operator IMMEDIATE RELIEF ON DATA
due to either existing roaming PRICING
arrangements on another operator or
that the coverage requirements were 48. Access to affordable data is of paramount
met by the low frequency spectrum importance for economic and social
alone. However, this spectrum would inclusion and thus mobile pricing must be
be even more cost-effective to provide addressed. The programme for immediate
a local data service than Wi-Fi given relief on mobile data pricing includes the
the broader coverage and the lower following recommendations on the level
costs of not trying to provide mobility and structure of pricing:
or other mobile services. However, the
48.1 Notwithstanding the most recent price
Commission received submissions that
reductions, Vodacom and MTN must
operators were unwilling to provide
independently reach agreement with
access to this spectrum.
the Commission on substantial and
immediate reductions on tariff levels,
FINAL RECOMMENDATIONS especially prepaid monthly bundles,
within two months of the release of
46. The Commission has identified a final
the report. The preliminary evidence
package of recommendations that provide
suggests that there is scope for price
immediate relief to high data prices,
reductions in the region of 30% to 50%.
especially for low-income consumers,
combined with initiatives to improve mobile 48.2 Vodacom and MTN must independently
price competition and greater infrastructure reach agreement with the Commission
alternatives to consumers over the medium within two months on a reduction in
term. The full implementation of this the headline prices of all sub-500MB
package of remedies will not only lower 30-day prepaid data bundles to reflect
prices for all consumers, and particularly the same cost per MB as the 500MB 30-
the poor, but will lead to greater economic day bundle, or cost-based differences
and social inclusion moving forward as the where such cost differences have been
country moves into the digital age. The full quantified, as well as the cessation of
implementation of the package of remedies partitioning strategies that contribute
is also essential to provide the necessary to anti-poor pricing and/or inferior
building blocks for South Africa to participate service outcomes. Given their collective
fully in the Fourth Industrial Revolution and market position, adjustments to their
take advantage of the opportunities that prices should impact on market-wide
revolution presents. Participation in the pricing.
future digital economy requires low data

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


17
48.3 Vodacom and MTN must independently 48.6 All mobile operators must reach
reach agreement with the Commission agreement with the Commission within
to cease ongoing partitioning and three months to inform each subscriber,
price discrimination strategies that may on a monthly basis, of the effective price
facilitate greater exploitation of market for all data consumed by the customer.
power and anti-poor pricing. This agreement should be given formal
regulatory status in the ICASA End-User
48.4 All mobile operators must reach and Subscriber Service Charter within
agreement with the Commission six months of this report.
within three months to offer all prepaid
subscribers a lifeline package of daily 48.7 Telkom Openserve must reach
free data to ensure all citizens have data agreement with the Commission on
access on a continual basis, regardless substantial reductions in the price of IP
of income levels. This agreement must Connect to remove excessive pricing
then be given formal legislative or concerns within two months.
regulatory effect within six months.
This may include the ICASA End-User 49. With respect to the above recommendations
and Subscriber Charter Regulations, on the level and structure of pricing, should
spectrum licensing conditions or an operator fail to reach the required
planned amendments to the ECA. agreements with the Commission within
The precise level of lifeline data the specified timeframes, the Commission
and any annual adjustments should will proceed to prosecution under the
be determined in consultation with appropriate sections of the Act. The
industry, ICASA and relevant experts. Commission will also institute ongoing
The Commission is of the view that it monitoring of pricing levels and profitability
should be sufficient to ensure each into the future until the market becomes
citizen’s participation in the online more competitive.
economy and society. 50. The other aspect to more immediate relief
48.5 All mobile operators must reach concerns the assignment of high demand
agreement with the Commission spectrum. In this respect the process has
within three months on a consistent moved in parallel with the Commission.
industry-wide approach to the zero- The recommendations in the Provisional
rating of content from public benefit Report to accelerate the process and focus
organisations and educational on affordable access rather than revenue
institutions to ensure broad application. generation have been acted upon by DTPS
This agreement should then be given in its release of the Policy Directive. The
formal regulatory status through the Commission made further submissions to
ICASA End-User and Subscriber Service ICASA on how to approach assignment
Charter within six months of the report. in the context of the Policy Directive, most
The starting point for such a list of of which have also been acted upon and
zero-rated sites should be the existing reflected in the Information Memorandum.
collective list of zero-rated content in These are all welcome developments.
this category from all operators, but that 51. The Commission will continue to engage
process should seek to establish clear with the ICASA spectrum assignment
principles and criteria to be applied process in line with the principles contained
as well as an application process for in the submissions on the IM process. These
those Public Benefit Organisations include:
(PBOs) and educational institutions that
seek zero-rating. These criteria should 51.1 In the licensing of the WOAN, to ensure
expressly include greater zero-rated a commercially viable consortium
access to content in African languages. secures the license, to ensure it has
cost-orientated access to facilities and

DATA SERVICES MARKET INQUIRY


18
national roaming, to provide a spectrum six months to ensure that their national
fee holiday, and to build in appropriate roaming agreements with other
regulatory oversight which includes networks are priced, at a minimum,
at a minimum non-discrimination, but at wholesale rates which reflect a
potentially more if an existing operator reasonable discount on their own
is licensed. effective retail rates as measured by the
average revenue per GB, with provision
51.2 In the licensing of the remaining for annual downward revisions to reflect
spectrum, to ensure imposition of reductions in their own effective retail
spectrum caps on the two largest rates over time. If no such agreement is
operators, to ensure wholesale open reached, the Commission will proceed
access at cost-orientated prices to their to prosecution in respect of excessive
facilities, to ensure social obligations pricing and/or exclusionary conduct.
including a lifeline data package to all Ultimately the minimum pricing
South Africans, and to ensure any cost standards for national roaming should
reductions are passed through to price be incorporated into the amendments
reductions. to legislation with powers for ICASA to
INTERMEDIATE PROGRAMME regulate roaming agreements.
TO ENHANCE PRICE-BASED 53.3 With respect to MVNOs, all mobile
COMPETITION operators must reach agreement with
52. The intermediate programme is focused on the Commission to ensure that the
enhancing price-based mobile competition wholesale rate reflects a discount on the
through wholesale market interventions and prevailing effective retail rate. If no such
promoting the development of alternative agreement is reached, the Commission
infrastructure to provide data services in will consider prosecution. Ultimately
lower income areas and smaller secondary the minimum pricing standards for
cities and towns nationally. MVNOs and wholesale access should
be incorporated into the amendments
53. In terms of enhancing price-based to legislation with powers for ICASA to
competition in the mobile industry, the regulate such agreements.
Commission recommends the following
action at the wholesale level of the industry 53.4 Vodacom and MTN must reach
to improve the terms of wholesale access agreement with the Commission to
and reduce infrastructure costs. institute accounting separation for
their wholesale network infrastructure,
53.1 Legislative changes must be made to including the radio access network
facilitate cost-based access to facilities. (RAN) and core network within the next
Such legislative changes should set year. In addition, the Commission also
pricing standards for different types of recommends that ICASA re-institutes
facilities, such as cost plus a fair return the regulatory accounting reporting
for essential facilities but a less stringent requirements for Vodacom, MTN and
standard for non-essential facilities. Telkom Openserve within the next six
The Commission also recommends months.
that ICASA undertake the process of
defining essential facilities as a basis 54. The Commission also recommends DTPS
for regulating such facilities at cost plus immediately start the process of policy
a fair return. The objective would be and legislative reforms to incorporate
to have legislation and regulations in the legislative changes identified above,
place within the next eighteen months. support the ongoing regulatory function
of ICASA as well as the rapid rollout of
53.2 Vodacom and MTN must reach infrastructure. This should occur through a
agreement with the Commission within process of amendments to the ECA which

SUMMARY OF FINAL FINDINGS AND RECOMMENDATIONS


19
had already been initiated by DTPS prior to low-income areas. These may take the
the last national election. An amendment form of tax breaks or financial support
to the ECA should be fast-tracked over the from the Universal Service and Access
next twelve months and, in addition to other Agency of South Africa (USASA) based
contemplated changes, the Commission on competitive bidding around the
recommends that the amendments least subsidy required. Government
incorporate the following changes: should also consider complementing
these initiatives with contracts to
54.1 A complete review of section 67 of the provide services to government
ECA to ensure that the preconditions buildings in the vicinity to add base
for regulatory action are proportionate demand for any infrastructure provider.
to the type of regulatory action and Such contracts may also be linked to
that ICASA can regulate on the basis rollout commitments.
of findings by the Commission, other
relevant regulators or courts; 55.2 That government at all levels actively
promote the development of free
54.2 Provide for the regulation of national public Wi-Fi in low-income areas,
roaming and MVNO agreements by including government buildings,
ICASA; commuter points (e.g. train stations,
54.3 Provide clear principles for access taxi ranks) and public spaces (e.g.
and price regulation for the leasing of parks, shopping areas, government
different types of facilities; and service offices) as well as the creation
and entry of community networks.
54.4 Progress the rapid infrastructure The ultimate objective should be for
deployment strategy contained in each municipality to provide free and
the previous ECA Amendment Bill. affordable Wi-Fi services in such public
These should facilitate greater ease areas within the boundaries of the
in acquiring wayleaves and the use of municipality
municipal infrastructure such as poles
for aerial deployment. These legislative 55.3 That ICASA consider models and
changes should also incorporate regulatory changes to allow at least
appropriate restrictions on municipal non-profit community networks, and
charges and conditions for granting possibly small commercial enterprises
such wayleaves. to access licensed spectrum not used
by mobile operators in rural areas in a
55. The development of alternative similar manner to television white space.
infrastructure to provide data services in
lower income areas and smaller secondary 55.4 That a single government department
cities and towns nationally will provide or agency be designated as responsible
off-load opportunities from the mobile for driving these initiatives across
networks to free public Wi-Fi or even simply the different departments and levels
lower priced subscription Wi-Fi services. of government. That department or
It will also provide an additional point of agency should establish a technical or
competitive pressure on mobile prices if advisory committee of experts to assist
there is a more pervasive presence. Whilst it in capacity-building, advising and
this is naturally occurring in wealthier areas, growing both the more urban Wi-Fi
there are barriers to investment in poorer projects and the community networks
areas. The Commission recommends the envisaged above.
following:

55.1 That national government consider


providing investment incentives to
FTTH providers for network rollout in

DATA SERVICES MARKET INQUIRY


20
competition commission
south africa

Telephone Number:
+27 (012) 394-3200 | +27 (012) 394-3320

Email Address:
ccsa@compcom.co.za

Physical address:
The DTI Campus, Mulayo (Block C),
77 Meintjies Street,
Sunnyside, Pretoria

Postal address:
Private Bag x23,
Lynwood Ridge,0040