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Viewing cable 09PRETORIA249, SOUTH AFRICA RESPONSE TO TELECOM TRADE AGREEMENT
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
09PRETORIA249 | 2009-02-10 12:32 | 2011-08-24 01:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Pretoria |
VZCZCXRO7254
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0249/01 0411232
ZNR UUUUU ZZH
R 101232Z FEB 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7295
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RHDIFCC/FCC WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEHGV/USMISSION GENEVA 1280
UNCLAS SECTION 01 OF 04 PRETORIA 000249
SENSITIVE BUT UNCLASSIFIED
SIPDIS
DEPT FOR EEB/CIP/KATHERINE TOWNSEND
USTR FOR CATHERINE HINCKLEY
E.O. 12958: N/A
TAGS: ECPS EINT SF
SUBJECT: SOUTH AFRICA RESPONSE TO TELECOM TRADE AGREEMENT
REVIEW 2009
REF: A. STATE 04730
¶B. PRETORIA 271
¶C. PRETORIA 1976
¶D. PRETORIA 1278
Sensitive But Unclassified, Not for Internet Distribution
¶1. (SBU) Summary. Information Communications and Technology
(ICT) Officer met with the Independent Communications
Authority of South Africa (ICASA), industry analysts, and ICT
firms to discuss the ICT regulatory environment in South
Africa. Officials noted that ICASA faced major challenges in
implementing policies to increase liberalization in the
sector given the historic dominance of state-controlled
Telkom South Africa. The Department of Communications (DOC)
has a history of impeding ICASA mandates, which have led to
considerable delays in licensing processes. They cited
technical skills shortages and the continued need for
regulatory capacity building as the greatest area of
challenge for the regulatory agency. ICASA could benefit
from a round of Federal Communications Commission (FCC)
technical assistance workshops. End Summary.
-----------------------------------
ICASA Agrees With Industry Comments
-----------------------------------
¶2. (SBU) ICT Officer met with officials at ICASA to discuss
industry comments USTR has received concerning the regulatory
environment in South Africa (Reftel A). ICASA officials
generally agreed with the industry comments and identified
major challenges in increasing liberalization in the sector.
ICASA is in the process of implementing new policies intended
to improve the competitiveness, but officials have
acknowledged that industry criticism regarding regulatory
independence and delays in licensing were not misplaced
(Reftel A). They cited South African Government (SAG)
interference and a shortage of technical capacity at ICASA to
effectively address spectrum allocation and price-structuring
for call termination fees as a cause for delays in licensing
and regulatory decision-making processes.
--------------------------------
Implementation of Liberalization
Policies Get Off to a Slow Start
--------------------------------
¶3. (SBU) The SAG first began pursuing "managed
liberalization" of the industry in 1996. However, it was not
until the Telecommunications Amendment Act of 2001 and the
Electronic Communications Act (ECA) of 2005 were passed that
major strides were made to end state-controlled Telkom's
monopoly. Previously, Telkom enjoyed a protected monopoly
status for the development of both fixed-line and mobile ICT
networks and for the provision of services. After lengthy
delays in implementation of the Telecommunications Act, a
second national operator Neotel began operations in December
¶2005.
¶4. (U) The ECA was promulgated to further increase
liberalization in the sector and ICASA was charged with its
implementation. The ECA tasked ICASA to issue new licenses
to Value-Added Network Service (VANS) providers (i.e., mobile
and internet service providers). ICASA was also required to
ensure that licensees have no specials privileges over one
another. However, due to interventions by the DOC, ICASA
missed the original November 2007 time-frame to issue these
licenses. ICASA finally awarded these licenses in January
¶2009. The ICT market is expected to become more competitive
in 2010 once the associated spectrum is allocated sometime in
late 2009, which will allow these new licensees to develop
national networks.
Q
¶5. (SBU) Additional legislation was passed in June 2006 to
resolve remaining barriers in this sector, including the
DOC's failure to empower ICASA. The ICASA Amendment Bill
provided some independence to ICASA, but the fact that the
DOC must approve ICASA's funding allows it to influence
ICASA. ICASA has begun to address technical capacity
problems, has fully staffed all vacant executive management
positions, and has revamped its website to improve public
access to ICASA notices. Critics believe ICASA needs to be
further strengthened to better carry out its regulatory
mandates.
PRETORIA 00000249 002 OF 004
---------------------------------------
Telkom Retains Dominant Market Position
But Is Starting to Face Competition
---------------------------------------
¶6. (SBU) U.S. and local ICT companies, industry analysts, and
the media remain critical of the lack of competitiveness in
the South African ICT market. Telkom continues to maintain a
dominant position in the provision of value-added and basic
ICT services despite the passage of the ECA. South Africa
has some of the highest telecommunications prices in the
world, mainly due to Telkom's historic control of the
underlying ICT network infrastructure. Neotel is developing
its own national network as an alternative to
Telkom-controlled infrastructure, which has brought some
price competition to the market.
¶7. (SBU) SAG recently announced that it would allow
India-based Tata Communications to increase its stake in
Neotel to gain a 56 percent controlling share. The SAG also
approved the sale of Telkom's Vodacom shares to UK-based
parent company Vodafone. The transaction will give Vodafone
a 65 percent controlling share and allow Telkom and Vodacom
to pursue independent strategies that will increase
competition in the mobile sector. The DOC also started
addressing some of the problems facing VANS providers through
limited liberalization policies that were initiated in
February 2005. As a result, mobile operators are allowed to
use any fixed-lines in the provision of their service, VANS
cans be offered through non-Telkom infrastructure, and VANS
providers are allowed to provide voice services. In
addition, private ICT network operators were allowed to sell
spare capacity.
-----------------------------------------
Department of Communications Continues to
Pursue "Managed Liberalization" Policy
-----------------------------------------
¶8. (SBU) The DOC continues to champion state-owned entities
and state-sponsored ICT projects. Minister Ivy
Matsepe-Casaburri has publicly advocated a policy of "managed
liberalization," which has the effect of hampering efforts to
increase competition and ICASA independence. She delayed the
ICASA VANS license conversion process through months of legal
battle to impede VANS from acquiring the new individual
electronic communications network service (I-ECNS) licenses
required to develop national networks.
¶9. (SBU) The Pretoria High Court ruled in August 2008, that
Altech Autopage Cellular had the right to convert its VANS
license into an I-ECN license. The ruling also gave other
VANS the right to develop and operate their own
communications networks, previously the preserve of large
industry players such as Telkom, Neotel, Vodacom, MTN, and
Cell-C. However, the DOC appealed the court ruling, arguing
that the DOC's "managed liberalization" policy would be
seriously undermined if VANS licensees were allowed to obtain
I-ECNS licenses through the license conversion process. DOC
also threatened to issue a policy directive to ICASA
empowering it to implement an invitation-only application
process for a limited-number of new I-ECNS licensees in
accordance with the DOC's managed liberalization policy.
¶10. (SBU) The DOC interventions delayed the announcement of
I-ECNS licenses. The High Court rejected the DOC's appeal on
all points in October 2008. The Minister finally conceded
and announced that she would withdraw legal challenges to the
Qand announced that she would withdraw legal challenges to the
conversion process on November 21. The Minister's decision
not to appeal meant that Altech and about 300 other voice and
data carriers could apply for a license to build their own
network infrastructure without further risk of their
investment being legally challenged.
---------------------------
Challenges Remain with VANS
License Conversions
---------------------------
¶11. (SBU) The DOC decision not to continue appeals paved the
way for ICASA to complete the license conversion process by
January 19, as required under the ECA. However, ICASA had
less than two months to release a call for applicants and
announce the final recipients. According to industry
analysts, ICASA started the VANS license conversion process
PRETORIA 00000249 003 OF 004
without finalizing the costs for these licenses. This
created uncertainty for the companies interested in acquiring
a license. ICASA is also awaiting policy directives on
licensing fees from the DOC.
¶12. (SBU) ICASA is now undertaking the difficult task of
determining spectrum allocation to accompany these new I-ECNS
licenses. Industry representatives expect the final spectrum
size of each license to be between 20 and 30 megahertz, what
they claim is the minimum required to develop a national
network. ICASA only has 120 megahertz worth of spectrum to
allocate to all new I-ECNS licensees. In contrast, Telkom is
sitting on 50 megahertz worth of spectrum that it was
allocated in the pre-liberalization era to develop a WiMax
network. Telkom has not made use of this license beyond the
testing-phase, but it will not lose its license or "un-used"
spectrum as long as it continues testing. Industry analysts
complained that Telkom has no short-term incentive to develop
a national WiMax network as long as other operators are not
allocated the required spectrum to develop national networks.
They speculate that Telkom's influence with government might
have been the cause of the extensive legal challenges that
led to delays in the ICASA VANS conversion process.
¶13. (SBU) Companies interested in developing I-ECNS national
networks claim that licensing delays will affect their
ability to develop infrastructure in time for the 2010 FIFA
World Cup. They emphasize the need to make timely decisions
on spectrum allocation so they can finalize financing
packages and begin rolling out their networks. They are
under the impression that ICASA will make spectrum allocation
decisions by the end of the first quarter of 2009. However,
ICASA officials told ICT Officer that spectrum allocation is
the greatest area of technical challenge for the regulator
and expected the decision-making process to take at least six
months.
¶14. (SBU) According to U.S.-based ICT companies, South Africa
would not be overwhelmed by new network operators as a result
of the VANS/I-ECNS license conversion process, given the high
costs of building a national broadband network in South
Africa. It is estimated to cost between $125-200 million to
build a national network, so most small players could not
afford to do so on their own. One alternative would be for
several small players to jointly share the cost of a single
network. U.S.-based companies also expressed concern
regarding potential Black Economic Empowerment (BEE)
shareholding requirements. ICASA considered requiring 51
percent BEE equity ownership for new licensees, which would
create market-entry challenges for foreign investors. ICASA
appears to be softening its stance on majority BEE ownership
requirements, but has not made a decision on this issue yet.
-------------------------------------------
Undersea Cable Projects also Delayed by DOC
-------------------------------------------
¶15. (SBU) Telkom has historically held tight control over the
existing fiber-optic cable system along Africa's west coast.
This has led to high cost and limited access to international
broadband bandwidth. SEACOM, a new U.S.-led undersea
fiber-optic cable that will end Telkom's monopoly on
high-speed bandwidth, is expected to be operational on
Africa's east coast this June despite initial DOC challenges.
U.S.-led SEACOM decided to restructure its consortium
Q U.S.-led SEACOM decided to restructure its consortium
shareholding to include 75 percent African ownership when
Minister Matsepe-Casaburri made public announcements seeking
a minimum of 51 percent African ownership for any cable
projects landing in South Africa.
¶16. (SBU) Other Africa-wide cable projects (especially those
which would have provided coverage on Africa's west coast in
time for the 2010 FIFA World Cup) also suffered delays
because of DOC's stance regarding local ownership rules. A
Ugandan minister publicly criticized the South African DOC
last year for pursuing these local ownership rules, which
have adversely impacted other African countries that would
have benefited from earlier implementation of these projects.
¶17. (SBU) SEACOM is partnering with Neotel to provide
bandwidth in South Africa. SEACOM's relationship with Neotel
(and all landing parties in other African countries) is based
on an "open access", market-based cost structure. The SEACOM
price structure will be significantly lower (the estimates
are between one-tenth and one-twentieth of current costs)
PRETORIA 00000249 004 OF 004
than current satellite or fiber-optic pricing controlled by
Telkom.
----------------------------------
Policies Unlikely to Change Unless
There is a Change in Leadership
----------------------------------
¶18. (SBU) Most industry representatives and analysts believe
that the ICT policy environment is not likely to change much
while the current Minister of Communications is in power.
Post has heard conflicting reports of whether she would
retain her position following the spring general elections.
Despite widespread industry complaints, she was not replaced
when some Mbeki-appointed Ministers were replaced when
President Motlanthe took office last fall. (Note: President
Mbeki was ousted in September 2008, following a change of
leadership in the African National Congress (ANC).)
¶19. (SBU) Most industry analysts also believe these policies
will not change much, nor will ICASA have increased
independence to implement regulations that promote
liberalization, as long as Telkom has influence over the SAG.
Local companies, including smaller entities that are trying
to enter the market, claim that Telkom has "pull" with
Minister of Communications and other high-ranking officials,
who are likely to support any tactics that result in delays
in implementation of the ECA. Some industry analysts believe
that Telkom is realizing that it will have to begin
innovating to survive in a competitive market and is trying
to buy time through additional SAG delays in licensing, price
determinations, or spectrum allocation for new market
entrants.
¶20. (SBU) So far, the legal system has been the only real
recourse for companies affected by anti-competitive behavior
and problems with ECA implementation. The courts have come
out against the Minister of Communications in their
interpretation of the ECA, thus forcing the DOC and allowing
ICASA to complete the license conversion process.
-----------------------------------
ICASA Requests Technical Assistance
-----------------------------------
¶21. (SBU) ICASA has experienced challenges with skills
development of its staff. Industry analysts have cited the
need for additional training in spectrum
management/allocation and pricing determination (including
interconnection and call termination fees). ICASA officials
told ICT Officer they would benefit from a round of U.S. FCC
technical assistance workshops on both issues.
-------
Comment
-------
¶22. (SBU) Progress with liberalization in the South African
ICT sector has been slow, but pressures coming from the
infrastructure requirements for the 2010 FIFA World Cup have
provided the impetus for some policy breakthroughs. Major
legislative initiatives to end Telkom's monopoly were only
started in 2005, and it has taken a while for true
implementation to begin. The DOC has restricted ICASA
independence, and new operators have had to turn to the
courts to pressure the DOC to recognize the legislative
intent of the above-mentioned liberalization policies. ICASA
also needs to boost regulatory expertise among its staff to
fully implement the ECA.
LA LIME