Local Loop Unbundling and Competition in South Africa
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LOCAL LOOP UNBUNDLING AND COMPETITION IN SOUTH AFRICA Samantha Jain Perry Student no. 403939 A research report submitted to the Faculty of Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Management in ICT Policy and Regulation. March 2012 1 Abstract Over the past thirty years, telecommunications markets the world over have begun liberalising, heralding a new era for both players and regulators. As developing country markets have started liberalising regulators have utilised policy tools, like local loop unbundling and price regulation, to aid this liberalisation. A debate has sprung up around whether these tools do what they intend, and whether they are relevant in developing markets. This study examines the potential impact of one such tool – local loop unbundling – on competition in one such market – South Africa. Based on this examination a framework is presented that policymakers in South Africa and other emerging markets can use when considering their own LLU implementations. The framework considers the type of competition desired and the rationale for the unbundling exercise, informed by the cost, complexity and control related to each specific type of unbundling, in order to guide policymakers and regulators in deciding on the form of unbundling most likely to result in a desired form of competition. 2 Declaration I declare that this report is my own, unaided work. It is submitted in partial fulfilment of the requirements of the degree of Master of Management in ICT Policy and Regulation at the University of the Witwatersrand, Johannesburg. It has not been submitted before for any degree or examination in any other University. Samantha Jain Perry 30 March, 2012 3 Acknowledgements With thanks to my research supervisor Dr Andrew Barendse, Adjunct Professor at the University of the Witwatersrand for his insight, patience, assistance and support. 4 Dedication To Nic, for being there, and my parents, who couldn't. 5 List of acronyms: ADSL – asynchronous digital subscriber line CDMA - code division multiple access DSL – digital subscriber line EDGE – enhanced data rates for GSM evolution HSPA+ – high-speed packet access plus ICASA - Independent Communications Authority of South Africa ICT – information and communications technology ITU - International Telecommunication Union LLU – local loop unbundling LTE – long term evolution OECD – Organisation for Economic Co-operation and Development POTS – plain old telephone system SADC - Southern African Development Community SNO - second network operator UMTS – universal mobile telecommunications system VAN/S – Value-added network service provider/s WiMax – worldwide interoperability for microwave access 6 Table of contents LOCAL LOOP UNBUNDLING AND COMPETITION IN SOUTH AFRICA1 Abstract ............................................................................................................... 2 Declaration .......................................................................................................... 3 Acknowledgements ............................................................................................. 4 Dedication ........................................................................................................... 5 List of acronyms: ................................................................................................. 6 Glossary of terms ............................................................................................... 10 Chapter 1 A comedy of errors in LLU regulation ............................................ 14 1.1 Introduction............................................................................................. 14 1.2 The problem of telecommunications access in South Africa .................. 14 Table 1: Telecommunications penetration 2002 – 2011 ...................... 15 Table 2: Estimated telecommunications penetration 2012 – 2015 ...... 15 1.3 Government's efforts at reform ............................................................... 16 1.3.1 Managed liberalisation ................................................................... 16 1.3.2 Protectionism ................................................................................. 21 1.3.3 Regulating for LLU ......................................................................... 26 1.4 Research problem ................................................................................... 28 1.5 Purpose statement .................................................................................. 29 1.6 Research questions.................................................................................. 29 1.7 Research methodology ........................................................................... 29 1.8 Policy Contributions ............................................................................... 30 1.10 Summary ............................................................................................... 31 Chapter 2 A conceptual framework for examining LLU ................................... 32 2.1 Introduction............................................................................................. 32 2.2 Industrial organisation theory and LLU ................................................. 32 Figure 1: Traditional Structure-Conduct-Performance Approach diagram ................................................................................................ 32 2.2.1 Why regulate telecommunications? ................................................ 35 2.2.2 Competition theory ......................................................................... 36 2.3 Implications of key industrial organisation concepts for LLU ............... 36 2.4 A framework for LLU ............................................................................. 39 Figure 2: Research model ................................................................... 40 2.4.1 Definitions and types of LLU ......................................................... 41 2.4.2 Rationales for LLU ......................................................................... 42 2.4.3 The Impact on consumers, incumbent operators, new entrants ...... 43 2.4.4 Conditions under which LLU succeeds or fails .............................. 45 2.4.5 How LLU affects a market.............................................................. 47 2.5 Case Studies ........................................................................................... 48 2.6 Theoretical Framework .......................................................................... 51 2.7 Summary ................................................................................................. 52 Chapter 3 Research methodology ...................................................................... 53 3.1 Introduction............................................................................................. 53 3.2 Research process outline......................................................................... 53 3.3 Methodology ........................................................................................... 54 3.5 Data sources ............................................................................................ 57 3.5.1 Primary research – survey and indepth interviews ......................... 57 3.5.2 Secondary research – document analysis ........................................ 59 7 3.5.3 Drawing up a Framework ............................................................... 60 3.6 Delimitations........................................................................................... 61 3.7 Summary ................................................................................................. 61 Chapter 4 Contemplating the impact of LLU on competition ........................... 62 4.1 Introduction ............................................................................................ 62 4.2 Regulating LLU ...................................................................................... 62 4.2.1 Local Loop Unbundling Committee recommendations on LLU .... 62 4.2.2 Stakeholder submissions on LLU 2011 .......................................... 65 4.2.2.1 Broadband InfraCo .................................................................. 66 4.2.2.2 Cell C ...................................................................................... 67 4.2.2.3 Communication Workers Union (CWU) ................................. 67 4.2.2.4 Paul Hjul .................................................................................. 68 4.2.2.5 Internet Service Providers Association ................................... 69 4.2.2.6 MyBroadband .......................................................................... 70 4.2.2.7 MWeb ...................................................................................... 70 4.2.2.8 Neotel ...................................................................................... 71 4.2.2.9 Solidarity ................................................................................. 72 4.2.2.10 South African Communications Union (SACU) ................... 72 4.2.2.11 Telkom .................................................................................. 74 4.2.2.12 Vodacom ................................................................................ 75 4.2.3 ICASA's Determinations ................................................................. 77 4.3 Rationales for LLU ...............................................................................