Chapter 4 South Africa: the Internet Wars
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Negotiating the Net 4/1/2005 - 1 – ________________________________________________________________________ CHAPTER 4 SOUTH AFRICA: THE INTERNET WARS Introduction It was an eleven page fax, unsigned, with a Telkom cover sheet, addressed to ISPA, the Internet Service Providers Association. And it confirmed their suspicions. Things were coming to a head. Only a few days previously, on 11 June 1996, Telkom, South Africa’s giant, state-owned telecommunications monopoly on whose networks the internet and e-mail traffic of the entire client base of the ISPs depended, had finally entered the fray. The months of informal pilot testing, which the various private sector ISPs had anxiously been monitoring, had ended. A major new ISP for them to contend with had officially been launched. SAIX, the South African Internet eXchange, was now out there, in their market. Since Telkom's pre-commercial testing had begun on 1 October of the previous year, they and the other ISPs had talked of little else. An ISP operated by the incumbent could mean no-holds-barred competition for clients (particularly the profitable corporates, whose leased lines were rented from Telkom, making the telephone monopoly privy to their entire client database), including cross-subsidies and predatory pricing. Already many of them knew of informal approaches to their own clients - and the carrot of cheaper prices. Five ISP representatives had met to discuss the growing threat - Dave Frankel of Internet Solution, Jon Oliver of GIA, Mark Todes of Internet Africa, Steve Corkin of Sprint, and Internet activist Ant Brooks. With the support of other ISPs, they had planned the formation of an Internet Service Providers Association. The formal entry of Telkom into the ISP market was the final push needed to make ISPA happen. Their own public announcement launching ISPA on 10 June 1996, had been deliberately timed to precede that of SAIX, throwing down the gauntlet. Individually, the private sector ISPs were vulnerable to retaliation. Together, in an industry association, they might prevail. And now? To receive a fax from the opposition was one thing. But its contents were even more startling. Someone at Telkom was clearly on their side. There, in eleven detailed pages, was the entire strategic plan for Telkom's entry into the dial-up market. And it clearly indicated that SAIX was the thin end of the wedge, that Telkom had long planned within months to launch its own dial-up ISP. This contradicted the declaration by SAIX CEO Rikus Matthyser at the launch event, promising no further inroads into their market: "SAIX will not compete directly with its ISP customers". It was time to move to the next step. Perhaps the occasion was now ripe for the formal complaint they had discussed lodging with the Competition Board. Negotiating the Net 4/1/2005 - 2 – ________________________________________________________________________ That fax and those watershed days in the chilly June of 1996 were to scar the ISP landscape for years to come. The predicted “Internet wars” were about to begin. 1 The South African Context Despite its status as the most industrialized country on the African continent, South Africa in 1990 seemed an unlikely starting point for Africa’s entry into the information age. By the end of the 1980s, just as the ferment in global computing which preceded the development of what we now know as the Internet began, South Africa was a country gripped by crisis. Decades of racial oppression at the hands of a white apartheid oligarchy had led to diplomatic isolation and the imposition of both economic sanctions and a cultural and scientific boycott. Domestically, popular opposition had risen to unprecedented levels, with an ongoing wave of mass protests against the backdrop of a growing African National Congress-led armed insurgency. The economy was approaching terminal decline. The South Africa of the 1990s was to experience a sequence of changes so dramatic and dazzling as to be beyond the most fanciful prediction. The growth and diffusion of the Internet in South Africa was to take place in a most unlikely context, amidst the release of Nelson Mandela from twenty-seven years of imprisonment, a tense and bitterly negotiated democratic transition to democracy, the triumphant fanfare of the country’s first universal franchise election, and the subsequently sobering and sometimes disillusioning work of forging a ‘better life for all’2 as the ANC sought to translate its overwhelming electoral mandate into practical delivery of both social development and economic growth. It is worthwhile briefly to reflect on the dramatic change and growth between 1990 and 2003 of the Internet specifically, as well as the information and communications technology (ICT) sector more broadly. In 1990, telecommunications in South Africa was governed by the 1958 Post Office Act under which the state-owned company Telkom functioned as a telephony infrastructure and services monopoly. It was illegal to connect private equipment to the network and third party traffic was prohibited. All regulation fell under the Department of Posts and Telecommunications, which was also responsible for telecommunications policy as well as the management of SA Posts and Telecommunications through which the state undertook the monopoly provision of telecommunications and postal services. E-mail was new, its use restricted to a few thousand enthusiasts who embraced its revolutionary potential. The entire country boasted less than an estimated 5,000 users of bulletin board services, e-mail, 1 The conflict was foreshadowed by Arthur Goldstuck, writing about the pilot testing that preceded the launch of SAIX, initially billed as a service offered by Telkom to ISPs, in an article headlined 'Net wars as Telkom opens shop, PC Review, October 1995. 2 ANC elections slogan in 1999 and 2004. Negotiating the Net 4/1/2005 - 3 – ________________________________________________________________________ FidoNet and UseNet.3 The wide webbed world of the Internet was an as-yet-undreamed-of future. By 2004, dramatic changes had occurred. An independent, converged regulator, the Independent Communications Authority of South Africa4, now oversees the sector, ensuring a substantial separation of powers between policy and regulatory functions. Significant restructuring has transformed the telecommunications sector. Telecommunications and postal services have been separated and corporatized, and limited liberalisation and partial privatisation have been implemented. New mobile telephony services have surpassed the wildest projections5 with a rollout well over double that of the 4.8 million (and shrinking) fixed line user base.6 The Internet and e-mail services market has become highly competitive with some 270 companies ranging from backyard, shoestring operations to several commercial giants dominant in the sector. These companies provide a growing range of services to an estimated 3.25 million users and manage over 10,000 corporate leased lines.7 Although no reliable estimates exist, South Africa also boasts large numbers of cyber cafés, telecenters, multi-purpose community centers, and school network sites.8 The new democratic government makes extensive use of the Internet, and almost every government department, agency, and institution has its own web site. A wide range of ICT projects are active, including the Gauteng Online initiative in South Africa’s second most populous province. Gauteng Online aims to provide computers to all state schools and e-mail addresses to their scholars. The Internet has also become a life blood of commerce and industry, with e-mail and e-commerce burgeoning. Dedicated legislation has been enacted to cover electronic transactions, online communications, and Internet security. 3 Arthur Goldstuck, Internet Access in South Africa 2002: An Annual Study of the ISP Market in South Africa, World Wide Worx, Johannesburg, 2002. 4 ICASA was created in 2000, bringing together the South African Telecommunications Regulatory Agency (SATRA), which had been established in 1997, and the Independent Broadcasting Agency (IBA), which had been created in the run-up to the first democratic election in 1994. 5 Initial projections by audit firm Coopers & Lybrand suggested a market of 160,000 – 220,000 within 8 years. 6 The Telkom SA Limited Group Annual Report 2003 gives 4,844,000 telephone main lines as being in operation on 31 March 2003, an ongoing decline off a 1999 high of 5,492,838 lines. The annual reports of the three mobile operators claim a combined total of 15 700 000 subscribers at the same point in time. Via its web site, Vodacom estimates the cellular market at 18.2 million users as of May 2004, of which just over 14.5 million are "active" (http://www.cellular.co.za/stats/statistics_south_africa.htm). 7 Arthur Goldstuck, Internet Access in South Africa 2004: An Annual Study of the Internet Access Market in South Africa, World Wide Worx, Johannesburg, 2004. 8 Search directory http://www.ananzi.co.za has 33 entries for cyber cafés as of May 2004, almost certainly an under-estimate. As of June 2003, telecenter expert Dr Peter Benjamin lists 71 Universal Service Agency telecenters, some 200 multi-purpose community centers of various types, as well as over 3,000 schools affiliated to SchoolNet SA. Negotiating the Net 4/1/2005 - 4 – ________________________________________________________________________ The Internet in South Africa presents a number of interesting paradoxes. Despite the relative international isolation