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 1 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.

DATA SERVICES MARKET INQUIRY 2 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 3 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

DATA SERVICES MARKET INQUIRY 4 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 5 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

DATA SERVICES MARKET INQUIRY 6 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 7 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)

DATA SERVICES MARKET INQUIRY 8 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 9 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.

DATA SERVICES MARKET INQUIRY 10 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 11 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

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