The influence of regulatory approach on competition in the South African pay-TV market. Monamodi Owen Thothela This research report is submitted to the Graduate School of Public and Development Management at the University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Management in ICT Policy and Regulation Johannesburg, March 2013 Abstract In the year 2004, before the advent of competition in the South African subscription television broadcasting market the Independent Communications Authority of South Africa (ICASA) identified various potential barriers to enter this market. Then, in January 2006 ICASA issued an invitation to apply for commercial satellite and cable subscription television broadcasting licenses. Eighteen applications were received and five were licensed during November 2007. The purpose of this qualitative study is to assess how effective the regulatory approach has been in addressing the identified entry barriers and in promoting competition and convergence in this market. The findings from the research study indicate that there is lack of effective and sustainable competition and convergence in the market, and that the applicable light-touch regulatory approach is preferred for this market but needs to be intensified. This may seem contradictory, but it is not if the regulator is regarded as absconding from its responsibilities. A significant finding is that ICASA is viewed as a weak regulator that is absconding from its regulatory obligations in this market. Some of the important negative findings include: there are extensive barriers to entry which have created an uneven playing field that favours the dominant operator; ICASA and the Department of Communications have been captured by the dominant operator; there is monopoly in the ownership of content rights which stems from abuse of content exclusive rights and lack of relevant regulations; and the regulatory framework and licensing regime should be modified in the context of the migration to the Digital Terrestrial Television transmission, the urgent need to promote competition in this market and the creation of a converged communications industry in the country. The influence of regulatory approach on competition in the South African pay-TV market Page 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 Information Communications Technology Policy and Regulation to the University of the Witwatersrand, Johannesburg. It has not been submitted before for any degree of examination at any other university. ……………………………... Monamodi Owen Thothela 28 March 2013. The influence of regulatory approach on competition in the South African pay-TV market Page 3 Dedication To my Guide, the Rock of my salvation, my Lord Jesus Christ and my Father God. To the crown of my life, my dear wife Winnie. To my treasure and joy, my children Letlotlo and Neo. To the constant factor in my life, my extended family and friends. Thank you for your love that has motivated me to journey in confidence and has made my life a wonderful experience. The influence of regulatory approach on competition in the South African pay-TV market Page 4 Acknowledgements I am grateful to my supervisor Lucienne Abrahams for her expertise, guidance and patience throughout the research process. Without her assistance this research study would not have been possible. Dr. Andrew Barendse, Charley Lewis and all the lecturers who introduced, guided and shared their abundant wisdom on various aspects in the field of ICT management, policy and regulation. The sampled experts who participated in this study for their immeasurable advice and inputs in this research. My father, Motlatsi Thothela and my three mothers Matlhodi Thothela, Dikeledi Mohokare and Kealeboga Panyane for moulding me into a balanced human being. Statistics South Africa (Stats SA) and the people of South Africa for partial financial support towards my studies. The influence of regulatory approach on competition in the South African pay-TV market Page 5 Table of Contents List of Figures ................................................................................................... 10 List of Tables .................................................................................................... 11 Acronyms .......................................................................................................... 12 CHAPTER 1: LOCAL AND GLOBAL TRENDS IN THE SUBSCRIPTION TELEVISION MARKET ............................................................................... 14 1.1 Introduction ............................................................................................. 14 1.2 The South African communications industry ........................................... 18 1.3 The South African subscription television broadcasting market ............... 19 1.4 Internet penetration in South Africa ......................................................... 24 1.5 South African socio-economic environment ............................................. 27 1.6. Television in a converged communications industry ............................... 29 1.6.1 Significance of television .................................................................. 29 1.6.2 Subscription Television ..................................................................... 32 1.7 Competition in the subscription television market ............................... 37 1.8 Competition strategies ............................................................................. 37 1.8.1 Exclusivity ........................................................................................ 37 1.8.2 Set-Top-Box ..................................................................................... 38 1.9 The effect of convergence on television broadcasting .............................. 41 1.10 Regulatory environment ......................................................................... 44 1.10.1 Regulating interconnection in the subscription television broadcasting market ....................................................................................................... 47 1.10.2 South African legislation and regulation .......................................... 50 1.10.3 The sector regulator ........................................................................ 51 1.11 Current policy and regulatory developments .......................................... 53 1.12 Problem Statement ................................................................................. 54 1.13 Purpose statement .................................................................................. 55 1.14 Summary ............................................................................................... 55 CHAPTER 2: REVIEW OF LITERATURE ON REGULATORY APPROACH AND CONVERGENCE IN THE SUBSCRIPTION TELEVISION BROADCASTING MARKET .......................................................................... 57 2.1 Regulation in the communications industry ......................................... 57 2.2 Market structure and regulation ........................................................... 62 2.2.1 Market structure ................................................................................ 62 2.2.2 Regulation: ex ante or ex post ........................................................... 65 2.3 Regulation and transformation of market structure ................................... 68 2.3.1 Selection of regulatory framework .................................................... 68 2.3.1 Evolution of regulation ..................................................................... 70 2.4 Locating regulatory approach in evolving markets ................................... 73 2.5 Market structure and regulation of the subscription television broadcasting ...................................................................................................................... 75 2.5.1 Development of regulation in the television broadcasting market ...... 76 2.5.2 Subscription television broadcasting market structure and regulation 77 2.6 Convergence and competition in the commercial television markets ........ 79 2.6.1 Defining convergence ....................................................................... 79 2.6.2 Effects of convergence on the communications industry and society . 81 2.7 Impact of convergence on competition in the television broadcasting market ........................................................................................................... 86 The influence of regulatory approach on competition in the South African pay-TV market Page 6 2.8 Drivers of convergence in the subscription television market ................... 88 2.9 Impact of convergence on regulation in the television broadcasting market ...................................................................................................................... 92 2.10 Analytical Framework ........................................................................... 94 2.10.1 Barriers to entry .............................................................................. 95 2.10.2 Barriers to enter the South African subscription television broadcasting market ................................................................................... 97 2.10.3 Analytical framework in detail ........................................................ 98 2.10.4 Regulatory Impact Assessment