The Electronic Communications Act (ECA) Amendment bill envisages infrastructure sharing as a way for network operators to connect the unconnected – but would it really work, and is it fair? We posed a few questions to industry stakeholders to get their view on the matter.
Why would infrastructure sharing be necessary?
Juanita Clark, CEO, FTTX Council.
Juanita Clark, CEO, FTTX Council: “Most of the cost of telecommunication infrastructure deployment, both fixed and wireless, lies in the physical deployment of the network. There is a commonly accepted notion that infrastructure sharing limits duplication and pushes investment toward underserved areas, or at least in less mature markets, deeper into the network.”
Graham Mackinnon, chief legal officer, Cell C: “Currently there is massive duplication of infrastructure which is inefficient and unnecessary. The cost of the infrastructure is ultimately passed on to consumers. By aggressively driving infrastructure sharing you remove a huge part of the input costs for generating a voice call or data session on a network. With effective competition this input cost reduction should result in a reduction in the prices charged to consumers.”
Mongezi Tshongweni, executive public affairs, Internet Solutions: “ICASA already makes some provision for infrastructure sharing, the question is whether it is sufficient to address the problems currently faced by the market regarding access – both to infrastructure and to bandwidth. Small players – not the Telkoms, Vodacoms and MTNs of our market – believe they have unequal access to infrastructure and therefore to the market itself, whereas consumers believe they have unequal access to affordable, reliable data and Internet connectivity.”
Graham Mackinnon, chief legal officer, Cell C.
Martin van Staden, legal researcher, Free Market Foundation: “It is certainly not necessary as set out in the Bill, and is already happening anyway within the free market. It would achieve the opposite of what it intends to do, and will lead South Africa to fall behind other comparable ICT markets. Currently, service providers are responsible for constructing and maintaining their own infrastructure, and they may share with one another in terms of commercial agreements. There are various such agreements concluded between firms today. By forcing infrastructure sharing, the incentive to build and maintain more infrastructure in the future will be gone. Not all firms wish to share, and those who do wish to share will wait for other firms to build the infrastructure instead. Only through collusion, which is an anti-competitive practice and thus illegal in South Africa, can the firms come together and build joint infrastructure. This will inevitably lead to monopolisation which means inefficiency and higher prices. Users won’t benefit in the slightest.”
Jannie van Zyl, executive head of innovation, Vodacom: “Network sharing can be a relevant solution in the more sparsely populated parts of the country, and acceptable provided that its negative impact, notably in the area of competition, can be offset by positive effects, and particularly in improving the coverage and quality of mobile services.”
Mongezi Tshongweni, executive public affairs, Internet Solutions.
Krishna Chetty, general manager for network deployment, MTN: “Infrastructure sharing enables operators to roll out infrastructure quicker as piggy backing on existing infrastructure allows for speedy deployment. Getting municipal approvals to erect a base station is a lengthy process, so infrastructure sharing gives mobile network operators the leeway to deploy their network on each other’s infrastructure. Additionally, infrastructure sharing has environmental benefits as well as it means that operators can avoid duplication of base stations and reduce their carbon footprint. However, infrastructure sharing should be undertaken when it is technically feasible and makes commercial sense.”
Will infrastructure sharing, as envisaged by the Department of Telecommunications and Postal Services (DTPS) through their wireless open access network (WOAN) proposal, create a monopoly, taking us back to the “Telkom days”?
Graham Mackinnon: “No, it would not create a monopoly. The current network operators would still remain in the market at an infrastructure level. The WOAN would, however, provide wholesale access to numerous service providers who would compete at a service level and could provide innovative solutions for consumers.”
Krishna Chetty: “MTN has expressed concern about the proposed wholesale open access network (WOAN) in its current format in the ECA Amendment Bill. MTN believes that the risks associated with this Bill are extensive and significant, and will discourage investment in the sector. A slowdown in capital investment in our mobile networks will degrade the service and quality of the networks.
“The Bill does not address the single biggest issue facing the local telecommunications industry, which is the serious ‘spectrum crunch’. The withholding of spectrum will result in mobile operators needing to scale back plans for continued growth into rural areas. Operators will have no option but to re-farm the spectrum and to further densify the network at increased cost, to cope with the ever-growing demand for data. As a consequence of this, data costs will not be driven down.”
Martin van Staden, legal researcher, Free Market Foundation.
Martin van Staden: “As things currently stand – bearing in mind that the Bill may be in the process of being rewritten – monopolisation does appear to be on the horizon. If a single firm owns or controls the most important resource in the industry (radio frequency spectrum) as well as the industry’s infrastructure, consolidation and centralisation (thus monopolisation) will come about. All industry players, in the final analysis, will be beholden to the WOAN or whoever finally controls it. Do we really want another Eskom or SAA in the telecommunications sector?”
Jannie van Zyl: “Yes, it is Vodacom’s view that the WOAN will create a monopoly network infrastructure. Vodacom’s concerns are reflected in comments on the Bill contained in its submission to the DTPS and as presented during the public hearing on the Bill.
A 1996 ICASA study concluded that infrastructure sharing would not solve the lack of connectivity in deep rural areas. Has this situation in 2018 changed?
Juanita Clark: “Deep rural areas are more difficult to monetise. Whilst it is generally accepted that saving money through infrastructure sharing in urban areas will push fibre deeper into the network, it still does not make financial sense to have multiple networks in rural areas. In rural, or rather underserved areas, there is a case for a single wholesale provider, however this needs to be managed according to strong rules of engagement.”
Jannie van Zyl: “The current challenges of connecting deep rural areas include the lack of regulatory certainty and access to high demand spectrum which hampers the ability to efficiently cover rural areas. Rural connectivity is best achieved through competition (based on evidence of various international studies) between operators and the existence of a conducive investment environment.”
Jannie van Zyl, executive head of innovation, Vodacom.
Martin van Staden: “Infrastructure sharing will do nothing for rural connectivity. There needs to be an incentive for service providers to expand services to rural areas. This will not simply materialise when they are forced to share their infrastructure with one another. Rural connectivity can be achieved through various avenues that do not involve central economic planning or violating property rights (both of which is what the White Paper and Electronic Communications Amendment Bill envisage). One possible way is to provide service providers with incentives to expand to rural areas by, for example, giving generous tax relief, exempting them from onerous ICT regulations, or assigning to them additional high demand spectrum (which they may freely trade). These incentives should not be limited to the rural areas themselves, but should be applied to the whole industry, for them to be effective.”
Mongezi Tshongweni: “The communication needs of wide-spread rural communities and densely-populated cities means that newer technologies like 5G cannot simply take over from legacy wireless systems like 3G and even 2G. They will still exist alongside for many years to come. This means that existing, shared infrastructure still contributes to providing connectivity in deep rural areas.”
In your view, what changes should be made to the Facilities Leasing Regulations, if any?
Krishna Chetty: “Every regulation should be reviewed from time to time. At this stage, the Facilities Leasing Regulation provides adequate framework to engage and allow for infrastructure sharing.”
Mongezi Tshongweni: “Like any contract law, these regulations protect the agreements between two consenting parties and must maintain transparency, compliance and fair pricing practices for the best interests of both. While we can anticipate some nuanced changes following the introduction of WOAN in whatever form that takes, I believe that these underlying principles will remain intact.”
Krishna Chetty, general manager for network deployment, MTN.
Graham Mackinnon: “They should be linked to dominance and they should not allow for discrimination based on reasons that are difficult to interrogate. For example, at the moment it is possible to claim that it is not technically feasible to provide the infrastructure sharing, and the person requesting the sharing has very little recourse to challenge. In addition, the cost of sharing should be cost-based. This does not mean that it should be at cost but rather that there should be some reasonable relationship between the cost to the infrastructure network provider and the charge to the infrastructure sharing customer.”
Jannie van Zyl: “In a submission to ICASA, Vodacom recommended that the existing regulations be reviewed for purposes of rendering the enforcement thereof more efficient and time-sensitive. The submission proposes some reforms aimed at transforming the Authority’s role from one of being interventionist, to one that is able to timeously address negotiation impasses and mediate accordingly. Vodacom proposed that licensees to whom the mandated access obligation pertains to develop technical product descriptions aimed at articulating the scope of infrastructure access that is available.”
Juanita Clark: “Facilities leasing obligations in itself is not the problem, simply the implementation thereof. In order for any obligation to be successful it must be enforced. In order to do this, the regulator must be adequately empowered to do so. South Africa has a good foundational Facilities Leasing Guideline, but it is not being enforced, and it has too many gaps for escape.”
Industry sources recently cited that African telcos can potentially yield overall cost savings of between 15% and 30% and reduce capital expenditure up to 60% by combining resources. Can this be achieved, or is it just a textbook statement?
While Graham Mackinnon said that these figures do not look unreasonable, Martin van Staden said: “This may be so, but would be contrary to government’s crusade against so-called ‘collusion’. Being forced to combine resources effectively means less competition. Cooperation between firms is a historical phenomenon and comes with having a free market. Government would not have this, and has outlawed cooperation in the fear of price fixing and other anti-competitive practices becoming prevalent. Furthermore, even if this is so, it should be up to the service providers themselves whether or not they wish to save on capital expenditure. This is not a decision for policymakers to make.”
Krishna Chetty: “MTN believes that the industry can achieve savings through sharing infrastructure. MTN has in the past pursued infrastructure sharing with other operators where it is technically and commercially feasible.”
Jannie van Zyl: “The savings mentioned would not be achieved, because infrastructure sharing is already prevalent (more so in the mobile market) and any potential savings would be limited. Overall cost saving would best be achieved if operators are incentivised to invest in the latest technologies and the assignment of high demand spectrum.”
Juanita Clark: “The financial benefits of sharing resources attracts generous financial savings. In Africa mobile operators are divesting in tower infrastructures and focus on shareholder value and better margins. In the FNO space, open access remains the share medium of choice, however as the infrastructure line between fixed and mobile continues to converge, we are bound to see further market consolidation which will no doubt give way to new business models that will further enhance cost savings.”
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