Beyond copy-paste

Policy conflicts between social goals and liberalisation in South Africa

Designing a telecommunications sector policy can be extremely difficult when faced with the need to pay attention to multiple objectives at the same time. In South Africa, the telecommunications sector is in the midst of a liberalisation process. However, not only liberalisation is a policy goal. The country faces a very low teledensity and a high unemployment among the black part of the population. A very clear example of the difficulties arising from such a situation can be found around the issuing of licenses for operators in under-serviced areas. Designing a telecommunications policy under such circumstances is much more than copy-pasting existing and proven frameworks from more developed countries.

By Fabian van Leijden and Ton Monasso

Over the past decennium, the South African telecommunications market has faced numerous changes. After the fall of the apartheid regime in 1994, attention was paid for the first time to goals of universal service and universal access for the rural population. The large unemployment among the black population was also acknowledged as a major social problem. Besides, economic growth for all became an important aim of the restructuring of the country. In that light, the market is being liberalised as to increase competition, reduce costs, and possibly increase access possibilities.

South Africa has an immature telecom sector and a very low teledensity. Considering fixed communication lines, still only one operator – the former incumbent, Telkom – is offering connections. The teledensity for fixed lines is as low as about 10% (Telkom, 2005); the mobile penetration is far bigger: 32% (Gillwald and Esselaar, 2004).

Designing a policy, that simultaneously takes into account the identified goals of universal service, black economic empowerment (BEE), and sector liberalisation, seems to be an enormous challenge. A trade-off should be made between seemingly contradictory policy goals. Liberalisation influences black economic empowerment in that it may create a competitive situation in which infant companies cannot survive. Reversely, BEE may threaten investor certainty in that it positively discriminates black empowered companies. Policy tensions also exist between liberalisation and universal service. On the one hand, increased competition in the mobile market has led to a relative high penetration. At the same time, however, companies in a competitive market may be cherry-picking and neglecting under-serviced and unprofitable regions. The third contradiction can be found between the social goals of universal service and BEE. Supporting companies who focus on under-serviced markets is much more difficult when dealing with small, black empowered companies, who may lack the necessary skills and investment power.

The establishment of a policy that deals with the under-serviced areas in South Africa does show how intricate it can be to create an effective framework. The under-serviced area licensing (USAL) policy exists of the issuing of special licenses to provide telecommunications services in an under-serviced area. The licensees must be small, medium or micro enterprises with a strong local basis and a sufficient level of equity and jobs in the hands of black people. The companies are allowed to offer any kind of telecommunications services within their area, without technology restrictions, which is a potential competitive advantage. The licenses are awarded using a structured “beauty contest”. The licensees get a 15 million RAND (approx. 2.2 million Euros) subsidy, provided that they reach their roll-out targets. During the process, many issues came up that caused a delay or increased complexity (Van Leijden and Monasso, 2006). First of all, the licensing conditions kept changing while the first round of the licence procedures was already well underway. Secondly, the Convergence Bill, which gives which gives every company the same possibility to provide services without technology restrictions. Another major issue is the high mobile coverage of the areas at hand by national mobile operators. As there is no exclusivity, the licensees have to compete directly with these national operators. The licensees pointed out that they have a hard time to find investors, because of the difficult business case and their disadvantaged background. Several of the licensees complained about the high compliance costs, which were caused by the long and complicated licensing process and the complexity and dynamics of the licensing conditions. A last issue is the lengthy negotiation process with the incumbent parties on the topic of interconnection, in the absence of interconnection guidelines.

The USAL policy clearly shows that the inherent policy conflicts in the South African telecommunications sector, combined with a rapidly changing technical and market environment, makes it an extremely hard job to design an effective sector policy. Although some of the issues identified can be mitigated by introducing regulations that build upon a standard liberalisation framework, many of them are specific for the South African situation. The market and social variables, as well as the institutional setting differ that much from many developed countries, that designing a policy is much more than a simple copy-paste operation.

References

Leijden, F. van & Monasso, T. (2006, to be published), Beware Dongas! An Assessment of the Road Ahead for Under-Serviced Area Telecommunications Operators in South Africa, in: The Southern African Journal of Information and Communication, Vol. 6, Johannesburg: LINK Centre.

Gillwald, A. & Esselaar, S. (2004), South African 2004 ICT Sector Performance Review, Johannesburg: LINK Centre. Telkom (2005). Group Annual Report 2004, Pretoria: Telkom SA Limited.

This article has been published in the Network Industries Quarterly newsletter.

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