16 September 2019

Introduction

1. The SACF is an industry association that represents a diverse group of members that participate throughout the ICT value chain and are therefore are in a unique position, to bring considerable insights through the experience of our members – small and large across the ICT value chain.

2. The SACF’s objectives includes but not limited to participating in policy formulation to create the most enabling ecosystem for a universally connected and prosperous South Africa.

3. The SACF welcomes Treasury’s initiative to focus on ways in which a multitude of interested stakeholders can jointly contribute to moving the economy forward and supports the Discussion Document’s focus on economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa (Economic Strategy document). While we support the intention, we have approached our commentary from the perspective of trying to highlight the key areas of growth as envisaged by the SACF.  

4. The advent of the 4^th Industrial Revolution and SA’s response to this revolution is vital. Developing a clear plan for this national priority is considered an essential pillar for economic growth – ICTs are an imperative to delivering on this national optimism.

5. The SACF acknowledges the need for an economic stimulus to improve economic growth and wider economic transformation that promotes inclusive growth for the country and notes the fundamental building blocks of education, youth employment, transport networks and urban development, skills constraints, a new public-private compact and a stable macroeconomic policy framework necessary for South Africa’s economic growth.

6. Implementation of ICT has been shown to have a multiplier effect on economic growth, job creation and skills development. Additionally, access to ICT and broadcasting has significant impact on access to:

-Quality health care

-Globally competitive education; and

-Community security

According to the ITU and World Bank countries realise up to  0.8% growth for 1% of GDP spend on fixed broadband access.

7. ICTs are critical enablers for economic growth and development, which is included in the National Development Plan (NDP).

Regulatory Certainty

8. Achieving universality at lower rates is contingent upon an investment friendly environment. This requires regulatory certainty which would be provided by ensuring clarity, following due process.

Investment

9. The ICT sector is investment intensive as a result of the ongoing capital investment required – initially for network rollouts and ongoing network upgrades to provide the required infrastructure. This is the case for incumbents as it is for new entrants.

10. The NDP is premised on the principle of universality of infrastructure and services at costs that are affordable by the general population. While, Government sets the policy and collects levies the rollout of infrastructure and services are for the cost of rollout and investment largely lies with the private sector. Licences are granted with rights and obligations in exchange for the opportunity of investing and the right to a return on investment. Regardless, of whether the licensee is an incumbent or an entrant, infrastructure rollout is heavily, if not entirely dependent on investment.

11. This makes the investment climate central to the ability to drive the desired level of infrastructure and services. While, telecommunications or electronic communications has increasingly been under pressure to provide more capacity at higher grades of services at lower prices, it is heavily dependent on investment.

12. Regulatory certainty is essential for investment – investors need to be assured that the rules are not going to change at least for the duration of the concession or licence duration. Electronic communications networks need continuous investment and the upgrading of infrastructure as well as product development. When the rules are at risk of arbitrarily changing midway and the concessions or licences have the potential be removed, this serves as a disincentive to ongoing investment. This would be undesirous to incumbents and entrants alike as this will have a significant negative impact on investment.  

Transformation

13. The SACF supports the imperative of transformation, we believe that there must be a multi-pronged to approach to transformation to ensure representivity across the value chain.

• Development of ICT product repair centres especially in rural and peri-urban areas.

Competition

15. In about 2007 the landmark Altech judgement opened the market resulting in the licensing of about 400 operators who had the potential to build and operate national licences albeit unintendedly. This judgement would have enabled many aspiring Black entrepreneurs access to the market. However, the various policy and regulatory missteps and disjuncture has resulted in spectrum not being licensed to new entrants or incumbents. The consequence is that licensees hold licences and may have had funding but were denied the opportunity to enter the market.

16. It should be noted that globally there is consolidation taking place. The top 3 players have generally been able to withstand the pressures of low growth and depreciating currencies that add costs on investments.

17. The non-licensing of spectrum for more than a decade, has had a significant impact on licensees across the market. The continuous delay in digital migration and assignment has constrained competition and the resultant consumer benefits thus impeding SA’s ability to be the leader for ICTs on the continent. The delays in the licensing of spectrum has prevented new entrants from entering the market despite having the requisite licences.

Forward-looking approach

18. The 4^th Industrial Revolution is premised on doing things differently with services being delivered through a cyber platform. It is as disruptive as all previous industrial revolutions have been. However, it is not an event, it is a journey an era and is happening daily. It needs new skills, policies and laws to consider how services are provided differently. This will impact all aspects of how we work, live and play, right down to the jobs we have and how we view employment and learning differently – the shift from training being an event to one of lifelong learning.

19. Service provision is premised on access everywhere all the time. Services and applications are increasingly demanding high capacity data and high speeds which impacts the supply and demand of these services. Such service provision is enabled by 5G, accordingly, it is critical for South Africa, to not fall behind as it did with the licensing of 4G. This becomes increasingly important as markets become more globalized and borders matter less.

20. As a result, some current jobs will no longer be relevant and other will be critical, many jobs are yet to be imagined. Developing the rights skills is essential to inclusive growth. Accordingly, there are several immediate opportunities for implementation that could be done now that are essential to economic growth.

Cloud Computing

21. Cloud computing is a key element of infrastructure required to enable the 4IR. It further brings in significant Foreign Direct Investment as is evidenced through the recent build of local data centers by Huawei, Microsoft, Amazon and Google.

22. Gartner projects significant growth in the global revenue for cloud services and has prioritized cloud growth in three key areas – cloud system infrastructure services and the second area of growth being in cloud application infrastructure services.

23. Gartner further projects that market growth of the cloud services industry at nearly three times growth of overall IT services at least until 2022. With more than a third of companies surveyed put spend on cloud services in the top three in terms of annual spending.

24. Accordingly, cloud is a key area for growth.

Cybersecurity

25. In an environment where services are increasingly offered online digital and cybersecurity becomes an imperative. However, despite Cybersecurity being an imperative, South Africa lacks key infrastructure and legislation in this regard. The Cybercrimes and Cybersecurity Bill were before Parliament, and the Cybercrimes Bill was passed however, the provisions on Cybersecurity was removed. While, we understand that more work had to be done to resolve the issues relating to Cybersecurity, it is an important element that needs to be resolved urgently.  South Africa lacks a legislative framework for Cybersecurity, leaving South Africa compromised from a global and local perspective. 

26. Cybersecurity is one of the fastest growing sectors and will continue to grow in importance particularly as it becomes a key sector for job growth. According to Forbes, Cybersecurity is a job for the future, and it forecasts 37% year on year growth at least until 2022 in the US alone.

27. In addition, to this Protection of Personal Information (POPI) Act was promulgated however, only limited sections of the Act have already been enacted. The Information Regulator has been significantly underfunded. Accordingly, as a consequence of the under-funding combined the limited implementation of the Act has further compromised the data security.

28. The Information Regulator is a key role player in terms of data security. The full implementation of the POPI Act is imperative. As we understand it addition to the POI Act not being fully implemented, the Information Regulator is not adequately funded to fulfil its role. Accordingly, we would urge Treasury to ensure the adequate funding of the Information Regulator to become operational.

29. Cybersecurity represents one of the areas of growth in job and job opportunities. This has the potential to address a key national priority.

Response to chapter 2.2: Modernising network industries – Telecommunications

Cost of communication in South Africa

30. We note Treasury’s concerns about the pricing of data especially when compared to other countries.  We further note the comment in respect of the quality of data.

31. The quality standards applicable to all voice and data services are determined by ICASA and prescribed in the End User and Subscriber Service Charter.

32. It is important to note that voice and data pricing is influenced primarily by quality of service, ubiquity and access to resources. Therefore, when comparing the pricing it is important to ensure comparability.

33. Due to the national priority of data pricing there have been numerous processes by the various regulatory authorities to regulate data pricing. The table outlines the multiple and sometimes parallel processes. The table below sets out the various processes run to reduce data costs. A key challenge is that as a result of the timing of the processes, the impact of each of the measures is yet to be evaluated.  Accordingly, the data contained in the Treasury document may be out of date.

34. While, each of the above initiatives may offer focused mechanisms to impact specific market segments. For example, the removal of out of bundle rates will impact that were previously impacted in a particular market segment.  
35. Nevertheless, data pricing has a demonstrated a downward pricing trend. Mobile operators have repeatedly highlighted that in the absence of high demand spectrum, there is less efficient spectrum usage which impacts data pricing. Mobile operators have committed to decreases in mobile data pricing contingent to access to critical high demand spectrum.

36. The SACF notes that the National Treasury’s South African General Equilibrium Model (SAGE) was used to estimate the economy-wide impact of the proposed intervention. The SACF is concerned at the lack of clarity on what constitutes the “baseline” model within the ICT sector, given that the economic impact of some of the measures (such as local loop unbundling or possible additional levies for SA Connect or ICASA’s economic regulations) may be small or have a negative impact on operators and consumers. Furthermore, without a view of the model and input parameters, it is unclear how the price of telecommunications would be 25% lower in the short-term and reduce by a further 25% in the long term (in 10 years) given the auction, possible additional obligations and infrastructure requirements that the sector reforms would impose.

37. Although the SACF acknowledges the quoted studies on the cost of communication and the quality of broadband in South Africa when compared to peers, we also note that increased capacity and quality of services at lower prices require ongoing investment. Furthermore, we have seen a steady decline in data prices and the industry has largely responded positively to the Independent Communications Authority of South Africa (ICASA)’s end-user and subscriber service charter as it concerns out-of-bundle and roll-over data.

Regulatory Reforms contributing the opening up of the market

Local loop unbundling

38. The document proposes the immediate implementation of local loop unbundling. We understand the intention of this proposal to open up the market, however, this obligation in our view is likely outdated. Local-loop unbundling of traditionally copper access is a regulatory reform that was implemented during the transition of monopolist state owed fixed networks to competing fixed networks. The time for local loop unbundling has been surpassed by fibre.

39. Telkom owns the copper network to which other interested parties would be given access as a result of local loop unbundling. Telkom has recently announced its intentions to decommission its copper network in favour of wireless and fibre[1].

Opening up Access

40. The Electronic Communications Act (ECA) promotes open access and infrastructure sharing which contributes to network efficiencies.

41. As noted above, service competition is limited in the absence of infrastructure competition and the open access conditions associated with rapid deployment should avoid a purely service-based orientation.

42. While, service based competition is important it should not be done at the expense of infrastructure competition.

43. While we welcome provisions on rapid deployment, we also note that fibre rollouts are funded by the private sector based on business cases completed by each licensee.

Rapid deployment

44. Network operators encounter constant challenges in respect of rollouts which ranges from delays in permitting to significant costs and infrastructure theft which impacts network rollouts and the cost of services.

45. Some municipalities seem to consider the permitting costs for infrastructure rollouts which includes wayleave application fees and trenching to be an opportunity to generate significant incomes and levies for operators to rollout services. For example, the Tshwane municipality in 2018 and 2019 implemented significant increases linked to the cost of wayleaves. In the tariff structure it imposed a significant differentiation between the cost for rollout of ICT infrastructure and non-ICT services. Wayleaves applications for ICT Infrastructure attracts a fee of R15 825, while all other infrastructure attracts an application fee of R2 110. In addition, only ICT infrastructure attracts a security deposit of R263 750 per application. While, the deposit is refundable it places a significant demand on the cash flow of a business.

46. Fibre rollouts provide an opportunity and space for smaller players to operate in the ICT sector. The imposition of levies and deposits of this scale even though it is refundable places a significant burden on the operator. During Tshwane’s public consultation on its 2019 tariffs the SACF and other industry associations, as well as our members had raised their concerns in respect of prohibitive costs and deposits being imposed on ICT infrastructure rollouts. We had also asked for the rationale behind the differentiated tariff structure, no reasons were provided. While, the tariffs for the City of Tshwane are of concern, it could set an unfortunate precedent which other municipalities could adopt. This will undoubtedly increase the cost of the rollout of ICT infrastructure.

47. Resultantly, the rising input costs is counter-intuitive to Government’s priority of reducing the cost of data prices. Fibre rollouts are essential to the provision of highspeed data.

48. The SACF therefore, supports the finalisation of rapid deployment guidelines as a matter of urgency.

Security of networks

49. Infrastructure rollouts, particularly fibre rollouts are the subject of ongoing sabotage where the rollout is impeded by various groupings who insist on payment and inclusion as local teams involved in the rollout. While, our members do include local teams, all interested parties cannot be included in each rollout. This often translates into safety and security threats to service providers laying the fibre or the removal of the infrastructure. This impedes rollouts and ultimately costs.  

Power Supply

50. A secure electricity supply is essential to the interrupted provision of all communication services. The insecurity of electricity supply has increased the importance of batteries at base stations. These batteries have become the target of criminal syndicates. One operator alone reported the theft of 153 batteries between January and August 2019.

51. Infrastructure security is essential to reliable continuous service provision.

Economic regulation and strengthening the regulator

Economic regulation and funding of ICASA’s function

52. Globally operators are typically funded by industry through clearly defined and independent processes. This has been a debate in various policy documents for more than a decade.

SA Connect and private participation

53. While, obligations are par for the course in licensing processes and may have a role a balance must be struck between being too onerous and an operator’s role in ensuring universality.

Spectrum

54. SACF agrees that the biggest constraints to the growth of the telecommunications sector is the spectrum allocation process and we welcome the retail-driven approach as it relates to set-top boxes. With regards to spectrum allocation, the SACF notes with concern that the Economic Strategy document excludes an analysis of the Policy on High Demand Spectrum and Policy Direction on the Licencing of a Wireless Open Access Network (Policy Direction) gazetted on the 26 July 2019. The executive summary of the Economic Strategy document recommends that Government release spectrum through an auction with a small set-aside for a government-controlled network. This is in contrast with the provisions of the Policy Direction that directs, in section 2.1.3, that high demand spectrum may be assigned to a Wireless Open Access Network (WOAN) and the remaining high demand spectrum may be assigned to the other electronic communications network service licensees, which spectrum assignment processes must commence simultaneously. It is unclear how the National Treasury’s Economic Strategy document relate with the Policy Direction and the ownership requirements of the WOAN.

5G

55. 5G is the corner stone of the 4IR, and 5G applications represent tremendous opportunities for the economy and all members of society: consumers, homes, businesses, and communities.

56. Mobile industry (IMT) has now connected more people than any other technology around the world. This technology has further opened up innovation to new entrepreneurs.

57. South Africa with its rural community will be served faster and at a lower cost than fixed broadband technologies with the roll out of mobile broadband technologies.

58. The global developments have now come up with 5G technologies that are providing high speeds. The 5G technologies will not only connect people but it will open up opportunities for the new digital economies. The next generation of mobile technologies will provide efficiencies in other sectors. It is therefore our view that spectrum and mobile technologies for the future be at the center to drive the economic revival.

59. The potential savings and improved efficiency of new technologies will trigger the democratization of many services. Connectivity will bring more information and education to all populations. New business opportunities across many different industries will boost investment and employment. By expanding the scope of wireless technologies and making devices more autonomous, 5G will help with the long-term objective of reducing our carbon footprint and conserving natural resources.

60. 5G is anticipated to be more inclusive, progressive, proven, and powerful than any previous generation of communications technology. And there are a number of industries with particularly intense dynamics and business opportunities around 5G: telecommunications, media and entertainment, manufacturing, transportation and public services

General comments

Fundamental building blocks – skills, education and youth employment

61. The SACF is in agreement with the Economic Strategy document to the need for skills, education and youth employment initiatives that help grow the economy. It is with concern that we note the lack of focus on ICT skills in particular, given Government’s commitment to respond and unlock South Africa’s readiness for the Fourth Industrial Revolution. In this regard, the SACF recommends the acknowledgement of training interventions within the sector towards the BBBEE ICT sector codes as transformation through the sector Codes and current BBBEE frameworks promotes inclusivity across the sector.

Lowering barriers to entry – small business growth

62. The SACF supports the inclusion of small businesses and acknowledges the importance of inclusivity.

Scope and Overlap of the document

63. While, we understand that the role of Treasury ensuring the funding of national priorities and fund projects across the economy, we note that there are areas of overlap of the document with the scope of and projects of the Ministry of Communications and Digital Technologies. This includes the following areas:

• Spectrum licensing
• Local loop unbundling
• Licensing of the WOAN.

Process

64. The SACF applauds any concrete effort to stimulate the economy and promote investment and inclusivity, however, the status of the document and the processes followed in respect of this document and the next steps are unclear.

65. We note that the document was not published in the typical fashion of discussions documents inviting comments from interested stakeholders. Therefore, the process and next steps for this document are unclear. We would appreciate clarity on the next steps and would like to place on record our interest to participate in further stages of this process.

Conclusion

66. The SACF appreciates the opportunity to respond to the National Treasury’s Economic Strategy paper and supports sector reform aimed at economic growth. However, these reforms are not aligned to existing policies, are not clear on whether additional levies will be imposed on operators and do not account for technology developments. Before this strategy is finalised, we recommend that Treasury should hold hearings or discussion workshops that include all stakeholders.

67. SACF would welcome the opportunity to orally present its recommendations to National Treasury.

[1] https://mybroadband.co.za/news/broadband/315111-telkom-is-killing-adsl-here-is-what-it-will-offer-instead.html