Davids ver­sus Go­liaths

Pro­posed car­rier pre-se­lect reg­u­la­tions will force MTN and Vo­da­com to en­able smaller op­er­a­tors

Finweek English Edition - - Communication & Technology - SI­MON DIN­GLE si­mond@fin­week.co.za

LATER THIS MONTH the In­de­pen­dent Com­mu­ni­ca­tions Au­thor­ity (Icasa) will con­duct hear­ings on the first ma­jor de­ci­sion based on South Africa’s new Elec­tronic Com­mu­ni­ca­tions Act (ECA). The reg­u­la­tions be­ing pro­posed by the reg­u­la­tory au­thor­ity will en­able car­rier pre-se­lect (CPS) for SA’s telecom­mu­ni­ca­tions net­works, in­clud­ing mo­bile op­er­a­tors Vo­da­com and MTN, forc­ing them to carry net­work traf­fic on be­half of smaller third par­ties.

Should Icasa de­cide to im­ple­ment the rules, SA’s com­pet­i­tive telecom­mu­ni­ca­tions land­scape will be sub­stan­tially changed, en­abling smaller, mo­bile vir­tual net­work op­er­a­tors (MVNOs) to di­rectly com­pete with the likes of Vo­da­com and MTN.

One com­pany that stands to ben­e­fit from the pro­posed rules is ECN, al­though it’s sub­mit­ted rep­re­sen­ta­tions on the pro­posed reg­u­la­tions it feels are in­ad­e­quate. ECN says SA’s mo­bile mar­ket is in ef­fect a du­op­oly. The com­pany points out in its rep­re­sen­ta­tion doc­u­ment that cell­phone calls in SA are among the most ex­pen­sive in the world and as­serts that re­quir­ing phase 2 CPS from mo­bile op­er­a­tors will have a pro­found im­pact on the com­pet­i­tive en­vi­ron­ment.

“Car­rier pre-se­lect was orig­i­nally de­signed for the fixed­line mar­ket and in­tro­duced in Bri­tain many years ago. But the land­scape has shifted with the growth of mo­bile and so CPS must be po­si­tioned for both land­line and mo­bile net­works now,” says John Holdsworth, CEO of ECN. “In SA it would be point­less im­ple­ment­ing it if not for mo­bile, be­cause of the dom­i­nance of cel­lu­lar tele­phony. It’s highly neg­a­tive for the com­pet­i­tive en­vi­ron­ment if the in­cum­bent op­er­a­tors are able to use their net­works as a lever to pre­vent com­pe­ti­tion.

“MVNOs are sim­ply un­able to com­pete if they must build net­works that match the scale and ca­pac­ity of the in­cum­bents. The only way to in­tro­duce com­pe­ti­tion and drive prices down is if CPS is prop­erly in­tro­duced, en­abling the MVNO mar­ket,” says Holdsworth.

Vo­da­com and MTN have also pro­vided rep­re­sen­ta­tions to the pro­posed leg­is­la­tion and will present their cases to Icasa at the hear­ings. Gra­ham de Vries, MTN’s head of reg­u­la­tory af­fairs, says: “There are very few in­stances of CPS be­ing im­posed on mo­bile op­er­a­tors in other ju­ris­dic­tions in­ter­na­tion­ally – and where that has hap­pened it’s only been af­ter mar­ket anal­y­sis has been con­ducted show­ing some or other struc­tural mar­ket prob­lem ex­ists and that CPS reg­u­la­tion is the rem­edy.

“There’s no real sense of what the prob­lem is in SA be­cause no such mar­ket anal­y­sis has been con­ducted. We’re be­ing con­fronted with a rem­edy to a prob­lem that hasn’t been iden­ti­fied. There are also tech­ni­cal dif­fi­cul­ties that would be ex­pe­ri­enced if CPS were to be im­ple­mented as pro­posed by Icasa. It would see the in­tro­duc­tion of an in­ef­fi­cient rout­ing struc­ture lead­ing to what we call the ‘trom­bon­ing ef­fect’ – where traf­fic is sent out of mo­bile net­works and then back in again with the in­tro­duc­tion of a third party or mid­dle­man – while there are al­ready per­fectly good in­ter­con­nec­tions be­tween mo­bile net­works. That’s ef­fec­tively against the ECA, which re­quires ef­fi­cient us­age of not just ra­dio fre­quen­cies but also in­fra­struc­ture.”

How­ever, in prin­ci­ple De Vries says MTN would sup­port any de­ci­sion by Icasa backed with mar­ket anal­y­sis clearly iden­ti­fy­ing a prob­lem and of­fer­ing CPS reg­u­la­tions as the most ef­fi­cient so­lu­tion.

Vo­da­com echoes MTN’s view about the lack of anal­y­sis. “CPS has gen­er­ally been im­posed al­most ex­clu­sively on in­cum­bent mo­nop­oly fixed line op­er­a­tors. Vo­da­com doesn’t know of any ex­am­ples world­wide where CPS has been im­posed and im­ple­mented in com­pet­i­tive mar­kets, such as is the case with mo­bile tele­phone net­works and ser­vices in SA,” says Dot Field, chief com­mu­ni­ca­tions of­fi­cer at the Vo­da­com Group.

“Vo­da­com takes the view that an im­pact study should be con­ducted to de­ter­mine whether the im­ple­men­ta­tion of CPS would have any pos­i­tive im­pact on com­pe­ti­tion in SA’s com­mu­ni­ca­tions mar­ket. SA’s mo­bile net­works and pric­ing mod­els are dis­tance ag­nos­tic. The coun­try is treated as a sin­gle area for charg­ing pur­poses, and ap­ply­ing CPS to na­tional li­censed op­er­a­tors – as sug­gested in Icasa’s draft CPS reg­u­la­tions – is prob­lem­atic. The ECA frame­work in­tro­duces many struc­tural and ac­cess reme­dies aimed at en­hanc­ing and in­creas­ing com­pe­ti­tion. The need for CPS is there­fore less press­ing at this time,” she says.

Icasa will make its po­si­tion on CPS pub­lic af­ter its hear­ings are con­cluded.

SA’s mo­bile mar­ket is a du­op­oly. John Holdsworth

Give us an im­pact study. Dot Field

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