New minister faces big test over unbundling

NEW Communications Minister Yunus Carrim is set to face his first big test. How he responds will set the tone for his tenure and define his approach to Telkom and to competition in the sector.

A decision by the Independent Communications Authority of South Africa (Icasa) this week to publish draft regulations on local-loop unbundling, reversing an earlier decision to allow Carrim time to review the document, is a fascinating development. Icasa has effectively drawn a line in the sand and is asserting its independence from both the ministry and the Department of Communications.

Local-loop unbundling is a highly contentious issue. There are various forms of it, but in essence it involves opening up fixed-line operators’— in South Africa’s case, Telkom’s— lastmile copper-cable infrastructure into homes and businesses to rival service providers.

Telkom has — until now at least — fought tooth and nail against the

The department is expected to craft policy that benefits the entire sector

unbundling, threatening legal action at every turn and warning that its business and even the economy could be imperilled if the regulatory intervention is imposed on it.

A lot of this, of course, is bluster. Local-loop unbundling has been imposed with varying levels of success in markets across Europe and North America. To my knowledge, it has not destroyed any incumbent fixed-line operators.

Telkom has a valid concern that it is not able to recover the cost of the average fixed line in service through basic line rental, but this is not necessarily a good argument against pro-competitive regulatory interventions. It probably also grossly exaggerates the size of this so-called access-line deficit.

Icasa argues that it has no choice other than to craft unbundling regulations. It has been instructed to do so by its complaints and compliance committee after Telkom blocked a request by rival Neotel for access to two of its Johannesburg telephone exchanges, using existing regulations for leasing telecoms facilities. But its initial decision to allow Carrim to look over the draft regulations has raised a few eyebrows. Icasa is under no legal obligation to give the minister prior sight of regulations it intends publishing and doing so raises questions about how independent it is of the ministry.

Perhaps Icasa was concerned about public perceptions when it reversed its decision this week.

How Carrim reacts to this — if he does — will be instructive. What will be even more interesting is how he deals with a clear difference of opinion with Icasa about whether a regulatory impact assessment to determine the likely impact on the industry of local-loop unbundling should be done before the final regulations are published. Icasa has made it clear that it believes an assessment — an expensive and time-consuming process — is unnecessary, especially because the authority is legally bound to introduce local-loop unbundling, in part as a consequence of the instruction to do so by its complaints and compliance committee.

There are concerns inside Icasa too that the proposed assessment is an attempt by the department simply to stall local-loop unbundling and protect Telkom from further competition. There may be something to these fears. Responsibility for the government’s 39.8% shareholding in the operator rests with the department, the same one that is expected to craft policy that benefits the entire sector, not just Telkom. This conflict has been problematic for the past two decades. For this reason, oversight of Telkom — and possibly other stateowned communications companies — should be transferred to the Department of Public Enterprises.

Carrim is clearly going to need to tread carefully and take a pragmatic approach on the unbundling issue.

The right approach is not to interfere at Icasa, a tactic too often used by Carrim’s predecessors, but rather to find ways of strengthening the regulator by ensuring it is correctly funded and resourced so that it can perform its duties correctly.

McLeod is editor of TechCentral.co.za. Follow him on Twitter at @mcleodd.