Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

1. PRESENTATION ON COST TO COMMUNICATE TO PARLIAMENT PORTFOLIO COMMITTEE ON TELECOMMUNICATIONS AND POSTAL SERVICES 7 NOVEMBER 2014 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

2. Presentation Outline • Background • Historical Context • Benchmark Study • Costs as National Concern • Market Structure • Conclusion

3. BACKGROUND MANDATE • “To create a vibrant ICT Sector that ensures that all South Africans have access to affordable and accessible ICT services in order to advance socio-economic development goals in support of the African Agenda and contribute to building a better world”.

4. POLICY AND LEGISLATION 2 • The Minister can make policy and issue policy directives to ICASA under section 3 of the ECA on the following: • Spectrum; • Universal service and access; • Guidelines for determination by ICASA of licence fees including incentives that may apply to individual licences where the applicant makes binding commitments to construct electronic communications networks and provide ECS in rural and under-serviced areas; • Mechanisms to promote the participation of SMME`s in the ICT sector;

5. Policy and legislation The Chapter 10 of ECA makes provision for defining ICT markets; • Identify the retail and wholesale markets  or markets segments in which it intends to impose pro competitive measures; • Set out the methodology to be used to determine the effectiveness of competition in the ICT markets or market segments;

6. HISTORICAL CONTEXT • Taking note of the government’s call for measures to reduce the cost of communications, the DoC decided to address this challenge by commissioning the B-MIT to conduct an International Peer Benchmarking Study on South Africa’s ICT Sector in 2009, with specific focus on the following : • telecommunications voice, data and broadband services and product prices at • international, national, retail, business and residential levels in • South Africa, Brazil, Chile, Korea, India and Malaysia to assess its relative performance in respect of • Cost , usage, access and quality.

7. Benchmark Study • The key conclusions of the study amongst other include: • South Africa expensive for fixed local access • South Africa fixed lines connectivity is declining year-on-year. • South Africa has most concentrated mobile market • South Africa has relatively high mobile penetration • South Africa has lowest mobile usage which are also expensive • Wholesale fixed and mobile termination rates are expensive in South Africa

8. Costs as National Concern -2009/2010 • Concerns about South Africa’s high cost to communicate from all sectors of society got to its climax in 2009 with the PCC’s public hearing on the matter. This contributed to some extent to: • The first MTR voluntary reduction from a peak mobile rate of R1.25 to 89 cents per minute facilitated through negotiations between ICASA and the telecom operators by the then Minister, General Nyanda. • ICASA later on issued its MTR Regulations in Government Gazette in 2010 and imposed pro-competitive measures on the markets for mobile and fixed wholesale call termination services after following the required process and published a glide path MTR reduction.

9. Market Analysis (I) • The electronic communications services market is rapidly evolving with voice, data and audio services offered on traditional telecommunications networks. • Data demand is conservatively estimated to be growing faster at above 60 percent year on year. • a) The cost to communicate programmes aims to facilitates investment in infrastructure; • b) Affordability of ICT services to consumers; • c) Facilitate market competition in the electronic communications market; • d) Promote access to ICT infrastructure and give effect to the Broadband Policy – South Africa Connect Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

10. Market Analysis (2) • The Internet Service Providers plays a critical role in stimulating demand and improving competition in the broadband internet market. • It is critical to note that wholesale network providers of bandwidth such as Telkom, Dark Fibre Africa, Broadband Infraco play an important role for ISPs to compete especially when wholesale rates are affordable. • The rural infrastructure gap and rural demand for data services requires innovative policy and regulatory interventions to change market behaviour. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

11. Interconnection Regulations (I) • Mobile Termination Rate a key regulatory instruments is being used to address market failures in South Africa. • The South Africa telecommunications market has 04 mobile operators, largely dominated by Vodacom and MTN with a market share of about 80% between them. • Fixed market has two operators namely Telkom and MTN, with Telkom having a vast network reach of over 144 kms of network covering almost all every corner of this country.

12. Interconnection Regulations (II) • The Call Termination Regulation issued by ICASA are viewed from a Policy View Point as a process to rebalancing market failure; and • To ensure cost-base pricing on cost of providing the service and to ensure transparency in the pricing for services. • The Department note the significant reduction in call termination rates from R1.25c per minute in 2010 to the current rate of R0.20c per minute. This amount to a reduction of about R1.05c over the past 04 years.

13. Revised Programme Of Action Entails The Following: (I) Strategic Goal: To reduce telecoms prices and foster competition in the electronic communications market. • Policy on transparent pricing: • Impose information disclosure requirements on tariffs, costs and service quality information including voice, sound and data for both fixed and mobile communications services.   • Educate consumers on embedded tariffs when entering into an agreement in their choice of packages. • The Department developed a policy directive which will facilitate transformation in the pricing of ICT services including rates payable by consumers. The policy was issued to ICASA in June 2014 for comments. The policy will also be issued for public comments in November 2014. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

14. To reduce telecoms prices and foster competition in the market National Roaming Policy • Develop a national Roaming policy and regulations to facilitate access to infrastructure and improve competition in the market. The Department will determine the need for policy and aspects for regulation. • Undertaking of Research on National as well SADC Roaming. • Recommendations on Policy Directive on National roaming. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

15. Broadband Value Chain Pricing • A broadband value chain study / Market Review was concluded in April 2014. • The targets of the project are: define the broadband value chain, identify where, along the value chain, if there is ineffective competition, then propose potential remedies • to address this ineffective competition. • The Department expert that the regulation of data bundle prices will be given due attention by ICASA to address high prices. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

16. VOICE AND DATA ACCESS () Source: BMI • It is evident from the above table that South African mobile market continues to grow at the end of 2013 there were 71.893 million mobile phone subscriptions in South Africa an increase of 7.7% from 67.244 subscribers in 2012. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

17. VOICE AND DATA ACCESS (II) • The internet usage experienced a growth of 13.8% from 2012 to 2013 driven by consumer’s positive response towards the use of internet services. • The fixed line services have been encountering years of decline with 2.0% from 2012 to 2013, due to an increase in appetite of mobile phones. • Penetration of computer usage in the country also increased from 6005 2012 million in 2012 to 6875 million in 2013.

18. Local Loop Unbundling Strategy • The National Development Plan (NDP) provides that “the local loop fixed connection between the main telecommunications network and end users – has historically been operated by Telkom and serviced by copper wires. Internationally, the trend is to use fibre-optic cables for the local loop as they are less valuable (and therefore less vulnerable to theft) and offer far higher speeds. Telkom's copper network is deteriorating. Competitor Neotel, meanwhile, is making slow progress in rolling out fixed-line connections, relying instead on wireless connections, particularly for domestic users. The strategic medium-term objective is to improve the quality, reduce the cost and expand the reach of the local loop. To achieve this there must be clarity about Telkom's future role and regulatory incentives to ensure that local-loop unbundling achieves its objective, which is to expand affordable access to high-quality, high-speed broadband”. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

19. Local Loop Unbundling 2 • MTSF: Develop a strategy for the local loop to ensure that quality improves, costs are reduced and fixed-line coverage is expanded to meet demand for high-speed telecommunications. DTPS Actions Line • The Department has developed a Concept Paper for Local Loop Unbundling Strategy as mandated by the NDP in September 2014. The LLU Strategy will focus on both fixed and wireless access networks. • The Department recognizes the intent by ICASA to conduct a Regulatory Impact Assessment on LLU. • Terms of reference for the Local loop unbundling have been finalised to appoint a service provider to assist the Department with Developing an Local Loop Unbundling Strategy and Policy Recommendations. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

20. Recommendations and Conclusions • The Revised POA on Cost to Communication is informed by the Medium Term Strategic Framework. • Implementing the Broadband Policy – South Africa Content including spectrum allocation by ICASA should achieving the NDP goals. • Parliamentary Portfolio Committee is requested to take note of the Presentation.

21. THANK YOU Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development