Economic network

Mobile network spectrum still not available – even after R14.5 billion auction

The Independent Communications Authority (Icasa) has unduly delayed the availability of the electromagnetic spectrum in frequency bands with high demand.

Icasa has not allocated high-demand spectrum to operators with the largest market shares since 2005.

Although shelved by Icasa for years, spectrum was readily available. The necessary migration of broadcasting to other frequencies, as well as the auctioning and allocation of high-demand spectrum, could all have been initiated and finalized years ago.

Consumers of mobile telecommunications services bear the cost of this delay and, whether urban or rural, experience lower broadband coverage, more expensive data services, poor building penetration and higher energy consumption. high.

As a result, lower economic productivity and reduced educational opportunities prevail.

Icasa’s delay in awarding spectrum to these major operators was due to the views it and the Competition Commission had on the desirable competitive characteristics of the mobile telecommunications market.

The Act of Parliament that created Icasa stipulates that Icasa must achieve the objectives of the Electronic Communications Act (“ECA”), which include promoting competition in the communications sector, ensuring efficient use of the radio spectrum, encouraging investment, promoting the interests of consumers, and refraining from undue interference in the commercial activities of licensees.

Anyone who transmits radio signals must hold a spectrum license from Icasa.

The Competition Act empowers the Competition Commission, if it finds that the characteristics of a market for goods or services restrict competition therein, to conduct a general “market inquiry” into the state of competition, the levels of concentration and the structure of this market.

In 2017, the Competition Commission launched a survey of the data services market, in order to understand which characteristics can lead to high prices for data services, to identify areas of “market power” and to assess spectrum allocation. The Competition Act defines market power as the power of a licensee to control prices, exclude competition, or act independently of competitors.

The Competition Commission completed its report investigating the data services market at the end of 2019.

It recommended “pro-competitive” allocations of high-demand spectrum, through spectrum caps imposed on the two largest operators, and asymmetric spectrum allocations favoring smaller players.

On the contrary, and notwithstanding the view of the Competition Commission, for spectrum in high demand to have the greatest effect on reducing costs and benefiting consumers, it should be provided to the large operators who are currently the most spectrum limited.

Since the spectrum constraints of smaller operators are not as severe as those of larger operators, the potential for cost reductions and improved efficiency will only occur if additional spectrum is allocated to larger operators.

The inability to allocate new spectrum to larger operators has increased the capital expenditure needed to expand network capacity to continue to meet rapidly growing demand.

In October 2020, Icasa issued an invitation to apply to be recognized as qualified to bid on a two-round auction of licenses to provide national broadband wireless access services on 34 “lots” of spectrum in the 700 MHz, 800 MHz, 2600 MHz and 3500 MHz bands. MHz bands.

Large operators were disqualified from participating in the first round of the auction, called the “opt-in” round.

Anyone else (whether licensees for other frequencies or new entrants) could bid for licenses for one of two “minimum spectrum portfolios” of lots with ” spectrum floors” that would ensure that the two winning bidders have (along with existing licensed spectrum, if any) “enough spectrum to be credible competitors” (of the major operators).

The second round was open to all bidders, including the biggest. But a “spectrum cap” was imposed in the sense that no bidder could be granted licenses for more than 18% of the total auction spectrum. The auction was to take place at the end of March 2021.

However, a major operator takes legal action in January 2021, claiming that the proposed opt-in auction round was irrational and economically inefficient, as large operators may well be prevented from bidding on the 3,500 MHz spectrum, which is crucial for the deployment of 5G services, and which could be mostly used by small operators in the first round of opt-in, in which large operators would not be allowed to participate.

In early March 2021, the High Court in Pretoria, at the request of another major operator (Telkom), granted an injunction prohibiting Icasa from pursuing any applications received under its October 2020 invitation to apply for licenses for the 700, 800, 2600 and 3500 MHz spectrum bands, pending adjudication of the case of Telkom and broadcaster e.tv that the invitation was illegal because it irrationally proposed to license telecommunications for the 700 and 800 MHz bands despite their continued use for analog broadcast signals.

In September 2021, Icasa consented to the granting of the court orders requested by the two telecom operators and the broadcaster, and withdrew its invitation to participate in the 2021 auction.

In December 2021, Icasa launched a new invitation to participate in a two-round auction of licenses for these 34 lots in the 700, 800, 2600 and 3500 MHz bands. The auction was scheduled to begin in the first full week of March 2022.

As before, major operators were not allowed to participate in the opt-in round. Yet, importantly, this time the membership cycle did not include the 3500 MHz spectrum. And the “minimum spectrum portfolio” of this cycle was smaller than before.

Additionally, apparently smaller operators whose licensed spectrum portfolios already meet this minimum have also been disqualified from the membership round. And, it seems (the terms of the auction were ambiguous), bidders whose licensed spectrum partially meets this minimum could only bid to “top up” their portfolios to meet the minimum.

As before, the second round of the auction would be open to all bidders, including the highest. The spectrum cap was now very slightly higher, in that no bidder could be granted licenses for more than “20%” of the total auction spectrum.

Government policy since 2016 has been to create a “Wireless Open Access Network” (WOAN) as a wholesale provider of shared network infrastructure for retail service providers who did not have a network.

The Department of Telecommunications commissioned a study from the Council for Scientific and Industrial Research (CSIR) to determine how much spectrum WOAN would need.

The CSIR reported in 2018 that the spectrum it needed depended on the number of users its network needed to serve, that it would likely serve around 20% of users, that no more than 20% of high-demand spectrum would be reserved for the WOAN and that this user base would be enough to allow the WOAN to satisfy its basic users as well as the high-end users.

But in March 2022, while Icasa was leading the auction of the much-demanded spectrum, the minister suddenly published in the Official Journal a proposal to remove the WOAN.

In the light of the recent bankruptcy of the only credible foreign WOAN – that of Mexico – it was probably wise. (The Minister’s Gazette notice stated that the spectrum available for WOAN did not meet the viable threshold recommended by the CSIR.)

The government has promised that analogue broadcast signals on the 700 and 800 MHz bands will be cut on March 31, 2022.

The analogue TV signal cut has not yet taken place in the four most populous provinces where two-thirds of South Africans live, although it has been cut in the five least populated provinces.

Dramatically, late on March 28, 2022, a three-judge panel of the High Court in Pretoria issued an order at the request of broadcaster e.tv directing the minister to delay the shutdown of analogue television broadcasting which was scheduled for March 31, 2022, for three months until June 30, 2022, to ensure that the half-million registered indigent households who have yet to have set-top boxes installed can continue to watch television on their analogue televisions.

In addition, a few million needy households are eligible to register to receive decoders, but have not yet applied to register.

Broadcasters’ advertising revenues can drop significantly if the analog television signal is cut off before analog viewers can see digital transmissions.

All of this could further delay the migration of television broadcasting from analogue to digital.

This would mean that the 700/800 MHz frequency bands will continue to be unavailable for low cost rural digital telecommunications services and more efficient aggregate urban telecommunications services.

Telkom’s request to the court to void the 2022 auction will be heard in the second week of April 2022. Telkom is expected to argue that the auction was unfairly designed to prevent Telkom from effectively competing with major service providers. South Africa.

Icasa announced in mid-March 2022 – just after the auction – that the next stage of the auction would be “the allocation round, which is purely an administrative process” to be held on March 22, to determine the ranges of actual frequencies to be allocated for all lots purchased in the different bands.

But there is still no evidence that this assignment took place.

The last minute cancellation of the WOAN and the concomitant need to reserve spectrum for the WOAN may affect the allocation of spectrum to bidders.

Consumers will continue to endure lower broadband coverage, more expensive data services, poor building penetration and higher energy consumption, and the resulting lower economic productivity and reduced educational opportunities.


Gary Moore is a senior consultant at the Free Market Foundation. He was a lawyer in Johannesburg for 30 years. He is the author of published articles and monographs on the rule of law, the legality of state action, the meaning of statutes, and laws affecting small businesses. The opinions expressed in the article are those of the author and are not necessarily shared by the members of the Foundation.

The Free Market Foundation Evaluation of the socio-economic impact of official policy on the mobile telecommunications sector was based on the specialist experience of Christoph Klein.

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