A broadening spectrum: Moves made to increase efficiencies, including a new draft bill

As is the case in many markets elsewhere, allocation of spectrum in South Africa is controlled and regulated by the government, and heavily demanded by a variety of end-users, including mobile operators, television broadcasters and emergency services. Spectrum scarcity is not a uniquely South African challenge, as the uptake and usage of bandwidth-heavy smart devices is surging globally, increasing data traffic while placing a major stress on mobile networks. However, South African telecoms operators and IT firms are expressing particular frustration over a shortage of much-needed spectrum, claiming that the lack of availability stems not solely from increased demand, but from an inability on the part of government to allocate existing spectrum efficiently combined with a failure to free up new supply by effectively migrating from analogue to digital TV frequencies.

Measuring Up

According to broadband testing firm Ookla, which publishes the Net Index that compares and ranks consumer download speeds around the globe, the average download speed in South Africa as of August 2013 was 4.03 megabits per second (Mbps), well below the global average of 13.64 Mbps. Operators argue that in order to invest further in capital-intensive networks to support the provision of more affordable and reliable broadband services for South Africans, they need an assurance that additional spectrum will be made available – something that at the present time is perceived to be lacking. “A lack of spectrum allocation is proving to be a massive problem for the country and is preventing more data from being delivered to the market,” Mark Taylor, CEO of Nashua Mobile, a telecoms solutions provider, told OBG. For going on three years, the Department of Communications (DoC) has not released any new spectrum to private companies, claiming that it is being retained as part of its larger plan to build a national broadband network. A number of state-owned and government-linked entities, like broadcasting signal distributor Sentech, have been issued blocks of spectrum that until now have remained mostly idle. And in turn, industry has been rallying to have this spectrum either put up for auction or licensed, so that it can be reallocated to entities that they perceive as having the financial capital, desire and organisational capability to put it to use. “Broadband is a capital-intensive business and operators, while willing to invest further, require certainty before doing so,” Mark Simpson, CEO of pan-African ICT enabler SEACOM, told OBG.

Need For High-Speed

It is especially in the high-speed (800 MHz and 2.6 GHz) wireless ranges that the country’s main mobile operators covet spectrum, as Vodacom, MTN and Cell C have all begun to either test or launch commercial 4G long-term evolution (LTE) services in some of the larger metropolitan areas. The operators contend that rolling out a 4G network nationally is not possible without receiving suitable spectrum, hampering South Africa’s chances of catching up with markets in Europe, North America and Asia.

They further argue that by migrating customers with 4G-compatible devices onto an LTE network, pressure will be alleviated on the current 3G networks that are struggling to cope with high traffic volumes. An additional benefit of moving these customers would be that older WIMAX technologies in urban areas could be redeployed to rural areas where data demands are less, helping to extend more affordable coverage to underserved parts of the country.

Delays

A further constraint inhibiting the freeing up of added spectrum are the delays South Africa has been facing in its migration from analogue to digital broadcasting services. For numerous reasons (see Media chapter), the country has not met a number of deadlines set out under its digital terrestrial television (DTT) migration strategy, preventing additional spectrum that would have no longer been required for analogue TV signals from becoming available.

The DoC, under whose ministerial portfolio are issues including spectrum and DTT, has grappled with implementation. Having gone through four ministers in as many years, ensuring follow-through has been a challenge. “The Independent Communications Authority of South Africa (ICASA), the regulator, and the DoC lack direction and coordination, and there has been too much political infighting that has prevented the industry from advancing,” Jacques du Toit, CEO of telecoms operator VOX Telecom, told OBG.

In early June 2013, as part of a cabinet reshuffle by President Jacob Zuma, Yunus Carrim was appointed as the minister of communications following the dismissal of Dina Pule from the position. Industry participants hope this move will result in some long-overdue stability, and movement towards resolving policy issues and executing plans that have experienced delays.

New Proposals

Some potentially positive news came with the release of the latest draft of the Electronic Communications Amendment Bill, which has proposed the introduction of spectrum trading. Local regulatory consultancy Ellipsis Regulatory Solutions believes this may have been introduced following recommendations published in the government’s National Development Plan (NDP). “One of the most welcome provisions of the bill reiterates that the letting, subletting, ceding, sharing or transferring of radio frequency spectrum licences is permissible and subject to any conditions that ICASA may determine to be appropriate in the course of approving assignment, cession or transfer of spectrum,” Ellipsis Regulatory Solutions stated in a July 2013 press release. The bill also proposes that ICASA must speed up the turnaround time of notifying spectrum licence applicants of its decisions to within 60 business days of receipt of an application.

Overall the consultancy assesses secondary trading of spectrum as “one of the most critical short-term interventions that can be made to introduce greater efficiencies into the use of spectrum in South Africa”. It cautions that “it seems unlikely the bill will be finalised during 2013, particularly given the looming 2014 elections”, further noting that ICASA has shied away from enacting bills in the past.

Though industry participants welcome the possibility for the draft bill to come into effect, questions still remain over who will be eligible for spectrum trading and allocation, and under what criteria. With debate and differing opinions over what is the optimal and most utilitarian approach. “Spectrum is a national asset that hopefully the government treats as an enabler rather than an income generator. Other markets are moving forward in allocating spectrum, and if the government doesn’t do something soon, this will have significant and lasting economic damage,” Simpson told OBG.

Alternative Approaches

In many countries, such as Germany, the UK and the US, spectrum is often allocated by being placed on the auction block to the highest bidder or a combination thereof. The idea is that if spectrum is allocated efficiently to the parties that value it the most and are therefore likely to follow through with maximising its potential, while the government secures revenues in the process. The potential downside of this approach is that it could crowd out those smaller players that are not able to match the spending power of the dominant incumbent operators from participating in spectrum bids, leading to less market competition. Additionally, commercial operators are likely to be less concerned with covering parts of the country where investments cannot be recouped, going against the NDP’s stated goal of ensuring 100% broadband penetration by 2020. Ultimately, whichever route is decided on for auctioning new spectrum, the bill amendments proposing for spectrum transfer are expected to make bidding much more attractive.