Ahead of the publication later on Monday by the Competition Commission of its final report flowing from its inquiry into the data services market, communications regulator Icasa has said there is insufficient competition in aspects of the delivery of mobile broadband in South Africa.
In a discussion document (PDF) on its market inquiry into mobile broadband services in South Africa, published late on Friday, Icasa said there is “market share and retail price evidence” that suggests that the market is ineffectively competitive “in many cases”.
“Vodacom is dominant in 110 municipalities, MTN is dominant in 78 municipalities, and MTN and Vodacom both have a share of 45% or more in four municipalities,” Icasa said. “Cell C has a market share of 45% in one local municipality, and 41 municipalities do not have a dominant operator.”
“The market for site access (base stations) is highly concentrated in many municipalities and full-coverage roaming services are only offered by two operators. The authority considers that remedies in respect of these wholesale markets are appropriate to resolve ineffectively competitive markets at the retail level,” it said.It said the barriers to entry are “considerable” since wholesale services are not supplied competitively for both networks and services.
The regulator identified one retail market for potential regulation and four for wholesale, namely spectrum, site access, roaming and wholesale (including mobile virtual network operators). In each market, it assessed the effectiveness of competition, whether any licensees have significant market power as well as pro-competitive licence conditions.
On spectrum, Icasa found that although radio frequencies for mobile broadband are limited, there are no licensees that have substantially greater holdings than others and that there is none that has significant market power. There is, therefore, no need to impose pro-competitive licence conditions, it said.
On site access, it said it looked at this market at local and metropolitan municipality level and found it was “ineffectively competitive, with very high levels of concentration in 226 out of 234 municipalities”. Vodacom is dominant in 104 municipalities by itself, MTN is dominant in 18 by itself, and MTN and Vodacom are both dominant in two municipalities, it said. Telkom is dominant in 11 municipalities, and in 99 municipalities no operator has a dominant share.
“A possible remedy to the observed impediments to competition in the site access market in South Africa is the redrafting of facilities-leasing (network rental) regulations as contemplated by the Electronic Communications Act, together with more detailed guidelines. This would include a requirement to publish site information online, a time limit for the consideration of requests, and rules around when site sharing should be considered technically and economically feasible. It would preclude the indefinite reserving of space on masts for the incumbent’s equipment and facilitate the quicker roll out of new sites by smaller operators.”
It said “accounting separation” is also a potential remedy to improve transparency around the extent to which pricing is cost based. It may also remove the ability for large operators to disadvantage smaller rivals through site leasing.
On roaming, Icasa also found there was ineffective competition as only MTN and Vodacom have substantial coverage in many municipalities. “From a network capacity perspective, measured by number of network sites, MTN is dominant (has a market share of 45% or more) in 34 local and metropolitan municipalities, Vodacom is dominant in 86 and MTN and Vodacom both have a market share exceeding 45% in 15 municipalities,” it said.
To address this, it has proposed mandating a roaming offer for parties dominant in certain geographic areas as well as accounting separation. “At this stage, the market is changing and as such price regulation may be premature. However, in order to enhance transparency and ability for the regulator to monitor, functional accounting separation should be implemented. This is to split out all network related inputs needed to provide roaming as though the dominant operator used roaming as an input when providing its own retail services.”
“Nonetheless, concerns have been raised in respect of MVNO and APN (access point name) services. The authority analyses MVNO and APN services together, since they can be used as substitutes by MVNO and reseller customers to some extent. There are indications that the supply of these services is ineffectively competitive since there is at present only one provider (Cell C) of wholesale MVNO services, even though all MNOs could offer these services and APN prices are high relative to retail prices.The final market that Icasa analysed in its discussion document was around MVNOs and wholesale access, where it said competition concerns could be remedied upstream at the site access and roaming layers.
“While the authority is concerned about ineffective competition in markets for APN/MVNO services, it does not make a finding in respect of market power in this market. Any market power in the provision of MVNO and APN services is a result of market power at the sites and roaming levels and is likely linked to dominance in retail markets. Remedies imposed in those markets are likely to mitigate any market power for APN/MVNO services and there is therefore no need to conclude on market power in respect of APN/MVNO services.”