Communications regulator Icasa is putting the cart before the horse in forging ahead with plans to licence access to new spectrum bands before it has concluded an inquiry into the mobile broadband services market.
That’s the view of Telkom group executive for regulatory affairs and government relations Siyabonga Mahlangu. who said an Icasa inquiry, which kicked off with live-streamed public hearings on Monday, must scrutinise Vodacom and MTN’s network-sharing deals with Rain, Cell C and Liquid Telecom and their impact on the market. And it must do so before it licences 4G and 5G spectrum bands, which it is expected to do by March 2021.
“Competition is not working,” Mahlangu said. “The structural problems in the mobile market are entrenched. Effective regulatory measures are needed to prevent the problem from getting worse.”
He said Icasa’s inquiry “must take precedence over the licensing of spectrum”.
His request to Icasa comes after Telkom earlier this month said it had approached the Competition Tribunal to object specifically to Vodacom’s roaming agreements with Rain. That move was surprising given that the Competition Commission had previously sanctioned the arrangement.
Mahlangu on Monday accused South Africa’s two largest mobile operators of creating “sophisticated structures to subvert regulations” through agreements such as Vodacom’s deal with Rain (for additional national 4G coverage), Vodacom’s deal with Liquid Telecom (for a new 5G network roll-out) and MTN’s deal with Liquid Telecom (also for additional national 4G coverage). Instead of “roaming” agreements, which is how Vodacom and MTN have described these deals, they amount to “spectrum trading”, he said.
Not only should the Icasa inquiry take precedence over the licensing of spectrum and the invitations to apply (ITAs) for that spectrum, but it should also closely scrutinise the implications of these network-sharing deals, Mahlangu said. (MTN and Vodacom are both scheduled to make presentations to the Icasa hearing.)
“We know the ITAs (for spectrum to commercial operators and a planned wholesale open-access network) have been issued. But there has to be alignment between the outcomes of this process and the licensing of spectrum,” he said. “If you finish this inquiry later than the (licensing of spectrum), you will see a market determined by the outcomes of the ITAs for the next 20 years.”
In his presentation, Mahlangu said that between them MTN and Vodacom control more than 70% of the market in terms of both subscribers and revenue and more than 80% when it comes to operating earnings. The two companies have “control over the best sites, have preferential spectrum assignments, have access to distribution channels and there is a lack of pro-competitive regulation to keep them honest”.
“Telkom remains the only most viable challenger to these two operators, at least if you are looking at infrastructure-based competition. The other players have coalesced around the two operators. Yet Telkom, being the challenger, does not have sub-1GHz spectrum (useful for providing wide coverage and good in-building signals). On top of that, Telkom has to contend with the fact that these incumbents have access to additional spectrum through network-sharing deals… Although labelled as facilities-leasing coupled with roaming, they are not that. They are means by which the big operators can access extra spectrum and therefore solidify their positions in the market.
“Because of these spectrum-trading deals that have been entered into in the form of these network-sharing deals, it is no longer important to focus only on spectrum ownership. It is important to focus on access to spectrum, which will determine the type of competition we will see in the market,” Mahlangu said.
Speaking on behalf of Telkom at the same presentation, Mark Williams, MD of consultancy Berkeley Research Group, said arrangements such as the one between Vodacom and Rain and MTN and Liquid Telecom allow the two big incumbents to “extend their lead”. In effect, Williams said, the deals “transfer smaller operators’ capacity to the incumbents and constrain those smaller operators to niche areas of the market”.
“This has profound implications for the way competition works. It has implications, too, for the ITA: Vodacom and MTN can access more spectrum than is included in their licences, before the upcoming auction. This should have been factored into the design of the ITA,” he said. “Failure to manage spectrum properly will distort competition in LTE and 5G.”
In addition, Icasa should ensure there is “equitable” access to high sites to ensure effective infrastructure-based competition. “There is a highly unbalanced market for sites – Vodacom and MTN are far ahead of the other MNOs. Commercial negotiations are one-sided, leaving smaller players at a disadvantage. Core problems relate to ‘feet dragging’ by incumbent MNOs, and operational terms are worse for third-party access seekers than for their own internal businesses.”