Why is South Africa still waiting for cheaper data?

A long-awaited government policy directive has raised more questions than answers for South Africa’s telecommunications industry, and quashed hope for the quick release of spectrum – which existing mobile network operators say would help them to improve their services and cut data costs.

Spectrum refers to the radio frequencies used for communication over airwaves by radio, television and the mobile telephone industry, as well as other wireless applications like Wi-Fi and Bluetooth.

It is both a sovereign asset and a limited resource, managed by national regulatory authorities, which issue the licences needed for its use.

However, policy paralysis and mismanagement has blocked the allocation of new spectrum in SA for more than a decade, forcing existing operators to spend more money on repurposing their infrastructure to meet demand. 

The indecision has also prevented local television broadcasters from keeping up with digital migration, a global shift in technology that would have released spectrum, which broadcasters now occupy, to mobile operators.

Addressing the scarcity is crucial to the economy, as wider, cheaper and more efficient network coverage would stimulate innovation, create jobs and ease the cost of doing business in South Africa – attracting more investment into the country.

But analysts say that the announcement by communications minister Stella Ndabeni-Abrahams on 26 July, while welcome, points to further delays.

The government has decided to allocate much of the country’s unused high-demand spectrum to a Wholesale Open Access Network (WOAN), which will be established through a consortium of companies with diverse ownership.

The intention is to boost competition by opening the market to small- and medium-sized enterprises, favouring black-owned businesses and including the participation of targeted groups including women, young people, and persons with disabilities. 

The directive sets conditions for existing operators wanting to purchase the remaining chunks of spectrum, requiring them to deploy infrastructure in less profitable rural areas first. It gives preferential access and additional support to the WOAN. 

Operators that secure their own spectrum will have to buy 30% of their national capacity from the WOAN for at least five years, and will be required to make their infrastructure available to the entity on a wholesale basis as soon as it has been established.

The Independent Communications Authority of South Africa (Icasa) will award licences for the spectrum and the government has asked it to reduce or waive licence fees for the WOAN, which would give the entity an input cost advantage and allow it to charge lower prices.

But no timelines have been set for establishing the WOAN, for making it operational, or for auctioning what is left of the spectrum to the existing operators. Shortly after the announcement, Icasa issued an invitation for tenders to help the authority value high-demand spectrum bands ahead of the allocation of licences.

How much spectrum which will be assigned to the WOAN and how much to the existing network operators is also unclear, apart from the guidance given in a study last year by the Council for Scientific and Industrial Research, which concluded that to be viable the new entity had to have 20% of the entire market.

“What is absent from this directive are prescriptions and mechanisms on how the spectrum will be awarded, and what type of business model is going to be used for the WOAN consortium,” said Naila Govan-Vassen, research manager at Research ICT Africa.

“The biggest concern is the timeline of WOAN, along with the lack of clarity over what proportion of spectrum will be assigned to it and the amount of remaining spectrum that may be assigned to other electronic communications network service licensees.”

“This whole process will take long and further delay the release of spectrum. The longer the delay the longer prices will stay high.”

Mobile data prices in SA are higher than in many other countries in Africa and elsewhere, with a recent investigation by Cable, a UK mobile broadband comparison website, ranking the country 143rd out of 230 worldwide. 

The Competition Commission has blamed the absence of competition and lack of transparency by big operators like Vodacom and MTN for high data costs, but also acknowledged that scarcity of spectrum is a factor.

Vodacom CEO Shameel Joosub has said that access to further spectrum would allow mobile networks to cut their data prices in half, and has been scathing over what he describes as incompetence among policymakers.

SA has had 11 communications ministers over the past 11 years.

Neither Vodacom nor MTN have responded to the policy directive, saying that they are reviewing the document and will comment in due course.

Analysts say they are effectively being nudged out of the market and may find it difficult to get adequate returns on the capital investment which they have already ploughed into their infrastructure. 

Louis Avenant, senior associate and strategy manager at PwC, said that it could potentially take two years before the WOAN becomes operational, although the spectrum earmarked for existing players could be released within a few months.

“On paper it's a really good thing. If this WOAN can come into operation and has the kind of credentials that are intended – driven mostly by SMMEs – and is able to offer the kind of universal service which is required, clearly it would be a good thing for development in SA,” he said.

“But at this point it’s not clear how that WOAN is going to operate – who is going to participate, who is going to fund the infrastructure, what will be the relationship between the WOAN and the current operators, what will happen to the current infrastructure? All of those questions are left unanswered.”

So far WOANs have a poor track record. The Global System for Mobile Communications (GSMA) – a trade body representing the interests of the industry worldwide – warned two years ago that they are not the best solution for providing better coverage and more affordable prices.

Dobek Pater, director of business development at ICT consultancy Africa Analysis, said that the structure of the WOAN will be key to ensure that it does not become dysfunctional.

“It can be a vehicle that delivers what the government wants, that provides good-quality broadband service to rural areas, but it needs to operate like a commercial entity. It needs to be efficiently managed by one or two parties to make sure that it functions properly.”

Pater said that a spectrum auction to existing operators was possible in a few months but would probably take place in the first quarter of next year.

The longest delay would be in the release of the spectrum occupied by broadcasters, as they are not required to switch from analogue to digital technology before the middle of next year.

SA missed the International Telecommunication Union’s digital migration deadline of June 2015 due to disagreements among broadcasters, legal wrangling and power struggles within government. It also missed a self-imposed deadline of June 2018, set by former communications minister Faith Muthambi.

The new policy directive also pushed out the timeline for the use of fifth-generation wireless networking technology (5G) in SA, which is being rolled out globally this year.

It said that consideration of 5G spectrum would be covered in a separate policy directive sometime in 2020, after preparation of a report which would be presented to the minister six months after the next World Radiocommunication Conference in late November.

The news will be a disappointment to operators that have begun trial deployment of the high-speed technology in SA – particularly for data-only network operator Rain, the only company to have launched a 5G commercial network so far.

In many ways the absence of 5G is a pressing concern for SA — it is seen as crucial to the deployment of Internet of Things technology, self-driving cars, and smart cities. But it will provide the infrastructure to carry huge amounts of data and spur innovation in new technologies, such as industrial automation and medical monitoring.

“We are always playing catchup with the rest of the world and it’s exactly because of this kind of mindset,” Avenant said. “If current operators deem it viable to introduce 5G technology there’s no reason not to do that, because it’s going to create new markets.”

An economic report from the GSMA in July predicted that releasing 5G capacity will spur economic growth globally and provide a $5.2bn boost to gross domestic product in sub-Saharan Africa alone by 2034. 

Faster internet access matters — a World Bank Study this year showed that its arrival in sub-Saharan Africa nearly two decades ago increased the probability that an individual was employed by up to 13%, with the impact for unskilled workers more positive than in wealthy countries

The mobile ecosystem in SA generated 7.6% of gross domestic product (GDP), or $28.5bn of value added to the economy in 2018, the GSMA said.

“Supported by the right policy environment, this economic impact is expected to rise to $30bn by 2023, due to the productivity benefits from increasing mobile Internet penetration,” it said.

Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.

This article originally appeared in the 15 August edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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