Operators push regulator to finalise policy on infrastructure sharing

Operators push regulator to finalise policy on infrastructure sharing Unbundling the loop The country is facing a dilemma when it comes to network sharing. In the telecoms sector, companies that have invested vast sums in network infrastructure are understandably reluctant to allow competitors to piggyback on their investment; however, South Africa’s comparatively high rates have the regulator contemplating network infrastructure sharing – local loop unbundling (LLU) – in a bid to bring down prices.

A Long Wait

Nearly a decade after the 2005 Electronic Communications Act laid out the legal framework for wholesale access to telecoms infrastructure, the wait for LLU regulations from the Independent Communications Authority of South Africa (ICASA) continues. Lengthy debates are not uncommon. Germany, for example, took eight years to publish its LLU law.

Thecla Mbongue, senior research analyst at Ovum, explained to OBG that LLU was expected after Neotel’s market entry as a new fixed-line player broke Telkom’s monopoly. Instead, ICASA has published, retracted and republished draft legislation, all since late 2013. For the time being Neotel has a last-mile usage agreement with Telkom. Policy makers admit the need for LLU to help open up the fixed-line sector.

However, despite Department of Communications mandates that rules be completed by November 2011, progress remains uncertain.

At the end of 2013, ICASA said the access-line deficit (the investment return gap as a result of line rental) was not relevant in determining LLU access, dismissing Telkom’s protests as the result of poor operational cost maintenance. Indeed, on multiple occasions Telkom has publically voiced concerns over potential loss of revenues from opening the loop, with company statements to local press that LLU makes no sense in a country with only 30% profitable exchanges (where local loops connect to lines) and low fixed-line penetration.

“No matter how much the government invests in fixed technology, if they do not open the local loops to other markets it is still a technology that is targeting high-end users in the South African context,” Mbongue told OBG. “Opening the local loop stimulates competition by getting the private sector to resell the government’s capacity,” Mbongue said. “The private sector could deploy fixed broadband on its own, but it will end up duplicating expensive infrastructure.” Vox Telecom CEO Jacques du Toit echoed this sentiment, explaining, “Competition has meant that multiple players are inefficiently laying down fibre, which keeps costs high.”

Progress

Nonetheless, some network sharing has been taking place on the sidelines. At the end of 2013, the Passenger Rail Agency of South Africa announced it would lease excess fibre capacity from its 900-km network, which mainly covers the Gauteng, Western Cape and KwaZulu-Natal Provinces. Moves like this serve to increase competition and bring prices down, in line with what LLU regulations would seek to accomplish.

Changing Context

In 2013 ICASA announced the eventual extension of LLU to wireless and fibre access as well. Draft regulations published in September 2013 for public comment demonstrated ICASA’s intention to extend LLU beyond copper to all forms of local loop. Indeed, wireless has a key role to play in last-mile connectivity in African markets, as Du Toit told OBG. “The last-mile connectivity mix, especially in rural areas, should include wireless to ensure lower costs.”

Operators objected to the LLU extension, citing a lack of clarity and due diligence on wireless and fibre unbundling relative to copper. Vodacom officials at an ICASA workshop said their understanding was that LLU applied to traditional fixed infrastructure and not fixed wireless and mobile, emphasising that the last decade of discussions had been strictly about copper.

It remains unclear how the LLU extension to the mobile space would be executed; however, some operators have already started to share the relevant infrastructure. For example, in March 2014 Telkom announced it was in talks to share MTN’s network infrastructure to reduce Telkom’s cost of geographic expansion while increasing accessible spectrum for MTN. The proposal has met with concern from other operators.

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The Report: South Africa 2014

Telecoms & IT chapter from The Report: South Africa 2014

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