‘Fees will stifle competition’

Rudolph Muller

Rudolph Muller is the editor at MyBroadband and covers telecoms and broadband news. Rudolph comes from an academic background, but left the University of...

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NEW licence fees proposed for the telecoms sector are so high that they would stifle competition and could even force smaller operators out of business, industry players have warned.

Being charged 3% of their annual revenues for the right to operate — compared with just 0,5% in some countries — would be a disincentive to competition, the Independent Communications Authority of SA (Icasa) was told yesterday.

Hearings to debate the proposed fees are confirming an outcry that erupted when Icasa first drafted the new tariffs, which would cost some operators hundreds of millions of extra rand a year. Almost 40 companies have submitted written objections.

Icasa’s Thabo Makhakhe said the fees were clearly a vexing topic and all the serious issues being raised would be studied before the costs were finalised. A major concern for the industry was the potentially detrimental effect the high fees may have on the development of SA’s telecoms and technology sector, Makhakhe said.

Jointly representing Altech, the UK operator BT and Skylogistics, lawyer Carla Raffinetti said: “The fees Icasa is intending to impose are fiercely high compared with best practices.”

Other countries charged a far lower 0,5% to 1,5% of an operator’s annual revenue, she said. But the best practice was to charge according to an operator’s profit, not its revenue. Small companies or new entrants to the market generally ran at a loss for a few years, so that would ensure they were only taxed once they were thriving.

Icasa should also realise that telecoms licences were no longer the valuable items they once were, Raffinetti said. Last year Altech won a legal victory when a judge ruled that any operator supplying value added network services was entitled to the new licences that Icasa is issuing. That meant at least 300 companies could hold a licence in a market previously monopolised by only a few dominant players.

“The imposition of high licence fees assumes that the licences have an intrinsic value, and in light of the Altech judgment that is no longer the case,” she said. “The barriers to entry have been lowered, so a high licence fee based on the notion that these licences are scarce should no longer apply.”

Icasa must draw up new fees to support new types of licences being issued under the Electronic Communications Act, which makes existing licences obsolete. That will end the current mish-mash of fee structures, but the costs will surge unless the operators persuade Icasa to alter its proposals.

MTN and Vodacom now pay 5% of their net operating income for their licences. Changing that to 3% of their revenue, minus some allowable deductions, would hike Vodacom’s fees from R740m to about R1,2bn a year, while MTN’s would soar from R500m to R800m. Smaller companies would also be hit, with ECN saying its fee would leap from R100000 a year to R3m.

The hearings are due to end tomorrow.

New telecoms license fees – do you think it will stifle competition?