Local Loop Unbundling waiting game
Local Loop Unbundling (LLU) – a requirement whereby Telkom will allow other service providers to access and use the copper circuit from the telephone exchange to the customer premises – is one of the major stepping stones that will make the South African telecoms environment more competitive, especially in the ADSL space.
To build a national copper network is very expensive and time consuming, and is typically done by the incumbent operator, in our case Telkom, using taxpayer money. It is practically impossible for a new entrant in the telecoms market to duplicate such a network. For the sake of encouraging competition, an essential ingredient for any world class network, the incumbent is often forced to give competitors access to its infrastructure through the process of local loop unbundling.
LLU is however generally opposed by the incumbent operator, citing reasons such as technical difficulties and that “LLU amounts to a regulatory taking, that they are forced to provide competitors with essential business inputs, that LLU stifles infrastructure-based competition and technical innovation because new entrants prefer to ‘parasitise’ the incumbent’s network instead of building their own” (from WikiPedia).
In 2005 Telkom said in a statement that: “While local loop unbundling will contribute to increased broadband penetration and competition we do not believe that it will contribute to an increase of investment in infrastructure,” confirming the general trend regarding an incumbent’s position on LLU.
South Africa’s LLU
In 2006, then Minister of Communications Ivy Matsepe-Casaburri, announced the appointment of the Local Loop Unbundling Committee, chaired by Prof. Tshilidzi Marwala. The committee finalized policy and regulatory recommendations in May 2007 to consider the best model for a successful local loop unbundling (LLU) process. The minister then made a policy decision that the unbundling process should be implemented and completed by 2011.
The Chairman of the Local Loop Unbundling Committee Professor Tshilidzi Marwala said in mid-2007 that the LLU process will be completed in 2011 adding that this should not be mistaken with giving Telkom another four years of monopoly.
“Unbundling of the local loop is not an event but a process and therefore it takes a certain period of time and we expect four years to be a reasonable frame,” said Marwala. ICASA Chairman Paris Mashile also made it clear that 2011 was the latest date at which the unbundling process would be completed, saying that ICASA was trying to make it earlier.
Marwala said that he believed that ‘by the end of 2007 all the mechanisms will be in place for Telkom to open up the local loop to rivals’. Marwala further said that he expected Telkom to start giving rivals access to its copper infrastructure by January 2008.
Not much real progress
Marwala was however sorely mistaken; something which many industry players warned would happen unless ICASA laid down the law very early. As far back as June 2007 industry players, including Vox Telecom chairman Tony van Marken, have called for strict local loop unbundling deadlines.
“We hope to see ICASA (the regulator) publishing a clear timetable for local loop unbundling by the third quarter of this year [2007] at the very latest,” said group chairman Tony van Marken. “We all need to know exactly what milestones Telkom must reach and what the deadlines are. Most importantly, there needs to be clear penalties for missing those deadlines.”
Van Marken warned that without strict deadlines and penalties the November 2011 deadline for the full LLU process to be completed will most likely be missed. “We’ll have the same story we had with the interconnection regime. Telkom will stonewall until the very last moment and the process will only start in 2011, instead of being completed by then,” Van Marken said.
“If we were Telkom, we wouldn’t do a thing about unbundling until 2010 at the earliest, and then make lots of excuses about how technically difficult it is,” said Van Marken. “Walking very slowly backwards, as Telkom has been doing for years, is an entirely rational strategy for a monopoly under threat. That’s why ICASA needs to manage the programme of work very clearly and force adherence to a strict timetable. There needs to be a cost to dragging things out.”
Van Marken’s words were prophetic as there has been very little progress in the process of providing Telkom’s rivals access to the local loop.
Some progress
There is however progress in terms of LLU regulations. ICASA consulted with Telkom and other role players about the local loop unbundling process, and has also appointed international consultants to help guide its thinking about this critical regulatory intervention.
The Internet Service Providers’ Association of South Africa (ISPA) welcomed the news that ICASA has taken a number of positive steps towards drafting regulations for local loop unbundling. These steps will breathe new life into the local loop unbundling process, said William Stucke, ISPA Management Committee member.
Skepticism remains
Many industry players remain very skeptical about Telkom meeting the November 2011 deadline for the LLU process to be completed.
According to one telecoms expert, who asked to remain anonymous, there is very little chance that ICASA will formulate the Draft LLU Regulations, for these regulations to be debated and published as final LLU regulations, and then for Telkom to start and complete the LLU process, all before November 2011.
The LLU process has taken as long as a decade in many other countries, partly attributable to delaying tactics from the incumbent operator. To expect South Africa to run the full gamut in less than three years can be seen as very optimistic.
Local Loop Unbundling discussion
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