MTN threatens legal action against ICASA over spectrum auction

MTN has threatened to launch a High Court case against the Independent Communications Authority of South Africa (ICASA) over the way the regulator proposes to handle an auction for precious radio frequency spectrum.

In a letter from its lawyers, which MyBroadband received from a source close to the spectrum process, MTN objected to ICASA’s plan to allow smaller network operators to have their first pick of the spectrum being made available.

The letter explained that these are referred to as the “opt-in lots” in ICASA’s Invitation to Apply document.

ICASA excludes certain network operators from bidding on opt-in lots based on their market share, using the following criteria:

  • Tier 1 operator: a Wholesale National Operator that has a retail market share in excess of 45% in more than 10 municipalities. These operators are blocked from bidding on opt-in lots.
  • Tier 2 operator: a Wholesale National Operator that has a retail market share of below 45% in fewer than 10 municipalities. These operators may bid on opt-in lots.

ICASA undermining its own auction — MTN

The crux of MTN’s argument is that the “Opt-In Scheme” might allow tier 2 networks to take up all of the 3,500MHz spectrum being made available, leaving nothing for MTN to bid on in the following rounds of the auction.

Based on the letter, the 3,500MHz band is a particular sore spot for MTN because it needs spectrum in that band to advance its 5G roll-out in South Africa.

“The Opt-In Scheme deliberately sterilises the two Tier 1 operators from bidding for the spectrum they need to advance 5G network roll out and advancement,” the letter stated.

“In effect, this means that the least efficient users of spectrum and the licensees with fewer number of customers will be privileged over the most efficient (and needy) licensees in the acquisition of spectrum.”

The letter also warned of several other negative side-effects of the Opt-In Scheme, including that the operators with the deepest pockets might end up not bidding on any spectrum.

“The exclusion of Tier 1 operators from the Opt-In round means that ICASA is unable to make a proper assessment of what the market as a whole is willing to pay for the spectrum,” MTN argued.

“In the event of all 3500MHz spectrum being taken up by Tier 2 operators and sub-national operators during the Opt-In round, there may well be little incentive to bid for any remaining spectrum, which means the fiscus will lose an opportunity to maximize revenue generation from the ITA auction process.”

Tier definitions don’t make sense

The letter also raised problems with ICASA’s definitions for “tier 1” and “tier 2” operators.

It said that ICASA’s definitions rely on measuring market share across a handful of South Africa’s 234 municipalities.

“This approach is irrational since the relevant market is a national one,” MTN stated.

MTN also said that ICASA does not disclose when or how it is going to measure this market share.

It also argued that even though ICASA said that networks will be classified as either Tier 1 or Tier 2, it is possible to satisfy the criteria for both at the same time.

“This will be the case if an operator has a retail market share of more than 45% in (say) 15 municipalities and has a retail market share of less than 45% in (say) 11 municipalities,” said MTN.

Deadline: 23 December

MTN gave ICASA until 23 December to give an undertaking that it will not implement the tiering and opt-in scheme as it currently stands.

The letter warned that MTN’s lawyers have instructions to approach the High Court on an urgent basis without further notice to ICASA if they did not receive the undertaking by the deadline.

“For the avoidance of doubt, we must make it plain that MTN does not seek to prevent the ITA process from continuing,” the letter stated.

“The undertaking sought by MTN is intended to ensure that the ITA process will continue but shorn of the Tiering Scheme and the Opt-in Scheme.”

MyBroadband asked MTN and ICASA for comment.

MTN confirmed that the letter MyBroadband received from an industry source was authentic.

The network operator also said that it had not yet filed papers in the High Court against ICASA.

“MTN has continued with the required bid process and will consider future actions in due course,” the company told MyBroadband.

ICASA declined to comment on whether it had provided MTN with the undertaking it demanded.

“The Authority responds to all clarity-seeking questions and engagements from licensees directly with such licensees,” ICASA told MyBroadband.

However, ICASA did confirm that the only legal action against the spectrum auction currently before the courts is the one instituted by Telkom in December.

Spectrum lots for auction and reserve prices

The spectrum lots that ICASA is making available during this licensing process, along with the reserve price for each lot, is summarised in the table below.

Spectrum lots for auction
Lot numbers Lot category Lot size Number of lots available Reserve price per lot
1-4 700MHz 2 x 5MHz 4 R526,615,392.49
5-8 800MHz 2 x 5MHz 4 R752,307,703.55
9 800MHz 2 x 10MHz 1 R1,155,174,976.66
10-24 2,600MHz 1 x 10MHz 14 R97,843,320.52
25 3,500MHz 1 x 2MHz 1 R9,818,987.30
26-33 3,500MHz 1 x 10MHz 8 R75,606,202.22
34 3,500MHz 1 x 4MHz 1 R19,637,974.60

Letter from MTN’s lawyers to ICASA

The letter MTN’s lawyers sent to ICASA is embedded below.

Now read: “ICASA will mess up the industry for 20 years” — Telkom sues over 5G spectrum auction

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MTN threatens legal action against ICASA over spectrum auction