Truth Check: Telecoms Minister budget vote speech

The new Minister of Telecommunications for South Africa, Siyabonga Cwele, recently delivered his budget vote speech to parliament in which he asked for the approval of R1.59-billion for his department.

He also talked up government’s role in building South Africa’s telecommunications sector, but the Minister was either not entirely honest, or was misinformed about how effective they’ve been in the past 20 years.

Cwele’s speech began with the implication that the South African government was somehow instrumental in the revenue boom enjoyed by the telecommunications sector in the past 20 years.

The telecommunications revenues that were a paltry R2 billion before democracy, grew to approximately R179 billion in 2011 and this is expected to increase to R187 billion by 2016.

The mobile sector was introduced just before 1994 with two operators. Through our regulatory and policy measures, including spectrum allocation and the raising of call termination rates, we supported the incubation and massive growth of these operators. In the last ten years we introduced two additional cellphone providers. It is in this vein we should collectively continue to support new entrants to the market as we strive to increase competition and decrease costs.

While there is no disputing that the South African telecommunications sector has seen a tremendous amount of growth, the numbers on their own don’t provide any indication that the growth was government’s doing.

“Before Democracy” the world wide web did not exist. The GSM cellular industry was just starting out. The closest thing we had to smartphones were “palmtop” pocket PCs.

How much of South Africa’s telecommunications sector growth was spurred by global trends? Did our local industry grow as much as it could have in the last 20 years?

A simple comparison of revenues “before democracy” and 17 years on does not substantiate the Minister’s points at all.

In fact, there is more evidence to suggest that the ANC-led government wanted to be a hindrance to private cellular companies rather than a supporter.

Siyabonga Cwele
Siyabonga Cwele

The ANC tried to stop Vodacom and MTN from launching

During the negotiations leading up to South Africa’s elections in 1994, the ANC were opposed to the NP government’s tender process for licensing two mobile operators, and the GSM standard as a whole.

The ANC ultimately agreed to both the GSM standard and the licensing of what would become Vodacom and MTN, but reports suggest it was not because of a rational debate about the benefits and pitfalls of the various options.

It would appear as though a combination of political factors led to the ANC agreeing to back down:

  1. Professor Robert Horwitz wrote in his paper on SA’s telecoms history that the old National Party government agreed to hold off on the publication of a planned amendment to the old Post and Telecommunications Act.
  2. Alan Knot-Craig, who is the former CEO of Vodacom and Cell C said that the battle was defused by giving unions a BEE shareholding in the newly licensed operators.

You can’t talk about raising termination rates and supporting new cell networks in the same breath

Cwele also takes credit for raising call termination rates to support “the incubation and massive growth of these operators” (which in itself is a dubious claim), just seconds before he said “we should collectively continue to support new entrants”.

For a new entrant like Cell C, which would have to connect the majority of its calls to networks other than its own, high call termination rates are a major stumbling block. Call termination rates are the fees networks pay each other to connect calls to one another’s networks.

Cell C has often pointed to the fact that incumbents Vodacom and MTN (and to a lesser extent, Telkom) hiked their call termination rates just before the upstart cellular network entered the South African market.

The graph below illustrates how call termination rates suddenly increased before Cell C entered the market:

Call termination rates in SA
Call termination rates in SA (Source: Lewis – Pricing and tariffs: principles)

If Cwele wants to take credit (on government’s behalf) for hiking termination rates in South Africa, he can’t then also take credit for supporting new entrants, as the hikes certainly did not benefit Cell C at the time.

He then goes on to argue that South Africa must move away from its reliance on mobile broadband:

We must move away from over-reliance on mobile broadband as it will not be sufficient for ensuring effective e-service delivery in schools, health facilities and other government institutions. Our National Broadband Policy, SA Connect, places the Department in a position to coordinate and support the roll-out of broadband infrastructure and services across the country, to achieve 100% broadband penetration by 2020.

What Minister Cwele left out of his speech was how South Africa landed up in the curious situation where many have come to expect mobile broadband to compete with fixed-line services such as ADSL.

SA government interference in broadband

Fixed-line Internet access in South Africa has failed to keep pace with global standards of speed and pricing for a variety of reasons, chief among them a complete institutional failure from government:

  1. Local loop unbundling (LLU), a process which would have opened Telkom’s so-called “last-mile” network of copper cables that connects homes and businesses to its exchanges, was set to begin in 2008 and end in 2011. This has not happened, and the opportunity for competition it would have introduced in the market has been lost.
  2. Rather than open the fixed-line market for competition and investment, government tried to block companies from “self-provisioning” their own network infrastructure. Companies eventually won this right in a court battle with former Minister of Communications Ivy Matsepe-Casaburri.
  3. Telkom, rather than using its monopoly position from 1994 to 2004 to invest in its network and make its future market position as unassailable as possible, opted to focus on returning massive profits to its major shareholders: the SA government, and a consortium called Thintana. Thintana was American company SBC (now AT&T), and Telekom Malaysia.
  4. Government also tried to block the landing of undersea cables such as Seacom and EASSy, which would compete with the SAT–3 cable in which Telkom is a shareholder.

If South Africa is “over-reliant” on mobile broadband, it is a problem created by the government.

For the sake of brevity, we won’t go into the rest of the Minister’s speech on a paragraph-by-paragraph basis.

It is worth noting that there were a lot of encouraging noises from our new Minister of Telecommunications and Postal Services, but also nothing we haven’t heard before.

From promising to get the Independent Communications Authority of South Africa to address bottlenecks, to infrastructure deployment and preventing needless duplication of infrastructure, to building an “open access network”, to regulating sports broadcasting rights.

Outside of the historical issues highlighted here that Cwele glossed over, he talked a good game, but so many Ministers before him did too.

More on government’s telecoms claims

It wasn’t apartheid which hurt SA’s Internet, it was the ANC government

How the ANC nearly killed Vodacom, MTN

We want transparent prices: Cwele

Zuma transfers powers to Cwele, Muthambi

Digital TV in SA: “We dare not let our people down,” says minister

We will reduce the cost to communicate: Cwele

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Truth Check: Telecoms Minister budget vote speech