The black ownership sword hanging over Internet providers in South Africa

A cloud of uncertainty hangs over South Africa’s telecommunications industry, as regulations that would force Internet and network infrastructure providers to have 30% black ownership have been left in limbo.

The Independent Communications Authority of South Africa (Icasa) published the regulations on 31 March 2021, but suspended the provisions for black ownership until a future date.

Specifically, the stricter local ownership requirements apply to holders of Individual Electronic Communications Service (I-ECS) and Network Service (I-ECNS) licences.

An I-ECS licence permits the holder to offer Internet access services nationally — over their own or someone else’s network.

I-ECNS licences grant permission to roll out and operate physical network infrastructure nationally.

Part of the uncertainty is that Icasa’s regulations calculate black ownership differently from the standard B-BBEE Codes.

Until the Department of Trade, Industry, and Competition approves this deviation, it is risky for operators to make the necessary changes and deals to comply.

Technically, I-ECS and I-ECNS licensees were already subject to BEE ownership requirements before Icasa updated the regulations.

Holders of these licences should already be 30% owned by historically disadvantaged groups (HDGs), which includes black people, women, youth, and people with disabilities.

However, compliance with the currently active regulations is low, and enforcement is non-existent.

Icasa instituted an inquiry in 2014 regarding the industry’s low levels of transformation and began drafting the updated regulations in 2020.

Despite criticism, it forged ahead. However, years after pushing out the final regulations it neither followed through nor retracted the amendments.

What Icasa seemed to fail to recognise was that compliance was low because its licensing regime was in shambles.

Many of its Individual-type licences were issued during a massive upheaval in South Africa’s telecommunications landscape.

In 2008, the telecommunications industry scored a massive victory against government when the High Court ruled that it was legal for so-called Value-Added Network Service (VANS) licensees to build their own network infrastructure.

Until then, Telkom had enjoyed a state-sanctioned monopoly on most fixed-line telecommunications infrastructure, and government wanted to control who could compete with the majority state-owned company.

Although there was some legal wrangling after the industry’s court win, all operators with VANS licences were converted to I-ECNS licences in 2009.

Many operators who received an I-ECNS licence this way are small businesses or even sole proprietorships for which the HDG ownership requirements were totally unachievable.

Some operators sold their Individual licences and applied for Class licences, which did not have ownership requirements.

The difference between the two is that C-ECNS licences restrict you to building infrastructure in a specific region. For example, it may limit the licensee to a specific municipal area.

However, Icasa’s Electronic Communications Service (ECS) licences worked differently.

Individual and Class licensees could both offer Internet access services nationally.

The difference was that those with Individual licences were given access to telephone number resources.

Unfortunately, Icasa changed how this works in April 2014, making C-ECS licences issued after that date region-limited like their C-ECNS counterparts.

This rule is also unenforced. In practice, ISPs with Class licences offer services nationally without repercussions. However, they are still technically non-compliant.

Compounding this problem is that Icasa has not issued new I-ECS or I-ECNS licences in 14 years.

Operators can’t simply apply for these licences — Icasa must issue an invitation to apply.

While Icasa has the discretion to issue invitations for I-ECS licence applications, only the Minister of Communications can direct Icasa to open applications for I-ECNS licences.

As a result, the only way to obtain such licences is to acquire them from an existing licensee — a transaction that routinely costs over R1 million per licence.

The Internet Service Providers’ Association of South Africa (ISPA) has suggested that this jam could be fixed if Icasa and the Minister issue standing invitations permanently open to all. Sadly, its pleas appear to be falling on deaf ears.

Simply put, Icasa’s current licensing regime is actively hostile to entrepreneurs who want to enter the ISP space.

Ironically, this is holding back the transformation Icasa proclaims to champion.

ISPA previously highlighted that black-owned SMMEs desperate to obtain national licences cannot do so despite meeting the ownership requirements.

This regulatory uncertainty has also caused Starlink to deprioritise its South African launch.

While Starlink has launched in Mozambique, been approved in Botswana and Zimbabwe, and plans to launch in Namibia before year-end, South Africa remains flagged as “Service date unknown” on its website.

MyBroadband contacted Icasa to find out if and when it planned to publish a commencement date for its 2021 black ownership regulations.

It did not respond by publication.

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The black ownership sword hanging over Internet providers in South Africa