Remember, Remember, next year November

Local Loop Unbundling (LLU) will give other telecoms players access to Telkom’s copper infrastructure (local loop), and unsurprisingly it has been touted as a significant step toward bringing more competition to the South African telecoms market.

LLU will make it theoretically possible for other companies to provide ADSL and telephony services using Telkom’s last mile copper infrastructure.

Despite the excitement surrounding LLU, the process of implementing full unbundling of the local loop is complex and requires a solid set of regulations to govern the process. This is where the challenge for the DoC and ICASA comes in.

New Communications Minister Roy Padayachie said in his first media briefing that Local Loop Unbundling forms a big part of his department’s strategy to improve the local telecoms environment.

“The unbundling of the local loop remains a critical and important intervention. In this regard we will work closely with ICASA to ensure that the local loop is unbundled by November 2011,” the minister said.

Speaking on eNews’ The Justice Factor on Sunday, 5 November 2010, Padayachie reiterated the importance of LLU, adding that they are still looking at a November 2011 date for LLU to happen in South Africa.

Padayachie may however underestimate the complexities associated with LLU, especially when dealing with an incumbent operator which is unlikely to simply hand other players access to its infrastructure. 

Then there is ICASA, whom is not known for their efficiency. They are better known for their slow regulatory progress and backing down at the first glance of potential legal action.

LLU process in South Africa

The South Africa LLU process started in 2006 when then Minister of Communications Ivy Matsepe-Casaburri announced the appointment of the Local Loop Unbundling Committee, chaired by Prof. Tshilidzi Marwala.

The committee finalised 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.

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.

Four years on and nothing much has changed in the LLU space. ICASA has still not released all the regulations to make LLU a reality and there are still no processes in place for other players to get access to Telkom’s infrastructure.

Mixed views on LLU deadline

It is not clear why Padayachie thinks that he will be able to implement LLU in less than a year while the previous four years reaped nearly no rewards.

And Padayachie is not talking. Questions sent to the DoC three weeks ago about their LLU strategy and how he plans to accelerate the process remain unanswered.

World Wide Worx MD Arthur Goldstuck said that it is a continual source of mystery why Government departments either set deadlines that are so tight that it is impossible for them to be met – such as the original digital migration deadline – or so poorly defined and implemented that they are eventually bypassed by technology developments, as has happened with WiMAX.

“Local loop unbundling seems to suffer from a combination of these. That’s not to say it’s impossible. With political will and skill, these things can be achieved. If the new Minister does achieve this goal, and in a way that is judged a success, it will be a triumph of deregulation. But that is a big ‘if’ and a big challenge he has posed to his department,” said Goldstuck.

Neotel said that they believe it is certainly possible to implement LLU by November 2011, since much of the required regulation has already been implemented in multiple jurisdictions around the world.

“We have confidence that, with the clear policy direction provided by the new Minister of Communications, the Regulator can complete and implement such regulations in this time frame,” said Neotel CTO Angus Hay.

“Much of the legal basis of LLU already exists in the Facilities Leasing Guidelines, and the challenge is the development of efficient rules and procedures to ensure fair access to local loop facilities,” said Hay.

Ellipsis Regulatory Solutions director Dominic Cull said that he does not think the deadline is realistic, but agreed with Hay and Goldstuck that it is possible.

“I believe that the central issue is what Telkom refers to as the Access Line Deficit which refers to the money which Telkom states it is losing in respect of approximately 2 million landline connections which are not economically sustainable. These lines mostly formed part of the roll-out imposed in exchange for the extension of the Telkom monopoly,” said Cull.

“ICASA have already done a great deal of the groundwork that is necessary for the introduction of LLU so from an ICASA process perspective the deadline is reachable (ICASA believe they can achieve it before then). But there are obviously a number of potential roadblocks along the way, the biggest of which will be pricing,” said Cull.

“Bear in mind also that there are already specific forms of unbundling in process, such as carrier selection (referred to in SA as carrier pre-selection) and facilities leasing. There are at least two disputes before ICASA which could give us a clear indication of Telkom’s attitude to LLU over the next few months,” Cull pointed out.

Will Telkom play ball?

The most important party when it comes to local loop unbundling may however not be the DoC or even ICASA, but rather Telkom.

It is well known that LLU is typically opposed by incumbent operators. “Incumbent local exchange carriers argue that LLU amounts to a regulatory taking and that that they are forced to provide competitors with essential business inputs,” WikiPedia states.

“They further argue that LLU stifles infrastructure-based competition and technical innovation because new entrants prefer to ‘parasitise’ the incumbent’s network instead of building their own and that the regulatory interference required to make LLU work is detrimental to the market.”

In 2005 Telkom’s position on LLU was not too far off what Wikipedia said. “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,” Telkom said at the time.

‘November 2011 deadline not realistic’

Telkom provided comprehensive feedback about what must happen before LLU will become a reality in South Africa, and for the sake of accuracy we publish their feedback unedited:

In order to answer the question [of whether the November 2011 deadline is realistic], one must first consider the processes which may need to be followed such that any outcome is arrived at in an administratively fair and justified manner.

The regulatory process ICASA must follow to unbundle the local loop is uncertain and debatable.

Below, Telkom outlines its views on the process that must be followed, although one may still conclude that there is an absence of enabling legislative provisions in the EC Act to facilitate local loop unbundling.

Telkom is of the view that a declaration of essential facilities must, by necessity, precede any potential local loop unbundling process. Telkom has two observations in this regard:

1. Notwithstanding that s43(8) or the EC Act includes local loops in the indicative list of potential essential facilities, it is arguable whether the local loop is indeed an essential facility in that prima facie it does not meet the definition of essential facility contained in the definitions section of the Act. Specifically the EC Act states an essential facility “cannot feasibly be substituted” and it is Telkom’s contention that wireless local loop these days is more than a substitute for both voice and broadband communications.
2. Even if local loops were indeed essential facilities, there are no provisions in the Act which stipulate the terms and conditions by which such facilities are to be unbundled. The only place in which essential facilities have practical effect is section 67(5) (b) of the Act (under Chapter 10) which indicates that a licensee with control of essential facilities by definition has significant market power in the relevant market (where that market would be defined in a market review).

The process that would have to be followed to unbundle the local loop would be the market review process, as per Chapter 10 of the EC Act. Again, Telkom has two observations:

1. To the degree that a local loop can provide one of three services i.e. voice, broadband and partial private circuits (half leased lines), it is uncertain which market review ICASA would be required to use since a remedy must not only relate to a market, however further be confined to that market only.
2. Even if, to be sure, all three market reviews were simultaneously undertaken, the list of pro-competitive remedies that may be imposed at the conclusion of a market review does not include unbundling of networks or facilities i.e. does not contemplate local loop unbundling.

Hence, there is much uncertainty on the regulatory process which should or could be followed to deliver local loop unbundling, presuming that a legitimate process exists in the first place.

Secondly having concluded the relevant regulatory process, Telkom will still need to undertake a product development process wherein, inter alia, Telkom would determine:

1. The technical parameters of the service  e.g. hand-over points, eligible exchanges, spectrum masks
2. The business rules & processes of the service  e.g. ordering process, fault resolution process, interference investigation process
3. The prices of the service elements  e.g. line rental, line transfer charge, line pre-testing charge
4. The commercial and contractual conditions associated with the service
5. The product relationships between local loop unbundling, facilities leasing and other network services e.g. interconnection

Naturally these would take time and there are many variables in this regards. For instance if LLU were to be provided at a limited number of sites, a product would be quicker to market than if LLU were to be made available at a larger number of sites. Similarly, if LLU were to be provided at the same quality of service as Telkom affords its customers today, it would be a much speedier implementation than any process that seeks to impose more onerous quality of service metrics on Telkom.

In conclusion, given the number of variables, Telkom does not believe that the November 2011 deadline is realistic. We have and will continue to cooperate with ICASA on the matter.

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