Strange blunder by ICASA causes spectrum auction mess

The Independent Communications Authority of South Africa (ICASA) has messed up the definition of Tier-1 and Tier-2 operators in its current spectrum auction process, which has resulted in a legal challenge from MTN.

ICASA published its Invitation to Apply (ITA) notice on 2 October 2020 to invite applications for new spectrum in the IMT700, IMT800, IMT2600, and IMT3500 bands.

These spectrum bands are suitable to provide national broadband wireless access services, including 4G and 5G.

As part of its spectrum auction structure, ICASA created two categories of mobile operators – Tier-1 and Tier-2.

The regulator then introduced an opt-in auction round in which Tier-1 operators will not be allowed to participate.

The definitions for Tier-1 and Tier2 operators are therefore core to ICASA’s spectrum auction and should be very clear and concise.

This is, however, not the case.

ICASA’s ITA defined Tier-1 and Tier-2 operators as follows:

  • Tier-1 operator – A Wholesale National Operator that has a retail market share in excess of 45% in more than 10 municipalities.
  • Tier-2 operator – A Wholesale National Operator that has a retail market share below 45% in less than 10 municipalities.

An inspection of these two definitions reveal that both these definitions refer to an operator with significant market power, instead of separating mobile operators.

It is assumed that ICASA’s intention is to split mobile operators into two groups – Tier-1, which has significant market power, and Tier-2, which does not significant market power.

This is exactly what ICASA has done with the six applicants which were split into the groups below:

  • Tier-1 – Vodacom and MTN
  • Tier-2 – Telkom, Cell C, Rain, and Liquid Telecom

There is a problem, though, as the mobile operators in Tier-2 do not adhere to the definition of this group.

ICASA stated that there are 234 municipalities in South Africa, which means a Tier-2 operator must have a market share of above 45% in 224 municipalities.

It is highly unlikely that any mobile operator, with possibly the exception of Vodacom, will qualify based on the Tier-2 definition.

It is also clear that in reality Tier-1 defines a strong mobile operator, while Tier-2 defines an extremely strong mobile operator – which is ostensibly the opposite of what ICASA intended.

Looking at a smaller mobile operator, like Rain, it is clear that it has less than 45% market share in all municipalities.

Rain therefore does not have “a retail market share in excess of 45% in more than 10 municipalities” or “a retail market share below 45% in less than 10 municipalities”.

These definitions are therefore non-sensical and may be a simple mathematical blunder.

What ICASA should have said if it wanted to clearly define the two groups are:

  • Tier-1 operator – A Wholesale National Operator that has a retail market share in excess of 45% in more than 10 municipalities.
  • Tier-2 operator – A Wholesale National Operator that has a retail market share in excess of 45% in less than 10 municipalities.

In fact, ICASA could have just defined a Tier-1 operator and then said a Tier-2 operator is one which is not a Tier-1 operator.

As ICASA’s Tier-1 and Tier-2 definitions currently stand, it leaves most spectrum applicants as undefined.

MTN legal challenge

MTN tried to resolve this and other issues with ICASA, but the mobile operator said their request for clarification did not produce satisfactory results.

ICASA said in response to questions from MTN that:

A number of licensees have significant market power in various municipalities, as measured using the dominance threshold applied in the Electronic Communications Act, 2005 (a 45% market share).

Vodacom is dominant in 110 municipalities, MTN is dominant in 78 municipalities. MTN and Vodacom both have a share of 45% or more in 4 municipalities. Cell C has a market share of 45% in one local municipality and 41 municipalities do not have a dominant operator.

What is clear from ICASA’s response is that Vodacom and MTN qualify as Tier-1 operators, but that it is unlikely that any operator qualifies as a Tier-2 operator.

With ICASA stubbornly defending its failed definition, MTN launched legal action against the regulator despite the fact that it does not want to delay the spectrum auction.

MTN has asked the Gauteng High Court to force ICASA to remove the Tier-1 and Tier-2 categorisation and the opt-in round from the auction process.

In its founding affidavit, MTN highlighted that the definitions used to differentiate between Tier-1 and Tier-2 operators are impermissibly vague, arbitrary, and unreasonable.

MTN pointed out that it is possible that a party could simultaneously fall within the ambit of both definitions.

That would, for example, be the case if a national operator has a retail market share in excess of 45% in twelve municipalities and has a retail market share below 45% in eight other municipalities.

ICASA was asked for feedback regarding this problem, but spokesperson Paseka Maleka said it could not comment at this stage.

He did, however, add that ICASA will issue a formal communique in relation to the matter by the end of the week.

ICASA Spectrum ITA

For easy reference, we embedded the ICASA’s Invitation to Apply (ITA) notice published on 2 October 2020 below.

Now read: MTN launches legal action to fight spectrum auction issues

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Strange blunder by ICASA causes spectrum auction mess