Plan to force South African ISPs to have black ownership being finalised

The Independent Communications Authority of South Africa (ICASA) is finalizing new regulations on ownership of telecoms licensees, which is likely to include prescribed ownership by black people.

The regulator published its “Limitations of Control and Equity Ownership by Historically Disadvantaged Groups and the Application of the ICT Sector Code Draft Regulations” on 14 February 2020 for comment.

The draft regulations sent shockwaves through the ISP and telecoms industry because of its strict new BBBEE ownership requirements.

It requires Electronic Communications Service (ECS) and Electronic Communications Network Service (ECNS) licensees to have at least 30% black ownership.

These licensees must maintain the 30% black ownership and Level 4 BBBEE status throughout the term of the licence.

Should an ISP or telecoms provider not comply with these requirements, they face severe penalties. This can include a fine of R5 million or 10% of their annual turnover.

Service providers believe the proposed draft regulations are an unnecessary overreach that will harm the industry.

Many South African ISPs are small- and medium-sized businesses that were founded by one or two people without any corporate backing or financial support.

These ISPs traded equity for funding to grow their businesses, with the money often coming from family or friends.

To now force them to disrupt their shareholder structure to abide by new ownership regulations can have a severe financial impact on these companies.

The COVID-19 pandemic is also making it more challenging for service providers to conclude successful empowerment transactions because of the depressed economic environment.

The Internet Service Providers’ Association (ISPA) further highlighted that the twenty-four-month period to comply with the regulations is too short.

“This period should be extended to 48 months or four years from date of finalisation of the Draft Regulations,” ISPA said.

Regulatory impact assessment

ICASA held public hearings related to draft regulations in November 2020 during which many problems with the planned black ownership requirements were highlighted.

The regulator subsequently decided to conduct a regulatory impact assessment to get additional information from licensees.

ICASA said the outcome of this impact assessment would assist it to better understand how it can implement its mandate to:

  • Impose the requirement for 30% equity ownership held by HDGs throughout the life of any individual licence.
  • Promote broad-based black economic empowerment (BBBEE), with particular attention to the needs of women, opportunities for youth and challenges for persons with disabilities.

ICASA sent a questionnaire to licensees related to their black ownership and BBBEE status as part of its process.

It is understood that this feedback will be used as part of the process to produce the final regulations related to ownership and control of ECNS and ECS licences.

It is currently not clear when these regulations will be published.

Draft Regulations on ownership in the ICT sector

Icasa BEE by BusinessTech on Scribd

Now read: New BEE regulations for ICT sector

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Plan to force South African ISPs to have black ownership being finalised