Telkom has a “secret plan” to keep mobile data prices high – telecoms execs

Telkom is accused of putting its own interests ahead of South Africa regarding spectrum and mobile data prices.

Senior telecoms executives, who spoke to MyBroadband on the condition of anonymity, said Telkom’s fight against the planned spectrum auction is nothing more than a delaying tactic.

They said Telkom’s “secret plan” is to keep spectrum out of the hands of Vodacom and MTN to prevent a further decline in mobile data prices.

The executives argued that Telkom is achieving this goal in various ways – creating confusion around the spectrum auction, launching legal challenges, and trying to stall the regulator.

Both Vodacom and MTN have said additional spectrum will result in a big decline in data prices – something which the execs said Telkom wants to prevent.

They argued that Telkom’s main competitive advantage in the mobile market is its competitive data pricing.

With a large debt burden and the need to maintain good margins, rapidly declining mobile data prices pose a risk to Telkom.

It will remove the company’s main value proposition and force it to compete on network quality and service levels – areas where it is lagging Vodacom and MTN.

Telkom is hanging its hat on its mobile operations for future growth. It is therefore logical for the company to protect its mobile unit against future risks, which may include a spectrum auction.

Telkom allegedly even boasted about delaying the spectrum auction at a recent investor event.

As it has more spectrum and fewer subscribers than Vodacom and MTN, the spectrum auction delay puts it in a stronger position for future growth.

Arthur Goldstuck
World Wide Worx CEO Arthur Goldstuck

The comments from the telecoms executives followed Telkom obtaining an interdict to stop the auction of high-demand spectrum until its case is heard in full by the high court in Pretoria.

The interdict prevents ICASA from processing or deciding on any spectrum applications as part of its invitation to apply (ITA) issued earlier this year.

The closing date for spectrum applications related to the planned wholesale open-access network (WOAN) has also been temporarily suspended as a result of this interdict.

Telkom argued the “digital dividend” bands of spectrum in the 700MHz and 800MHz categories are not currently commercially viable.

This is because broadcasters like MultiChoice, e.tv, and the SABC are still using those frequency bands for terrestrial television signals.

Telkom added that the regulator has not taken the lack of competition in South Africa’s cellular market into account as part of its spectrum auction.

It is nothing new for Telkom to fight against competition. Telkom have used regulatory and legal challenges for over two decades to keep competition at bay.

This tactic, however, does not mean that Telkom doesn’t have a point. ICASA’s spectrum allocation process document contains many contentious points.

MTN, for example, challenged ICASA’s decision to classify spectrum applicants as Tier 1 and Tier 2, and then excluded Tier 1 applicants from a part of the spectrum auction.

The big difference between Telkom and MTN’s legal action is that MTN does not want to delay the spectrum auction.

Instead, MTN’s preference would be to have the auction proceed as scheduled, but without the operator classification and opt-in scheme.

World Wide Worx CEO Arthur Goldstuck said ICASA’s spectrum allocation process document is far from flawless.

He highlighted that the process doesn’t open the way to competition and does not create an equal playing field.

Goldstuck, however, added that Telkom and the government have held back the broadband industry in South Africa for 25 years.

“Wanting to protect the next 20 years while ignoring the ills of the last 25 years is a little disingenuous,” he said.

Jacqui O'Sullivan
MTN SA spokesperson Jacqui O’Sullivan

While the mobile operators and the regulator are engaged in legal battles, South African consumers and businesses are the biggest losers.

Giving more spectrum to mobile operators is the most effective way to lower prices and improve mobile services in South Africa.

MTN South Africa’s executive for corporate affairs, Jacqui O’Sullivan said there is “absolutely no doubt that the allocation of spectrum will have a positive impact in further reducing the cost to communicate”.

MTN has spent R50 billion in the past five years in South Africa building the infrastructure to further extend coverage, quality, and speed.

“However, building ourselves out of the spectrum crunch is just too costly,” said O’Sullivan.

She said greater access to spectrum will allow MTN to reach further into underserved communities to supply access to high-speed broadband.

It will also help them to enhance the quality and speed in urban and peri-urban areas.

“The allocation of spectrum is a critical requirement for our country to rebuild our economy and join the fourth industrial revolution,” O’Sullivan said.

“Spectrum is not just a regulatory discussion or a policy debate – it is the key to unlock more affordable data for ordinary South Africans. For that reason, we must not delay the auction and we must seek all options to move this issue forward.”

Vodacom spokesperson Byron Kennedy echoed O’Sullivan’s views on spectrum and data prices.

“If spectrum is acquired at reasonable market related terms and prices, we will certainly be in a position to reduce data prices even further as access to spectrum allows mobile network operators to build networks more efficiently and at a lower cost,” Kennedy said.

Telkom CEO Sipho Maseko
Telkom CEO Sipho Maseko

Telkom was asked for feedback regarding the allegation, but the company preferred not to answer the questions.

Instead, it provided an opinion piece by Telkom CEO Sipho Maseko which outlines Telkom’s position on the spectrum ruling. It is provided in full below.

The decision by the Gauteng High Court to bring a halt to the two Invitations to Apply (ITA) for radio frequency spectrum issued last October by ICASA, pending a judicial review of the process, should be cause for reflection.

Telkom were the first to bring a court application for review, following months of submissions to the regulator expressing our concerns about substantial flaws with ICASA’s approach. Our action was subsequently joined by broadcaster eTV, and MTN.

Despite this, we do not celebrate halting the process nor take any joy in delaying the much-needed licencing of high demand spectrum. As an ICT company fully engaged with the possibilities and opportunities of the 4th industrial revolution (4IR), we recognise the importance of the availability of high demand spectrum to this economy.

The Presidential Commission on 4IR released its recommendations for South Africa’s participation in the fourth industrial revolution a year ago, as we moved into a state of national lockdown to contain the catastrophe of COVID 19 global pandemic.

The commission’s report asserted – and the lockdown confirmed – the need for a coherent 4IR and digital economy strategy that places a premium on creating the most conducive conditions to spur innovation and shared growth.

South Africa has great potential. As a country we also have a unique opportunity to leapfrog developmental challenges, to use the commission’s words, “catalyse dramatic socio-economic improvement”. Importantly, the report recognised the need for regulatory reform and modernised network industries to address “distorted patterns of ownership through increased competition.”

Alas, the release of the two ITAs told a different story.

Firstly, the process followed by the regulator was deeply flawed in that it ensured no room for substantive and meaningful consultation. The decisions taken by Telkom, eTV and MTN independently to challenge the regulator on various elements of the ITAs suggests a failure of meaningful engagement on the side of the regulator, with the stakeholders most directly affected.

There is no dispute that digital enablement is the foundation of an inclusive market economy and democracy. Against this background it is imperative that telecommunications services are affordable for all. This cannot happen in the context of a highly concentrated market dominated by a powerful duopoly that is immune to competitor pressure from smaller challengers.

Thus what needs to be at the centre of policy and regulation is the need to use the spectrum licensing process to address market failures and enhance competition in the mobile sector, in order to achieve the goal of affordable communications for all.

This also includes the need to address the competition effects of the various spectrum arrangements that Vodacom and MTN, the market duopoly, have entered with the smaller operators, namely Cell C, Liquid and Rain.

The spectrum licensing process is undertaken in the context of existing sector policy, as contained in the 2012 National Development Plan (“the 2012 NDP”), SA Connect, the 2016 ICT Policy White Paper and the 2019 Ministerial Policy and Policy Direction. A central theme in these policy documents is the promotion of competition as a critical objective.

In addition, the success of digital inclusion depends heavily of the urgent and successful completion of the broadcasting migration process to make the critical sub-1 GHz spectrum available for mobile services on a national basis. This is a point argued by eTV, one of the broadcasters that currently these spectrum bands to broadcast TV analogue signals, in their challenge. By seeking to auction sub-1 GHz spectrum, ICASA is effectively selling real estate it does not own or control.

Spectrum design will determine market outcomes for the foreseeable future. Yes, spectrum must be made available promptly, but it must also be made available fairly and equitably. While we may afford a few months’ delays, no matter how undesirable, we will not afford the potentially decades-long effects of a mishandled spectrum licencing process.

ICASA was directed by the Competition Commission to use the spectrum auction to resolve the market distortions and increase competition in the market. The published ITAs fail to do so. In fact, based on some submissions, they will choke existing businesses. More worryingly, ICASA fails to provide reasons that will enable meaningful engagement and collective problem solving.

So, what should the regulator do in our view?

Firstly, remove the 700MhZ & 800MhZ from the auction process. As said before, the principle is simple: – you cannot sell what you don’t own. The current auction ITA is likely to render the buyer as squatters despite having paid for the spectrum.

Secondly, to balance free market principle and the need to enable fair competition, caps should be placed on individual spectrum bands and not on total spectrum ownership. The structuring of the bands must consider future requirements for meaningful global competition. 5G deployment, which is the basis of the next tech revolution, requires 80 – 100 MhZ of contiguous spectrum. If this structure is not right our national ambitions to catalyse innovation and meaningful socio-economic improvement is unlikely to be realised.

Lastly, if South Africa is to have a wireless open access network, at least give it a fighting chance enough.

This judgement presents an opportunity for all of us to ‘fail forward’, by using this moment to rapidly course-correct and find a sustainable and reasonable way out of the self-imposed impasse. We must all work to avoid a protracted fight and ensure that we can continue with the right auction process with the required haste.

Businesses, communications, cities, and even political systems are being altered in ways beyond the control of nations and our own imagination.

Covid19 has shown us that we need more communications infrastructure; the digital realm is now the real architecture and foundation of modern society. Regulators must use tools for today and tomorrow’s technology challenges not yesterdays.

At this point, ICASA has a choice. It could dig in its heels and spend an inordinate amount of time in court, or we spend it finding solutions that will enable the achievement of South Africa’s ambitions for itself and its people.

At Telkom, our preference is the latter.

Sipho Maseko

Now read: Telkom loses appeal against leasing facilities to other network operators

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Telkom has a “secret plan” to keep mobile data prices high – telecoms execs