Goliath vs Goliath vs Goliath — South Africa’s spectrum showdown

Battle lines have been drawn over the heated issue of cellular network capacity in South Africa.

In the one corner — South Africa’s incumbent and partially state-owned telecommunications network operator Telkom.

In the opposite corner — industry regulator Icasa, and every other major cellular network operator in the country.

Telkom filed papers in the Pretoria High Court last Tuesday, 4 January, to interdict the spectrum auction called for by the Independent Communications Authority of South Africa (Icasa).

Radio frequency spectrum is the raw network capacity cellular operators use to communicate between mobile devices and their towers.

South Africa’s mobile network operators, including Telkom, have long maintained that releasing additional spectrum will help reduce prices, increase coverage, and improve network quality.

MTN, Icasa, Vodacom, Rain, and communications minister Khumbudzo Ntshavheni have all filed papers opposing Telkom’s application, setting the stage for a dramatic showdown.

Khumbudzo Ntshavheni
Khumbudzo Ntshavheni, Minister of Communications and Digital Technologies

While Telkom is a giant of South Africa’s telecoms industry, it is up against companies that are giants in their own right.

Vodacom and MTN dominate South Africa’s cellular arena, with millions more subscribers than Telkom has on its network.

Vodacom also controls 40.7% of the sector’s revenue market share, while MTN and Telkom are more evenly matched with 26% and 25% each.

While Telkom has fewer subscribers and turns over less revenue, it holds substantially more radio frequency spectrum suitable for cellular networking than Vodacom and MTN.

Although it has more raw wireless network capacity, Telkom does not have access to frequencies below a gigahertz, known as sub-1GHz spectrum.

Sub-1GHz spectrum offers greater penetration through walls and can cover a wider area per tower than higher frequency spectrum.

Obtaining sub-1GHz spectrum is therefore a priority for Telkom.

In addition to its spectrum holdings, Telkom also has a much larger fibre footprint than either of its competitors, with over 146,000km of cable in the ground.

Despite this, Telkom’s wholesale and networks division Openserve faces stiff competition from the likes of Vumatel and DFA.

While Telkom dominated the fixed-line space for decades as a state-sanctioned monopoly, Vumatel has rapidly grown since its launch in 2014. It overtook Openserve as South Africa’s biggest fibre-to-the-home provider in 2019.

Vodacom has brokered a merger with the holding company of Vumatel and DFA. If the Competition Commission approves the deal, Telkom’s fibre footprint will still dwarf its next-nearest competitor.

Adding to the drama of these three giants doing battle before the High Court, Telkom and MTN got new CEOs at the start of the year.

Serame Taukobong took over as Telkom Group CEO from Sipho Maseko, while Charles Molapisi took MTN South Africa’s reins from Godfrey Motsa. Both men started in their new roles on 1 January.

Serame Taukobong, Telkom Group CEO

Telkom’s problems with Icasa’s attempt to hold a spectrum auction by 8 March 2022 are manifold.

It is concerned about the auctioning of sub-1GHz frequencies that are still occupied, because E-tv refuses to relinquish them by March 2022.

E-tv owner eMedia has a pending court case against the Minister of Communications and Icasa about this issue that will only be heard in mid-March.

Telkom also contends that Icasa has not fully considered the impact its auction will have on competition in the market and that it hasn’t adequately consulted the Competition Commission.

It raised concerns over Icasa’s decision to implement uniform caps on the amount of spectrum each operator can hold.

Currently, Telkom holds about 142MHz of spectrum earmarked for cellular telecommunications. MTN and Vodacom have around 86MHz and 81MHz, respectively.

Icasa has set a cap that will allow each network operator to only control 20% of the assigned spectrum at any given time — which will be 187MHz for the auction.

That means Telkom will only be allowed to acquire around 45MHz of the spectrum unless it gives up some of its existing holdings.

“Icasa’s mistake is that it assumes spectrum in the hands of each player has the same value and has the same impact on the market,” Telkom regulatory affairs head Siyabonga Mahlangu has told MyBroadband.

Willington Ngwepe, Icasa CEO

Telkom has also taken issue with Icasa’s decision to delay the licensing of South Africa’s national wireless open-access network (WOAN).

Mahlangu explained that by removing the WOAN from the auction, Icasa has severely complicated the mathematical models operators use to inform how they should bid in the auction.

This creates concerns that they will overbid on the spectrum, he said.

Telkom’s detractors have said the company is trying to delay the release of spectrum because it benefits from the status quo.

Icasa was set to hold a spectrum auction in March last year, but the process was delayed by legal action brought by Telkom, MTN, and E-tv owner eMedia.

“Telkom appears hellbent on stalling the Authority’s every effort to licence the high demand spectrum that the sector, country, and our economy so badly needs,” Icasa said.

“Narrow and selfish commercial interests should give way to the overriding public good of cheaper data, universal access to efficient and reliable connectivity, and high-speed broadband transmission.”

Shameel Joosub
Shameel Joosub, Vodacom CEO

Vodacom CEO Shameel Joosub has previously said Telkom does not want Vodacom and MTN to get more spectrum because it wants to maintain its competitive advantage.

Armed with more spectrum, Vodacom and MTN have promised to cut data prices to make the most of their network investments.

This will put pressure on Telkom to do the same, which will hurt its bottom line.

Telkom would like to avoid this situation, and delaying the spectrum auction is a logical step to prevent a significant decline in data prices.

MyBroadband asked Cell C, MTN, Rain, Telkom, and Vodacom for comment on these recent developments, and this is what they had to say.

Zahir Williams
Zahir Williams, Cell C Chief Legal Officer

“Cell C remains optimistic about the process to auction much-needed spectrum to the telecommunications industry,” said Cell C chief legal officer Zahir Williams

“However, delaying the process is not in the best interests of competition or consumers especially with the demand created by the online migration and need to be connected.”

Williams said they had noted Icasa’s indications that the auction design will make provision for spectrum-sharing, which it says is an essential step for the industry.

“High demand spectrum is a catalyst to stimulate economic growth and introduce next-generation technologies that are affordable, accessible and address the digital divide,” said Williams.

“An industry that promotes sustainable investment, effective competition and affordable services to consumers is a win for all.”

Icasa disclosed that Vodacom sent it a letter on 1 January. Vodacom declined to provide MyBroadband with the letter, stating that it is confidential.

“Vodacom can confirm that it filed notice yesterday afternoon to oppose Part A of Telkom’s court application [the interdict],” said Vodacom spokesperson Byron Kennedy.

“We remain committed to an expedited and fair spectrum auction process. In this regard, we have provided guidance to Icasa in our written submissions to its 2021 Information Memorandum consultations, and continue to engage stakeholders as we work toward a successful auction,” Kennedy stated.

“As we have said previously, the award of new spectrum is a critical part of reducing input costs and the cost of data in South Africa.”

Charles Molapisi, MTN SA CEO

“Spectrum is not just an industry issue, this is an issue for all our people, and while there are certainly elements of the [invitation to apply] that are a concern, we have to work together to best benefit the people of South Africa,” said MTN SA CEO, Charles Molapisi.

“We cannot have a repeat of 2021, where the entire process was delayed for another full year, and that on the back of 14 years of no additional spectrum being added to the industry,” Molapisi stated.

“A successful spectrum auction has the capacity to not only release much-needed funds into the national fiscus, but it will have an immediate impact on consumers.”

Brandon Leigh, New Rain CEO
Brandon Leigh, Rain CEO

“We support the minster and Icasa’s efforts to license the high-demand, IMT spectrum on a permanent basis, through a transparent, pro-competitive process without further delays,” Rain stated.

“The ITA includes pro-competitive measures, such as an opt-in round and spectrum caps on IMT spectrum. Icasa has specifically included these measures to ensure that the outcome of the auction is pro-competitive.”

Telkom declined to comment further, saying that it needed to go through the court papers.

Now read: South Africa’s cellular networks get new temporary spectrum

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Goliath vs Goliath vs Goliath — South Africa’s spectrum showdown