Mobile network spectrum still not available — even after R14.5 billion auction

The Independent Communications Authority (Icasa) has unduly delayed the making available of electromagnetic spectrum in high-demand frequency bands.

Icasa has not allocated high-demand spectrum to the carriers with the largest market shares since 2005.

Despite being held dormant by Icasa for years, spectrum was readily available. The necessary migrating of broadcasting to other frequencies, and the auctioning and assigning of the high-demand spectrum, could all have been initiated and finalised years ago.

Consumers of mobile telecommunication services have been bearing the cost of this delay and, whether urban or rural, experience inferior broadband coverage, costlier data services, mediocre building penetration and higher power consumption.

As a consequence, feebler economic productivity and impaired educational opportunities prevail.

Icasa’s tardiness in allocating spectrum to these leading carriers was due to the views that it and the Competition Commission held of desirable competitive features of the mobile-telecommunication market.

The Act of Parliament which established Icasa stipulates that Icasa must achieve the objects of the Electronic Communications Act (“ECA”), which include promoting competition in the communications sector, ensuring efficient use of the radio spectrum, encouraging investment, promoting consumers’ interests, and refraining from undue interference in licensees’ commercial activities.

Anyone who transmits radio-wave signals must hold a spectrum licence from Icasa.

The Competition Act empowers the Competition Commission, if it believes that features of a market for any goods or services restrict competition in it, to conduct a general “market inquiry” into that market’s state of competition, levels of concentration, and structure.

In 2017, the Competition Commission initiated an inquiry into the data-services market, to understand what features may lead to high data-service prices, to identify areas of “market power”, and to assess the allocation of spectrum. The Competition Act defines market power as a licensee’s power to control prices, exclude competition or behave independently of its competitors.

The Competition Commission completed its data-services market-inquiry report in late 2019.

It recommended “pro-competitive” assignments of the high-demand spectrum, by way of spectrum caps imposed on the two largest operators, and asymmetric spectrum assignments favouring smaller players.

On the contrary, and despite the Competition Commission’s view, for the high-demand spectrum to have the greatest effect in lowering costs and benefitting consumers, it should be provided to the large operators that are currently the most spectrum constrained.

Because the spectrum constraints of smaller operators are not as severe as the larger players’, the potential for cost decreases and efficiency benefits will only result if additional spectrum is allocated to the large operators.

The failure to allocate new spectrum to the largest operators has increased the capital expenditure required to expand network capacity to continue to meet the rapid growth in demand.

In October 2020, Icasa issued an invitation to apply to be recognised as qualified to bid in a two-round auction of licences to provide national broadband wireless access services on 34 spectrum “lots” in the 700 MHz, 800 MHz, 2600 MHz and 3500 MHz bands.

Larger operators were disqualified from participating in the auction’s first round, called the “opt-in” round.

Anyone else (whether holders of licences for other spectrum or new entrants) could bid for licences for one of the two “minimum spectrum portfolios” of lots with “spectrum floors” that would ensure that the two successful bidders have (with existing licensed spectrum, if any) “enough spectrum to be credible competitors” (of larger operators).

The second round was open to all bidders, including the largest. But a “spectrum cap” was imposed in that no bidder could be granted licences for more than 18% of the total spectrum in the auction. The auction was due to take place by the end of March 2021.

However, a large operator applied to court in January 2021, contending that the proposed opt-in auction round was irrational and economically inefficient, because larger operators could well be prevented from bidding on the 3,500 MHz spectrum, which is crucial for rolling out 5G services, and which could mostly be taken up by smaller operators in the initial opt-in round, in which large operators would not be allowed to participate.

In early March 2021, the Pretoria High Court, at the instance of another large operator (Telkom), granted an interdict prohibiting Icasa from granting any applications received pursuant to its October 2020 invitation to apply for licences for the 700, 800, 2600 and 3500 MHz spectrum bands, pending adjudication of Telkom’s and broadcaster’s case that the invitation was unlawful because it irrationally proposed granting telecommunication licences for the 700 and 800 MHz bands despite their continued use for analogue broadcasting signals.

In September 2021, Icasa consented to the grant of the court orders sought by the two telecommunication operators and the broadcaster, and retracted its invitation to participate in the 2021 auction.

In December 2021, Icasa issued a fresh invitation to participate in a two-round auction of licences for those 34 lots in the 700, 800, 2600 and 3500 MHz bands. The auction was scheduled to start in the first full week of March 2022.

As before, larger operators were disqualified from participating in the opt-in round. Yet, importantly, this time, the opt-in round did not include 3,500 MHz spectrum. And that round’s “minimum spectrum portfolio” was smaller than before.

Also, apparently, smaller operators whose licensed spectrum portfolios already meet that minimum were likewise disqualified from the opt-in round. And, it seemed (the auction conditions were ambiguous), bidders whose licensed spectrum partly meets that minimum could bid only to ‘top up’ their portfolios to meet the minimum.

As before, the auction’s second round would be open to all bidders, including the largest. The spectrum cap was now very slightly larger, in that no bidder could be granted licences for more than “20%” of the total spectrum in the auction.

Government policy since 2016 has been to create a “wireless open-access network” (WOAN) as a wholesale provider of shared network infrastructure for retail service providers who did not have networks.

The Department of Telecommunications commissioned a study from the Council for Scientific & Industrial Research (CSIR) to determine the amount of spectrum that the WOAN would need.

The CSIR reported in 2018 that the spectrum it required depends on the number of users its network was projected to serve, that it would likely serve about 20% of users, that no more than 20% of the high-demand spectrum be set aside for the WOAN and that this user baseline would suffice to enable the WOAN to satisfy its baseline users as well as high-end users.

But in March 2022, while Icasa was conducting the auction of the high-demand spectrum, the Minister suddenly gazetted a proposal to scrap the WOAN.

In light of the recent bankruptcy of the only credible foreign WOAN — Mexico’s — this was probably wise. (The Minister’s gazette notice said the spectrum available for the WOAN did not meet the viability threshold recommended by the CSIR.)

The government vowed that the analogue broadcasting signals on the 700 and 800 MHz bands would be switched off on 31 March 2022.

The analogue TV-signal switch-off has yet to occur in the four most-populous provinces where two-thirds of South Africans live, although it has been switched off in the five less-populated provinces.

Dramatically, late on 28 March 2022, a three-judge bench of the Pretoria high court granted an order at the instance of broadcaster directing the Minister to delay the analogue-TV broadcasting switch-off that was scheduled for 31 March 2022, by three months to 30 June 2022, to ensure that the estimated half-million registered indigent households that must still have set-top boxes installed will receive them to continue to watch television on their analogue TV sets.

In addition, some millions of indigent households may qualify for registration to receive set-top boxes but have not yet applied to be registered.

Broadcasters’ advertising revenue may drop dramatically if the analogue-TV signal is turned off before analogue viewers are able to view digital transmissions.

This could all lead to even more delay in the migrating of TV broadcasting from analogue to digital.

That would mean that the 700/800 MHz frequency bands will continue not to be available for low-cost rural digital-telecommunication services and more-efficient aggregated urban telecoms services.

Telkom’s application to court to set aside the 2022 auction will be heard in the second week of April 2022. Telkom is expected to argue that the auction was unfairly designed to prevent Telkom from competing effectively against South Africa’s leading providers.

Icasa announced in mid-March 2022 — just after the auction — that the auction’s next stage would be “the assignment round, which is purely an administrative process” that would be held on 22 March, to determine the actual spectrum ranges to be assigned for all the lots bought in the various bands.

But there is no evidence as yet that this assignment took place.

It may be that the last-minute cancellation of the WOAN, and of the concomitant need to reserve spectrum for the WOAN, will affect the assignment of spectrum to bidders.

Consumers will have to continue putting up with inferior broadband coverage, costlier data services, mediocre building penetration and higher power consumption, and the resultant feebler economic productivity and impaired educational opportunities.

Gary Moore is a Senior Consultant at the Free Market Foundation. He was a practising attorney in Johannesburg for 30 years. He is the author of published articles and monographs about the rule of law, the legality of state action, the meaning of statutes, and laws affecting small business. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.

The Free Market Foundation’s assessment of official policy’s socio-economic impact on the mobile telecommunication sector drew on Christoph Klein’s specialist experience.

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Mobile network spectrum still not available — even after R14.5 billion auction