Dark cloud over South African communications industry
For three and a half years, regulations that would compel all network and Internet service providers to have 30% black ownership have been suspended with no indication of whether they will be implemented.
This has plunged South Africa’s entire telecommunications industry into a state of uncertainty, with smaller players disproportionately affected.
The Independent Communications Authority of South Africa (ICASA) published its new local ownership regulations on 31 March 2021 after a contentious public consultation period.
It supersedes existing provisions in the Electronic Communications Act (ECA), which requires that telecommunications companies offering national services be 30% owned by historically disadvantaged groups (HDGs).
HDGs include black people or citizens who are women, youth, or people with disabilities.
Compliance with this equity provision was low, and ICASA also did not enforce it on those who already had the necessary licences.
To understand how this happened, it is necessary to go back twenty years — before the Electronic Communications Act of 2005 came into effect.
Under the previous Telecommunications Act of 1996, there were many licences for different types of networks.
These included licences for public-switched telephone services, mobile networks, international telecommunications services, and private telecommunications networks.
For everyone else, there was the Value Added Network Service (VANS) licence.
The law also explicitly stated that only Telkom was allowed to operate a local access network until the Minister of Communications said otherwise.
When the ECA replaced the Telecommunications Act on 19 July 2006, it dramatically simplified the licences and included a mechanism for converting old licences to the new regime.
This was to facilitate the so-called “managed liberalisation” of South Africa’s telecommunications sector, hopefully ending Telkom’s decade-long monopoly.
Instead of licences for different types of services — which wasn’t very future-proof — the ECA essentially had two different licence types and two licence classifications.
The two types were Electronic Communications Network Service (ECNS) and Electronic Communications Service (ECS).
An ECNS licence allows licensees to build and operate physical networks, whereas an ECS licence lets them offer telecommunications services.
These can be issued as either “individual” or “class” licences. An individual licensee can operate nationally, whereas class licences are regional.
Under the direction of the late former minister Ivy Matsepe-Casaburri, ICASA published a list of VANS licensees who would be converted to an I-ECNS licence.
These licensees would be permitted to build their own physical network infrastructure, like Telkom, Neotel (now Liquid), Vodacom, MTN, and Cell C.
Some of the VANS licensees that were left off the list launched a legal challenge against ICASA and the minister in what became known as the “Altech case”.
The case dragged on until August 2008, when the Pretoria High Court ruled in favour of Altech and all other VANS.
Matsepe-Casaburri ultimately chose not to appeal. By November of that year, Altech’s win was final. ICASA had to convert all VANS licensees to I-ECNS licences.
The minister’s capitulation meant Altech and about 300 other voice and data carriers could all build their own network infrastructure.
Several of these VANS licensees were small businesses, ranging from sole proprietorships to companies with fewer than a dozen employees.
This means many did not meet the 30% HDG ownership requirement, but thanks to the government’s bungling of the ECA transition, they got I-ECNS licences anyway.
As a result, the South African government accidentally sparked a boom in South Africa’s telecommunications industry.
A vibrant and fiercely competitive sector emerged.
Although it took several years for true competitors to Telkom to rise, Vumatel and the Parkhurst Residents and Business Owners Association smashed the floodgates in 2014.
While a few small private fibre network operators were active at the time, these were predominantly rolling out in more affluent estates and gated communities.
These also generally focused on “greenfield” residential complexes that were still under construction.
Vumatel and Parkhurst showed that the models being used to determine the financial feasibility of suburban fibre rollouts were flawed.
Parkhurst also proved there was consumer demand by running a survey among community members, and showed there were many operators willing to build them a network by accepting bids through a tender.
It ignited a craze among South Africa’s leafy suburbs. Several had soon published their own tenders.
However, it soon became unnecessary for neighbourhoods to get fibre network operators’ attention this way. A fibre landgrab soon ensued.
By March 2019, just under five years after Parkhurst, Vumatel had overtaken Telkom’s Openserve as the largest fibre-to-the-home provider in South Africa in terms of homes passed.
Those are the homes covered by its network but which do not necessarily have an active connection.
During the five years that followed, Vumatel doubled down. It extended its lead over Openserve and overtook it in terms of homes connected.
At the same time this industry boom was taking off, Icasa instituted an inquiry in 2014 regarding the industry’s low levels of ownership by historically disadvantaged groups.
Unfortunately, Icasa’s inquiry did not seem to recognise that its own failure to issue new I-ECS and I-ECNS licences since 2010 was a key culprit.
It also didn’t seem to recognise that making it easier for young entrepreneurs to launch telecommunications companies would boost participation from black people.
Instead of considering ways to further liberate a sector where small businesses had flourished, Icasa began drafting updated regulations in 2020 to crack down on it.
Its plan was to not only change the ownership requirements, but to enforce them on everyone with individual-type licences — including the small businesses that had obtained theirs back in 2009.
Despite industry backlash, Icasa forged ahead.
Now, its chilling regulations are hanging like an axe over the whole industry, with Icasa lacking the courage of its convictions to follow through — and defend them in court — or withdraw them.
One of the most prominent examples of these regulations preventing progress is Starlink’s hesitation to launch in South Africa.
However, Starlink is hardly the only collateral damage the regulations will cause.
South Africa’s broadband revolution didn’t happen overnight.
It took three years between Altech launching its legal challenge in 2006 and Icasa converting all VANS licences to I-ECNS licences in 2009.
It was another five years before that breakthrough led to South Africa’s explosion of fibre network operators.
Five years after that, Vumatel had toppled Telkom’s fixed-line monopoly.
In 2024, another five years on and nearly twenty years since Altech took Icasa and the Minister to court, Vumatel launched fibre in Alexandra.
And Vumatel is just one of several companies doing fantastic work in South Africa’s broadband sector.
Incidentally, Vumatel’s parent company has a BEE shareholder. Like most of South Africa’s major fibre network operators, it won’t really feel this change.
It’s the smaller industry players who will be impacted most.
By further restricting I-ECNS and I-ECS licences, Icasa is actually undermining the very thing that helped make South Africa’s broadband industry so vibrant.
If it wants to boost transformation, it needs to incentivise black entrepreneurs to enter the sector and make it easy for them to succeed — not punish the forerunners and innovators on whose backs and blood the industry was forged.