Will you pay more for new ICASA license fees?

The new ECS and ECNS license fees levied by the Independent Communications Authority of South Africa (ICASA) may have a negative impact on broadband in South Africa, though consumers will likely not pay more.

ICASA formalised its new method for calculating annual license fee renewals towards the end of March, announcing that it would take effect from 1 April 2013.

The new method calculates the fee from the overall revenue of a company, where it previously allowed service providers to deduct costs.

The license fee itself was 1.5% of this “license profit” calculation, while the new system has a sliding scale based on a company’s overall revenue.

The previous system presented a challenge to ICASA to verify that companies were paying the correct amount, however. This was a contributing factor in the regulator receiving qualified audits for three years in a row, explained Dominic Cull from Ellipsis Regulatory Solutions.

Vox Telecom and Web Africa both said that their customers would not be affected by the change in the fee calculation, with Vox explaining that the increase in costs for them would be marginal.

Murray Steyn
Murray Steyn

“It doesn’t have a major impact for us or our customers,” said Murray Steyn, executive head of commercial and regulatory at Vox Telecom. “Our licence fee will go up marginally but we will absorb the pricing.”

Web Africa’s head of finance, Paul Louw, explained that the new license fee structure does not materially affect them in terms of cost, but does simplify the calculation.

“To a large extent [the new license fee calculation] eliminates the grey area around what constitutes direct expenditure in the provision of licensed services,” Louw said. “This was an area that could be potentially be exploited by operators in the past to reduce their liability to ICASA.”

Not all service providers are happy with the change, however, and both Cybersmart and Mweb expressed concern over the long-term impact of the new fee structure.

Laurie Fialkov, CEO of Cybersmart, said that he finds it quite troubling that on one hand there is a push to drive broadband prices down by government, yet the new license fees no longer take the costs of doing business into account.

It also goes up the more money a company turns over rather than decreasing, Fialkov said.

Licensee Revenue Percentage applied
R0 – R50-mil 0.15%
R50-mil – R100-mil 0.20%
R100-mil – R500-mil 0.25%
R500-mil – R1-bil 0.30%
over R1-bil 0.35%

“In an industry where margins can be as low as a couple of percent, it seems counter-intuitive to say the goal is to increase broadband penetration and to drive costs down, while dis-incentivising licence holders by increasing their licencing cost.”

Fialkov explained that under the previous system where costs could be deducted before calculating the license fee, infrastructure roll-outs were incentivised, while there is less incentive under the new fee structure.

Asked how they were affected by the new license fee system, Fialkov said that they have to pay significantly more.

“Previously bandwidth costs would come off licensed revenue before you calculate the fee,” Fialkov explained. “Now it does not.

Laurie Fialkov
Laurie Fialkov

He added that in the short term they are absorbing the additional cost because there is an expectation in the industry that prices don’t increase. New pricing, however, will have the licence fee as a cost factor, Fialkov said.

Mweb’s ISP boss Derek Hershaw added his voice to Fialkov’s, though he did indicate that Mweb will only “pay a bit more than we did under the previous structure.”

Hershaw said that if you look at the industry as a whole, government should be looking for ways to encourage the private sector to invest even more in building out broadband infrastructure.

Derek Hershaw - MWEB ISP CEO
Derek Hershaw – Mweb ISP CEO

It should stimulate competition to the incumbent operators and ultimately drive down costs to the end user, he added.

“These new license fees seem to be counter-intuitive to that line of thinking,” Hershaw said.

“By way of example,” he added, “in calculating our license fees we are not able to offset the significant costs of the [IP Connect (IPC)] capacity we have to buy from Telkom. At the same time, Telkom has to calculate its fees based on the revenue it earns from the provision of that service.”

Hershaw argued that IPC costs are being taxed twice, and that this ultimately just introduces additional cost into the market.

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Will you pay more for new ICASA license fees?