Radical deregulation and liberalisation to lower data prices: Lock-down ICASA

17 July 2020
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The government tends to come up with complex policies that later trips up the same government, causes unnecessary delays, waste and ultimately negative economic consequences and political discontent. The government's inability to meet its own deadline for digital migration, failing to meet the 2015 deadline for an analogue switch-off, is the result of a chaotic policy-making process which often includes multiple priorities that are fundamentally contradictory.

Switching off the analogue signal is required in order to free up the radio frequencies currently being used for the analogue signal for telecommunications networks. Consumers and broadcasters would then migrate to a digital signal for television which would require much less bandwidth to transmit the signal.

Digital migration is intrinsically linked to the spectrum allocation (spectrum refers to radio frequency bands or ranges that telecoms providers can use to provide their services) process by the Independent Communications Authority of South Africa (ICASA). After some hope of an expedited process, it seems spectrum allocation has once again run into trouble, this time due to the Wholesale Open-Access Network (WOAN).

This follows the earlier delay caused by set-top boxes for the indigent. The government is still nowhere near the target of more than 4.7 indigent households to be connected to a set-top box, having only connected about 500,000 households. Set-top boxes being the devices that tv’s built for receiving an analogue-only signal require in order to convert or decode the digital signal to analogue.

Markets are not causing all of these delays. There is demand for more spectrum, which would increase supply and therefore lower the price of data to consumers. The radio frequencies are available, and most people would like cheaper data. The benefits could be enormous, given South Africa's struggles especially with education.

Affordable access to the internet provides individuals the opportunity to create for themselves a world-class education in whatever they wish. It allows people to acquire not only the skills of the new economy, but also the skills of the old economy on which the new economy depends. It allows people to trade with each other across the world and communicate for purposes other than trade.

This is the potential benefit of cheaper access by increasing the supply. The alternative proposed by the Competition Commission, of simply declaring that competitors will exist and will operate efficiently, which is the assumption behind restrictive competitive regulation, is a fantasy. The free market will test these companies, separating out the best from the worst, based on the preferences of consumers; but only if the government does not interfere.

That is why ICASA should be abolished. It only serves to entrench the advantage of existing players in the telecoms sector, by promulgating expensive regulations with which only the biggest companies can afford to comply. This is contributing to the latest delays caused by the WOAN. The government insists that the licensing of new spectrum should be subject to "offtake" arrangements between the licensee and the WOAN.

These arrangements, which are designed to provide capital for the WOAN, will benefit the existing players who can more easily meet these requirements, although that is not a certainty under the current economic conditions. This underpins the second reason why data prices are not lower than they are.

While restricting supply must necessarily increase costs for the consumer, the restriction of competition through legislation and regulation also plays a factor. By making it more expensive for new entrants to enter the market – often in terms of time, but also in direct costs such as license fees and now funding the WOAN – regulations reduce the potential number of companies contesting an industry.

This reduction of competition, ranges from the extreme of  a fixed-line monopoly as the only licensee, to making the regulations so stringent that only a few companies can comply. It is undeniable that part of the costs that make the industry unattractive for new players are a natural part of the industry. Indeed, the capital costs of deploying a network covering thousands to millions of people are no laughing matter.

That being given, it is still undeniable that the government increases the costs of entering the sector. The only question is what is the impact of these on the profitability of new entrants in the sector, over and above the existing capital costs they cannot avoid. 

South Africa's telecoms market is contestable, but that on its own is not enough. Government is implementing interventions that cause market distortions. These distortions reduce the potential number of investors as well as the total value of investments, the investments required to increase efficiency and therefore lower prices. This factor remains largely unseen and completely unmeasured.

The idea to abolish ICASA may sound radical to some but there are good reasons behind it. The commission has created an environment which harms entrepreneurship in the telecoms sector. Surprisingly, this is not as distant from the mainstream as you might think. The Chairman of Convergence Partners as well as a Commissioner on the Presidential Commission on 4IR, Andile Ngcaba, has made similar calls, arguing that we do not need a regulator as much as we need an enabler for entrepreneurship and innovation.

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