Nationalising radio spectrum fails to heed a past lesson

The #DataMustFall movement seeks lower mobile and fixed-line data prices. Don’t we all? Not obvious is whether its premise is valid, and, even if it were, history proves that government regulation would not achieve it.

When telecommunications policy was first proposed during the transition to a new democracy, the government was determined to maintain control of what it saw as a strategic sector.

The only gesture towards market liberalisation was to issue licences for cellphones to private operators. The belief was that cellphones were toys for the rich and the profit motive would result in limited market penetration of perhaps 1-million people. Shows you what central planners know.

Fixed-line telephony was considered the infrastructure backbone upon which to build access for the poor and previously disadvantaged. It was reserved for Telkom, which enjoyed a state-guaranteed monopoly from 1997 until 2002. The nominal quid pro quo was that Telkom had to install 1-million lines into underserviced areas. It did so, and the number of fixed lines peaked in 2000 at about 5.5-million. However, as soon as its legal obligation was discharged, Telkom disconnected many of these new lines for nonpayment.

Today, there are only 3.4-million fixed lines left, the lowest total since 1992, and the number continues to drop by 200,000 a year.

Shows you what central planners know.

Many customers switched to cellphones because you had to be creditworthy to get a fixed Telkom line.

Profit-driven mobile operators, meanwhile, pioneered prepaid contracts to serve those customers. As a result, the poor took to cellphones in droves.

The uptake among consumers surprised even the mobile operators. Today, there are more than 80-million mobile lines in use. At 150 per 100 citizens, cellphone penetration in this country is among the highest in the world.

Shows you what central planners know.

The foundation of this success lay in privately owned radio spectrum. Because it is a limited resource, the market ensured that the operators best qualified to develop it got to own it. Private ownership created an incentive to invest billions in infrastructure and technologies that used spectrum more efficiently.

Whether data really is more expensive than elsewhere in the world is a complex question to answer.

On a pure price basis, SA compares well with other countries. The only measure by which South African rates appear moderately expensive is as a percentage of income, but this is an absurd measure given that most infrastructure costs — other than salaries, of course — are not dependent on national income at all.

The recently released information and communications technology white paper promises to tackle data prices by undermining the foundation of the successes achieved by private operators. Instead of relinquishing state-owned spectrum dedicated to outdated broadcasting technology so it can be used more efficiently for data by private operators, the government has stunned the market by proposing to nationalise privately owned spectrum.

The responsible minister told the media, government policy created the mobile operators, so they have no right to complain about changes to that policy.

The only thing the government did to create those operators was fail to recognise the opportunity and leave the market free to capitalise on it. It was too busy failing to get landlines to the poor to stop the private sector from giving cellphones to everyone.

By nationalising radio spectrum, we risk a repetition of the fixed-line monopoly fallacy.

Vegter is an independent writer and speaker. This article is based on a talk delivered at the Free Market Foundation on November 30.

This article was first published in Business Day on 8 December 2016
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