Russia abandons autocratic telecom proposal

Russia abandons autocratic telecom proposal

But South Africa persists with same plan

In 2010, the Russian government gave mobile-network operator Yota the first licence to offer a fourth-generation (so-called “LTE” or long-term evolution) mobile broadband service at wholesale level.

The government-owned industrial giant Russian Technologies held a blocking minority interest in Yota, by way of a 25-percent-plus-one shareholding.

The communications ministry allocated a slice of 2.6 GHz spectrum to Yota to enable it to render this wholesale service.

The ministry earlier also decided to withdraw from mobile network operators certain spectrum in the 700 and 800 MHz bands previously allocated to them for new LTE network services, and transfer that spectrum to the state-affiliated company for a national LTE network.

This change was prompted by the ministry’s concern that the operators had been developing new LTE infrastructure in more profitable areas in larger cities, resulting in overlaps. In the year since the spectrum was auctioned to them, operators had built barely 1,000 base stations.

The ministry said it would invest in 30,000 stations and that the state-initiated Yota network would be available to all operators at regulated tariffs.

Yota’s network was expected to cover 180 cities with more than 70 million inhabitants by 2014.

This was all on the condition stipulated by the government that Yota must give retail mobile operators access to its wholesale network.

Yota reached an agreement in principle with four other wholesale operators to provide this single wholesale LTE network service under the Yota umbrella. The other four operators would each receive an option to acquire a 20 percent share of Yota.

The planned arrangement aimed to separate network ownership from service provision. Its stated objects were to avoid duplicated costs of infrastructure investment and to provide users with faster mobile access at lower prices.

But the scheme was unsuccessful. This was because Yota would not only be a provider of wholesale network access to retail operators. Yota would also be a retail mobile operator to the public itself.

Potential retail rivals would rely on their wholesale arrangement with Yota to compete against it at retail level.

The fact that Yota was also a retail operator discouraged it as a wholesaler from offering sufficiently attractive wholesale terms to rival retail operators.

So this Russian initiative failed: Other retailers went their own way on LTE after reportedly insisting on choosing their own wholesale providers.

In 2015 the sentiment in South Africa was that a proposal like the Russian one to introduce a single wholesale network operator could not be applied here.

In Russia, the government, or perhaps even one individual, was able to take and enforce decisions and to oblige existing operators to comply in a top-down autocratic way that was inconceivable (so it was felt) in South Africa given this country’s legal and other institutions and the influence of major operators here.

This may have been true in part, but only in very small part. South Africa’s government is perhaps a little less autocratic than Russia’s.

The South African government’s broadband policy declared that the communications minister would consider establishing a multi-player entity to provide national open-access wholesale fibre and wireless broadband networks. Rather like Russia’s.

The South African government’s 2016 telecommunications-policy white paper went further, and flatly stated that an open-access regime would be implemented along the entire infrastructure and broadband-services value chain.

A draft electronic-communications amendment bill published in November 2017 seeks to establish a South African wholesale operator to provide open access to its network on request by any other licensee. As with Russia’s failed proposal.

The South African bill would also require mobile-network operators (MNOs) to return to the communications authority (Icasa) any high-demand spectrum which Icasa had assigned to those MNOs to use.

In short, Icasa could revoke an operator’s high-demand spectrum licence and give the spectrum to the state-sponsored wholesaler. Just as Russia had planned.

The South African plan would give the state-promoted wholesaler preference over the private operators. Rather like the Russian scheme.

Icasa’s spectrum recall would be subject only to prior enquiry and recommendation to the minister about when to take back the spectrum, and on what conditions. Icasa would take into account “policy,” market developments, and available open-access networks.

The South African bill would oblige MNOs to give any other licensee open access to their networks on request, on approved non-discriminatory wholesale terms.

This goes further than the Russian stratagem, which had restricted itself to the setting up of a state-sponsored wholesaler.

The GSMA, the London-based international organisation of mobile-network operators, has pointed out that government-mandated wholesale networks have been much slower than competing networks to expand coverage, perform upgrades or embrace new technologies despite the fact that a state network receives government support not available to competing operators.

In Russia the government, facing reality, abandoned its unrealistic proposals. But South Africa presses on regardless.

After the white paper was issued, six licensees of spectrum (Vodacom, MTN, Cell C, Telkom and others) managed to reach a compromise agreement in mid-2017 with the minister as follows:

There may be no urgency to return the current high-demand spectrum from licensees until the end of the current licence period, to ensure investment certainty. In return, licensees committed to buy at least 30% of the existing capacity of the government’s proposed wholesale network to ensure its viability. A high-level study will be conducted to determine if the government wholesaler will use even all the currently-unassigned high-demand spectrum.

But this agreement with the government stands on rickety foundations. The department did not embody its terms in the November draft bill.

The government seems able to take decisions and oblige operators to comply, in a top-down autocratic Russian way that was thought to be inconceivable in South Africa.

Gary Moore is a South African lawyer and senior Free Market Foundation researcher

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