Spectrum trading should be encouraged, not banned

Spectrum are the radio frequencies – a finite resource – that mobile operators use to provide services to consumers. It is often referred to as “the lifeblood of the industry”. The more ‘high demand’ spectrum a service provider has, the higher the capacity and better the quality of the service it provides.

Freely-tradable spectrum would lead to a more efficient allocation of the resource than central planning by government. This is as true for spectrum as it is for steel, water, or clothing. Government’s information and communication technologies (ICT) policy admits this, as does the National Development Plan.

The policy – in the form of a white paper published in 2016 – however, bizarrely calls for the limiting of spectrum trading to a draconian extent. The new Electronic Communications Amendment Bill has answered this call. High demand spectrum may not be traded at all, and the Independent Communications Authority (ICASA) “may” consider applications for trading in “non-high demand spectrum”. The Bill further empowers ICASA to “withdraw” spectrum from licensees if they have failed “to utilise” the spectrum “in accordance with” those conditions determined by government, or have failed “to use the assigned radio frequency spectrum for a period of one year”.

The root cause of this unfortunate path down which government has gone, is the errant belief of the ICT Advisory Panel that “while licensed entities may realise economic value from trading, the trading of a public resource does not necessarily result in public value”. This is a fallacy that has become deeply entrenched in modern economic discourse, but that was supposed to have died with the end of the Cold War in 1990 when central planning was shown to be vastly inferior to free enterprise.

It is thought that the contribution, or ‘fair share’, enterprises make to society, is limited to employment and taxes. The rest is profit they make for themselves. It is not readily realised that when companies profit – especially when they make massive profits – they provide something to consumers (the public) that consumers value.

For example, the Coca-Cola Company employs a lot of people and pays a lot of taxes to government, yes, but the real contribution this company makes to society is that it puts a smile on billions of faces every day by providing billions of people with a much-desired refreshment. In exchange for this unquantifiable value Coca-Cola is providing to the people of the world, it makes boatloads of money. And the money Coca-Cola makes can justifiably be seen as the quantification of the value it has created for society.

The ICT Advisory Panel, then, was clearly wrong when it asserted that public value does not necessarily result from free trade in radio frequency spectrum.

The companies that provide the most value and best service to consumers will make the most money, and will consequently be able to buy more spectrum. If those same companies slip up and their customers are no longer happy, they will lose money, and if they lose a lot of money, they will be forced, by the market, to sell some or most of their spectrum to someone else.

The phantom bogeyman company that just hangs on to assets, come hell or high-water, with no regard to its own solvency, does not exist in the real world. The government department that forgets about some of its assets or allocates them inefficiently due to political considerations rather than market forces, however, is very much part and parcel of daily experience.

If the government is truly (and irrationally) concerned about spectrum hoarding, it should simply apply its ‘use it or lose it’ policy more strictly. But prohibiting trade in spectrum or making it unnecessarily difficult, is ill-considered.

Making it more difficult for mobile network providers to do business will not lower data prices or increase access to ICT, even if the government engages in price control. Prices will rise as service providers attempt to compensate for the new regulatory burden, and, where the law empowers government to enforce price controls, the quality of service will decline. Investment in our ICT industry will grind to a halt.

The telecommunications industry is the most viable vehicle for substantive socio-economic transformation in South Africa, a fact often overlooked. With a 98% mobile penetration rate across the country and a virtual 100% penetration rate in poor urban communities, what has been achieved in terms of technological empowerment is one of South Africa’s greatest success stories. South Africa should not undermine this achievement by foolishly banning trade in spectrum.

Martin van Staden is Legal Researcher at the Free Market Foundation and co-author of The Real Digital Divide (2017). He is an LL.M. student at the University of Pretoria 
Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE