Convergence the African perspective

1

• Convergence the African perspective
• by Margo Stoeder
• (tel.[phone])
• Regional Working Party for Africa of
• TDAG Private Sector Working Group
• 25 April 2005

2

• A partnership approach
• The linkage between good policy, investment and
  poverty eradication
• Context of EU and Asia
• Convergence Africas means to an end
• What does Convergence mean in Africa?
• What is the impact on operators businesses?
• Conclusion the way forward

3

• Public and private sector roles might differ, but
  we all share the same dream of sustainable
  socio-economic growth, job creation and poverty
  alleviation
• The communications sector is recognized as a
  powerful tool for economic growth and poverty
  eradication
• The engine for economic growth and poverty
  reduction is found in productive private
  investment
• Operators recognize that regulation impacts the
  nature and direction of investment
• Operators also acknowledge the role of regulation
  in those markets which are not fully competitive

4

• Investment requires a partnership between
  Government and the Private sector a joint
  approach
• This partnership can only succeed if the
  relationship between public and private sectors
  is built on a thorough understanding and mutual
  respect for the different roles of Governments,
  Regulators and Operators
• Operators wish to work with Governments and
  Regulators in terms of a long term relationship
  which is built on trust, transparency, honesty,
  respect, integrity and effective communication

5

• Different views exist about Governments serving
  society and operators creating wealth - these
  differences create challenges which have a major
  impact on level of investment and thus economic
  growth
• We have to confront these challenges to move
  forward
• A partnership and consultative approach critical
  to ensure that convergence policies does achieve
  the intended policy objectives
• In turn, meaningful dialogue regarding Africa as
  investment destination is required

6

• Massive private sector investments into the move
  towards packet switched/IP based services and
  networks is required
• This will change the context within which
  regulation will apply
• The theme, Broadband Infrastructure and Service
  must be seen in context of upcoming WSIS II, and
  radical changes in terms of Convergence Licensing
  and legislation with unintended consequences
• The African Operator and hence investors
  perspective to Convergence is tabled for Policy
  Makers and NRAs aiming to realise the immense
  potential of ICT in Africa

7

• Good policy entices investment
• The investment climate is central to growth and
  poverty reduction
• World Bank World Development Report 2005
• A good investment climate fosters productive
  private investment which is the engine for growth
  and poverty reduction since it creates
  opportunities and jobs for people
• Governments can influence the opportunities and
  incentives for firms to invest through formal
  policies stability and security, regulation,
  taxation, finance, infrastructure and labour
  markets

8

• World Development Report 2005 cont.
• Governments influence the investment climate
  through the impact of its policies and behaviours
  on the costs, risks and barriers to competition
• Improvements in investment climate is a process,
  not an event

9

• Radical ICT policy changes will have unintended
  consequences if outcomes not properly assessed
  and predicted
• This is on the basis of the far-reaching impact
  that ICT have on national economies
• A phased approach regarding changes in policy
  implementation needed on the basis of fact and
  not perception
• Operators welcome change but submit a phased and
  managed approach for reform is essential to
  ensure that Africa takes it rightful place on the
  world stage

10

• Slow and gradual move towards converged
  market-focus on broadband technologies and
  services
• Facilitated by existence of wire-line broadband
  infrastructure and much more mature voice
  markets
• Great differences in market characteristics
  (geography, demography etc) and economies if
  compared with Africa
• EU Directive introduced in 2003 - embrace
  technology neutrality and flexibilty to deal with
  converging markets
• No drastic policy and legislative changes a
  cautious approach allowing new markets to first
  develop!

11

• General tendency to assume that because of
  Technological convergence, one must liberalize
  ICT markets overnight to
• Increase investment into sector
• Lower prices
• Increase rollout in under-serviced and rural
  areas
• Increase competition
• Create opportunities for innovation and RD
• BUT THIS IS NOT TRUE!!!
• A Big Bang approach to liberalisation by way of
  radical convergence policy changes will achieve
  the opposite, i.e. increase costs, risks and
  discourage any further infrastructure investment
• Therefore, Convergence and Liberalisation not the
  same!

12

• Start with removal of technology limitations from
  licences
• Market dynamics in Africa different from other
  jurisdictions and characterised by lack of
  broadband infrastructure
• Investment into requisite infrastructure will not
  follow if investor requirements are not taken
  into account in policy developments

13

• Operators understand that
• African Governments all face similar
  socio-economic problems
• Africa suffers from ideology ambivalence, i.e.
  socialism v capitalism

14

• Operators understand that
• Skills and capacity shortages are evidenced by
  sweeping policy changes based on perception
  rather than fact, e.g.
• big bang convergence legislation will result in
  effective competition. In reality it will drive
  infrastructure investors out of the market and
  allow for cherry picking by new entrants in
  short term
• Price regulation is the metric of successful
  regulation. This may no longer be the most
  appropriate approach to encourage investment into
  Next Generation Networks

15

• Policy changes based on perception rather than
  fact continues
• Lower interconnect rates will result in decrease
  of retail rates - if not, then retail rates must
  be further regulated. This is two attempts at
  addressing the same potential problem!
• Regulation is the only way to ensure competition.
  Instead, regulation is replacing competition!

16

• Operators understand that
• Private and public sector have to proactively on
  a continued and informed basis engage each other
  so that commitments can be achieved i.r.o
• Millennium goals
• i.e. poverty alleviation - 2015
• World Summit on the Information Society (WSIS)
• bridging the digital divide by 2015

17

• Bridging the digital divide means
• All Africans have to be integrated into all
  aspects of their national economies and that
  delivering of ICT services to all, is the way to
  make it possible
• i.e. a recognition that national economies
  growth is inextricably linked to the development
  of a strong ICT sector
• i.e. access to a phone and internet access to
  government services, in every place of
  residence, schools, hospitals, community centres
  - specifically the rural of rural
• Known as the African e-strategy
• E government, E health, E Education key
  components of strategy

18

• African Governments
• Know that
• They have to grow their economies
• They have to open up new opportunities for
  increased investment
• They have to increase universal service and
  access
• Monopolies are dangerous and that the fixed line
  operators have failed regarding universal
  service/access
• Mobile cellular has been Africas success story
  in bridging the digital divide
• Technologies are converging and that technology
  neutrality is the way to go
• WE AGREE!!!

19

• African Governments
• Believe that introducing more competition into
  the ICT markets will result in
• More investment
• Growth of their national economies
• More opportunities for locals in Africa (and BEE
  SMMEs in SA)
• Increased efficiencies in the utilisation of
  infrastructure
• Service based competition
• Bigger variety of services and more innovative
  products
• Lower prices - both wholesale and retail
  services
• Increased universal service and access
  specifically in rural and under-serviced areas
• WE AGREE!!!

20

• African Governments
• Believe that the aforementioned is only possible
  by means of Convergence legislation which will
  leapfrog stages of the markets development
• i.e. Big Bang liberalisation and
• a heavy handed regulatory approach
• WE DISAGREE!
• Market review and impact assessment a
  pre-requisite
• Managed liberalisation, a light touch and
  proportionate regulation is the way to go!

21

• Radical changes to
• Institutional frameworks
• Market structure
• Market activity regulation
• Mandatory access to infrastructure
• Wholesale price regulation
• Retail price regulation
• Additional service and spectrum licence fees
• Additional roll out obligations

22

• As investors we require an institutional
  framework that
• Provides certainty and finality
• i.e. market stability and environment which will
  allow for economic growth and further investment
• Provides for independent and capacitated
  regulators
• Mandates regulatory restraint
• i.e. limited powers to the executive and NRA
  allow markets to develop first regulatory
  intervention based on proven potential or a
  current market failure(s)
• Ensures transparent and due process

23

• Convergence means radical changes in the
  Institutional frameworks
• Key concerns
• NRA and the Ministry will have very wide
  (unlimited) powers to renew, amend and revoke
  licenses
• Selective cut and paste from foreign
  jurisdictions with different legislative
  frameworks and different objectives
• Absence of due process in licensing and
  regulation making processes, e.g. NRA has
  discretion to hold public hearings

24

• As an investor we require a market structure that
  provides
• a clear statement and observance of who is
  licensed to do what for what time period
• i.e. will honour rights and obligations (this has
  to include a protection of the original business
  case) and
• a clear process and timelines regarding
  liberalisation, i.e. introduction of new
  opportunities/ operators
• that the rules of the game will not be changed
  midstream
• Convergence means radical changes in the market
  structure and a change of the rules of the game
  midstream

25

• Radical change in Market structure
• Technology neutral and service based market
  segmentation

VANS, ISPs, WASPs
MVNOs, VOiP etc. - Class licences with access
rules
Individual licences, constrained by spectrum but
any technology subject to heavy access regulation
at both facilities and services level
Infrastructure Competition (Limited) Services
Competition (Completely liberalised)
26

• The impact on Operators
• Protection of current rights and obligations
• No automatic grandfathering of licenses
• Current mobile cellular licence to be converted
  into 3 licenses
• We have to surrender and reapply, if not, licence
  will expire after a certain period (SA)
• In both Tanzania and SA there is no provision
  guaranteeing current rights and obligations
• Validity periods of licences could even not be
  concurrent

27

• The impact on Operators
• Change our business case
• Mobile cellular business case is based on ARPU
  (outgoing and incoming)
• Currently wholesale and retail services are
  provided in terms of one licence ARPU
• Convergence requires
• wholesale services to be done in terms of one
  licence
• retail in terms of another
• No service provided in isolation!

28

• As investors we require market activity
  regulation which
• Recognises that light touch and a forward looking
  regulatory approach is best method to ensure best
  deal for the end-user in LT
• allows competition to deliver in the first
  instance do not intervene too soon
• intervenes only in case of anticipated or actual
  durable market failure based on objective market
  studies
• Applying the least intrusive, appropriate and
  proportionate remedy
• Convergence means the imposition of draconic
  price regulation

29

• The impact on Operators
• Both wholesale and retail prices could
  potentially be regulated (two remedies to address
  same problem)
• As infrastructure owners we will be mandated
• to provide access to third parties
• at rates that are cost based allowing for a
  reasonable return
• Where costs are not available benchmarks used
• Access is defined as the making available of any
  telecommunications facility at the request of a
  third party cherry pickers
• Objective open access networks

30

• As an investor we require fees, obligations,
  commitments which
• are fair and reasonable
• are balanced overall, to avoid damaging economic
  efficiencies (i.e. look at total sum)
• are only changed if change will not cause undue
  prejudice and in agreement with the licensee
• Convergence means increased licence fees
  obligations, even open-ended and discretionary
• This will increase cost of providing
  communication services!

31

• The impact on Operators
• Additional fees and obligations
• Licence fees may be changed when converting
  licence
• Universal service fees will increase and is
  payable as a of annual turnover of each of the
  licenses
• No protection against double jeopardy no
  express allowance to deduct interconnection,
  facililty leasing or transfer pricing charges
  between licence categories
• Spectrum fees will be increased
• Numbers will be charged for
• Additional universal service and access
  obligations can be imposed at any time
• Carrying of e-government traffic at no charge

32

• As an investor we require availability and fair
  allocation of limited resources
• Sufficient clean spectrum at reasonable prices
• enough numbers
• Convergence means increased spectrum and number
  fees

33

• The impact on Operators
• Spectrum and numbers
• Convergence will result in a run for spectrum and
  numbers
• Charge per number is being considered with the
  objective of greater efficiency
• No statutory protection against amendment of
  current spectrum licenses, e.g. amendment may not
  cause undue prejudice to licensee Licence fees
  may be changed when converting licence
• Additional spectrum licence fees

34

• Implementation of policy should be phased in
  based on technological and commercial objectives
  and sufficient demand
• RWP for Africa sincerely appreciates this
  opportunity to raise issues pertinent to the
  operators in the region through this forum
• That ITU/BTD continue to engage the private
  sector on these issues, leading to WSIS and WTDC
  06 and beyond
• RWP for Africa proposes that continued
  consultation be held with private sector as part
  of any policy review
• RWP will be submitting our proposal as an input
  and way forward

35

• THANK YOU!