REGULATION AND THE ICT SECTOR
What is regulation?
Regulation is intended to ensure the proper competitive functioning of certain markets or sectors of the national economy to benefit and protect both market players and consumers.
A regulator typically aims to promote “fair” competition between market players by preventing anti-competitive conduct such as the abuse of market dominance and price manipulation, by ensuring that non-discriminatory rules are put in place; and by allocating scarce resources equally among market players on broadly similar conditions. Market dominance is usually defined in law and may differ from one jurisdiction to another. A dominant firm usually enjoys a substantial share within a particular market, also referred to as market power.
The economic rationale for regulation tends to focus on optimising the functioning of a particular sector; promoting public confidence in the market by means of transparent and predictable regulatory (and licensing or authorisation) processes. This extends to the creation of a favourable climate to promote investment in and to develop and expand the market, and attract new entrants. All of these efforts support the development of competition.
Why is competition so important? The benefits of having more than one producer or supplier in any market include the prospect of choice for consumers, stimulate innovation within the sector, and ideally, will result in reasonable prices for goods and services, or at least prices that bear some reasonable relation to the cost of production of those goods or services.
There is also a technical element to regulation, which prioritises practical and engineering issues, and is, in the context of telecommunications and broadcasting, concerned with optimising the use of scarce resources. ‘Scarce resources’ in these two sectors are usually state-owned or national resources and include access to land or rights of way over land, numbers from the national numbering range, and radio frequency spectrum. In other sectors, scarce resources could include forests, oil, and water. The most common characteristic of these resources is that they are finite in nature – you cannot produce more of them because they occur naturally (with the exception of numbers which in theory can be increased by changing their format).
In the telecommunications and broadcasting sectors, technical regulation is also concerned with electromagnetic emissions, radio frequency spectrum band planning, the prevention of interference in radiocommunications, interoperability (the ability of different types of devices to work together) and equipment type approvals (ensuring adherence to standards of safety and operation).
There are also some social imperatives to be achieved through regulation. This imperative prioritises regulatory interventions that protect the rights and interests of users and vulnerable groups in society. This includes ensuring access to quality services at affordable prices to benefit consumers, even in outlying or rural areas, and putting in place measures and procedures to ensure proper protection of the rights of consumers. These measures might include establishing operator codes of conduct along with channels for complaints about services, and dispute resolution procedures.
The ICT Minister and the regulatory authority
Regulation is not in the true sense, a law-making function. Although most regulatory authorities have delegated powers to make secondary or subordinate legislation such as rules, guidelines and regulations, these must reflect the requirements of primary legislation and national policy. Regulators are generally required to enable, implement, monitor and enforce primary legislation.
The Minister of Communications and Information Technology in South Africa (the Minister), formerly the Department of Telecommunications and Postal Services, also has certain secondary powers, for example, to make policy and give policy directions within the telecommunications, broadcasting and postal sectors. Policy is applicable on a national basis, and policy directions are given to the Independent Communications Authority of South Africa (ICASA) to implement. The scope of policy and policy directions in the South African ICT sector, is limited by the sector law, the Electronic Communications Act, 2005 (ECA).
ICASA itself is a sort of ‘quango’, a quasi-autonomous non-governmental organisation, a hybrid organisation with the independence given to it under section 192 of the Constitution to regulate broadcasting in the public interest. Although ICASA falls within Chapter 9 of the Constitution and would ordinarily be considered to be one of the super-agencies of government such as the Human Rights Commission, the Gender Equality Commission, the Public Protector and the Auditor-General, ICASA’s powers are created by statute and limited in ambit. It is required to be independent of political or commercial influence, and to act always with the public interest as its goal, but the type of independence foreseen for ICASA cannot be equated with the independence expected of the other Chapter 9 entities.
This is because various provisions in the ICASA Act limit its independence; its funding is approved by and channelled through the Minister, and the mechanism for the appointment of councillors is another reason why it is not considered to be a true Chapter 9 institution.
Regulating in the public interest
ICASA’s duties and powers are set out in detail in the ECA which, together with the ICASA Act, 2000, create this statutory entity. But for the powers vested in it through these Acts (and of course, its accountability under the Promotion of Administrative Justice Act, 2000), ICASA cannot function.
ICASA’s duties must be carried out in accordance with the objectives in the ECA. It must promote competition within the ICT sector, ensure that broadcasting is representative of the diverse interests of the public, promote innovation, conduct research, encourage investment in the sectors it regulates, promote the universal provision of electronic communications networks and services and connectivity for all, ensure the provision of a wide variety of qualify services at reasonable prices, and promote an environment of fair and non-discriminatory access to broadcasting and telecommunications services and networks. These are very similar obligations as would be expected in any other regulated sector and many of them are applicable to ICASA in relation to the regulation of the postal sector as well.
Over time, the Constitutional imperative to create a regulator to regulate broadcasting ‘in the public interest’ has been extended in primary law to telecommunications (or electronic communications services, as it is described in the ECA) and postal services. In the ICT sector, this phrase has yet another connotation. It means more than ensuring that consumers can access independent television and radio channels or cheap phone services, it means addressing the genuine needs of the population that encompass connectivity, social connectedness in the sense of being able to make and receive calls and other forms of communication; access to programming on the radio and on television of interest to local communities, reflecting their culture and preferences; and interaction by the public with the State in an efficient and effective manner, using digital technologies.
In practise, these elements of the public interest are not yet within reach for the majority of the population. Although it is true that mobile penetration, for example, meaning the number of mobile phones active in South Africa, is in excess of the total population, this does not mean that every person has a live connection to a communication device. It certainly does not reflect the true state of broadband accessibility nationwide. But in a country where access to fresh water and sanitation and even basic education is limited, and when electricity does not exist or is not reliable in many areas of the country, a data connection might be fairly low on the list of priorities for many citizens.
Data, competition, and regulation
South Africa is not short of national policies that spell out these goals. However, the will to execute and the funding for new projects to extend connectivity to all parts of the country and provide affordable services over affordable devices, is at an all time low. Those operators that can afford to meet these needs are understandably more interested in profit centres – those densely populated areas which offer the highest ARPU and drive demand. Smaller operators that cannot afford to or are less able to meet those needs are, as a matter of fact, not protected or enabled by pro-active regulation to achieve the sort of scale needed to compete effectively. Without adequate scale, the level of competition from smaller operators is limited by their high unit cost.
COVID-19 has no doubt hampered the rollout of data networks considerably, and to some extent dampened demand as job losses and the state of the economy take their toll on disposable income, but there are questions to be asked of our regulators and our government when it comes to the state of competition in the ICT sector, and the public interest.
While the Competition Commission (which has concurrent jurisdiction over the ICT sector as it does for every other sector in the country) has made certain findings about competition in relation to data prices and extracted promises from large and small operators in relation to prices and accessibility, many of its findings will need to be implemented by ICASA to take effect. ICASA has undertaken its own inquiry into the state of competition in the broadband market more generally, but after several years, has yet to produce a final report or begin taking any action at all in this regard.
On the face of it, in order to to extend connectivity to the public to mitigate the spread of COVID-19, ICASA has given high value spectrum bands to a limited number of operators without a public process, auction or other significant formalities. No fees are payable for the spectrum (despite the prospect of raising billions of rand for it in an auction later in the year), and it is subject to limited conditions of use; the most important being that it be returned to the national plan within a few months. Investment in networks to support use of this spectrum has, beyond any shadow of doubt, entrenched the operators’ rights to hold on to it, and we are far from seeing the end of or even a significant reduction in the spread of coronavirus in South Africa.
Access to this scarce resource increases the market power of those operators, with an effective decrease in their costs equivalent to any licence fee. It remains to be seen whether access to data services will increase, and whether prices of data services can in these circumstances, actually decrease.
2020 will be an interesting year for regulation and for the sector in general.
This article is not legal advice. It is published for your interest only and to stimulate debate, and may not be relied upon or quoted without the author’s express permission.