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Spectrum allocation: a game of chess

outh Africa’s telecommunications watchdog – the Independent Communications Authority of SA (Icasa) – faces a moment of truth as it finally takes a long-awaited decision to deal with the allocation of radio frequency spectrum to telcos. By Gugu Lourie


The watchdog has the unenviable task of deciding which firm gets the much-needed spectrum that telcos require to deploy faster wireless broadband to all South Africans.

It is likely that interested parties, some whom have very deep pockets, will fight the regulator in courts if things don’t go their way.

Some background: Icasa on Monday published the long-awaited information memorandum relating to the licensing of the radio frequency spectrum to allow telcos to provide wireless broadband.

This process has been delayed for years.

Every telco wants equitable access to the resource. Behind the scenes many firms have been plotting to make sure they get their hands on it.

In a Government Gazette, published on 11 September 2015, Icasa proposes that spectrum allocation should be conducted via an auction process.

According to the International Telecommunications Union, the auctioning of spectrum licences is now a well-established practice in many countries and has been applied successfully in Nigeria. But some commentators argue that auctions cause bidders to overpay for licences and should consequently be avoided.

The watchdog says it will auction 700MHz, 800MHz and 2.6 GHz bands to enhance competition and to increase broadband coverage. Such a move would bridge the digital divide and remove broadband networks disparities between urban and rural areas.

Icasa favours the auction model adopted in Germany, which it claims led to wireless broadband or Long Term Evolution (LTE) services being available across the country in a period of less than two years.

Icasa is hoping to achieve same impressive results in South Africa. Icasa is also hoping that the auction of spectrum will give expression to the National Development Plan (NDP) that seeks to achieve universal access to broadband by 2030.

But as Morgan Freeman warns in the movie ShawShank Redemption: “Hope is a dangerous thing to possess and you can just hope forever, but sometimes hope is the only thing that can keep you going”.

Therein lies the biggest hurdle for the regulator.

It gives it an onerous task of balancing the objectives of the South African government contained in the National Development Plan (NDP) and the need to create competition, plus an environment that allows for investor confidence.

It’s not going to be an easy task to implement, especially because in the past Icasa has been found wanting many times.

If the auction goes ahead it will obviously result in the allocation of spectrum to the highest bidder. The assumption is that the investors would invest more in the rollout of the wireless broadband access, leading to cheaper broadband.

If Icasa gives the much-needed spectrum only to the highest bidder, the consequences could be dire.

The unintended consequences would result in over concentration of valuable spectrum for the rollout of wireless broadband being in the hands of few investors, who will require large returns to satisfy their shareholders.

This will cripple the NDP objective of universal access.

Interestingly, many years ago that was the same intention when the state allocated the bigger portion of high demand spectrum to Telkom, which then with British mobile giant Vodafone jointly owned mobile phone operator Vodacom.

Vodacom Container turned into a Base Station

Vodacom Container transformed into a Base Station (Photo Credit: Vodacom)

 

With the sale of Vodacom in 2008, Telkom pocketed the money and still had the balance of the bulk of the spectrum.

However, Vodacom is now trying to get some more of the much-needed spectrum from Neotel, the country’s second largest fixed-line telephone group.

Vodacom is in a process of buying Neotel from India’s Tata Communications.

What would ultimately emerge is a contested modality of allocation; courts would have to rule just as in the Altech case or the current mining debacles.

In 2008, the high court of South Africa ruled in favour of Altech that value-added service providers could build their own networks or lease these facilities from firms such as Telkom and took the decision making away from Icasa.

The controversy, which may lead to some disgruntled bidders going to court, is that the problem is going to be high demand spectrum, where there are rich pickings of LTE.

Presently, the bulk of 2GHz spectrum is owned by Telkom and the regulator will need to develop a strategy to equitably allocate it in order to create competition.

But while doing so, some smaller players who are not as cash flush as Vodacom, MTN or even Internet Solutions owned by Dimension Data and indirectly by Japan’s Nippon Telegraph and Telephone Corp would probably challenge the outcome in the courts.

What may complicate matters is that Icasa doesn’t have enough enforcement capacity.

Therefore, all the proposed obligations may come to naught.

The regulator intends to impose coverage obligations on winning bidders to provide coverage in less populated areas before they can be allowed to use the spectrum in more populated regions.

This is aimed at making sure that winning bidders don’t neglect rural areas in wireless broadband rollout.

Winning bidders for spectrum would also have a maximum of three years from the date the spectrum becomes available to provide services to all identified under serviced areas. Failure to do so would mean that the licence holder would be in serious breach of conditions.

But history has shown that Icasa is not good at monitoring obligations. It has failed dismally to ensure that universal service obligations are met by operators.

Clearly, the road to the allocation of much-needed spectrum via auction process is going to be a rocky one.

For now, champagne to celebrate a possible allocation of this scarce resource to benefit us should be stored away until further notice.  In that case we can hope that Icasa surprises all of us and deliver spectrum auction as “best practice” for assigning spectrum where demand exceeds supply.

 

 

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