Telkom wants a drastically different approach to future spectrum allocation than its bigger rivals, MTN and Vodacom, arguing in a submission to government that all unassigned high-demand spectrum — spectrum that can be used to build mobile broadband networks — should be allocated to a planned wholesale open-access network (Woan).
In its submission to the department of telecommunications & postal services on the controversial Electronic Communications Amendment Bill, Telkom said no unassigned high-demand spectrum should be allocated to entities other than the Woan. This is in sharp contrast to MTN’s submission, which argued that such a move would damage the industry and harm consumers. Vodacom is believed to hold a similar view to MTN.
Government wants to create the Woan, to be owned by a consortium of private-sector players, to minimise the duplication of infrastructure and instead encourage competition in services. Critics, including MTN, the Free Market Foundation, the GSM Association and Research ICT Africa, have warned that this will lead to the creation a monopoly infrastructure provider to the detriment of both consumers and operators.
Telkom, which is South Africa’s smallest mobile network operator, and which lacks the capital budgets of its bigger rivals, said the Woan is an “ideal vehicle to level the playing field in mobile communications and challenge the power of the current duopoly”.
“It should be designed in a manner that will lower the barriers to entry for smaller operators to effectively compete with Vodacom and MTN,” it said in its submission.
“For example, through the Woan, smaller players will be able to expand their network coverage without incurring the associated capital expenditure, especially in rural areas. It further presents the possibility for obtaining network capacity more cost effectively.”
(Telkom has shared the executive summary of its submission with TechCentral, but not the full document. It has also shared a detailed economic report prepared by Econex, a consulting firm, on which it has based its submission.)
“To ensure the viability of the Woan, Telkom supports the policy that all unassigned high-demand spectrum should be assigned to the Woan,” Telkom said. However, like MTN, it has warned that government should not force operators to return spectrum already allocated to them as this will “negatively affect investor confidence and hinder future network expansion”.
Econex has argued in its report, included with Telkom’s submission to government, that the proposed Woan is “a more favourable outcome than a spectrum auction in terms of the impact on the economy and competition”. Communications regulator Icasa favours an auction, while government does not — the two are locked in a court battle over the former’s plan to push ahead with an auction.
“A spectrum auction would result in the incumbents — which have deeper pockets than smaller players — obtaining the most valuable spectrum bands,” Econex said. “This will further increase their market power and entrench the existing market structure.”
A move towards service-based competition — and away from network competition — will favour smaller players and create a more equal playing field in the longer term, it said.
“An important benefit of the Woan is that it creates a fair way of allowing operators to access the currently unassigned high-demand spectrum, and its outcome should be compared to the most likely alternative, which is an auction where the most valuable spectrum bands would be assigned to the highest bidder.” A spectrum auction, Econex said, would entrench the dominance of the two biggest players, which together enjoy more than 80% revenue market share.
“The creation of the Woan will stimulate service-based competition as smaller players will not be hampered by the need for extensive investment in infrastructure. This will increase competition in these markets and will eventually lower prices to consumers.”
It said the proposed Woan is “attractive in the sense that it provides a way for mobile operators to obtain access to bandwidth in a manner that does not entrench the existing duopolistic market structure”.
“It has the potential to encourage service-based competition in the retail market, but the benefits of more competition downstream can easily be eradicated by creating a monopoly (albeit regulated) at the wholesale level,” it cautioned. “It is therefore imperative that existing assignments of high-demand spectrum should not have to be returned to the state.”
Meanwhile, Telkom has also come out in support of government’s plan to introduce a regime of “open access” in mobile communications, something which MTN, in its submission, has heavily criticised. Under this regime, licensed operators, including the Woan, could get access to other operators’ infrastructure at cost-based prices. Telkom has, however, spoken out against a similar policy being applied to fixed-line infrastructure, where it said there is “already effective competition”.
“Telkom supports the application of open-access principles in the mobile context, including cost-based pricing,” it said. “This will decrease mobile network expansion costs and facilitate service-based competition.”
Econex, in its report, said that if all unassigned high-demand spectrum is given to the Woan, it will allow it to “achieve more favourable economies of scale than the other mobile network operators and hence allow it to offer its wholesale services at a lower rate”.
‘Reduce the costs’
“If the Woan is able to lease physical infrastructure from existing network operators on a wholesale basis and at cost-based pricing, it will not need to incur considerable network investment. This will further allow it to reduce the costs associated with establishing its network.”
It should, if it has a single, contiguous chunk of sub-1GHz spectrum, be able to roll-out its network in rural areas at a lower cost than commercial operators, too.
“Through open access, it should also be able to rely on radio access network sharing as a means of lowering its costs in these areas. Despite this, the Woan will likely have to substitute these areas with income from more densely populated regions and will have to make sure that its network and population coverage targets allow a viable business case,” Econex said. — © 2018 NewsCentral Media