AUTOPAGE CELLULAR

PRESENTATION

To

PARLIAMENTARY PORTFOLIO

COMMITTEE ON COMMUNICATIONS

17 AUGUST 2005

Autopage Cellular welcomes this opportunity to present to the

Members of the Portfolio Committee on Communications

Full details of Autopage Cellular and other Altech companies

which may be affected by the Convergence Bill, are included in

our written submission

We have included the contents of this presentation together with

Altech Annual Report for your further information

We progress to our commentary on the Draft Bill.

IntroductionIntroduction

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(a) “Promote and facilitate the convergence of telecommunications and broadcasting signal distribution”

In the telecommunications area, this primarily means the competitive

bundling of communications services such as cellular, fixed line and

broadband internet access

In many European markets, this is achieved by independent Virtual

Network Operators (VNO) which combine services from various

operators to provide competitive offerings to consumers

VNO’s purchase wholesale minutes and access in bulk from various

operator networks, and resell these services competitively in bundled

and re-tariffed forms to the market

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(a) “Promote and facilitate the convergence of telecommunications and broadcasting signal distribution”

VNO’s have the ability to bill, re-tariff and service their own

subscribers, and usually have extensive sales and distribution

channels

VNO’s are natural convergence entities

As the largest independent service provider in the cellular industry,

Autopage Cellular is highly capable of graduating to a VNO role in the

industry.

Autopage has 500 000 post-paid subscribers in the cellular industry,

from all three networks: Cell C, Vodacom and MTN.

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(c) “Encourage investment and innovation in the Communications Sector”

(e) “Promote competition within the Communications Sector”

The de-regulation of the sector and the promotion of competition are

critical to opening the sector to new players, technologies and

investment, resulting in better, more competitive and widespread

communications services

A concern with the draft Bill, is that it seeks to broaden the license base

by bringing a number of new license categories: -

- “Communications Service Licenses” (CSL)

- “Application Service Licenses” (ASL)

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(e) “Promote competition within the Communications Sector”

but effectively renaming a category for existing incumbents

“Communications network service licenses” i.e. Telkom, Vodacom,

MTN, Cell C, Sentech, WBS and USALS.

The effect is to discourage the entry of new investors into the

telecommunications sector at Network Operator level, preventing

rollout of innovative services such as wireless broadband, VOIP, and

self-provision of facilities by CSL (including existing VANS).

The effect is also to over-license and over-regulate a competitive

market at the Application Service Licenses level. (ASL)

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(e) “Promote competition within the Communications Sector”

Communications Service licensees (CSL) gain licensed recognition, but

no further rights and obligations, which would permit them to:

- Interconnect to other CNSL

- Have their own number range

- Have the ability to obtain approval of tariffs by the Authority

- Have the right to self-provide

Regrettably the result is to further stifle innovation and investment

through litigation and disputes, rather than to de-regulate the sector

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(f) “Promote an environment of open, fair and non-discriminatory access to communications networks”

Together with (b) “universal connectivity …”

(g) “empowerment of HDI persons …”

(n) “promote consumer interests …”

These objectives would be served by a healthy, competitive and lightly-regulated

market

De-regulation of the telecommunications sector, particularly at the CNSL and

CSL levels will lead to:

- greater competitiveness

- wider availability of communications services

- affordable and accessible communications for consumers

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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(f) “Promote an environment of open, fair and non-discriminatory access to communications networks”

New ventures will allow for further incorporation of empowerment at all

levels

o The Altech Group and its subsidiaries including Autopage Cellular

fully support empowerment in its many facets

o The Altech and Altron Groups have demonstrated a proud track

record of successful BEE partnership and broad based

empowerment achievements

o Autopage Cellular is proud to count among its staff, significant and

targeted demographic representation

Objectives Of The ActObjectives Of The Act

Commentary on certain key objectives:

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Licensing Framework – Chapter 3

3 levels of licensing are envisaged in the Bill

i) Communications Network Services Licenses (CNSL)

ii) Communications Services Licenses (CSL)

iii)Applications Service Licenses (ASL)

Specific concerns with CNSL

o Designed to limit licenses to existing incumbent operator licenses

currently in place

o It is clear that any new applications for CNSL will be protracted and

discourage new investment and innovation at this level in the industry

Licensing Framework - Licensing Framework - CommentaryCommentary

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Licensing Framework – Chapter 3

Many privileges and obligations attach to CNSL, which are not available to

smaller industry players: -

i) Provision of infrastructure – particularly wireless

(This can revolutionize penetration through fast deployment and low

capital cost)

ii) Interconnection

Prevented and over-regulated even between CNSL players

If relaxed, would allow pervasive and free communication between

licensees (CSL,CNSL)

Licensing Framework - Licensing Framework - CommentaryCommentary

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Licensing Framework – Chapter 3

Access and rights to Radio Spectrum

- As proposed, this is also restricted to existing Operator licensees

- Also prevents investment in and deployment of innovative wireless solutions

- This stifles innovation and makes further investment complex and difficult

Communications Facilities Provision and Leasing

- A limited number of CNSL players will force an oligopolistic market to develop

in the provision of leased facilities

- A competitive market is essential to cut the ultimate cost and availability of

communications to the consumer

Licensing Framework - Licensing Framework - CommentaryCommentary

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Case 1: Wireless infrastructure provision

The process of obtaining CNSL needs to be opened up to allow for more and easier

licensing

- Specifically point-to-point and point to multi-point wireless where deployment is

rapid and capital cost is low

- Existing and Future VANS, fall into the category CSL

They must lease capacity which limits their ability to compete effectively

- Broadband Wireless infrastructure would need CNSL licensing to gain access to

radio spectrum in terms of the Bill

New investment in this sector is stifled by the Bill. The process of licensing would

be protracted and slow

Conclusion:

The Bill should seek to de-regulate telecommunications, rather than entrench

existing CNSL players

We illustrate our case for de-regulation as follows:

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Case 2: Virtual Network Operators (VNO)

- This model is becoming increasingly popular internationally. VNO’s are ideally

suited as convergence players, as well as promoting competition through own

tariffs and bundling. VNO’s purchase wholesale services from CNSL licensees

and resell services to the public

1. Typically VNO’s do not own or operate extensive Network facilities, but require

the following CNSL rights and obligations:

2. Interconnection rights to CNSL licensees

3. Own Number range (subject to NP)

4. Right to submit own tariffs to the Authority

5. Right to wholesale tariffs and facilities (CSL)

6. Self provisioning of wireless or cable infrastructure

We illustrate our case for de-regulation as follows:

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Examples:

Typically highly successful VNO’s are:

Tele 2 AB:- A Swedish VNO operator in 23 European Countries (Revenues of SEK 36.9 billion and 22 million subscribers)

Virgin Mobile: - Highly successful UK VNO operator with 4million subscribers- Also Virgin/Sprint - USA (2million subscribers)- Virgin/Optus - Australia (600 000 subscribers)

Debitel:- A successful European VNO operating in 5 countries (Revenues of €3 billion and 10.4 million subscribers)

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Fixed Line

Mobile Mobile Broadband

VNO – Concept Diagram

Subscribers

VIRTUAL NETWORK OPERATOR

Switch(Optional)

Interconnection rights to other

networks

Own number range

Own tariffs and bundling

Right to wholesale

tariffs and facilities

Self provisioning rights

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Case 2: Virtual Network Operators (VNO)

Conclusion:

VNO players are well-suited to introduce greater telecommunications

competitiveness. Existing independent cellular Service Providers such as

Autopage Cellular are well-suited to become VNO’s.

We illustrate our case for de-regulation as follows:

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Differences between SP and VNO:

Category Service Provider SP/ESP

Virtual Network Operator (VNO)

Statutory Contract with Network/s

Licensed by law

Tariffing “One line, One tariff” Own tariffs and bundling (ICASA)

Wholesale traffic Discount on Network Tariffs

-outgoing calls only

Wholesale rate per minute

-Outgoing calls

-Incoming calls

Subscriber Interconnect

Through Network and Telkom

Direct to Network (Interconnect)

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Differences between SP and VNO:

Category Service Provider SP/ESP

Virtual Network Operator (VNO)

Handset Incentives Network and own funds

VNO funds

Number Range Allocated by Network (subject to NP)

Allocated by license to VNO (subject to NP)

Self-Provisioning Channels

NO YES

Switch Interconnect Traffic

NO YES (Optional)

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The Convergence Bill seeks to entrench existing CNSL players

It defeats its own objective of “Promoting Competition within the sector.”

And

“Encouraging investment and innovation in the communications sector”

It over-regulates by excessive layers of licensing without providing commensurate

additional rights

It should be restructured to de-regulate telecommunications and to encourage a

vibrant and competitive industry

As drafted, it has failed to do this

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Conclusions:

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THANK YOU

G. Passmoor S.R. Blewett

Group Executive Managing Director

Altech Autopage Cellular