ELECTRONIC COMMUNICATIONS Bill

Presentation to the Select Committee on Labour & Public

Enterprises NCOP29 November 2005

Background: an improved ECB

MTN raised concerns with PPCC that the competitive mobile market was treated like the fixed-line monopoly market simply because both were “infrastructures”.

We submitted that regulating infrastructure, per se, leads to: Onerous access obligations on the competitive mobile investment. Disincentive to investment in network coverage and density by

infrastructure licensees. Encouragement of free-riding. Less scope for differentiation and so less competition!

We suggested this be addressed by linking regulatory intervention to the degree of competition in a given market through a competitive analysis process; and so differentiates fixed from mobile.

MTN is pleased that revisions in ECB, especially Chapter 10, have cleared much of the confusion between

regulating the fixed-line monopoly and the competitive mobile market.

Current complexity of intervention process in Chapter 10

THE PROCESS CAN BE SIMPLIFIED TO PROVIDE INVESTMENT CERTAINTY AND ENSURING THAT INTERVENTION IS DRIVEN BY

ROBUST ANALYSIS

IF lack of Effective Competition IN pre-defined markets

THEN deploy pre-defined remedies ON SMP operators

A firm has SMP if:- It is dominant or - It controls E.F. or- It has harmful

vertical relationships

A firm is Dominant if::- It has > 45% M.S. or - It has >35% and

<45% MS unless it shows it does not have MP

- It has <35% MS but has MP

A firm has Market Power (MP) if it has the power to control prices, or to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers

An essential facility means a communications facility or combination of facilities that is exclusively or predominantly provided by a single or limited number of licensees and cannot feasibly (whether economically or technically) be substituted or duplicated by competitors in order to provide a service in terms of this Act

• The non-transitory (structural, legal or regulatory) barriers to the applicable market or market segment; and

• The dynamic character and functioning of the subject markets or market segments

Criteria to take account of:Relative market shares; forward looking assessment of the market power of each player; actual or potential existence of competition; the level, trends of concentration and the history of collusion in the market; the overall size of each participant; control of essential facilities, […]

Criteria to take account of:

1. Obligations to act fairly and reasonably for access, provisioning of services, i/c/ and FL

2. timely compliance with licence obligations and remedies

3. Non-discrimination4. Transparency5. Obligations to publish Ts&Cs6. a/c separation7. a/c method obligations8. Price controls 9. cost orientation10.Must carry11.Record keeping

‘vertical relationship’means the relationship betweena firm and its suppliers, its customers, or both.“harmful” not defined

A few critical issues can easily be addressed

MTN believe that the ECB can be made a very effective piece of legislation by addressing 5 specific issues:1. Providing ICASA with guidance on how to select and define

markets. eligible for intervention so the scope of ex-ante regulation is clear to all and sundry.

2. Providing unequivocal definition of the SMP threshold so intervention can be applied quickly to the right players.

3. Linking a number of obligations to competitive analysis (Chapter 10) so regulation is always driven by the finding of market failure.

4. Ensuring proportionality of remedies so we avoid under or over-regulating the sector.

5. Proper definition of interconnection to minimise scope for disputes.A SMALL NUMBER OF EDITORIAL AMENDMENTS CAN

BE USED TO ADDRESS THESE ISSUES AND ENSURING THAT THE ECB DELIVERS ITS OBJECTIVES.

•ISSUE 1: Proper definition of interconnection to minimise

scope for disputes

Interconnection

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad Interconnection:

“Interconnection” means the physical or logical linking of two or more communications networks, communications services, broadcasting services, services provided pursuant to a licence exemption or any combination thereof.

"interconnection" means the physical or logical linking of two or more electronic communications network services.

MTN believes interconnection is a matter of networks, not services (for the latter, interoperability is a more appropriate concept). While MTN supports the policy objective of any-to-any communications, MTN does not believe it appropriate or proportionate for, say, SMS services to be able to inter-operate with every other voice, data or video services offered in the country. Service innovation may be seriously hampered if any new service launched by an SMP operator needs to have all the interfaces with all other existing communications services built-in.

Interconnection

CHAPTER 7INTERCONNECTION

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad s37(1): Obligation to interconnect:Subject to section 38, any person licensed in terms of Chapter 3 must, on request, interconnect with any other person licensed in terms of this Act and persons providing services pursuant to a license exemption in accordance with the terms and conditions of an interconnection agreement entered between the parties, unless such request is unreasonable.

Subject to Section 38, any network service licensee must, on request, interconnect with any other network service licensee in accordance with the terms and conditions of an interconnection agreement entered between the parties, unless such request is unreasonable.

This change flows through from the new recommended definition.

•ISSUE 2: Providing ICASA with guidance on how to select and define markets eligible for regulation so the scope of ex-ante regulation is clear to all

Market definition

CHAPTER 10COMPETITION MATTERS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad s67(4(a): Competition Matters: The Authority must prescribe regulations defining the relevant market and market segments as applicable, that pro-competitive conditions may be imposed upon licensees having significant market power where the Authority determines such markets or market segments have ineffective competition. The regulations must, among other things:(a) define and identify the retail and/or wholesale markets or market segments in which it intends to impose pro-competitive measures where such markets are found to have ineffective competition.

4) The Authority must prescribe regulations defining the relevant market and market segments as applicable, where pro-competitive conditions may be imposed upon licensees having significant market power if the Authority determines such markets or market segments have ineffective competition. The regulations must, among other things:(a) using established market definition methodologies in competition law and subject to subsection 6 (a), define and identify the retail and/or wholesale markets or market segments in which it intends to impose pro-competitive measures where such markets are found to have ineffective competition.

MTN believes it is critical to apply economic methods to the definition of relevant markets such that the analysis effective competition and SMP is carried out in economically meaningful markets and not, for example, regulatory taxonomy. MTN’s concern is that unless market definition is guided by established principles of demand/supply substitutability, regulations under this Act may be driven by inappropriately wide or narrow market definition and therefore, erroneous or ineffective.

Market definition

CHAPTER 10COMPETITION

MATTERSRelevant Bill Section Proposed Amendment (in

red)MTN Rationale

Ad s67(6)(a) Competition Matters:The methodology contemplated in subsection 4 (b) must include but is not limited to an assessment of the following.(a) when defining the relevant market or market segment, the Authority must consider the non-transitory (structural, legal, or regulatory) entry barriers to the applicable markets or market segments; and the dynamic character and functioning of the subject market or market segment.

6) The methodology contemplated in subsection 4 (b) must include but is not limited to an assessment of the following.(a) when electing the relevant market or market segment, the Authority must consider the non-transitory (structural, legal, or regulatory) entry barriers to the applicable markets or market segments; the presence of vertical relationships that could harm competition in the market; the presence of essential facilities and the dynamic character and functioning of the subject market or market segment.

MTN believes the criteria described in (6) a) have to do with the eligibility of certain markets for pro-competitive conditions (ex-ante regulation) rather than the definition of such markets.MTN fully supports the application of criteria for eligibility of markets for ex-ante regulation so the scope and role or ex-ante V ex-post intervention is clear to all licensees and regulatory Authorities. However, it believes vertical relationships or essential facilities are relevant criteria to select markets eligible for regulation, NOT define SMP (see next issue).

•ISSUE 3: Providing unequivocal definition of the

SMP threshold so intervention can be applied quickly to the

right players

SMP definition

CHAPTER 10COMPETITION

MATTERSRelevant Bill Section Proposed Amendment (in

red)MTN Rationale

Ad s67(5)(c) Competition Matters:A licensee has SMP with regard to the relevant market or market segment where the Authority finds that the particular individual licensee or class licensee:

a)is dominantb)has control of essential

facilities; orc)has a vertical relationship

in the market or market segments that the Authority determines could harm competition in the market or market segment applicable to the particular category of licence.

A licensee has SMP with regard to the relevant market or market segment where the Authority finds that the particular individual licensee or class licensee

a) is dominant; orb) has control of essential

facilities; orc) Has a vertical relationship

in the market or market segments that the Authority determines could harm competition in the market or market segment applicable to the particular category of licence.

MTN believes the (undefined) notion of “harmful vertical relationship” is likely to be problematic and challengeable when declaring operators with SMP and so cause ambiguity and delays when deploying intervention.Similar issues are likely to arise with “essential facilities”.MTN therefore proposes to reduce the definition of SMP to equate “dominance” and therefore better align the Sector Regulatory Framework with generic Competition Law.It suggests using the concept of vertical integration and essential facilities to chose markets eligible for regulation (see previous issue relating to S.67 (6) a))

•ISSUE 4: Linking a number of obligations to competitive analysis ( Chapter 10) so

regulation is always driven by a market failure

Linking intervention to market analysis (I)

CHAPTER 3LICENSING FRAMEWORK

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad s8(2)(e) on Terms and Conditions for Licenses:S(8)(2)(e)….the public interest in ensuring service inter-operability, non-discrimination and open access, interconnection and facilities leasing.

Subject to Chapter 10, the public interest in ensuring service inter-operability, non-discrimination and open access, interconnection and facilities leasing.

MTN believes obligations to provide interoperability, non-discrimination and access, interconnection and facilities leasing ought to be considered special conditions to remedy competitive failures – and should therefore be subjected to the competition analysis

described in Chapter 10.

Linking intervention to market analysis (II)

CHAPTER 7INTERCONNECTION

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad s42(1): Carrier pre-selection:(1) The Authority must make regulations: a) defining the communications services subject to carrier pre-selection; and […]

(1) Subject to Chapter 10, the Authority must make regulationsa) defining the communications services subject to carrier pre-selection; and […]

MTN believes carrier pre-selection is a remedy that may be deployed to correct a serious market failure in the origination of voice calls, as may be the case in the current fixed monopoly. A market analysis establishing lack of effective competition in the origination of voice calls, identifying firms with SMP in this markets and stipulating that CPS is a proportionate remedy to the market failure thus identified is required for the Authority to be able to stipulate the communications services that should be subject to CPS.

Linking intervention to market analysis (III)

CHAPTER 8ELECTRONIC COMMUNICATION FACILITIES LEASING

Relevant Bill Section Proposed Amendments (in red)

MTN Rationale

Ad ss43(8) and 43(8)(a): Obligations to lease communications facilities:(8) The Authority must

prescribe the list of an essential facilities including but not limited to

a) electronic communications facilities, including, without limitation local loops, sub-loops and associated communications facilities for accessing subscribers and provisioning services; and

b) electronic communications facilities connected to international communications facilities such as submarine cables and satellite earth stations.

(8) Subject to Chapter 10, the Authority must prescribe the list of essential facilities including but not limited to: a) electronic communications facilities, including, without limitation fixed local loops, sub-loops and associated communications facilities for accessing subscribers and provisioning services; andb) electronic communications facilities connected to international communications facilities such as submarine cables and satellite earth stations.

MTN believes communications facilities leasing is a remedy that may be deployed to correct a serious market failure in the fixed access or leased lines markets, as may be the case in the current fixed monopoly.A market analysis establishing lack of effective competition in the provision of fixed access or leased lines, identifying firms with SMP in these markets and stipulating that facilities leasing is a proportionate remedy to the market failure thus identified is required for the Authority to be able to stipulate the communications services that should be subject to facilities leasing obligations.

•ISSUE 5: Ensuring proportionality of remedies so

we avoid under or over-regulating the sector

Proportionality

CHAPTER 10COMPETITION

MATTERSRelevant Bill Section Proposed Amendment (in

red)MTN Rationale

New paragraph 6 in s67 Competition Matters:

(6) Where the Authority imposes pro-competitive conditions under this section, such pro-competitive conditions must be proportional to address the level of ineffective competition which the Authority has determined exists in the relevant markets or market segments.

MTN believes it is essential that regulatory proportionality be introduced in the ECB so the Sector does not risk under- or over-regulation.It believes proper regulation must be proportionate to the seriousness of the market failure being addressed through intervention.

CONCLUDING REMARKS

South Africa is close to embracing a world class regulatory framework The ECB is a few amendments away from being a highly

effective and robust piece of legislation.

MTN’s proposed amendments are driven by a desire to ensure regulation is deployed quickly and fairly when market failure is established – not by self-interest.

This is because MTN believes in competition, rather than regulation to deliver government objectives, but also acknowledge the role of regulation when markets alone fail to deliver.

ADDITIONAL IMPROVEMENTS

PROPOSED AMENDMENT

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad New Addition "indirect access" means the ability of a subscriber of a voice communications service to access the communications services of another voice communications service licensee;

MTN believes carrier pre-selection is very specific wholesale switched voice service whereby a user is automatically routed to the network of a different provider of voice services (eg. for long distance calls) without having to dial a prefix.

MTN believes CPS is therefore a subset of methodologies available to enable a firm to offer voice services to customers linked to another firm’s infrastructure, known as indirect access. Indirect access methodologies include:- Call by call carrier selection- Carrier pre-selection.

PROPOSED AMENDMENTS

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad Carrier Pre-Selection:

“Carrier pre-selection” means the ability of a subscriber of a communications service to access the communications services of another communications service licensee

"carrier pre-selection" is a special form of indirect access whereby the subscriber of a voice communication service is automatically routed to the network of a different voice provider without having to dial a prefix.

See rationale under indirect access.

PROPOSED AMENDMENTS

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad Electronic Communications Network Service:

“Electronic Communications Network Service”: a service whereby a person ,makes available a communications network whether by sale, lease or otherwise: a) for that person’s own use for the provision of an electronic communications service or broadcasting service.

“Electronic Communications Network Service”: a service whereby a person ,makes available an electronic communications network whether by sale, lease or otherwise: a) for that person’s own use for the provision of an electronic communications service or broadcasting service.

MTN believes the current definition is repetitive.

PROPOSED AMENDMENTS

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

b) to another person for that person’s use in the provision of a communications service or broadcasting servicec) for resale to an electronic communications service licensee, broadcasting service licensee or any other service contemplated in this Act.

b) to another person for that person’s use in the provision of an electronic communications service or broadcasting service or any other service contemplated in this Act.c) for resale to a communications service licensee, broadcasting service licensee or any other service contemplated in this Act.

PROPOSED AMENDMENTS

CHAPTER 1DEFINITIONS

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad Electronic Communications Service: “Electronic Communications Service”: means any service provided for remuneration to the public, sections of the public, the State, or the subscriber to such service, which consists wholly or mainly of the conveyance by any means of communications over communications networks but excludes broadcasting services.

“Electronic Communications Service”: means any service provided for remuneration to the public, sections of the public, the State, or the subscriber to such service, which consists wholly or mainly of the processing or conveyance by any means of communications over communications networks but excludes broadcasting services.

MTN believes the current defining is too narrowly focused on transport (whereas access provision, switching, protocol conversion, data processing are also communications services in their own right).

PROPOSED AMENDMENTS

CHAPTER 12CONSUMER ISSUES

Relevant Bill Section Proposed Amendment (in red)

MTN Rationale

Ad s69: Code of Conduct and Subscriber Service Charter:New addition

New subsection (7) the regulations mentioned in subsection (1) and (3) must ensure the required code of conduct and subscriber service charter do not place undue burden on the licensees (or persons exempt from holding a license as provided for in section 6) and are the minimum necessary to address the object of this Act.

MTN fully support the recourse to codes of practice and subscriber charters to ensure quality of service and treatment to South African communications subscribers. Ideally, these should emerge from self-regulation rather than intervention. However, MTN believes that if such regulations are introduced, they should be reasonable and proportionate to the objectives of the Act.