SOUTH AFRICA TELECOM REGULATOR CONSULTS WITH

UNCLAS SECTION 01 OF 03 PRETORIA 004937 SIPDIS SENSITIVE SIPDIS FCC FOR PBOATENG E.O. 12958: N/A TAGS: ECPS EINV ECON SF SUBJECT: SOUTH AFRICA TELECOM REGULATOR CONSULTS WITH FCC SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY. NOT FOR INTERNET DISTRIBUTION. REF: (A) PRETORIA 3001 (B) PRETORIA 1441 ¶1. (SBU) SUMMARY. Three FCC advisors met with telecommunications regulator ICASA (Independent Communications Authority of South Africa) to provide technical advice on competition and pricing during September 28-30. FCC presentations covered US regulations and policies regarding pricing and fostering competition. ICASA is regarded by the telecommunications industry as a weak regulator unable to develop meaningful competition to the monopoly provider Telkom. FCC and ICASA concluded that they would continue to consult on the development of competitive alternatives to Telkom and, strengthening ICASA's capacity. END SUMMARY. ¶2. (U) At the request of the Independent Communications Authority of South Africa (ICASA, the telecommunications regulator),a team of three senior officials from the Federal Communications Commission (FCC) traveled to Johannesburg September 28-30 to provide advice on regulatory matters. The FCC team included Advisor for Africa and the Middle East Patrick Boateng, as well as Senior Advisor Jake Jennings and Senior Economist Chuck Needy of the Office of Strategic Planning and Policy Analysis. Participating from ICASA were five of seven Councilors (equivalent to FCC Commissioners),technical and policy experts from ICASA, telecommunications industry representatives, Department of Communications (DOC) policy officials, and two Parliamentarians from the Portfolio Committee on Communications. FCC presentations included unbundling the local loop to promote competition, pricing models for fixed and mobile services, as well as regulating undersea cable, broadband services, voice- over-Internet protocol (VoIP),and inexpensive Internet for schools. ¶3. (U) The top priority for ICASA was to address the public outcry over high telecommunications prices. According to a market assessment study completed by Genesis Analytics in April 2005, telecommunications prices in South Africa were considerably higher than developed countries and most countries in its peer group. Out of ten categories surveyed, prices in South Africa ranked the highest in the following five categories: international leased lines, business-local calls, business-ADSL, retail-ADSL, and domestic leased lines. South African prices ranked second highest in business-mobile calls. (Ref A). ¶4. (U) In advance of the FCC visit, ICASA conducted a needs assessment to identify areas for discussion. The assessment identified five topics: VoIP regulation and access to emergency services, broadband regulation in general, pricing for telecommunications services, universal access (with particular emphasis on the implementation of the education-rate),and regulation of inappropriate content on mobile telephones. In addition, the FCC team met with ICASA Councilors before starting the two and a half day consulting session to better understand ICASA needs. Industry Views -------------- ¶5. (SBU) Industry representatives from Motorola, IBM, and WorldSpace also met with the FCC team before its consulting session with ICASA to identify areas where ICASA needed assistance. Also participating in this meeting were a former Chief Operating Officer for Telkom (from SBC) and a legal advisor to a former ICASA Chairperson. To a person, they each expressed frustration in their dealings with ICASA, an agency they criticized as being weak and incapable of fulfilling its mandate. Industry representatives also characterized ICASA as becoming increasingly politicized. As a case in point, they highlighted the compromise appointment of new ICASA Chairperson Parish Mashile, who they felt was inexperienced and probably incapable of providing the leadership needed to keep ICASA independent. ¶6. (SBU) Industry representatives also believed that PRETORIA 00004937 002 OF 003 the Minister of Communications held the balance of power on regulatory matters, and was pushing for even greater control. As it stood, ICASA was wholly dependent upon DOC for line item funding. Unlike the FCC, which derived more than 90% of its revenues from licensing fees and frequency auctions, ICASA was beholden to DOC for funding. This hamstrung its mission, left it chronically short of funds, and caused many experienced staffers to seek greener pastures. They also pointed out that, at the time, DOC was pushing for passage of the Convergence Bill, now called the Electronic Communications Bill (Ref B). The purpose behind this legislation was to make ICASA the sole regulator for telephony, post, Internet and data communications, as well as broadcast radio and television. However, a DOC-sponsored amendment to the bill could have the Minister of Communications appointing the ICASA chairperson and all ICASA councilors. This would threaten the independence of ICASA and further politicize the regulatory process. ¶7. (SBU) Industry representatives expressed support for the development of a strong regulator. However, frustrated with ICASA's performance, they seemed prepared to lobby DOC to achieve their individual objectives. They were aware that if they took this route, they risked marginalizing ICASA. Moreover, they believed that DOC possessed even less regulatory capacity than did ICASA. FCC Presentations -------------- ¶8. (U) The FCC team opened the session with an overview of the U.S. system. Boateng spoke about the FCC as an agency and its regulatory processes. Jennings spoke about the U.S. regulatory framework and FCC policy goals, as well as fostering local competition and the roll out of broadband in the United States. Jennings then led discussions on IP-enabled services (such as VoIP) and access to emergency services, as well as market power and market definition. Boateng led discussions on alternative broadband technologies (WiFi, WiMax, broadband over powerlines),as well as administration of the U.S. Universal Service Fund. Needy led a discussion on fixed line and mobile telephone pricing, as well as undersea cable access and regulation. Boateng concluded with a presentation on the administration of the U.S. Universal Service Fund. ¶9. (SBU) ICASA sought expert advice on developing regulation that would enable a Second National Operator (SNO) to compete against Telkom and on ways to increase competition. According to the FCC, ICASA could significantly reduce or eliminate the rates that Telkom charged for network access. One way would be for ICASA to use foreign prices as benchmarks for access to leased lines, interconnections, and switched access. Fostering Competition -------------- ¶10. (SBU) Fostering competition was a major concern of ICASA officials. South Africa had no coaxial cable television companies operating in its market and, therefore, this option for promoting competition was not viable. The most immediate option appeared to be Eskom, South Africa's giant parastatal electric utility, which owned its own telecommunications network as well as a power grid that could be used to transmit broadband. Eskom held a 30% share of the soon-to-be- licensed second national operator and a supplier relationship with municipal electric utilities that it could explore to role out local broadband services. [Note: In December 2005, ICASA finally issued a license to the second national operator (Septel). End Note.] Stronger Regulation Needed -------------- ¶11. (SBU) FCC and ICASA concluded that they would continue to consult on the following initiatives: the development of competitive alternatives to the dominant provider Telkom via wireless broadband (WiFi/WiMax) and broadband over power lines; the reduction of access rates through stronger regulation and the use of foreign prices as benchmarks; and, strengthening ICASA's capacity politically, financially, as well as PRETORIA 00004937 003 OF 003 operationally. The FCC advisors and ICASA participants independently reported that the exercise "exceeded expectations." ¶12. (U) Cable is based on FCC trip report. TEITELBAUM