South Africa Connect

this article originally appeared in Business Day on the 3rd of October 2008

IN THE momentous political events of recent weeks, the significance of the communications ministry’s decision to appeal against a recent high court ruling setting aside certain prohibitions in the telecommunications sector and the upholding of the automatic conversion of rights into the new licensing regime may have been lost.

Together with the department’s intention to amend the Electronic Communications Act, the window of opportunity opened by the ruling to reinvigorate the sector in time for 2010, and to revitalise the economy more generally, may be closed by the appeal.

With the bottom three quintiles of South Africans paying close to 20% of their income on communications, according to a recent national survey by Research ICT Africa!, against 5% in peer economies, consumers and businesses may well ask what drives the continued defence of the policy of “managed liberalisation”, of which high prices and poor access are the outcome.

The agreed policy time spans for protected monopoly and duopoly services have long come and gone, and the rationale for their protection is no longer justifiable, or their objectives were simply never met. Their retention, together with the extension of state cross-holdings not envisioned by policy and which have not been strategically deployed to meet the country’s growing communication needs, is reflected in the lagging penetration figures on international indices for internet and broadband — services so critical to the development of a modern economy.

More immediately, with the legal clarity provided by the ruling by Acting Judge Norman Davis on the action brought by Altech, one might ask why the government would plunge the sector back into limbo on what appear to be unclear legal grounds with the 2010 World Cup less than 20 months away. The appeal will immediately put on hold the licensing conversion process that the regulator Icasa, to its credit , set in motion immediately after the judgment. The proposed amendment will also open up the opportunity for a new round of legal challenges.

It was unfortunate that in the fanfare around this breakthrough judgment, it was presented as a victory of the industry over an intransigent communications ministry and an incompetent regulator. It was, in fact, a victory for the country as a whole, for independent regulation and for administrative justice — hallmarks of our sector policy and constitution.

Indeed, all parties should welcome the quality of the judgment and the long-overdue clarity it brought to a sector paralysed by indecision. There should have been no losers here. The carefully devised system of countervailing forces that safeguard fundamental rights and the process of administrative review prevailed. The judgment was the outcome of the system at work. It is not always perfect, but it is the best we have.

The ministry might argue that an appeal is the system at work too. Indeed, it is its right to have the decision of a court confirmed or overturned by another court. It is also its responsibility to consider if the decision has resulted in an injustice, and to whom. And importantly, to consider the consequences for this sector, plagued so long by uncertainty, of the further delays and new opportunities for legal challenges.

This is not to suggest that the situation the government finds itself in does not present a real dilemma. The government must be seen to uphold its commitments to investors, who have paid costly fees for the licences from which they extract their high rents, if it is to be credible.

On the other hand, the opening up of the sector to facilities-based competition, which the ruling enables, would undoubtedly better serve the consumer, which must be at the heart of any good government policy.

The further dilemma the government faces reflects the conflicts of interest that underlie many of the continuing legal contests within the sector over the past decade. The government is responsible for protecting the value of state assets in licences, some acquired through legislative fiat rather than within the policy and regulatory framework that structures the sector. The government, as representative of state enterprises in the sector, is also the institution responsible for policy that needs to safeguard wider sector interests, therefore also those of its competitors. From the licensing of Telkom, to its listing, to the granting of the second network operator licence and finally the establishment of Infraco, without any consultation or reference to existing sector policy, the structural conflicts of interest in the institutional arrangements and market structure have crippled the development of the sector.

Perhaps more unfortunate is that any considered assessment of the likely outcome of this ruling would have shown that few of those whose rights to construct networks were confirmed by the ruling will have the means or desire to do so.

The automation of the conversion of value-added network services licences into electronic communications network services licences under the new legislation enabled by the ruling would most probably stimulate activity in this critical segment of the sector of any network economy. This would probably to lead to greater demand for facilities from incumbents, who have had the advantage of being first to market. With their prices adjusted by some competition in the market, this would have provided them with an opportunity to grow their businesses.