Telkom sues Icasa over 5G auction; says regulator will ‘mess up’ industry for two decades

South Africa’s telecoms sector operators have been waiting for the planned auction of the country’s broadband spectrum. The Independent Communications Authority of South Africa (Icasa) started receiving applications for spectrum licences on 2 October this year. One of the major challenges in re-distributing the valuable lower frequency band is that broadcasters have not migrated away from the frequency that offers the best coverage in homes and buildings. Telkom says it is hesitant to pay for spectrum that is still being used by broadcasters, without a guarantee that the band will be freed for use. Telkom says it is on the back foot because competitors have already been allocated spectrum on this band, while Telkom has no sub-1GHz spectrum. The company told MyBroadband it tried to engage with the regulator over its concerns but was ignored. -Melani Nathan

“Icasa will mess up the industry for 20 years” — Telkom sues over 5G spectrum auction

By Jan Vermeulen

Telkom has launched a legal challenge against Icasa’s plans to auction valuable radio frequency spectrum that is to be used for 4G and 5G networks in South Africa.

In an interview with MyBroadband, the Group Executive: Regulatory Affairs and Government Relations for Telkom, Siyabonga Mahlangu, said that Telkom has tried to engage with Icasa regarding the spectrum auction on several occasions, but the regulator rebuffed them.

Read also: Telkom CFO jumps ship to join rival firm MTN

Mahlangu warned that if the spectrum licensing process were to continue as is, Icasa would mess up the industry for 20 years. “Because that’s how long spectrum licences are for,” he explained. He said that according to Telkom, there are “a number of grounds of review” and that they have chosen to highlight two:

Firstly, the “digital dividend” bands of spectrum in the 700Mhz and 800MHz categories are not currently commercially viable. This is because broadcasters like MultiChoice, e.tv, and the SABC are still using those frequency bands for terrestrial television signals. Secondly, Icasa has not taken into account the lack of competition in South Africa’s cellular market.

Sub-1GHz spectrum essential for Telkom

Mahlangu explained that it is essential for Telkom to gain access to lower frequency spectrum, like the 700MHz and 800MHz spectrum that Icasa is planning to auction off. Unlike its competitors, which were assigned 900MHz spectrum many years ago, Telkom doesn’t currently have any sub-1GHz spectrum. This spectrum is extremely valuable for networks to provide a solid base of coverage. Lower frequency spectrum offers better in-door penetration, making it useful for coverage inside malls, homes, and office parks. It also lets network operators lay down wider coverage areas with fewer towers, making deployments cheaper and therefore ultimately allowing prices to be lower. “That’s why it is so valued and sought-after,” Mahlangu said. “Just one lot of 20MHz of this spectrum commands a reserve price of over a billion rand in Icasa’s auction. This is why.”

Broadcasters not yet migrated out of 700MHz and 800MHz bands

Telkom’s major bone of contention with respect to this valuable lower-frequency spectrum is that broadcasters are still using it. Mahlangu said that Icasa had assigned Telkom some of this spectrum as part of its emergency allocation during the National State of Disaster due to the Covid-19 pandemic. However, Telkom was unable to use the spectrum at all in the Western Cape without interfering with the operations of broadcasters. “If I can’t do Cape Town [with this spectrum], you’re really taking me out,” Mahlangu said, adding that it was the same problem across all major metropolitan areas. “If you’re going to ask me a billion rand for the spectrum, locking in my [capital expenditure], then I at least need to be able to use it,” he said.

Mahlangu said that Telkom’s concern is that after mobile network operators hand over the money at the auction for this spectrum, there is no incentive for Icasa or government to migrate broadcasters out of the bands. “What incentive will the state have to migrate broadcasters out of the band once it has the money from the auction?” he asked.

For this reason Telkom is asking the court to force Icasa and government to migrate broadcasters out of the 700MHz and 800Mhz bands, providing them with certainty that it will happen. Should government then not act to complete South Africa’s long overdue digital migration, it will be in contempt of a court order, Mahlangu explained.

Breaking the duopoly of Vodacom and MTN

Telkom’s second major argument is that Icasa has demonstrated a lack of consideration for competition in South Africa’s telecommunications industry. “We feel strongly that the market structure is duopolistic,” Mahlangu said. “That duopolistic structure is the reason prices in South Africa is high.” Mahlangu said that Icasa has embarked on a Mobile Broadband Services Market Inquiry, but it has not yet concluded it. “We all know that spectrum is the lifeblood of mobile broadband. Now why do you license spectrum without concluding the mobile broadband services market inquiry?” he argued.

Mahlangu said that Icasa will say that it has done a competition assessment. However, he contends that no-one has been involved in that assessment. The whole industry has been involved with the Mobile Broadband Services Market Inquiry, but no-one has provided inputs into the separate competition assessment that ICASA said was done for the spectrum auction. He added that ICASA even seems to rely on a discussion document that is part of the as-yet unfinished mobile broadband services inquiry. “We contend that this is unlawful and irrational. You are putting the cart before the horse,” said Mahlangu.

Delays

Asked whether this legal challenge won’t risk further delaying the assignment of the much-needed spectrum, Mahlangu said that the process could still be concluded in 2021. “We could have the discussions in the first quarter and then spend Q2 and Q3 finalising the process,” Mahlangu said. He said that everyone in the industry has been working on this, so it’s a matter that should be possible to resolve fairly quickly.

Mahlangu also argued that Telkom’s legal challenge is not an undue delay to the process. “Government has delayed fifteen years for a 20-year commitment,” contended Mahlangu. “Rushing it now and getting it wrong is not in anyone’s interest.”

Telkom’s history of asking Icasa to break Vodacom-MTN duopoly

Telkom has argued over the years that Icasa must actively weaken the dominant market position that Vodacom and MTN enjoy in South Africa. The company has specifically stated in the past that ICASA must use the rules of the upcoming spectrum auction to break the Vodacom-MTN duopoly. “What is critical for [us] is that any spectrum made available must address the current market concentration in the duopoly of Vodacom and MTN,” Telkom told MyBroadband in 2018. “Any spectrum coming to the market must therefore improve competition in the market by allowing smaller operators an opportunity to compete.”

Telkom CEO Sipho Maseko said in the company’s interim results, released in November, that Icasa’s definition of the mobile telecommunications market is too narrow. “We are […] disappointed by Icasa’s narrow definition of the market which is likely to entrench the skewed structure of the market,” Maseko stated. He also warned that giving spectrum to the controversial Wireless Open Access Network (WOAN) will probably hurt the rollout of 5G in South Africa. “The spectrum assigned to the wireless open-access network is unlikely to drive effective rollout of 5G in South Africa,” said Maseko.

Invitation to apply, and spectrum auction

South Africa’s telecommunications regulator, Icasa issued an invitation to apply on 2 October 2020 for several tranches of this high demand spectrum. Due to the sought-after nature of this spectrum, Icasa has opted to split the spectrum into lots and auction it off. Its invitation to apply included 406MHz of spectrum, which Icasa said will be made available for the provision of mobile broadband services in South Africa. The closing date to apply for this high-demand spectrum is 15 January 2021.

The spectrum to be auctioned will span the 700MHz, 800MHz, 2,600MHz, and 3,500MHz frequencies, and will be available in the following lot sizes and quantities, and at the following reserve prices:

Spectrum lots for auction

Spectrum lots for auction
Lot numbers Lot category Lot size Number of lots available Reserve price per lot
1-4 700MHz 2 x 5MHz 4 R526,615,392.49
5-8 800MHz 2 x 5MHz 4 R752,307,703.55
9 800MHz 2 x 10MHz 1 R1,155,174,976.66
10-24 2,600MHz 1 x 10MHz 14 R97,843,320.52
25 3,500MHz 1 x 2MHz 1 R9,818,987.30
26-33 3,500MHz 1 x 10MHz 8 R75,606,202.22
34 3,500MHz 1 x 4MHz 1 R19,637,974.60

Icasa noted that the auctioning of the 2,300MHz band has been placed on hold because it still needs to conduct a feasibility study on this frequency. Telkom has welcomed this decision.

Spectrum auction rules

The regulator announced that a number of obligations will form part of the licence conditions of the Radio Frequency Spectrum Licence. A number of these are listed below.

  • Throughput obligations: A minimum downlink single-user throughput of 5Mbps at the edge of the cell (particularly in Batch 3 classified municipalities) for all national wholesalers who are awarded radio frequency spectrum licences on spectrum band(s) IMT700 and/or IMT800 within five (5) years of licence issue. This obligation must be achieved with other bands (i.e. IMT2600, and IMT3500) assigned through this licensing process.
  • Coverage obligations (700MHz or 800MHz): One 2 x 10MHz (on IMT800) Coverage Lot carries a coverage obligation of up to 99.8% of the population within 5 years of issue of radio frequency spectrum licence; and at least to 95% across the totality of all Batch 2 and Batch 3 under-serviced areas/municipalities in South Africa. The winner of this coverage lot would comply by an outside-in approach to achieve 95% of all Batch 2 and Batch 3 under-serviced areas first of all 234 local and metropolitan municipalities in South Africa within 5 years of issuance of the licence;
  • Coverage obligations on “tier 1” operators: Any other tier-1 player (mobile operators with a market share of more than 45% in 10 municipalities) who wins any further sub-1GHz spectrum would be obliged to expand coverage to at least 97% of the population. Also, the outside-in approach applies, to achieve 92% across all Batch 2 and Batch 3 under-serviced areas first for the 2 x 10MHz Coverage Lot across all 234 local and metropolitan municipalities in South Africa within 5 years of issuance of the licence.
  • Coverage obligations on “tier 2” operators: In respect of 700MHz or 800MHz licenses awarded to applicants categorised as Tier-2: applicants that cover less than 80% of the population with IMT services must expand such coverage to at least 80% of the population in general across South Africa, including under-serviced areas of their commercial choice. The outside-in obligation would not apply to these Tier-2 national wholesalers.
  • Open-access obligations — passive infrastructure sharing: Prospective applicants that are categorised as Tier-1 (mobile operators with a market share of more than 45% in 10 municipalities) must produce a reference offer for site access to be offered to any licensee requesting site access and guidelines, including pricing, timeframes and policies for reserving space on masts. The reference offer set out by the applicant shall become licence conditions for licences to two tier-1 operators issued in this auction process.
  • Open-access obligations — MVNOs: A Licensee assigned spectrum through this process is required to provide open access to MVNOs which must have 51% ownership held by persons from Historically Disadvantaged Groups. This provision shall become licence conditions for licences issued in this auction process. The Licensee assigned spectrum through this process shall be required to submit to the Authority within a period of between 3 – 6 months the business plans to ensure that the MVNOs are sustainable for the period of 3 years.
  • Social obligations: A Licensee assigned spectrum through this process shall zero-rate all the mobile content provided by Public Benefit Organisations including .gov.za websites.
  • Obligation to support new Wireless Open Access Network: The applicants that are to be assigned the radio frequency spectrum through this process shall procure a minimum of 30% national capacity from the WOAN collectively as soon as the WOAN is operational for a period of five years. The 30% national capacity to be procured from the WOAN will be shared proportionally to the amount of the spectrum acquired from the Auction amongst the successful licensees.

Read also:CEO Sipho Maseko on Telkom’s ‘crock of nonsense’ past

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