Presentation to Parliament

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internet solutions
Presentation to Parliament Convergence Bill
12 August 2005
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Presenting Team

• Andile Ngcaba
• Chairman Dimension Data (SA)
• Angus MacRobert
• CEO Internet Solutions
• Hillel Shrock
• Director New Business Development
• Siyabonga Madyibi
• Head Regulatory Affairs

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Opening Remarks

• IS welcomes the opportunity to comment on the
  Convergence Bill
• IS congratulates the Minister and the Department
  of Communications for drafting and tabling the
  Convergence Bill
• IS appreciates the opportunity to address the
  Portfolio Committee on the Bill
• IS believes the Bill goes a long way to creating
  a solid legislative and regulatory framework,
  within which convergence can take place

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The context of the Convergence Bill

• The birth of our new democracy heralds SA as a
  leader in African telecommunications deregulation
  and development
• SA ranks 23rd in the world in terms of
  telecommunications development and needs to
  continue to liberalize the market progressively
  in order to maintain this developmental path
• Despite this favorable ranking telecommunications
  development in SA continues to reflect
  disparities of first and second economy
• Large areas of the country, especially rural
  areas remain unaffected by telecommunications
  development.

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The context of the Convergence Bill

• Need for continued economic empowerment of
  historically disadvantaged communities through
• the extension of affordable and accessible
  telecommunications services to these communities
• by providing required infrastructure as well as
  by generating employment in the sector itself
• establishing networks to serve e-learning,
  telemedicine, e-government and small to medium
  enterprises.
• Our fundamental goal - balance the provision of
  basic universal service in telecommunications to
  disadvantaged rural and urban communities.

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Change is Inevitable

• Telegraphy PSTN VoIP
• Need to regulate convergence creatively.
• Convergence Bill must make provision for
• Convergence of fixed and mobile
• Voice, data and content (images) carried by same
  technologies
• Blurring between fixed line and Wireless
  services
• Regulatory regime able to deal with the converged
  environment.

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Angus MacRobert
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Overview of Internet Solutions (IS)

• Leading ISP and a Converged Communications
  Service Provider in SA
• Turnover R1 Billion
• More than 5000 direct corporate customers
  (including 80 of top 250 listed corporates)
• 65 of consumer dial up market on our network
  600, 000 dial up subscribers
• Slow take up of ADSL 8000 customers
• Manages more than 600 MEGs of international
  bandwidth
• With VoIP, Mobility, Broadband, IS is poised to
  become the Next Generation Telco.

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Changing the communications regulatory landscape
through the Convergence Bill

• Government at various levels has indicated its
  intention to bring down the cost of
  telecommunications.
• SA needs to move with speed in the deregulation
  path in order to realize the benefits of
  liberalisation.
• The Convergence Bill presents the country with an
  opportunity to fulfill governments objectives.

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Changing the communications regulatory landscape
through the Convergence Bill

• To realize these objectives the Convergence Bill
  needs to address the following
• Absence of a wholesale pricing regime which means
  high input costs for companies like IS this
  translates into high input costs for the economy
• Creation of an environment where companies like
  IS are able to offer competitive broadband
  services
• Key bottlenecks to competition still remain in
  both backbone and access layers
• Development of a regulated wholesale price regime
  for access to the SAT-3 cable, SAT-4, EASSy
  submarine cable, Satellite etc

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Changing regulatory landscapecont

• Introduction of phased measures for unbundling
  the local loop
• Efficient and innovative spectrum management that
  encourages the deployment of next generation
  networks
• Allow competitive deployment of a variety of
  different access technologies from traditional
  wire line solutions to emerging wireless
  technologies like WiMax
• Use of interconnection as a competitive tool
  allow horizontal and vertical application

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Siyabonga Madyibi
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Market Structure Current Draft of the Bill

• Convergence Market - Horizontal Segmentation
• Application Service Licence
• Communication Service Licence
• Communication Network Service Licence
• Infrastructure competition limited Individual
  Licence
• Serviced based competition completely liberalized
  Class licence

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• Malaysian Model

Less regulation
Licensees can compete in any of four markets
within the sector, i.e. Facilities, Connectivity,
Applications, and Content Applications
Individual
Class
Exempt
Licensed
Unlicensed
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Effective services based competition

• The proposed three tier model results in
  aggregation into same broad class of disparate
  types of service providers
• Inappropriate application of uniform licence
  terms and conditions regardless of scope of
  services
• Artificially distorts the market and makes it
  difficult to differentiate oneself as a services
  based player in the market
• Definitions of application services and
  communication services need to be clarified.
• Need for individualisation of communication
  service licenses that require access to scarce
  resources for provision of services.

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Access to scarce resources

• Inability to individualise certain service based
  licenses creates an unrealistic demand on
  critical resources like
• Wholesale pricing
• Numbering and number portability
• Spectrum
• Carrier pre-selection.
• Only a three tier market structure with
  individual licenses at network and communications
  services layer will unlock effective facilities
  and services based competition.

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Lack of Facilities based competition

• SA history of monopoly resulting in absence of
  facilities based competition
• Bill contemplates closed group of infrastructure
  licenses and Ministerial intervention necessary
  for new licenses
• Bottlenecks in the market to be retained and
  bandwidth problems likely to perpetuate.

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Lack of Facilities based competition

• Uncompetitive consolidation of dominant operators
  (Malaysia and Australia)
• Bill needs to encourage development and
  introduction of new technologies categorization
  of technologies as facilities likely to result in
  market stagnation
• Communication service licensees with individual
  licenses should be entitled to provide own
  communication facilities where the provision is
  incidental to the service being provided.

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Hillel Shrock
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Access

• Network access strategically important
• Dependency on infrastructure providers vs.
  individualised licensee setting market price and
  raising bar for facilities delivery
• International bandwidth and gateways
• Opportunity for SA to become a traffic hub for
  the African continent
• Restrictions at home hinder international
  business
• IS participation in cable consortia gt limitations
  are self imposed
• Access to local loop
• Basis of supply
• Unbundled and non-discriminatory
• Unwilling or unable gt unworkable and litigious
• Ideallygt as little regulation as is possible
• Rapid deployment of new technologies and use of
  IP services

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Wholesale Pricing

• Transparent wholesale pricing structure gt
  uniformity of pricing models as between different
  categories of licensees
• Dependency gt any price discrimination should be
  based on legitimate objective criteria
• Definition of wholesale - appears to envisage
  provision of wholesale rates between licensees in
  the same licence category
• Wholesale pricing not permissible for direct
  services not intended for resale

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Interconnection

• Interconnection is critical to allow new entrants
  to compete
• Closed user communities
• SA consumers unhooked gt ensure any to any
  access
• Track record postulates for prospective
  intervention sanctioned by statute
• Services level interconnect gt innovative packages
  and pricing
• ICASA has entrenched IS right to interconnect
  through licensing
• Interconnection pricing principles
• SMPgt unbundled and non discriminatory in relation
  to supply of own downstream business (itself or
  affiliate)

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Convergence Critical Success Factors

• Clear definitions
• Appropriate licensing framework- with flexibility
  to accommodate market developments and rapid
  technological change
• Efficient spectrum management
• Equal rights to international gateways and
  connectivity
• Strike balance between
• attracting investment to the sector and
  facilitating further competition
• removal of universal service anomalies
• best long term sustainable interest of end users

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Andile Ngcaba
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Position SA as an African business Hub

• SA strategically positioned to play a leading
  role in development of Africas communications
  development
• Already the United Nations runs large parts of
  its infrastructure in Africa from SA
• In order to compete globally we need to embrace
  global technological and regulatory developments
• The Convergence Bill needs to create space for SA
  telecommunications players to compete in the
  global stage for African traffic.

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Conclusion

• Government objectives
• lower retail prices
• unlock bandwidth
• create a more competitive market
• increase opportunities for BEE players and
• contribute to the development of modern
  infrastructure that puts SA at the forefront of
  economic competitiveness.
• Bill (with some modification) is a good measure
  to achieve these government objectives

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Closing remarks

• IS thanks the committee for the opportunity to
  make these oral submissions.
• We are pleased to be part of the discussions on
  this important piece of legislation and we look
  forward to the finalization of the Convergence
  Bill.