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ICASA finally closes loophole

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 04 May 2015
Vodacom does not feel ICASA's latest amendment to the frequency spectrum regulations will affect its application to buy Neotel.
Vodacom does not feel ICASA's latest amendment to the frequency spectrum regulations will affect its application to buy Neotel.

The Independent Communications Authority of SA (ICASA) has laid out an explicit process for the transfer of control of licences as telecoms merger applications hang in the balance.

However, this closing of a regulatory loophole will not affect Vodacom's R7 billion bid for Neotel as the amendments are not retrospective, says SA's largest operator.

In a notice published in the Government Gazette on Thursday, ICASA outlines the process to be followed when applying for transfer of control of frequency licences - one of the bones of contention around the proposed Vodacom-Neotel deal that has seen considerable focus this year.

According to the Radio Frequency Spectrum Amendment Regulations 2015, which came into force last week, "no licensee must assign, cede or transfer control of a radio frequency spectrum licence without the prior written approval of the authority".

Owner of Ellipsis Regulatory Solutions Dominic Cull points out the latest amendment is significant, in that it means there is now a process to follow in terms of the transfer of control of frequency licences, whereas ICASA was previously in a cycle of "making it up as they went along".

"Part of the difficulty [with the Vodacom-Neotel application] was that there was no process to follow and this amendment means there is now a detailed procedure in place for doing a proper examination of the transactions on the table."

While ICASA has issued a framework in terms of frequency licences, transfer of service licences (ECNS and ECS) are still undefined, Cull points out. "ICASA has closed one loophole, but has still done nothing about the transfer of control of service licences - why not?"

This comes after industry watchers suggested earlier this year that ICASA was not in a position to deal with Vodacom's bid to buy Neotel adequately, on the back of what was seen as a possible legal loophole.

Vodacom has refuted claims the company is trying to gain "back door" control of Neotel's licences and said this morning its understanding was that the latest notice would not affect its application to buy Neotel.

The company said this morning it "had been advised these regulations do not apply retrospectively - and therefore do not apply to our transaction".

ICASA was not available for comment this morning.

ICASA adequacy

In January, ICASA held public hearings into the proposed transaction that may become one of the local telecoms industry's biggest deals since the mobile evolution started some 20 years ago. During those hearings, acting as advisor to the Internet Service Providers' Association, Cull argued the amendments to the Electronic Communications Act (ECA) passed into law last year rendered ICASA unable to properly deal with Vodacom's bid.

Proposed telecoms deals in 2014:

Vodacom submitted an application to ICASA last year with respect to its agreement with Neotel's shareholders that it would acquire 100% of the issued share capital in the company for R7 billion.
MTN and Telkom are in talks around the potential extension of their existing roaming agreement to include bilateral roaming and outsourcing of Telkom's radio access network.
Telkom has an application before ICASA to buy Business Connexion for R2.67 billion, in a bid to expand its core business into ICT and boost revenue.

Under the amended law, which came into effect on 21 May last year, written permission from ICASA is needed to transfer control of service licences, as well as spectrum. Telecoms lawyer Lisa Thornton previously noted, before the law was amended, only the transfer of a licence required prior approval, and not transfer of control.

Some of those opposed to the deal have argued it amounts to a transfer of ownership of spectrum and telecoms licences, a suggestion Vodacom and Neotel counsel, Paul Kennedy, previously refuted.

Kennedy maintained licences and spectrum would not be transferred from Neotel to Vodacom. He said, should the deal go ahead, these would continue to belong to Neotel - while control of the company as a going concern would be moved over to Vodacom.

Spectrum debate

ICT expert Adrian Schofield recently said Vodacom/Neotel lawyers appeared to be trying to work around a loophole in the ECA. "The ECA made the differentiation of control of licences and ownership of an enterprise."

Schofield argued Vodacom would effectively have control of Neotel's spectrum, despite claims to the contrary. "If you buy the majority shareholding of a company, you appoint the board and decide what happens in the company. So, effectively [Vodacom] is taking the spectrum and the technicality that they have to enter an agreement with Neotel to use that spectrum is just semantics."

Analysts agree spectrum is one of the key drivers for the Vodacom-Neotel deal, while this constitutes one of the opposing parties' main concerns.

Ovum analyst Richard Hurst noted Vodacom had been prompted to take this route to access spectrum, due to the delays in the allocation of spectrum for 4G services - something that is forcing the operators to refarm existing spectrum. "In essence, this is a symptom of the government delay in the allocation of spectrum for wireless broadband services."

Protracted process

The deal, which ICASA was expected to make a decision on in March, has been delayed by regulatory complexities and late submissions from some interested stakeholders, as well as Neotel and Vodacom.

Vodafone CEO Vittorio Colao and Vodacom SA CEO Shameel Joosub in March expressed frustration over regulatory hold-ups, citing employee uncertainty and cost concerns as two of the reasons the telecoms giant wanted the process to be wrapped up sooner. At that time, a decision around the proposed buyout had already been hanging for about 10 months.

Vodacom is unable to provide any solid timelines at this stage, but is expected to broach the subject during its annual results presentation on 18 May.

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