ICASA scraps BEE clause

Newly-proposed draft radio frequency regulations have come under fire for undermining empowerment in the industry and potentially disrupting the country's second attempt at a spectrum auction.

Last week, the Independent Communications Authority of SA (ICASA) released the draft regulations in which the most noticeable amendment was the absence of a clause which requires applicants for radio frequency spectrum to have a minimum of 30% direct ownership by historically-disadvantaged individuals (HDIs).

Industry commentators have slammed the decision, for which no clarification has been offered by ICASA, as being unjustified and detrimental to competition.

Previously, non-complaint bidders were automatically disqualified from taking part in the spectrum auction.

This clause presented a major hurdle for bigger operators, lacking the requirements to apply for high-demand frequencies, specifically in the 2.6GHz and 3.5GHz bands. This spectrum will come up for auction and is critical for the deployment of LTE and WiMax technologies for cellphones.

ICASA has committed to auctioning this spectrum before the end of this financial year, after attempts to do so earlier this year failed. Some in the industry were shocked when the authority canned the first auction, following the investment of millions of rands in preparation, specifically for the HDI requirement.

The 30% HDI requirement was critical in extending the opportunity to apply for spectrum to smaller players and was seen as a critical component to grow empowerment in the industry.

Smaller players, who are naturally more compliant with this requirement, stand to lose that edge over the bigger players if the proposed regulations are finalised as they stand.

“The draft regulations, if they are published in their current form, will allow major operators previously disqualified from participating to apply for valuable frequencies that are in high demand. As a result, the smaller operators with 30% HDI shareholding will now stand less of a chance of winning licences for spectrum where demand exceeds supply," explains Kathleen Rice, a director in the technology, media and communications practice group, at Cliffe Dekker Hofmeyr business law firm.

Without the 30% HDI requirement, the larger well-established operators will have a distinct advantage over new entrants.

Rice argues that because the regulations are only in draft form, they may not affect the spectrum auction. However, if the regulations are finalised before the auction is concluded, the HDI requirement will no longer be a prerequisite to apply.

Furthermore, she points to a line in the explanatory note, which says: “The authority may modify or vary the radio frequency assignment plan as it deems fit and appropriate.”

She argues that because there is no mention of the HDI requirement in the actual regulations, it is not binding in law and can, therefore, only play a discretionary role in future invitations to apply for spectrum.

Prior to the first spectrum auction, analysts noted that most of the big players in the market did not satisfy the 30% HDI requirement. Subsequently, some potential bidders undertook expensive empowerment deals to meet the requirement.

In August, Business Connexion announced it would sell a 30% stake to several empowerment partners in a bid to comply with ICASA's regulations. The deal was estimated to be worth R437.3 million.

Mobile operator MTN also concluded an R8.1 billion black economic empowerment share scheme aimed at helping its South African operations qualify for the spectrum licence and broadband ownership requirements. While the deal was on the cards for MTN for some time, and was certainly geared for compliance for many other projects, the company managed to conclude it in time to comply for the first invitation to apply for spectrum.

Rice notes that if these operators entered into these deals with the sole purpose of meeting the HDI requirement, the investment may be considered a waste. She argues that even if the authority makes it a prerequisite in the invitation to apply for spectrum, it won't be binding because it does not exist in the regulations.

ICASA failed to provide comment by the time of publication.

Meanwhile, industry body, the Black IT Forum (BITF), has slammed the lack of clarity from the operator.

Motse Mfuleni, secretary-general of the BITF, explains that the clause was implemented to create empowerment in the industry so that even the smaller players would have the opportunity to apply for spectrum.

He points to concerns from the industry and the authority that situations would occur where smaller, compliant players would obtain and then sell their licences to bigger players.

However, Mfuleni argues that if the clause is based on this reasoning, it is unjustified as the situation could be easily remedied with a “lock-in” clause in the licence to smaller players.

Mfuleni believes this decision will undermine efforts by emerging black operators to grow in the market. He notes that the BITF will insist on a meeting with ICASA's chairman to justify the authority's actions.