The Independent Communications Authority of SA (ICASA) has issued draft conditions for rural telecommunications licences that run contrary to the market structure business analysts say would serve the country best.
As part of the ongoing liberalisation of the telecommunications market, small operators are to be established to serve certain areas with a very low penetration of telephones. Government has already identified 29 such areas although Telkom has questioned the statistics in some. Ten are expected to have newly licensed operators by the middle of next year.
Draft regulations by the regulator will bar current players Telkom, Vodacom, MTN and Cell C from holding such licences, as expected. ICASA is also proposing that no entity be allowed to hold a controlling stake in more than one such licence, although cross-ownership will be allowed for minority interests.
Telkom has expressed concern that the rural licences may create another de facto competitor to it should the various areas be combined under the control of one company.
However, consultancy Bain & Company says a market with a multitude of small players has been shown to be unworkable elsewhere in the world and will probably lead to the failure of many of the rural operators.
Local Bain partner Dean Donovan says the ideal structure would be two or three organisations controlling all the underserviced area licences. "That way they gain experience from doing the same thing in 10 different places," he says.
Many have questioned the viability of businesses restricted to low-income areas, despite the special privileges the small operators are expected to be granted. Yet potential bidders for the licences are queuing up and already trying to source funds. It is estimated that each licence will require anything from R15 million to R500 million.
Bain, in a recent independent report on telecommunications liberalisation in SA and elsewhere, found that countries that licensed dozens of operators soon found their businesses to be unsustainable. A lack of capital or skills, both in short supply locally, usually saw many of the small players flounder or absorbed by big, established operators.
Donovan and others praise the concept of rural operators. However, he sees other problems with the implementation, even if the ownership rules are adjusted.
The boundaries where the licensees will be able to operate are not clear enough, he says, which could see the operators gravitate to more urban areas on the fringes of their territory. Focusing on stealing customers in such areas away from the incumbents instead of bringing new customers into the loop elsewhere would be a natural, "just a law of economics".
He is also concerned about expectations that competition from the upcoming second national operator and the rural licences will both increase access to telephones and decrease prices. In the real world, he argues, the two can be mutually exclusive. If prices are not kept artificially low, profits can lead to higher teledensity as operators have motivation to expand the market rapidly and the ability to do so with the cash made elsewhere.
"People in business would understand that but consumer advocates often do not," he says.
The ICASA regulations are still open to change but a number of potential bidders for underserviced area licences have urged the regulator to fast-track the process. It has to date firmly refused to do so.
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