ICASA backs spectrum auction as ‘international best practice’

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While there’s been debate about the best mechanism to license spectrum, Independent Communications Authority of South Africa (ICASA) chairperson Dr Keabetswe Modimoeng maintains an auction is the most “competitive and transparent”.

Telecoms regulator ICASA this week briefed Parliament’s Portfolio Committee on Communications on SA’s long-awaited process to license high-demand spectrum.

Modimoeng told the committee that an auction, as a means of spectrum assignment, is international best practice.

“It is transparent, is used all over the world and ensures spectrum ends up going to the highest bidder.” He added that the operator that values that particular spectrum pocket the most will get it.

“Auctions are good because they help to determine the real value of the spectrum at a particular point. To put it in context, we are embarking on a process that is transparent – an auction is transparent, it’s competitive and we know that through that auction process, we’ll be able to raise billions for the national fiscus.”

Given that it’s a critical and scarce resource, spectrum is in high demand in South Africa.

Unlike its African counterparts, SA is one of the few countries that have not allocated 4G/LTE spectrum on the continent.

The country’s last significant spectrum was awarded 16 years ago, and the last big set of spectrum issued was in the 2.1GHz band, which helped the mobile operators in their 3G network deployment.

For the mobile operators, spectrum allocation will help provide faster and more widespread high-speed data services. It’s expected the freed-up spectrum will reduce the cost of data and increase access to the internet.

Meanwhile, an auction of high-demand spectrum will help government raise funds for the fiscus. In his maiden Medium-Term Budget Policy Statement last month, finance minister Enoch Godongwana stressed the importance of accelerating the release of spectrum, as it’s been identified as one of the key pillars of the state’s economic structural reforms.

Responding to a question from Economic Freedom Fighters MP Vuyani Pambo, Modimoeng clarified that SA will take a dual approach in terms of spectrum assignment.

“We have the auction earmarked more or less for incumbents,” he stated. “When I say incumbents, I’m not only talking about the six infrastructure players: Cell C, Telkom, Vodacom, Rain, Liquid Intelligence Technologies and MTN. I’m referring to all the operators that have been licensed.

“Through the conversion of the value-added network service licences in the early 2000s, we are now sitting in this country with over 300 network service licensees.

“We regulate a capital-intense market, and this requires licensees to be able to launch services. If there is a licensee sitting with a licence, for example, one of those 300, if they can raise capital to participate in a transparent auction process, there wouldn’t be a problem – because ICASA will know it availed spectrum, a transparent public auction was held and everyone was given room to apply, which is an important aspect of the process.”

The auction allows for the licensees to bid for the spectrum they think they would need for their particular services, Modimoeng noted.

“This is why we have the WOAN [wholesale open access network]. It means consortiums made up of a number of sections of our society, according to how the invitation to apply will be framed, can join hands, put in a competitive and formidable application and they will, as part of being licensed for the WOAN, be given a network service licence to operate.”

ICASA, which has set its sights on auctioning spectrum in March next year, recently assigned provisional spectrum to six telco operators.

This, after it invited the operators to apply for the provisional spectrum after it earlier told them to return the temporary spectrum by 30 November. ICASA had awarded the telcos the temporary spectrum in April last year in the wake of the COVID-19 pandemic.

The move to return the temporary spectrum was met with resistance from the telcos, which took ICASA to court, saying SA was still in a National State of Disaster as a result of the pandemic and that the regulator was still to auction the much-needed spectrum.

It was also the telcos’ argument that taking back the temporary spectrum would jeopardise mobile data supply in SA.

The operators have largely used the temporary spectrum to launch 5G services and cater for the increased data demand as more people took to working and learning from home.

Best practice

Although auctions have become the dominant spectrum assignment mechanism over the past three decades, the GSM Association (GSMA) previously advised they shouldn’t be designed to artificially inflate prices, or inefficiently distribute the already scarce resource.

The GSMA noted a worrying trend of badly run spectrum awards, saying this could seriously impact the mobile industry’s ability to connect a larger proportion of people to high-speed mobile broadband.

In its 2019 paper, titled “Auction Best Practice”, the industry body makes recommendations to help governments guarantee affordable, high-quality mobile connectivity from spectrum awards. These include:

  • The top priority for spectrum auctions should be to support affordable, high-quality mobile services.
  • Auctions are a tried and tested award mechanism, but can and do fail when poorly designed.
  • Auctions should not be the only award process, as they are not always suitable.
  • Auctions designed to maximise state revenues risk serious harm to consumers.
  • Assign a sufficiently large amount of spectrum and publish roadmaps to support high-quality mobile services.
  • Spectrum caps and set-asides distort the level playing field.
  • Licence obligations and conditions should be designed to minimise the cost of covering non-profitable areas, and avoid distorting the award of spectrum.
  • The chosen auction design should not create additional risk and uncertainty for bidders.
  • Poorly chosen lot sizes or inflexible packages of spectrum lots risk inefficient outcomes.
  • Policymakers should work in partnership with stakeholders to enable timely, fair and effective awards.
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