Media briefing paper: Summary of FMF SEIA on government’s radio frequency spectrum policy

FMF Principles_1

The Free Market Foundation’s summary of the socio-economic impact assessment (SEIA) conducted by Dr Christoph Klein on government’s radio frequency spectrum policy.

Highlights from the SEIA:

  • 15 years of spectrum withholding harmed and still harms consumers, particularly rural and low-income urban populations.
  • The failure to complete digital migration means that even after an auction in March 2021, carriers will be unable to use 700 and 800 MHz digital dividend spectrum until 2023.
  • Consumers will still be denied affordable rural broadband and pay for costly urban infrastructure. Consumers will not reap the digital dividend of rural LTE-800 at much lower cost and carrier aggregation in dense areas.
  • Spectrum withholding and failed digital migration are compounded by misguided competition policies and regulatory interventions which distort the market, create investment uncertainty, and encourage market laggards to capture “rents” they are unable to earn by competing. The government needs a culture of evidence-based policy and shed ideology-based policy, such as ideas of 100% broadband penetration, irrational sharing, “open” access, or non-discriminatory pricing at odds with market reality.
  • Market reality is that the spectrum crunch suffered by MTN and Vodacom and the recapitalization of ailing entities that became Liquid Telecom and Rain paved the way for a market-driven WOAN. The difference between it and a government WOAN is that the arm’s length “roaming” agreements (contractual joint utilization of resources) have been achieved without compromising property rights or coercive “incentives”.
  • Considering that Cell C is roaming on MTN’s network (morphing into an MVNO) and that Telkom is roaming on Vodacom’s network, the market has been moving towards a “shared” network for the benefit of consumers. Even if it once did, SA no longer needs a WOAN artefact imposed coercively on the sector.

Regulatory paralysis imposed enormous opportunity costs on ordinary citizens. Further developments should now be left to freely interacting market players who understand what they are doing and have “skin in the game”.

With six competing mobile operators and the upcoming spectrum auction, conditions for industry development are in place. When digital migration is completed, the industry will be well-positioned to narrow the digital divide by rolling out affordable rural LTE networks and reduce urban data prices through carrier aggregation and spectrum sharing.

These two socio-economic goals must not be impeded by such interventions as a government WOAN artefact for which there is neither theoretical nor proven market evidence. 5G networks that will open the world of IoT services will force governments to deregulate spectrum. Spectrum will become like any other resource. Spectrum utilization will be driven by consumer needs and technology.

This will conclude misleading public narratives. The notion that market-based intermediation in general, and spectrum, in particular, are prone to “market failure” is unfounded. It is not supported by technological facts, historical evidence or economic theory. As “the market” for regulatory narratives needs “willing buyers”, it should be asked who benefits from promoting such narratives?

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