This study examines the South African government’s regulatory policy in the mobile telecommunication sector. Since the first mobile networks went live in the early 1990s, the sector has undergone radical transformation. The evolution of the initial voice product on the basis of post-paid contracts in urban areas to today’s mass market service happened in an astonishingly short timeframe. The radical game changer was the introduction of prepaid voice whereby a market offering that was thought to be a service for a few hundred million of affluent consumers in wealthy urban areas became affordable to everybody virtually overnight.
The enormous technological and commercial innovation we have been witnessing in all parts of the mobile value chain is a response of consumer demand. It makes a difference for the market dynamics when a product at the price of R50,00 is affordable to everybody or a product for R500,00 or more is only offered to a few in the absence of competition. This was the case with fixed telecommunication services provided by overstaffed and sclerotic public monopolies. In many low-income countries, fixed voice services were available to only a few thousand subscribers. Even in relatively well-off countries, such as South Africa or Brazil, fixed-line penetration never surpassed a household penetration rate of a few percent.
Spectrum regulation was not a serious issue when the first mobile operators entered the market. Voice services require relatively little bandwidth with which MNOs were able to increase geographical coverage and densify their network footprint in urban areas. Matters changed when it became clear that internet services, or more generally, content, would have to be accessed by most people through mobile networks.
At the outset of the new millennium, demand for data in low- and lower-middle-income countries was still miniscule compared to voice services, but it was understood that this would change quickly. In 2004 and 2005, South Africa’s leading mobile operators, MTN and Vodacom, received spectrum in the 1.8 and 2.1 GHz bands from the regulator to roll out 3G network infrastructure. It was also the last time the two carriers who serve roughly 80 percent of South Africans received spectrum. The third MNO, Cell C, established in 2001, received its last spectrum in the 2.1 GHz frequency band in 2011 which brought it on par with the two market leaders. In the following ten years, Telkom, Liquid Telecom (formerly Neotel) and Rain (formerly iBurst/WBS) have entered the mobile market, either in direct competition for consumers or as wholesale providers offering their network capacity to other operators.
Since 2005, mobile technologies, end-user devices, and complementary technologies in the fibre space have evolved rapidly. At the same time, mobile broadband has evolved as the key access medium to the Internet for billions of people demanding ever-higher bandwidth and traffic speeds. From a socio-economic perspective, the provision of mobile broadband in rural areas has proven to be particularly important because most countries did not have copper network coverage and the rollout of terrestrial fibre networks is too costly. Mobile 3G technologies have filled the coverage gaps in many countries. However, it has become apparent that the 1.8, 2.1 and 2.3 GHz frequency ranges are uneconomical for the provision of 3G and 4G in sparsely populated areas. Radio networks utilizing such relatively high frequencies require a high density of mobile infrastructure. Even in the most affluent countries, the investments for network rollouts using frequencies around 2 GHz and higher cannot be funded or amortized by revenues from rural customers.
The 4G mobile communications standard LTE in the low frequency range between 700 and 800 MHz largely solves this problem. Compared to 4G in the frequency range between 1.8 and 2.3 GHz, for covering the same geographical area LTE-800 reduces the cost of network rollout by half (up to two-thirds). In addition, LTE-800 can also be used in urban areas in the course of carrier aggregation. The higher spectral efficiency associated with the connection of radio elements in, for example, the frequency range of 800 MHz and 2.6 GHz accommodates significantly higher data rates in urban areas with the same infrastructure. However, the problem had to be solved which was that spectrum in the low frequency bands below 862 MHz were occupied by analogue TV. Progress in the digitization of all types of content, including TV signals, has made it possible to achieve significantly better TV signal transmission rates with higher quality in the frequency ranges below 600 MHz.
The process of migrating TV stations to lower frequency ranges does not happen overnight and requires careful coordination. On an international level, all member states of the International Telecommunication Union (ITU), a UN organization, have established a transition period intended to facilitate the migration from analogue to digital television. The deadline for the switch-off of analogue TV signals agreed by the ITU member countries was 2015. By reassigning the spectrum in the 700/800 MHz range to mobile telecommunication services, networks could be rolled out cheaper and help bridging the digital divide between the urban and rural population. The release of this spectrum is termed “digital dividend” spectrum because the rural population benefits from its utilization in the form of better broadband coverage and cheaper data services.
South Africa also committed to end analogue TV in 2015. The Department of Communications and Digital Technologies (DCDT), then Department of Communications (DOC), announced that it would switch off the signal by 1 November 2011, which would have made South Africa a world leader. Almost a decade later, it is still unclear when digital migration will be completed. Experts estimate that the spectrum in the 700/800 MHz frequency range cannot be utilized nationwide before 2023. The cost of this regulatory failure is borne by consumers through poor broadband coverage, higher prices, reduced economic productivity and impaired educational opportunities.
This study provides an overview of the regulation of the South African mobile sector with particular focus on the public assignment of spectrum. It argues that due to a misguided economic understanding of the scarce resource “spectrum” and an ideologically coloured view of “competition”, a number of interventions have been made that have no economic theoretical basis and fundamentally misconceive the nature of market processes in the telecommunications sector. In an increasingly complex market with constant technological progress, the regulator has largely lost its coordinating function and—not only in South Africa—has become an obstacle to development.
This study concludes that South African regulation of the mobile market has failed over the past decade, resulting in needless costs to the consumer. While most other countries have been able to use LTE-800 and carrier aggregation for five years or more, South Africa remains years away because digital migration has been badly managed. Instead of making resources worth hundreds of billions of Rand available to the market, spectrum has been left to gather dust in bureaucratic drawers for over a decade. More seriously, spectrum in the sub-1GHz frequency range continues to be occupied by analogue TV offerings. Had it been possible to trade spectrum between current users and mobile operators, the digitization of TV would have long been completed. This is simply because the value of spectrum in the digital-dividend band is a manifold of the comparatively insubstantial cost of migrating to lower frequency bands.
The key message of this study is that regulatory failure and political ideology have deprived South African consumers of better coverage and lower prices.
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