What are the SA Government Spectrum Plans?

On Monday, 9 August 2016, the Minister of Telecommunications & Postal Services (MTPS) filed a court bid to stop the spectrum auction process initiated by ICASA. See article below from Bloomberg.

The motivation provided by the Minister is that he wants to halt the process to prevent irreparable harm which unsuspecting interested parties may suffer. Basically, his suit selling point is that the current proposed auction process would prevent new players from entering the market.

Based on the above, the following can be speculated on:

  • #1: Retail / Wholesale Market Structure – Single New Wholesale Operator?
    • The ultimate goal is that the government wants to create a single national wholesale operator who then will offer wholesale services to the retail service providers. This would be akin to the concept of MVNOs hosted on mobile network operators.
    • Previously, the government indicated that this was a concept it supported. The current spectrum allocation does not promote a single wholesale operator concept. The single new wholesale operator concept has been supported by operators such as Cell C.
    • There is very little information as to why the ICT policy has not been issued as the government missed its previously announced publication dates.
    • Possibly, the government has already lined up interested parties or is currently shopping around for such interested parties. Therefore, to continue this process, the government needs to gain control of the spectrum process – hence the court case.
  • #2: Crowded Market – Many new Operators?
    • If the MTPS wants to encourage new players to the SA market, then the SA mobile market can become quite crowded.
    • Based on ICASA’s proposed spectrum lot structure, we could see the number of operators rise from the current four (Cell C, MTN, Telkom, Vodacom) to between six and eight.
    • We would question whether the market would support so many mobile operators.

There is spectrum for a wholesale operator – so why stop the process?

  • ICASA has held back much of the 700MHz spectrum, which would not be up for auction (at least not in the currently proposed process). Our view is that this spectrum would be used for a national wholesale operator, as per government plans. (It would probably also need higher spectrum – either 2 600MHz or 2 300MHz). Therefore, the auction could proceed and the government could have its wholesale network.
  • The Minister (as quoted in the article) specifically mentioned foreign players who may want to enter the market. Our reading of it was that a foreign player would first need to obtain an i-ECS licence before it could participate in the auction and the current process proposed by ICASA does not provide sufficient time for that.
  • Yes, the auction would preclude many local already licensed entities from participating due to the reserve price. However, just about all of those entities would probably not be able to fund national network deployment, even if they won a spectrum licence. Cell C is probably the notable exception.
  • Interestingly, apart from ICASA, the government only names the current MNOs as respondents in its filed papers. Why not Neotel, IS, FNB, Liquid, etc. – all those that could be potential bidders?

In conclusion

Without the context of the planned policy, the government’s ultimate goal cannot be clearly understood. However, based on previous positions taken by the government and the motivation presented in its court bid, we conclude that:

  • The government wants to drive the wholesale operator model and has a possible external operator already lined up.
  • Given the government’s financial challenge, we think that the business model would be a form of build-operate-transfer model where the incoming operator finances the network build-out.