2019 East Africa Com

The East Africa Com conference took place in Nairobi, Kenya during the days 14 and 15 May 2019. The overarching theme of the conference was new technologies enabling the emerging digital world and digital transformation. The specific focus of the conference was also on how these developments will unfold in East Africa and the impact they are likely to have across economic, social and government environments in the region.

The eco-system was well-represented at the conference, with organisations from the ICT industry, financial institutions, parastatal utilities, government entities and academia inter alia. Theoretical discussions were supported by ample examples of current uses cases for new technologies in East Africa.

The topics at the conference dealt with a wide range of subjects, tackling issues such as:

  • Quality broadband connectivity and “affordable” access to ensure maximum socio-economic inclusivity in Africa (this continues to be a pertinent topic despite years of private sector and government initiatives);
  • Adoption and application of new technologies (such as Blockchain, Artificial Intelligence, Machine Learning) in various vertical industries and government agencies to deliver new and improved services to customers;
  • Democratisation of data to make it more readily available for analysis to solve socio-economic problems through development of correct policies, yet remaining mindful of the requirement for data anonymity;
  • Digital transformation among organisations in East Africa to become more efficient and globally competitive, and positioning for the 4th Industrial Revolution;
  • Mobile money and financial inclusion; and
  • Growing women leaders in ICT and business in general.

On the last point, the East Africa Com conference has developed a partnership with ITC SheTrades, an initiative of the International Trade Centre, a joint agency of the World Trade Organisation and the United Nations. The SheTrades initiative aims to connect three million women to market by 2021, facilitating opportunities for women entrepreneurs, supported by a web and mobile digital platform. At the conference, the emphasis was placed on bringing women into the tech sector and using technology to enable women to participate in economic activities to a greater extent. This would unlock a lot of additional value and grow the global economy, especially in developing markets.

Connecting ICT stakeholders

The AHUB again proved to be a very useful medium of connecting local technology start-ups with investors, operators and large corporates to foment collaboration on new projects and (hopefully) mutually beneficial partnerships. The discussion panel on “Realising synergies between MNOs and African tech start-ups” illustrated initiatives already in place aimed at creating an environment conducive to start-up development and success, although still only 1 in 10 start-ups achieve some form of success (including survival beyond the short term). Revenue splits from commercial products (such as apps) continue to be skewed in favour of large mobile operators who claim they provider greater inputs into the partnership. This can stymie the growth of start-ups into sustainable companies.

Building a successful digital economy

To build a successful digital economy in East Africa a number of more basic building blocks still need to be put in place. For instance, liberalisation of immigration laws to attract foreign skills and direct investment, or creation of incentive schemes to experiment with new technologies through pilots (“sand boxes”) free from bureaucratic constraints. Availability of requisite spectrum for new access technologies (such as 5G) timeously is also critical.

Regulating new technology

One of the recurring discussion points at the conference revolved around regulating the new technologies and services in the digital world. One first needs to understand what it is that one tries to regulate, which is what the governments and regulatory authorities in many markets are currently trying to achieve. Unfortunately, the consensus was that we are likely to see more rather than less regulation, which is also bound to become more complex with increasing complexity of the digital environment around us. This is at a time when most stakeholders hope to see less, not more, regulation to allow for freer development of the digital future. It is critical for governments and regulatory authorities to embrace new technologies, rather than stifle them with over-regulation, lest we miss out on opportunities the new technologies offer.

4th Industrial Revolution

In a sense, Africa is already well suited to the 4th Industrial Revolution. Out of necessity, and limited formal jobs, the gig economy is alive and well. New technologies such as AI, ML and mixed reality innovation will drive these opportunities and create more formal job. An example is the recent launch of the Africa Development Centre by Microsoft in Nairobi, Kenya and Lago, Nigeria which will bring USD100 million of investment and 500 engineering jobs over the next five years. Africa can take advantage of its young population to drive this growth but it first needs to create capacity.

This report was compiled by Dobek Pater who attended and participated in the 2019  East Africa Com.

Ruling imposed on the MTN / Smart Village acquisition

The MTN acquisition of Smart Village led to an interesting competition condition imposed by the Competition Commission – namely that MTN needed to introduce an open access model for Smart Village. The ruling does raise an interesting question about access to telecommunications infrastructure in gated communities. This note explores the Competition Commission ruling, looks at the issue of competition in gated communities, and considers possible future operator strategies.

The Challenge of Consumer Choice in Gated Communities

Consumer choice can be completely eliminated in gated communities through the establishment of a monopoly provider in these communities. These localised pockets of monopoly come into existence either through the home owners’ association providing an exclusive mandate to an infrastructure provider or by the behaviour of the telecommunications infrastructure provider. The creation of such monopolies results in the gated community consumers being denied choice. Furthermore, the MTN acquisition of Smart Village highlighted this competition issue.

What is the Competition Commission Ruling?

The following text is extracted from the Competition Commission news letter dated July 2016.

On 29 January 2016, the Competition Commission approved with conditions a merger whereby Mobile Telephone Networks (Pty) Ltd (“MTN”) acquired Smart Village (Pty) Ltd (“Smart Village”). MTN is a global communications partner and cellular network operator. Smart Village is mainly active in providing fixed line fibre broadband access to the residential market.

The merger presented a horizontal overlap in relation to the provision of fixed-line broadband fibre optic access network as both parties deploy fibre in gated residential estates. Both parties also operate as Internet Service Providers and offer internet connectivity services to residential estates where fibre is deployed. The Commission found that each gated residential estate constitutes a distinct separate geographic market as gated residential estates generally do not permit the duplication of fibre infrastructure in the respective gated estates. In that regard, there was no geographic overlap arising in the assessed markets. Smart Village holds 100% of the market in each of the gated residential estates wherein it has laid the fibre, thus the merged entity would have monopoly power over each of the gated residential estates.

The Commission found that the vertical relationships arising from the merger would result in a substantial lessening and prevention of competition. The merged entity would acquire a position that would allow it the ability to exercise market power. This could be exercised through foreclosure strategies over its fibre infrastructure in the gated residential estates. In addition, the Commission found that the merged entity would have the incentives to do so as MTN is also able and intends to expand its downstream services offerings in the gated residential estates. Such foreclosure conduct would ultimately harm consumers in those estates where such conduct would be perpetuated and prices are unlikely to decline when there are no viable competitive choices. MTN would also be in a prime position to leverage market power on its fibre into downstream services such as internet connectivity, TV on demand services and security services through bundling strategies.

The Commission found that the input foreclosure strategy could be remedied through the imposition of conditions relating to open access model to the fibre infrastructure on fair, reasonable and nondiscriminatory terms and having transparent and market related pricing. With an open access model, customers in gated residential estates would be afforded choice in terms of product and price offerings. The Commission was further of the view that as long as MTN’s ability to leverage its market power over fibre is curtailed by the adoption of an open access model on a non-discriminatory basis, other potential exclusionary strategies such as bundling are also unlikely to be achieved.

A Brief Global Review

The issue of access of telecommunications infrastructure within buildings or private estates has been dealt with in other jurisdictions. The key themes that run through the regulations are the protection of consumer choice and the encouragement of broadband growth.

Here are a few country examples:

  • Portugal
    • Decree-Law 123/2009 was published, setting out the legal regime applicable to the construction of infrastructures to lodge and install electronic communication networks and to the construction of telecommunications infrastructures in housing developments, urban settlements, concentrations of buildings and buildings. The essence of this law is that it obligates infrastructure sharing within the abovementioned settlements and buildings.
  • Qatar
    • In 2013 ictQATAR (the national regulatory authority) issued a set of instructions to service providers, developers and building owners that specially stated that exclusive telecoms infrastructure usage was prohibited. ictQATAR stated that end-users must have the possibility to choose between the offers of all and any service provider to the public licensed in Qatar and the arrangements which have a negative impact on competition, i.e. exclusionary or exploitative effects, between service providers and/or developers and/or building owners are forbidden.
  • Singapore
    • The telecom riser ducts (or simply risers) in buildings are administered by Infocomm Development Authority (IDA) under the provision of the Telecommunications Act, 1999. IDA’s policy is to reserve the risers for use by fixed-service facilities based operators (FBOs). Any other person or enterprise intending to use the risers shall seek permission from IDA.

In other jurisdictions, different methods of access to in-building or estate infrastructure exists. Where these regulations exist, they serve to promote fair competition.

Gated Communities in South Africa

A key characteristic of South Africa is the number and growth in gated communities.

These gates communities represent concentrated pockets of high-income households who are the prime target segment for the uptake of FTTH services. The challenge, however, is that the home owners’ associations typically sign exclusive contracts that give a single telecoms service provider or infrastructure provider exclusivity in the provision of services to that estate. Alternatively, the exclusivity relationship may arise when the telecommunications infrastructure provider deploys infrastructure and binds the gated community to an exclusive contract that excludes other competitors.

In either approach, the exclusivity behaviour serves to entrench a localised monopoly in a gated estate. Once such a monopoly exists, there exists the conditions for both horizontal and vertical closing out of other competitors. Consumers are thus deprived of freedom of choice.

In their ruling on the MTN/Smart Village acquisition, the Competition Commission ruling recognised this market behaviour and imposed open access conditions on the MTN acquisition.

Operator Strategies to Gain Access to Gated Community Infrastructure

As FTTH retail competition increases, these pockets of high-income households located in gated communities will become the focus of operators. Operators, however, will not gain access – given the monopoly that exists in these gated communities. We thus expect that there will be a rise in operators seeking mechanisms to break the monopoly in order to gain access.

The challenge is – how to gain access to infrastructure on a fair and equitable basis?

  • Given that there are very few open access networks operating in gated communities suggests that the owners of such infrastructure are employing practices to restrict access. Therefore, the likely route an operator will follow would be to approach a regulatory body to mandate such access.
  • It can be argued that these operators can make a case for being granted some form of access to the telecommunications infrastructure within gated communities. Furthermore, there are likely enough global case studies to illustrate how other national regulatory authorities have dealt with this challenge.
  • Approaching ICASA, to grant access to infrastructure, may not be the most expedient strategy to follow.
  • Rather, we would suggest that an approach to the Competition Commission would be the more economical route to follow. Based on the Competition Commission MTN/Smart Village ruling, we would expect that the operators, who challenge this monopoly situation, would receive a favourable ruling from the Commission.

Pre-emptive Strategies – Developing Wholesale Product Offerings

Operators who hold monopolies in gated communities for the provision of infrastructure should seek to develop open access or wholesale product offerings that offer access to other competing operators. This move can pre-empt the imposition of remedies that can end up being more onerous than what the operator would have developed.

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.