19 November 1998
Cabinet yesterday approved the licensing of two additional national mobile cellular telecommunications services, paving the way for increased competition in a sector that has seen in excess of 50% growth per annum.
Jay Naidoo, Minister for Posts, Telecommunications and Broadcasting says Cabinet also agreed to a number of broad principles in terms of which new cellular operators would have to comply, (Cabinet decision in italics). These include:
Limiting the license period to 15 years. This is the same as for MTN and Vodacom;
Requiring a once-off license fee of R100 million payable by each of the new operators; they will have the option of paying it off over the licence period with interest. This is the same as for Vodacom and MTN, including the interest. Inflation was not considered in order to account for the 5-year headstart by the incumbents. With respect to the length of the stagger period for payment, MTN and Vodacom had 5-years of stagger with interest. The new entrants are offered 15 years of stagger with interest.
Levying an annual income-based fee, calculated as a percentage of annual gross turnover. This will be calculated on the gross turnover because it is a simpler method for the fee calculation. The annual income-based fee will not be paid for the first two years to account for the late entry into the sector by the two new licensees. MTN and Vodacom received a grace period of one year. Putting a 5-year moratorium on the issuing of other similar licenses (calculated from the date of the issue of the current two new licenses). The new entrants will be given the opportunity to grow their businesses without further competition for five years. The incumbents received a similar benefit but in the form of a sliding scale deduction on their outstanding license fee which was R100 million.
Requiring empowerment shareholding be part of the license bid, with the sale of empowerment shares being done through a competitive bidding process. The new entrants will be required to maintain a legitimate and meaningful empowerment shareholding. MTN and Vodacom had no similar requirement. Requiring new operators to upgrade their infrastructure to 3rd generation technology as early as possible. The new licenses will permit upgrade to 3rd generation technology. MTN and Vodacom were exclusively licensed for GSM in the 900 MHz band. SATRA has decided that it will not be prescriptive with regard to the type of technology that must be used for these new licenses in order to encourage innovation and affordability.
Encouraging infrastructure sharing and roaming among cellular operators, but not making it mandatory. Infrastructure sharing and roaming where technically feasible among all cellular licensees will be encouraged in the public interest. MTN and Vodacom roamed with each other at the beginning of their services through an agreement and currently share some infrastructure. Requiring Universal Service principles be supported, with the key indicators being affordability, price and quality of service. Affordability of the services provided by the new entrants will be a key consideration in the licensing.
Setting a penalty for defaulting on Universal Service targets that are similar to those applicable to Telkom or as determined by SATRA during the current license re-issue process for incumbent operators. "The Department of Communications and SATRA will now embark on a major local and international communications drive – in parallel to the licensing process – in order to stimulate interest in the additional cellular licenses," Naidoo says.
"On my recent visits abroad, I have met with a number of international companies who have expressed keen interest in participating in the license applications, and I am optimistic that we will attract the best companies in this sector to invest in South Africa," he says. "I believe that these broad principles give great clarity and certainty to potential bidders, and in fact create an inviting environment, for investors."
Naidoo says in just five years, South Africa has grown from having no cellular services to being the fourth fastest growing GSM market in the world. "MTN and Vodacom have signed up more than two million since 1994, and the total revenue earned from this sector is estimated at R4 billion per annum."
SA Telecommunications Regulatory Authority (SATRA) Chairperson Nape Maepa says the endorsement by Naidoo and his colleagues in Cabinet of SATRA's recommendations marks the first major step towards the fulfilment of the objectives of the Telecommunications Act.
"The Council of SATRA recognises and appreciates the significance of this important Cabinet decision which clearly will contribute to the growth of the South African economy," he says.
The next step in the process is for the Department of Communications to appoint a technical advisor who will then assist in drafting the actual Invitation to Apply. Naidoo said he expected to be able to make an announcement on this shortly.
"Once the Invitation to Apply has been released, we expect that three months will be sufficient time for companies to submit their bids, and in terms of the process outlined in law, SATRA will have sole responsibility for adjudicating the tenders and awarding the license," Naidoo says.
Contact: Mandy Jean Woods
Phone: 082 653 4211
Email: mandy@doc.org.za