SOUTH AFRICA - PRIVATE SECTOR CHALLENGES THE GOVERNMENT TO CREATE REAL COMPETITION

10 May 2002

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South Africa is the first major sub-Saharan African country that is trying to create a competitive connectivity market. How it is done and whether it succeeds will have important lessons for the rest of the continent.

 

One lesson that is already apparent is the importance of bodies outside the Government and the regulator who can represent and lobby for different interests. South Africa has strong industry advocacy bodies but much weaker consumer interest bodies: both will be essential in a competitive future.

 

This week we interview Mike van den Bergh, Chair of the SA VANS Association who has been one of the leading lights of the industry’s struggle to ensure a competitive environment. He talks about what true competition would look like and the potential prize it will bring for South Africa’s economy.

 

Mike van den Bergh has run FirstNet for 10 years and he also chairs the Communications Users Association of South Africa (inc banks, manufacturers, oil co’s, etc) and is Vice-President of the e-Commerce Association and Vice-Chair for the African region of the International Telecom Users Group.

 

Why has the SA VANS Association put in a formal complaint to the Competition Commission?

 

We believe that competition should come in as soon as possible. As a result of the delay in licensing the second national operator - SA VANS and ISPA (the South African internet providers association) have put in a formal complaint to the Competition Commission. From informal discussions, we know that the Commission has an appetite for the issue and is prepared to aggressively investigate. There was an issue of areas of responsibility - whether this was part of another body’s remit - but this has now been settled and the Commission will take matters forward,

 

What are the three main headline issues you think need investigating?

 

  1. Discriminatory and predatory pricing.

 

  1. Free, open and fair access.

 

  1. Prohibition of illegal bundling.

 

Won’t these issues simply get lost by the time the Commission report?

 

No, because the Commission is bound by law to report within a year and we’re hoping for something within six months. Some of these issues may not come to anything as thing are moving fast and issues may get overtaken by subsequent changes. We would not have made the complaint if the SNO had been licensed on time. We’re calling on the Minister to issue a provisional licence so that it can start operating as soon as possible. Then when other matters are sorted out, they can give it a full licence.

 

Why has the process been delayed?

 

There has been a range of issues. The hold-ups have been primarily administrative. We live in a consultative society...Then there was the wrangle between the regulator and the Department of Communications over whether to consider the issue of the black empowerment shareholding (19%) in isolation. Now it has been agreed that they will adjudicate that part. It could be a year behind schedule.

 

What would a fully competitive environment look like? What would it offer?

 

You would have an effective competent regulator. There would be a minimum of three full-service network operators. There would be well structured, competitively trading distribution channels with wholesale and retail providers. And there would be unrestricted access to facilities. There would also be subsidiary licences for broadband and the local loop.

 

How quickly will South Africa get anywhere close to this?

 

We can move towards this competitive environment with two national operators and no restriction on traffic. It will take somewhere between a year and 18 months subject to political will. One of the problems that the Government created for itself was the Telkom IPO. It’s got a conflict of interest. There was a battle between Trade (responsible for the IPO) and Communications (who wanted a 3rd operator). After this, they retracted the idea of a third licence. You have to ask will restrictions lead to a better price for Telkom? Things might move faster once the IPO goes ahead.

 

The minority shareholders in Telkom have considerable power. They have used their agreement with the Government (which is commercially confidential) to resist changes. This agreement has been around far too long in the discussion and needs to come off the table.

 

Who’ll buy Telkom?

 

Well it won’t be a US company. There’s a perception in Government that SBC has exerted too much control over Telkom. It’s not going to be one of the major European carriers: some like France Telecom and BT have already discounted themselves. So the ones who might be bidding will be what one might call the second tier European carriers (like Portugal Telecom and Telefonica) or Asian carriers like Singtel/Optis or Telstra or someone else from the Far East. The "dark horses" might be the Indian carriers VSNL and BSNL but things seem to have gone quiet from that direction.

 

What will be the impact of competition on market size?

 

It has significant capacity to grow, It has been stifled by high cost and low availability. There’s been no incentive for Telkom to go into leading/bleeding edge technology. A good example is ADSL. It will cannibalise their existing line business. This example underscores the need for transparency, The incumbent player will only give you what they want you to have and this has resulted in high costs for local and international bandwidth.

 

There is a huge untapped market for e-commerce and companies in South Africa want opportunities to change to take advantage of it. Leading industry analyst BMI has projected that bandwidth demand will go from just over 400,000 mpbs in the current year to just under 1.4 mbps in 2006. Potentially the prize is massive if we can get it right.

 

Aren’t SA VANS simply seen as a self-interested party?

 

Yes, bodies like us are deemed to have a vested interest. That’s why we set up Communications Users Association because it’s a user community that represents the whole economy.

 

What will happen about VOIP?

 

One of three things:

 

  1. The competition authorities will have to allow us all to offer it.

 

  1. There will be a constitutional approach using legal means to overturn it.

 

  1. The SNO will begin to open up the possibility of others operating as wholesalers.

 

What does FirstNet itself do?

 

We are an e-services organisation and a telecoms and networking business. In terms of e-commerce, we handle more than half of the B2B electronic transactions in South Africa (excluding the banks). We handle 3.8 million transactions a month with an underlying value of R65-70 billion a month.

 

On the networking side, we create virtual private networks for a large chunk of corporate South Africa: somewhere between 30-40%. We also do international managed network services via BT Ignite and are also an internet service provider.

 

What do you do in the e-commerce field?

 

Well our market includes: retailers, supply chain managers, health care and insurance claims and transportation/logistics. Most of it is done via EDI, virtually linking application to application. In terms of trading exchanges, there is relatively minimal use of the web. A recent study showed that B2B via the web was R5 billion vs EDI R125 billion. Both will continue to grow but somewhere around 2007 the internet transactions will overtake EDI.

 

There’s a lot of Commerce One-based B2B sites. For example the South African oil company SASOL. They’re all battling to make these things work. Visually they’re absolutely whizz-bang but they’re not making market share.

 

We have a clothing retailer who’s connected to all its suppliers: everything is electronic via EDI. The vast majority of suppliers receive via the web, e-mail and XML but it doesn’t matter to them how it’s done. And that’s suppliers in places like mainland China, Taiwan and Hong Kong,

 

Where are the future opportunities for FirstNet?

 

In deregulation. FirstNet can position itself in the wholesale space and develop its corporate customer base. Internationally, there’s the rest of Africa where we’re looking to deliver totally converged services: we’ll offer the most efficient routing.

 

 

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