South Africa fights over spectrum

Far-reaching regulatory changes look set to heat up broadband competition in South Africa. How far this will improve WiMAX prospects remains less certain, particularly as the debate about how to allocate 2.6GHz and 3.5GHz licences is proving to be divisive and prolonged. Yet South Africa's telecom landscape is undergoing seismic change.

Ken Wieland, Contributing Editor

April 21, 2009

9 Min Read
South Africa fights over spectrum
South Africa fights over spectrum

Far-reaching regulatory changes look set to heat up broadband competition in South Africa. How far this will improve WiMAX prospects remains less certain, particularly as the debate about how to allocate 2.6GHz and 3.5GHz licences is proving to be divisive and prolonged. Yet South Africa’s telecom landscape is undergoing seismic change.

The policy of ‘managed liberalisation’, pursued by communications minister Ivy Matsepe-Casaburrri-and one which favoured existing network operators as it gave them some protection from increased competition-was effectively blocked by a ruling from the country’s high court in August 2008.

Altech, a South African telecoms and media company, had taken its case to court that its Autopage subsidiary-which holds a VANS (value-added-networks services) licence-should be able to build its own infrastructure. The high court ruled in Altech’s favour and, by doing so, ruled against the status quo in South Africa’s telecom markets.

The high court decision means that all VANS licence holders in South Africa, which number over 300, can now ‘self-provide’ or build their own networks. They are no longer obliged to lease backbone capacity from either the country’s two fixed-line operators (Telkom and Neotel), or the three mobile network operators (Vodacom, MTN and Cell C).

And given the government has minority stakes in Telkom, Neotel and Vodacom, the VANS licence holders no doubt feared that Matsepe-Casaburri’s policy of ‘managed liberalisation’ would mean that 2.6GHz and 3.5GHz licence allocations would more than likely benefit the incumbent players and limit competition. The high court ruling means that South Africa’s VANS players can convert their licences into ECNS (electronic communications network services) licences. This is important since having ECNS status is one of the pre-conditions of being able to apply for either a 2.6GHz or 3.5GHz licence.

To rub salt into the government’s wounds, a high court judge, in November, rejected Matsepe-Casaburrri’s personal appeal against the August ruling, underlining the right of ICASA, the country’s regulator, to convert VANS licences into ECNS licences. Adding insult to injury, Matsepe-Casaburrri was ordered by the high court to pay the full legal costs of lodging her appeal.

Although the Communications Users Association of South Africa (CUASA) has complained that ICASA is not moving as fast as it should in converting VANS licences into ECNS licences, the regulatory environment is shifting in favour of the consumer. More facilities-based competition should help to lower prices, and even if a large majority of new ECNS licence holders decide in the end not to build out their own networks, they will at least be able to strengthen their bargaining position for backhaul capacity with incumbent network operators.

But not everyone is convinced that lifting the ban on self-provision will stimulate greater broadband competition in South Africa. “It means nothing,” says Alan Knott-Craig Jnr, managing director of iBurst, a broadband wireless service provider in South Africa’s main metropolitan areas. “In fact, ironically, it will slow down deregulation.”

Knott-Craig says he prefers the original 2.6GHz and 3.5GHz licensing plan whereby a select and limited number of companies would be invited to bid for the new licences to self provide. With more than 300 companies now potentially entitled to throw their hats into the ring for the same limited amount of spectrum, Knott-Craig envisages long-running disputes and courtroom battles over how the 2.6GHz and 3.5GHz frequency bands should be allocated. “The licensing process could be dragged out for years,” he says.

2.6GHz under dispute

In May 2008 ICASA announced a set of guidelines for 2.6GHz spectrum allocation and immediately came under fire. According to the regulator, six nationwide licences of 20MHz are to be offered through auction but candidates would first need to pass a beauty contest before they could enter the bidding process.

To many industry players, including iBurst’s Knott-Craig, 20MHz is simply not enough on which to build an attractive business case. iBurst already has access to 20MHz at 2.6GHz-which is owned by its parent company WBS Holdings-and does not intend to be part of the 2.6GHz licensing process. However, iBurst is very much part of lobbying efforts directed at ICASA to increase the 2.6GHz spectrum allocation to 30MHz per licence. “If ICASA publishes a policy that says it isn’t feasible to run a network on anything les than 30MHz then we should be entitled, by default, to 30MHz as well,” says Knott-Craig.

Another controversial licensing issue relates to ICASA’s stipulation that bidding consortia for 2.6GHz spectrum, in accordance with the Broad-Based Black Economic Empowerment Act of 2003, should be at least 51 percent black-owned. Some local commentators have expressed concern that building a WiMAX network from scratch will be out of the financial reach of black-owned groups, which, in turn, would slow down broadband rollout with spectrum going unused.

Pleasingly for WiMAX supporters, 3.5GHz spectrum is also up for grabs, which is another standardised WiMAX frequency band. ICASA plans to use the same beauty contest and auction combination in this band as it will for 2.6GHz, but they will be regional licences and comprise-according to ICASA’s initial recommendations-2x15MHz spectrum per geographical area. ICASA has stated that between nine and 20 3.5GHz licences will be awarded with the intention of having at least two 3.5GHz operators per local municipality geographical area.

But ICASA, at the time WiMAX Vision went to press, was indicating it could be as late as June 2009 before it reaches a final decision on how it will allocate 2.6GHz and 3.5GHz licences. However, as ICASA is embarking on another round of industry consultation, it does at least give some hope to lobbyists that there is still time to sway the South African regulator.

Room for WiMAX

By African standards, South Africa has a well-developed ICT market. In comparison with even mid-ranking economies in the rest of the world, though, South Africa’s ICT scorecard looks considerably less impressive.

According to EIU (Economist Intelligence Unit) estimates, fixed-line penetration was a meagre 8.2 percent at the end of 2007 (and much lower in non-white households). And in a country where the population is around 48 million, the number of broadband users, according to the EIU, was barely above 700,000 as of 31 December 2007.

The paucity of fixed-line broadband infrastructure, combined with high charges for fixed-line calls from incumbent Telkom, has contributed to strong mobile growth in the country. By mid-2008, mobile penetration was in excess of 90 percent.

Given the clear demand for voice and broadband internet-there were around 15 million internet users in South Africa by the end of 2007 according to the EIU-there is substantial potential for WiMAX to ‘fill the gap’ between supply and demand, not least because Telkom is not obliged to unbundle its copper local loop to competitors. Wireless networks, in most cases, is the only realistic option for competitors wanting to enter the broadband access markets.

And WiMAX already has a presence in South Africa. Neotel, which has held a second national operator (SNO) licence since December 2005, launched commercial WiMAX services in July 2008. Using 802.16d kit from Telsima in the 3.5GHz band-where Neotel has 2x28MHz spectrum-the SNO offers WIMAX as another last mile access option to complement its existing portfolio of enterprise products of fibre access and proprietary point-to-multipoint wireless solutions (10.5GHz) from Cambridge Broadband Networks.

The WiMAX service that Neotel offers is, however, capped at 1Mbps symmetrical rates. “We take the view that if someone currently has a requirement for a 2Mbps symmetrical services, then the potential for bandwidth growth up to 4Mbps and 6Mbps is much faster in the next one or two years,” says Rajeev Sinha, head of products and solutions at Neotel. “It makes sense to deploy other media that can support the higher bandwidth requirements, such as fibre and point-to-multipoint wireless.”

Where WiMAX has a distinct advantage over fibre and traditional leased lines is quick installation times. “If the branch offices are in the coverage area where we have base stations, and are getting NLOS [near line of sight], we can connect in less than a week,” says Sinh. “Fibre-based solutions can take up to six weeks.”

Neotel’s initial geographical focus for WiMAX is in three metropolitan areas: Guateng (Johannesburg and Pretoria), Cape Town and Durban. By the end of Neotel’s 2009 fiscal year (31 March), Sinha says it will have about 80-85 percent WiMAX coverage of its addressable market in these three areas. “The following year we will increase coverage close to 100 percent and then we will move into other geographical areas,” he says. Neotel has also applied for a 2.6GHz licence with the intention of deploying Mobile WiMAX networks for fixed and nomadic applications.

The WiMAX offering by iBurst is available in Johannesburg, Pretoria, Cape Town and Durban. Launched commercially in October 2008 -using a total of 125 802.16e base stations from Alcatel-Lucent and Huawei-a WiMAX best-effort broadband service is targeted at high-end households and SoHos, while an assured rate WiMAX product has been designed for SMEs.

“The maximum assured symmetrical rate we have is only 512Kbps, but that has more to do with the amount of spectrum we have than with the technology,” says iBurst’s Knott-Craig. “Having said, 512Kbps is perfect for around 60 percent of businesses in South Africa. The broadband service, which can burst to 2Mbps but averages out at around 1Mbps, has no guarantees attached to it.”

Knott-Craig takes the view, at least in the medium term, that WiMAX can complement HSDPA, proprietary wireless and DSL solutions. Vodacom, South Africa’s leading mobile operator in terms of subscribers, holds a 24.9 percent stake in WBS, iBurst’s parent company. And through a MVNO arrangement with Vodacom, iBurst offers its own branded HSDPA service. “As a strategy, it is senseless to tie yourself in to only one network. One type of technology can’t service every type of customer’s specific broadband needs,” he says. “WiMAX, for now, is positioned at the higher end of the market offering a faster, more reliable service. Better than ADSL but not as good as leased line.”

Further down the line, once Mobile WiMAX coverage is ubiquitous, Knot-Craig believes 802.16e could compete head-on with cellular. In the meantime, a more pressing issue for him is spectrum allocation. He is particularly irked that Telkom and Sentech (a broadband provider) is sitting on large chunks of spectrum and making little use of it. “ICASA needs to adopt a ‘use it or lose it’ policy,” he says. “It also needs to allocate spectrum fairly and to people who have got sufficient capital to do something with it. ICASA needs to create certainty in the market.”

Hear from Jeanine Rebalo, Executive Head of Access Solutions, Vodacom, at WiMAX Forum Global Congress Amsterdam 1-3 June 2009. Visit now to book your place!

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