Cablegate: South Africa Telecom Regulator Consults With

VZCZCXRO0905
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #4937/01 3541031
ZNR UUUUU ZZH
R 201031Z DEC 05
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0563
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 03 PRETORIA 004937

SIPDIS

SENSITIVE

SIPDIS

FCC FOR PBOATENG

E.O. 12958: N/A
TAGS: ECPS EINV ECON SF
SUBJECT: SOUTH AFRICA TELECOM REGULATOR CONSULTS WITH
FCC

SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY. NOT
FOR INTERNET DISTRIBUTION.

REF: (A) PRETORIA 3001
(B) PRETORIA 1441

1. (SBU) SUMMARY. Three FCC advisors met with
telecommunications regulator ICASA (Independent
Communications Authority of South Africa) to provide
technical advice on competition and pricing during
September 28-30. FCC presentations covered US
regulations and policies regarding pricing and
fostering competition. ICASA is regarded by the
telecommunications industry as a weak regulator unable
to develop meaningful competition to the monopoly
provider Telkom. FCC and ICASA concluded that they
would continue to consult on the development of
competitive alternatives to Telkom and, strengthening
ICASA's capacity. END SUMMARY.

2. (U) At the request of the Independent Communications
Authority of South Africa (ICASA, the
telecommunications regulator), a team of three senior
officials from the Federal Communications Commission
(FCC) traveled to Johannesburg September 28-30 to
provide advice on regulatory matters. The FCC team
included Advisor for Africa and the Middle East Patrick
Boateng, as well as Senior Advisor Jake Jennings and
Senior Economist Chuck Needy of the Office of Strategic
Planning and Policy Analysis. Participating from ICASA
were five of seven Councilors (equivalent to FCC
Commissioners), technical and policy experts from
ICASA, telecommunications industry representatives,
Department of Communications (DOC) policy officials,
and two Parliamentarians from the Portfolio Committee
on Communications. FCC presentations included
unbundling the local loop to promote competition,
pricing models for fixed and mobile services, as well
as regulating undersea cable, broadband services, voice-
over-Internet protocol (VoIP), and inexpensive Internet
for schools.

3. (U) The top priority for ICASA was to address the
public outcry over high telecommunications prices.
According to a market assessment study completed by
Genesis Analytics in April 2005, telecommunications
prices in South Africa were considerably higher than
developed countries and most countries in its peer
group. Out of ten categories surveyed, prices in South
Africa ranked the highest in the following five
categories: international leased lines, business-local
calls, business-ADSL, retail-ADSL, and domestic leased
lines. South African prices ranked second highest in
business-mobile calls. (Ref A).

4. (U) In advance of the FCC visit, ICASA conducted a
needs assessment to identify areas for discussion. The
assessment identified five topics: VoIP regulation and
access to emergency services, broadband regulation in
general, pricing for telecommunications services,
universal access (with particular emphasis on the
implementation of the education-rate), and regulation
of inappropriate content on mobile telephones. In
addition, the FCC team met with ICASA Councilors before
starting the two and a half day consulting session to
better understand ICASA needs.

Industry Views
--------------

5. (SBU) Industry representatives from Motorola, IBM,
and WorldSpace also met with the FCC team before its
consulting session with ICASA to identify areas where
ICASA needed assistance. Also participating in this
meeting were a former Chief Operating Officer for
Telkom (from SBC) and a legal advisor to a former ICASA
Chairperson. To a person, they each expressed
frustration in their dealings with ICASA, an agency
they criticized as being weak and incapable of
fulfilling its mandate. Industry representatives also
characterized ICASA as becoming increasingly
politicized. As a case in point, they highlighted the
compromise appointment of new ICASA Chairperson Parish
Mashile, who they felt was inexperienced and probably
incapable of providing the leadership needed to keep
ICASA independent.

6. (SBU) Industry representatives also believed that

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the Minister of Communications held the balance of
power on regulatory matters, and was pushing for even
greater control. As it stood, ICASA was wholly
dependent upon DOC for line item funding. Unlike the
FCC, which derived more than 90% of its revenues from
licensing fees and frequency auctions, ICASA was
beholden to DOC for funding. This hamstrung its
mission, left it chronically short of funds, and caused
many experienced staffers to seek greener pastures.
They also pointed out that, at the time, DOC was
pushing for passage of the Convergence Bill, now called
the Electronic Communications Bill (Ref B). The
purpose behind this legislation was to make ICASA the
sole regulator for telephony, post, Internet and data
communications, as well as broadcast radio and
television. However, a DOC-sponsored amendment to the
bill could have the Minister of Communications
appointing the ICASA chairperson and all ICASA
councilors. This would threaten the independence of
ICASA and further politicize the regulatory process.

7. (SBU) Industry representatives expressed support for
the development of a strong regulator. However,
frustrated with ICASA's performance, they seemed
prepared to lobby DOC to achieve their individual
objectives. They were aware that if they took this
route, they risked marginalizing ICASA. Moreover, they
believed that DOC possessed even less regulatory
capacity than did ICASA.

FCC Presentations
-----------------

8. (U) The FCC team opened the session with an overview
of the U.S. system. Boateng spoke about the FCC as an
agency and its regulatory processes. Jennings spoke
about the U.S. regulatory framework and FCC policy
goals, as well as fostering local competition and the
roll out of broadband in the United States. Jennings
then led discussions on IP-enabled services (such as
VoIP) and access to emergency services, as well as
market power and market definition. Boateng led
discussions on alternative broadband technologies
(WiFi, WiMax, broadband over powerlines), as well as
administration of the U.S. Universal Service Fund.
Needy led a discussion on fixed line and mobile
telephone pricing, as well as undersea cable access and
regulation. Boateng concluded with a presentation on
the administration of the U.S. Universal Service Fund.

9. (SBU) ICASA sought expert advice on developing
regulation that would enable a Second National Operator
(SNO) to compete against Telkom and on ways to increase
competition. According to the FCC, ICASA could
significantly reduce or eliminate the rates that Telkom
charged for network access. One way would be for ICASA
to use foreign prices as benchmarks for access to
leased lines, interconnections, and switched access.

Fostering Competition
---------------------

10. (SBU) Fostering competition was a major concern of
ICASA officials. South Africa had no coaxial cable
television companies operating in its market and,
therefore, this option for promoting competition was
not viable. The most immediate option appeared to be
Eskom, South Africa's giant parastatal electric
utility, which owned its own telecommunications network
as well as a power grid that could be used to transmit
broadband. Eskom held a 30% share of the soon-to-be-
licensed second national operator and a supplier
relationship with municipal electric utilities that it
could explore to role out local broadband services.
[Note: In December 2005, ICASA finally issued a license
to the second national operator (Septel). End Note.]

Stronger Regulation Needed
--------------------------

11. (SBU) FCC and ICASA concluded that they would
continue to consult on the following initiatives: the
development of competitive alternatives to the dominant
provider Telkom via wireless broadband (WiFi/WiMax) and
broadband over power lines; the reduction of access
rates through stronger regulation and the use of
foreign prices as benchmarks; and, strengthening
ICASA's capacity politically, financially, as well as

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operationally. The FCC advisors and ICASA participants
independently reported that the exercise "exceeded
expectations."

12. (U) Cable is based on FCC trip report.

TEITELBAUM

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