Cablegate: South Africa: Telecom Regulator Struggles For

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DE RUEHSA #2711/01 1841435
ZNR UUUUU ZZH
R 031435Z JUL 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4313
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUCPDC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 PRETORIA 002711

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DEPT FOR EB/CIB TCARNEGIE; FCC FOR PBOATENG/JJENNINGS
USDOC FOR 4510/ITA/MAC/AME/OA/JDIEMOND

E.O. 12958: N/A
TAGS: ECPS EINV ECON SF
SUBJECT: SOUTH AFRICA: TELECOM REGULATOR STRUGGLES FOR
INDEPENDENCE

REF: A) PRETORIA 3001, B) PRETORIA 4621,
C) PRETORIA 4934

Sensitive but Unclassified; Protect Accordingly. Not For Internet
Distribution.

1. (SBU) Summary. South Africa's beleaguered telecommunications
regulator, ICASA (Independent Communications Authority of South
Africa), received a bit of good news when constitutional changes
guaranteeing the regulator's independence were proposed to
Parliament June 22. The Minister of Communications has made
repeated attempts to gain control of ICASA through pending
legislation. The regulator has been struggling to operate
effectively as three of seven councilors are departing, four of five
senior managers have quit, the CEO has been suspended and the
chairperson's management ability is under attack. Industry analysts
believe that ICASA's independence and capacities must be
strengthened to implement new legislation targeted at increasing
competition in the high-cost telecommunications sector dominated by
the parastatal monopoly Telkom. End Summary.

Regulator Struggles for Independence, But ...
---------------------------------------------

2. (SBU) The South African Parliament's Constitutional Review
Committee has recommended changing the constitution's definition of
ICASA from "broadcasting regulator" to a more accurate "electronic
communications regulator". The Committee seeks the change to assure
that ICASA will be afforded special protection under section 192 of
the constitution, allowing the regulator to remain independent.

3. (SBU) The recommendation is the latest development in pending
legislation targeted at converging regulations in the communications
sector. In December 2005, Parliament passed and sent to President
Mbeki for signature the Electronics Communication Bill (formerly
known as the Convergence Bill) and the ICASA Amendment. The Bill
and the Amendment are inextricably linked as the Amendment gives
ICASA the authority to implement the Bill. Prior to passage,
Minister of Communications Ivy Matsepe-Casaburri had succeeded in
having last-minute changes made to the Amendment in order to gain
greater control over the regulator. The telecommunications
industry, supportive of a strong independent regulator, cried foul.
Mbeki subsequently refused to sign the Amendment and instead sent it
to the Constitutional Review Committee with a request that it
determine whether ICASA should enjoy the same special protection
which guarantees independence that other South African regulators
have. The Committee agreed and is now engaged in a lengthy process
to change wording in the constitution.

4. (SBU) ICASA has long battled with the Minister of Communications
to maintain its independence. The Minister already indirectly
influences the regulator as ICASA is prohibited from collecting fees
for its services and must rely on the Minister for funding. The
Amendment would give the Minister more control through the power to
hire and fire the seven ICASA councilors, a duty now handled by
parliament and protected under section 192 of the constitution (Ref
B). During the Constitutional Review Committee hearings the
Minister's Director General Lyndall Shope-Mafole recommended that
the word "independence" be stripped from the regulators title.
Leaders of the largest opposition party, the Democratic Alliance,
called for Matsepe-Cassaburri's resignation. Mbeki's rejection of
the Minister's changes to the Amendment is widely seen as a rebuke.

Faces Management Crisis; Meanwhile ...
--------------------------------------

5. (SBU) The Committee's support for ICASA's independence is good
news. Unfortunately, ICASA is in the midst of a major management
crisis which will leave it a weakened organization, at least in the
short term. Chairman Paris Mashile, who took his position in July
2005 after serving three months as a councilor, is widely viewed by
the telecommunications industry as a political compromise, who tends
to side with the Minister. Since taking his seat as chair, Mashile
has seen his CEO Jackie Manche suspended in November for alleged
misconduct. Three of the seven ICASA councilors are leaving this
month, and Parliament's ability to name replacements has been
hampered by the pending convergence legislation. One of the
departing councilors, Mamodupi Mohala, came under
conflict-of-interest scrutiny last month for being paid to do legal
and consulting work for telecom providers while serving as
councilor. Four of ICASA's top five managers have quit, and many
other senior employees have left, often to work in the
better-paying, more stable private sector. Meanwhile, Mashile also
came under personal attack last month when exit reports from former
ICASA employees were leaked to the press. The reports allege that

PRETORIA 00002711 002 OF 002

Mashile arrived late to work, slept on the job and went on junkets
paid for by the same telecommunication firms he is responsible for
regulating. Industry experts seriously question Mashile's and
ICASA's ability to implement sweeping legislative changes contained
in the Electronic Communications Bill which is likely to embroil
ICASA in litigation and increase workloads.

High Telecoms Costs Hinder Growth.
---------------------------------

6. (SBU) South Africa is plagued with extraordinarily high
telecommunication prices, which economists and senior government
officials, including the President, say are hampering growth. In
his February 2005 State of the Nation address Mbeki condemned high
fixed-line prices stating they cost ten times more than in developed
countries (Ref A). The Electronic Communications Bill seeks to
converge regulation within the sector and open it up for
competition. Convergence would bring together services now offered
separately by traditional fixed-line, mobile and data services
providers. The Bill allows competing telecommunication providers,
mainly internet providers, to either use the nation's fixed-line
infrastructure built and owned by parastatal monopoly Telkom or to
build their own networks (Ref A). A second national operator (SNO)
was licensed by ICASA in December 2005 and is expected to begin
fixed-line operations later this year (Ref C). The SNO will have
access to Telkom's local loop infrastructure for a two-year period
and is seeking interconnect agreements with Telkom and the mobile
operators. However, industry analysts predict the SNO's market
entry will do little to lower telecom prices for most South Africans
as the SNO plans to concentrate on the business-to-business market
segment. Some market liberalization and price competition has
occurred in the cellular phone market segment which enjoys three
established operators, and a fourth, Virgin Mobile, entered the cell
phone market in late June. Number portability between cell phone
providers is set to begin next month allowing cell phone users to
switch providers without changing phone numbers.

7. (SBU) Comment. Building ICASA's capacity, and implicitly its
independence, primarily through assistance from the Federal
Communications Commission remains a key Mission goal. A third round
of FCC-ICASA consultations is currently held up while ICASA deals
with its management and legislative issues. TEITELBAUM

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