Will the spectrum auction process drive real competition
The telecommunications industry is buzzing following the release of ICASA’s Invitation to Apply (ITA) for the much sought-after 2.6 GHz and 3.5 GHz spectrum. While spectrum is not really top of mind for most people, it is an absolute necessity for a telecommunications operator to deliver services. There is however still concern about a number of gaps in the ITA and questions have been raised around who will be allowed to bid or not.
According to Siyabonga Madyibi, Regulatory Director at Internet Solutions, the objective of allocating additional spectrum in these two band has always been to encourage more equitable distribution of spectrum which would in turn create more competition and unless the questions remaining are answered effectively, the process could fail in its purpose. “It has always been communicated that if an organisation already has access to last mile spectrum, they should be precluded from participating in this process,” he says. The ITA released by ICASA is however not clear on this. “Those organisations who already have spectrum in these two bands are definitely excluded, but the ITA does not clearly state that those who have access to other last-mile spectrum will be allowed to bid or not.”
There is also the question around indirect access to spectrum. “Our question is simply whether an entity that is a subsidiary of another entity that already has access to spectrum will be allowed to bid.” He further asks, “If they are included in the process and they are successful, will the parent company be allowed to use that spectrum?” The transfer of spectrum, either through sale or sub-lease is another gap in the ITA. “If a company is successful in their bid, are they allowed to transfer that spectrum to an entity that did not bid, either through sale or sub-lease?” The concern here is that it will create the opportunity for successful bidders to then sell the spectrum to other parties at exorbitant prices.
The final question is around the actual bid process as there is still uncertainty around how the four licences will be granted. “We are not sure whether it will be a closed auction or not, what is clear however is that the auction will end when the highest bid is recorded, but does that mean that the highest bid becomes the price across all four licences, or will they the other licensees then pay what they bid for?” He says that the industry really needs a much clearer understanding of the model of the auction, the rules and how the four successful bidders will be determined.
Where auctions were held for the allocation of spectrum in other territories, such as the 3G auctions in Europe, the high bid prices led to some companies going under in the process and Madyibi hopes this will not be the case in South Africa. “We do however run the risk of artificially elevated prices unless the playing field is even and this will not happen should companies with existing spectrum be allowed to participate.” He believes that should these players be allowed to participate in the auction process, they will eliminate the chance of new entrants or smaller players acquiring spectrum. “Effectively they will use this process to reinforce their positions of dominance by acquiring what is left of the much needed last mile spectrum in SA. This will effectively marginilize licensees who have not previously had any access to last mile spectrum. The end result will be a market that is heavily tilted in favour of the incumbent operators and at the end of the day the biggest looses will be consumers who will suffer as there will never be real competition in this environment.” He is also concerned about auction prices being pushed up by the bigger players. “If the cost of acquiring the spectrum is too high, the smaller players do not stand a chance as that cost is only the beginning and there is still the cost of rolling out a network to consider.”
While these questions remain unanswered as the deadline for the applications loom, Madyibi believes the fact that the auction is going to take place presents a tremendous opportunity for the industry. “It is long overdue and although the ITA does not address all our concerns, we are positive that ICASA will put the necessary measures in place to ensure that the auction meets its objectives around creating competition,” he says. “It is really an exciting time for the telecoms industry as this increase in competition will allow smaller players to make a bigger impact in the drive towards broader access at more affordable prices,” Madyibi concludes.
TAMMY DU PREEZ
Communications Manager
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