Late last year, the Competition Commission issued its final report on its data services market inquiry, and ICASA commenced a mobile broadband inquiry. This year, these regulators will be tasked with translating their analysis into reality.

The Competition Commission’s final report makes extensive recommendations, but their immediate implementation will depend on the Commission securing voluntary commitments from the mobile network operators (MNOs).

Failing this, the Commission will refer complaints in terms of the Competition Act, or there will need to be extensive future regulation (or both). Amendments to the sector specific legislation for the telecoms sector, the Electronic Communications Act (ECA), may also be required.

At the retail level, the Commission suggests that:

• Within two months of the release of the report, the dominant MNOs, Vodacom and MTN, agree to “substantial and immediate” reductions on tariff levels, especially prepaid monthly bundles (in the region of 30% to 50%), as well as a reduction in the headline prices of all sub-500MB 30-day prepaid data bundles to reflect the same cost per MB as the 500MB 30-day bundle.
• The dominant MNOs should also agree to stop “ongoing partitioning and price discrimination strategies that may facilitate greater exploitation of market power and anti-poor pricing”.
• Within three months, all mobile operators – not only the dominant MNOs – should agree to offer all prepaid subscribers a lifeline package of daily free data to ensure all citizens have data access on a continual basis, regardless of income levels. The Commission recommends that this agreement should be given formal legislative or regulatory effect within six months. The Commission suggests that this obligation be imposed via the ICASA End-User and Subscriber Charter Regulations, spectrum licensing conditions or planned amendments to the ECA.
• Within three months, all mobile operators – not only the dominant MNOs – should agree on a consistent industry-wide approach to the zero-rating of content from public benefit organisations and educational institutions.
• Within three months, all mobile operators should agree to inform each subscriber, on a monthly basis, of the effective price for all data consumed by the customer. The Commission suggests that this agreement should be given formal regulatory status in the ICASA End-User and Subscriber Service Charter within six months of the report.
• Within two months, Telkom Openserve should agree on substantial reductions in the price of IP Connect to remove excessive pricing concerns.
• The Commission intends to “institute ongoing monitoring of pricing levels and profitability into the future until the market becomes more competitive (although it is not entirely clear which provisions of the Competition Act will be applied in order to compel production of this information by the MNOs).

The Commission has no means to compel MNOs to enter into these agreements. However, it has indicated that, if the MNOs do not agree to implement its recommendations, it will refer complaints to the Competition Tribunal (presumably, of excessive pricing and/ or price discrimination by those MNOs it can show are “dominant firms”).

Section 43(3)(c) of the Competition Act (prior to its amendment) allows the Commission to do this without conducting any further investigations. However, previous complaints of this kind in the South African steel and plastics industries have proven to be costly and protracted. In such highly complex and dynamic markets, featuring substantial levels of investment and innovation by all of the MNOs, they may be difficult to sustain.

In parallel, one or more of the Commission’s recommendations may be imposed by ICASA through regulation. Currently, the only means for ICASA to regulate retail pricing is for price controls to be imposed as a pro-competitive condition following a market inquiry process conducted in terms of section 67 of the ECA.

However, this process requires that ICASA first define the relevant wholesale or retail markets, and determine whether there is “effective competition” in those markets and whether there are operators with “significant market power” (SMP) in those defined markets. Only then, can ICASA impose “appropriate pro-competitive licence conditions” on operators with SMP, which can potentially include price regulation.
So far, ICASA has only implemented price regulation in a single market – when it regulated wholesale mobile termination rates (the price which the operators charge each other to terminate calls on each other’s networks).

Regulation of the prices which MNOs charge consumers at the retail level (across a myriad of different pre-and post-paid packages) will be considerably more complex and time consuming – not least of all, because price regulation is likely to require suitable cost models. In addition, as the Commission’s report points out, the current wording of section 67 of the ECA presents obstacles to the kind of retail price regulation the Commission proposes.

The Commission accordingly suggests a “complete review of section 67 of the ECA to ensure that the preconditions for regulatory action are proportionate to the type of regulatory action and that ICASA can regulate on the basis of findings by the Commission, other relevant regulators or courts”. Any amendments of this nature by Parliament will obviously take some time to finalise and become effective.

ICASA is already engaged in a section 67 inquiry on mobile broadband services, and at the end of November, issued a discussion document in which it identified “an aggregated market for all retail mobile services” as well as four different wholesale markets for potential regulation, namely: spectrum, site access, roaming and MVNOs (mobile virtual network operators). It is not clear whether ICASA will implement any of the Commission’s recommendations in relation to these markets through this existing process.

On the wholesale level of the market, the Commission recommends:

• Facilities: Legislative changes to facilitate cost-based access to facilities, which allows for the setting of pricing standards for different types of facilities, such as cost plus a fair return for essential facilities, but a less stringent standard for non-essential facilities.
• Essential facilities: ICASA should define “essential facilities” as a basis for regulating pricing at cost plus a fair return.
• Roaming: Within six months, Vodacom and MTN should agree that their national roaming agreements with other networks are priced, at a minimum, at wholesale rates which reflect a reasonable discount on their own effective retail rates as measured by the average revenue per GB, with provision for annual downward revisions to reflect reductions in their own effective retail rates over time. The Commission says that if no such agreement is reached, the Commission will proceed with a complaint referral to the Tribunal based on excessive pricing and/ or exclusionary conduct. In addition, the Commission suggests that minimum pricing standards for national roaming should be incorporated into amendments to the ECA, and should include powers for ICASA to regulate roaming agreements.
• MVNOs: All mobile operators should agree to ensure that their wholesale MVNO rate reflects a discount on their prevailing effective retail rate. Failing such an agreement, the Commission may consider referring a complaint.

Some of the Commission’s recommendations, for example in relation to facilities access and national roaming, could potentially be implemented by ICASA following its current mobile broadband inquiry process. This is particularly given that ICASA has already identified roaming and site access as markets which are potentially characterized by ineffective competition. It is not clear, however, whether the pricing recommendations put forward by the Commission – particularly if they are applied to MNOs without SMP – would be capable of being implemented by ICASA under its existing powers to impose pro-competitive conditions. In order to give effect to the Commission’s recommendations, the ECA may have to be amended.

It remains to be seen whether the Commission’s recommendations will be agreed to by one or more MNOs or will be given effect to by ICASA pursuant to its mobile broadband inquiry, or in the IMT spectrum assignment process that it has initiated. It is also not clear whether the Commission’s suggestions will find their way into the current process which is underway to amend the ECA. Navigating the complex web created by the exercise of concurrent jurisdiction over competition matters by two independent regulators, will remain a challenge.