Telecommunications and Broadcasting Regulator ICASA’s justification for the imposition of license fees for the COVID-19 emergency spectrum does not stand up to scrutiny. In April, Regulator ICASA released the emergency spectrum to incumbent licensees in five different frequency bands valid until three months after termination of South Africa’s COVID-19 national state of disaster or 30 November 2020 (whichever occurs first), for which carriers and the public praised the SA Government. At the same time, the move demonstrated that spectrum was readily available despite being withheld for years. A pandemic was needed to force the government to act quickly and unbureaucratically without imposing costs for the use of the emergency spectrum. The reason given was that the additional spectrum would help operators meet the spike in demand due to the COVID-19 pandemic. And indeed, the demand for mobile broadband surged. In the interim results to end-September 2020, Vodacom reported an increase in data traffic of 86 percent year-on-year.
On this basis, the recent announcement of ICASA stated that licensees who wish to continue using the frequencies must pay the prescribed license fees, which, prima facie, appears reasonable. In a statement on 27 November, ICASA chairman Dr Keabetswe Modimoeng said that “We are aware that licensees generated and reported revenue growth during this period.” Aside from the fact that the leading mobile network operators have been reporting increases in revenue every year for the past 25 years, the implication of Modimoeng’s words that releasing the emergency spectrum has played an important role in enabling carriers to cope with the surge in traffic is wrong for a variety of reasons.
The table below illustrates that of the 446 MHz of emergency spectrum assigned, carriers could utilise just 15 percent (66 MHz) immediately. Only Telkom, Rain, and Liquid Telecom have been assigned emergency spectrum in bands where they were already operating radio infrastructure. All the 300 MHz of the emergency spectrum assigned to MTN and Vodacom is outside the frequency bands that carry roughly 80 percent of South Africa’s data traffic. This means that MTN and Vodacom first have to acquire new radio equipment able to operate on these frequencies. Understandably, carriers are hesitant to undertake substantial investments based on a temporarily assigned spectrum that might have to be returned to the regulator.
By shipwrecking the digital migration, the government thwarted its own two major socioeconomic goals connected to mobile telecommunication: providing broadband coverage in rural areas and making broadband data services more affordable.
The next important point to consider is that Vodacom and MTN have already been utilising spectrum in the 3.5 GHz band through their “roaming” agreements with Rain and Liquid Telecom. According to industry sources, MTN and Vodacom have limited their emergency spectrum-related rollout efforts to the 2.6 GHz band where they have installed an estimated (combined) four hundred base stations until November 2020. Considering that Vodacom and MTN own 17,000 towers between them and collocate (rent space) on an additional few thousand towers from third parties, the share of new base stations operating on the emergency spectrum is a meager 2 percent of all radio modules in operation. Given that it takes time to install new infrastructure, say, three months from the date of assignment of the emergency spectrum, the effect on the financial performance as reported by the end of September 2020 will have been negligible.
The staff at ICASA certainly have sufficient insight to understand that the fact that MTN’s and Vodacom’s networks were able to cope with the enormous traffic surge induced by the lockdown is completely unrelated to the few additional base stations in the 2.6 GHz band. It has to be further understood that the current 167 MHz of spectrum assigned to MTN and Vodacom means that the two carriers are serving close to 80 percent of total South African consumers with only 30 percent of the total spectrum assigned. That is unparalleled in the world and a result of the government’s predilection of punishing market leaders for being good at what they do. That the leading carriers in cooperation with their “roaming” partners have managed to cope with traffic increases without any form of “data shedding” should be lauded, not punished with additional fees.
The last piece of the spectrum puzzle concerns the 120 MHz of emergency spectrum in the so-called digital dividend band located in the frequency range from 692 MHz to 862 MHz (700/800 MHz in the table). When it became clear in the early 2000s that the rapidly evolving cellular technology would be paramount to providing broadband in rural areas, the industry, coordinated via the standard-setting International Telecommunication Union (ITU), agreed to relocate analogue TV to lower, spectrally more efficient frequency bands. This available spectrum is called digital dividend because it enables MNOs to roll out rural broadband networks at a much lower investment cost when compared to the rollout in the 1.8 and 2.1 GHz bands in which South Africa’s MNOs currently operate their 3G and 4G/LTE networks. Since mobile signals in the frequency range between 700 and 800 MHz cover much larger areas, operators can achieve the same network coverage with 50 to 70 percent less mobile network infrastructure.
The analogue to digital migration should have been completed by 2015 at the latest. In 2008, the Department of Communications published its Broadcasting Digital Migration Policy for South Africa based on ITU’s suggestion to complete migration by 2015. The analogue signal would be switched off on November 1, 2011. According to the most recent statements from the government, this will not happen before 2022. The chaotic regulatory process for the introduction of affordable set-top boxes has amazed the South African public for several years. The government representatives in charge at the time seem to have been much more concerned with awarding tenders than with freeing up more spectrum for the sake of consumers. Having procured equipment that will be obsolete by the time the migration will happen, the taxpayer will once more bear the cost of an estimated R10 billion.
The availability of the spectrum in the digital dividend band is not only important for rural coverage. It is more important for providing affordable broadband data services in urban areas through “carrier aggregation.” Carrier aggregation refers to a radio network technique that uses spectrum in different frequency bands by combining two or more carriers to increase the performance of the network. One of the most common types of aggregation is the pairing of the spectrum in the LTE-800 MHz band with the spectrum in LTE-2.6 GHz band, both of which are unavailable to MTN and Vodacom. Carrier aggregation results in a technically more efficient spectrum utilisation leading to higher data throughput rates, reduced traffic latency, expanded network coverage, and power savings. Moreover, signals using the lower frequency of LTE-800 have a much better in-building penetration, thereby rectifying one of the key problems that carriers are concerned with in the provision of broadband services in dense urban areas.
Carrier aggregation has been employed since 2015 in all countries where regulators did their job. By shipwrecking the digital migration, the government thwarted its own two major socioeconomic goals connected to mobile telecommunication: providing broadband coverage in rural areas and making broadband data services more affordable. This is the cherry on top of the government’s unpalatable spectrum cake. According to sources from the two leading carriers, only a handful of base stations have been rolled out for testing purposes. The results corroborated the fear that the spectrum in the 700 and 800 MHz bands is unusable on a national basis because of interference from current users.
When taking all the above points into account, it is inappropriate that ICASA intends to charge MNOs for the emergency spectrum. Rolling out network infrastructure based on the temporarily assigned spectrum comes with great investment uncertainties. There is simply no legal basis for assuming permanent use. Even the reasonable expectation of acquiring the same spectrum in the upcoming spectrum auction in March 2021 can mitigate this uncertainty to a limited extent only. The unclear nature of some conditions attached to the auction has the potential to derail the auction process, for example, coercing MNOs into off-taking (acquiring) 30 percent of the capacity of the government’s brainchild WOAN or the recent idea of imposing on MNOs the “support” of a minimum of three black-controlled mobile virtual network operators (MVNOs).
Christoph Klein is Managing Director dotadvisors, a consultancy firm specialising in telecommunication and the digital economy.