Shaping the telecoms network market structure in South Africa, 2000-2003: the role of policy and regulation

Abstract

Abstract The South African government embarked on a liberalisation path of the telecoms sector in 1996 in order to establish a knowledge-based society and thus enhance all aspects of the economy to make South Africa globally competitive. Liberalisation of the telecoms sector was an integral part of its overall vision to improve the quality of life for all South Africans. Market-based reform was the central philosophy underpinning the growth strategy for South Africa. ICT was recognised as key to growth and development. To date, international telecoms reform has focused on managing the transition from traditional monopoly markets to effective competition. The key steps in this process have been the commercialisation and ultimate sale of state-owned assets, licensing competitors, setting sector-specific regulation by independent national regulatory authorities to implement the market reform policies and ensure public interest objectives are met. As a result of rapidly changing technology, the unanticipated rapid and pervasive uptake of mobile services, the influence of international financial advisors and suppliers of telecoms equipment who all stand to gain, the reform process in developing countries has been controversial. Also, often after the first phase of market liberalisation, entrenched private sector incumbents make further reform in developing countries difficult. The focus of this study is on the second-phase of reform in South Africa after the initial market liberalisation. The research analysed the changing configuration and structure of the South African telecoms network market during the transition from monopoly to competition (2000- 2003) within the framework of competition rules to determine how government’s “managed liberalisation” policy and regulatory decisions have shaped (and are shaping) the competitive dynamics of the South African market. The findings were utilised to analyse its implications for the development of South Africa’s information society and provide a framework for policy-makers and regulators on effectively shaping telecoms network markets in transition. This study contextualised the South African telecoms situation within the dynamics of an international market by examining the changing role of the market in telecoms policy formulation in both developed and developing countries. This research looks at the current debates on the information society and liberalising telecoms markets in order to assess the impact of policy and regulatory interventions in selected national markets deemed relevant to this investigation e.g., United States, United Kingdom, India, Nigeria, Morocco, Uganda and Sri-Lanka. Based on an information society paradigm, the study involved multiple methods incorporating primarily qualitative research to investigate the actual development on the ground of competition in South Africa since the start of the managed liberalisation process. Secondary statistical data was utilised to understand market development and dynamics. The analysis combined competition rules and regulatory principles based on international experience together with the South African experience with sector liberalisation derived from interviews, focus groups and data analysis of the market. The study uses market structure analysis, with specific reference to telecom network markets as the basic framework of analysis. This is further enhanced by analysing the broader dynamics of the business, communications, policy and regulatory environments and an analysis of the performance of infrastructure companies in the telecoms network market in South Africa. The analysis explains how the managed liberalisation policy of the South African government has constrained growth, allowed incumbent operators to entrench themselves, generally failed to meet the needs of most consumers and limited South Africa’s aspirations to join the global information society. Despite technically meeting the form of most international best practice standards on market reform, there has been a lack of commitment to the substance i.e. effective competition, inconsistent application of regulation, the absence of a clear strategic framework and failure to undertake detailed market analysis throughout the process. The result has been artificial barriers to investment and constrained growth in the telecoms sector. In particular, a pre-occupation with the narrow licensing of individual technologies and specifically defined service classifications has created an unnecessarily complicated implementation regime hindering market development. The lack of competition at the core infrastructure level has constrained growth and innovation at the upper levels of the telecoms sector value chain, i.e. network services, that are dependent on access to the fixed line network. The study provides recommendations to increase investment in the South African ICT sector which include: clarifying national policy objectives and reviewing the current licensing framework; implementing widespread market reform; instituting market and competition review processes; allowing for increased competition review processes and increasing independence and accountability of the regulator. The research outlines strategies to counter the effects of a weak competitive environment, infrastructure and resource shortages and the lack of strong administrative structures in South Africa that are applicable to most developing countries. It suggests the following measures to drive competitive markets and enhance ICT growth: ensuring political commitment to market liberalisation and market-driven macro-economic policies; focusing on licensing major operators; instituting technology neutral licensing; reducing the need for regulatory decisions by accelerating competition and harnessing regional skills to strengthen regulatory effectiveness. Finally, this study demonstrates that ICT market development and policy is rooted in and influenced by many factors and disciplines. Thus the research suggests an integrated and holistic approach for analysing network markets in transition.