Local loop unbundling versus encouraging the growth of wireless local loops: lessons for South Africa from other countries

Local loop unbundling versus encouraging the growth of wireless local loops: lessons for South Africa from other countries
Ryan Hawthorne¹

Draft – not for citation

Abstract
The Department of Communications has proposed that Local Loop Unbundling be implemented in South Africa by 2011. Furthermore, ADSL line prices have been regulated by the Independent Communications Authority of South Africa (ICASA) since 2007. Both of these interventions are premised on the lack of available alternatives to the fixed line local loop for broadband internet sold to consumers and small office / home office customers. There is a large and growing body of evidence that suggests that mobile-wireless and fixed-wireless broadband products are providing an alternative to fixed line broadband solutions. Provided that radio frequency spectrum is allocated in a way that ensures the greatest amount of competition possible, wireless alternatives will in all likelihood result in competitive broadband outcomes in South Africa. At the same time, local loop unbundling has met with limited success in other countries. This suggests that policymakers should focus their attention on radio frequency spectrum allocation and regulation rather than on unbundling the local loop and ADSL price regulation. These policy issues are particularly relevant in light of government identifying electronic communications and business process outsourcing as priority areas in the accelerated and shared growth initiative (ASGISA).
Keywords: Telecommunications; Market definition; Local Loop Unbundling

JEL classification: L86, L96

1. 
   Introduction
   

The electronic communications sector in South Africa and in other jurisdictions is governed by sector specific regulation. This is premised on the fact that, at least historically, there are economies of scale and network effects in the electronic communications sector such that effective competition may be compromised in some parts of the value chain. There is emerging evidence that the sector may need less regulation in the form of retail price regulation and local loop unbundling, and better policy making and regulation in respect of spectrum allocation, in South Africa, at least in respect of the supply of broadband internet access services to residential and small office / home office (SOHO) customers.

There is at least some initial evidence that wireless technologies offer an alternative to fixed lines for residential and SOHO customers. While these products may not be perfect substitutes, and may not be in the same market for anti-trust purposes, the products probably are sufficiently substitutable to warrant lifting price regulations of these services. The evidence certainly suggests that scarce regulatory resources ought to be allocated to radio frequency spectrum allocation rather than cumbersome local loop unbundling and price regulation processes.
South African policymakers have once before misjudged technology change and adoption in the telecommunications sector and imposed substantial costs on the economy by forcing Telkom to extend its fixed line network to previously un-served or under-served areas, while customers in these areas were about to adopt mobile telephones in large numbers.² The key question is whether existing price regulation of ADSL access lines and proposed regulations in respect of, for example, local loop unbundling, make sense in the context of emerging wireless broadband alternatives. This is particularly important in view of the substantial costs and limited success of local loop unbundling policies in other jurisdictions, such as the US, where rules for unbundling incumbent network elements until 2005 had three different versions that were overturned by various courts over the course of almost a decade (since the passage of the Telecommunications Act in 1996), resulting in substantial business uncertainty and large wasted investments.³

2. 
   Current and proposed regulation of South African telecommunications services
   

The Independent Communications Authority of South Africa (ICASA) regulates the prices of a number of fixed line telecommunications products in South Africa provided by Telkom, including the price of Asymmetric Digital Subscriber Lines (ADSL) and leased lines (dedicated capacity links used largely by businesses) less than 2Mbps. The mobile operators (MTN, Vodacom and Cell C) also have their retail voice prices indirectly regulated, in that the mobile operators may not in terms of their licences increase their voice tariffs by more than the rate of increase of the Consumer Price Index (CPI).

ICASA has been widely criticised for its lack of success in regulating for efficient outcomes in the sector. Specifically, the independence of ICASA was for a long period curtailed by the Minister of Communications⁴, Telkom was able to delay regulatory interventions by ICASA⁵, and Telkom has been allowed to limit the effectiveness of its competitors⁶. These effects are not specific to South Africa: telecommunications regulators in many developing countries face capture by incumbents or suffer from a lack of skills.⁷ The key question is whether, in the context of this lack of success, it is worth pursuing further regulatory interventions in respect of local loop unbundling and continuing to regulate ADSL access line prices.
The Department of Communications issued a policy paper for Local Loop Unbundling in May 2007, which advocated for the mandatory unbundling of the copper local loop in South Africa by Telkom.⁸ The view adopted by the Local Loop Unbundling Committee in that report is that South Africa should follow the same process as that adopted by the European Commission, which is to unbundle the local loop to encourage greater competition particularly in the supply of broadband services. Local loop unbundling essentially warrants the creation of a range of regulatory ‘products’ to achieve this end, including full-unbundling, whereby the entire copper last mile is leased to competitor providers, part-line unbundling, which provides access to the high frequency portion of the copper last mile to competitors to provide broadband over, and bitstream access, which provides competitors access to customers to offer broadband services but does not require significant investment in infrastructure for them to do so.⁹ The local loop unbundling initiative is premised on the fact that there is insufficient competition to the wireline local loop for the purposes of broadband internet access.
The key distinction that needs to be drawn here is between whether fixed and wireless services are substitutes from a competition law perspective (which is the standard used in Electronic Communications Act, no. 36 of 2005 (ECA)), or whether indeed they are sufficiently substitutable for the purposes of bringing about the desired outcome of the efficient expansion of broadband access in South Africa. The ECA process of defining markets and regulating products is expensive, time consuming, and is subject to substantial delays in implementation.¹⁰ Furthermore, these interventions must be reviewed regulatory. If indeed there is sufficient substitutability between fixed and wireless services, the regulator might more productively invest its scarce resources in other activities, such as the allocation of and regulation of radio frequency spectrum, than investing resources into local loop unbundling and retail price regulation of ADSL lines provided by one of the operators, Telkom.

3. 
   What roles do wireless and fixed line services play in internet access?
   

Fixed and wireless substitution in other jurisdictions
Wireless broadband for residential and SOHO customers is a relatively new development in many developed countries, and has not reached the same proportion of the population as in South Africa. This is because traditional fixed line networks and cable networks in developed countries tends to cover a large proportion of households¹¹, which has meant less opportunity for wireless broadband development there than in developing countries where the fixed line network is not as comprehensive in coverage and where cable networks often do not exist. It is therefore difficult to draw conclusions about fixed and wireless substitutability from developed country jurisdictions for South Africa. Nonetheless, a few important regulatory decisions certainly have not ruled out fixed and wireless broadband substitutability.
In particular, the European Commission in its recent margin squeeze decision in Telefonica did not rule out competition from wireless broadband as an alternative to fixed-line broadband.¹² Since wireless local loop broadband links accounted for less than 0.1% of all broadband lines in Spain (where the incumbent complained about, Telefonica, competes), wireless was considered to be in a nascent stage of development and therefore an insufficient alternative to ADSL at the time of the EC’s decision.
In the more recent United States Supreme Court decision in Linkline (which, like Telefonica, concerned margin squeeze in markets for ADSL services),¹³ the court held, referring to a Federal Communications Commission ruling, that:
‘... it seems quite unlikely that AT&T would have an antitrust duty to deal with the plaintiffs. Such a duty requires a showing of monopoly power, but-as the FCC has recognised, 20 FCC Rcd., at 14879-14887-the market for high-speed Internet service is now quite competitive; DSL providers fact stiff competition from cable companies and wireless and satellite providers’.
While the FCC and the Court would have been referring more to competition from cable companies than to wireless providers, the role of wireless as a competitor to fixed line DSL broadband is clearly recognised.¹⁴
In New Zealand, the Commerce Commission held in 2003 that competition from fixed-wireless networks would likely ‘evolve and reduce the extent of [Telecom’s] bottleneck over time’.¹⁵ Indeed, the Commerce Commission included fixed-wireless in the same relevant market as the fixed line local loop.¹⁶
Fixed and wireless residential and SOHO services available in South Africa
The key debate in local loop unbundling in South Africa is the extent to which the wireless local loop is a substitute for the copper-based fixed line local loop (high bandwidth fibre local loops are not the subject of this paper). There are a range of wireless broadband alternatives in South Africa, including fixed-wireless solutions based on the CDMA-2000 standard offered by Neotel, fixed-wireless solutions based on Wi-Max offered by Neotel, Iburst and Vodacom, and mobile wireless based on UMTS (3G) and EDGE technologies offered by MTN, Vodacom and Cell C. That wireless broadband has been growing dramatically in South Africa is not in question (see Table 1); the number of wireless and fixed line broadband subscriptions was almost equal in 2007, and wireless subscriptions are predicted to have overtaken fixed line subscriptions. Vodacom alone reports that in the first half of 2009, it had 527,000 broadband connectivity packages. This is almost as many as the 584,015 ADSL subscriptions reported by Telkom, reported as at March 2009.¹⁷ This is in spite of dramatic reductions and ADSL prices and improvements in speed over time (see Table 2).

Table : Fixed vs. Wireless broadband connections growth: 2003 – 2008

	2004	2005	2006	2007	2008
ADSL subscribers	20,145	58,278	143,509	255,633	412,190
Wireless Subscribers	1,400	12,700	79,900	223,000	812,000
Total broadband subscribers	21,545	70,978	223,409	478,633	1,224,190
ADSL as % of total	93.5%	82.1%	64.2%	53.4%	33.7%

Source: Internet Access in South Africa, 2007, World Wide Worx, p. 34, and Telkom annual reports

Note: 2008 wireless subscribers is a World Wide Worx estimate

Table : Prices for ADSL access lines: 2004 – 2007 (Rands per unit of speed)

	384 kbps	512kbps (Residential)	512kbps (Business)	1-4Mbps
Mar 04		680	800
Mar 05	449	599	699
Aug 05	359	477	477	680
Aug 06	245	362	362	516
Aug 07	152	326	326	413

Source: Internet Access in South Africa, 2007; World Wide Worx, p. 22

The growth of mobile broadband is driven by significant increases in broadband network coverage. MTN has 3G services available to 35% of South Africa’s population¹⁸, and Vodacom’s 3G network covers 27% of the population, largely urban areas.¹⁹ Vodacom’s EDGE network covers 26% of South Africa’s population, and covers both urban and rural areas. Both MTN and Vodacom are continuously investing in their rollout of wireless broadband infrastructure, and therefore mobile wireless broadband coverage can be expected to grow. This must be contrasted with Telkom’s fixed line network over which ADSL can be offered: In terms of network coverage, Telkom’s ADSL network is available at 92% of Telkom’s network.²⁰ There is therefore little scope for greater fixed line broadband network coverage in South Africa. Fixed-wireless operators will likely expand the wireless broadband market even more. Neotel’s fixed-wireless CDMA-2000 based solution is currently being rolled out, and is estimated to be attracting customers at a rate of 150 per day.²¹ Neotel, controlled by Tata Communications, a global tier-1 internet services provider, is a committed entrant with a large amount of capital committed to the company and a substantial infrastructure build plan.²² IBurst, alongside its consumer wireless solution, has begun to offer Wi-Max at relatively competitive prices.²³

While it may well be the case that Telkom’s prices for ADSL access lines are significantly above competitive levels, and therefore significant increases in wireless subscriptions may be driven by excessively priced ADSL products, wireless offerings provide a competitive alternative at least to some extent, which has meant reductions in ADSL access line prices over time (see Table 2 above). Furthermore, at current ADSL speeds deployed by Telkom (384kbps, 512kbps and 1-4Mbps), wireless speeds are competitive: Neotel’s ‘NeoConnect Prime’ product offers access speeds of up to 2.4Mbps, priced at R279 per month for 1GB. Iburst’s 512kbps 5GB shaped product is priced at R690 per month. While these prices and speeds are relatively high by international standards (in the US, for example, Verizon offers a 768 kbps DSL service for R145 per month for a service with no explicit cap²⁴), at least some proportion of this price difference is accounted for not by differences in local loop prices but the high prices for national long distance leased lines within South Africa and international private leased circuits which have hitherto been supplied exclusively by Telkom. This is about to change significantly with the construction by Neotel and MTN of a 5,000 kilometre national fibre network, due to be completed in April 2011, and with the recently lit Seacom cable and EASSY cables currently being built. Indeed, Telkom has recently reduced its prices for national high bandwidth end to end leased lines significantly. This should result in prices for high speed internet declining at least somewhat and for download caps to be relaxed.
If Telkom rolls out ADSL 2+ or local loop unbundling provided access to the local loop for rivals to roll out ADSL 2+, which offers speeds of up to 20 Mbps, wireless alternatives currently available would impose less of a competitive constraint. However, ADSL speed varies depending on the distance of the user to the local Telkom exchange. Furthermore, by the time Telkom or a competitor making use of LLU rolls out ADSL 2+, (LLU is only planned for 2011²⁵), the next GSM mobile broadband standard, Long Term Evolution (LTE), which promises maximum download speeds of 172Mbps, and average speeds that consumers can expect of between 2 and 10 Mbps, will in all likelihood be available.²⁶ Therefore, any future improvements in fixed line broadband product quality are likely to be met with competition from future improvements in wireless broadband technology.

4. 
   Local loop unbundling vs. wireless internet access providers for South Africa
   

Experience with local loop unbundling in other jurisdictions
Local loop unbundling in general worldwide, despite its pursuit in, for example, European Union countries, has largely not achieved the facilities based competition, investment by the incumbent operator, low prices and innovation in retail markets, and competition in wholesale access that the policy is designed to achieve.²⁷
Furthermore, the lack of success of local loop unbundling elsewhere was one of the reasons the New Zealand Commerce Commission decided not to implement local loop unbundling in 2003.²⁸ Facilities based entrants argued in New Zealand that mandatory local loop unbundling would undermine their incentives to invest in competitive local loops.²⁹
The US experience with local loop unbundling saw a series of FCC policies overturned by courts, which resulted in billions of dollars of wasted investments during a decade of legal uncertainty.³⁰ The LLU obligations on fixed line incumbents have since then been significantly curtailed.³¹
The European Commission has been more successful in unbundling the local loop, although the regulatory system is highly complex and changes continuously.³²
In general, it appears as though local loop unbundling has met with limited or at best mixed success internationally.
The role of wireless access in other countries and the need for efficient spectrum allocation
The alternative to regulatory focus on local loop unbundling is ensuring that radio frequency spectrum is efficiently allocated and that the regulatory environment is favourable to new entrants. In a number of Latin American countries, wireless networks based on Wi-FI (IEEE standard 802.11) set up by communities, municipalities, and NGOs have brought about service where the incumbent operator did not find it profitable to do so.³³
Wireless Wi-Fi competition need not be provided by the public or NGO sector entirely however. Wireless, localised competition was achieved in the US by allowing un-licenced use of radio frequency spectrum of over 550 Mhz of spectrum.³⁴ There are an estimated 6,000 wireless internet service providers (WISPs) in the USA.
This suggests that the minimum efficient scale for operators at the local loop level has declined dramatically.³⁵ However, regulatory limitations in respect of radio frequency allocation has led to business uncertainty and limited incentives to invest in many developing countries. For example, in India, interconnection charges and licence fees were first focused on in the conversion of fixed and wireless licences to technology neutral licences, instead of issuing the appropriate frequencies.³⁶
In many Latin American countries, a significant proportion of spectrum is being allocated for un-licenced use in the 2.4GHz band.³⁷ Further spectrum is being allocated in the 5.725 – 5.850MHz spectrum for unlicenced use in many of these countries, and some spectrum in the lower portion of the 5 GHz band (5150 – 5350 MHz) is being allocated for unlicenced use. However, the key issue is the regulation of unlicenced spectrum. For example, out of 25 Latin American countries surveyed in the study, a significant proportion of the countries limited the power of Wi-Fi transmitters to 1W (the US Federal Communications Commission standard), which limits the signal to reach only a few hundred metres.³⁸ Furthermore, a significant number of countries require operators to register public access points, which further increases the costs of entry.
In the mean time, many small wireless operators operate in a regulatory ‘grey-zone’, which reduces certainty and limits incentives to invest.
The role of frequency spectrum allocation is not limited to providing for unlicenced use of frequency spectrum for Wi-Fi (IEEE 802.11 standard) use. According to Samarajiva (2007: 66), the key is to focus on spectra in which technology providers have achieved economies of scale and can provide equipment and handsets cheaply. This has occurred particularly in the GSM 900 and GSM 1800 bands. Samarajiva (2007: 66) suggests that three operators could operate in the CDMA 800 band, four operators can operate in the GSM 900 band, and further services can be offered in the GSM 1800 and CDMA 1900 bands.
This suggests that, if wireless spectrum was properly managed, there would be significant scope for wireless competition to fixed line networks.
The role for wireless competition in South Africa
The recent Altech judgement has meant that hundreds of Value-Added Network Services licencees are now able to provide their own telecommunications network facilities.³⁹ While this has not led to new announcements of substantial new national networks, wireless or otherwise, it has afforded wireless access providers largely using the Wi-Fi standard (IEEE 802.11) to offer network services to their customers. In South Africa, unlicenced frequency has been allocated in the 2.4 GHz and 5.4 – 5.8 GHz bands.⁴⁰ Off the shelf equipment is available for the 5.4 GHz band. However, the maximum power allowed for this band is 100mW, which allows for a distance of only 100 metres outdoors. When directional antennae are used, this power can be increased dramatically. However, this means that the legal limit for power in this frequency band is exceeded. The maximum allowable power in the 5.8GHz band is 1W, which allows for 10 times the distance being achieved.
The Wireless Access Providers’ Association estimates that there are 700 wireless application providers in South Africa providing internet access to 60,000 customers. In a November 2008 survey, WAPA found that the 23 respondents to their survey indicated they had 12,841 customers (57% growth), and have 860 high sites (10% growth). 62% of customers were consumers and 38% were businesses.⁴¹ Annual revenue amounted to R55m (4% growth). In order to resolve the problems associated with the lack of coverage due to power limitations in the unlicenced frequency bands, WAPA and the Internet Services Providers Association (ISPA) proposes a lite-licencing (shared) spectrum management framework.⁴²
In respect of wireless access technologies that have wider coverage, such as Wi-Max, the frequency available is more scarce. Wireless business solutions (Iburst), Neotel and Telkom have all been allocated Wi-Max frequency. Vodacom uses Iburst’s Wi-Max frequency in what appears to be a joint venture. Neotel has rolled out a residential solution based on CDMA-2000 technology, which indicates that it has received a frequency allocation in the 2 GHz spectrum.
There is therefore substantial scope for greater competition from wireless offerings in South Africa, provided that radio frequency spectrum is properly allocated and regulated.

5. 
   Conclusions
   

Fixed and wireless inter-platform competition appears to be the best solution for the expansion of broadband in South Africa. As a result of competition from mobile wireless and fixed-wireless alternatives, the role of local loop unbundling appears to be limited. There are a growing number of small entrants into the provision of fixed-wireless alternatives in South Africa, alongside the more established mobile-wireless providers (MTN, Vodacom and Cell C) and large new entrants such as Neotel and Iburst. While the success of wireless at the expense of fixed alternatives may be due to Telkom’s slow introduction of relatively slow ADSL speeds at relatively high prices, it is clear that wireless broadband is used by far more residential and small-office / home office consumers in South Africa than fixed line broadband.

ICASA should focus its regulatory efforts on better radio frequency spectrum allocation and ensuring that a reasonable solution is found to small-scale Wi-Fi providers, rather than on local loop unbundling, which promises to be expensive, and offers little in return in the context of competition from wireless alternatives.
References

Articles
ATKINSON, R.D. (2009), The role of competition in a national broadband policy, Journal on Telecommunications & High Technology Law, Vol. 7

BAR, F., GALPERIN, H., (2006) The Microtelco opportunity: Evidence from Latin America, Information technologies and international development, Vol. 3, No. 2

CARDONA, C., SCHWARZ, A., YURTOGLU, B., ZULEHNER, C., (2007), Demand estimation and market definition for broadband internet services, [REF]

GALPERIN, H., BAR, F., 2006, The Microtelco opportunity: evidence from Latin America, Information technologies and international development, Vol. 3, No. 2

GANS, J.S, KING, S.P., & WRIGHT, J. (forthcoming), Wireless Communications, Handbook of Telecommunications Economics, Vol. 2

GILLWALD, A., KANE, S., (2003), ‘South African Telecommunications Sector Performance Review’, available at http://link.wits.ac.za/papers/tspr2003.pdf, last accessed on 17 August 2009

HODGE, J., (2003), Extending Telecoms Ownership in South Africa: Policy, Performance and Future Options, Trade and Industrial Policy Strategies, available at: http://www.tips.org.za/node/223 , last accessed on: 17 August 2009.

HORWITZ, R., CURRIE, W., (2007), ‘Another instance where privatization trumped liberalization: The politics of telecommunications reform in South Africa – A ten year retrospective, Telecommunications Policy 31

MAKHAYA, G., ROBERTS, S, (2003), Telecommunications in developing countries: reflections from the South African experience, Telecommunications Policy 27

MELODY, W., 2002, ‘Assessing Telkom’s 2003 price increase proposal: price cap regulation as a test of progress in South African telecom reform, and E-economy development’, LINK centre policy research paper number 2

PROENZA, F.J. (2006), The road to broadband development in developing countries is through competition drive by wireless and internet telephony, Information technologies and international development, Vol. 3, No. 2

RESEARCH ICT AFRICA, (2008), ICT Access and Usage in South Africa, available at http://www.researchictafrica.net/new/images/uploads/RIA_Policy_Brief_South_Africa.pdf, last accessed on 17 August 2009.

SAMARAJIVA, R. (2006), Pre-conditions for effective deployment of wireless technologies for development in the Asia-Pacific, Information technologies and international development, Vol. 3, No. 2

SIDAK, J.G., HAUSMAN, J.A. (2005), Did mandatory unbundling achieve its purpose? Empirical evidence from five countries, Journal of Competition Law and Economics 1(1), 173 – 245

SUTHERLAND, E., 2007, Unbundling local loops: Global experiences, LINK Centre
Cases and regulatory decisions
EUROPEAN COMMISSION, Case COMP/38.784 – Wanadoo España vs. Telefónica.

FEDERAL COMMUNICATIONS COMMISSION, 04-290, Decision on Remand, In the Matter of Unbundled Access to Network Elements (WC Docket No. 04-313); Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers (CC Docket No. 01-338).

INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA, (2007), Notice of intention to define relevant end to end leased lines and other wholesale markets in terms of Section 67(4) of the Electronic Communications Act 36 of 2005, Government Gazette no. 29863.

INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA, (2007), ‘Notice of intention to define relevant wholesale call termination markets in terms of section 37(4) of the Electronic Communications Act 36 of 2005’, Government Gazette no. 29568.

INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA, (2007), ‘Publication of the findings pursuant to section 4C of the Independent Communications Authority of South Africa Act no. 13 of 2000 as amended of an enquiry conducted in terms of section 4B of the ICASA Act’, Government Gazette no. 30449.

SUPREME COURT OF THE UNITED STATES, Pacific Bell Telephone Co. & others vs. Linkline Communications and others, no. 07-512.

Internet resources
DEPARTMENT OF COMMUNICATIONS (2007), Local loop unbundling: a way forward for South Africa, , available at:

http://www.doc.gov.za/index.php?option=com_content&task=view&id=143&Itemid=434, last accessed on 17 August 2009.

DEPARTMENT OF COMMUNICATIONS, Electronic Communications Act (36/2005): Notice inviting comments on proposed policies and policy directions, Government gazette no. 29923, 25 May 2007 available at:

http://www.doc.gov.za/index.php?option=com_content&task=view&id=142&Itemid=434, last accessed on 18 August 2009.

DEPARTMENT OF COMMUNICATIONS, November 2008, ‘Minister of Communications not to petition the Supreme Court in the Altech matter’, available at http://www.doc.gov.za/index.php?option=com_content&task=view&id=297&Itemid=457 , last accessed on 17 August 2009.

IBURST, Wi-Max pricing and offers available at MyBroadband. are available at:

http://mybroadband.co.za/vb/showthread.php?t=158013 , last accessed on 17 August 2009.

MTN LTD., Annual results presentation for the year ended 31 December 2008, available at: http://www.mtn.com/Financials/AnnualResults/Default.aspx , last accessed on 17 August 2009.

MYBROADBAND, 10 May 2009, Are you breaking the law with your Wi-Fi antennae?’, available at: http://mybroadband.co.za/news/Wireless/7982.html , last accessed on 17 August 2009.

MYBROADBAND, 12 August 2009, ‘160 Mbps realistic on LTE’, available at: http://mybroadband.co.za/news/Cellular/9167.html , last accessed on 17 August 2009.

MYBROADBAND, 5 July 2009, ‘Neotel not another Sentech’, available at http://mybroadband.co.za/news/Wireless/8649.html , last accessed on 16 August 2009.

MYBROADBAND, 23 July 2009, ‘Hand out spectrum, says ISPA’, available at http://mybroadband.co.za/news/Wireless/8907.html, last accessed on 17 August 2009.

NEOTEL, 10 December 2008, ‘Neotel in groundbreaking finance deal’, available at:

http://www.neotel.co.za/neotel/view/neotel/en/page65?oid=66117&sn=Detail, last accessed on 16 August 2009.

NEOTEL, 15 January 2009, ‘MTN, Neotel fibre network gets underway’, available at: at: http://www.neotel.co.za/neotel/view/neotel/en/page65?oid=66117&sn=Detail, last accessed on 16 August 2009.

TELKOM SA LTD, Provisional results presentation for the year ended 31 March 2009, available at: https://secure1.telkom.co.za/ir/financial/presentation2009.jsp , last accessed on 17 August 2009.

TELKOM SA LTD annual results, 2008, available at: https://secure1.telkom.co.za/ir/financial/Annual_Reports_2008.jsp , last accessed on 17 August 2009.

VERIZON, Verizon Residential offerings, as at 16 August 2009, available at: http://www22.verizon.com/ , last accessed on 16 August 2009.

VODACOM, Annual report 2009, available at: http://www.vodacom.com/reports/ar_2009/index.php , last accessed on 17 August 2009.

WIRELESS ACCESS PROVIDERS’ ASSOCIATION, 17 April 2009, ‘Wapa Industry Survey Results’, available at: http://www.wapa.org.za/2009/04/17/wapa-industry-survey-results-2008/ , last accessed on 17 August 2009.

WIRELESS ACCESS PROVIDERS’ ASSOCIATION, 9 July 2009, ‘WAPA encourages co-operation and transparency in spectrum management’. available at http://www.wapa.org.za/2009/07/09/wapa-encourages-cooperation-and-transparency-in-spectrum-management/ , last accessed on 17 August 2009.

1^ Ryan Hawthorne is a senior analyst at the Competition Commission of South Africa. The views expressed here are his own and do not necessarily reflect those of the Competition Commission of South Africa.

2^ See Hodge (2003: 45), who estimates that the costs of Telkom’s rollout of 2 million additional lines and subsequently disconnecting them was approximately R17 billion, most of which was wasted.

3^ See separate statement of Chairman Michael K. Powell, FCC 04-290.

4^ See Gillwald, A, and Kane, S, (2003: 34). See also Melody (2002: 10).

5^ Makhaya, G., & Roberts, S (2003: 57).

6^ Currie, W., Horwitz, R., (2007).

7^ See, for example, Samarajiva, R (2006).

8^ The Electronic Communications Act, no. 36 of 2005 (the ECA), in section 43(8)(a), requires that ICASA prepare a list of essential facilities, which includes ‘local loops, sub-loops and associated electronic communications facilities for accessing subscribers and provisioning services’. The ECA sets out, in Chapter 8, that electronic communications facilities must be leased by providers in a non-discriminatory manner to any other person licenced in terms of the ECA, unless the request for facilities leasing is unreasonable.

9^ See Department of Communications, Local Loop Unbundling Committee report (2007), section 1.

10^ For example, ICASA’s initial document on market definition in respect of end to end leased lines was issued in May 2007 (see ICASA, 2007, notice of intention to define relevant end to end leased lines and other wholesale markets in terms of Section 67(4) of the Electronic Communications Act 36 of 2005 on the 3^rd of May, 2007). Hearings were held later that year. To date, ICASA has not issued a findings report relating to markets for end to end leased lines. Similarly, in January 2007, ICASA issued a notice to define relevant call termination markets. (See ICASA, 2007, ‘Notice of intention to define relevant wholesale call termination markets in terms of section 37(4) of the Electronic Communications Act 36 of 2005’.) While a findings report was released in November 2007 (see ICASA, 2007, ‘Publication of the findings pursuant to section 4C of the Independent Communications Authority of South Africa Act no. 13 of 2000 as amended of an enquiry conducted in terms of section 4B of the ICASA Act’), there are no clear indications of what regulation, if any, will be imposed on operators in the sector to date, almost three years since the beginning of the process.

11^ See, for example, Sidak, J.G. & Hausman, J.A., (2005).

12^ See European Commission decision in Case COMP/38.784 – Wanadoo España vs. Telefónica.

13^ See Supreme Court of the United States decision in Pacific Bell Telephone Co. & others vs. Linkline Communications, no 07-512.

14^ See, for example, Hausman & Sidak (2005: 197); between December 1999 and June 2003, fixed wireless connections increased from 50,000 to 300,000, although these connections only account for 1.3% of total high speed connections in the US.

15^ Cited in Hausman & Sidak, (2005: 218).

16^ Ibid.

17^ See Telkom SA Limited, Provisional results presentation for the year ended 31 March 2009.

18^ See MTN annual results presentation for the year ended 31 December 2008.

19^ See Vodacom annual report 2009.

20^ See Telkom annual results, 2008.

21^ MyBroadband, 5 July 2009, ‘Neotel not another Sentech’.

22^ Neotel, 10 December 2008, ‘Neotel in groundbreaking finance deal’, and Neotel, 15 January 2009, ‘MTN, Neotel fibre network gets underway’.

23^ See Iburst Wi-Max pricing and offers available at MyBroadband.

24^ See, for example, Verizon’s USA website, as at 16 August 2009. Exchange rate of R8 per dollar was used.

25^ This is set out in a policy directive from the Minister of Communications in government gazette no. 29923, 25 May 2007, ‘Electronic Communications Act (36/2005): Notice inviting comments on proposed policies and policy directions’.

26^ This technology was recently demonstrated in South Africa by Nokia Siemens Networks. LTE devices are only expected to become widely available in South Africa in 2011 and 2012. See MyBroadband, ‘160 Mbps realistic on LTE’, 12 August 2009.

27^ See, for example, Hausman & Sidak, (2005), Atkinson (2009: 16), and Sutherland, (2007).

28^ Cited in Hausman & Sidak, (2005: 219).

29^ Cited in Ibid, 223.

30^ Dissenting statement of Commissioner Michael J. Copps, FCC 04-290.

31^ See FCC (2005), 04-290.

32^ Sutherland (2007: 15).

33^ For example, in Argentina, co-operatives originally formed out of agricultural co-operatives service 6% of all telephony lines. See Galperin, H., Bar, F., (2006 : 13). An NGO in Peru linked 12 villages together using a Wi-Fi network sharing a single 512kbps link. Ibid., (p. 14). A municipality in Brazil in Pirai established a Wireless Local Area Network (WLAN) to connect all public buildings, 21 schools, two telecentres and a community centre to broadband services. Ibid., (p. 16).

34^ See Galperin, H., Bar, F., (2006: footnote 5).

35^ See Galperin, H., Bar, F., (2006: 8).

36^ See Samarajiva, R (2006: 65).

37^ See Galperin, H., Bar, F., (2006: 21).

38^ See Galperin, H., Bar, F., (2006: 21).

39^ Until the Altech decision regulatory uncertainty meant that VANS operators were not in a position to build their own networks. The legal uncertainty which existed for almost 3 years (i.e. during the period of the complaint) related to the Ministerial directive on self-provision which was subsequently retracted, albeit through a press release. This regulatory uncertainty was resolved only late in 2008. Altech Autopage Cellular (Pty) Ltd v the Chairperson of the Independent Communications Authority of South Africa et al, case No. 20002/08. The Minister decided not to pursue the appeal. See Department of Communications, November 2008, ‘Minister of Communications not to petition the Supreme Court in the Altech matter’.

40^ See, for example, MyBroadband, 10 May 2009, ‘Are you breaking the law with your Wi-Fi antennae?’.

41^ See Wireless Access Providers’ Association, 17 April 2009, ‘Wapa Industry Survey Results’.

42^ See MyBroadband, 23 July 2009, ‘Hand out spectrum, says ISPA’. Similar proposals are made by WAPA, see Wireless Access Providers’ Association, 9 July 2009, ‘WAPA encourages co-operation and transparency in spectrum management’.