Telkom cornered

Most of South Africa’s cellular industry is taking a victory lap after bidding in the country’s first-ever auction for radio frequency spectrum.

Vodacom, MTN, Rain, Liquid, Cell C (with caveats) — everyone is rejoicing, congratulating industry regulator Icasa and communications minister Khumbudzo Ntshavheni on a job well done.

Everyone except Telkom.

President Cyril Ramaphosa added his voice to the chorus earlier this week, announcing proudly that South Africa has taken “a massive digital leap forward”.

Spectrum is the raw wireless network capacity that cellular operators use to communicate between their towers and mobile devices.

The successful auction will release this long-awaited wireless network capacity. This promises to reduce data prices, improve coverage, and increase network quality around South Africa.

However, an axe is hanging over the auction — and Telkom is wielding it.

Telkom launched a High Court challenge against Icasa at the end of last year, hoping to have its whole process invalidated and send the industry regulator back to the drawing board.

The Judge President set 11–14 April as the dates for the High Court showdown.

If the court decides that Telkom’s axe is sharp — to abuse the metaphor — it could nullify the auction and set the industry back years.

The obvious question is — why? When every other cellular player seems intent on making the auction work, why is Telkom dead set on scuppering it?

Telkom’s objections to the spectrum auction are manifold.

Broadcasters like the SABC and E-tv still occupy some of the spectrum that was part of the auction, though this is a solvable problem.

The partially state-owned operator also feels that it is being unfairly disadvantaged, and that Icasa isn’t doing enough to give smaller mobile operators a leg up against Vodacom and MTN.

In truth, Telkom is afraid of losing a major competitive advantage. Before the auction, it had more spectrum than Vodacom and MTN combined.

Telkom’s own submissions to Icasa show that it had 169 MHz of mobile network spectrum, while Vodacom had 81MHz and MTN had 86MHz.

A well-placed source told MyBroadband that Telkom bragged at an industry event that it could bog down any attempts to licence spectrum in litigation for years.

“Telkom cannot confirm speculation or hearsay,” the company told MyBroadband when asked whether it had privately boasted about keeping the spectrum auction stuck in limbo.

“However, Telkom is on record that spectrum should be released as soon as possible, in a manner that is fair and promotes competition.”

It is in Telkom’s interest to block the assignment of additional spectrum to Vodacom and MTN.

If Telkom can force Icasa to propose a spectrum licensing plan favouring its interests — great. If it can preserve the status quo — also great.

Armed with more spectrum, Vodacom and MTN can improve their networks rapidly and cheaply, and drive down prices.

This would put Telkom in a difficult position.

The company reported a decline in group revenue earlier this year, causing its share price to take a beating.

Telkom’s mobile business is one of its only sources of revenue growth, while its fixed-line and IT business units are in decline.

Cutting mobile data prices to remain competitive, which would hurt revenue growth, is a daunting decision Telkom would probably prefer to avoid.

Cornered

Rather than berate, threaten, or otherwise antagonise Telkom, the various players have been talking up how great the release of the spectrum will be.

MTN took out radio and newspaper advertisements, including a double-page spread in the Sunday Times, to promise South African consumers that the spectrum would change their worlds.

Ramaphosa focused on the benefits improved Internet access offers South Africans, while Ntshavheni highlighted operators’ obligations to roll out Internet access across the country.

“The value of licensing this spectrum for South Africa does not only lie on the amount raised for the national fiscus, but on the impact it will have on the socio-economic development of the country,” Ntshavheni said.

She said the Department of Communications and Digital Technologies, Icasa, and network operators are speedily finalising a 36-month plan to connect:

• 18,520 public schools
• 5,731 public health facilities
• 8,241 offices of traditional authorities
• 1,154 police stations

In his weekly letter to the country, President Ramaphosa said that expanding digital access is critical for economic growth.

“Cheaper data means that young people will have greater access to digital platforms to seek job opportunities online,” Ramaphosa said.

“Students will be able to access information and educational materials. Entrepreneurs will be able to start businesses and reach new markets,” he continued.

“Equally, the availability of this spectrum will contribute to economic transformation.”

Ramaphosa said it would allow many more people — especially those from remote areas and poor communities — to access digital resources and improve their ability to participate in economic activity.

Subtly, a message is being seeded that anyone trying to undo the auction also opposes these things.

Without saying it directly, the president, minister, and other mobile network operators are laying the groundwork for a public backlash against Telkom:

• Telkom is against remote areas and poor communities getting Internet.
• Telkom is against economic transformation.
• Telkom is against students accessing information and educational materials.
• Telkom is against entrepreneurs starting businesses and reaching new markets.
• Telkom is against young people cheaply searching for jobs online.
• Telkom is against Internet access at schools, hospitals, clinics, traditional authorities, and police stations.
• Telkom is against cheaper data.

Telkom has gently been backed into a corner, and its silence on the spectrum auction’s outcome speaks volumes.

But the next move is also theirs to make.

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Now read: Expect lower data prices — Ramaphosa