South Africa's Information Dirt-Road

The Independent Communications Authority of SA (Icasa) has correctly rejected the two bids for the Second National Operator but once again South African citizens are left with a government telecommunications monopoly and exploitative prices for digital communication. The government will try to explain the failure away, blaming a poor telecomms environment in international markets, but that’s not the real story. The real problem is that firms are understandably reluctant to invest in a market that is heavily regulated by government and dominated by a state-owned monopolistic entity.

The 1996 Telecommunications Act, which governs South Africa’s telecommunications industry, is a law like no other. Most laws describe the rules under which companies in a given industry are able to do business. But this appalling piece of legislation carves out a whole industry and grants roles to a mere handful of companies, most of which rely on a single supplier – Telkom – for infrastructure.

This means, for example, that no company can just set up a radio-network for a small office park, using cost-effective wireless communication. No entrepreneur can provide services to Internet customers by means of a private network. And no business is allowed to carry voice-traffic on its system. In fact, nobody can start any telecommunications business unless the Minister invites them to apply for a licence. The idea of customer demand creating supply does not enter into the picture.

Current government communications policy functions according to authoritarian economic logic. According to this logic it is the central authority that has the task of determining what services are required by customers. The central authority also designates which firms will be allowed to supply the identified services. However, sound economics tells us that no one, let alone such a central authority, can possibly have the necessary information to perform such an important task. It would require an omniscience to which the authority cannot lay claim..

Such state planning has been repeatedly attempted in a variety of countries, including the Soviet Union, with similar failed economic results. The consequence of this state domination is that every South African householder and business pays four times what a customer in the United Kingdom would pay for an Internet line. Without decent digital communications every single business in the country is being made less competitive than it would otherwise be and in this it is being hampered by its own government. As a direct result, all South African industries compete in the international arena with one hand tied behind their backs. Imposing such costs on business is tantamount to a form of economic suicide. Naturally, it is not the intention of the communications authorities to burden the economy so severely but that is the consequence.

What do we have to do to get out of this costly telecomms policy mess? The answer is simple. We have to rapidly liberalise our telecommunications industry. There are several key points.

First, the industry must be opened up to all and any firms that want to start communications businesses. Any company willing to provide consumers with particular technology should be allowed to do so. This includes telephone communication, international voice-traffic, data communications, Internet service provision, cell phones and the million and one other potential services, some of which will still be in the development stage, and others that no one has yet thought of.

Second, licences should be abolished. However, if government wishes to have early information on new firms entering the market, requirements for licensing or registration should be clearly set out. Licensing should not be restrictive and any firm that meets the laid-down objective requirements should be entitled to a licence. Licences are a costly form of business regulation and are certainly not necessary in an industry that poses no health risks to consumers. Open competition and general consumer laws will adequately protect the consumer.

Third, the radio spectrum should be turned into private property and the commercial bands sold off. Companies, instead of merely being licensed to use it, would then own radio spectrum in the same way they own a piece of land. Ownership creates a completely different set of incentives, one of which is to maximise efficient use. And as the market punishes inefficiency the bands of commercial frequency will end up in the hands of businesses best able to satisfy consumers. Cell phone and UHF television frequencies are prime candidates for conversion to spectrum property. Recent figures put the value of a 1MHz band in the United States at over $1 billion. We might not get the same price here but the South African government should seriously consider the greatest sale in Africa – that of the radio spectrum – with plenty of opportunity for massive distribution of wealth to the historically disadvantaged.

Fourth, where localised radio spectrum use is not in conflict (in rural areas or across small distances like office parks), the principle of the “commons” should be implemented. Much like the concept of a national park or stretch of beach, people should be free to use the resource in the same way that they are allowed to take a swim in the sea. Such liberation of the radio spectrum would see a flood of new frequency use, exploiting existing radio technologies and dramatically reducing prices for all users.

Fifth, it is not government’s place to be both referee and player in this converged digital world. It has to exit the telecomms and broadcasting market and should set about transferring the balance of Telkom, Eskom Communications, Transtel, Sentech and the SABC to the Department of Public Enterprises for immediate privatisation. Revenues from the sale of these firms could do a whole lot of social good (instead of their current harm) such as the building of a million houses or a thousand new schools.

If we want cheap and fast telecommunications we must treat the sector in the same way we treat any other competitive industry. There is ample evidence that telephone companies are not the natural monopolies they were once thought to be. In the UK there are more than 170 telecommunications companies; not one or two. There are also hundreds of ways to convey digital data and an unlimited number of firms should be allowed to explore them in an open market place. Countries worldwide are rapidly implementing broadband networks and creating Information Super-Highways. Unfortunately, South Africa is still struggling along on an Information Dirt-Road.

Author Neil Emerick is a freelance writer and author of the Free Market Foundation’s new monograph, The real digital divide: Convergence and South Africa’s telecommunications and broadcasting policy which is available from the Foundation at R50 including VAT and postage. This article may be republished without prior consent but with acknowledgements to the author. The views expressed in the article are the author's and they are not necessarily shared by the members of the Free Market Foundation.

FMF Article of the Week\9 September 2003