Spectrum release expected to bring big economic and social benefits

6th July 2018

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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The much-anticipated release of South Africa’s high-demand spectrum has the potential to reshape the country’s economy by stimulating innovation and opening the way for the country’s full participation in the so-called Fourth Industrial Revolution.

However, industry analysts stress that the manner in which the scarce resource is released, allocated and managed will be a critical factor in determining whether the growth, employment, reindustrialisation, research, development and social-welfare spin-offs are fully captured.

“The release of a rare resource such as spectrum could provide Internet excess for rural areas, improve telecommunication across South Africa and improve the ease of doing business and global competitiveness rankings,” says PwC South Africa partner and chief economist Lullu Krugel.

It is also expected to accelerate the deployment of fifth-generation (5G) mobile technologies and stimulate the integration of Internet of Things (IoT) solutions across economic sectors.

All wireless technologies, such as television, the global positioning system and radio use certain bands of spectrum to operate; however, the release of key frequency ranges, namely sub-1 GHz, 1 GHz to 6 GHz and above 6 GHz, of spectrum has been delayed for years.

Frustrating Delays
This delayed spectrum allocation remains one of the most frustrating issues facing the industry, as it becomes increasingly difficult – and costly – to expand in the absence of additional spectrum.

It has been estimated that the lack of spectrum is doubling capital expenditure (capex) as mobile operators attempt to meet increased data volume demands and connect far-flung rural areas.

Vodacom, MTN and all other South African network operators have had to inject capex into building more base sites to cope with the higher volumes, instead of injecting the funds into capacity building and unlocking more efficient use of spectrum.

However, there is a growing sense that government is poised to take action, particularly after President Cyril Ramaphosa flagged the issue for priority attention in his inaugural State of the Nation address in February.

“We will finalise our engagements with the telecommunications industry and other stakeholders to ensure that the allocation of spectrum reduces barriers to entry, promotes competition and reduces the cost to consumers,” Ramaphosa said, while arguing that the future prosperity of South Africa depended on the country’s ability to take full advantage of rapid technological change.

Frost and Sullivan senior industry information and communication technology analyst Naila Govan-Vassen says the efficient use of the spectrum can facilitate economic growth by increasing wireless communication reach, which, in turn, can lead to bridging the digital gap.

“The key priorities for the new spectrum should be focused on ensuring access to broadband services for citizens, especially in rural communities and less populated areas, while also promoting innovation and the development of wireless technologies integration across sectors [such as] agriculture, mining and business,” she explains.

Free Market Foundation (FMF) executive director Leon Louw points out that, while spectrum will enable network operators to continue supplying older second-generation services to low-income communities, it will also facilitate new technology and enable the rapid deployment of 5G.

“Spectrum, if released, will make the biggest impact on the roll-out of 5G technology. It requires many more base stations than we have, with all the spectrum they can get,” he says.

The release of spectrum for 5G would have to ensure high reliability, very low latency, strong security and widespread availability to allow for use in applications covering industrial automation, remote patient monitoring and smart grids.

The drive for reindustrialisation may also be a use case for 5G if properly conceived and deployed.

However, Govan-Vassen warns that South Africa is still struggling to move towards 4G networks, owing to the unavailability of spectrum and 5G still being in the very early stages for South Africa and the rest of the continent, with about 50% of the population without access to mobile services.

However, Louw notes that to obtain an accurate outline of the economic benefits to a high degree of probability, a socioeconomic impact assessment (SEIA) should be undertaken properly by independent experts, covering a ‘mischief” analysis to quantify existing problems, an obstacle analysis, a reform analysis, an outcomes analysis and a monitoring analysis.

“A proper analysis will make reasonably reliable predictions of how and to what extent consumers are likely to be advantaged or disadvantaged by whatever measures are taken,” he says.

The FMF is considering the production of an SEIA to help government formulate optimal policies, as the future of 5G and other rapidly developing technologies must be allowed to “hit the country running”, Louw comments.

“We should not get bogged down with a moribund wireless open-access network (WOAN) or anything like it. Instead, a promarket regulatory environment should be identified.

“We now have six network operators, new fibre networks, local WiFi systems, the possibility of Eskom and Transnet using power lines and existing communication lines, and much more. Government must ensure that it does not get in the way of the forthcoming communications revolution,” he says.

“It is hard for anyone to get their brains around the implications of rapidly emerging artificial intelligence, IoT, 5G, fibre, local WiFi services, ubiquitous free WiFi, satellite communications, and so on. No one has much idea what lies ahead,” he highlights.

The South African government needs to create a maximally conducive, enabling environment, and include the free trade of spectrum and the completion of digital migration, Louw says, pointing out that government even took to the courts to stop the Independent Communications Authority of South Africa (Icasa) from auctioning spectrum last year.

High-Demand Spectrum
Further, government is considering the establishment of its own WOAN.

The Council for Scientific and Industrial Research completed a study on spectrum availability and the requirements of the WOAN in terms of spectrum on behalf of the Department of Telecommunications and Postal Services.

The study aimed to determine the appropriate quantity of high-demand spectrum to be set aside for the State’s planned WOAN to roll out a 4G network, with the remaining high-demand spectrum to be assigned to existing licensees through an allocation process yet to be determined.

The outcome of the study has been submitted to Cabinet for consideration and approval and will be published after the conclusion of the process.

With much uncertainty surrounding the WOAN, including ownership and State and private-sector involvement, concerns have been raised over the proposals of diverting all available spectrum to the proposed network or the workability of such a structure.

“From country-specific cases, such as Rwanda, Kenya, Russia and Mexico, the evidence fails to support claims of better coverage, more competition or lower prices, with most failing to be fully established,” says Krugel.

“The GSMA believes that WOAN structures are poor models for mobile markets around the world, owing to high costs and the need for specialist management of network infrastructures.”

In view of the WOAN being a possible solution to expanding connectivity reach to the 20-million people in rural, less populated areas, the proposal is a somewhat “radical measure” and a costly exercise, with the possibility of creating a monopoly at the top level, with competition only present among the service providers, says Govan-Vassen.

“Since the WOAN’s mandate is to decrease the digital gap, it is still not wise that spectrum from digital migration should solely be used by this consortium. In my opinion, it has to be split between the WOAN and private stakeholders to drive innovation and create a platform for the development of new services, stimulate competition among different technologies and reduce investment risks,” she says.

However, Krugel also highlights the complexity involved in allocating spectrum, and notes that it remains unclear how spectrum will be released.

“But, based on historic trends, it is likely to be an auction-based approach [as opposed to being administratively based],” she says, raising concern over whether small industry players will be priced out of the market by larger players.

Spectrum allocation can result in inflated prices and restricted competition if the process is not designed effectively.

“The spectrum auction needs to be accompanied by a plan on how the ‘last mile’ challenge can be alleviated. From my perspective, government has to play an essential role in driving connectivity reach through appropriate policies and regulations, and, most importantly, collaborating and working together with the private sector.

“Icasa also needs to ensure that there is no wastage or hoarding of the spectrum, which can be controlled by setting a limit on the maximum amount of spectrum that each operator can obtain,” concludes Govan-Vassen.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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