DISCUSSION DOCUMENT
[Reproduced in good faith by African Cellular in the interests of readers worldwide]

"THE ECONOMIC FEASIBILITY OF THE PROVISION OF MORE THAN TWO MOBILE CELLULAR TELECOMMUNICATION SERVICES"

EXECUTIVE SUMMARY

This Discussion Document, which incorporates four annexures, has been prepared by the South African Telecommunications Regulatory Authority (the "Authority") with a view to provide the basis upon which public enquiry process contemplated in terms of sections 27 and 37 of the Telecommunications Act, 1996 (the "Act"), will be conducted.

A brief overview of the context within which the enquiry is launched, recognises that the policy objectives for the telecommunications sector as well as the framework within which telecommunications services are conducted, represent a broad consensus reached by extensive consultations of the public and stakeholders, in particular, and further that the Authority is obliged to regulate the industry within such policy framework and in a manner that will achieve the realisation of the policy objectives.

It should be borne in mind that in general, policy objectives include without limitation, regulating in the public interest, creating an environment within which the provision of quality and affordable service is possible, and further that such environment will enable achievement of universal service, upliftment of skills and empowerment of historically disadvantaged

Further to the representations on whether or not provision of additional cellular services is economically feasible, the Authority invites representations on views on some of the licensing issues which may require to be addressed in the event that the finding (at the end of the study), is that the provision of additional cellular services, is feasible. Note should be taken that some of the issues raised under this section may also have an impact on whether or not provision of additional mobile cellular services ("Mobile service"), is feasible.

Licensing issues raised include the -

The said four annexures are comprised of "Elements of the Selection Criterion; the Structure of the Application; the Financial Annex; as well as the Technical Annex.

The study conducted by a consultant engaged by the Authority in this regard ("Consultant"), determined inter alia that the current telephony penetration levels is sharply skewed towards white households - ie. only 2% of rural and 29% of urban black households have a dialtone, while the 85% of white households have telephony. It follows that even when Telkom meets its obligation to roll out 2.6 million lines by year 2001, 3.3 million of black households will still remain without telephony.

The Consultant concludes, after examining the affordability levels and spending patterns of South Africans against the backdrop of sustainable telecommunications services provision elsewhere, inter alia that,

The Consultant further holds that the provision of additional cellular services as aforementioned, may offer an opportunity to permit participation by the historically disadvantaged in the ownership and control by the historically disadvantaged.

The views of the Consultant have not been accepted by the Authority to be conclusive on the subject of this enquiry in any way whatsoever. To this end, the Authority makes the report of the Consultant available to members of the public to enable a wider basis for representations.

A. THE CONTEXT WITHIN WHICH THE ENQUIRY IS CONDUCTED

1. Policy objectives within the current legal and regulatory dispensation

1.1  When the first democratic Government in South Africa took office in 1994, it immediately embarked on a number of consultative processes aimed at determining consensus on various policy objectives. Consultations within the telecommunications sector on policy objectives as well as on the policy framework within which services could be conducted, were quiet extensive. 
1.2 The process commenced with the Green Paper, proceeded through the stakeholder and public Colloquim, the White Paper and various drafts of the Telecommunications Bill which culminated in the Telecommunications Act, 1996 (Act No. 103 of 1996) ("the Act"). 
1.3 Consequently, the White Paper and the Act broadly reflects the consensus reached on the policy objectives for the telecommunications sector as well as the framework within which telecommunications services should be provided. 
1.4 Section 2 of the Act sets out the summary of the policy objectives.
1.5 The policy framework is designed inter alia to bring South Africa in line with world trends with regard to telecommunications development and further provides for a regulatory environment that - 
1.5.1 is certain and transparent - in order to maximise investment; 
1.5.2 enables achievement of universal service, upliftment of skills as well as the empowerment of the historically disadvantaged communities and women; and 
1.5.3 is in the public interest.

    {For purposes of this Discussion Document, the Authority uses the term "historically disadvantaged (hereinafter referred to as the "HDC" or "HDI's") to mean all those people who, otherwise being legally fit to do so, were nevertheless unable, because of the political and legal dispensation pertaining to South Africa prior to the national elections held in April 1994, could not exercise a right to vote for members to the House of Assembly of the erstwhile Parliament.}
1.6 It is the view of the Authority that the term "public interest", refers inter alia to the reforms aimed at bringing about equitable access to all South Africa's natural resources; the electromagnetic frequency spectrum is one such scarce resource to which access is sharply skewed towards the non-HDI's. 
1.7 The South African Telecommunications Regulatory Authority ("the Authority"), was established in terms of the Act to ensure the realisation of the policy objectives within the telecommunications sector in South Africa. 

2. THE CURRENT STATUS OF TELEPHONY

2.1 The current wireline telephone penetration levels amongst households in South Africa by race is illustrated in Table 1, as follows:- 
2.1.1 Of the 8.7 million households in South Africa, 2.8 million have wireline telephone, while 5.9 million do not have. 
2.1.2 A total of 1,5 million telephones are in white households (i.e. 55% of the total number of telephones). The white population constitutes 13% of the South African population. 
2.1.3 Of the 5.9 million households that do not have telephony, 2.1million thereof cannot access one even within 5km of their homes. 
2.2 Telkom is obliged in terms of its PSTN licence to install 2.6 million lines by the year 2001. 
2.3 If we assume that Telkom will install only 2.6 million lines, and that all of these lines will be installed within households, it follows that 3.3 million households within the HDC's will remain without telephony after the year 2001. 
2.4 Consequently, it can only be concluded that the current provision of telephony in South Africa, remains sharply skewed in favour of the non-HDC's. 

Table 1: Telephone ("Wireline") Penetration Levels amongst Households in South Africa by Race

  Total  Black Rural  Black Urban  Coloured  Asian  White 
Population
('000) 		 37 859  16 298  12 095  3 407  1 136  4 922 
Households
('000) 		 8 721  3 380  2 502  750  254  1 835 
% Household
with wireline
phone 		 32%  2%  29%  37%  74%  85% 
% Household
with access to
wireline phone
<5km 		 43%  49%  57%  60%  23%  11% 
% Household
with no
universal service
or access 		 24%  49%  14%  3%  3%  4% 

 

DRA-Development Report 97/21 

 

2.5 The provision of Mobile Cellular Telecommunications Services ("MCTS") by the incumbent operators does not assist. 
2.6 Table 2 illustrates that even if it was to be assumed (which assumption is unlikely) that the HDI's who own MCTS's come from the households who do not have wireline telephony even within 5 km radius of their homes the households that would remain without any form of telephony would be reduced by 0.1 million to 5.8 million. 

Table 2 Mobile Ownership by Household and Race

  Urban  Non-Urban 
Black  3%  1% 
Coloured  3%  Nil 
Asians  4%  Nil 
White  14%  5% 

 

ITC Consortium Report 

3. AFFORDABILITY

3.1 The Consultant determined inter alia that - 
3.1.1 the average annual expenditure incurred on communications by South Africans in 1990 and 1995 amounted to 2% (for Africans, Coloureds and Whites) and 4% (for Asians) of the total income. 
3.1.2 75% of Africans earn an annual income of R14 999 or less. Based on the above 2% guideline, it follows therefore that Africans are willing/able to spend approximately R300 annually (R25.00 per month) on communications. 
Stavrou (DRA-Development Report 97/21) determined that the households that would not be able to afford telephony at a cost of R300 per month if such cost amounts to 2% of the income, are 3,8 million households. 
3.1.3 Optimal markets appear to exist in countries where annual average revenue per residential line does not exceed 4 to 6 percent of household income. 
3.2 Based on the current tariffs of the incumbent MCTS operators, the Consultant concludes that the potential market for the "traditional" MCTS's (ie. high mobility) will, on average, remain limited to the upper income quintile, and perhaps to a segment of the second quintile of the South African population. Consequently, the "traditional" MCTS's do not offer a promising or practical way to bring telephony to the un- and under-served communities. 
3.3 The Consultant further notes however, that a definite negative opportunity cost exists if telecommunications infrastructure is not expanded throughout the nation and cites as one of the examples that, it was determined in 1991 by the World Bank consultants, that the lack of telecommunications infrastructure caused Indonesia a loss of $2.5 billion in GDP per year. 
3.4 As a consequence of the above, the Consultant proceeded to research the feasibility of alternative and cost efficient mobile cellular services by inter alia issuing several requests for information ("RFI's") to various vendors and potential investors. 

4. Conclusions of the Consultant

4.1 The conclusions arrived at by the Consultant at the end of the study undertaken, include the following:- 
4.1.1 A self-sustaining business case for one additional digital wireless services additional to the existing "traditional" MCTS's can be made. 
4.1.2 The ability to address both the low- and high-mobility market should be part of the new licence, but the service obligation should be directed toward the low mobility market segment. 
{A uniform worldwide definition of low, mobility cellular services has not been formulated as yet, nevertheless the Authority views the term to refer to mobile cellular services which, through the subscriber equipment (a handset), a service can be configured and located at the subscriber's discretion to access a wide area omni-directional mobile cellular base station. The choice of location of the subscriber equipment does not in any way affect the configuration of the infrastructure and as such the subscriber equipment relocation does not require that the subscriber notifies or co-ordinates with the operator. Furthermore, this service does not offer high-speed roaming or the so-called "hot-handoff". Tariffs are low within what is known as the home zone and higher in other zones with peak time roaming being the most expensive. Consequently, the Authority views this service as low, limited mobility cellular services, and the traditional MCTS's as high-mobility.} 
4.1.3 The new licensee should be a single corporate entity, but its operations must distribute both the equity and the profit potential within the HDC's - for example service provision may be one vehicle to achieve profit potential. 
4.1.4 Neither a single digital wireless technology nor the network architecture should be prescribed, favoured or excluded. Applicants should be encouraged to propose the most innovative solutions to South Africa's requirements. Emphasis should not be placed on the business model, but rather on the deliverable solutions. 
4.1.5 In order to achieve optimal results, on one hand the new licensee must be willing to absorb the cost of what the Consultant refer to as the "current South African market distortions" such as empowerment of the HDI's (one of the policy objectives), while on the other hand, the Authority should be obliged to minimise such distortions by inter alia ensuring that several regulatory controls and competitive conditions are put in place in a timely and effective manner; for example the new licensee must enter the market assured of as many favourable conditions as possible. 
4.1.6 Licensing additional MCTS's offers an opportunity to maximise participation of the HDI's in the ownership and control of licensees; provided that the licence(s) and service requirements are properly conceived, implemented and regulated. 
4.1.7 The new licensee should be permitted to supplement Telkom's "primary role" of providing universal service/access. The Authority should determine the definition of such "primary role". 
4.2 It must be noted that the incumbent MCTS operators do have the capability to provide both low, limited- and high- mobility cellular services and their licences neither distinguish between the two services nor limit services to high-mobility service. Both the incumbent MCTS operators have not indicated whether they have plans to provide low, limited mobility services. 

B. IS PROVISION OF MORE THAN TWO MCTS'S ECONOMICALLY FEASIBLE IN SOUTH AFRICA?

5. The Authority invites responses, views and representations to the above question as well as the basis or reasons for the position set out in the submission. The basis or reasons for the position set out in the submission do not constitute a prerequisite for the submission, but same will assist in making the findings and recommendations in terms of section 37(2)(b) of the Act. 
5.1 The Consultant, after examining the affordability levels of the South Africans and further after obtaining responses to its RFI's, maintains the view that a self sustaining business case for the provision of one additional digital wireless service, can be made. 
  • Comments in this regard are requested. 

C. LICENSING ISSUES

6. The Authority also invites representations with respect to the licensing issues so as to enable it to be in a position to make a more informed recommendation to the Minister in terms of section 37(2)(b) of the Act. The licensing issues raised in this section are - 
  • Nature of additional services and number of operators (paragraph 7); 
  • Criterion for the selection of licensee(s) (paragraph 8); 
  • Environment within which such services are provided (paragraph 9); and 
  • The application, evaluation and licensing process (paragraph 10). 
6.1 Although some of the issues raised under this subject - ie. "Licensing Issues" (especially under paragraphs 7 to 10) may impact solely on steps that may be taken if the finding is that the provision of additional MCTS's is feasible, the Authority has not in any way whatsoever, already assumed that such provision is economically feasible. 
6.2 The Authority is further mindful that should the determination be that it is feasible for additional MCTS's to be provided, the terms and conditions of the licence(s) as well as the process, commencing from the formulation and publication of an invitation to apply, up to the issuing of the relevant licence(s), shall have to comply with all the legal requirements and achieve policy objectives to the extent possible, having regard to certain practical considerations (such as the availability of spectrum). 
6.3 Furthermore the use of the words "recommendation" and "suggestion" hereunder, refers to the recommendation or suggestion made by the Consultant with respect to the subject or issue under discussion. 

7. The nature of additional services and number of operators

7.1 Having due regard to the conclusions arrived at by the Consultant (please see paragraph 4.1 herein) and the fact that the incumbent MCTS operators have the capability to offer both low, limited mobility and high mobility cellular services, should the new licensee(s) be restricted to provide low, limited mobility cellular services? Or should the licensee(s) be entitled to install and operate infrastructure as it(they) deem(s) necessary for specific deliverable solutions? The recommendations in this regard are that - 
7.1.1 a self-sustaining business case for one additional digital wireless services additional to the existing "traditional" MCTS's can be made. More than one additional licence will favour the competitive advantage of the incumbent MCTS operators and will not achieve the goals of increased penetration and empowerment of the HDI's. 
  • Is this view correct? 
7.1.2 the new licensee should be permitted to address both the low- and high-mobility market. 
  • Is this principle acceptable? 
7.1.3 a new licence should contain a service obligation to address the low mobility market segment. 
  • Comments in this regard are requested. 

8. Qualification Criterion

8.1 The Consultant recommends that the qualification criterion be constituted by the "Basic" and "Comparative" elements of assessment, and that the application for a licence should not be considered for the Comparative assessment if it has not complied fully with the requirements under the Basic element. The recommended elements for both, the Basic and Comparative elements, are discussed in the annexure hereto marked "Annexure 1 - Elements of the Selection Criterion". 
  • Is this principle acceptable? 
  • If acceptable, are the elements of the respective criterion appropriate and sufficient? 
  • Neither the rating nor the weighting of the above elements have been recommended, except to designate some to earn "substantial merit" and others "significant merit". Should these elements not be rated and weighted. If so, what should be the respective ratings and weightings? 
  • Is there no need to have one or more issues within the above elements being "determinative" when two or more applications have earned equal merits? 
8.2 Given that the majority of the South Africans come from the HDC's, and that for historical reasons the majority of them are not able to bring finance or skills to the negotiating table with potential partners, in what manner can the licensing for additional MCTS operator(s) empower them? 
8.2.1 Should the HDI's not be granted the right to use the frequency spectrum for the provision of additional MCTS(s) prior to the assessment in terms of the Basic and Comparative criterion - ie. awarding such right to applicants with the highest equity holding by the HDI's as a "pre-qualification stage"? 
  • The Consultant is of the view that this kind of a "pre-qualification" assessment may dissuade international firms from participating as many consortia are already constituted, formally and informally, between the HDI's and the international firms. Is this view correct? 

9. The environment within which additional MCTS can be provided

9.1 The Consultant is of the recommends that the new licensee should be assured of as many favourable conditions as possible on entry into the market; and cautions nevertheless that facilitating entry through regulatory framework in that manner may amount to market distortions and as such, such facilitation should be clearly defined, with specific goals, limits and timetable. 
  • Is this principle, acceptable? 
  • If acceptable, for how long should each of the favourable condition persists? 
9.2 Conditions that may impact on the facilitation of the entry of new licensee(s) and to which the Authority invites comments, include without limitation, the following - 
  • roaming; 
  • interconnect; 
  • rapid roll out obligation; 
  • universal service roll out obligation; 
  • provisioning of facilities including transmission facilities; 
  • number portability; 
  • co-location; 
  • infrastructure sharing and access rules; 
  • anti-competitive conduct and enforcement thereof; 
  • licence fees and empowerment conditions; 
  • choice of technology; 
  • maintenance of qualifications; 
  • performance guarantee; and 
  • emergency, operator and directory services. 

    • The descriptive notes to each of the above issues, are intended to provide a general and broad description and do not purport to define the such issues. 

    The Authority will also welcome views on conditions or issues other those set out herein which may be relevant in this regard. 
9.2.1 Roaming 

Roaming can be described as the ability for one network to permit the subscribers (customers) of another network to make and receive calls on its infrastructure. It follows therefore that roaming can allow the subscribers of the new licensee(s) to make and receive calls even during the period during which new licensee(s) build(s) the new network(s). It should also be borne in mind that roaming is also possible even between different types of networks where suitable interface infrastructure is deployed. 

Examples of circumstances under which roaming has been permitted include the following: -  International roaming between GSM networks worldwide;  At the inception of the MTN and Vodacom businesses, national roaming between these two networks was an obligation placed on the operators in order to cater for the network roll out differences between them. Consequently, subscribers of one operator could make calls on the network of the other in areas where the other operator had not yet rolled out. Prior to the issue of the licences to the incumbent MCTS's operators, Telkom, a partner to Vodacom, had already deployed certain infrastructure in anticipation of a licence for Vodacom. MTN was then considered disadvantaged in the roll out process, hence the roaming arrangements was permitted by the then Government.  It is common in Europe that where a subscriber (customer) to a network of one kind (eg. DCS1800 network), who has access to another kind of a network (eg. GSM 900 network), and where such a subscriber has a dual mode hand set, then such a subscriber is able to roam on the other network in areas where the other network is not available. 

9.2.2 Interconnect 

Interconnection refers to the connection of one network (the former) to the other (the latter) in order to enable calls generated from the former network to pass on to the latter network. An example of interconnection between networks would be that existing between the incumbent MCTS's networks between themselves, and between the individual Mobile network and Telkom's PSTN. Without interconnection subscribers of one network operator are not be able to make calls to subscribers of the other. 

The existing mobile networks are allowed to interconnect with each other and with the Telkom PSTN.  Should the new licensee(s) also be allowed to interconnect with the incumbent Mobile networks and the PSTN? 

9.2.3 Rapid roll-out 
9.2.3.1 Should the new licensee(s) be obliged to roll-out their networks in accordance with a predetermined rapid schedule? 
9.2.3.2 Should such schedule specify the location, the extent and the time of roll out ? 
9.2.3.3 Should the Authority assess and approve this schedule on the basis of it serving the public interest? 
9.2.4 Universal service roll out 
9.2.4.1 Should the new licensee(s) be obliged to roll out infrastructure into areas that are un- and under-served? 
  • If such a roll out obligation is acceptable, should it be predetermined? 
  • If predetermined, should it be in the similar manner as a schedule of rapid rollout? 
9.2.4.2 Should the Authority prescribe a licence fees amounts and payment structure aimed at encouraging universal service roll-out? (Please also see paragraph 9.2.10) 
9.2.4.2.1 The Consultant suggests that a Trust Fund, funded by the public-private sector, be established and administered outside of, and independently from, the Authority, and that the declared annual benefits be applied to subsidise universal service obligations and the development of the additional MCTS's primarily, and general telecommunications, secondarily. The Consultant further suggests that the Authority should become a member of the Board of such a Trust Fund. 
  • Should the Authority support such a Trust Fund? 
  • If so, how? 
  • Should the Authority call for such a Trust Fund to be set up by the successful applicant(s) or should the Authority set it up? 
9.2.4.2.2 Furthermore, it is recommended that the new licensee should be permitted to supplement the role of Telkom in the provision of universal service/access. 
  • Is this principle acceptable? 
  • If acceptable, what should be the content of such obligation, and what should the licensee receive in return? 
9.2.5 Provisioning of facilities including transmission facilities 
9.2.5.1 The Act provides that all fixed links required by MCTS operators should be acquired from Telkom, unless Telkom is unable or unwilling to provide, in which event the MCTS operator will be entitled to approach the Authority for an order to obtain facilities in another manner. The Multi Party Implementation Agreement ("MPIA") concluded between Telkom, the incumbent MCTS's operators and the then Regulatory Authority (ie. Post Master General) provides, inter alia that in the event where Telkom takes more than 90 days to provide the required facilities, the relevant operator shall be entitled to approach the Regulatory Authority for an order as aforementioned. The terms of the MPIA have been grandfathered into the current dispensation to the extent that such terms are not in conflict with the Act. 
  • Should the new licensee(s) be entitled to approach the Authority in the similar way as provided for in the MPIA? 
  • If the new licensee(s) is (are) obliged to roll out into the un- and under-served areas, should they be permitted to acquire facilities elsewhere if it is more cost-effective to do so? 
9.2.6 Number portability 
9.2.6.1 Full number portability means that a subscriber (customer) of one network will be able to retain his/her telephone number whether he/she moves to another network, exchange area, town or province. In other words, whether a customer moves from Telkom, Vodacom or MTN, he/she will retain his/her current telephone number. 

Implementing full number portability requires that networks should be fully digitised. Telkom's network is not yet fully digitised.  Should number portability be made to apply for the new licensee(s)?  If so, to what extent? In other words should it be applicable to between the incumbent MCTS operators and the new licensee(s) only? Or should it apply equally among all MCTS licensees? Should such portability also apply to Telkom? 

9.2.7 Co-location 

Co-location refers to when one operator permits the other to install equipment of the latter within the exchanges, main switching centres, base stations, etc. of the former. Co-location may reduce the costs of providing service and as such can translate into lower charges to the customer. 

The incumbent MCTS operators already do share certain facilities.  Should the new licensee(s) be permitted to co-locate?  If so, with which operator - the incumbent MCTS operators, or Telkom, or both?  If co-location is permissible, who should determine the terms and conditions for such co-location? Should guidelines for such terms and conditions be prescribed? 

9.2.8 Infrastructure sharing and access rules 

Should the new licensee(s) be permitted to share infrastructure with the incumbent operators - ie. access to antenna masts, power supplies, etc?  If this principle is acceptable, with which operator(s) should the sharing be permitted?  And what terms and conditions should apply to such sharing of facilities? 

9.2.9 Anti-competitive conduct and enforcement thereof 

In what manner should the Authority ensure that none of the operators engage in anti-competitive behaviour? 
9.2.10 Licence fees and empowerment conditions 
9.2.10.1 What should be the amounts of the licence and spectrum fees? How and when should such amounts be paid? 
9.2.10.2 Should licence fees payable by the new licensee(s) be used as a mechanism to empower HDI's - eg. fees to be structured in accordance with a sliding scale depending on the extent of equity holding by the HDI's? Or of the extent of the universal service rollout? Or both? 
9.2.10.3 The Consultant suggests that an initial license fee of five million Rand (5,000,000 Rand) be payable on issue of a licence and that the annual fees for the three years commencing 1 January 2001 until 1 January 2004 be structured on a scale illustrated in Table 3 below - ie. the annual licence fee for each year be equal to - 
  • 5% of the Net Operating Income of the preceeding year unless the Licensee shall have acquired a minimum number of subscribers, in which event; 
  • the fee will be reduced to 2.5% for the year succeeding the one in which the minimum number of subscribers was acquired; 
  • the fee should be waived for any year in which the maximum number of subscribers targeted for the preceeding year, was acquired; and 
  • that on 1 January 2005 and thereafter, the Licensee will be required to pay an annual spectrum and license fee of 5% of Net Operating Income, regardless of subscribership. 

Table 3: Illustration of the recommended license fee structure

If On The Number of Subscribers is The Annual Fee should be:
1 January 2001 less than 250,000 5%
1 January 2001 250,000 - 500,000 2.5%
1 January 2001 greater than 500,000 Waived
1 January 2002 less than 500,000 5%
1 January 2002 500,000 - 1,500,000 2.5%
1 January 2002 greater than 1,500,000 Waived
1 January 2003 less than 1,500,000 5%
1 January 2003 1,500,000 - 2,500,000 2.5%
1 January 2003 greater than 2,500,000 Waived
1 January 2004 less than 2,500,000 5%
1 January 2004 2,500,000 - 4,000,000 2.5%
1 January 2004 greater than 4,000,000 Waived

 

9.2.10.4 How much should the spectrum fees be? 
  • Should such fees be structured in the similar manner as licence and annual fees? 
9.2.11 Choice of technology
9.2.11.1 The recommendation is this regard is that neither a single digital wireless technology nor the network architecture should be prescribed, favoured or excluded. Applicants should be encouraged to propose the most innovative solutions to South Africa's requirements. Emphasis should not be placed on the business model, but rather on the deliverable solutions. 
  • Is this principle acceptable? 
  • If not acceptable, which technology or which combination of technologies should be adopted? 
9.2.11.2 What would the impact of such technology choice be on the - 
9.2.11.2.1 affordability level of services having regard to economies of scale in both the system infrastructure and terminal equipment prices? 
9.2.11.2.2 affordability levels due to the impact of an open vis-à-vis a proprietary standard? 
9.2.11.2.3 affordability levels due to the ability to utilise existing infrastructure within the country? 
9.2.11.2.4 area of the required frequency spectrum especially with regard to the availability and impact on adjacent services? 
9.2.11.2.5 bandwidth of frequency spectrum required especially with the assumptions of frequency spectrum efficiency of the technology choice or design of network? 
9.2.11.2.6 The ability to roam? 
9.2.12 Maintenance of Qualifications
9.2.12.1 The suggestion in this regard is that it should be incumbent upon the new licensee to maintain the qualifications upon which it became successful for a licence. To this end, no transfer of ownership which would change the applicant's Basic Qualifications should be permitted for the first five years of the licence without the express, written, prior approval of the Authority. (please also see paragarph 8 and Annexure 1) 
  • Is this principle acceptable? 
  • If the "determinative" and "pre-qualification" qualifications (please see paragraphs 8.1 and 8.2.1 respectively) are acceptable, should such qualifications be maintained also? 
9.2.12.2 In addition to paragraph 9.2.12.2, owners of the licensee who are members of the HDC must have adequate protection from the dilution of the their ownership interest, if such dilution would cause the HDC-owned interest to drop below that stated in the Licensee's Application. Accordingly, loans to cover an HDC-owner's capital contribution obligations should be permissible, as long as such owner has the unfettered option to make payments due for interest and principal on such loans exclusively from the distribution of Licensee operating profits or dividends, and any interest so assessed must be in accordance with limitations imposed by law, and the obligation to re-pay such loans shall encumber no more than 50% of any given dividend or profit distribution.

  Comments in this regard are requested. 

9.2.13 Performance guarantee 
9.2.13.1 Should the licence contain a performance guarantee condition? If so how should it be structured? 
  • The recommendation in this regard is that the licensee(s) should furnish a Performance Guarantee in the amount of fifty million Rand (R50,000,000) to guarantee the satisfactory performance of its commitments for the first five years of the licence. This guarantee shall be held in an interest-bearing account at a recognised financial institution agreed to between the Licensee(s) and the Authority. 
  • Twenty percent (20%) of the guarantee will be released to the Licensee on 15 January 2000, if the Licensee will have demonstrated that it has met the service obligations specified in its License for 1 January 2000 and is otherwise not in substantial violation of any other term or condition of its Licence. 
  • Additional portions of twenty percent (20%) of the guarantee principal will be released on similar terms to the Licensee on 15 January of each succeeding year the best release (inclusive of all accrued interest) being on 15 January 2004. 
  • If the Authority, however, deems that the Licensee has failed to comply with one or more of the terms and conditions of the Licence at any of the dates on which a portion of the guarantee could be released, the Authority shall notify the Licensee of such fact, and the corresponding release of the principal of the Performance Guarantee shall be forfeited to the National Revenue Fund or any national telecommunications development fund established in terms of an Act of Parliament, as the Authority shall from time to time determine. 
  • If the licence is revoked pursuant to the terms set forth therein, the entire remaining amount of the Performance Guarantee, together with the interest accrued thereto, shall be forfeited in a similar way to the National Revenue Fund or national telecommunications development fund. 
  • The Performance Guarantee shall not be forfeited where performance failures are due to force majeur, an Act of God or circumstances reasonably beyond the control of the licensee. In such event the release of the portion of the guarantee shall be suspended for the period during which circumstances mentioned herein persist, until such circumstances cease to exist whereafter the normal conditions shall resume. 
  • Is this principle acceptable? 
9.2.14 Emergency, Operator and Directory Services 
9.2.14.1 The Consultant is of the view that the following services must be provided - 
9.2.14.1.1 printed directories and directory assistance for which reasonable charges approved by the Authority may be imposed; and 
9.2.14.1.2 calls to local Emergency Service Organizations without charge. 

Applicants should describe their proposals to provide these services, and such services may be provided through shared facilities.  Is this suggestion acceptable? 

10. THE APPLICATIONS, EVALUATION AND SELECTION PROCESS

10.1 As already mentioned, and in the event that it is determined, from the representations made pursuant to this Discussion Document, that the provision of additional MCTS is feasible, the Authority shall in addition to publishing such findings, recommend to the Minister to invite applications for the licence(s) to provide additional MCTS. 
10.2 The process commencing from the formulation and publication of an invitation to apply until the grant of the relevant licence(s), shall be governed by the provisions of sections 34 and 35 of the Act. Some of the issues to which the Authority is of the view that comments and representations would be valuable, include the following:- 
  • Within how long a period should the applications be processed and finalised? 
  • How long a period should prospective applicants be allowed to prepare and submit applications? 
10.3 The Consultant recommends inter alia that :- 
10.3.1 the right to apply should be purchased (ie. the so-called Application Bond, referred hereinafter simple as the "Bond") and that only applications submitted by holders of the Bond should be accepted. 
  • Is this principle acceptable? 
  • If the principle is acceptable, what should be the purchase price? The Consultant recommends five thousand Rand (R5 000,00). 
  • Furthermore if the principle is acceptable, should such Bonds be re-sellable? The Consultant recommends that they should not be re-sellable, however, the Bond should remain valid if the purchaser remains one of the participants within the applicant. 
10.3.2 an application guarantee of two million and five hundred thousand Rand (R2 500 000,00) should be furnished by the applicants on submission of the application, and that such guarantee shall be forfeited if the applicant withdraws the application prior to the completion of the processing of applications. All unsuccessful applicants shall be returned their guarantees. 
  • Is this principle acceptable? 
  • If acceptable, what should be the value of the guarantee? 
10.3.3 prior to the submission of applications, but after the purchase of the Bond, the prospective applicants should be entitled to request clarifications from the Authority. 
  • Comments in this regard are requested. 
10.3.4 the structure of the application be as set out in the annexure hereto marked "Annexure 2 - Structure of Application". 
  • Comments in this regard are requested. 

11. A NOTE ON ANNEXURES

The four annexures hereto, namely, Annexure 1 - Elements of the Selection Criterion; Annexure 2 - Structure of the Application; Annexure 3 - Financial Annex; and Annexure 4 - Technical Annex;

are intended to expand on issues raised in this Discussion Document, and as such, the said annexures do form part of the Discussion Document and the Authority invites views and comments thereon as well.