Briefing to the Joint Sitting of the Parliamentary Portfolio Committees on Communications and Telecommunications & Postal Services

The Licensing Process for High Demand Spectrum

Rubben Mohlaloga

Acting Chairperson

Table of Contents

• ICASA Mandate

• ICASA Strategy

• Government’s Priority Outcomes

• Policy & Legislative Framework

• Spectrum Licensing Regulatory Framework

• IMT Roadmap

• Process - IMT Roadmap to ITA

• Invitation To Apply (ITA)

• Objectives of the ITA

• IMT Spectrum available for award

• Spectrum Availability as % of Population

Coverage

• Spectrum award approach in the ITA

• Spectrum award mechanisms

• Auction: best practice award method adopted

• Auction: types and characteristics

• Auctions - international perspective

• Auction - licensing process

• Proposed licence obligations

• Spectrum Lots Packages (4) to be auctioned

• Process – ITA to Spectrum Award

• Guiding objectives for spectrum assignment

2

Organisational Mandate

ICASA is established pursuant to section 192 of the Constitution and in terms of the ICASA Act of 2000

Regulate electronic communications, broadcasting and postal sectors in the public interest

Ensure affordable services of high quality for all South Africans

ICASA is mandated to -

ICASA’s mandate is derived from:

The Constitution, 1996

ICASA Act, 2000

EC Act, 2005

Broadcasting Act, 1999

Postal Services Act, 1998

ECT Act, 2002

3

Strategic Goals: 2016-2020

Universal Access to Broadband Services

Access to communications services

at affordable prices

Improvement of organisational service

delivery

Foster national common identity and social

cohesion

SOOGs

4

Government’s Priority Outcomes

Outcome 6:

An efficient, competitive and responsive

economic infrastructure network

Outcome 12:

An efficient, effective and development–

oriented public service

Outcome 14:

A diverse, socially cohesive society with a common

national identity

Government Priority Outcomes

Promote competition and networkdeployment for universal broadbandprovision

Ensure that the regulatory frameworkfacilitates the use of ICTs as a platform toprovide increased access to governmentservices

Facilitate the 3-tiers of broadcasting andspecifically focus on a regulatory agendathat:

• Promotes local content• Dissemination of information in

the public interest• Public broadcasting content

across all broadcasting platforms 5

Spectrum Policy & Legislative Framework

Chief Operations Officer (Regulatory Projects Office)

A seamless information infrastructure that meets the needs of citizens, business andpublic sector; and provides access to the wide range of services required for effectiveeconomic and social participation by 2030

100% broadband access to all Citizens by 2020.

Universal download speed of 100 Mbps by 2030

Establish a technology-neutral licensing framework

Promote efficient use of spectrum

Promote open, fair and non-discriminatory access to services

Facilitate competitive market, ensure sustainability of the sector

Ensure universal provision of affordable + quality services

NDP

SA Connect Policy

EC Act, 2005

6

Spectrum Policy & Legislative Framework

Chief Operations Officer (Regulatory Projects Office)

The Policy outlines principles for:

Spectrum management to ensure efficient, effective, and transparent use of spectrum

based on fair pricing principles.

Spectrum planning to ensure that all assignments serve the national interest

Spectrum availability for government services, scientific research and emergency services

The Broadcasting Digital Migration Amendment Policy, 2012 sets out parameters andframework for analogue to digital migration

The Policy further confirms the benefits of digital broadcast technologies i.e. they use scarce national radio frequency spectrum resources far more efficiently than analogue technologies.

RFS Policy, 2010

BDM Policy

7

Spectrum Licensing Regulatory Framework

Time-line of Frequency Planning Regulations

National Radio Frequency Plan 2013

Radio Frequency Spectrum

Regulations 2011

Frequency Migration Plan 2013

IMT Roadmap2014

Radio Frequency Spectrum Assignment

Plans for IMT2015

Terrestrial Broadcasting Frequency Plan 2013

GG 36321

Update - Terrestrial Broadcasting Frequency Plan 2014GG 38005

8

Spectrum Licensing Regulatory Framework

RFS Regulations, 2015

• Establish a frameworkto allocate and assignradio frequencyspectrum

• Sets out standard termsand conditions forspectrum licences

• Establish transparent,fair and efficientprocedures andprocesses for spectrumlicence applications.

• Outlines procedure andcriteria for awardingspectrum licenses forcompeting applications

National Radio Frequency Plan, 2013

• ICASA is required interms of Section 34 ofthe ECA to update theplan

• The updated planincluded, amongstothers, implementationof resolution 232(WRC12) whichallocated spectrum inthe band 694 – 790MHzto Mobile andBroadcasting on a co-primary basis whichmake implementationIMT 700 possible.

Radio Frequency Migration Plan, 2013

• Sets out a review ofmigration plans since1996 to 2012 anddocumented decisionof WRC12.

• Provide for significantamount of spectrumthat could be releasedfor broadband and theneed for advancedplanning

• 649 MHz of spectrumwas made available forInternational MobileTelecommunication

Terrestrial Broadcasting Regulations, 2013 + 2014

• Makes provision forthree (3) DTTMultiplexes duringAnalogue to DigitalMigration per ITUdeadline - 17/06/2015

• Provide for Digital toDigital TerrestrialTelevision for the postmigration process to beimplemented after 17June 2015 as per GE06.

• Makes provision for theseven (7) DTTMultiplexes in the UHFBand in the frequencyrange 470 to 694 MHz

9

The IMT Roadmap A key driver for the deployment of IMT bands is critical role that mobile broadband plays in

meeting the objectives of ‘broadband for all’ as encapsulated in the SA Connect Policy

The IMT Roadmap deals with the deployment of inter alia the 700 MHz and 800 MHz

digital dividend bands and 2.6 GHz band to promote universal broadband deployment and:

o summarises the international (ITU) and regional (SADC) perspective on IMT

o indicates timelines for the assignment of IMT spectrum

According to SA Connect Policy the efficient assignment and subsequent use of high

demand spectrum to meet broadband demand is vital and the cost of not releasing the

spectrum timeously is high

10

Process - IMT Roadmap to ITA

Draft IMT Road Map - 2014

Final IMT Road Map 2015

Radio Frequency Spectrum Plans -2015

Information Memorandum - 2015

Deliberations and consideration of representations 2016

Invitations to Apply – 2016/17

Spectrum Awards -2017 /18

o Considers a range of technical options andfeasibility studies for IMT usage and migration perband

o Outlines technical solutions for each IMT band

o Outlines detailed technical parameters for eachband

o ITAs for licensing / assignment of specific spectrum bands published in line with sec 31(3) of the ECA

o Consultation process providing information toprospective applicants intending to apply for theradio frequency spectrum licenses within thedesignated ranges

o Sets out options / consider best fit model forlicensing of IMT bands

o Licences awarded and issued11

Invitation To Apply (ITA)

ITA was published on 15 July 2016 (Government Gazette No. 40145 of July2016), subsequent to publication of Information Memorandum.

Closing date for submission of enquiries - 04 August 2016

Closing date for submission of applications – 03 October 2016

12

Objectives of the ITA

The main aim of the ITA is licensing of 700MHz, 800MHz and 2600MHz of IMTspectrum to ensure nationwide broadband access for all citizens by 2020 in linewith the NDP and SA Connect Policy.

This can be achieved by:

Increasing universal service and access by ensuring rural connectivity

Give consumers more choice,

Promote Investment in the sector and economic growth,

Ensure quality of service and experience, and

Ensure affordability of services.

13

IMT Spectrum available for award

The spectrum prioritized for assignment is as follows:

o2×30MHz in the 700MHz band (703MHz-733MHz/758-788MHz)

o2×25MHz in the 800MHz band (796-801MHz/837-842MHz)

o2×70MHz and 1×25MHz in the 2.6GHz band (2500-2570MHz/2620-

2690MHz and 2595-2615MHz))

This spectrum will be awarded on a national basis covering the entire

territory of South Africa.

14

Spectrum Availability as % of Population Coverage

BAND (MHz) Availability as a % of PopulationCoverage

Analogue TV services to be migrated as a % of Population

Coverage

700 77.2% 22.8%

800 89.8% 10.2%

2600 100% 0%

Migration Plan of 22.8% and 10.2% of

Analogue TV services in place.

15

Spectrum Availability as % of Population Coverage

DTT Multiplexer Availability as a % of PopulationCoverage

DTT services to be migrated as a % of Population Coverage

Multiplexer 1 (DDT1) 96.76 3.24 %

Multiplexer 2 (DTT2) 89.89 10.11%

Plan in place for the phased migration

of DTT service to allow to release more

IMT spectrum.

16

Spectrum award approach in the ITA Historically, the award of spectrum favoured government owned incumbents or was

assigned on a first-come first serve basis. Most of these assignments took place at atime when the increase in demand for spectrum associated with the uptake ofmobile data services and the increased penetration of smartphones and tablets wasnot foreseen

The increased role of mobile in democratising access to communications has madespectrum an invaluable resource with the result that demand for spectrum nowexceeds supply. This has resulted in a paradigm shift in the assignment of spectrumwith the adoption of market based / competitive approaches to spectrumassignment

Assignments through competitive processes is based on different options:

o Beauty contests - where the applicants are judged on their credentials and their plans for theuse of the spectrum but where the price is fixed

o Hybrid arrangements - where the beauty contest is accompanied by a competitive price offer,usually a sealed bid tender

o Auctions - where the actual assignment is done on the basis of competitive price offers involvingdifferent types of auction and possibly different assignments of frequency

17

Spectrum award mechanisms

Beauty contest (Advantages Auction (Advantages)

Allows non-financial aspects to be taken into account

Assign spectrum in a transparent manner and treat bidders equally

Auction encourage bidders to bid their true value of spectrum (Knowing the other bidders’ values)

Maximize economic, social benefits and promote competition

Beauty contest (Disadvantages) Auctions (Disadvantages)

Beauty contests are not transparent Can be complex to administer – depends on the design

Open to claims of favoritism May lead to concentrations of spectrum to those with the most money but this issue can be addressed through spectrum caps/reservations

Prone to legal challenge Auctions have the risk of over-valuing the spectrum (HigherReserve Prices)

18

Auction: best practice award method adopted

Auctions are globally considered to be the most efficient form for spectrum assignment i.e. the organization that most values the spectrum is likely to bid the highest for it and upon award, use it most efficiently.

However, they may be perceived as favouring incumbents who may be motivated by the desire to exclude competitors. Furthermore, auctions may disadvantage small and new entrants as they may not be able to compete with the financial muscle of established operators.

There is also a concern that high auction prices could undermine the winner’s ability to finance network roll-out (as a result of the so- called winner’s curse).

In order to mitigate the concerns above, a mechanism of shadow pricing can be used. Shadow pricing is a form of administrative pricing in which the price is set according to a predetermined formula intended to mimic the effect of market forces thus estimating what the spectrum would be worth if it was auctioned, either based on international benchmarks of auction pricing in the same band or on auction prices in the same country on adjacent bands. However, such a process is naturally contentious and is in fact mainly used to try and estimate the base price or reserve price for spectrum that is being auctioned.

19

Auction: types and characteristics

Auction type Characteristics

First-price sealed bid Bids are submitted confidentially. The highest bidder wins and pays bid amount

Second price sealed bid As above but winner pays second highest bid price

Clock auction The price goes up each round with bidders indicating how many of each type of lot they would like

Simultaneous multiple round auction (SMRA)

Participants can bid on several specific items in each round,with the price increasing with each round

Combinatorial auctions Bidders can submit multiple bids on different combinationsor ‘packages’ of licenses

Combinatorial clock auction (CCA) A “clock” auction for generic lots followed by a second priceauction, then the submission of sealed bids for specificbands.

20

Auctions - international perspective

EU Commission plans to coordinate the release of 700 MHz band for mobile services and restrict TV

broadcasting to the sub-700 MHz bands

EU countries in ITU Region 1 have auctioned the 800-MHz digital dividend spectrum and raised significant

amounts:

Germany raised €3,576.5 Million Spain raised €305.3 Million Sweden raised €197.3 Million

Australia (ITU Region 3) raised nearly AUSTRALIAN $2 billion in auction of the 700 MHz ( DD2)

Canada (ITU Region 2) auction of 700 MHz (2014) raised over CANADIAN $5,2 Billion

Brazil (ITU Region 2) auction of the 700MHz spectrum (2014) raised over US $2.39 billion which excludes an

extra US $1.47 billion cost to be paid by the operators for the clearing of the band

21

Auction - licensing process

The licensing award process will consist of three stages, as illustrated on the diagram below:

Qualification stageo parties are invited to submit applicationso each Applicant must pay a non-refundable application feeo Application contents must include, amongst others; business plan(s), proof of financial

capability, proof of technical capability and bank guaranteeo Applicant must have a minimum 30% (thirty percent) equity ownership held by persons

from Historically Disadvantaged Groups.

Qualification stage

Auction Stage Licensing stage

22

Auction - licensing process

Auction stageoAuctions assign spectrum in a transparent manner

o The format selected for the Auction is Simultaneous Multiple-Round Ascending (‘SMRA’)

o SMRA has been successfully used in inter alia Germany, Sweden, Finland and USA

oAuction rules will be published with the Invitation to Apply

o The Authority will acquire services of the consultant to assist with the auction process

Licensing stageoOnce the payment of the Auction Fee has been received by the Authority, the Licenses

will be issued to the winning Bidders

23

Proposed licence obligations

The following obligations are proposed to form part of the license conditions of the Radio Frequency Spectrum License to be issued

Open Access obligationso A Licensee is required to provide open access to a minimum of three Mobile Virtual Network

Operators (3 X MVNO).o MVNO must have more than 51% of ownership held by persons from Historically

Disadvantaged Groups. o A Licensee will have a maximum of three years from the date that the 700MHz/800MHz

spectrum becomes available to provide services in line with the set obligations.

Uplink and throughput obligationso A Licensee must provide data services across the country with an average uplink of 15Mbit/sand the downlink user experience throughput of at least 30 Mbit/s to 100% of the population of South Africa by 2020.

24

Spectrum Lots Packages (4) to be auctioned

The spectrum prioritized for assignment is as follows:

o2×30MHz in the 700MHz band (703MHz-733MHz/758-788MHz)

o2×25MHz in the 800MHz band (796-801MHz/837-842MHz)

o2×70MHz and 1×25MHz in the 2.6GHz band (2500-2570MHz/2620-

2690MHz and 2595-2615MHz))

This spectrum will be awarded on a national basis covering the entire

territory of South Africa.

Lots 700MHz 800MHz 2.6GHz

Lot A

(To be awarded through a

separate process)

2 x 15MHz

(703-718MHz/

758-773MHz)

25MHz

(2595-2620MHz)

Lot B 2 x 5MHz

(718- 723MHz/ 773- 778MHz)

2 x 5MHz

(796-801MHz/

837-842MHz)

2 x 20MHz

(2500-2520MHz/

2620-2640MHz)

Lot C 2 x 10MHz

(801-811MHz/

842-852MHz)

2 x 20MHz

(2520- 2540MHz/2640-

2660MHz)

Lot D 2 x 10MHz

(811-821MHz/

852-862MHz)

2 x 20MHz

(2540-2560MHz/

2660-2680MHz)

Lot E 2 x 10MHz

(723- 733MHz/ 778- 788MHz)

2 x 10MHz

(2560- 2570MHz/ 2680-

2690MHz)25

Process – ITA to Spectrum Award

15 August 2016

04 August 2016 and 24 August 2016

03 October 2016

21 October 2016/ 10 November 2016 and 30 November 2016

12 -14 December 2016

17 – 31 January 2017

14 March 2017 to 28 March 2017

o Publication of the Invitation To Apply (ITA) forInternational Mobile Telecommunications

o Deadline for enquiries regarding ITA by Public ando Deadline to respond to enquiries by the public

o Application Date – Opening 09h00 Closing 13h00

o Start of auction to End of Auction including announcement of results

o Payment of Auction Fees and Licences awarded and issued

Publication of list of Applicants and Submission of queries/clarifications to Applicants and Announcement of Applicants qualified as Bidders

Bidder seminar and mock auction

26

ISSUE

The matter is currently being considered by the Court due to some different views of opinion on the part of the policy maker

27

Guiding objectives for spectrum assignment

Chief Operations Officer (Regulatory Projects Office)

Ensure universal broadband coverage

Facilitate entry by new players into the market

Encourage Transformation in the Sector

Create a stable and sustainable environment for future investment

Adherence to International Standards and Global Best Practice

28

Thank You!!

29