1. VODACOM’S ORAL REPRESENTATION: ICASA’S PROPOSED DRAFT REGULATIONS IN RESPECT OF INTERCONNECTION GUIDELINES (GN59) 22 MARCH 2006

2. OUTLINE OF PRESENTATION 1.Introduction 2.Summary of key arguments 3.Legal authority, timing and context 4.Legal basis for IC regulation 5.Economic arguments and procedural points 6.Conclusions and Recommendations

3. Introduction (1) Vodacom welcomes the opportunity to participate in the public hearings. Vodacom acknowledges that regulation is used in certain circumstances to address bottlenecks or areas of established competitive market failure Vodacom highlights the importance of ensuring measures and practices that promote competitive market forces, which balance: –the need for affordable and high quality services for consumers, –and adequate returns for investors, in order to sustain and grow the electronic communications market both at the infrastructure and services levels Vodacom is willing to abide by rulings, findings and regulations that fall within the ambit of governing legislation, follow due process and are founded on sound economic principles

4. Introduction (2) As noted in previous submissions on Interconnection and Facilities Leasing guidelines, Vodacom has material objections to the draft regulations, particularly to the extent that they have incorporated the exact same text The legality of the regulations are the subject of a High Court application and Vodacom reserves its rights to participate in the hearings without prejudice

5. Summary of key arguments (1) The draft regulations are unlawful as they fall outside the authority of the current Act and even if applied under the new EC Act will require a new public process on the basis of a different regulatory framework The timing of the regulation process is inappropriate, given the imminent promulgation of the new EC Act The regulations seek to unlawfully confer wide discretionary powers to ICASA and impose generic homogenous remedies with potentially dire consequences of regulatory failure and increased costs to consumers The regulations are deemed unlawful under section 43 (3) insofar as they fail to meet the requirements of section 45 of the Act In the absence of section 45 provisions, the regulations could still be subject to constitutional challenge (under PAJA) The discretionary and unsubstantiated declarations by ICASA fundamentally undermine the provisions of section 45 of the Act and the due process that this should entail (definition of relevant markets, competition assessment and application of appropriate remedies)

6. Summary of key arguments (2) The application of uniform regulatory remedies to all interconnection markets fundamentally undermines the competition law principle of applying the most appropriate, proportionate and least intrusive regulatory remedy to address specific competitive market failure In making the “Major Operator” distinction, the regulations are ultra vires in that they seek to categorise licensees and impose discriminatory regulations accordingly, without the requisite legal authority The definition of “Major Operator” in the draft regulations is too vague to have any determinable content, and will therefore be invalid The draft regulations have limited applicability to voluntary interconnection agreements (non-PSTS licensees), and ICASA’s authority to intervene is subject to certain restrictions not honoured Over and above the legal challenge, there are compelling economic arguments to be made for a cautious, appropriate and proportionate regulatory approach

7. LEGAL AUTHORITY, TIMING, AND CONTEXT

8. Legal Authority The current Telecommunications Act is the only legal basis for interpretation of the draft regulations The draft regulations fall outside the authority of the current Telecommunications Act, and raise further legal issues in respect of Competition Law, Common Law, and Administrative Law Interpretation under the yet to be promulgated EC Act is unlawful A new public process and draft set of regulations will be required under the new EC Act Many of the issues raised will survive the promulgation of the EC Act The draft regulations fall outside the authority of the current governing legislation. If applied under the new EC Act this will require a new public process on the basis of a different regulatory framework

9. Timing Draft regulations were published over a year ago A new regulatory framework is about to be introduced with the new EC Act Regulatory forbearance is required in light of the changing market structure and competitive market dynamics. The current licensing framework and market structure are not necessarily reflective of the different (developing) interconnect services markets and are therefore not the most appropriate basis for regulation, which needs to be forward looking in the long term interest of consumers High risk of inappropriate regulation exists with draft regulations, which may result in market distortions and unintended consequences Given anticipated changes to the regulatory framework under the new EC Act, the approval of regulations under the current Act is short-term focused, resulting in unnecessary risk and inefficiency.

10. Context Interconnection represents one of many access types Different types of wholesale access are subject to different levels of competition and thus require different regulatory treatment. Differentiation in the manner, form and extent of regulation is important and a “one size fits all” regulatory approach will not only fail to address perceived problems but will introduce market distortions and additional complexities in the future. Regulatory remedies must always be proportionate to a specific competition problem (as supported in section 2 of the Act). The broad and generic regulations seek to unlawfully confer wide discretionary powers to ICASA and impose homogenous remedies rather than analytically address problems in specific markets - with potentially dire consequences of regulatory failure and increased costs to consumers

11. LEGAL BASIS FOR THE REGULATION OF INTERCONNECTION

12. Legal Basis for IC Regulation – Section 43 of the Act ICASA purports to make the Interconnection regulations in terms of Section 43 of the Telecommunications Act. ICASA’s authority in Section 43 of the Act is limited to: –Approval of lodged interconnection agreements, –Resolution of interconnection negotiation deadlock on request of negotiating party. –Prescribing guidelines relating to the form and content of interconnection agreements, including … “fees and charges payable” ICASA’s authority is limited to the form and content of interconnection agreements. In terms of 43(3)(c) read with 43(4)(b) and (5)(b), ICASA is authorised to create general guidelines and, as a matter of discretion, impose the charges determined only in such cases as when parties have been unable or unwilling to agree on charges. The Act does not confer the wide discretionary powers assumed by ICASA in respect of interconnection regulation.

13. Legal Basis for IC Regulation – Section 43 of the Act Section 43(3)(c) of the Act (i.e.“guidelines to determine fees and charges”) cannot be applied in isolation and should be read subject to the provisions of section 45 (“manner of determining fees and charges” and “fields of no or insufficient competition”) In terms of Section 43 read with Section 45 ICASA is not authorized to fix specific interconnection charges The jurisdictional precondition of “insufficient competition” is one of objective fact and does not lie in the subjective or arbitrary discretion of ICASA. ICASA fails to provide evidence of compliance with section 45 in terms of making a determination of insufficient competition in each of the interconnection services markets before prescribing a manner of determining fees/charges. As the jurisdictional prerequisite in s 45 is not satisfied, the regulations are deemed unlawful

14. Legal Basis for IC Regulation – Section 43 of the Act If section 43 (3) were not concerned with competition matters covered in section 45, then this creates additional difficulties in the regulations insofar as they deal with competition matters relating to market definitions, “major operator”, “essential services” etc. Even if the requirement in section 45 (2) is not a jurisdictional prerequisite to rulemaking in terms of section 43 (3), there is further ground for constitutional objection, in terms of the grounds for judicial review of administrative action under PAJA, as well as Common Law and administrative law. In the absence of section 45 provisions, the regulations could still be subject to constitutional challenge (under PAJA)

15. Legal Basis for IC Regulation – Constitutionality Both sections 43(3) and 45(2) of the Act present fundamental constitutional problems in that they do not provide ICASA with adequate guidance regarding the exercise of its power to make regulations in respect of interconnection fees and charges While the courts recognise the important role of discretion in administrative action, it is necessary for the Legislature to provide sufficient guidance regarding its exercise The Act, and in particular section 43, contains no guidelines whereby the Authority may exercise powers to determine, in its guidelines, inter alia the fees and charges payable for interconnection services. For this reason it is doubtful that section 43(3) of the Act will withstand constitutional challenge, and if it does, it is even more unlikely that the vague terms of the draft regulations will survive constitutional challenge. It is unlikely that the draft regulations will stand up to constitutional challenge.

16. Legal Basis for IC Regulation – Interconnection definition Interconnection is a collective term which encompasses a number of underlying services, including origination, transit and termination These services differ in nature, scope, level of competition and even existence in different markets The broad definition of “interconnection” in the Act, and the bundling of fundamentally different access services in different markets in the regulations do not acknowledge the material differences in assessing levels of competition and imposing proportionate remedies The draft regulations simply “declare” all “interconnection services” in the 6 identified Telecommunications Markets to be “Essential Services” thereby implicitly declaring competitive market failure in all 18 “interconnection services” markets The discretionary declaration of all interconnection services as essential fundamentally undermines the provisions of section 45 and the due process that this should entail.

17. Legal Basis for IC Regulation – Regulatory Remedies A “one size fits all”, and therefore disproportionate, regulatory approach is adopted in the draft regulations The regulations determine that the remedies that would be imposed on any interconnection service provided by any interconnection provider include: –mandatory access to interconnection, –transparency in interconnection charges and agreements, –non-discrimination, –retail price cap (non-Major Operators) –cost based regulated charge control (Major Operators). No thorough market analysis has been conducted, or the results of such analysis have not been shared with interested and affected stakeholders The uniform application of regulatory remedies fundamentally undermines the competition law principle of applying the most appropriate, proportionate and least intrusive regulatory remedy to address competitive market failure

18. Legal Basis for IC Regulation – Major Operator distinction The regulations and not the Act introduce the definition of “Major Operator” and prescribe applicable interconnection charges. There is no power in section 43 (3) or any other provision in the Act which permits ICASA to divide licensees into categories of Major Operators and others and then impose discriminatory restrictions on the different categories Section 96(2) of the Act, provides that “[D]ifferent regulations may be made in respect of different categories of telecommunication services, equipment and facilities and periods” It does not provide that different regulations may be made in respect of different licensees or operators providing the same category of telecommunications services. The draft regulations are ultra vires in that they seek to categorise licensees and impose different and discriminatory regulations on different licensees, without the legal authority of the governing legislation to do so.

19. Legal Basis for IC Regulation – Major Operator distinction Under the definitions in the draft regulations, it is not clear whether the 3 “Major Operator” criteria (a), (b) and (c) in the regulations are cumulative or discrete requirements, nor is it straightforward to apply (a) and (b) to the factual circumstances of the operator Clause 2.6 of the draft regulations allows for a process that could result in declaration of a major operator without applying any of the criteria in the required definition. This therefore falls short of the regime sought to be created by the regulations themselves Major Operators are defined in terms of the 6 identified Telecommunications Markets, while the remedies applied are based on 3 “interconnection service” types, spanning 18 markets in which the particular operator may not in fact be dominant or wield market power. Without a thorough and coherent market analysis to identify and define the relevant market(s) where potential or existing market failure exists, the imposition of remedies on Major Operators will be ultra vires the Act The definition of “Major Operator” in the draft regulations is too vague to have any determinable content, and will, if put in a final regulation, be invalid

20. Unlawful extension of scope of regulation and powers ICASA assumes additional power to identify interconnection services and to issue decisions, determinations or additional guidelines without the requisite authority in the Act (clause 21.7) ICASA mandates that interconnection agreements must provide for the retrospective application of its determinations to existing agreements (Clause 21.5) without requisite authority of the Act and despite limitation on ICASA’s authority to intervene in interconnection agreements ICASA mandates transitional obligations in respect of interconnection agreements (clause 12) which is also ultra vires for the same reasons outlined above ICASA has extended its powers beyond that authorized in the Act on a number of aspects of the draft regulations

21. Application of Regulations In terms of section 43(1) of the Act, the only statutory obligation to conclude interconnection agreements is applicable to PSTS licensees ICASA’s power is limited in providing guidelines applicable to (voluntary) interconnection agreements concluded by non-PSTS licensees, in that the applicability of the guidelines is restricted to “interconnection providers”, which exclude non-PSTS players ICASA is only authorized to impose terms and conditions including charges and fees on parties to interconnection agreements: –In circumstances of deadlocks where intervention is required and contemplated in the Act –For compulsory interconnection agreements (i.e. where it is not open to parties to refuse to agree on reasonable terms) The draft regulations have limited applicability to voluntary interconnection agreements (non-PSTS licensees), and ICASA’s authority to intervene is therefore subject to certain restrictions not honoured in the draft regulations.

22. ECONOMIC ARGUMENTS AND PROCEDURAL ASPECTS

23. Economic arguments (1) Regulation should focus on the regulation of markets and not individual competitors Regulators should focus on proportionate regulation based on proven competitive market failure rather than the delivery of anticipated or desired future outputs in the absence of appropriate competition analysis Regulators should be wary of imposing access obligations at the same time as licensing additional entrants Regulators should seek to encourage both infrastructure and services entry to ensure sustainable competition and that players do not merely exploit the “free option” of riding on other’s infrastructure, without assuming a fair proportion of the risk

24. Economic arguments (2) Regulation should attempt to mimic functioning competitive markets, as competition is widely accepted as the best means of maximising total welfare by: –ensuring investment and operational efficiency, –fostering product and service innovation, and –meeting customer needs Over and above the legal challenge, there are compelling economic arguments to be made for a cautious, appropriate and proportionate regulatory approach.

25. Market Analysis Approach – Rigorous and transparent A rigorous and transparent regulatory process to conduct the market and competition assessment and to determine appropriate regulatory remedies would facilitate compliance with the provisions of the Act, and ensure that only areas of competitive failure are addressed. 1 2 3 4 5 Source: ITU

26. Conclusions and Recommendations The draft regulations are invalid. It is recommended that the Authority should: –Withdraw the draft regulations because if published in its present form it will be invalid under the Telecommunications Act and will also be invalid under the yet to be published EC Act; –Wait for promulgation of the Electronic Communications Act –Commission a market study in terms of the provisions of the new Act with a view to identifying markets, which exhibit market failure. Practice regulatory forbearance given significant uncertainty associated with the development of the communications market under convergence with the new regulatory framework introduced with the anticipated EC Act

27. THANK YOU!