South Africa: Icasa’s spectrum auction will help in catch-up of broadband rollout    

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 23 March 2022 10:22

Bystanders walk past an outlet of South Africa's MTN Group in downtown Cape Town
Bystanders walk past an outlet of South Africa's MTN Group in downtown Cape Town, November 10, 2015. REUTERS/Mike Hutchings

South Africa’s long-awaited multibillion spectrum auction is an indication that “all key players are finally co-operating” in the interests of the sector, say analysts.

The Independent Communications Authority of South Africa (ICASA), which regulates the country’s telecoms sector, kicked off the first phase of a three-stage auction process for high-frequency spectrum in the 700 MHz, 800 MHz, 2600 MHz, and 3500 MHz bands last week, generating R14.4bn for the state.

Rivals Vodacom and MTN put in bids for more than R5bn each on the main auction stage, making the two-largest network operators in the country the biggest spenders.

The move marks the first time in 17 years that ICASA has made a significant spectrum allocation. It also takes place six years after the initial auction, which was mired in political dispute and side-tracked by legal wrangling.

The government has also dropped its controversial Wholesale Open Access Network (WOAN) policy requirement – a model that separates the physical access to the network from the delivery of services – which may have added further complications to the sector.

“Telkom [South Africa’s wireless telecommunications provider] is still warning it may put a spanner in the works, but at least it hasn’t stuck to its previous stance of pulling out all the stops to prevent the auction,” Arthur Goldstuck, founder and CEO of independent technology market research organisation World Wide Worx tells The Africa Report.

The long wait for spectrum and spectrum constraint means that this auction has the potential to get ugly.

“They’ve [Telkom] expressed their intention to go ahead with action against the spectrum allocation if requirements are not met. But the fact that they have participated in the process … [is a good sign],” he adds.

“This auction is key for the SA telcos, in our view, as they have been spectrum constrained for a long time and data volume growth is accelerating,” said Chris Hoare, team head for communications services covering Asia and EMEA at the UK-based New Street Research in a note published 11 March.

“The long wait for spectrum and spectrum constraint means that this auction has the potential to get ugly. However, both Vodacom and MTN have, in our opinion, been talking rationally in advance of the auction and both are also in similar positions from a financial perspective,” he added.

Bidding for bands

The three stages of the auction are:

  • The opt-in phase that is reserved for smaller operators, which are also referred to as Tier 2 operators. The qualifying bidders were Cell C, Liquid Telecoms, Rain Networks and Telkom. The opt-in stage took place on 8 March.
  • The main stage auction started on 10 March and concluded on Thursday. Vodacom and MTN, which are classified as Tier 1 operators, were qualified to bid in this stage along with smaller operators Cell C, Liquid Telecom, Rain Networks and Telkom.
  • The third, and final, stage of the auction is known as the frequency assignment phase. “This is an administrative process to determine the frequency assignment position of the lots won in the opt-in auction and the main stage,” according to Icasa.

During the opt-in auction, Rain, Telkom and Cell C were the only operators that submitted valid bids despite four companies qualifying, Icasa said. Rain and Telkom were the winning bidders and the opt-in auction generated R2.6bn.

“This opt-in phase was intended to give the four smaller operators the chance to procure a minimum spectrum portfolio of 2×10 MHz in sub-1 GHz and 60 MHz above 1 GHz,” said Hoare.

Rain was the winning bidder for 2×10 MHz in the 700 MHz band and 10 MHz in the 2600 MHz band for R1.1bn. Telkom put in the winning bid for 2×10 MHz in the 800 MHz band for R1.5bn.

“Importantly for Telkom, this represents the first permanent low band spectrum it will own,” said Hoare.

The main auction stage attracted bids totalling R11.8bn: Vodacom, R5.3bn; MTN, R5.1bn; Telkom, R608m; Cell C, R288m; Rain, R280; and Liquid Telecom, R111m.

“While Icasa can be commended for successfully progressing into the auction, it must not be forgotten that government intransigent has held us back for 17 years,” says Goldstuck.

Why spectrum matters

A major consequence of spectrum not being allocated for nearly two decades is that operators have been forced to push existing spectrum towards 4G and 5G services.

“That meant spectrum, which was not ideal for high-speed broadband, was being adapted for it,” says Goldstuck. “That meant spectrum was being used inefficiently. Inefficiency also translates into unnecessary cost.”

Moreover, “one of the great weaknesses of the WOAN is that it would require a state-owned enterprise to roll out its own infrastructure. That was a recipe for disaster. It’s a relief to the people of South Africa that we are not going to see government, once again, wasting time, money, energy and policy debate on something that was not going to work,” he said.

However, now that the spectrum auction has proceeded, some of these issues may be avoided, with the appropriate spectrum leveraged for the appropriate service, said Goldstuck.

Benefits for country and sector

Icasa’s spectrum auction has come at an opportune time because “all operators are constrained, with Vodacom, MTN and Cell C all with less than 80 MHz. Telkom has more overall spectrum (120 MHz) but no low band,” said Hoare.

This process provides a critical stimulus for economic recovery and has the potential to stimulate employment by leveraging on ICT networks and digital platforms to deliver economic value.

According to data compiled by New Street Research, Vodacom has slightly more overall headroom with $2bn available to spend in the main auction.

“The fact that bidding in the opt-in phase stopped at relatively low prices, and that there is a large amount of spectrum available, with only MTN and Vodacom as realistic ‘bidders up’, means bids should stay reasonable [during the main auction],” Hoare said.

Hoare’s assessment is that “spectrum would open up the possibility of fixed wireless and save capex [capital expenditure] relative to history.”

“The licensing of spectrum through an auction has major economic and social benefits for our country. This process provides a critical stimulus for economic recovery and has the potential to stimulate employment by leveraging on ICT networks and digital platforms to deliver economic value,” says Keabetswe Modimoeng, ICASA’s chairperson.

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