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Government Gazette Staatskoerant R EPU B LI C OF S OUT H AF RICA REPUBLIEK VAN SUID-AFRIKA

Vol. 580

Pretoria,

11

October 2013 Oktober

No. 36919

N.B. The Government Printing Works will not be held responsible for the quality of “Hard Copies” or “Electronic Files” submitted for publication purposes

AIDS HELPLINE: 0800-0123-22 Prevention is the cure

305072—A

36919—1

2

No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

IMPORTANT NOTICE The Government Printing Works will not be held responsible for faxed documents not received due to errors on the fax machine or faxes received which are unclear or incomplete. Please be advised that an “OK” slip, received from a fax machine, will not be accepted as proof that documents were received by the GPW for printing. If documents are faxed to the GPW it will be the sender’s responsibility to phone and confirm that the documents were received in good order. Furthermore the Government Printing Works will also not be held responsible for cancellations and amendments which have not been done on original documents received from clients.

CONTENTS • INHOUD Page No.

No.

Gazette No.

GENERAL NOTICE Independent Communications Authority of South Africa

General Notice 1018 Electronic Communications Act (36/2005): Draft Call Termination Regulations............................................................

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3

36919

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

GENERAL NOTICE NOTICE 1018 OF 2013

INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA

"DRAFT CALL TERMINATION REGULATIONS" PURSUANT TO SECTION 67(4) OF THE ELECTRONIC COMMUNICATIONS ACT NO. 36 OF 2005

Stephen Mncube, Chairperson of the Independent Communications Authority of South Africa hereby publish the draft Regulations set out in the Schedule in terms of section 4 read with section 67(8) of the Electronic I,

Communications Act No. 36 of 2005.

Dr Stephen Mncube Chairperson

This gazette is also available free online at www.gpwonline.co.za

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

"DRAFT CALL TERMINATION REGULATIONS" PURSUANT TO SECTION 67(4) OF THE ELECTRONIC COMMUNICATIONS ACT NO. 36 OF 2005

1. DEFINITIONS

In these Regulations, unless the context indicates otherwise, a word or expression to which a meaning has been assigned in the Act or the ICASA Act, 2000 (Act No. 13 of 2000), as amended, has the meaning so assigned, and the following words and expressions shall have the meaning set out below:

"ON" means a geographic area code as specified in the Numbering Plan Regulations published by the Authority;

"the Act" means the Electronic Communications Act, 2005 (Act No. 36 of 2005);

"ECNS" means an electronic communications network service as defined in the Act;

"ECS" means an electronic communications service as defined in the Act;

"Fixed voice call termination service" means a wholesale voice call termination service provided by an ECNS or ECS licensee to a fixed location, and includes such a service provided by a licensee providing call termination using fixed wireless services; "LRIC" means the Long Run Incremental Cost Standard

"Mobile voice call termination service" means a wholesale call termination service provided by an ECNS or ECS licensee to mobile subscriber equipment enabled by wireless technology;

"Retail service" means a service offered by an ECS licensee to end-users; "SMP" means significant market power as defined in section 67(5) of the Act;

"Wholesale service" means a service that an ECS or ECNS licensee offers other ECS or ECNS licensees.

This gazette is also available free online at www.gpwonline.co.za

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

2. PURPOSE OF REGULATIONS The purpose of these Regulations is to: -

(a) Define and identify the wholesale call termination markets that exist within the Republic of South Africa based on trends post 2010;

(b) Set out the methodology used in the review of the effectiveness of competition in such markets post 2010;

(c) Declare licensees that have SMP in terms of paragraphs (a) and (b) above;

(d) Set out the pro-competitive measures to be imposed to remedy market failure in the relevant markets found to have ineffective competition; (e) Set out the schedule for periodic review of the relevant markets and the effectiveness of competition in such markets; and

(f) Provide for the enforcement of these Regulations.

3. MARKET DEFINITION

The markets are categorised according to the type of service provided to the end-user and are defined as follows: (a) Market 1: The market for wholesale voice call termination services to a mobile location on the network of each ECS/ECNS licensee who offers such a service within the Republic. (b) Market 2: The market for wholesale voice call termination services to a fixed location on the network of each ECS/ECNS licensee who offers such a service within the Republic, consisting of: i.

ii.

The market segment for wholesale voice call termination to a fixed location within an ON area code; and The market segment for wholesale voice call termination to a fixed location between ON area codes.

This gazette is also available free online at www.gpwonline.co.za

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

4. METHODOLOGY

In determining the effectiveness of competition in the wholesale voice call termination markets, the Authority has applied the following methodology:

(a) the identification of relevant markets and their definition according to the principles of the Hypothetical Monopolist Test, taking into account the non-transitory (structural, legal, or regulatory) entry barriers to the relevant markets and the dynamic character and functioning of the relevant markets; (b) the assessment of licensees' market shares in the relevant markets; and

(c) the assessment on a forward-looking basis of the level of competition and market power in the relevant markets.

5. EFFECTIVENESS OF COMPETITION Pursuant to regulation 4, the Authority has determined that competition in the

wholesale voice call termination markets, as defined in regulation 3,

is

ineffective owing to inefficient pricing.

6. SMP DETERMINATION

The Authority determines that each ECNS and ECS licensee that offers wholesale voice call termination services has SMP in its own market.

7. PRO-COMPETITIVE TERMS AND CONDITIONS

(1) The Authority has identified the following market failures in the respective wholesale voice call termination markets: (a) inefficient pricing

(2) All licensees must comply with the following pro-competitive terms and conditions to overcome the market failures identified in sub regulation (1):

(a) Charge fair and reasonable prices for wholesale voice call termination consistent with Appendix A

(3) The Authority has determined that additional pro-competitive terms and conditions are necessary to correct the market failures identified in regulation 7(1), which are to be imposed on the following licensees: This gazette is also available free online at www.gpwonline.co.za

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

(a) Licensees that have historically benefitted from reciprocal treatment by the Authority in the allocation of spectrum;

(b) Licensees that benefit from economies of scale and scope in maintaining a share of total minutes terminated in the respective markets of greater than 20 per cent as of December 2012. (4) The Authority determines that the following characteristics listed in sub regulation (3):

licensees

have

the

(a) Market 1: i.

ii.

MTN Pty Ltd (MTN) Vodacom Pty Ltd (Vodacom)

(b) Market 2: i.

Telkom SA SOC Limited (Telkom)

(5) Additional pro-competitive terms and conditions (a) Price Control: Cost oriented pricing i.

This obligation is imposed on those licensees listed in sub regulation (4).

ii.

For the period 01 March 2014 to 01 March 2016, the licensees identified in sub regulation(4)(a) must charge the wholesale voice call termination rates to a mobile location as specified in Table 1:

Table 1: Wholesale voice call termination rates to a mobile location (Market 1) Period Rate 1 March 2014 1 March 2015 1 March 2016 iii.

R 0.20 R 0.15 R 0.10

For the period 01 March 2014 to 01 March 2016, the licensees identified in subregulation(4)(b) must charge the wholesale voice call termination rates to a fixed location as specified in Table 2:

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

Table 2: Wholesale voice call termination rates to a fixed location (Market 2) Within ON area code

Period 1 March 2014 to 1 March 2016

R0.12

Between ON area code

R0.19

(b) Bottom-up LRIC Cost Model i.

This obligation is imposed on those licensees listed in subregulation (4).

ii.

Such licensees are obliged to provide any information the

iii.

Authority deems necessary to develop such a Cost Model Information requests are to be complied with within 30 days of receiving the request.

iv.

The Authority may amend existing rates based on the outcomes of this model.

8.

SCHEDULE FOR REVIEW OR REVISION OF MARKETS

The Authority will review the wholesale voice call termination markets to which

these regulations apply, as well as the effectiveness of competition and the application of pro-competitive measures in those markets, as and when necessary, based on observable trends in the defined markets.

9.

CONTRAVENTIONS AND PENALTIES

(1)

A licensee which fails to comply with regulation 7(2) is liable to a fine of Five Hundred Thousand Rand (R 500 000.00).

(2)

A licensee which fails to comply with regulation 7(5)(a), (b) is liable to a fine not exceeding One Million Rand (R 1 000 000.00).

10.

SHORT TITLE AND COMMENCEMENT

These Regulations are called the Draft Call Termination Regulations and will become effective upon date of publication. All Stakeholders have 30 days to submit written comments on the draft regulations.

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STAATSKOERANT, 11 OKTOBER 2013

Appendix A:

1.

1.1.

No. 36919

APPLICATION OF THE FAIR AND REASONABLE OBLIGATION

PRINCIPLES OF IMPLEMENTATION OF FAIR AND REASONABLE OBLIGATION For the purposes of regulation 7(2)(a), "fair and reasonable" prices are

rates that are equivalent to the cost-oriented rates imposed on the licensees identified in Regulation 7(4). 1.2.

Licensees must charge the following rates:

1.2.1. Reciprocal rates with the rate set for MTN and Vodacom if these licensees are in Market 1;

1.22. Reciprocal rates with the rate set for Telkom if these licensees are in Market 2.

2. Licensees not listed in Regulation 7(4)(a) may charge higher termination rates based on the following factors: 2.1.

Spectrum allocation. A licensee must justify why it is adversely affected by current spectrum allocation.

2.2.

Economies of scale and scope based on the share of total minutes terminated in the relevant market. A licensee qualifies, for a period of 5 years from the 1st March 2014, for an asymmetric rate if it has less than 20 per cent of total terminated minutes in the relevant market as of December 2012.

2.3.

Thereafter, a licensee qualifies for an ongoing asymmetric rate of 40% if it has a market share of less than or equal to 10 per cent of total terminated minutes in the relevant market.

2.4.

Licensees with a market share of greater than 10% after five years have passed are obliged to charge symmetrical rates.

2.5.

A licensee may only qualify for an asymmetric rate if both factors are applicable.

2.6.

A licensee who qualifies for an asymmetric rate in Market 1 may charge a maximum rate) according to the following table:

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

Table A1: Maximum Asymmetry Rate

Current 01-Mar-14 01-Mar-15 01-Mar-16 01-Mar-17 01-Mar-18 01-Mar-19

Maximum rate that may be charged R 0.44 R 0.39 R 0.33 R 0.26 R 0.20 R 0.14 R 0.10

3. Licensees not listed in Regulation 7(4)(b) may charge higher termination rates based on the following factor: 3.1.

Economies of scale and scope based on the share of total minutes terminated in the relevant market. A licensee qualifies, for a period of 5 years from the 1st March 2014, for an asymmetric rate of 10% above the rates specified in Table 2 of these Regulations if it has less than 20 per cent of total terminated minutes in the relevant market as of December 2012.

3.2.

Thereafter, a licensee qualifies for an ongoing asymmetric rate of 10% if it has a market share of less than or equal to 10 per cent of total terminated minutes in the relevant market.

3.3.

Licensees with a market share of greater than 10% after five years have passed are obliged to charge symmetrical rates.

This gazette is also available free online at www.gpwonline.co.za

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

Explanatory Note to the Draft Call Termination Regulations 1.

Introduction The Authority introduced cost-oriented termination rates through the Wholesale Voice Call Termination Regulations (GG 33698) in October 2010. The Authority has reviewed these regulations in line with Section 67(8) of the Electronic Communications Act, no 35 of 2006 (the "ECA"), where Section 67(8) states the following:

1.1. 1.2.

67(8) Review of pro-competitive conditions:

(a) Where the Authority undertakes a review of the pro-competitive conditions imposed upon one or more licensees under this subsection, the Authority must(i) review the market determinations made on the basis of earlier analysis; and (ii) decide whether to modify the pro-competitive conditions set by reference to

a market determination; 1.3.

1.4.

1.4.1. 1.4.2. 1.4.3. 1.4.4. 2.

The Authority informed stakeholders of its intention to conduct such a review using the Request for Information published in Government Gazette 36532 on the 4th of June 2013. This explanatory note is structured as follows: Market definition Determination of Significant Market Power Evaluation of the effectiveness of competition Pro-competitive remedies

Market Definition

After analysis of the information requested from licensees by the Authority, the Authority sees no need to amend the definitions of the markets as determined in 2010 because there is no technical change that changes the characteristics of termination to a mobile versus fixed location' 2.2. Therefore the market definitions remain the same: 2.2.1. Market 1: The market for wholesale voice call termination services to a mobile location on each ECS/ECNS licensee's network who offers such a service within the Republic of South Africa. 2.2.2. Market 2: The market for wholesale voice call termination services to a fixed location on each ECS/ECNS licensee's network who offers such a service within the Republic of South Africa, consisting of: 2.2.2.1. The market segment for wholesale voice call termination to a fixed location within the 2.1.

ON area code

2.2.2.2.

The market segment for wholesale voice call termination to a fixed location between ON area codes'

1 See page 48 of Government Gazette 33121 of 16 April 2019 2 As per the National Numbering Plan

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

Determination of Significant Market Power

3.

In 2010 the Authority determined that:

3.1.

"each ECNS and ECS licensee that offers wholesale voice call termination services has SMP in

its own market"' After analysis of the information requested from licensees by the Authority, the Authority sees no reason to amend this determination, as the nature of voice call termination has not

3.2.

changed.4 4.

Determination on the Effectiveness of Competition In 2010 the Authority determined that the two markets for call termination were ineffectively competitive for the following reasons

4.1.

4.1.3.

a lack of the provision of access the potential for discrimination between licensees offering similar services a lack of transparency

4.1.4.

inefficient pricing

4.1.1. 4.1.2.

4.2.

Upon review of the conditions of the market, the Authority determined that the two markets remain ineffectively competitive, with the two markets being highly concentrated. Table 1: Concentration in Market 1: Termination to a mobile location

Termination Revenue Shares Jun-2011

Dec-2011

Jun-2012

Dec-2012

Licensee 1

36%

35%

36%

Licensee 2

44%

44%

46%

37% 45%

Licensee 3

16%

17%

15%

14%

Licensee 4 HHI

4%

3%

4%

3%

3499

3511

3618

3660

Table 1: Concentration

2011

2012

Licensee 1

98%

Licensee 2

2%

94% 6%

9664

8912

HHI

4.3.

5.

Market 2: Termination le a fixed location

The Authority determines that these markets remain ineffectively competitive owing to inefficient pricing. Pro-competitive Remedies

3 Regulation 6 of the 2010 Regulations (Government Gazette 33698) 4 See Section 2.3 on Countervailing Bargaining Power in Government Gazette 33121

This gazette is also available free online at www.gpwonline.co.za

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

Amongst others, the Authority imposed cost-oriented pricing on the pricing arrangements for voice call termination in the 2010 Regulations. 5.1.1. For Market 1, the Authority determined that the cost of termination in Market 1 was R 0.40 per minute. 5.1.2. For Market 2, the Authority determined that the cost of termination was R 0.19 and R 0.12 per minute dependent on the market segment in which the call is made. 5.2. On review of industry data, the Authority recommends revised rates for Market 1 whilst determining that there is no need to change the existing rates for Market 2 5.3. The Authority determines that the cost of termination in Market 1 is now approximately R 0.10 per minute based on, amongst others, the increase in traffic on licensees' networks, where an increase in traffic reduces the cost per unit in the provision of call termination 5.1.

services. 5.4.

The Authority further determines that this level should be reached in three years. Therefore the proposed revised termination rates over the next three years are: Table 3: Mobile Termination Rotes: 2014-2016

% Decline

Rand

01 March 2013 01 March 2014 01 March 2015 01 March 2016

0.40 0.20 0.15 0.10

50% 25% 33%

Table 4: Proposed fixed line term4nation rates: 2014-2016

Fixed Termination Rate

5.5.

Between ON

Within ON

R 0.19

R 0.12

The 2010 Regulations also imposed a limited amount of asymmetry available to licensees that met certain criteria, as outlined in Appendix B of the 2010 Regulations. Table 5: Limitations to Asymmetry os per the 2010 Regulations

Maximum percentage above rate set for identified licensees

Current

-

01-Mar-11

20%

01-Mar-12

15%

01-Mar-13

10%

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No. 36919

5.6.

GOVERNMENT GAZETTE, 11 OCTOBER 2013

The qualifying criteria for an asymmetric termination rate in 2010 were: "1.3. Licensees not listed in Regulation 7(4) (of 2010) may charge higher termination rates based on the following factors: 1.3.1. Spectrum allocation. A licensee must justify why it is adversely affected by current spectrum allocation. 1.3.2. Economies of scale and scope based on the share of total minutes terminated in the relevant market. A licensee qualifies for an asymmetric rate if it has less than 25 per cent of total terminated minutes in the relevant market as of June 2009.5"

The Authority is of the view that the share of total terminated minutes should be reduced from 25 per cent of total terminated minutes to 20 per cent of total terminated minutes. This amendment is reflected in Appendix A of these draft Regulations. 5.8. The Authority is concerned that the markets continue to reflect ineffective competition and that a reduction in termination rates may not be sufficient. 5.9. The introduction of asymmetry is a regulatory determination taking into account a number of factors, including: 5.9.1. traffic imbalances reflecting economies of scale promotion of investment 5.9.2. 5.9.3. encouraging competition 5.7.

5.9.4.

fostering SMM Es

5.10. Given the importance of investment in infrastructure in ensuring the achievement of sufficient scale and the differences in traffic volumes that exist in Market 1, the Authority believes it necessary to sustain and increase asymmetry for a further period of five years. 5.11. At the end of this asymmetric period, licensees are to be charging symmetrical termination rates. However, in the interests of fostering small businesses, the Authority proposes that licensees with less than 10% of total terminated minutes in the respective market at the end of this five-year period may retain the asymmetric benefit of the final year. 5.12. The table below outlines the asymmetric glide-path of termination rates available to those licensees that meet the qualification criteria: Table 6: Maximum asymmetric termination rote which a qualifying licensee may charge for termination in Market 1

Maximum Rate

01 March 2014 01 March 2015 01 March 2016 01 March 2017 01 March 2018 01 March 2019

R 0.39 R 0.33 R 0.26

R 0.20 R 0.14

R 0.20

'See "Appendix B:Application of the Fair and Reasonable Obligation" of the 2010 Regulations

This gazette is also available free online at www.gpwonline.co.za

STAATSKOERANT, 11 OKTOBER 2013

No. 36919

?able 7: Maximum asymmetric termination rote Whir)) o atiolifying licensee may charge fo( termination in Market 2

Between ON

Within ON

01 March 2014

10%

10%

01 March 2015

10%

10%

01 March 2016

10%

10%

01 March 2017

10%

10%

01 March 2018 01 March 2019

10%

10%

10%

10%

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No. 36919

GOVERNMENT GAZETTE, 11 OCTOBER 2013

Printed by and obtainable from the Government Printer, Bosman Street, Private Bag X85, Pretoria, 0001 Publications: Tel: (012) 334-4508, 334-4509, 334-4510 Advertisements: Tel: (012) 334-4673, 334-4674, 334-4504 Subscriptions: Tel: (012) 334-4735, 334-4736, 334-4737 Cape Town Branch: Tel: (021) 465-7531 Gedruk deur en verkrygbaar by die Staatsdrukker, Bosmanstraat, Privaatsak X85, Pretoria, 0001 Publikasies: Tel: (012) 334-4508, 334-4509, 334-4510 Advertensies: Tel: (012) 334-4673, 334-4674, 334-4504 Subskripsies: Tel: (012) 334-4735, 334-4736, 334-4737 Kaapstad-tak: Tel: (021) 465-7531

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36919—1

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