WOAN delays put SMEs at disadvantage, says industry

South African small and medium enterprises (SMEs) playing in the telecoms space are up in arms over government’s plan to shelve the licensing of the wholesale open access network (WOAN).

This, after Cabinet last week threw WOAN licensing into disarray by proposing amendments to remove the requirements to license the WOAN.

Telecoms regulator the Independent Communications Authority of South Africa (ICASA) has since welcomed government’s move, saying it had “already started the process of revisiting the WOAN and its related business case and will consider the government’s latest position on this matter”.

A WOAN would operate as a single network, built via a consortium, which will sell high-demand spectrum to telecoms operators on a wholesale basis.

Government believes the WOAN will enable more competition in the telecoms market that will result in data prices coming down.

According to ICASA, applicants for the WOAN licence must be at least 70% owned by South African citizens and at least 50% black-owned. They must also be at least 20% owned by black women.

The SMEs note that by putting WOAN on the backburner, government is effectively shutting the door on smaller players that do not have the financial muscle to enter the telecoms industry and compete with the incumbents.

The ICT industry has largely pointed to Mexico, whose WOAN model failed dismally, to argue the same approach would be disastrous for SA.

However, the smaller businesses say this narrative is flawed, as the conditions in Mexico and SA are completely different.

In an interview with ITWeb, Gudani Luvhani, head of operations at Sonke Telecoms, says the WOAN and the high-demand spectrum auction invitations to apply (ITAs) were envisaged and designed to be finalised at relatively the same time.

“Delaying the WOAN creates an unnecessary disadvantage to a new entrant while entrenching incumbents’ dominance in the sector.”

ICASA last week started auctioning the much-needed and long-awaited high-demand spectrum after telco heavyweights Vodacom, MTN, Telkom, Cell C, Rain Networks and Liquid Intelligent Technologies had all passed the pre-qualification stage of the spectrum licensing process.

Luvhani notes the WOAN model was designed to usher in much-needed transformation of the industry by awarding spectrum to an experienced consortium to operate.

“It is not yet clear what the policy change Cabinet has indicated means for the WOAN process, whether it is cancelled or postponed. This creates uncertainty for interested investors in the process,” he says.

“This may further delay the introduction of a much-needed new entrant in the industry, which will invariably have a negative impact on prices, products and services by allowing incumbents to further entrench themselves at the expense of meaningful entrepreneurial transformation and competition.”

Luvhani says the concern around further delays to this process means transformation and sector renewal suffer yet another setback.

Loyiso Tyira, MD of the ICT SMME Chamber, says the WOAN is a policy directive that emerged from the national ICT white paper.

“It is heavily researched and backed up for years by a number of industry stakeholders’ consultation. For government, the Department of Communications and Digital Technologies to suddenly shelve and can it is unjustified and unprincipled. They did not consult industry players in this rushed decision, including the ICT SMME Chamber.”

According to Tyira, the WOAN is a tool for transformation in the ICT telecoms sector. “It is to introduce broader ownership of the formerly marginalised and mechanistically allow SMMEs to access spectrum and participate in the network built for the country from the driver’s seat.

“The price tag of spectrum is very high; spectrum costs are a barrier to entry for most SMMEs in the space. Consequently, finance was used as a barrier to participate.”

Secondly, he adds, once the WOAN is in operation, other players, including SMMEs, can enter the market by purchasing use of the WOAN infrastructure at competitive pricing compared to the current mobile virtual network operator (MVNO).

Thirdly, Tyira says, other SMMEs and the rest of the country will benefit from lower cost of communication that was only reserved for bigger players in the economy.

Leon Rolls, president of the Progressive Blacks in ICT, says SMME associations fought tooth and nail to appeal to government to do the right thing for SMMEs in the sector.

“The pushback and muscle from the data monopoly seems to have won the day. The poor underdogs will never see the green pastures in this government; that is very clear,” Rolls says.

“Government had absolutely no right to can the WOAN licensing without consulting us as the people that it is intended to empower. We are no longer a developmental state but a capitalist one from the behavioural patterns of government. Money talks is the order of the day.”

Rolls adds: “Data costs are crazy in this country and the data monopoly behaves like data mobsters – they just charge what they want and do as they please.”

He believes the WOAN had a potential of cracking open the monopoly and radically transforming the economy.

“With the WOAN licensed and issued, SMMEs could have been exposed to untapped revenue of R600 billion per annum. That translates to about 140 000 jobs created by SMMEs. Government takes advice from the elites in the sector that lobby for the monopoly that benefits them only.”

On the Mexico benchmark, Luvhani says: “This narrative, at best, ignores the efforts taken by ICASA to mitigate the risk of failure for the South African WOAN and, at worst, is not a factually accurate account of the facts.

He explains that every new start-up globally has a risk of failure; however, based on the high-demand spectrum ITA of 2021 and the 2020 WOAN ITA, ICASA − with extensive consultation and careful crafting − has put in place several incentives to assist the new entrant.

“The Mexican WOAN was a private-public partnership with joint state ownership. This means the entity had to operate within the confines of the Mexican government processes, which tend to be significantly less flexible for operating and competing with private industry. The South African WOAN is designed to be privately-owned.”

Luvhani notes the Mexican WOAN had licensing conditions obliging operators to start building their network in rural areas where revenue and density are low.

“ICASA had, in fact, tried a slightly similar rural first licensing approach with under-serviced area licensees during the late 2000s. The lessons learnt here ensured ICASA gave an incentive for the WOAN to start from the urban, more profitable areas, with a lower total coverage requirement.

Tyira is of the view that while research from other jurisdictions can prove useful, “ultimately this vehicle must be designed to meet SA objectives, sustainably fit our market structure, aligned with our socio-economic needs and performance requirements. This is why a study by the CSIR [Council of Scientific and Industrial Research] was conducted on this matter.”

In 2018, the CSIR study urged government to consider setting aside only a portion of spectrum for the WOAN, and the remaining to other licensees, among other recommendations.