MDDA & International Marketing Council 2009/10 Annual & 2010/11 Midterm Reports; SA Post Office Bill [B2-2010]; Deliberations on South African Post Office Bill [B2-2010]; ICASA briefing on Final Call Termination Regulations

Meeting report

The meeting was attended by delegates from the Kenyan Parliament and Ms Dina Pule, Deputy Minister, Performance Monitoring and Evaluation.

Media Development and Diversity Agency (MDDA) 2009/10 Annual Report and 2010/11 Midterm Performance Report
Ms Gugu Msibi, Chairperson, MDDA introduced the delegates from the Agency to the Committee.  She presented an overview of the background, context and legislative framework; the vision, mission and mandate and the key objectives of the MDDA (see attached document). 

The Agency aimed to promote ownership, control of and access to media by historically disadvantaged groups, to encourage the development of human resources in the media industry, to encourage the channeling of resources to community and small media enterprises, to promote literacy, to encourage research and to liaise with other statutory bodies.

Mr Lumko Mtimde, Chief Executive Officer, MDDA presented an analysis of the applications received by MDDA since its inception in 2004.  The Agency had received income of R173.9 million and distributed grants amounting to R103 million during the period 2003/04 to 2009/10.  Assistance was provided to applicants to complete applications for grants. 

Highlights during the period under review included the conclusion of partnership agreements with companies in the media sector, receiving an unqualified audit report from the Auditor-General for the sixth consecutive year and providing support for 284 projects.  A breakdown of the geographic spread and media sector of the approved projects was illustrated with charts and graphs.  Details of the type of training and number of trainees were provided.  The MDDA had a staff complement of 21 and the briefing included an organogram of the organisation.

Mr Mshiyeni Gungqisa, Chief Financial Officer, MDDA presented a summary of the financial performance for the 2009/10 fiscal year.  Total income amounted to R44.6 million and total expenditure was R33.5 million.  The most significant expenditure item was for grants, amounting to R23.5 million.  A surplus of R11.1 million was declared.

Mr Mtimde explained the matters of emphasis noted by the Auditor-General concerning the disclosure of restated corresponding figures and the unaudited supplementary schedule.  The briefing included a report on the financial expenditure for the period April 2010 to September 2010 as well as the outcomes recorded in the key focus areas.  Details of the strategic and business plan of the Agency for the period 2010 to 2013 included the nine key focus areas and deliverables identified as well as the budget allocated for each area.  An overview of the budget for the current fiscal year 2010/11 and for the medium term expenditure framework (MTEF) period 2011/12 to 2013/14 was given.  The achievements and milestones for the current year were summarised.  The Agency had requested additional funding of R16.409 million for monitoring and evaluation (R3.1 million), grant funding (R10 million), implementation of communications strategy (R2.4 million) and human resources (R909,000).

Ms Msibi concluded the presentation by acknowledging three members of the Board who had completed their term of office and thanking the Committee for its support.

Discussion
The Chairperson extended the appreciation of the Committee to the contribution made by the retiring Board members.  He noted that the income from the print media amounted to only R4.8 million, compared to income of R11.8 million from the broadcasting media.  He was concerned over the apparent lack of support from the print media sector for the Agency.

Ms N Michael (DA) considered the MDDA to be a star performer and was particularly appreciative of the fact that the Agency had reported zero expenditure on the World Cup.  The MDDA played an important role in the transformation of the media but had no platform to promote itself.  She asked if non-governmental organisations (NGO’s) and Members of parliament were invited to debates and how the input received from debates was utilised.

Mr N Van den Berg (DA) noted that the MDDA had provided financial support for 284 projects and wanted to know if the projects continued to be sustainable.  He asked if the Agency monitored the projects once approval was given.  He asked what criteria were applied for the approval of applications received for grant funding.

Ms J Killian (COPE) expressed appreciation for the performance of the MDDA.  She noted that the Agency conducted staff performance evaluations and performance management and asked if non-performing employees were provided with mentoring to assist them to improve their performance.  She asked if trainees were mentored.  She wanted to know how the Agency monitored the approved projects and if assistance was provided with people development in addition to providing funding.

Ms S Tsebe (ANC) was concerned that the Agency was not known in the rural areas of the country and wanted to know what action was taken by the MDDA to promote itself.  She asked if senior executives and members of the Board had declared their interests.  She requested more details on the matters of emphasis noted by the Auditor-General.

Mr K Zondi (IFP) found that the funding model of the MDDA was not satisfactory.  He asked what the average amount of grant funding provided was.  He asked if partnership agreements with print media organisations specified the expected contribution amount.  He asked what could be done to encourage organisations that were ‘outside the loop’ to contribute to the Agency.

Ms W Newhoudt-Druchen (ANC) was involved when the MDDA was first established and was pleased to note the progress made by the Agency.  She shared the concerns expressed by other Members over the visibility of the organisation in the rural areas.  She asked if assistance was provided to applicants to complete applications for grant funding.  She asked if the MDDA met the national target set for 2% of employees from the disabled community.  She wanted to know how many trainees were disabled.  She asked if the Agency had any offices or personnel in the provinces.  She asked for an explanation of the discrepancy in the number of employees reported in the annual report (23) and in the presentation (21).

Ms F Muthambi (ANC) noted that the Agency had provided 65 bursaries for media studies.  The annual report indicated that the MDDA was losing trained personnel to the private sector and she asked what staff retention strategies were in place.  The annual report listed three members of staff as non-performing and she asked what action had been taken.  She asked for clarity on the performance bonuses paid to the CEO and the CFO.  She noted that certain Board members did not attend the required number of Board meetings and asked if these members also served on the sub-committees of the Board.  The annual report indicated that the tender committee had not met during the year and she asked what the reason was.

The Chairperson remarked that the Committee was particularly concerned that members of the boards of State entities carried out their duties.  The Committee needed reassurance that bonuses were in fact linked to exceptional performance.

Ms Msibi replied that the Agency had decided not to spend any money on the World Cup and to find alternative ways to support the event.  A staff retention strategy was in place but the MDDA had difficulty in attracting staff because of the comparatively low salaries paid.  She hoped that the new funding model would help to address the problem.  Members of the Board had to attend at least two meetings per annum.  The member in violation had resigned from the Board and was replaced.  The bonus paid to staff was aligned to performance and both the CEO and the CFO qualified for bonuses because of their individual exceptional performance.

Mr Mtimde said that various stakeholders in the industry, civil society and academics were invited to participate to the debates on the transformation of the media.  More information was provided on page 63 of the annual report.  The information gathered during debates and summits was used to guide interventions, to formulate plans and to submit recommendations to the Board.  He conceded that certain projects had challenges concerning sustainability.  A business plan had to be attached to the grant application but the applicants did not always follow the business plan submitted.  MDDA engaged with other stakeholders to assist with promoting the Agency, for example, the Department of Local Government assisted with promotion at the municipal level and partnerships were formed with NGO’s.  He agreed that more could be done in this regard.

Mr Mtimde explained that the MDDA Act made provision for applications to comply with certain criteria, for example, applications had to specify whether the project was commercial or intended as a community service and which communities would be served.  The focus was to deliver services to the rural areas rather than the main urban centres and in the indigenous languages rather than in English.  The requirements for applications were posted on the MDDA website.  The MDDA provided training to the people who would be staffing the projects.  Trained staff leaving the Agency generally remained in the industry and the MDDA had accepted that the organisation had become a training ground for the sector and considered the contribution made to the available skills to be an investment in the industry.  The Agency attempted to track the progress of former staff and evaluated the social impact of its work on the ground.  The MDDA formed partnerships with various entities at the local and district Government level to assist with the implementation of the rural awareness programme.  South Africa was a large country and the MDDA preferred to spend its limited funds on projects rather than on self-promotion and advertising.  Members of the Board had to declare their interests at every meeting and recused themselves if there was any conflict of interest.

Mr Mtimde provided clarity on the two matters of emphasis noted by the Auditor-General (see page 106 of the annual report).  The new accounting policy adopted required a Budget versus Actual Statement of Financial Performance (on page 134), which did not form part of the annual financial statements and did not require auditing.  The second matter referred to the correction of accounting errors concerning assets and accrual for leave pay (see notes 19 and 20 on page 126 of the annual report).  The funding model of the MDDA was based on the legislative requirement that broadcasters had to contribute 0.2% of annual turnover to the Agency.  The contributions made by the print media were voluntary.  The five-year agreement with the print media was nearing its end and the MDDA had been warned that contributions from the sector would be reduced because of the effect of the economic downturn on the sector.  The Agency was actively engaged in persuading more organisations to become involved and to contribute to the available funds.

Mr Mtimde advised that the MDDA had approved grants totaling R25 million for projects during the 2009/10 financial year.  Applications had to be supported by the required documents, for example a tax clearance certificate from SARS and the process needed to be satisfactory to the Auditor-General.  Members of the disabled community were invited to submit applications for grants for projects aimed at providing economic opportunities, for example craft societies.  Assistance was provided to applicants by site managers, who visited applicants to explain requirements and helped with the completion of applications.  The difference in the number of staff in the presentation document and the annual report was because certain staff members had resigned and had been replaced in the interim.  The MDDA had no offices or personnel based in the provinces.  The tender committee had not met during the year as the MDDA had reduced the use made of external consultants and had procured services that did not have to go to tender.

Ms Lihle Mndebela, Manager: Human Resources and Corporate Affairs, MDDA advised that the Agency conformed to the requirements of the Labour Relations Act and provided assistance to non-performing employees to improve their skills and job performance.  Training interventions were undertaken where necessary.

The Chairperson asked if the performance of employees had improved as a result of the interventions.

Mr Mntimde replied that the progress made would be reported in the annual report for the subsequent year.

Ms Ingrid Louw, Board Member, MDDA was the Chairperson of the audit and risk committee of the MDDA.  She advised that the current CFO was appointed in December 2008 after the Agency had no financial officer for some time.  The MDDA had requested additional funding for a senior financial manager to be appointed to assist with the onerous duty of compiling the reports required by the Public Finance Management Act (PFMA) and the accounting policies adopted and to improve good governance practices related to the separation of duties.

Ms Msibi conceded that the visibility of the MDDA could be increased but the Agency was constrained by a lack of funding available for advertising purposes.

Prof Guy Berger, Board Member, MDDA was one of the three outgoing Board members.  He pointed out that approximately 50% of the income of the Agency went to projects and the MDDA would be more cost-effective if more funding was made available.  The Department of Communications (DOC) had made an amount of R20 million available but there was uncertainty over the extent of the future financial commitment.  The Committee could assist by monitoring the degree of support provided to the MDDA by the DOC.

The Chairperson said that the Committee would like to see new thinking concerning the sustainability of the MDDA.  Little progress had been made to transform the “big four” media companies.  He was concerned that the contribution made by the print media sector was relatively small and was voluntary.  The print media was vociferous on the subject of transformation.  He felt that the issue of the contribution made by the print media sector needed to be addressed, either by legislative means or by means of a Green and/or White Paper.  He asked the MDDA to prepare a submission on this aspect to the Committee in the first quarter of 2011.

Ms Pule agreed with the comments made by the Chairperson of the Committee concerning the transformation of the media.  She suggested that the issue was discussed before the MDDA presented its next annual report to the Committee.  She agreed that the Agency could not rely on voluntary contributions.  She said that transformation was in the interests of the print media sector.

Ms Msibi thanked the Committee for its support and the suggestions made by the Members.

International Marketing Council of South Africa (IMC) 2009/10 Annual Report and 2010/11 Midterm Performance Report
Ms Chichi Maponya, Member of the IMC Board of Trustees introduced the delegates from the IMC to the Committee.  She gave an outline of the briefing, the mandate of the Council, the key objectives set for 2009/10, the strategy of the IMC to achieve the objectives and the five values and messaging pillars supporting Brand South Africa (see attached document).

Mr Miller Matola, Chief Executive Officer, IMC presented an overview of the major activities and achievements in the domestic and African arena.  The major emphasis during 2009/10 was on promoting the country during the 2010 FIFA Soccer World Cup and increased levels of commitment and national pride by South Africans were reported.  The IMC promoted the country at the World Economic Forum held at Davos, Switzerland, supported international trade initiatives in Brazil, China, India and the United Kingdom and participated in the Nation Branding Summit held in Ghana.  The presentation included details of the Global South Africans programme, the initiatives to promote the reputation of the country and a summary of the overall impact and outcomes.  Details of the budget allocation for the period 2009/10 to 2012/13 were provided.  The total budget for 2009/10 was R161 million, increasing to R170 million in 2010/11 to cater for the World Cup and reducing to R140 million in the following year.

Mr Matola presented the financial performance for the 2009/10 fiscal year.  Total income was R193 million and total expenditure was R182 million.  A surplus of R1.5 million was declared.  Details of the budget re-allocations and the actual results compared to the plans were provided. 

Ms Maponya advised that the IMC had received an unqualified audit report from the Auditor-General.  The Auditor-General had commented that the performance indicators of certain objectives were invalid and the IMC had since made the necessary amendments to the targets set.  Additional information on the financial performance of the Council was given and the key issues and challenges were summarised.

Mr Matola concluded the presentation with an overview of the performance of the IMC during the period April to September 2010.  Most activity was geared to the World Cup, which took place during June 2010 and was generally considered to have been a success.  Details of the significant improvement in the levels of national pride and patriotism and the change in the perception of the country were presented.  The IMC had participated in a number of international events.  An overview of the initiatives to promote the sustainability of the Council was given.  The financial performance during the first six months of the current fiscal year was presented.  The briefing concluded with a summary of the current key issues and challenges faced by the IMC.

Discussion
Ms Michael complimented the IMC on the well-prepared, professional presentation submitted.  She congratulated the IMC on the work done during the World Cup, in particular the initiatives to promote the event and raise enthusiasm within the country.  She asked how the IMC determined which international events would be participated in and if the Council had determined any trend in the international perception of the country.  The annual report commented on the negative impact of the high levels of crime on the perceptions of the country. She asked what action had been taken by the IMC to combat the negative impact of reports in the international media concerning the crime in South Africa.

Mr Van den Berg remarked on how the recent murder of a British tourist in Gugulethu, Cape Town had negated the positive perceptions of the country gained during the World Cup.  It would take a long time for the country to recover the loss of reputation caused by the incident.  He asked if the IMC had an action plan in place to counteract the impact of the murder of Mrs Dewani.  He wanted to know what plans were in place to sustain the legacy of the World Cup and the high levels of national pride achieved.  He asked what percentage of the budget was earmarked for domestic and for international activities.

Mr Zondi asked for an explanation of the amount of R39 million budgeted for ‘organisational development’ in 2009/10 and the R35 million budgeted for ‘prudent financial management’ in 2010/11.  He asked what impact the public service strikes had on perceptions of the country.  He wanted to know what was done to persuade Local Government entities to support a common national brand.

Ms Newhoudt-Druchen asked how many employees were based in other countries and if the IMC had offices overseas to promote the country.  She noted that the IMC had initiated several school programmes during the World Cup and wanted to know if the Council had any plans in place to continue to promote patriotism at school level.  She felt that the IMC needed to increase its visibility in the rural areas.  She asked what assistance was provided to NGO’s that hosted international conferences, for example, Deaf SA was hosting a conference in South Africa.  She asked if the IMC assisted with marketing such events and helped with bringing delegates to the country.  She asked if the IMC had met the national target set for the employment of people with disabilities.

Ms Muthambi asked for an explanation of the increase in performance awards from R290,396 to R794,027 reported on page 77 of the annual report.  She asked to what extent the Council made use of the services of external consultants.  She wanted to know what the expenditure on legal fees entailed.  She asked for an explanation of the increased external audit expenditure reported on page 78.  She noted that the trustees were not remunerated but were expected to attend Board meetings and act as ambassadors for Brand SA.

Mr Matola replied that the Departments of International Relations and Cooperation and Trade and Industry decided which international platforms the country would participate in and where the marketing focus would be, i.e. the marketing of the country would be geared towards tourism or trade depending on the type of event.  Representation at certain critical events, for example Davos, was considered to be essential.  The approach adopted by IMC was to provide clear, accurate and honest communication on issues such as crime levels and what Government was doing to combat the challenges in the country.  It was too early to assess the impact of the Dewani murder but the Council was analysing the international media coverage.  The murder was widely reported, particularly in the UK.  It was necessary to put the event into context and highlight that tourists in South Africa were not specifically targeted by criminals.  The IMC recognised the need to develop ambassadors to promote Brand SA.  The focus was not limited to domestic initiatives and the Council developed partnerships with other organisations to promote the development of ambassadors for the country. 

Mr Matola said that a larger portion of the budget was dedicated to domestic activities as the IMC believed in building the brand from the inside, to encourage active citizenship and to foster patriotism and a sense of national pride.  The change in strategy from organisational development to prudent financial management had resulted in a change in the budget for these focus areas between 2009/10 and 2010/11.  The change in strategy had affected the organisational structure and the operational overheads for information technology and human resources.

Mr Matola advised that the activities of NGO’s were taken into consideration when the IMC’s stakeholder involvement was mapped out.  More active engagement with NGO’s was planned for the following year but the IMC was wary of duplicating effort.  The Council had a business tourism arm and worked closely with SA Tourism.  The appointment of programme managers would facilitate a more focused approach.  The IMC actively encouraged provinces and municipalities to adopt a single Brand SA logo and had embarked on road shows to inform Local Government entities of the benefits.  The logo was made available free of charge.  The post-World Cup research conducted by the IMC had indicated that people living in the rural areas of the country had felt left out and the Council had taken care to ensure that the thank-you campaign reached the remote areas as well.  The IMC employed one full-time and one part-time person in the UK and one person in the United States of America.  The Council was planning to appoint programme managers for Africa and the Middle East and for North and South America.  The IMC was in discussion with the Department of Trade and Industry to share premises and resources in other countries.

Mr Matola said that staff incentives formed part of the revised performance management system implemented by the IMC.  The new staff policies had been approved by the Board and the structure and operations of the organisation had been aligned with the mandate.  The external consultants utilised by the IMC included public relations agencies but the extent of use made of external service providers had declined as more internal capacity was developed.  The IMC had no control over the amount of the external audit fees charged by the Auditor-General.  A service provider was appointed to assist with the additional internal audit requirements resulting from the Davos project, which had to be audited separately.  The expenditure on legal fees was incurred for certain contractual agreements, for example the Shangai Expo, and the need to review the trust deed and governance documents.  The IMC had continued the schools programme after the World Cup.

Ms Tsebe asked if there had been any public participation in the development of the Brand SA logo.

Mr Matola replied that the IMC had engaged in an extensive consultation process with the private sector, Government, provincial authorities, the business sector and with civic society. 

Ms Maponya added that the Brand SA logo was a new opportunity to promote the country.  There had been engagement with the rural sector in the development of the logo.

Ms Pule asked if the Committee had any suggestions or proposals for new areas that the IMC could become involved in.

The Chairperson replied that the Committee would consider the matter when the Committee report and recommendations were considered.  He thanked the IMC for the presentation.

Informal Deliberations on the South African Post Office Bill [B2-2010]
Mr Rubben Mohlaloga, Acting Deputy Director-General: ICT Policy, Department of Communications (DOC) advised that the Department had considered the suggestions and requests of the Committee to amend certain provisions in the South African Post Office (SAPO) Bill.  Most of the changes involved amending the definitions of “Postbank”, “Post Office” and “Subsidiary” and clarifying the relationship with subsidiary companies.

Mr Alf Wiltz, Director: Legal Services and Ms Phindile Dlamini, Deputy Director: Postal Policy, DOC, took the Committee through the presentation prepared by the Department that detailed the amendments made to the Bill (see attached document).

Changes were made to Clauses 1, 5, 6, 7, 8, 11, 19 and 22.  A new Clause 23 was inserted to provide for the establishment of subsidiaries and accountability.  The existing Clause 23 was amended and changes were made to Clauses 29 and 32.

The Chairperson asked what had been decided concerning the size of the SAPO Board.  He disagreed with the Department that staff below the executive management level did not need to declare their interests.  He recalled that the absence of a legal requirement for staff at lower levels to declare their interests had resulted in problems at the SABC and the Committee wished to avoid a similar problem at SAPO.

Mr Wiltz replied that SAPO had submitted three alternative scenarios concerning the size of the Board but no final decision had been made and the guidance of the Committee on the matter was awaited.  Because of the large number of employees, the administrative burden would increase if all staff members had to declare their interests.  He suggested that the provisions could be less stringent that those applicable to the fiduciary duties of Board members and senior executives.

The Chairperson said that the Committee had no intention to stifle the employment practices of SAPO but wished to discourage staff from serving their own interests at the expense of the organisation.  He suggested that the Department gave the matter consideration and drafted a proposal that could be submitted to the Committee for further discussion.

Ms Michael recalled that there were currently 14 SAPO Board members.  The Committee wished to see the number of members reduced to 9.

The Chairperson said that the three scenarios proposed by SAPO were that the status quo of 14 members were retained, that the number could be reduced to 11 but that a reduction to 9 members would be problematic.

Ms Motshoanetsi Lefoka, Chief Executive Officer, SAPO, confirmed that the Chairperson’s assessment was correct.  SAPO would prefer to retain the current number of Board members but would accede to the Committee’s request to reduce the number to 11.

The Chairperson confirmed that the number of persons serving on the SAPO Board would be 11.

Ms Lefoka appreciated that the Committee wished to align the SAPO Bill with the provisions contained in the Postbank Bill.  SAPO queried the necessity to consult with the Minister of Finance concerning the appointment and remuneration of the CEO, CFO and COO as required in Clauses 18 (5) and 22 (1).  SAPO felt that the requirement that the Board consulted with the Minister of Communications was sufficient.  SAPO suggested that the requirement in Clause 15 (1) (b) concerning a quorum of 70% was reconsidered.  The quorum specified in the Companies Act was 50% of Board members plus 1.  Clause 15 (1) (b) should allow for committees to be re-established by the Board as well.  SAPO requested the opportunity to consult with the Ministry of Communications on Clause 17 and to obtain further advice on the appointment of the CEO, CFO and COO.  New Clause 23 dealt with the establishment of subsidiaries but SAPO felt that the PFMA already made adequate provision for the processes involved in establishing subsidiary companies.  SAPO needed to be fairly flexible and avoid being too exposed to risk.

The Chairperson advised that the Committee felt that a quorum of 50% plus 1 was too lax and allowed Board members to shirk their duties.  He said that there had been too many bad experiences with subsidiaries established in terms of the PFMA.  Many subsidiaries had become financial disasters because the PFMA did not require a feasibility study to be conducted before the company was created.  The Committee would consider the concerns raised by SAPO.

Ms Michael was aware of several non-performing subsidiary companies that were established in accordance with the PFMA.  The Committee required accountability and transparency with regard to subsidiary companies.  She agreed with a quorum of 70%, which would ensure that members of the Board could be held accountable.

Ms Muthambi had observed a tendency by State entities to limit accountability by ‘hiding behind’ the PFMA.

Mr Wiltz advised that the Department was only informed of the concerns of SAPO shortly before the meeting with the Committee.  He was of the opinion that the matters raised by the Committee had been under consideration for some time and was of the opinion that the provisions in the Bill were adequate.  The DOC had recently become aware that SAPO had dormant subsidiary companies and he asked the Committee to allow time for the Department to consider how such eventualities could be covered in the proposed legislation.

The Chairperson agreed to the request for more time for the DOC and SAPO to engage further on the Bill.  The Committee would not be able to finalise the Bill before the end of the current Parliamentary session and would continue deliberations in 2011.

Mr Van den Berg said that the Committee felt that positive progress had been made to address several concerns in the SAPO Bill and the Postbank Bill.  He was reluctant to impede the progress made so far by agreeing to the requests made by SAPO for less stringent requirements.

The Chairperson advised that the Committee did not expect any new issues to arise when resuming deliberations on the Bill.  The Committee would consider the concerns of SAPO concerning Clauses 18, 22, 15, 17 and 23 as well as provisions dealing with dormant subsidiaries.  Additional changes to the Bill would have to be justified.

Mr Mohlaloga undertook to engage with SAPO on the issues that were raised during the briefing.

Briefing by the Independent Communications Authority (ICASA) on the Final Call Termination Regulations
Dr Stephen Mncube, Chairperson of the ICASA Board introduced Mr Thabo Makhakhe, Councillor, and Mr Pieter Grootes, General Manager: Markets and Competition to the Committee.  He informed the Committee that ICASA had finalised the Code of Conduct, which would be presented to the industry in the near future.

Mr Makhakhe presented the briefing to the Committee (see attached document).  He gave an overview of the history of cellular communications in South Africa and the need for regulations to reduce the cost to consumers.  The issue of call termination charges had been under discussion since 2007.  An extensive public consultation process with stakeholders in the Information Communications and Technology (ICT) Services sector was undertaken before the final Wholesale Call Termination Regulations were published in the Government Gazette on 29 October 2010.

The briefing included an overview of the market definitions for wholesale voice call termination services.  Two markets were identified, i.e. calls between mobile networks (Market 1) and calls from mobile networks to fixed land lines (Market 2).  The market failures identified were a lack of access and the high wholesale voice call termination rates.  ICASA had issued Interconnection Regulations and a Compliance Manual for licensees and introduced pro-competitive remedies aimed at reducing the cost to the consumer. 

The regulations specified the peak and off-peak termination charges applicable from March 2011 to March 2013.  Charges had already been reduced from R1.20 to R0.89 and would be reduced to R0.40 by March 2013.  The regulations specified the maximum percentage over the rate that could be charged for termination of calls from mobile networks to fixed land lines (the so-called “asymmetrical” charges).  The published rates were applicable to MTN, Vodacom and Telkom but other licensees could be qualified to charge higher termination rates.  ICASA would monitor trends in the retail market to ensure that consumers would benefit from the lower charges.

Discussion
Ms Muthambi said that ICASA should have briefed the Committee before the regulations were published.

Mr Makhakhe replied that ICASA had briefed the Committee during the drafting phase of the regulations, before consulting with the mobile service operators and other stakeholders.  Public hearings were held before the regulations were published.

The Chairperson said that the Committee had instructed ICASA to reduce the inter-connection rates.  The Committee would also like to hear the other means by which call charges to consumers could be reduced.  The publication of the call termination regulations had been an outstanding issue during previous meetings between the Committee and ICASA.

Ms Newhoudt-Druchen found the explanation of the applicable rates for off-peak and peak periods and the different rates applicable to calls made from a mobile service to a fixed line service confusing (see pages 9 and 10 of the presentation document).  She wanted to know why the reduced charges were phased in over a period of three years and why consumers had to wait for five years before the benefits of the cheaper rates could be enjoyed.

Mr Zondi asked for an explanation of the 0n geographic area codes referred to in the presentation.  He wanted to know what the benefits of the reduced charges would be for pay-as-you-go customers.

Mr Van den Berg doubted that the public would be pleased with the regulations.  There had been much excitement when the previous Minister of Communications had made the announcement in Parliament in 2009 that call charges would be reduced.  He said that it was clear that the major players in the mobile telecommunications sector had ICASA by the throat and were in a position to dictate terms to the regulatory authority.  He said that ICASA was “toothless and feeble” and unable to stand up to the cell phone companies.  The Authority had failed to serve the people of South Africa.  He asked for clarity on the concepts of “asymmetrical” and “symmetrical” charges and what was meant by the statement concerning “economies of scale and scope”.  He noted that the regulations were only applicable to the major players, i.e. MTN, Vodacom and Telkom and that the smaller operators would be allowed to charge higher termination rates.  He found it unacceptable that operators would be allowed to charge as much as 20% over the standard rates.  He felt that the regulations would not level the playing fields in the cellular market and that the regulations would only benefit the bigger service providers as consumers would obviously not support smaller companies that charged the higher rates.

Ms Muthambi wanted to know if ICASA had received any submissions from ordinary people during the public hearings or if the regulations were only informed by the input from the big cell phone companies.  She asked how ICASA would monitor the application of the regulations and if it was possible to monitor the charges applicable to pay-as-you-go customers.

The Chairperson agreed that the presentation had been too technical and asked ICASA to provide answers to Members’ questions in simpler terms.  He noted that the implementation date of the regulations had been postponed by one year to 2011 and that the process had commenced in 2007.  It was clear that ICASA had been under pressure from the operators to delay implementation and he asked for an explanation from the regulator.  A recent poll had indicated that members of the public did not appreciate the work done by ICASA.  He found the different rates applicable to be confusing and it would appear that certain companies benefited to a greater extent than others.  He asked if the regulations were clear in respect of the “asymmetrical” agreements, which was problematic.

Ms Michael was of the opinion that the gliding scale applied to reduce the termination rates to R0.40 by 2013 would not be acceptable to the public and would only benefit the service providers.

The Chairperson told ICASA that the operators were not its friends and was not respected.  The operators had stated that the announcement of the reduction in charges would not compel them to reduce the charges levied to consumers.

Mr Makhakhe assured the Committee that there had been no pressure from the operators on ICASA.  Although the regulations only took effect in March 2011, the call termination rates had been reduced in March 2010.  ICASA had to take into consideration the financial impact on the operators.  MTN had announced that the company would be reducing its staff complement by 2,000 but it was possible that the need to reduce staff could be as a result of inefficiencies in the organisation.  The loss of so many jobs would have a significant socio-economic impact.  ICASA had consulted widely before the regulations were finalised.  All the submissions made were considered but it had been necessary to strike a balance.  He explained the different rates applicable to peak and off-peak periods.  The 0n geographic code meant the dialing codes allocated to particular geographic areas, for example the code 02n for the Western Cape, 01n for Gauteng, 03n for KwaZulu Natal, etc.

Mr Zondi remarked that many cell phone calls were made to fixed line numbers.

Mr Pieter Grootes, General Manager: Markets and Competition, ICASA explained that the wholesale call termination charges were applicable to calls made from one network to another and were not the retail call charges paid by the consumer.  He explained the concepts of near-end and far-end handover.  The mobile network operator wanted to transfer the cost of the call to another operator as soon as possible (i.e. near-end handover).  For example a call from a Vodacom number to an MTN number would be transferred to the MTN network as soon as possible.  Fixed line operators (for example Telkom and Neotel) could choose to carry the cost of the call.  Far-end handover took place when the cost of a call from Cape Town to Johannesburg was transferred when the call was received by the Johannesburg network.  The dialing codes 08 and 07 were reserved for mobile services, therefore the mobile rates would be applicable.

Mr Makhakhe explained that a call was transferred from one cell phone reception area to the next as it traveled along the operator’s network.

Mr Van den Berg found the explanations provided difficult to understand.  It was not clear why there were different rates applicable to fixed line to fixed line calls, mobile to fixed line calls and fixed line to mobile calls.

Mr Grootes replied that the network operators determined the applicable call charges.  The retail prices were a combination peak and off-peak rates and whether calls were from or to landline or mobile numbers.  The call termination rates did not differentiate between pay-as-you-go or contract customers.  ICASA had observed a reduction in the charges for calls made between different operators.  Consumers tended to choose an operator on the basis of price rather than on the company.

Mr Makhakhe said that ICASA found it difficult to obtain information on price structures from operators, who were reluctant to divulge details during public hearings.  ICASA wanted to phase out the “asymmetrical” pricing structure by 2013.  ICASA had invited the general public to attend the public hearings and was considering extending the hearings to areas beyond the major urban centres.  There was a cost associated to holding public hearings but he agreed that ICASA needed to do more to involve ordinary members of the public.

Dr Mncube said that ICASA appreciated the questions asked by the Committee.  The Authority was committed to provide more affordable ICT services to the public but had to consider the socio-economic impact of job losses in the sector as well.  He undertook to provide a more easily understandable and less technical document to the Committee that would assist Members to explain the regulations to their constituents.  He said that ICASA was not hesitant to disagree with Government or the industry when necessary.  The regulator played an important role in reducing the cost of ICT services but needed to avoid a crash in prices, which would be detrimental to the entire industry.

The Chairperson reiterated his question concerning the delay in issuing the regulations.  He was not convinced that ICASA had not bowed to pressure from the mobile operators.  He failed to see how the reduction in call termination rates would be passed on to the consumer as there was no guarantee that the operators would reduce the retail cost of calls.

Mr Makhakhe replied that ICASA had observed a down-ward trend in the wholesale as well as the retail charges.  Increased competition had resulted in lower prices and smaller operators had entered the market, for example the new Telkom mobile service 8-ta.  The next item on ICASA’s agenda was to reduce the cost of bundling, which was a complex matter.  The implementation of the regulations was delayed because the major impact would be at the service provider level and involved an extensive value chain.  The call termination rates were reduced in March 2010 and the further reduction of the rates within six months would have a detrimental impact on the business plans of the entire value chain.

Ms Newhoudt-Druchen wanted to know what the impact was if a consumer changed to another operator but chose to retain his mobile telephone number.  She asked if ICASA had taken into consideration that consumers would make more calls if call charges were reduced.

Ms Tsebe asked for an explanation of the role played by the spectrum allocation of a licensee in whether or not the licensee qualified to charge a higher termination rate.  She wanted to know what the disadvantages to the smaller operators would be.  She said that the public expected a reduction in call charges and would be disappointed by the regulations.  She felt that the regulators benefited the commercial enterprises in the sector rather than the consumers and that ICASA had failed to strike a balance between the profits made by the operators and the consumer.  She wanted to know if the regulations were applicable to Telkom fixed line services as well.

The Chairperson said that more time was necessary to discuss the matter and suggested that the debate was continued in the following Parliamentary session.  He asked ICASA to provide substantive evidence to justify the regulations that were issued in the next briefing to the Committee.

Ms Muthambi pointed out that the regulations had already been gazetted.  She asked what the way forward would be, whether the regulations would be reviewed and what the implementation strategy entailed.

The Chairperson advised ICASA that the Committee needed to be convinced that the Authority had not been subjected to pressure by the operators, for example the threat of retrenchments.  He asked if ICASA had conducted any studies to determine if the reduction in call termination charges and other benefits had been passed on to consumers.  The packages and benefits offered by the operators made it difficult to determine whether there had been any savings.  He suggested that the Authority increased its profile and became more visible to consumers.

Dr Mncube thanked the Members for their input and gave the assurance that ICASA would consider all the issues that were raised.  He advised that ICASA would be holding road shows throughout the country to explain its role with the Independent Electoral Commission (IEC).  He said that a great deal of information was available that could be used in more detailed briefings to the Committee.

The meeting was adjourned.