VZCZCXRO0755
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2665/01 3431159
ZNR UUUUU ZZH
R 081159Z DEC 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6668
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 002665 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPT FOR EEB/CIP/KATHERINE TOWNSEND 
USTR FOR CATHERINE HINCKLEY 
 
E.O. 12958: N/A 
TAGS: ECPS EIND EINV EINT ECIP USTR SF
SUBJECT: FIRMS INCH CLOSER TO ACQUIRING LICENSES TO DEVELOP NATIONAL 
WIRELESS BROADBAND NETWORKS IN SOUTH AFRICA 
 
REF: A. PRETORIA 271, B. PRETORIA 1976, C. PRETORIA 1278 
 
¶1. (SBU) Summary.  U.S.-based DBI Broadband provided an update on 
positive developments in the drawn-out, South African value-added 
network services (VANS) license conversion process on November 28. 
Minister of Communications Dr. Ivy Matsepe-Casaburri finally 
conceded and announced that she would withdraw legal challenges to 
the conversion process on November 21.  The decision paves the way 
for the Independent Communications Authority of South Africa (ICASA) 
to complete the license conversion process by January 19, as 
required under the Electronic Communications Act (ECA).  ICASA has 
already asked all interested VANS licensees to submit applications 
by December 5 and is deciding on the final size (20 or 30 megahertz) 
for the licenses.  Industry officials are concerned about the size 
and viability of the licenses and whether ICASA will complete the 
licensing process in time to develop national networks for the 2010 
FIFA World Cup.  End Summary. 
 
¶2. (SBU) U.S.-based and African-American owned DBI Broadband held a 
teleconference with Commercial Counselor and State ICT Officer to 
provide an update on progress with the South African VANS license 
conversion process on November 28.  DBI would like to develop and 
operate a national wireless broadband (WiMax) network in South 
Africa.  In order to secure the spectrum to develop a WiMax network, 
firms must first obtain an Individual Electronic Communications 
Network Services (I-ECNS) license from ICASA.  DBI executives also 
sought U.S. Mission advice and support for their advocacy efforts. 
 
 
-------------------------- 
MINISTER'S INTERFERENCE DELAYED CONVERSION PROCESS 
AND HURT LIBERALIZATION 
-------------------------- 
 
¶3. (U) Minister Matsepe-Casaburri announced that she would not 
continue to petition the Supreme Court of Appeal against the 
Pretoria High Court's August judgment in favor of Altech Autopage 
Cellular after impeding the license conversion process through legal 
challenges for months.  The Pretoria High Court directed ICASA to 
convert Altech's existing VANS license into an I-ECNS license 
(Reftel B).  The judgment also applied to all other similarly 
situated VANS licensees, who were given the right to apply for an 
I-ECNS or an Individual Electronic Communications Services (I-ECS) 
license. 
 
¶4. (U) Matsepe-Casaburri filed a Petition for Leave to Appeal the 
August judgment, which was denied in October.   She then sought an 
injunction to prevent ICASA from issuing the I-ECS and I-ECNS 
licenses.  The injunction request was also denied, and the courts 
granted Altech's request for an order to compel ICASA to 
specifically issue the I-ECS and I-ECNS licenses.  After losing this 
series of legal challenges, the Department of Communications (DOC) 
announced that she would not petition the Supreme Court of Appeal 
"in the interest of the ICT sector". 
 
¶5. (U) The DOC confirmed that if the Minister had continued with the 
legal challenges, ICASA would have been unable to convert licenses 
by January 19, as required under the ECA.  This would have required 
an amendment to the ECA to extend the conversion period, which could 
have further delayed license conversion to the end of 2010.  The 
VANS license conversion process has already been delayed from the 
original target of May 2008.  According to the DBI executives, 
lengthy delays would make it impossible for new national broadband 
Qlengthy delays would make it impossible for new national broadband 
operators to develop networks in time for the 2010 World Cup. 
Lengthy delays would also allow the handful of existing broadband 
operators to solidify their market share and continue to reduce 
competition. 
 
---------------------- 
ICASA FREE TO COMPLETE LICENSING PROCESS 
---------------------- 
 
¶6. (SBU) According to DBI conversations with major industry players 
such as Altech and Internet Solutions, these companies were 
confident that the DOC would keep its word and allow ICASA to 
complete the VANS conversion process by January 19.  ICASA has 
already asked all VANS licensees interested in license conversion to 
submit applications by December 5, and to indicate whether their 
network coverage would be national or provincial.  ICASA would like 
applicants to be able to begin network roll-outs within 12-months of 
the license being awarded. 
 
------------------------- 
VIABILITY OF NEW LICENSES 
------------------------- 
 
¶7. (SBU) ICASA has 120 megahertz worth of spectrum for the I-ECNS 
 
PRETORIA 00002665  002 OF 003 
 
 
and I-ECS licenses and is planning to award six licenses worth 20 
megahertz each.  The goal is to allow more entrants into the ICT 
market.  However, DBI executives asserted that 20 megahertz is 
insufficient to develop a national network.  According to DBI, 
additional spectrum is required to implement WiMax on a 
national-scale with a customer base large enough to make it 
economically viable. 
 
¶8. (SBU) DBI executives explained that with 20 megahertz, a company 
could only develop a limited provincial network, which would not 
address the need to provide service to historically underserved 
areas.  They thought that a lot of operators "are blowing smoke at 
ICASA about being able to service underserved areas, which is not 
feasible with 20 megahertz."  For example, many applications such as 
Video on Demand are bandwidth intensive and a 20 megahertz license 
would not be sufficient for a national network to adequately support 
these applications. 
 
 
¶9. (SBU) DBI executives also indicated that South Africa would not 
be "overwhelmed by hordes of new network operators as result of the 
license conversion process, given the high costs of building a 
national broadband network in South Africa."  Only well-funded 
operators with solid business plans would be able to raise the 
capital required to develop a national network.  DBI estimated that 
it would cost at least $200 million to build out a national wireless 
broadband network, which is consistent with other public estimates. 
 
---------------------- 
ICASA DEBATING SIZE OF LICENSES TO BE AWARDED 
---------------------- 
 
¶10. (SBU) DBI executives said that some ICASA officials are 
considering the alternative of awarding four licenses worth 30 
megahertz each.  However, ICASA Chairman Paris Mashile has not 
completely consented to this alternative proposal.  Some industry 
leaders have made the business case to ICASA that 20 megahertz is 
insufficient for national licenses.  For example, Sprint has 
compiled a total of 120 megahertz in the U.S. through acquisition of 
smaller licenses (worth 10-20 megahertz each) to build its national 
network. 
 
¶11. (SBU) DBI executives were not sure whether Mashile was being 
indecisive because of political or technical concerns.  ICASA also 
planned on requiring 51 percent Black Economic Empowerment (BEE) 
equity ownership for new licenses to keep entrenched operators such 
as government-controlled Telkom from acquiring additional spectrum. 
Telkom already has 50 megahertz worth of spectrum that it is not 
utilizing (Reftel A).  However, this requirement also creates 
market-entry challenges for foreign investors, and ICASA may be 
softening its stance on the 51 percent BEE equity requirement.  The 
ECA made provisions for ICASA to set BEE ownership requirements for 
new entrants at 30 percent or above, but there was no precedent for 
a 51 percent (controlling stake) ownership requirement.  (Comment: 
Minister Matsepe-Casaburri also threatened a 51 percent local 
ownership requirement on the landing of the U.S.-organized SEACOM 
fiber-optic cable that will be arriving in South Africa next June. 
SEACOM sold an additional 25 percent of its shares to South African 
entities to accommodate this request believing that time was of the 
essence and that a 51 percent local ownership was better than a late 
arrival to the market.  Reftel C.  End Comment). 
 
----------------- 
INDUSTRY CONCERNS 
----------------- 
Q----------------- 
 
¶12. (SBU) Industry representatives are joining together to develop 
an advocacy plan to maintain pressure on ICASA to meet commitments 
for license conversion and WiMax spectrum allocation.  ICASA also 
plans to complete the spectrum allocation process for WiMax by the 
end of the first quarter of 2009.  DBI is trying to finalize its own 
strategy to secure a license.  If ICASA decides to award four 
licenses worth 30 megahertz each, the bidding process will become 
more competitive.  Executives are worried that BEE issues will drive 
the licensing process and a small group with the right political 
connections, but without the technical capacity to develop a 
national network will acquire the license and then flip it for a 
profit increasing the overall cost of the final licenses. 
 
¶13. (SBU) DBI is also considering options to partner with other 
licensees to develop a national network if ICASA winds up awarding 
six licenses worth 20 megahertz each instead.  For example, a 
partnership between two licensees (who each receive a 20 megahertz 
license) would result in a national network with 40 megahertz.  DBI 
is already working with Motorola on strategies to reach underserved 
areas, but this strategy also requires the development of a broader 
network with an urban presence to subsidize the service to 
 
PRETORIA 00002665  003 OF 003 
 
 
underserved areas. 
 
--------------------- 
ADVOCACY AND QAINING 
--------------------- 
 
¶14. (SBU) DBI is developing a Guideline Document to raise its 
concerns regarding spectrum allocation with ICASA before ICASA 
finalizes its own rules.  DBI will send a draft of the document to 
the U.S. Mission and other U.S. firms for endorsement.  DBI 
executives also emphasized that a round of technical assistance or 
training from FCC or other international regulatory bodies on 
spectrum management and allocation would be useful for ICASA 
officials.  ICASA has lost a lot of its expertise with staff 
turnover and would benefit from a broader international perspective 
on spectrum management and call termination pricing issues (Reftels 
A and B). 
 
¶15. (SBU) Comment.  Progress with liberalization in the South 
African ICT sector has been slow, but pressures coming from the 
infrastructure requirements for the 2010 FIFA World Cup have 
provided the impetus for some policy breakthroughs.  Minister 
Matsepe-Casaburri has consistently impeded liberalization in the 
sector by delaying ICASA licensing processes and the launch of new 
Africa-wide under-sea, fiber-optic cable projects with legal 
challenges or requirements for majority local-ownership (Reftel C). 
She appears to be relenting from her policy of "managed 
liberalization" after a series of legal defeats and as pressure for 
2010 preparations mount.  Industry officials hope that a change in 
government earlyQxt year will also bring new leadership to the 
DOC, which would allow ICASA to operate more independently.  New 
entrants will bring much-needed competition to the South African ICT 
sector, but DOC interference and ICASA delays will continue to 
perpetuate high ICT costs.  End Comment. 
 
BOST