COSATU / CWU Submission on the Intended Telecommunications Policy Directions Submitted to the Department of Communications, 2 May 2001

1. Introduction

COSATU, and our affiliate in the telecommunications sector, the Communication Workers’ Union (CWU), welcome the opportunity to comment on the Intended Telecommunication Policy Directions, as gazetted on 23 March 2001. Our approach to telecommunications policy rests on several pillars:

• accessibility and affordability of telecommunications services to working people and the poor;
• the direct interests of our members employed in the telecommunications sector;
• the importance of this sector for South Africa’s economic growth and development.

We thus regard this process around policy for the telecommunications sector as being very important. We would welcome a bilateral engagement with government in order to further explore the issues raised in this submission, other aspects of the Policy Directions not commented on in this submission, and the general policy direction and way forward for the sector. It is proposed that such engagement takes place as soon as possible, prior to further progress or processes arising from the Policy Directions.

In this submission we start by setting out our vision for the telecommunications sector in order to contextualise our comments on the issues raised in the Policy Directions. The two central, and closely related, aspects of the Policy Directions that we focus on in this submission are the proposed market structure, and issues around universal service.

2. COSATU’s Vision for Telecommunications

2.1 Universal service

Access to telecommunications is a basic need and right. This is necessary for people’s full participation in society and the economy. Lack of access wastes time and money and limits people’s opportunities. Universal access to telecommunications is also crucial to building an inclusive and cohesive society and for the strengthening of democracy.

At present, telecommunications services remain severely racially and spatially skewed. The 1999 October Household Survey data indicate that just 7.3% of African Households in non-urban areas have a phone (including cell phones) compared with 85.6% of white households, while in urban areas 31.8% of African households have a phone compared with 87.6% of white households. This is in fact a lower proportion of urban African households than in the 1998 October Household Survey, which found that 32.4% of African households had a phone.

While Telkom’s roll-out programme has increased the number of phones in "under-serviced" areas, the extension levels are still low, which is linked to the prices being charged for the services. High rental and call charges lead to "churn", that is, lines being disconnected or falling into disuse because people cannot afford to pay the monthly rentals and call charges. According to Telkom’s own report on its licence obligations in the year to 31 March 2000, it achieved a roll-out of 621 219 new lines compared with the target of 575 000. But, 223 386 lines were disconnected over the same period. The impact of much higher prices for local calls and rentals (discussed in 2.2 below) clearly affects low-income, predominantly black, households to a greater extent.

The extension of telecommunications has been very poor, and several countries that had lower levels of provision of telephone services in 1989 have overtaken South Africa in the past ten years. Changes in service provision are especially poor in terms of residential lines. The number of telephone lines in South Africa rose from 8.31 per 100 inhabitants in 1989 to 12.47 in 1998.1 In Malaysia, over the same period, lines rose from 8.00 per 100 inhabitants to 20.16. In Chile, from 4.98 to 18.57. Residential main lines have almost remained static in South Africa. Lines per 100 households in South Africa have only risen from 27.2 in 1989 to 29.1 (in 1996). In Malaysia, they rose almost threefold, from 28.5 to 73.3 in 1998. In Chile they increased four times, from 16.4 to 66.2.

This compounds the observation from the Household Survey data that the net increase in lines is not nearly as large as suggested by the roll-out figures, and that it needs to increase at a much greater rate if telecommunications are going to play their potential role as a driver of economic growth.

The issue of universal service, and our proposals in this regard, will be further dealt with in section 4 of this submission.

2.2 Affordability

Affordability is the flip side of universal service: rolling out and maintaining telephones will only be sustainable if these services are universally affordable. Taking into account the massive unemployment levels, extremely skewed income distribution and low wages earned by workers, unless telephonic services are affordable universal service will become meaningless as phones become disconnected and households do not then benefit from universal service. This is directly related to the price structure: over the past few years the costs of line rentals and local calls – the major expenses for low-income residential users – have risen dramatically, while the costs of long distance and international calls have been slashed, benefiting primarily upper-income and business users.2

Given the high levels of poverty and unemployment in South Africa, affordability means substantive and ongoing state funding as well as cross-subsidisation. Competition will not address the problem of high tariffs for basic services, and may actually worsen the situation if price cuts are concentrated at the upper end of the market. Ongoing direct regulation of tariffs will thus be necessary to ensure affordability of basic telephony and genuine universal service.

An international study cited in the government’s Discussion Paper on Definition of Universal Service and Universal Access in Telecommunications in South Africa3 suggests that basic telephony should cost no more than 0.7% of a household’s total income. However, figures for South Africa indicated that the total spent by households on telephony is 2.87% of monthly income (of which 0.65% is for rentals and installation and 2.22% accounted for by calls).

The following table indicates the proportion of households who would be unable to afford a telephone if the cost is limited to 2% or 3% of the monthly income of households, for various levels of telephony costs. Telkom currently charges R62.70 for ordinary monthly rental (automatic exchange), and R38.86 for monthly rental under the PrepaidFone system (which has higher call charges).4 The table indicates that, even if households do not make any calls, more than half of households would be unable to afford a PrepaidFone line by spending 2% of their income, and 40% would still be unable to afford it even on 3% of their income. In terms of the ordinary monthly rental costs, about two thirds of households would not be able to afford it on 2% of their income and over half by spending 3%. Note that these projections are based on expenditure of well over the 0.7% suggested benchmark, which puts undue pressure on other pressing household expenditure.

Affordability levels by differing costs of telephony per month

Scenarios for differing costs of telephony	R 30	R 40	R 50	R 60	R 70
% of households unable to afford basic telephony by spending 2% of income	44%	53%	60%	65%	69%
% of households unable to afford basic telephony by spending 3% of income	30%	40%	48%	53%	58%

All estimates are done in 1997 Rands.
Table from the DRA Development Document Defining the Categories of Needy People,
sourced from government’s Discussion Document cited above.

This indicates firstly that genuine universal service is unachievable under the current tariff structure, and secondly that ongoing subsidisation and cross-subsidisation will be needed in order to achieve universal service. In section 4 of the submission we make proposals to ensure affordability, including the idea of lifeline telephonic access and progressive block tariffs.

2.3 State ownership and regulation

COSATU strongly believes that the state is best placed to provide basic services such as telecommunications. Telecommunications infrastructure is part of the environment that makes economic activity possible - it is an important determinant of the cost structures of firms and of their spatial location. The benefits from infrastructure for the economy as a whole are therefore much greater than what can be earned by charging for services. These benefits arise because there are economic effects from telecommunications services that have effects beyond the two groups involved in the sale of the services themselves (i.e. the service provider as the seller and the customer as the purchaser of the services). It is well recognised in mainstream economic theory that when such effects exist (termed "externalities", as they are external to the transaction in question) free-market transactions will not be economically efficient. Efficient outcomes in these situations require government intervention.

Private owners will only take into account the narrow financial gains to themselves in deciding how much to invest. The private sector will always under-invest in infrastructure such as telecommunications as investors do not take account of the wider economic effects. They are also risk averse, meaning that they base their decisions on existing demand, rather than the potential demand which may arise from the economic growth which is made possible by the infrastructure provision itself. This means less infrastructure and less jobs in operating that infrastructure. The location of infrastructure is also very important for addressing the effects of apartheid. A broad definition of Black economic empowerment includes the provision of infrastructure in historically disadvantaged areas. Private owners have limited interest in doing this.

Telecommunications also improve the provision of other essential services such as education and health. The private sector will not take into account the benefits in terms of wider and better provision of health and education that come from extending telecommunications. In addition, there are impacts from telecommunications services that affect development more broadly but which may be difficult to quantify. These include the importance of telecommunications for being able to participate in the political, economic and social activity in a country. It is impossible to work out the value of information and communication purely in Rand terms, yet it is clearly important.

More especially in a country such as South Africa with massive infrastructural and service backlogs and extreme inequalities, "pure" competition in a basic needs sector such as telecommunications is particularly inappropriate. This would be likely to result in "cherry-picking" of profitable market segments and neglect of the majority. It is relevant to note that even in developed countries which now have a competitive regime, it was through a state driven approach that telecommunications were rolled out in the first place. We return to these issues in the course of this submission.

The argument that globalisation requires a reduced role for government, with policies such as privatisation, is based on a false analysis. A country’s ability to participate in the international economy depends on its infrastructure, and particularly telecommunications. This requires government support and a longer-term development approach if South Africa is to take advantage of the opportunities available from globalisation. Industrial economies already have a mature infrastructure that provides the basis for global economic links.

In the context of a mixed economy continued government ownership provides a range of benefits:

• Government ownership is an important way of setting non-profit objectives. These may conflict with the objectives of the private shareholders (where they exist), meaning the government, as shareholder, must enforce its conditions.

• Ownership combined with regulation of the existing private sector is almost certainly better than relying solely on regulation. As an owner the government has access to much more information on the performance and decision-making of the firm than the regulator.

• Government can ensure that a longer-term perspective is adopted to grow the market rather than short-term, shareholder driven profit.

• Ownership ensures that a stream of returns from the business go to the state.

Ownership alone, however, is clearly not a guarantee of service orientation. Where there are private shareholders who prioritise profit maximisation, this will inevitably put pressure to scale down the meeting of universal service obligations, increase prices and so on. This underlines the need for tight ongoing regulation.

Moving from this broad approach, our comments on the issues of market structure raised in the Policy Directions are reflected in section 3.1 of this submission

2.4 Economic development

Telecommunications have been identified as particularly important for economic development because they directly impact on the nature and level of economic activity. They also increase the efficiency of institutions and make service delivery more effective and potentially cheaper. It has long been recognised that government has a primary role to play in facilitating the development and adoption of new technologies. This is the case with the recent developments in information and communication technology including the Internet. Many of the gains from these technologies extend beyond the institutions using them and rely on their widespread adoption. Government action is necessary to ensure linkages are achieved between enterprises, public institutions (in education, health, research etc.) and financial incentives for investment and innovation.

Such a conception is echoed in the RDP which noted that "telecommunications is an information infrastructure and must play a crucial role in South Africa’s health, education, agricultural, informal sector, policing and safety programmes…The telecommunications sector is an indispensable backbone for the development of all other socio-economic sectors. An effective telecommunications infrastructure which includes universal access is essential to enable the delivery of basic services and the reconstruction and development of deprived areas." [RDP section 2.8].

It is widely recognised that infrastructure investment is closely associated with economic growth and development.5 A recent study of employment and unemployment in South Africa found strong and significant correlations between provision of telecommunications services and the ability to find employment.6 There are important backwards and forwards linkages of telecommunications infrastructure with other sectors. For example, it is linked closely to manufacturing of electronic equipment used in setting-up and running the infrastructure. Increased service provision will have positive knock-on effects on production and employment in other industries and sectors. Private firms also view employment as a cost to be minimised but, in a situation of high unemployment the ‘savings’ achieved by private firms in reducing employment are not savings from the point of view of the economy as a whole. Increased investment in telecommunications infrastructure also has a range of multiplier effects through the increased demand for equipment and materials, which stimulates growth in upstream sectors. The cost of direct government support for investment in infrastructure will therefore be partly recouped through the effects of this spending on growth and employment (and thereby on tax revenues). ICT as part of business services also provide the necessary conditions for higher productivity, business efficiency, and industrial development.

2.5 Job retention and creation

It is generally accepted that South Africa is currently facing an unemployment crisis, and that addressing this crisis is arguably the central policy challenge facing us. Any policy initiative needs to be guided by the imperative of protecting current jobs and creating new ones.

Telkom has shed a fifth of its workforce over the past year, with the number of employees falling from 61 237 staff members in 1999 to 49 128 in 2000. The possibility of future retrenchments would obviously further worsen the unemployment situation.

Job retention and creation in the telecommunications sector is not only compatible with universal service provision: the massive rollout of infrastructure and services required is actually dependent on a sufficient number of employees who are adequately trained and motivated. Productivity is not a function of employment levels: it may be increased by raising output rather than reducing employment. Telkom should be investing in training staff, rather than retrenchment. In this way it internalizes costs associated with human resource development, particularly where there are skill shortages. Technology to be adopted should take into account South Africa’s labour abundance, and should not be labour displacing. Given the need to expand basic telephony, especially in the rural areas, Telkom should actually see growing employment in the next few years.

3. Comments on Market Structure

3.1 Proposed introduction of a Second National Operator

We believe that the most significant aspect of the Policy Directions is the proposed "managed liberalisation" of the telecommunications sector, particularly in terms of the intended introduction of competition through a second national operator (SNO). Much of the rest of the Policy Directions flows from this decision. For this reason it makes sense for us to concentrate in the first instance on the intended liberalisation of the sector and our approach to this; in further engagement with the Department we may add further comments on other related issues.

The Policy Directions proposes that an Invitation to Apply (ITA) be issued in July 2001 for a SNO telecommunication licence, which would provide for the SNO to provide public switched telecommunications services in the form of fixed-mobile services, including the following:

1. International services
2. National long distance services
3. Payphone
4. Local access services
5. Value-added networks services (VANS).

The Policy Directions proposes service-based competition up to 7 May 2005 (the SNO would be able to use Telkom’s facilities based on a commercial agreement), and facilities based competition thereafter (the SNO would have to develop its own facilities and infrastructure). The licence conditions would stipulate targets of infrastructure rollout, universal service obligations, universal access targets, and a system of penalties for failure to achieve the infrastructure rollout for the SNO. It is also specified that the SNO and any new major licences will include a shareholding of up to 30% for historically disadvantaged groups, and that at least 51% should be domestically owned. The latter component will include the incorporation of ESI-TEL (a subsidiary of Eskom Enterprises) and Transtel (a division of Transnet).

COSATU is not convinced that the proposed market structure will foster a telecommunications industry which meets people’s basic needs. In fact, our position is that, while we are not opposed to some regulated competition for the provision of high-level services to business, we are opposed to competition in the provision of basic telephony. Given the massive needs for extension of telephonic services, as discussed elsewhere in this submission, we believe that the optimum market structure would be for Telkom to have sole responsibility for the roll-out of basic telephony, with this responsibility being funded both from the fiscus and dedicated levies on operators providing other telecommunications services. We believe that any telecommunications providers, including Telkom, need tightly circumscribed licence conditions and ongoing monitoring and regulation, to ensure that government objectives, particularly universal service, are indeed met.

Particularly in the light of the highly skewed income distribution in South Africa, competition is in our view highly unlikely to lead to universal service. Economic logic, backed up by relevant international experiences, indicates that competition leads to cherry-picking and an improvement in costs and service for the upper end of the market, side by side with poor or no service for the lower ends. The profit-maximising drive of private companies, or even commercially oriented public companies especially in a competitive environment, dictates cost minimisation and revenue maximisation. This translates into a reluctance to service the lower ends of the market, poor quality and high tariffs for the poor, and a concentration of resources on the upper end of the market and value added services which tend to have higher profit margins. In a nutshell, the telecommunications priority for COSATU is the extension of affordable telephone services to all South Africans; we do not believe that the market structure proposed in the Policy Directions can achieve this.

To elaborate: there are two related concerns for us in terms of the telecommunications market structure, particularly as it relates to basic telephony. Firstly, the integrity, viability and orientation of the national public telecommunications provider, Telkom. COSATU believes that policy should maintain the public sector character and obligations of Telkom. As articulated in section 1.3 above, we believe that the state is best placed to deliver basic telecommunications services and therefore that public ownership and a public sector (non-commercial) orientation of Telkom will best dispose it to quality and equitable service delivery.

Secondly, the range of mechanisms and instruments – regulatory, legislative and otherwise – through which universal service is achieved. It is clear that whatever the market structure, both public and private providers need to be tightly circumscribed to ensure universal service. Regulations must be geared, not to the "public interest" in a vague sense, but to quantifiable targets for affordability and universal service. Without clearly specified targets, tight monitoring of the meeting of targets and appropriate penalties for failing to do so, the majority of South Africans are unlikely to have the benefit of access to even basic telecommunications services. As discussed in section 2 above, this access is vital for households’ full social participation, prospects of economic development and employment, skills development, and other benefits.

Proper regulation relies heavily on timely, detailed and accurate information, attribution of costs, assessment of externality and growth effects of services, and so on. A firm which is the subject of regulation often has no interest in providing such information. It is unfortunate that Telkom has not yet developed the capacity to provide information (such as cost breakdowns) required of it.7 Government as well as ICASA should play a firm role in ensuring that Telkom is in a position to provide such information in future, which will enable proper regulation.

Government should use its majority ownership of Telkom as well as its stake in any other telecommunications service providers to ensure that objectives are met. Our view of the Telkom experience of the past few years is that, as Telkom has become increasingly commercialised, management has been allowed to run it as more as a semi-autonomous business entity rather than operating within a clearly defined mandate for taking forward government objectives. Public ownership or stake should be used to set and achieve non-profit objectives, particularly rollout of affordable services. Management incentives and disincentives can also be structured to promote such objectives, rather than narrow commercial financial goals which tend to be achieved at the expense of service delivery and employees security and conditions of employment. Monitoring and enforcement mechanisms clearly need to be strengthened, including the role of government as shareholder, the oversight role of parliament, ICASA, stakeholders and the public at large.

A further issue which we wish to flag at this point is that, given the negative experience of the Telkom equity partners up to now, this arrangement should be reviewed in the coming period. We propose that Telkom moves back to full state ownership, which we believe will better enable it to fulfil government objectives particularly universal service.

It is difficult for us to form a view at this stage as to the conditionalities of the SNO and how it will contribute to universal service: no substance is provided in the Policy Directions but instead it states that universal service obligations, universal access targets, infrastructure roll-out targets, and penalties for failure to achieve the latter will be specified in the ITA and formalised in the licence conditions. Given that the Policy Directions does not give any indication of what universal service and access obligations the SNO will face, nor what penalties and enforcement mechanisms are contemplated, it is difficult to access the possible impact of the proposed market liberalisation on access to telecommunications in South Africa. In our engagement with government around the Policy Directions and way forward, government should explain how the proposed market structure would advance the objective of extending telecommunications access to all our people. If government insists on the route of market liberalisation proposed in the Policy Directions, it will be imperative to have very tightly circumscribed licence conditions for the SNO, with strict penalties not only for failure to achieve the infrastructure structure rollout but also for shortcomings in meeting universal service obligations.

Successful industrial development and a more productive economy is also dependent on a conducive business environment. For this reason COSATU recognises the importance of high-level ICT services for business, and accepts that more operators can be enabled to provide these services. They should pay a levy that will contribute to funding the extension of basic telephony. The levy should be made available to Telkom as a ring-fenced subsidy for this purpose.

3.2 Proposed extension of Telkom’s licence

Telkom’s licence is to be amended to allow it to enter the cellular market. In terms of the introduction of further competition, the Minister will issue an ITA for at least one service-based licence to commence with service provision during the last quarter of 2005, but there will be a market assessment to determine the feasibility of introducing additional operators by May 2005.

While we are not necessarily opposed to the proposed extension of Telkom’s licence to include mobile service per se, we would be concerned if it is premised on a planned substitution of mobile for fixed services. The fact that the number of mobile users (6.9 million) has now far outstripped fixed lines (5.5 million) is indicative at one level of South Africa’s gross inequality – the majority of cell phone users have a landline as well and the tremendous growth in the cell phone market demonstrates the high personal disposable income of the upper income brackets. It is also, however, indicative of the slow pace of the rollout of Telkom lines. Many low-income consumers are making use of cell phones, which they cannot afford and which reduce the income available for other expenses, because of the lack of alternatives. The specifications and enforcement of the licence should be such that Telkom’s participation in the mobile market does not divert skills or resources away from the drive towards roll-out of basic fixed line telephony. If anything, Telkom’s mobile business could actually cross-subsidise the costs of basic telephony in order to bring down the price of the latter.

3.3 Under-serviced areas

In terms of under-serviced areas (with a tele-density of less than 1%), the Policy Directions proposes permitting SMMEs and co-operatives to provide telecommunications services as from May 2002, using their own or leased infrastructure. The fact that such a situation of extremely low tele-density in certain areas still prevails is an indictment of Telkom’s record in service extension. It also highlights the limitations of the regulatory regime up until now. However, we do not believe that this failure is a motivation for effectively outsourcing this responsibility to SMMEs and co-operatives. A danger with such a proposal is that private operators who initially take on an obligation later fail to properly deliver services or that these are of a poor quality. SMMEs will be less accountable to consumers than would the national service provider, and it is difficult for people to raise complaints or to enforce their rights.

While we support the development of a vibrant co-operative sector in general, we are sceptical about the feasibility of co-operatives being able to extend and maintain telecommunications services of acceptable quality in economically depressed areas. Co-operatives are more likely to be viable in areas with reasonably high levels of economic activity and where telecommunications infrastructure already exists, and co-operatives can potentially play a role – as per international experience – in operating services. We do not, however, regard this as a viable immediate prospect. COSATU thus suggests an approach to under-serviced areas in which delivery remains part of the universal service obligations in licence conditions. Furthermore, these obligations need to be rigorously enforced, both through the direct ownership stake of the state and through the regulatory regime.

4. Comments on Universal Access and Universal Service8

As outlined in section 2.1 above, COSATU regards the attainment of universal service as a priority. Given the inadequate progress made thus far in extending telecommunications services to the majority of South Africans, it is clear that a more decisive approach is needed. In this context the page-and-a-half of the Policy Directions devoted to universal access and universal service does not set out clearly enough how progress will be accelerated. The Policy Directions does identify improving access to telecommunications services as an important short-, medium- and long term priority; notes that universal access targets should include advanced services such as Internet multimedia; and that account must be taken of the special needs of differently-abled persons and the equitable geographic spread of services.

As the International Telecommunications Union states in their World Communications Development Report 1998, "Technology that theoretically provides telecommunication access from anyplace on the surface of the earth is already available. Universal access is now not so much an engineering or supply-side problem but rather a regulatory and policy challenge." The report also provides a useful conceptualisation of three dimensions of universal service:

• Availability: there should be nationwide coverage of telephone service, wherever and whenever required.
• Accessibility: users should be treated alike, there should be no discrimination in terms of service, quality etc based on location, race, etc.
• Affordability: telephone services should be priced so that users can afford them.

COSATU believes that it is viable for government to set a target for universal service for all within five years – that is, every household that applies must be linked up to the telephone network. As discussed above, affordability is the flip-side of universal service. High rental costs and call charges have resulted in the phenomenon of churn over the past few years, which have undermined progress towards universal service.

COSATU proposes a price structure based on the system of lifeline services and progressive block tariffs developed for municipal services. This would have two important advantages: firstly, everyone would have access to some basic telephone services. While the package of lifeline services could be discussed further, it could at least include outgoing local and national calls up to a certain amount, incoming calls, and access to emergency services. Secondly, telephone charges would rise progressively at higher levels of usage. Based on the assumption that high-income households with higher ability to pay are likely to make greater use of telephones, this would build in cross-subsidisation to lower-income users. 9

Cross-subsidisation is an accepted principle of service delivery for governments around the world in the provision of water, electricity, telecommunications etc. These are basic services and it is regarded as unfair to expect the poor to pay the same amount per unit as the wealthy. More so in a country such as South Africa, with massive inequalities and service backlogs. In fact it has also been used historically in South Africa, for example to extend services to farmers where the costs of rolling out infrastructure are relatively high. Moving towards cost-based pricing (as proposed, for example, in the ICASA tariff review) would mean that those who do not yet have access to telecommunications – predominantly poor and black – would be paying closer to the full cost, while services have been extended to whites over decades funded through public subsidies.

The sections of the Policy Directions on universal access and universal service obligations (2.1 and 2.2) seem to concentrate on access for differently-abled persons. While COSATU certainly supports service extension and adaptation for this sector, given South African socio-economic realities a broader approach is needed. We believe a two-pronged approach is needed: on the one hand, the overall price structure should favour low-income consumers as discussed above (including lifeline telephonic services followed by progressive block tariffs and ongoing subsidisation of local calls by long-distance and international calls). This general progressive price structuring should on the other hand be complemented by specific targeting of groups such as the disabled, unemployed, the elderly and so on.

We agree that there is a need to restructure the Universal Service Agency (USA) in order to better equip it to fulfil its mandate. Within the two-pronged approach to universal service outlined above, the USA should deal with both a general, comprehensive approach to service roll-out and price structure, and targeted interventions aimed at specific disadvantaged sectors. The Department could also look into either merging the USA and ICASA, or better integrating the USA within the telecommunications regulatory regime, to ensure that universal service is mainstreamed rather than ghettoised within one agency.

In terms of contributions to the Universal Service Fund (USF), the Policy Directions proposes that in order to increase the size of the fund all telecommunications licencees shall from April 2003 contribute a percentage of their turnover to the USF. The actual percentage is to be specified by ICASA, not exceeding 0.5%.

It is generally recognised that the USA has until now been hamstrung by a lack of resources, and we thus welcome the intention to increase the size of the USF. A 0.5% levy would certainly increase the resources available to meet pressing needs, as compared to the current ceiling. It is not however apparent from the Policy Directions whether these resources are intended to fund a similar mandate as previously, or whether they will also finance/subsidise mass roll-out of universal service; and how this relates to the broader universal service obligations of licencees. This makes it difficult to access the adequacy of the proposed increase and how it fits into the bigger picture of the funding of universal service. This is one of the issues we wish to discuss in our engagement with the Department.

5. Further comments

The section of the Policy Directions on the education rate (e-rate) proposes that telecommunication operators shall be required to give a 50% discount on all Internet access calls made by any public school. COSATU believes that access to Internet can be very important as a source of information and communication for schools. Closing the "digital divide" at the school level is part of laying the basis for reducing inequality in society as a whole; similarly, inequities in access to information and communication technology (ICT) at school level can only exacerbate existing inequalities. In this context we support the apparent intention of the Policy Directions in proposing a 50% discount on Internet access calls for public schools. However, our concern is that the costs of connecting to the Internet in the first place, and even the discounted call access rate, may prove prohibitive for the majority of our schools. We thus suggest that a more active approach is needed to ensuring that pupils, including those at black schools, do benefit from access to ICT. For example, the universal service obligations imposed on licencees could include the installation, maintenance, and subsidisation of Internet usage at public schools.

Footnotes

1. International Telecommunications Union, Yearbook of Statistics 2000.

2. The effective price of exchange line rentals, cumulative over the period 1998-2000 and deflated by CPI, has increased considerably. There have been extremely high price increases for local calls, increasing by 35.6% in standard time and 10.6% in "Callmore" time respectively (cumulative increase deflated by CPI). The cost of national calls over the 50-100 km range have fallen and those of the >100 km range have fallen even more. The biggest price cuts have been on international calls, of 40%. The costs for the Megaline C Tariff have risen by 74.2%. The ratio of long distance call charges to local calls declined from 21:1 in 1994 to 6.9:1 in 2000. Examining the above figures in distributional terms, it is low-income consumers – predominantly reliant on local calls – who have borne the brunt of price increases, while it is wealthy consumers and businesses who make more long-distance and international calls who have seen their costs slashed. This is the opposite of the desirable situation, and demonstrates the inappropriateness of basing prices either on costs or on the degree of competitiveness in different market segments. Source: ICASA Review of Rate Regime for Public Switched Telecommunication Services: Consultation Document.

3. Published in Government Gazette Vol. 400 No. 19397, October 1998.

4. Source: Telkom's web site.

5. A very strong statistical association has been found between equipment investment and economic growth across 88 countries over the period 1960 to 1985. According to this study, the real returns to the economy as a whole are approximately 25 per cent, and could be as high as 35 per cent. But, the private returns are only 15 per cent. The level of private investment that is undertaken will only reflect these returns, suggesting the importance of a role for government if the benefits from investment in infrastructure are to be realised. (De Long, J.B. and L. Summers (1993) 'How strongly do developing economies benefit from equipment investment?', Journal of Monetary Economics 32, 315-415). These findings are supported by a study of 119 countries over three decades (1960s-1980s) which finds that public investment in transport and communications is consistently and strongly correlated with economic growth. (Easterly, W. and S. Rebelo (1993) 'Fiscal policy and economic growth', Journal of Monetary Economics 32, 417-458).

6. Kingdon, G. and J. Knight (2000) 'The Incidence of Unemployment in South Africa', paper presented at TIPS Annual Forum.

7. ICASA's recent Tariff Review notes that “Unfortunately, Telkom's internal management accounting has not yet developed to the point where it is able to provide a breakdown of the costs of each individual service, in addition to the revenue received from each service. It is therefore not yet possible to establish Telkom's financial results by service.” The Review goes on to note the limitations brought about by this failure; and the lack of adequate data is referred to as a constraint throughout the Review.

8. Universal service is generally conceptualised as a phone in every home, while universal access generally refers to “reasonable” access to a telephone that people can use as well as community access points such as tele-centres.

9. The Benton Foundation proposes a three-tier system of universal service which at least assures low-income users of some basic services and remaining connected even if they are unable to pay for calls. The first level, a comprehensive universal service package (local national and international outgoing calls, incoming calls, access to emergency services, toll blocking and toll limitation on request, and directory enquiries) would be available as long as the total bill can be settled. If this is not possible, then local call charges should be deducted first followed by long distance and toll charges, and the user could be moved to a second tier of a limited basic package which excludes international calls and limits long distance calls to those going though an operator. The third tier, essential services, would only allow operator outgoing calls, incoming calls, and access to emergency services. Source: Discussion Paper on Definition of Universal Service and Universal Access in Telecommunications in South Africa, Government Gazette Vol. 400 No. 19397, October 1998.

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