South Africa govt scraps single wholesale network as it begins auction of 4G and 5G spectrum to telcos

While Malaysia is still deciding whether to proceed its 5G deployment via Single (SWN) or Double Wholesale Network (DWN), the South African cabinet has officially scrapped its plans to launch a wholesale open-access network (WOAN) in the hope to increase competition in the telco industry. This comes after the Independent Communications Authority of South Africa (ICASA) had started its spectrum auction this week which includes the 700MHz and 3500MHz bands.

As reported by South Africa-based website TechCentral, the decision to terminate the controversial scheme was endorsed at a cabinet meeting held on Wednesday as it aims to knock out one of the key pillars of Telkom’s lawsuit against the regulator. The South Africa government had initially pushed for a WOAN as it cites Mexico as an example of a successful deployment with the model.

However, Mexico’s SWN, Red Compartida, was declared bankrupt and it failed to deliver its coverage targets. The Mexican regulator IFT has recently granted a 4-year extension to postpone the 2024 4.5G coverage deadline until the end of 2028. Red Compartida had started its rollout using the 700MHz band in March 2018 with the aim to achieve 92.5% coverage in 2024. At the moment, it currently covers about 70% of populated areas with 4.5G coverage. Altan Redes, the consortium behind the Mexican SWN is currently in a debt restructuring process and has secured a USD 50 million (about RM209.7 million) loan in September 2021 to ensure continued provision of mobile telco services.

South Africa’s WOAN was said to be partly modelled after Mexico’s SWN which aimed at encouraging competition at the services layer instead of the infrastructure layer. It was reported that the WOAN will enjoy special agreements mandated by the government including cheap access to the spectrum while telcos such as Vodacom and MTN are required to buy a 30% stake of the new entity’s available capacity.

This week, the South African regulator had started the auction for high-demand radio frequency spectrum in the 700MHz, 800MHz, 2600MHz and 3500MHz bands for the purpose of providing national broadband wireless access services to all South Africans. It added the importance of this licensing process lies mainly in the enhancement of competition in the mobile services sector, increasing broadband connectivity and coverage, as well as bridging the digital divide between urban and rural access to mobile broadband networks.

For the opt-in phase, two licencees – Rain and Telkom, were declared winners by ICASA. Rain will have to pay ZAR 1,151,274,105.50 (about RM319 million) for 2x10MHz block of the 700MHz band and a 10MHz block of the 2600MHz band. Meanwhile, Telkom gets 2x10MHz block of the 800MHz band for ZAR 1,504,815,407.10 (about RM417 million).

Not only this is the first spectrum auction in South Africa in more than a decade but it’s also the first time for the two telcos to have access to spectrum under 1GHz. The lower spectrum bands of 700MHz and 800MHz are highly sought-after as it provides better penetration for indoor coverage as well as provide wider coverage in underserved and rural areas.

In Malaysia, the government via the Ministry of Finance has established Digital Nasional Berhad as the single wholesale network to deploy 5G. Last year, GSMA has raised concerns about Malaysia’s 5G approach as the model is risky and has shown little success. It also said that the SWN model will threaten Malaysia’s digital competitiveness. They have also shared a report which described the model as a government-initiated network monopoly as it does not allow telcos the flexibility to determine the best arrangement for sharing.

Malaysia’s big four telcos – Celcom, Digi, Maxis and U Mobile have called upon the government for a Dual Wholesale Network which will allow telcos to form a new consortium to develop a 5G network that utilises their existing infrastructure. It is believed that DWN would provide additional competition and it is likely to incentivise wholesale networks to build the network faster and provide a better network and service to consumers. GSMA has also called upon the MCMC to provide a Regulatory Impact Assessment of SWN to outline the cost and benefits of implementing SWN in Malaysia.

In a recent response to Bangi MP Dr Ong Kian Ming, DNB CEO Ralph Marshall said there will be enormous implications should the Government decide on having a DWN. He said “it is highly unlikely that DNB in its current form will survive, should there be another wholesale network provider. With the failure of DNB, the second wholesale provider will then eventually become a private SWN monopoly”. According to DNB, if their implementation is revoked, they will have to pay a substantial amount of claims and compensation including early termination penalties for more than 100 contracts signed including its Phase 1 execution with Ericsson.

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