When the Independent Communications Authority of South Africa (Icasa) announced the spectrum auction in September 2020, it was widely hailed as a critical measure to eliminate the main bottleneck to broadband development in the country. Auctioning the 33 discrete lots, totalling of 406 MHz, was expected to lower data costs and provide critical High Demand Spectrum (HDS) for the development of 5G applications. The R8 billion reserve price would have been a welcome boost to the national treasury.

Spectrum licencing auctions are notoriously difficult. South Africa has twice previously failed to proceed with planned events – in 2010 and 2016 – which suggests that a third delayed auction, in March 2021 by court order, fits into a more general pattern. In fact, this sort of failure has been experienced repeatedly across the continent. It seems that spectrum auctions are much more difficult than politicians and regulators tend to assume.

A successful spectrum auction was also to make a deeper point about the attractiveness of South Africa as an investment destination. It was to demonstrate that the country is capable of putting in place the critical building blocks to support private business – that it is ‘open for investment’ as the president put it in 2018. As his 2021 State of the Nation Address showed, President Ramaphosa himself still hoped it would be an easy and rapid win, even after legal challenges started to emerge in December 2020.

But the challenges came thick and fast. By the end of January, the country’s three biggest mobile telephone operators (telcos) had all launched separate and in many respects contradictory challenges. First-off the mark was South Africa’s third biggest telco, the part-state owned Telkom, which was concerned about the low-frequency 700-800 MHz band. Spectrum in more-or-less this range (900MHz) had been assigned by administrative decision to MTN and Vodacom many years ago. This is the ‘anchor band‘ for broadband roll-out and Telkom desperately needs an allocation (it currently has none) to compete with its two larger rivals.

The problem with this low frequency band is that it is also used for analogue television broadcasting making it ‘dirty’ or prone to signal disruption. Sharing the band would disrupt both mobile telephony and television broadcasting which is why free-to-air broadcaster e.tv joined Telkom’s case in early February. South Africa’s migration from analogue to digital transmission has been painfully slow having failed, under then telecommunications minister Faith Muthambi, to mandate the encryption of set top boxes by the International Telecommunication Union’s 2015 deadline. The process is only expected to be completed in March 2022.

This issue was the main focus of the decision to halt the auction made by High Court Judge Selby Baqwa in early March. Icasa argued in court that mobile operators would be able to share the anchor band with broadcasters after the auction. Judge Baqwa rejected this argument and found that the process was ‘unlawful and irrational’ because Icasa had amended the rules after it had begun the process. Accordingly, he prohibited Icasa from proceeding with the auction.

The spectrum auction has fallen at the first hurdle. It should be pointed out that arguments on the substance of the Telkom/e.tv case have not yet been heard and that Judge Baqwa’s decision appears to have been made on procedural grounds. It is not clear what the Judge made of Telkom’s argument that the auction did not take into account ‘the lack of competition in South Africa’s cellular market’, that the auction would entrench the MTN/Vodacom ‘duopoly’ and that its impact would last for 20-years. He has however been reported – by Reuters, the only news agency to have seen his ruling – to have criticised Icasa for failing to conduct a ‘competition assessment’.

Competition issues are at the heart of MTN’s objection to the process but the country’s second largest operator approaches the issue from an angle diametrically opposite to Telkom. Telkom wants Icasa to break the ‘duopoly’; MTN, one of the members of that duopoly, believes the auction rules excessively disadvantage the big players. Icasa has classified bidders into two groups. Tier 1 consists only of MTN and Vodacom which are prohibited from participating in the initial ‘opt-in’ round where the highly desirable 3 500MHz band (optimal for 5G) will be auctioned. The remaining bidders (Telkom, Cell-C, Rain and Liquid Telkom) make up Tier 2, based on retail market share in South Africa’s municipalities, and are free to bid throughout the process.

MTN’s legal submission argues that the ‘opt-in’ scheme creates an ‘uneven playing field’. The telco argues that it (and Vodacom) are struggling most with capacity as they are serving the most clients. It argues that Icasa’s auction format ensures that ‘the least efficient users of spectrum and licencees with fewer number of customers will be privileged over the most efficient (and needy) licensees in the acquisition spectrum’. Vodacom has not supported MTN’s argument and has in fact filed a counter-application requesting that the auction go ahead.

Competition has long been a contentious issue is South Africa’s mobile telephony industry, with previous attempts to open it up (the licencing of Cell-C and the entries of Telkom and Liquid Telkom) having done little to challenge the MTN/Vodacom ‘duopoly’. However, a 2019 report by the Competition Commission found that while there are issues in the industry (especially in roaming and site access), overconcentration is not a problem in spectrum allocation. It found that no licencees had ‘substantially greater holdings that others and that there is none that has significant market power … here is no need to impose pro-competitive licence conditions’. Thus, the Competition Commission report does not support Icasa’s two-tier classification of the industry.

The future is murky. Icasa wants legal processes to run to their conclusion while the minister prefers mediation. Either way, the auction will be delayed for at least several months, if it is not scrapped altogether. Apart from the small allocations of emergency spectrum under Covid-19, it has been 16 years since new bandwidth was released to the industry in South Africa. The finger of blame has been pointed at almost everyone. But the telcos are simply defending their interests, as all competent private companies do. It is the authorities – Icasa and the department – who have failed to consult across the industry in the five years since the aborted 2016 auction. They need to do better.