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FMF Launches Socio Economic Impact Assessment (SEIA)

FMF Launches Socio Economic Impact Assessment (SEIA)

Government ICT Policy is Harming Consumers

On Tuesday 13 April 2021, the Free Market Foundation (FMF) launched a Socio Economic Impact Assessment (SEIA) of ICT and Spectrum policy, and its impact on consumers. The findings are not good. “Regulatory failure and outmoded ideology have deprived South African consumers of better mobile coverage and lower prices. That is the key message of this study,” said FMF President Leon Louw.

“Failure to release telecommunications spectrum (radio waves), failed migration from archaic analogue to modern digital technology, misconceptions about competition, and insistence on an untried unproven state-owned ‘Wireless Open Access Network’ (WOAN), means consumers have been deprived of benefits taken for granted elsewhere: faster downloads, lower prices, unlimited data, and roll-out of the 5G revolution. 5G is required for the much-anticipated ‘Internet of Things’ (IoT),” said Louw.

Spectrum and data are the key ingredients to provide consumers with the means to have full, easy, quick and affordable access to the internet, with all benefits this provides, via cell phones, laptops, tablets, GPS and other devices.

Data prices hit the headlines with the #datamustfall movement whereas spectrum is the collective term for various radio frequencies that deliver data services. Spectrum is the lifeblood of the mobile communications industry.

Digital migration is the shift from analogue broadcasting to digital to release “digital dividend” radio waves currently used wastefully by broadcasters to mobile operators. “Migration” has been delayed beyond the internationally agreed 2015 deadline.

Properly conducted SEIAs are comprehensive analyses of the expected social and economic effects of policies. Although evidence-based and quantified SEIAs are compulsory, they are often forgotten by policymakers, as in this case. Louw introduced this globally recognised instrument to South Africa and the government implemented it. The FMF arguably has SA’s leading competition policy and SEIA expertise.

The SEIA report, authored by industry expert Christoph Klein*, CEO of dotadvisors with Louw, contains key findings that highlight past and proposed policy failures.

“An important aspect is that the SEIA clarifies competition economics and criticises the insidious myth that there is more competition when there are more competitors. The degree of real world competition is determined by market contestability, not the number of contestants,” explained Louw.

Key Findings

  1. Government failure rather than “market failure”, impacts especially low-income rural consumers through incomplete coverage, higher prices, poorer quality, reduced productivity, and impaired educational opportunities.
  2. 15 years of spectrum withholding (which Louw calls “government squatting”) harmed and harms consumers, especially the poor.
  3. Failed digital migration means that even after the delayed spectrum auction, carriers will be unable to fully utilize 700 and 800 MHz “digital dividend” spectrum until 2023. Meanwhile, consumers will be denied high-quality, low-cost rural services and pay more for urban infrastructure.
  4. Misguided competition policies and regulatory interventions distort the market, create investment uncertainty, and encourage counter-productive rent seeking.
  5. The government should replace ideology-based policies with evidence-based SEIA policies.
  6. The spectrum crunch imposed on MTN and Vodacom, and the recapitalization ailing entities revived by Liquid Telecom and Rain, paved the way for a market driven “WOAN”, thus rendering the proposed government WOAN superfluous.
  7. The difference between the former and the latter is that the arm’s length “roaming” (voluntary sharing of resources) has been achieved without coercive “incentives” compromising property rights. If ever it did, SA no longer needs a WOAN artefact imposed on it. 

Christoph Klein, as the SEIA’s principal researcher and author, said that “Regulatory paralysis imposed enormous opportunity costs on ordinary citizens. Further developments should be left to freely transacting operators who know what they are doing and have ‘skin in the game’.”

With six competing mobile operators, where the government originally allowed only two, and the spectrum auction, conditions for industry liberalisation and development will be optimal. Under free competition, with more operators than in most countries, free-to-choose consumers, not organs of state, should decide if we are over- or under-served.

“The notion that free market intermediation and spectrum trading are prone to ‘market failure’ is not supported by historical evidence, the technology revolution, or economic theory,” concluded Klein.