T-Systems’ Representatives

1. T-Systems South Africa (Pty) LtdPresentation to the Parliamentary Portfolio Committee on CommunicationsConvergence Bill [B9-2005]Wednesday 10 August 2005

2. T-Systems’ Representatives • Mardia van der Walt-Korsten (Deputy CEO) • Luvuyo Keyise (Acting General Manager, Telecommunication Services) • Janet MacKenzie (Regulatory Specialist & Advisor, Cliffe Dekker Inc.) • Dr Andrew Hutchison (Business Manager, Telecommunication Services) • James Makgakge (Local Access Manager, Telecommunication Services)

3. Introduction • T-Systems - South African subsidiary of Deutsche Telekom group • T-Systems South Africa holds 100% stake in Infovan (Pty) Ltd: • Conducts business with a VANS licence • VANS services include networking, hosting, conveying voice / data etc. • Black Empowerment stake through African Renaissance Holdings (25.1% in 2000) • T-Systems’ BEE credentials in excess of current VANS licensing requirements and ultimate regulatory BEE target is expected to be attained prior to July 2007

4. Context & Response Overview (1/3) “A regulatory system therefore becomes necessary and inevitable among other things to create a stable and transparent environment to attract investment, to facilitate the access of service providers to the network, within a context that promotes fair competition and to ensure that the least advantaged regions of the country, such as the rural areas, are not left out of the process of development.” “We are convinced that the telecommunications sector can and must stand at the cutting edge of this exciting and historic process of the rebirth of Africa which has been designated the African Renaissance.” • President Thabo Mbeki, May 1998 • T-Systems is fully supportive of government’s convergence initiative as it will bring much needed competition to the sector and in particular, the telecommunications sector

5. Context & Response Overview (2/3) • Competition is needed to reduce the high cost of telecommunications and to counter the lack of ordinary phone services as well as Internet services in under serviced areas • Communications services play a crucial role in the development and growth of a country’s economy from a human resource, investment and business perspective • A competitive communications sector will act as an incentive for investment and will in turn promote job creation • Universal access and service as well as consumer welfare must remain a priority and additional competition will ensure that these interests are fostered

6. Context & Response Overview (3/3) • Certain areas of the Convergence Bill may inhibit the attainment of the many benefits associated with convergence • T-Systems will focus on those areas of the Convergence Bill which will stifle competition and the positive impact of convergence: • Definitions • Licensing • The right to self provide • Facilities leasing • Interconnection • Access

7. Definitions (1/3) • Proposed: • Communications – “….. the emission, transmission or reception ….. of voice, sound, data, text, video, visual images, signals or a combination thereof, including applications by means of electricity, magnetism, radio or other electro magnetic waves, optical electro magnetic systems or any agency of a like nature, whether with or without the aid of tangible conductors, but does not include content services.” • Communications Service- “any service provided in terms of this Act … and ….. consists of communications over communications networks, including transmissions over communications networks used for broadcasting, but excluding content services” • Communications Network Service -“….. communications service whereby a communications network service licensee makes available a communications network or communications facilities …..”

8. Definitions (2/3) • Proposed: • Application Service -“….. a communications service provided by means of applications” • Application -“any technological invention ….. which includes the manipulation, storage, retrieval, distribution, creation, and combination of content, format or protocol for the purpose of making such content, format or protocol available to customers” • Content -“….. sound, text, still picture, moving picture, other audio visual representation ….. capable of being created, manipulated, stored, retrieved and communicated but excludes content contained in private communications between consumers.” • Content Services – “….. the provision of content; or the exercise of editorial control over the content conveyed via a communications network to the public or sections of the public, such as online publishing and information services.”

9. Definitions (3/3) • Issue: • A number of definitions contain circular references which creates uncertainty • Unintended consequence that content previously not subject to regulation is now subject to licensing • Licensing of online content and other information services contrary to section 16 of the Constitution • Technically impossible to exclude content services from the provision of a communications service • Exclusion of private communications from the definition of “content” has the effect that e-mails cannot be transmitted as part of a communications service • As the definition for a multimedia service is similar to the definition of content, a multimedia service could be seen to be a sub-set of an applications service which is contrary to the requirement that services be technically neutral • Resolution: • Content and content services must be removed • Definitions must be substantially revised

10. Licensing (1/3) • Proposed: • Licensing of two distinct categories: • Individual licenses (Infrastructure and services): • communications network service • radio frequency spectrum • broadcasting services • Class licenses (services only): • communications services • application services • resellers

11. Licensing (2/3) • Issues: • Applications • The licensing of applications amounts to the licensing of a specific service which undermines the objective that services should be technically neutral • The licensing of applications services will widen licensing requirements to include activities not currently subject to licensing (e.g. hosting services, data storage & retrieval services etc.) • Resellers • No need to license resellers as they are not directly involved in the provision of infrastructure or services • Administratively burdensome on ICASA • PTNs • Currently subject to licensing and must be dealt with in the Convergence Bill

12. Licensing (3/3) • Resolution: • Licensing framework should be simplified to 2 tiers only: • Infrastructure • Services • Application services should not be licensed (burden on ICASA) • Resellers should not be licensed (they have never been licensed before: creates a bottleneck) • All references to content and content services must be removed from the Bill • PTN services must be dealt with in the Bill

13. The Right to Self-Provide (1/3) • Proposed • VANS will be licensed to provide communications services • Uncertainty as to whether VANS will be licensed to provide communications network services and to use the radio frequency spectrum

14. The Right to Self-Provide (2/3) • Issues: • If VANS are precluded from being granted a communications network service license or a radio frequency spectrum license, VANS will be the only licensees entirely dependent upon other licensees for access to infrastructure and use of radio frequency spectrum • The exclusion of VANS from licensing regime for communication network services and radio frequency spectrum will hinder attainment of public interest objectives (section 2) • MCTS licensees are increasingly providing data services in conjunction with their MCTS voice services, indicative of manner in which these dominant players are able to enter new markets by bundling or tying existing services

15. The Right to Self-Provide (3/3) • Resolution • VANS licensees should be accorded same rights as other licensees under Chapter 13 and must in no way be restricted to provision of applications services only • VANS must be allowed to access and use the radio frequency spectrum • VANS must be authorised to provide their own facilities where other licensees are unwilling or unable to provide them with the same competitive rates, or where the market dictates are such that it is necessary for VANS to be able to self-provide own facilities • Licensees with Significant Market Power (SMPs) should be subject to providing mandatory access to interconnect services, access services and facilities leasing services at Long Run Incremental Cost (LRIC)

16. Facilities Leasing (1/3) • Proposed: • ICASA required to publish a list of communication facilities which must be leased by communications network service licensees • Obligation to lease facilities • Facilities leasing regulations • Rules regarding wholesale rates • Filing of all facilities leasing agreements with ICASA • Issue: • The right to lease facilities should not be limited to a list published by ICASA for this purpose • Particularly arduous for VANS licensees who will be entirely dependent on communications network service licensees for provision of facilities • Request for facilities should only be refused on the grounds of technical infeasibility

17. Facilities Leasing (2/3) • Issue: • Section 44(7) of Telecommunications Act authorises ICASA to allow for self provision where ICASA determines that a PSTS licensee is unwilling / unable to make facilities available to a requesting party within a reasonable period of time • Special protections required for VANS as only licensees unable to provide their own facilities • Subscriber facilities leasing agreements should not have to be filed with ICASA • ICASA must be authorised to make regulations under section 47 in respect of the imposition of an obligation on communications network service licensees with SMP to provide facilities to VANS at LRIC rates and at wholesale rates

18. Facilities Leasing (3/3) • Resolution • A provision similar to section 44(7) of Telecommunications Act (for ICASA to authorise VANS to self provide when PSTS unwilling/unable) must be incorporated into the Bill • Grounds of refusal to be limited to technical infeasibility and the words “financially feasible” in section 42(5) of the Bill must be deleted • ICASA should be authorised to make regulations regarding obligations of SMP licensees and conditions applicable to facilities leasing arrangements (at LRIC, wholesale etc.) • Remove subscriber facilities leasing agreement from ICASA lodging requirement

19. Interconnection (1/3) • Proposed: • Obligation to interconnect is only of application to communications network service licensees • Issue: • Exclusion of communications service licensees from the interconnection framework has effect that such licensees will be precluded from obtaining interconnection or access services from communications network service licensees • Special need to ensure VANS licensees brought within interconnection framework of Chapter 7 • VANS unable to provide own facilities so access or interconnect to communications • Network service licensees are essential for provision of services: no justification to remove communications service licensees from interconnection regime provided for under the Telecommunications Act • Would be a deprivation of rights if VANS lose existing right to enter into connection arrangements • No international precedent for excluding communications service licensees from participating in interconnection arrangements under a converged communications sector. ‘‘interconnection’’ means the physical or logical linking of communications networks of two communications network service licensees;

20. Interconnection (2/3) • Resolution • Communications service licensees will be required to access the networks of communications network service licensees and other Communication Service Licensees to provide services over such networks to end users: • Bring communications service licensees within ambit of Chapter 7 of Bill (and amend section 37(1)) • Need a pricing model that will remove barriers • fully distributed cost, long run incremental cost, etc to produce satisfactory outcomes. • Provide for fair recourse where there is deliberate and prolonged negotiation and provisioning of interconnect service

21. We need to Interconnect (3/3) Value-added network services; a multi-channel distribution; a carrier of carriers; common carrier services; public switched telecommunication services; and any other services designated in the related legislation, any regulation or licence as a telecommunication service. international telecommunication services; local access telecommunication services; mobile cellular telecommunication services; multimedia services; national long distance telecommunication services There has to be a link CSP Value-added network services; a multi-channel distribution; a carrier of carriers; common carrier services;; etc Interconnect CNSP Communications Services Providers = CSP Communications Network Services Providers = CNSP

22. Access Services • Proposed: • Bill is silent on access obligations to be imposed on communications network service licensees (both in general, and those with SMP) • Issue: • An issue which affects infrastructure providers e.g. in having access to local exchanges etc. • Regulation of access is of equal importance to that of interconnection and must be dealt with in Bill • Under a converged environment, communications service licensees (and VANS) will be dependent on Telkom/SNO for provision of ADSL last-mile facilities • Telecommunications service licensees currently constrained in provision of ADSL services to end users due to inability to control certain service elements • Inhibitor to broadband (triple play) • Customer currently pays twice: for services of PSTS and services of ISP etc. • Resolution • Unbundling of local loop / last mile services: right to alternatives • Remove significant barrier of access to markets • Access to radio frequency spectrum also required as an alternative • Separate Service Platform and Access Platform (e.g. Telkom ADSL Bundle with SAIX)

23. Conclusion “….. we must acknowledge the fact that telecommunication prices have been identified as one of the important barriers to achieving our investment goals, promoting foreign direct investment, and stimulating growth in the economy particularly in call centres and in the business process outsourcing markets segments. This also further acts negatively against our thrust to create more jobs and reduce unemployment. The pricing structure of telecommunications is vital, especially as it affects the poor, specifically in the take up of phone services and, of course, the Internet. The high cost of telecommunications, as well as the inability to extend fixed line services to the overwhelming majority of the people, are major barriers to achieving the necessary critical mass that would impact positively on our economic growth path.” - Deputy Minister of Communications – Mr R L Padayachie (July 2005)

24. Conclusion • Convergence of technologies is a major international trend • No distinction between voice and data • Data can be text, voice, video, pictures, music etc. • Advent of ‘triple play’ provision of voice, data, video by single provider • Competition amongst Internet service providers, telephony providers and cable television providers to address all these areas • Legislation has to date: • prohibited T-Systems from bringing international offerings to SA • Made pricing between South Africa and other international locations artificially high • Reduces attractiveness of South Africa from investment point of view and as offshoring location • Convergence Bill goal: to stimulate competition, drive prices lower, make affordable to consumers, improve call center market & attractiveness of SA • Goes some way, but problems with definitions, licensing, right to self provide, interconnection, access and facilities leasing • Difficulties must be addressed if we are to move away from the scenario described by the Deputy Minister of Communications and if we are to provide for a truly competitive environment