Race issues arise in South Africa spectrum auction

Race and shareholding issues are stirring controversy in South Africa's inaugural spectrum auction, as the country seeks to set the pace in the bandwidth allocation process in Africa.

Previously, as in many African countries, spectrum allocation was done through ad hoc processes where operators applied behind closed doors and the public would only be informed of the results once everything was finalized. Though allocation procedures are more transparent now, some issues remain unclear.

South Africa is unique because it has a law -- commonly known as the BEE, or the Black Economic Empowerment law -- requiring a percentage of the company to be held by people of color. The BEE requirement is unique to South Africa, given the years of apartheid and alienation of the racial majority in many big corporations. Many big companies have yet to fully comply with the BEE.

"ICASA [Independent Communications Authority of South Africa] has sought to exclude operators that it considers to be dominant in the telecom sector in favor of allowing new competition into the sector particularly from BEE-held operators," said Tinyiko Valoyi, CEO of Mavoni Telecoms, a company operating in several African markets.

But while the auction process appears to be favoring BEE, ICASA it has not said publicly whether the requirement will be fully enforced or not. Meanwhile, the big operators are preparing special purpose vehicles with the required 30 percent BEE shareholding in order to get spectrum allocation.

"Unfortunately the regulator has kept everyone guessing regarding the auction requirements and in the end, it may have played into the hands of the dominant players who are likely to be the only ones able to prepare a bid in a short space of time," added Valoyi.

Apart from BEE, ICASA has said that companies that have a shareholding in smaller companies that already have spectrum will not be eligible for new allocation. For instance, Vodacom had to sell its shareholding in iBurst, a local Wimax operator, in order to qualify for new allocation under this rule.

It is still not clear which companies will get the allocations and whether the dominant mobile players will be left out as the country seeks to increase competition in the ICT market.

While the BEE requirement is unique to South Africa, other African countries appear to be favoring locally owned companies, which poses a challenge to foreign investors hoping to enter the spectrum market. However, efforts toward regional harmonization of telecom policies have not happened.

The difference in the level of technology development between countries has scuttled the process of harmonization as some countries fear domination by businesses from neighboring countries. For instance, the East Africa Community has been slow in adoption of harmonized policies because Tanzania and Uganda fear influx of businesses and workers from Kenya, which is considered more advanced.

In addition, the role that should be played by intergovernmental bodies such as the Africa Union, Southern Africa Development Economic Community, Economic Community of West Africa and East Africa Community is still subject to debate.