By Lisa Thornton

The Independent Communications Authority of South Africa (Icasa) is in a regulatory vacuum when it comes to considering the proposed merger transactions by Neotel/Vodacom and Business Connexion/Telkom. To avoid the consequences of making decisions in that regulatory vacuum, Icasa must first amend its regulations to make them applicable to transfers of control of licences.

In April 2014, President Jacob Zuma assented to the Electronic Communications (EC) Amendment Act, which came into operation May 21, 2014.

Two days later, Icasa issued a media release noting “the ongoing media reports of potential mergers and acquisitions” and warning that “all such deals may require regulatory approval”.

Interestingly, prior to the day the amendments took effect, transfers of control did not require the prior approval of Icasa; only a notification to Icasa was required in terms of Icasa regulations if there was a change of ownership.

With the amendments, new provisions were inserted into the EC Act to require prior approval before transferring control of licences (both service and spectrum licences).

Unfortunately, however, despite Icasa recognising its obligation to consider applications for transfers of control of licences, it has not amended its regulations to account for this.

In 2010, Icasa made Procedures Regulations and in 2011 Spectrum Regulations, which set out the procedures for applications for transfers of licences. The regulations do not deal with transfers of control because, at the time the regulations were made, transfers of control did not require prior approval.

On September 15, 2014, Icasa gave notice that it had accepted an application for the transfer of control of all Neotel (including all of the Neotel licences).

Similarly, but in more detail, on November 27, 2014, Icasa gave notice that it had accepted an application for the transfer of control of the licences of the subsidiaries of Business Connexion Group to Telkom. Icasa stated that the application was submitted in terms of section 13 of the EC Act.

No reference was made in either notice to the provisions of the EC Act concerning spectrum licences.

Further, no reference was made to regulations that are required to be made in terms of Section 13 (or regulations that Icasa is authorised to make in terms of the provisions of the EC Act concerning spectrum licensing).

Although it has not amended its procedural regulations, on October 10, 2014, Icasa published a warning to iECS and iECNS licensees that transfer applications will not be approved “which do not have 30% equity ownership by historically disadvantaged groups (HDGs)”, if filed after the publication of the warning.

Some interesting questions arise as a result of the publication of this warning. Does the warning amend the Procedures Regulations, which state that Icasa has the authority to approve (or not) transfer applications with less than 30% ownership by HDGs? If so, is Icasa not constrained to follow the regulation making procedures set out in the EC Act?

Does the warning apply to transfers of control? Indeed, Icasa referred to the warning in the Telkom/Business Connexion notice and then stated that the “Telkom/BCG application was submitted to the authority on August 29, 2014”.

Why are those that fortuitously submitted applications prior to the warning date to be treated differently (under the same EC Act provisions) from those that submit later? Is this justifiable unequal treatment?

Over the years of Icasa’s existence, the authority has been challenged in court on a number of its decisions, mostly on procedural grounds, and most, if not all, of the time, the courts have ruled that Icasa acted in a manner that was not in accordance with the required procedural mandates. If Icasa continues down the path it is on in its consideration of the Neotel/Vodacom and Business Connexion/Telkom transactions, it runs the risk of another successful court challenge, no matter what decision it makes.

Thornton is the founder of Lisa Thornton Inc, a South African law firm specialising in information and communication technology law - lat@thornton.co.za