Welcome to the Telkom Spectrum Settlement Call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal for an operator by pressing star then zero. Please note, this call is being recorded. I'd now like to turn the conference over to Serame Taukobong. Sir, go ahead, sir.
Thank you, Madame. Good afternoon, everyone, and good morning to those in the U.S. With me, I have our Group CFO, Mr. Reyneke, the Telkom Consumer CEO, Lunga Siyo, and our Head of Regulatory, Dr. Siyabonga Mahlangu. Also with us is the head of the Investor Relations team, led by Bhavel Govender and the team. For the purpose of today's conference call, is to discuss and shed some color on the out-of-court settlement with ICASA. The call will flow as follows: I will start by giving a summary of the settlement reached with ICASA. Sia will discuss how the settlement satisfies Telkom's complaints that led us to adopting the legal route. And then I will come back and conclude before we hand over to the operator for Q&As.
So in essence, Telkom and ICASA have reached an out-of-court settlement, which ends the High Court litigation over the licensing of the high-demand spectrum. The parties have agreed that Telkom, Telkom will withdraw the court application and that each party will pay its own legal costs. ICASA has, in turn, undertaken to do the following: One, commencing with the licensing of the spectrum that remained unassigned in the auction, by no later than the 30th of June, 2023, and that this licensing process will be concluded within the current financial year. Secondly, in its licensing of the unassigned 800 MHz spectrum, ICASA will have regard of the outcome of the recently concluded auction, the imbalances in the sub-1 GHz, and the need for more competition in the post-auction dispensation.
Thirdly, ICASA will also conduct a study on the impact of a possible secondary market of spectrum on competition, and if necessary, provide an adequate and enabling. Telkom is in good faith entered into a forward-looking settlement, providing ICASA the opportunity to resolve current market challenges identified by competition authorities, while allowing operators to focus on the business of providing superior services to all their customers. I will now hand over to Sia to unpack the benefits of the settlement and how it responds to Telkom's complaints. Siya, over to you, sir.
Thank you, Serame. Good morning and good afternoon to everyone. The settlement agreement addresses two principal complaints that Telkom had. One of those is that the design of the auction unfairly restricted Telkom in its quest to create for spectrum that is required. That's the first one. The second issue, in summary, would also be the view that the regulator brings to competition. In our view, the need for ICASA to consider the competitive effect of spectrum arrangement and also of the licensing of spectrum in general on the market is those two things were critical in understanding the approach to Telkom's litigation. Those are the two issues, the unfair restriction and the failure to consider the competition impact of licensing spectrum. What does this settlement do for Telkom, or what does it create?
So if you've been following on the media and elsewhere, Telkom is on record that all we needed was to bid for an additional 20 or 50 MHz. So the agreement by ICASA, that it will commence the licensing process, will give us the opportunity to acquire at least 20 MHz of unassigned 800 MHz. We will have that opportunity, and we will then compete with the others, for that. So that is the opportunity that you'll recall we were deprived of, and now we have it. And we also believe that ICASA's undertaking on looking into the methods of competition, goes a long way in allowing the, the industry, and actually ICASA, I mean, Telkom, to then present its views on the impact of this auction on the market, competition, and the future.
So that when, whenever ICASA deals with spectrum, spectrum arrangements, the secondary market for spectrum, then it has a clearer understanding of the impact of that on competition and market dynamics in the mobile market. So we are confident that the undertaking by ICASA will at least reach some form of finality, and will provide some form of substance onto the queries that we had, because there's no longer a debate about how the auction would land. Lastly, the auction happened as predicted by Telkom, and can add in our position to ICASA. So the inquiry or study will look at how the outcome of this auction, based on HHI and total competition, and see how it reshapes or concerns or influences the market structure, and whether ICASA should in any way intervene.
If ICASA reaches that conclusion, we are confident that we will be part of that solution on finding out what kind of regulatory inter-intervention would be necessary. What does this give to the settlement? What does it give to the sector and society? In our view, that is that for the operators, it gives certainty on how much an operator will pay for spectrum. At least we know that, that now, and that has been settled. And it also gives certainty on the validity of the process.
So with ongoing litigation, there would forever be questions or question marks about the validity of the process. Now there is certainty, because the matter has been concluded, and the operators can take a longer term view or longer term investment decisions on their networks. They can plan capital with at least excluding the litigation as a variable that would impact on those decisions. I will now hand back to Serame to conclude. Thank you.
Thank you, Siya. Just in closing, ladies and gentlemen, I think as a principle, no company seeks to have regulatory processes supervised by a court. It certainly goes against fair market principles and would set rather dangerous precedent. However, I think it was important for us, for the principle of matter to be heard. I think the developments, certainly post the auction, painted a picture which was different to when we entered court, I guess, on the January 4th.
Given the changes that we've seen in the market, we thought that was an opportunity to agree a forward-looking agreement with ICASA. I think the context in which we've agreed enables us to do this, and we've also agreed with ICASA to a very tight implementation schedule. I think continuously for us, it's very important that we do have a continuous and positive spirit of engagement with the regulator. I will now hand over to the operator for any Q&A. Thank you.
Thank you very much, Sir. Ladies and gentlemen, if you would like to ask a question, please press star then one on your touchtone phone or on the keypad on your screen. If you decide to withdraw the question, please press star then two to remove yourself from the list. Again, if you would like to ask a question, please press star then one. We will pause to see if there are any questions. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star then one. If you'd like to ask a question, please press star then one. We will pause to see if there are any questions. The first question comes from Zintle Ramano from Taquanta Asset Management. Please go ahead, Zintle.
Thank you for the opportunity. So, I just have two questions. The first one being, you mentioned the spirit of engagement. So, it's quite a tight implementation deadline. So between these next two, three months, before end of June, you and ICASA going to see eye to eye in terms of any changes that you would make in terms of, you know, looking at the outcome of the sixth term.
T he mobile broadband services inquiry, et cetera, and you're going to see eye to eye. Is it back to the court application and the litigation, or what should we then expect from there? And then in terms of-- I just want to get clarity on the WOAN, because that was one of the concerns at some point. Are you happy to just wait it out on the WOAN in terms of, how that progresses? Whenever it happens, it happens. Those are my two questions. Thank you.
Thank you, Zintle. On the first one, I think the timelines are set to the best commitment, understanding that this process involves engagement, not just with Telkom, but with other operators as well. But you're absolutely right. And I seek an extreme correction from my learned doctor here. If the process is delayed, and we're not getting the results that we require, as I've said, the court is not always the first point of call, but it is an available point of call. So Siya can even confirm that as well. On the WOAN, I think what's important for us is that the WOAN, obviously, developments happened literally on the day the auction started.
What's key with the settlement is to focus on the matters that pertain to the auction, which is the unsold inventory for the suburbs and other inventory, which is our cohorts. The WOAN process itself is going to be quite a lengthy process, and we will wait for that, to unfold, because that just doesn't only impact Telkom but also all the other operators. So the WOAN is going to be quite a long, lengthy process. It has to come from the policy maker, which is the minister, and also how then the regulator, in this case, administer the process resulting from the award. I hope, Zintle, I've answered your questions?
Yes, thank you. You have.
Perfect.
Zintle, do you have any follow-up questions?
No follow-up questions. Thank you.
Okay, thank you. The next question comes from [Myron Murathanam from Lib Squad]. Please go ahead, Myron.
Thanks, and good afternoon, guys. I've got two questions. Just hearing what you said about the way the auction may be structured, you know, it sounds like the your government peers won't get any opportunities to bid for the available new spectrum. Is that correct? And does that mean now you might still compete against some of the previous, what I may call, auction competition, like from Cell C and Rain? They might still also bid for that spectrum. So that's the first question. Sorry, there's a plane going above me. The second one is, now, what's my second question? Maybe you can answer my first question, and I'll come back to you on the second.
No problem. I think that would be... I'm not going to dictate what process ICASA has to follow. What we have indicated in, especially in consideration of competition, is a similar approach which was taken in the auction way at the auction draft, which then addresses the imbalance of the sub-one gig. So, what is being crudely called the theme of the previously disadvantaged , because it did not have access sub-one gig, which would then line up competition in that regard.
ICASA also is looking at other spectrum bands, which is another variable in the auction, but could be also available beyond just the sub-one gig. So these other bands also are available. So in essence, it would be a preferred, but obviously this is a consultative process, which is part of the openness that we and ICASA have to engage with the market with. I hope that answers you, Myron.
Yes. Thanks, Serame. The second question is, you know, you, maybe you could explain it like you'd explain it to a grade one student. What is this secondary market that you're talking about in both the SENS announcement and in your call earlier? Because we don't, we haven't got that in South Africa. So what might it be? Can you flesh that out a little bit for me?
I think when we part of our legal issues, that when the caps were put on Telkom, it did not take into consideration the fact that there was spectrum sharing agreements at the secondary markets. So we know that there are spectrum sharing agreements between an MTN and Cell C, Vodacom and Rain. So when ICASA created those bands, it did not take the full impact of those spectrum sharing agreements, because that is the full access that people are commercially utilizing, that people have commercial value to. So when we talk to the secondary market, we talk to spectrum sharing agreements in simple layman's language.
Yeah. Perfect. That's very helpful. Thank you.
Okay.
Thank you. Ladies and gentlemen, just one final reminder. If you'd like to ask a question, please press star then one. If you'd like to ask a question, please press star then one. We will pause to see if there are any further questions before we conclude. The next question comes from Samantha Hartard from Ninety One. Please go ahead, Samantha.
Thank you, and good afternoon, everyone. I just want to check on the timing of your access to the spectrum bands. We know that there's this long-standing issue of it freeing up all the access or all the, what's it? The capacity on the sub-1 GHz band, and there was that separate court case hearing with e.tv, that the government can go ahead and, you know, hard turn off all free-to-air television by the June 6th. When do you think you will really commercially be able to start using that spectrum?
And secondly, you know, one of your other issues was, well, anything in the 2 GHz band range was already available for, you know, your peers to use. It's unfair that they could, you know, readily access those, but not the sub-1 gigahertz that you need more. Just touch base on the timing of when everybody will be able to commercially use the different bands, please?
Thanks, Samantha. So I can break that into different... Let me take this simple. So if we take the spectrum that Telkom have access to in the auction, so the 800, there's actually three lots in that, lot one, two, and three. Currently, we were using lot two, which was allocated to us in the temporary spectrum process. It wasn't the cleanest of the bunch. Through the assignment process, which happened, I think, two weeks ago, MTN had the choice to, obviously, as the highest bidders, choose which lot they wanted.
They went for lot two, which opened up lot three for us. Lot three in the sub-1 GHz, in the 800 segment, is the most relatively cleanest of the lot. It's not 100% clean, but I think a good 65% of that can be used immediately. And obviously, as the ETV matter unfolds itself, that will also start clearing up. So, on triggering of and what we've now been given assignment, as we get the licenses, these are where 65% of that 800 that we currently got will be available.
I've seen the second batch of the first one, which will go through this process that we've discussed. That will become available as the migration from analog goes to digital. So in the auction that we bought, to answer your question, we believe at least 65% of that is already available to be used right now. It's something that, from a configuration perspective, it's a simple back office configuration because we're already using the 800, which was given to us as part of the temporary spectrum allocation. I hope I've answered you there, Samantha?
Yes, that's perfect. Thank you.
Thank you.
Samantha, do you have any further questions? No, that's all. Thank you. Okay, thank you. The next question is a follow-up question from Myron Murathanam . Please go ahead, Myron.
Thank you. Can we also... Maybe Dirk can chat a little bit about the balance sheet capacity to buy any potential or, to get any more potential, spectrum from ICASA?
Yeah, I think as Dirk is talking, so Dirk is on holiday and he's actually checking in from home, but he's trained me well.
Sorry. Sorry, I did, I did answer, but I was on mute. Hello, Myron, how are you?
Okay.
My name here.
No problem. So I don't know the best answer on behalf of Dirk, but, Dirk, you can go ahead.
Yeah. I think, Myron, if you look at the reserve prices and, and then the premiums over reserve prices in the first round, we're comfortable, you know, for, for the, for the actual auction, we did our calculations, we looked at our capacity, and I've said all along that in the current capacity we can fund. We still have a view that, that even off, you know, with the, the pricing we got in the first round, that we will have sufficient to, to fund out of current facilities. And then as part of our normal CapEx and funding structure, we will look at what do we refinance and, and, and what we activate. But out of current facilities, we're comfortable that if the pricing is at all in line with what it was in round one, then we should be okay.
Perfect. Thank you.
Thank you very much. Serame, at this time, we have no further questions in the queue. Can I hand back to you for closing remarks, sir?
Thank you very much, Madam. Thank you very much, all, for dialing in. We appreciate the time that you've given us. Please, if you do have any further questions about the team, we'll be more than happy to help you with this. So I wish you all a wonderful afternoon and morning. Thank you very much.
Thank you very much. Ladies and gentlemen, we conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.