Recent months have seen important developments in the development of the policy framework for the regulation of ownership and control in the Information and Communication Technology (ICT) sector with the publication of the draft ICT Sector Charter by the Minister of Trade & Industry for public comment on 10 June 2011 and the publication by the Independent Communications Authority of South Africa (ICASA) of its Findings Document on the Review of Ownership and Control of Commercial Services and Limitations on Broadcasting, Electronic Communications Services and Electronic Communications Network Services (Findings Document) on 15 September 2011. A copy of the draft ICT Charter can be accessed here and a copy of the Findings Document can be accessed here.

The draft ICT Charter was published in terms of the Broad-based Black Economic Empowerment Act 53 of 2003 (BBBEE Act).  Once finalised, the ICT Charter will be published as a sector Code of Good Practice in terms of the BBBEE Act and will govern black economic empowerment (BEE) initiatives in the ICT sector.  The Charter will, as such, be applicable to all participants in the telecommunications, broadcasting and technology sectors in South Africa whose BEE scores will be measured in terms of the ICT Charter rather than the Generic Codes of Good Practice and generic scorecard.  In terms of the BBBEE Act, all organs of state and public entities, including the sector regulator, ICASA, will be required to take the ICT Charter into account when: determining qualification criteria for the issuing of licences, concessions or other authorisations to ICT enterprises, developing and implementing preferential procurement policies, determining qualification criteria for the sale of state-owned enterprises and developing criteria for entering into partnerships with the private sector.

The draft Charter indicates that it will be in effect until 31 March 2026 with a mid-term review being conducted in March 2016. If any changes are made to the Generic Codes of Good Practice, the ICT Charter will be amended to align it with those changes.

The ICT Charter includes a sector-specific scorecard to be used to determine the BEE scores of enterprises in the ICT sector. This scorecard includes the seven standard elements of BEE: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development (SED) initiatives. The targets set for certain of these elements and the relative weightings that are given to them are different from the targets and weightings in the generic scorecard. In particular –

• The target for effective ownership by black people in a measured enterprise (comprising voting rights and economic interest) is set as 30%. The target in the generic scorecard is 25%. As provided for in the Generic Codes of Good Practice, ownership points may also be scored where an enterprise concludes a transaction for the sale of assets that results in the creation of sustainable business opportunities for and the transfer of specialized skills or productive capacity to black people. Multinational corporations with business interests in South Africa may also score ownership points by participating in approved equity equivalent programmes in the ICT sector.
• Skills development is given a weighting of 17 points. In the generic scorecard, skills development is given a weighting of 15 points.
• The weighting given to enterprise development is 11 points whereas it is weighted at 15 points in the generic scorecard.
• SED initiatives are given a weighting of 12 points in the ICT Charter scorecard.  This is a significant increase to the weighting of 5 points that is given to such initiatives in the generic scorecard.  SED initiatives are aimed at improving the lives of communities through, for example, providing ICT services in the education and health sectors and in rural areas (the draft Charter refers to the goal of bridging South Africa’s “digital divide”).  The compliance target is the expenditure of 1.5% of an enterprise’s operating profit after tax on SED initiatives.  SED initiatives may be monetary or non-monetary, provided the contributions are aimed at facilitating the beneficiaries’ sustainable access to the economy.

An important feature of the ICT Charter compared to the generic Codes of Good Practice is that, if the rand value of the total BEE stake is in excess of R7.5 billion, the measured enterprise is considered to comply with the equity target.

If the measured entity is listed, it appears that the ownership points calculation excludes the minimum required free-float (20%) from the total number of issued shares.  In other words, for a listed company, it seems that the target is 30% of 80% i.e. 24%.  However, the sub-minimum is 25.1%.  In short, it seems that the proposed BEE ownership target for listed companies is 25.1%.

The draft ICT Charter provides for a transitional period of one year until it becomes binding.  A transitional scorecard will apply during the transitional period.

In addition to being governed by the ICT Charter, many participants in the ICT sector are regulated by ICASA in terms of the Electronic Communications Act 36 of 2005 (ECA) where they provide telecommunications or broadcasting services and/or operate electronic communications networks.  Unless they have been exempted from the applicable licensing requirements by ICASA, an enterprise requires either an individual or a class licence from ICASA in order to provide telecommunications and broadcasting services and/or operate networks.  In regulating the sector and issuing licences, ICASA is required in terms of the ECA to promote the empowerment of historically disadvantaged persons (HDPs) in accordance with the requirements of the ICT Charter. 

In addition to the requirements that will, in due course, be imposed by the ICT Charter, many licensed entities in the sector are already subject to ownership requirements in terms of the ECA.  In this regard the ECA provides that any applicant for an individual licence (which is required to provide telecommunications and broadcasting services and networks of a larger scale and scope e.g. voice telephony services, commercial radio and television broadcasting  services, and national and provincial electronic communications networks) must have at least 30% ownership by HDPs.  The difference between the ECA and the draft ICT Charter is that the category of persons who are regarded as HDPs for the purposes of the ECA is wider than the category of persons who may benefit for the purposes of the draft ICT Charter.  For the purposes of the ECA, HDPs includes black people, women, the disabled and the youth, whereas the draft ICT Charter relates only to the empowerment of black people. 

Another significant difference between the current requirements of the ECA and the requirements that will be introduced in terms of the ICT Charter is that the ECA ownership requirements presently apply only to applicants for individual licences.  By contrast, the ICT Charter will apply to all participants in the sector, including smaller class licensees and exempted entities.  (Enterprises which require only a class licence to provide telecommunications and broadcasting services and/or networks include entities which provide telecommunications services other than voice telephony services, such as internet service providers, network operators of networks of only municipal scope, and community radio stations. Exempted entities include resellers of telecommunications services). 

ICASA initiated a policy development process in November 2009 with the aim of developing new regulations to govern ownership and control of the telecommunications and broadcasting sectors and to provide for further requirements in relation to ownership by HDPs, including black people.  ICASA’s Findings Document provides, amongst other things, that:

• The ECA will be amended in due course to align it with the BBBEE Act.
• All large telecoms and broadcasting licensees should be subject to an obligation to have at least 30% of their equity held by HDPs and such a requirement will be introduced by regulation. This will mean that it will no longer only be applicants for licences that will be required to have a particular level of HDP ownership.  Other than what is stated below in relation to listed companies, this requirement is consistent with the target that is set in the draft ICT Charter.
• Where existing licensees do not comply with the 30% HDP ownership requirement they will be given a grace period of between 18 and 24 months to comply.
• ICASA has indicated that it will continue to monitor changes in ownership interests. It is not clear what level of ownership interest will trigger an obligation to notify or obtain prior approval. At present, any direct shareholding changes in a licensed entity itself must be notified to ICASA post-transaction but a requirement to obtain approval for ownership changes above a certain level is likely to be reintroduced.
• ICASA has made the decision that a 25% shareholding will constitute control of a licensed entity.  This is consistent with what is provided for in ICASA’s 2006 Ownership and Control Regulations in relation to telecommunications operators and service providers and what was previously provided for in the Independent Broadcasting Authority Act 153 of 1993 (which was repealed by the ECA) in relation to broadcasting service licensees.
• Listed and unlisted companies will be treated in the same way. As such, there will be no exemptions for listed companies that hold telecoms licences or broadcasting licences. (The licences of most of the major listed telecoms operators and broadcasters are not held by the listed entity but instead by a subsidiary of the listed entity.)  As described above, however, the draft ICT Charter contemplates that listed companies in the ICT sector should comply with a 25.1% BEE ownership target.  The Findings Document, on the other hand, suggests that 30% of the issued shares in a licensed entity must be held by HDPs, which could potentially require listed companies to introduce additional BEE measures at the level of their licensed subsidiaries.
• The current 2006 Ownership and Control Regulations are to be revised to clarify the issues that have arisen in relation to their continued application since the enactment of the ECA.
• The imposition of limits on foreign ownership of telecoms operators has not been ruled out. ICASA has indicated that it will "investigate the national stance on this matter" and, in particular, the views of the Departments of Communications and Trade & Industry and National Treasury (NT), in the context of the policy formulation process that is being undertaken by NT and the country's obligations in terms of the WTO agreements. In this regard, ICASA noted that foreign ownership restrictions in the context of the telecoms sector were not deleted in South Africa's commitments under the WTO agreements. ICASA has indicated that transfers of ownership interest in licensees must be restricted so that they do not reduce empowerment requirements, conflict with the requirement to ensure that telecoms and broadcasting services, viewed collectively, are effectively controlled by South Africans, or "ignore public interests pertaining to strategic institutions as identified by the [NT] (See "A review framework for cross-border direct investment in SA 2011")".
• The limit on foreign ownership of broadcasters, which is currently 20%, will not be diluted and exemptions will not be considered.