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Advisory

ICASA publishes findings on equity ownership in the ICT sector

ICASA acknowledged that class licensees have been excluded from empowerment obligations in order to encourage participation in the market by small and medium enterprises (SMMEs). However, it was also acknowledged that while class licenses were initially intended to capture smaller entities, the market has changed significantly. Although ICASA is not empowered to apply minimum equity requirements on class licensees, it is ICASA’s position that, going forward, class licensees will be required to comply with the revised ICT Sector Code and will need to maintain a mandatory minimum B-BBEE status level that would be assessed annually.

  • Should ICASA consider income levels and size of the entity as criteria for differentiation in the imposition of the HDG requirement?
  • A 30% HDG equity requirement should be applicable to all individual licensees, regardless of their size or income level. HDG equity requirements do not apply to class licensees.
  • Should the minimum legislated requirement remain at a 30% HDG equity requirement?
  • ICASA’s position is that the 30% equity ownership requirement should remain, and will apply to applications for new licences and to applications to transfer, renew and amend licences. ICASA will monitor compliance to ensure that the mandatory minimum equity ownership requirement is maintained over time.
  • Should ICASA require licensees to seek prior approval in instances where a change in shareholding results in a reduction of equity ownership by HDGs below 30%? ICASA’s position is that the equity ownership level should not be permitted to fall below 30%, and penalties will be imposed if a licensee’s equity ownership falls below 30% as a deterrent to non-compliance.
  • How should the HDG equity ownership requirement be applied to publicly traded entities?
  • ICASA is of the view that the minimum equity requirements must apply to all individual licensees, including listed entities. ICASA will engage with independent verification agencies to determine what proof would be adequate to demonstrate such ownership.
  • What proof should ICASA consider appropriate to confirm compliance with the HDG requirements?
  • ICASA’s position is that a certificate issued by a recognised and accredited verification agency will be appropriate to confirm compliance with empowerment requirements, particularly given the fact that, going forward, licensees will be required to submit B-BBEE verification certificates on an annual basis to demonstrate B-BBEE compliance. ICASA is further of the view that verification agencies can also issue a separate certificate verifying that an entity has achieved or maintained the mandatory minimum equity requirement.
  • What proof should ICASA consider appropriate to confirm compliance of publicly traded entities with the HDG requirements?
  • ICASA is of the view that a valid B-BBEE certificate would suffice for publicly traded entities to demonstrate compliance. Such information can be submitted by licensees as part of the annual compliance process.
  • How should ‘control’ be defined?
  • ICASA favours both a direct and indirect definition of control, so that control of a licence at all levels of a corporate structure is captured.
  • Should ICASA define ‘ownership’?
  • ICASA is of the view that ownership is relevant to the equity ownership requirement, and that a flow-through principle of ownership should apply. ICASA might consider referring to this as ‘ownership interest’ rather than ‘ownership’. The concept of ‘ownership interest’ can be direct or indirect, and might better capture the equity requirement.
  • Should the transfer of 100% share capital in a licensee amount to transfer of control or transfer of ownership?
  • ICASA is of the view that a transfer of 100% of the issued share capital in a licensee amounts to both a direct transfer of ownership and a direct transfer of control of the licensee. It also results in the indirect transfer of control of the licence, which is directly controlled by the licensee.
  • How should ICASA comply with the requirement in the ECA to promote B-BBEE and the requirement in the B-BBEE Act, 2003 for organs of state and public entities to apply the relevant sector codes?
  • ICASA is compelled to apply B-BBEE and require stakeholders in the industry to comply with its B-BBEE requirements should they wish to operate in the sector. ICASA is of the view that a mandatory minimum equity ownership requirement is not in conflict with the tenets of empowerment under the B-BBEE Act. ICASA indicated further that a mandatory minimum B-BBEE Status Level Six will be compulsory for all licensees, which must be maintained for the duration of the licence.
  • Should ICASA apply B-BBEE requirements to all applications?
  • ICASA’s position is that while it would be overly cumbersome to apply B-BBEE requirements to every application submitted, B-BBEE requirements should be imposed on all applications for service licences.
  • Should ICASA require B-BBEE certificates to be submitted as part of a licensee’s annual compliance requirements?
  • Currently, licensees are only required to submit information related to their HDG shareholding. Going forward, a licence holder will be required to submit a B-BBEE verification certificate on an annual basis confirming that it has maintained the mandatory minimum equity ownership and B-BBEE levels.
  • What should be the minimum level of B-BBEE certification?
  • ICASA’s position is that, going forward, all licensees will need to submit B-BBEE verification certificates on an annual basis in order to confirm compliance. ICASA will also require licensees to achieve a mandatory minimum B-BBEE status level. In ICASA’s view, the mandatory minimum level of compliance will be a B-BBEE Status Level Six.
  • When should HDG requirements be triggered?
  • In principle, ICASA’s position is that its minimum mandatory equity requirement and B-BBEE Status Level Six will be triggered as follows: (i) on application for a licence; (ii) on transfer of a licence; (iii) on renewal of a licence; and (iv) on amendment of a licence. In addition to this, licensees will be required to confirm on an annual basis that they are maintaining the mandatory minimum requirements by submitting a B-BBEE verification certificate. Outside of these regulatory processes, ICASA does not foresee the need to apply empowerment requirements.
  • In response to growing public and government calls for transformation, should ICASA impose timeframes for compliance of all its licensees for requirements for empowerment?
  • ICASA is of the view that the minimum mandatory equity ownership will apply to all individual licences, both new and existing. In addition, the mandatory minimum B-BBEE Status Level will apply to all new and existing licences, both class and individual. ICASA acknowledges that the intended changes may have a significant impact, particularly on licensees who are presently not compliant with the current HDG ownership requirement. As such, ICASA is in favour of setting timeframes for existing licensees to be fully compliant, and might consider ‘sliding-scale’ principles used in other regulatory contexts to front-load compliance. ICASA is open to considering submissions on what period would be feasible for operators.

The Position Paper is accessible here.

Please note: The information contained in this note is for general guidance on matters of interest, and does not constitute legal advice. For any enquiries, please contact us at [email protected].

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