Any change of control in an entity which holds an individual electronic communications service licence, individual electronic communications network service licence or radio frequency spectrum licence requires the prior written permission of the Independent Communications Authority of South Africa (ICASA).
Radio frequency spectrum licences
The Radio Frequency Spectrum Regulations 2015 set out the process which must be followed to apply for ICASA’s permission to transfer control of a radio frequency spectrum licence. These regulations set out the form of the application and the criteria applied in assessing it. Certain conditions must also be met. For instance, ICASA may not approve the transfer where the transaction will not promote competition or if the transfer will result in the reduction of equity ownership held by historically disadvantaged persons to below 30%, or lower the transferor’s current BEE level.
“Transfer of control” is not defined which makes it difficult to ascertain in what circumstances ICASA’s approval will be required. In the context of a change of shareholding, section 2(2) of the Companies Act 2008 could be applied. Section 12 of the Competition Act 1998 may also be relevant for determining what constitutes a transfer of control.
In our view, if any entity acquires the ability to exercise material influence over the strategy of a licensee, approval will be required.
The application process to transfer individual licences is less clear. Draft amendments to the Individual Licensing Processes and Procedures Regulations 2010 to cater for the transfer of control of individual licences have been published but have not yet been finalised.
The proposed regulations define “control” as contemplated in the Companies Act 2008 and “transfer of control” as meaning “the transfer of shareholding in the issued licence to a new shareholder.”
The definition of “transfer of control” is problematic in several ways, given that it is the licensee and not the licence which may have shareholders. Furthermore, the licensee may be an entity which does not have shareholders (such as an individual). It also does not fully encompass the various ways in which changes of control may occur and fails to specify what percentage of the shareholding must be transferred before the change constitutes a “change of control”.
It is therefore likely that these draft regulations will require substantial amendment before coming into force. Until such time as the amendment regulations have been finalised, there is no clear procedure for the transfer of control of an individual licence.
Failure to obtain permission
A failure to obtain ICASA’s prior written approval for the transfer of control of a licence may attract a fine of up to R5 million or 10% of the licensee’s annual turnover for every day that the offence continues. Where the licensee is found guilty of material violations, ICASA may revoke the licence. Whilst ICASA has not, as yet, exercised its power to revoke licences, licensees would be well advised to ensure that they get written approval in circumstances where there is a change of control in a licensee.