| 15. | Regulation 2 – Purpose of the Regulations |
| 15.1 | This regulation outlines the Authority’s purpose and reasons for publishing the Regulations. This regulation is also aimed at providing an overview of the aspects intended to be covered and/or addressed by the Regulations. |
| 15.2 | The Regulations provide the regulatory framework in terms of which the Authority will promote, verify, monitor and enforce the HDG Equity Requirement in accordance with section 9(2)(b) of the EC Act and B-BBEE in accordance with its obligations set out in the EC Act and the B-BBEE Act. |
| 15.3 | The Regulations seek to facilitate diversity and transformation in the ICT Sector, with particular attention to the needs of women, opportunities for the youth and challenges for persons with disabilities. |
| 16. | Regulation 3 - Application of the HDG Equity Requirement (Section 9(2)(b) of the EC Act) |
| 16.1 | Regulations 3(1) and 3(2) – Class Licence Exemption |
| 16.1.1 | The purpose of these regulations is to confirm that the HDG Equity Requirement set out in section 9(2)(b) of the EC Act is not applicable to Class Licences. |
| 16.1.2 | While section 9(2)(b) of the EC Act is clear, it is prudent for the Authority to confirm in these regulations that the HDG Equity Requirement is not applicable to Class Licences in order to avoid any uncertainty. |
| 16.1.3 | The Authority is not empowered to impose any equity requirements on Class Licensees, however the Authority bears an obligation to promote B-BBEE in granting licences and this obligation is not only limited to Individual Licensees but extends to any licence granted by the Authority. |
| 16.1.4 | Consequently, in order to discharge its obligation to promote B-BBEE in accordance with the ICT Sector Code, the Authority requires Class Licensees to comply with the minimum B-BBEE Contributor Status Level requirement set out in regulation 4(2). |
| 16.2 | Regulation 3(3) – Recognition of B-BBEE Facilitators |
| 16.2.1 | The purpose of this regulation is to recognise and exempt ownership of a licensee that is held by an entity that has been designated as a BBBEE facilitator by the Minister of Trade, Industry and Competition, in accordance with clause 3.6 of statement 100 of the B-BBEE Codes, from complying with the HDG Equity Requirement. |
| 16.2.2 | Equity held by B-BBEE facilitators will be recognised as black equity for the purposes of by SANAS recognised and accredited verification agencies when determining compliance with the Black Equity Requirement. For the purpose of consistency, the Authority will also recognise such equity for purposes of determining compliance with the HDG Equity Requirement. |
| 16.3 | Regulation 3(4) – HDG Equity Requirement |
| 16.3.1 | The purpose of this regulation is to impose the HDG Equity Requirement on all Individual Licensees for the duration of the licence. |
| 16.3.2 | Section 9(2)(b) of the EC Act requires the Authority “to include the percentage of equity ownership to be held by persons from historically disadvantaged groups, which must not be less than 30%”. The Authority has consistently required licensees to have 30% of their equity held by HDGs upon application for any kind of Individual Licence. |
| 16.3.3 | The Authority has noted that not all Individual Licensees have been complying with the HDG Equity Requirement throughout the duration of their licence period. In order to ensure that Licensees comply with and maintain compliance with the HDG Equity Requirement throughout the licence period, this regulation introduces the HDG Equity Requirement as a condition which Licensees are required to comply with during the licence period. |
| 16.4 | Regulations 3(5) to (7) – Annual Proof of Compliance with the HDG Equity Requirement and required documentation to demonstrate compliance |
| 16.4.1 | The purpose of these regulation is to inform Individual Licensees of the documentation that they ought to submit with any application in order to demonstrate compliance with the HDG Equity Requirement. |
| 16.4.2 | The Standard Terms and Conditions for Individual Licences Regulations,4 read with the Compliance Procedure Manual Regulations impose an obligation on Licensees to submit information on an annual basis to prove compliance with their licence conditions and other requirements of the EC Act and other related legislation. |
| 16.4.3 | Licensees are required to therefore report on their compliance with the HDG Equity Requirement when reporting on their compliance in accordance with the Standard Terms and Conditions for Individual Licences Regulations read with the Compliance Procedure Manual Regulations. |
| 16.4.4 | The Compliance Procedure Manual Regulations require Licensees to submit a form 1 in order to report on their annual compliance with the terms and conditions of their licence. Form 1 has been amended to enable Licensees to report compliance with the HDG Equity Requirement and any other requirement as provided for in these Regulations. |
| 16.4.5 | Due to the profile make-up of HDG being broader than the definition of Black People, a B-BBEE Verification Certificate may be used to show compliance with the HDG Equity Requirement as is provided for in regulation 4(3). |
| 16.4.6 | In accordance with the ICT Sector Code, the Authority will recognise and accept the submission of sworn affidavits or a CIPC issued certificate commissioned by or issued to entities eligible to rely on a sworn affidavit or CIPC certificate in accordance with the ICT Sector Code, as proof of compliance with the HDG Equity Requirement. |
| 16.4.7 | A B-BBEE Verification Certificate, sworn affidavit or a CIPC issued certificate commissioned by or issued to entities eligible to rely on a sworn affidavit or CIPC certificate in accordance with the ICT Sector Code, will be accepted as proof of compliance with the HDG Equity Requirement. This is because a B-BBEE Verification Certificate, sworn affidavit or a CIPC issued certificate demonstrates an Individual Licence’s ownership equity held by Black People. Given the profile make up of the HDG, the submission of a B-BBEE Verification Certificate, sworn affidavit or a CIPC issued certificate will also demonstrate compliance with the HDG Equity Requirement. |
| 16.4.8 | In respect of the categories of people other than Black People, that make up HDGs, the Authority require Licensees to submit a credible assurance report issued by a SANAS recognised and accredited verification agency. |
| 16.4.9 | The credible assurance report will provide confirmation of an Individual Licensee’s compliance with the HDG Equity Requirement in respect of such categories of people. |
| 16.4.10 | Considering that the ICT Sector Code and the B-BBEE Verification Manual5 are not applicable to the measurement of the HDG Equity Requirement, the Authority sets out a methodology providing information on how the Authority will assess compliance with the HDG Equity Requirement and the documents that Licensees are required to submit to the verification agent for assessment purposes and issuing the assurance report. The methodology recognises indirect ownership using the Flow-Through Principle. The methodology is set out in Appendix 1 of the Regulations. |
| 16.5 | Regulation 3(8) - Proof of Compliance with the HDG Equity Requirement on Application |
| 16.5.1 | The purpose of this regulation is to inform Licensees of the documentation that they ought to submit with any application in order to demonstrate compliance with the HDG Equity Requirement. |
| 16.5.2 | On 10 October 2014, the Authority published a Notice6 which indicated that the Authority will no longer approve licence transfer applications which do not comply with the HDG Equity Requirement. |
| 16.5.3 | In line with this Notice, the Authority will require Licensees to comply with the HDG Equity Requirement when making any kind of application pertaining to a licence. |
| 16.6 | Regulation 3(9) – Request for supplementary Information |
| 16.6.1 | The purpose of this regulation is to empower the Authority to request any additional information from Licensees in order to satisfy itself that Licensees have truly complied with the HDG Equity Requirement during the licence period. |
| 16.6.2 | The information that the Authority may request is in addition to the information set out in regulations 3(6) and (7). The Authority may only request the additional information within 10 Business Days of receiving a Licensees’ proof of compliance with the HDG Equity Requirement on an annual basis or for purposes of any kind of application pertaining to a licence. |
| 17. | Regulation 4 - Application of B-BBEE Requirements on Licences |
| 17.1 | Regulations 4(1) to 4(3) - Black Ownership Requirement |
| 17.1.1 | The purpose of these regulations is to impose and set out the Black Equity Requirement which Licensees are required to comply with during the licence period. |
| 17.1.2 | The Authority has exercised its duty to promote B-BBEE by ensuring that 30% of the ownership equity of Individual Licensees is held by Black People. |
| 17.1.3 | The Black Equity Requirement does not remove an Individual Licensee’s duty to comply with the HDG Equity Requirement, however given the overlap between the two requirements, the Authority will recognise compliance with the Black Equity Requirement as compliance with the HDG Equity Requirement. |
| 17.1.4 | The Authority determines compliance with the HDG Equity Requirement for entities whose shareholders hold equity in it through other juristic persons such as companies and trusts, by using the Flow Through Principle. |
| 17.1.5 | Similarly, the Authority will determine compliance with the Black Equity Requirement using the Flow Through Principle. |
| 17.2 | Regulation 4(4) - Minimum B-BBEE Contributor Status Requirement |
| 17.2.1 | The purpose of this regulation is to impose and set out the minimum BBBEE Contributor Status Level requirement which Licensees are required to comply with during the licence period. |
| 17.2.2 | This requirement is imposed in line with the Authority’s obligation to promote B-BBEE in accordance with the ICT Sector Code. Individual and Class Licensees will be required to comply with this requirement, compliance of which will be determined by the submission of the prescribed documents set out in regulation 4(8) and 4(9) confirming that Licensees have a B-BBEE Contributor Status Level four. |
| 17.2.3 | For Licensees that do not qualify for enhanced recognition, their B-BBEE Contributor Status Level will be determined by assessing their compliance with the targets set out in the ICT Sector Code. |
| 17.2.4 | For those Licensees that qualify for enhanced recognition, such as EMEs and QSEs, their B-BBEE Contributor Status Level will be determined in accordance with the principles applicable to enhanced recognition as set out in the ICT Sector Code. |
| 17.3 | Regulation 4(5)– Minimum B-BBEE Contributor Status Requirement suspended for existing Class Licences |
| 17.3.1 | The purpose of this regulation is to confirm that the minimum B-BBEE Contributor Status Level requirement is only applicable to existing Class Licensees on the renewal, transfer or amendment of their Licence. |
| 17.4 | Regulations 4(6) to 4(9) – Proof of compliance with Black Equity Requirement and/or minimum B-BBEE Contributor Status Requirement |
| 17.4.1 | The purpose of these regulations is to provide for the documentation that Licensees are required to submit to demonstrate compliance with the Black Equity Requirement and the minimum B-BBEE contributor status level requirements. |
| 17.4.2 | A B-BBEE Verification Certificate indicating a Licensee’s B-BBEE contributor status level as well as the equity ownership by Black People, determined using the Flow Through Principle, will be sufficient to demonstrate compliance with regulations 4(1) and/or 4(4). |
| 17.4.3 | Individual Licensees and Class Licensees that are recognised as EMEs or QSEs under the ICT Sector Code and are entitled to submit a sworn affidavit or CIPC issued certificate in accordance with the ICT Sector Code, may do so provided that the sworn affidavit or CIPC issued certificate confirms: |
| 17.4.3.1 | the Licensee’s annual Total Revenue; |
| 17.4.3.2 | the Licensee’s B-BBEE Contribution Status Level; and |
| 17.4.3.3 | in the case of Individual Licensees, the ownership equity percentage held by Black People determined using the Flow Through Principle. |
| 17.4.4 | To the extent that an Individual Licensee has submitted a B-BBEE Verification Certificate, a sworn affidavit or a CIPC issued certificate to demonstrate compliance with the HDG Equity Requirement, then there will be no obligation to submit an additional B-BBEE Verification Certificate, a sworn affidavit or a CIPC issued certificate to prove compliance with the Black Equity Requirement. |
| 17.5 | Regulation 4(10) – Compliance with the Black Equity Requirement on application |
| 17.5.1 | The purpose of this regulation is to ensure that Licensees are compliant with the Black Equity Requirement and the B-BBEE Contributor Status Level requirement when making any application pertaining to a licence. |
| 18. | Regulation 5 - Dilutions of HDG and B-BBEE Shareholdings in an Individual Licensee |
| 18.1 | The purpose of this regulation is to monitor the effect of equity transactions undertaken by Licensees during a licence period, to ensure that there is no material dilution of HDG/Black equity in an Individual Licence in terms of section 13(3) of the EC Act, to promote the ownership and control of electronic communications services by HDGs and to promote B-BBEE. |
| 18.2 | This regulation will assist the Authority to ensure that Licensees continue to endeavour to promote rather than dilute HDG/black ownership levels. |
| 19. | Regulation 6 - Contraventions and Penalties |
| 19.1 | Regulation 6(1) - Submission of false, misleading or inaccurate information |
| 19.1.1 | The purpose of this regulation is to confirm the submission of false or misleading information to the Authority as an offence, to penalise and set out the penalties applicable to such an offence. |
| 19.1.2 | The offence and penalties set out in this regulation are in line with sections 17H(1)(c) and 17H(3)(a) of the ICASA Act. |
| 19.1.3 | The fine will be determined by the CCC in terms of section 17C of the ICASA Act. The Authority will make a decision based on the recommendations of the CCC in terms of section 17E of the ICASA Act. |
| 19.1.4 | It is important to highlight that the sanctions set out in this regulation are in addition to the provisions of the EC Act and ICASA Act which regulate the consequences of such offences on the granting of licences. |
| 19.2 | Regulation 6(2) - Contravention of HDG and B-BBEE equity requirements |
| 19.2.1 | The purpose of this regulation is to prescribe the maximum penalties applicable to the contravention of both the HDG Equity Requirement and Black Equity Requirement. |
| 20. | Regulation 7 - Transitional Period |
| 20.1 | Regulation 7(1) – Pending Applications |
| 20.1.1 | The purpose of this regulation is to confirm the requirements that will be applicable to applications received before the publication date of the Regulations and to provide for a grace period within which these Licensees ought to comply with the Regulations. |
| 20.1.2 | Any kind of application pertaining to a licence received by the Authority prior to the publication of the Regulations will be assessed in accordance with the current regulatory framework. Licensees awarded licences in this process will have to comply with the Regulations within the stipulated transitional periods. |
| 20.2 | Regulation 7(2) – Applications received during transitional period |
| 20.2.1 | The purpose of this regulation is to confirm that any applications pertaining to licences received during the transitional period will be assessed in terms of the Regulations. |
| 20.2.2 | This will however not extend to provisions of the Regulations that are specifically suspended. |
| 20.3 | Regulation 7(3) – Transitional Period for Compliance with the Regulations |
| 20.3.1 | The purpose of this regulation is to confirm the time period within which Licensees will be required to comply with the Regulations. |
| 20.3.2 | In setting the time periods, the Authority has considered the time period within which it approves any applications pertaining to licences which is 180 Business Days, how long it takes to conclude a sale of shares transaction, and the regulatory approval that may be needed to give effect to the sale of shares transaction. |
| 20.3.3 | The Authority has conducted a regulatory impact assessment ("RIA"), which has confirmed that the cost of regulatory compliance is different for class licensees, SMMEs and large individual licensees. The Authority has noted that the regulatory cost burden on class licensees and SMME individual licences may adversely affect their operations. |
| 20.3.4 | The Authority deems it appropriate to give these types of licensees more time to comply with the Regulations as, amongst others: |
| 20.3.4.1 | some SMMEs have no clear business model that they can readily utilise to increase shareholding so as to comply with the Equity Requirements imposed by the Regulations; |
| 20.3.4.2 | there are monitoring and regulatory costs that these entities will need to factor in and adjust their already low budgets in order to be able to ensure and prove compliance with the B-BBEE Contributor Status Level and Equity Requirements, where applicable; and |
| 20.3.4.3 | there are potential financing problems associated with the funding of B-BBEE transactions that large licensees usually fund using debt finance based on their balance sheets. For SMMEs on the other hand, this debt financing is nearly impossible to obtain. |
| 20.3.5 | The Authority wants to ensure that these licensees are given a fair opportunity to restructure, where necessary and ensure compliance with the Regulations in a cost and time effective manner. The Authority is aware of the significance of these entities and wishes to circumvent any closures of these entities resulting from attempts to comply with the Regulations. |
| 20.4 | Regulation 7(4) – Progressive Reporting during Transitional Periods |
| 20.4.1 | The purpose of this regulation is to ensure gradual and monitored progress in terms of compliance with the Regulations by avoiding rushed compliance towards the end of the transitional period. |
| 20.4.2 | In monitoring compliance, the Authority requires Licensees to submit progress reports and any necessary documents in respect of the specified targets set out in Appendix 3 of the Regulations. |
| 20.4.3 | Class Licensees are required to only report on their progress in respect of compliance with the B-BBEE contributor status requirement. Annual report will be in accordance with the Compliance Procedure Manual Regulations. |
| 20.4.4 | Licensees will be required to submit the necessary documents in the form of either a B-BBEE Verification Certificate, a sworn affidavit or CIPC issued certificate in accordance with the ICT Sector Code, confirming their B-BBEE Contributor Status Level on an annual basis during the transitional periods. |
| 20.5 | Regulation 7(5) – Suspension of certain regulations |
| 20.5.1 | The purpose of this regulation is to confirm that the operation of regulations 4(1), 4(2), and 4(3) are suspended until a future commencement date to be published by the Authority. |
| 20.5.2 | The reason for the suspension is to ensure that all legislative and regulatory steps have been taken in respect of such provisions prior to the commencement of the provisions, including approaching the Department of Trade and Industry regarding the B-BBEE related requirements to ensure compliance with the B-BBEE Act. |
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4 Government Notice 523 in Government Gazette No. 33294 of 14 June 2010, Government Notice 525 in Government Gazette No. 33296 of 1 June 2010
5 Government Notice 776 in Government Gazette No. 31255 of 18 July 2008
6 (Government Gazette No. 38087)
